<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended August
31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from
_______________ to _______________
COMMISSION FILE NUMBER 1-8645
MEGO FINANCIAL CORP.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
NEW YORK 13-5629885
_______________________________ __________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification no.)
4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109
________________________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 702-737-3700
____________________________
Securities registered pursuant to Section 12(b) of the Act: NONE
____________________
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
________________________________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [x] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of November 8, 1996, 18,433,121 shares of the registrant's Common Stock
were outstanding. The aggregate market value of Common Stock held by
non-affiliates of the registrant as of November 8, 1996 was approximately
$170,506,369, based on a closing price of $9.25 for the Common Stock as
reported on the NASDAQ National Market on such date. For purposes of the
foregoing computation, all executive officers, directors and 5 percent
beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed to be an admission that such executive
officers, directors or 5 percent beneficial owners are, in fact, affiliates of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialty financial services company that, through
its wholly-owned subsidiary, Preferred Equities Corporation (PEC), and its
81.1% owned subsidiary, Mego Mortgage Corporation (MMC), is engaged primarily
in originating, selling and servicing consumer receivables generated through
home improvement loans and timeshare and land sales. MMC originates Title I
home improvement loans insured by the Federal Housing Administration (FHA) of
the Department of Housing and Urban Development (HUD) and conventional home
improvement and equity loans through a network of loan correspondents and home
improvement contractors. PEC markets and finances timeshare interests in
select resort areas, as well as retail lots and land parcels. By providing
financing to virtually all of its customers, PEC also originates consumer
receivables that it sells and services. Timeshare and land sales have
historically accounted for most of the Company's revenues and profits; however,
since March 1994, when MMC commenced operations, originating, selling and
servicing home improvement loans have accounted for an increasing portion of
revenues and profits.
As further described in Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Subsequent Event, in November
1996 MMC issued 2,300,000 shares of its common stock and $40 million of 12.5%
Senior Subordinated Notes due 2001 in public offerings. As a result of these
transactions, the Company's ownership in MMC declined to 81.1% and consolidated
outstanding debt increased $40 million.
The Company was incorporated under the laws of the state of New York
in 1954 under the name Mego Corp. and, in 1992, changed its name to Mego
Financial Corp. In January 1988, the Company sold a controlling interest in
the Company consisting of approximately 43% of the then outstanding common
stock after the sale to affiliates of the Assignors. See "Item 13. Certain
Relationships and Related Transactions" and Note 2 of Notes to Consolidated
Financial Statements. In February 1988, the Company acquired PEC, pursuant to
an assignment by the Assignors of their contract right to purchase PEC. The
Company's executive offices are located at 4310 Paradise Road, Las Vegas,
Nevada, and its telephone number is (702) 737-3700.
MEGO MORTGAGE CORPORATION
GENERAL
MMC is a specialized consumer finance company that originates,
purchases, sells and services consumer loans consisting primarily of home
improvement loans secured by liens on the improved property. Through its
network of Correspondents and Dealers, MMC initially originated only Title I
Loans. The Title I program provides for insurance of 90% of the principal
balance of the loan, and certain other costs. MMC began offering Conventional
Loans through its Correspondents in May 1996. The Company established MMC and
entered the home improvement lending market to take advantage of PEC's
servicing and collection capabilities, the experience of the Company's senior
executives in home improvement lending, the similar customer profile of home
improvement borrowers and purchasers of its time share interests and land
parcels, and relatively stable prepayment expectations.
MMC's borrowers are individuals who own their home and have
appropriate verifiable income but may have limited access to traditional
financing sources due to insufficient home equity, limited credit history or
high ratios of debt service to income. These borrowers require or seek a high
degree of personalized service and prompt response to their loan applications.
As a result, MMC's borrowers generally are not averse to paying higher interest
rates that MMC charges for its loan programs as compared to the interest rates
charged by banks and other traditional financial institutions. MMC has
developed a proprietary credit index profile that includes as a significant
component the credit evaluation score methodology developed by Fair, Isaac and
Company (FICO) to classify borrowers on the basis of likely future performance.
The other components of MMC's scoring system include debt to income ratio,
employment history and residence stability. MMC charges varying rates of
interest based upon the borrower's credit profile and income. MMC quotes higher
interest rates for those borrowers exhibiting a higher degree of risk. The
borrowers' credit standing and/or lack of collateral may preclude them from
obtaining alternate funding. For the year ended August 31, 1996, the loans
originated by MMC had a weighted average interest rate of 14.03%.
2
<PAGE> 3
The credit evaluation methodology developed by FICO takes into
consideration a number of factors in the borrower's credit history. These
include, but are not limited to, (i) the length of time the borrower's credit
history has been on file with the respective credit reporting agency, (ii) the
number of open credit accounts, (iii) the amount of open revolving credit
availability, (iv) the payment history on the open credit accounts and (v) the
number of recent inquiries for the borrower's credit file which may indicate
additional open credit accounts not yet on file. Based on this information FICO
will assign a score to the borrower's credit file which is updated
periodically. Based on their statistical analysis, this score will indicate the
percentage of borrowers in that score range expected to become 90 days
delinquent on an additional loan. The score ascribed by FICO weighs heavily in
MMC's approval process; however its effects, whether positive or negative, can
be mitigated by the other factors described above.
MMC's loan originations increased to $139.4 million during the fiscal
year ended August 31, 1996 from $87.8 million during the fiscal year ended
August 31, 1995 and $8.2 million during the six months in which it originated
loans in the fiscal year ended August 31, 1994. MMC's revenues increased to $25
million for the year ended August 31, 1996 from $13.6 million for the fiscal
year ended August 31, 1995 and $751,000 for the fiscal year ended August 31,
1994. For the year ended August 31, 1996, the Company had net income of $6.9
million compared to $3.6 million for the year ended August 31, 1995. As a
result of the substantial growth in loan originations, MMC has operated since
March 1994, and expects to continue to operate for the foreseeable future, on a
negative cash flow basis.
MMC sells substantially all the loans it originates through either
whole loan sales to third party institutional purchasers or securitizations at
a yield below the stated interest rate on the loans, retaining the right to
service the loans and receive any amounts in excess of the guaranteed yield to
the purchasers. MMC completed its first two securitizations of Title I Loans in
March and August 1996 totalling $133 million and expects to sell a substantial
portion of its loan production through securitizations in the future. At August
31, 1996, MMC serviced $209.5 million of loans it had sold, and $4.7 million of
loans it owned.
HOME IMPROVEMENT LOAN INDUSTRY
According to data released by the Commerce Department's Bureau of the
Census, expenditures for home improvement and repairs of residential properties
have exceeded $100 billion per year since 1992 with 1995 expenditures estimated
at $112.6 billion. MMC targets the estimated $40 billion of those expenditures
which are for owner-occupied single-family properties where improvements are
performed by professional remodelers. As the costs of home improvements
escalate, home owners are seeking financing as a means to improve their
property and maintain and enhance its value. The National Association of Home
Builders Economics Forecast in 1995 estimates that home improvement
expenditures will exceed $200 billion by the year 2003. Two types of home
improvement financing are available to borrowers, the Title I program
administered by the FHA, which is authorized to partially insure qualified
lending institutions against losses, and uninsured loans where the lender
relies more heavily on the borrower's creditworthiness, debt capacity and the
underlying collateral. Both types of loans are generally secured with a real
estate mortgage lien on the property improved.
The conventional home improvement financing market continues to grow
as many homeowners have limited access to traditional financing sources due to
insufficient home equity, limited credit history or high ratios of debt service
to income. Conventional loan proceeds can be used for a variety of improvements
such as large remodeling projects, both interior and exterior, kitchen and bath
remodeling, room additions and in-ground swimming pools. Borrowers also have
the opportunity to consolidate a portion of their outstanding debt in order to
reduce their monthly debt service.
According to the FHA, the amount of single family Title I Loans
originated has grown from $375 million during 1988 to $1.3 billion during 1995.
Based on FHA data, MMC estimates that it had an 8.6% market share of the
property improvement Title I Loan market in calendar 1995. Out of approximately
3,100 lenders participating in the program in 1995, according to FHA data, MMC
was the third largest originator of property improvement Title I Loans. Under
Title I, the payment of approximately 90% of the principal balance of a loan is
insured by the United States of America in the event of a payment default. The
Title I program generally limits the maximum amount of the loan to $25,000 and
restricts the type of eligible improvements and the use of the loan proceeds.
Under Title I, only property improvement loans to finance the alteration,
repair or improvement of existing single family, multifamily and
non-residential structures are allowed. The FHA does not review individual
loans at the time of approval. In the case of a Title I Loan less than $7,500,
no equity is required in the property to be improved and the loan may be
unsecured.
3
<PAGE> 4
BUSINESS STRATEGY
MMC's strategic plan is to continue to expand its lending operations
while maintaining its credit quality. MMC's strategies include: (i) offering
new loan products; (ii) expanding its existing network of Correspondents and
Dealers; (iii) entering new geographic markets; (iv) realizing operational
efficiencies through economies of scale; and (v) using securitizations to sell
higher volumes of loans on more favorable terms. At August 31, 1996, MMC had
developed a nationwide network of approximately 310 active Correspondents and
approximately 435 active Dealers. MMC's Correspondents generally offer a wide
variety of loans and its Dealers typically offer home improvement loans in
conjunction with debt consolidation. By offering a more diversified product
line, including Conventional Loans, and maintaining its high level of service,
MMC has increased the loan production from its existing network of
Correspondents. MMC anticipates that as it expands its lending operations, it
will realize economies of scale thereby reducing its average loan origination
costs and enhancing its profitability. In addition, MMC intends to continue to
sell its loan production through securitizations as opportunities arise.
Through access to securitization, the Company believes that it has the ability
to sell higher volumes of loans on more favorable terms than in whole loan
sales.
PRODUCT EXTENSION AND EXPANSION
MMC intends to continue to review its loan programs and introduce new
loan products to meet the needs of its customers. MMC will also evaluate
products or programs that it believes are complementary to its current products
for the purpose of enhancing revenue by leveraging and enhancing MMC's value to
its existing network of Correspondents and Dealers. MMC believes that its
introduction of new loan products will enhance its relationship with its
Dealers and Correspondents and enable it to become a single source for their
various financing needs. Since it commenced operations, MMC has originated
Title I Loans from both its Dealers and Correspondents. In May 1996, MMC
broadened these activities to include non-FHA insured home improvement loans
and combination home improvement and debt consolidation loans. To date, these
non-FHA insured loans have been originated solely through Correspondents. All
of these loans, which permit loan amounts up to $60,000 with fixed rates and
20- year maturities, are secured by a lien, generally junior in priority, on
the respective primary residence. MMC intends to offer pure debt consolidation
loans in the first quarter of fiscal 1997. MMC also intends to offer non-FHA
insured loans through its Dealer division in the first quarter of 1997 and to
make direct debt consolidation loans to borrowers originated by the Dealer
division in conjunction with home improvement financing.
EXPANSION OF CORRESPONDENT OPERATIONS
MMC seeks to increase originations of loans from select
Correspondents. MMC has expanded its product line to include Conventional Loans
to meet the needs of its existing network of Correspondents. Prior to May 1996,
MMC originated only Title I Loans. This limited its ability to attract the more
sophisticated Correspondent that offered a multitude of loan products and,
accordingly, limited MMC's market penetration. The Company began offering
Conventional Loans to existing select Correspondents in May 1996. In order to
maintain MMC's customer service excellence, the Company has gradually increased
the number of Correspondents to which it has offered Conventional Loans. Since
MMC commenced offering Conventional Loans, the loan production of MMC's
Correspondent division has significantly increased. MMC believes that it is
well positioned to expand this segment without any material increase in
concentration or quality risks.
EXPANSION OF DEALER OPERATIONS
MMC seeks to expand its Dealer network and maximize loan originations
from its existing network by offering a variety of innovative products and
providing consistent and prompt service at competitive prices. The Company will
provide conventional products as well as its existing Title I product to its
Dealers in order to meet the needs of the diverse borrower market. MMC targets
Dealers that typically offer financing to their customers and attempts to
retain and grow these relationships by providing superior customer service,
personalized attention and prompt approvals and fundings. MMC has been unable
to fully meet the needs of its Dealers because of Title I program limits on the
amount and types of improvements which may be financed. MMC intends to meet the
needs of its Dealers with new Conventional Loan programs. These programs allow
for more expensive project financing such as in-ground swimming pools and
substantial remodeling as well as financing for creditworthy borrowers with
limited equity who are in need of debt consolidation and borrowers with
marginal creditworthiness and substantial equity in their property. With this
strategy, MMC believes it can achieve further market penetration of its
existing
4
<PAGE> 5
Dealer network and gain new Dealers and market share in areas in which the
Title I product is less successful because of its restrictions.
NATIONWIDE GEOGRAPHIC EXPANSION
MMC intends to continue to expand its Correspondent and Dealer network
on a nationwide basis and to enhance its value to its existing network. MMC's
strategy involves (i) focusing on geographic areas that the Company currently
underserves and (ii) tailoring MMC's loan programs to better serve its existing
markets and loan sources.
MAXIMIZATION OF FLEXIBILITY IN LOAN SALES
MMC employs a two-pronged strategy of disposing of its loan
originations primarily through securitizations and, to a lesser extent, through
whole loan sales. By employing this dual strategy, MMC has the flexibility to
better manage its cash flow, diversify its exposure to the potential volatility
of the capital markets and maximize the revenues associated with the gain on
sale of loans, given market conditions existing at the time of disposition. MMC
has recently been approved by Federal National Mortgage Association (FNMA) as a
seller/servicer of Title I Loans, as a result of which MMC is eligible to sell
such loans to FNMA on a servicing retained basis.
LOAN PRODUCTS
MMC originates Title I and Conventional Loans. Both types of loans are
typically secured by a first or junior lien on the borrower's principal
residence, although MMC occasionally originates and purchases unsecured loans
with borrowers that have an excellent credit history. Borrowers use loan
proceeds for a wide variety of home improvement projects, such as
exterior/interior remodeling, structural additions, roofing and plumbing, as
well as luxury items such as in-ground swimming pools, and for debt
consolidation. MMC lends to borrowers of varying degrees of creditworthiness.
See "Loan Processing and Underwriting."
CONVENTIONAL LOANS
A Conventional Loan is a non-insured home improvement or home equity
loan typically undertaken to pay for a home improvement project, home
improvement and debt consolidation combination or a debt consolidation.
Substantially all of the Conventional Loans originated by MMC are secured by a
first or junior mortgage lien on the borrower's principal residence.
Underwriting for Conventional Loans varies according to MMC's evaluation of the
borrower's credit risk and income stability as well as the underlying
collateral. MMC will rely on the underlying collateral and equity in the
property for borrowers judged to be greater credit risks. MMC targets the
higher credit quality segment of borrowers. MMC has begun originating
Conventional Loans through its Correspondent Division and plans to begin
offering such loan products to its Dealer Division.
MMC has focused its Conventional Loan program on that segment of the
marketplace with higher credit quality borrowers who may have limited equity in
their residence after giving effect to the amount of senior liens. The
portfolio of Conventional Loans generated through August 31, 1996 indicates on
average that the borrowers have received an "A" grade under MMC's proprietary
credit index profile, have an average debt-to-income ratio of 38% and the
subject properties are 100% owner occupied. On average, the market value of the
underlying property is $123,000 without added value from the respective home
improvement work, the amount of senior liens of $107,000 and the loan size is
$28,500. Typically, there is not enough equity in the property to cover a
junior lien in the event that a senior lender forecloses on the property. More
than 99% of the loans comprising MMC's Conventional Loan portfolio are secured
by junior liens.
TITLE I LOAN PROGRAM
The National Housing Act of 1934 (Housing Act), Sections 1 and 2(a),
authorized the creation of the FHA and the Title I credit insurance program
(Title I). Under the Housing Act, the FHA is authorized to insure qualified
lending institutions against losses on certain types of loans, including loans
to finance the alteration, repair or improvement of existing single family,
multi-family and nonresidential real property structures. Under Title I, the
payment of approximately 90% of the principal balance of a loan and certain
other amounts is insured by the United States of America in the event of a
payment default.
5
<PAGE> 6
Title I and the regulations promulgated thereunder establish criteria
regarding (i) who may originate, acquire, service and sell Title I Loans, (ii)
Title I Loan eligibility of improvements and borrowers, (iii) the principal
amounts, terms of, and security for Title I Loans, (iv) the use and
disbursement of loan proceeds, (v) verification of completion of improvements,
(vi) the servicing of Title I Loans in default and (vii) the processing of
claims for Title I insurance.
The principal amount of a secured Title I Loan may not exceed $25,000,
in the case of a loan for the improvement of a single family structure, and
$60,000, in the case of a loan for the improvement of a multi-family structure.
Loans up to a maximum of $7,500 in principal amount may qualify as unsecured
Title I Loans.
Title I Loans are required to bear fixed rates of interest and, with
limited exceptions, be fully amortizing with equal weekly, bi- weekly,
semi-monthly or monthly installment payments. Title I Loan terms may not be
less than 6 months nor more than 240 months in the case of secured Title I
Loans or 120 months in the case of unsecured Title I Loans. Subject to other
federal and state regulations, the lender may establish the interest rate to be
charged in its discretion.
Title I generally provides for two types of Title I Loans, direct
loans (Direct Title I Loans) and dealer loans (Dealer Title I Loans). Direct
Title I Loans are made directly by a lender to the borrower and there is no
participation in the loan process by the contractor, if any, performing the
improvements. In the case of Dealer Title I Loans, the Dealer, a contractor
performing the improvements, assists the borrower in obtaining the loan,
contracts with the borrower to perform the improvements, executes a retail
installment contract with the borrower and, upon completion of the
improvements, assigns the retail installment contract to the Title I lender.
Each Dealer must be approved by the Title I lender in accordance with HUD
requirements. Direct Title I Loans are closed by the lender in its own name
with the proceeds being disbursed directly to the borrower prior to completion
of the improvements. The borrower is generally required to complete the
improvements financed by a Direct Title I Loan within six months of receiving
the proceeds. In the case of Dealer Title I Loans, the lender is required to
obtain a completion certificate from the borrower certifying that the
improvements have been completed prior to disbursing the proceeds to the
Dealer.
The FHA charges a lender an annual fee equal to 50 basis points of the
original principal balance of a loan for the life of the loan. A Title I lender
or Title I sponsored lender is permitted to require the borrower to pay the
insurance premium with respect to the loan. In general, the borrowers pay the
insurance premiums with respect to Title I Loans originated through the
Company's Correspondents but not with respect to Title I Loans originated
through MMC's Dealers. Title I provides for the establishment of an insurance
coverage reserve account for each lender. The amount of insurance coverage in a
lender's reserve account is equal to 10% of the original principal amount of
all Title I Loans originated or purchased and reported for insurance coverage
by the lender less the amount of all insurance claims approved for payment.
The amount of reimbursement to which a lender is entitled is limited to the
amount of insurance coverage in the lender's reserve account.
LENDING OPERATIONS
MMC has two principal divisions for the origination of loans, the
Correspondent Division and the Dealer Division. The Correspondent Division
represents MMC's largest source of loan originations. Through its Correspondent
Division, MMC originates loans through a nationwide network of Correspondents
including financial intermediaries, mortgage companies, commercial banks and
savings and loan institutions. MMC typically originates loans from
Correspondents on an individual loan basis, pursuant to which each loan is
pre-approved by MMC and is purchased immediately after the closing. The
Correspondent Division conducts operations from its headquarters in Atlanta,
Georgia, with a Vice President of Operations responsible for underwriting and
processing and five account executives supervised by the Vice
President-National Marketing responsible for developing and maintaining
relationships with Correspondents. At August 31, 1996, the Company had a
network of approximately 310 active Correspondents.
In addition to purchasing individual Direct Title I Loans and
Conventional Loans, from time to time the Correspondent Division purchases
portfolios of loans from Correspondents. In March 1994, MMC purchased a
portfolio of Direct Title I Loans originated by another financial institution,
which consisted of 211 loans with an aggregate remaining principal balance of
$1.4 million.
6
<PAGE> 7
The Dealer Division originates Dealer Title I Loans through a network
of Dealers, consisting of home improvement construction contractors approved by
the Company, by acquiring individual retail installment contracts (Installment
Contracts) from Dealers. An Installment Contract is an agreement between the
Dealer and the borrower pursuant to which the Dealer performs the improvements
to the property and the borrower agrees to pay in installments the price of the
improvements. Before entering into an Installment Contract with a borrower, the
Dealer assists the borrower in submitting a loan application to MMC. If the
loan application is approved, the Dealer enters into an Installment Contract
with the borrower, the Dealer assigns the Installment Contract to MMC upon
completion of the home improvements and MMC, upon receipt of the requisite loan
documentation (described below) and completion of a satisfactory telephonic
interview with the borrower, pays the Dealer pursuant to the terms of the
Installment Contract. The Dealer Division maintains 13 branch offices located
in Montvale, New Jersey; Kansas City, Missouri; Las Vegas, Nevada; Austin,
Texas; Oklahoma City, Oklahoma; Seattle, Washington; Waterford, Michigan;
Columbus, Ohio; Elmhurst, Illinois; Philadelphia, Pennsylvania; Denver,
Colorado; Woodbridge, Virginia; and Bowie, Maryland through which it conducts
its marketing to Dealers in the state in which the branch is located as well as
certain contiguous states. The Dealer Division is operated with a Vice
President of Operations responsible for loan processing and underwriting, two
regional managers, and 13 field representatives supervised by the Vice
President-National Marketing who are responsible for marketing to Dealers. At
August 31, 1996, MMC had a network of approximately 435 active Dealers doing
business in 32 states. MMC intends to commence offering Conventional Loans
through its Dealer Division.
Correspondents and Dealers qualify to participate in MMC's programs
only after a review by MMC's management of their reputations and expertise,
including a review of references and financial statements, as well as a
personal visit by one or more representatives of MMC. Title I requires MMC to
reapprove its Dealers annually and to monitor the performance of those
Correspondents that are sponsored by MMC. MMC's compliance function is
performed by a director of compliance and loan administration, whose staff
performs periodic reviews of portfolio loans and Correspondent and Dealer
performance and may recommend to senior management the suspension of a
Correspondent or a Dealer. MMC believes that its system of acquiring loans
through a network of Correspondents and Dealers and processing such loans
through a centralized loan processing facility has (i) assisted MMC in
minimizing its level of capital investment and fixed overhead costs and (ii)
assisted MMC in realizing certain economies of scale associated with evaluating
and acquiring loans. MMC does not believe that the loss of any particular
Correspondent or Dealer would have a material adverse effect upon MMC. See
"Loan Processing and Underwriting."
MMC pays its Correspondents premiums on the loans it purchases based
on the credit score of the borrower and the interest rate on the respective
loan. Additional premiums are paid to Correspondents based on the volume of
loans purchased from such Correspondents in a monthly period. During fiscal
1996 MMC originated $94.2 million of loans from Correspondents and paid total
premiums of $2.8 million or 3% of such loans.
None of MMC's arrangements with its Dealers or Correspondents is on an
exclusive basis. Each relationship is documented by either a Dealer Purchase
Agreement or a Correspondent Purchase Agreement. Pursuant to a Dealer Purchase
Agreement, MMC may purchase from a Dealer loans that comply with the Company's
underwriting guidelines at a price acceptable to MMC. With respect to each loan
purchased, the Dealer makes customary representations and warranties regarding,
among other things, the credit history of the borrower, the status of the loan
and its lien priority if applicable, and agrees to indemnify MMC with respect
to such representations and warranties. Pursuant to a Correspondent Purchase
Agreement, MMC may purchase loans through a Correspondent, subject to receipt
of specified documentation. The Correspondent makes customary representations
and warranties regarding, among other things, the Correspondent's corporate
status, as well as regulatory compliance, good title, enforceability and
payments and advances of the loans to be purchased. The Correspondent covenants
to, among other things, keep MMC information confidential, provide
supplementary information, maintain government approvals with respect to Title
I Loans and to refrain from certain solicitations of MMC's borrowers. The
Correspondent also agrees to indemnify MMC for misrepresentations or
non-performance of its obligations.
MMC originates and acquires a limited variety of loan products,
including: (i) fixed rate, secured Title I Loans, secured by single family
residences, with terms and principal amounts ranging from 60 to 240 months and
approximately $3,000 to $25,000, respectively; and (ii) fixed rate, unsecured
Title I Loans with terms and principal amounts ranging from 36 to 120 months
and approximately $2,500 to $7,500, respectively. As part of MMC's strategic
plan, MMC has commenced originating non-FHA insured Conventional Loans
utilizing its established network of Correspondents.
7
<PAGE> 8
The following table sets forth certain data regarding loan
applications processed and loans originated by MMC during the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loan Applications:
Number processed 42,236 27,608 3,512
Number approved 20,910 15,956 1,984
Approval ratio 49.5% 57.8% 56.5%
Loan Originations:
Principal amount of loans:
Correspondents:
Title I $82,596,197 59.3% $63,792,680 72.7% $5,251,647 64.3%
Conventional 11,582,108 8.3 - - - -
- - - -
------------ ----- ----------- ----- ---------- -----
Total Correspondents 94,178,305 67.6 63,792,680 72.7 5,251,647 64.3
------------ ----- ----------- ----- ---------- -----
Dealers 45,188,721 32.4 23,957,829 27.3 1,492,318 18.3
Bulk purchase - - - - 1,420,150 17.4
- - - -
------------ ----- ----------- ----- ---------- -----
Total $139,367,026 100.0% $87,750,509 100.0% $8,164,115 100.0%
============ ===== =========== ===== ========== =====
Number of loans:
Correspondents:
Title I 4,382 50.9% 3,437 59.1% 338 47.4%
Conventional 392 4.6 - - - -
- - - -
------------ ----- ----------- ----- ---------- -----
Total Correspondents 4,774 55.5 3,437 59.1 338 47.4
------------ ----- ----------- ----- ---------- -----
Dealers 3,836 44.5 2,381 40.9 164 23.0
Bulk purchase - - - - 211 29.6
------------ ----- ----------- ----- ---------- -----
Total 8,610 100.0% 5,818 100.0% 713 100.0%
============ ===== =========== ===== ========== =====
Average principal balance of
loans $16,187 $15,083 $11,450
Weighted average interest
rate on loans originated 14.03% 14.55% 14.18%
Weighted average term on
loans originated (months) 198 188 175
</TABLE>
LOAN PROCESSING AND UNDERWRITING
MMC's loan application and approval process generally is conducted
over the telephone with applications usually received at MMC's centralized
processing facility from Correspondents and Dealers by facsimile transmission.
Upon receipt of an application, the information is entered into MMC's system
and processing begins. All loan applications are individually analyzed by
employees of MMC at its loan processing headquarters in Atlanta, Georgia.
MMC has developed a proprietary credit index profile (CIP) as a
statistical credit based tool to predict likely future performance of a
borrower. A significant component of this customized system is the credit
evaluation score methodology developed by FICO, a consulting firm specializing
in creating default predictive models through a high number of variable
components. The other components of the CIP include debt to income analysis,
employment stability, self employment criteria, residence stability and
occupancy status of the subject property. By utilizing both scoring models in
tandem, all applicants are considered on the basis of their ability to repay
the loan obligation while allowing MMC to maintain its risk based pricing for
each loan.
Based upon FICO score default predictors and MMC's internal CIP score,
loans are classified by MMC into gradations of descending credit risks and
quality, from "A" credits to "D" credits, with subratings within those
categories. Quality is a function of both the borrowers creditworthiness and
the extent of the value of the collateral, which is typically a second lien on
the borrower's primary residence. "A+" credits generally have a FICO score
greater than 680. An applicant with a FICO score of less than 620 would be
rated a "C" credit unless the loan-to-
8
<PAGE> 9
value ratio was 75% or less which would raise the credit risk to MMC to a "B"
or better depending on the borrower's debt service capability. Depending on
loan size, typical loan-to-value ratios for "A" and "B" credits range from 90%
to 125%, while loan-to-value ratios for "C" and "D" credits range from 60% up
to 90% with extraordinary compensating factors.
MMC's underwriters review the applicant's credit history, based on the
information contained in the application as well as reports available from
credit reporting bureaus and MMC's CIP score, to determine the applicant's
acceptability under MMC's underwriting guidelines. Based on the underwriter's
approval authority level, certain exceptions to the guidelines may be made when
there are compensating factors subject to approval from a corporate officer.
The underwriter's decision is communicated to the Correspondent or Dealer and,
if approved, fully explains the proposed loan terms. MMC endeavors to respond
to the Correspondent or Dealer on the same day the application is received.
MMC issues a commitment to purchase a pre-approved loan upon the
receipt of a fully completed loan package. Commitments indicate loan amounts,
fees, funding conditions, approval expiration dates and interest rates. Loan
commitments are generally issued for periods of up to 45 days in the case of
Correspondents and 90 days in the case of Dealers. Prior to disbursement of
funds, all loans are carefully reviewed by funding auditors to ensure that all
documentation is complete, all contingencies specified in the approval have
been met and the loan is closed in accordance with Company and regulatory
procedures.
CONVENTIONAL LOANS
MMC has implemented policies for its Conventional Loan program that
are designed to minimize losses by adhering to high credit quality standards or
requiring adequate loan-to-value levels. MMC will only make Conventional Loans
to borrowers with an "A" or "B" credit grade using the CIP. Through August 31,
1996, MMC's portfolio of Conventional Loans originated through its
Correspondent Division had been evaluated as an "A" credit risk and had a
weighted average (i) FICO score of 661, (ii) gross debt to income ratio of 38%,
(iii) interest rate of 14% and (iv) loan-to-value ratio of 110%, as well as an
average loan amount of $28,569. Substantially all of the Conventional Loans
originated to date by MMC are secured by first or second mortgage liens on
single family, owner occupied properties.
Terms of Conventional Loans made by MMC, as well as the maximum
loan-to-value ratios and debt service to income coverage (calculated by
dividing fixed monthly debt payments by gross monthly income), vary depending
upon the Company's evaluation of the borrower's creditworthiness. Borrowers
with lower creditworthiness generally pay higher interest rates and loan
origination fees.
As part of the underwriting process for Conventional Loans, MMC
generally requires an appraisal of the collateral property as a condition to
the commitment to purchase. MMC requires independent appraisers to be state
licensed and certified. MMC requires that all appraisals be completed
within the Uniform Standards of Professional Appraisal Practice as adopted by
the Appraisal Standards Board of the Appraisal Foundation. Prior to originating
a loan, MMC audits the appraisal for accuracy and to insure that the appraiser
used sufficient care in analyzing data to avoid errors that would significantly
affect the appraiser's opinion and conclusion. This audit includes a review of
economic demand, physical adaptability of the real estate, neighborhood trends
and the highest and best use of the real estate. In the event the audit reveals
any discrepancies as to the method and technique that are necessary to produce
a credible appraisal, MMC will perform additional property data research or may
request a second appraisal to be performed by an independent appraiser selected
by MMC in order to substantiate further the value of the subject property.
MMC also requires a title report on all subject properties securing
its loans to verify property ownership, lien position and the possibility of
outstanding tax liens or judgments. In the case of larger loan amounts or first
liens, MMC requires a full title insurance policy in compliance with the
American Land Title Association.
TITLE I LOANS
The Title I Loans originated by MMC are executed on forms meeting FHA
requirements as well as federal and state regulations. Loan applications and
Installment Contracts are submitted to MMC's processing headquarters for credit
verification. The information provided in loan applications is first verified
by, among other things, (i) written confirmations of the applicant's income
and, if necessary, bank deposits, (ii) a formal credit bureau report on
9
<PAGE> 10
the applicant from a credit reporting agency, (iii) a title report, (iv) if
necessary, a real estate appraisal and (v) if necessary, evidence of flood
insurance. Appraisals for Title I Loans, when necessary, are generally prepared
by pre-approved independent appraisers that meet MMC's standards for
experience, education and reputation. Loan applications are also reviewed to
ascertain whether or not they satisfy MMC's underwriting criteria, including
loan-to-value ratios (if non-owner occupied), borrower income qualifications,
employment stability, purchaser requirements and necessary insurance and
property appraisal requirements. MMC will make Title I Loans to borrowers with
an "A" to "C" credit grade based on CIP score and lien position. Since the
implementation of the CIP scoring system in February 1996, through August
31,1996, MMC's portfolio of Title I Loans originated through its Correspondent
and Dealer Divisions had been evaluated as a "C+" and "B" credit risk,
respectively, and had a weighted average FICO score of 637 and 645,
respectively. MMC's underwriting guidelines for Title I Loans meet FHA's
underwriting criteria. Completed loan packages are sent to MMC's underwriting
department for predisbursement auditing and funding.
Subject to underwriting approval of an application forwarded to MMC by
a Dealer, MMC issues a commitment to purchase an Installment Contract from a
Dealer upon MMC's receipt of a fully completed loan package and notice from the
borrower of satisfactory work completion. Subject to underwriting approval of
an application forwarded to MMC by a Correspondent, MMC issues a commitment to
purchase a Title I Loan upon MMC's receipt of a fully completed and closed loan
package.
MMC's underwriting personnel review completed loan applications to
verify compliance with MMC's underwriting standards, FHA requirements and
federal and state regulations. In the case of Title I Loans being acquired from
Dealers, MMC conducts a prefunding telephonic interview with the property owner
to determine that the improvements have been completed in accordance with the
terms of the Installment Contract and to the owner's satisfaction. MMC utilizes
a nationwide network of independent inspectors to perform on-site inspections
of improvements within the timeframes specified by the Title I program.
Since MMC does not currently originate any Title I Loans with an
original principal balance in excess of $25,000, the FHA does not individually
review the Title I Loans originated by MMC.
QUALITY CONTROL
MMC employs various quality control personnel and procedures in order
to insure that loan origination standards are adhered to and regulatory
compliance is maintained while substantial growth is experienced in the
servicing portfolio.
In accordance with MMC's policy, the quality control department
reviews a statistical sample of loans closed each month. This review is
generally completed within 60 days of funding and circulated to appropriate
department heads and senior management. Finalized reports are maintained in
MMC's files for a period of two years from completion. Typical review
procedures include reverification of employment and income, re-appraisal of the
subject property, obtaining separate credit reports and recalculation of
debt-to-income ratios. The statistical sample is intended to cover 10% of all
new loan originations with particular emphasis on new Correspondents and
Dealers. Emphasis will also be placed on those loan sources where higher levels
of delinquency are experienced, physical inspections reveal a higher level of
non-compliance, or payment defaults occur within the first six months of
funding. On occasion, the quality control department may review all loans
generated from a particular loan source in the event an initial review
determines a higher than normal number of exceptions. The account selection of
the quality control department is also designed to include a statistical sample
of loans by each underwriter and each funding auditor and thereby provide
management with information as to any aberration from Company policies and
procedures in the loan origination process.
Under the direction of the Vice President of Credit Quality and
Regulatory Compliance, a variety of review functions are accomplished. On a
daily basis, a sample of recently approved loans are reviewed to insure
compliance with underwriting standards. Particular attention is focused on
those underwriters who have developed a higher than normal level of exceptions.
In addition to this review, MMC has developed a staff of post-disbursement
review auditors which reviews 100% of recently funded accounts, typically
within two weeks of funding. All credit reports are analyzed, debt-to-income
ratios recalculated, contingencies monitored and loan documents inspected.
Exception reports are forwarded to the respective Vice Presidents of Production
as well as senior management. MMC also employs a Physical Inspection Group that
is responsible for monitoring the inspection of all homes
10
<PAGE> 11
which are the subject of home improvement loans. Non-compliance is tracked by
loan source and serves as another method of evaluating a loan source
relationship.
MMC has expended substantial amounts in developing its quality control
and compliance department. MMC recognizes the need to monitor its operations
continually as it experiences substantial growth. Feedback from these
departments provides senior management with the information necessary to take
corrective action when appropriate, including the revision and expansion of its
operating policies and procedures.
LOAN PRODUCTION TECHNOLOGY SYSTEMS
MMC utilizes a sophisticated computerized loan origination tracking
system that allows it to monitor the performance of Dealers and Correspondents
and supports the marketing efforts of the Dealer and Correspondent Divisions by
tracking the marketing activities of field sales personnel. The system
automates various other functions such as Home Mortgage Disclosure Act and HUD
reporting requirements and routine tasks such as decline letters and the flood
certification process. The system also affords management access to a wide
range of decision support information such as data on the approval pipeline,
loan delinquencies by source, and the activities and performance of
underwriters and funders. MMC uses intercompany electronic mail, as well as an
electronic-mail link with its affiliate, PEC, to facilitate communications and
has an electronic link to PEC that allows for the automated transfer of
accounts to PEC's servicing system.
MMC is enhancing this system to provide for the automation of the loan
origination process as well as loan file indexing and routing. These
enhancements will include electronic routing of loan application facsimile
transmissions, automated credit report inquiries and consumer credit scoring
along with on-screen underwriting and approval functions. Where feasible the
system will interface with comparable systems of MMC's Dealers and
Correspondents. MMC expects that these enhancements will (i) increase loan
production efficiencies by minimizing manual processing of loan documentation,
(ii) enhance the quality of loan processing by use of uniform electronic images
of loan files and (iii) facilitate loan administration and collections by
providing easier access to loan account information. The implementation of
these enhancements is expected to be substantially completed prior to December
1996. These enhancements to improve loan production systems are expected to
cost approximately $50,000 and will be funded from MMC's normal operating cash
flows.
LOAN SERVICING
MMC's strategy has been to retain the servicing rights associated with
the loans it originates. MMC's loan servicing activities include responding to
borrower inquiries, processing and administering loan payments, reporting and
remitting principal and interest to the whole loan purchasers who own interests
in the loans and to the trustee and others with respect to securitizations,
collecting delinquent loan payments, processing Title I insurance claims,
conducting foreclosure proceedings and disposing of foreclosed properties and
otherwise administering the loans. MMC's various loan sale and securitization
agreements allocate a portion of the difference between the stated interest
rate and the interest rate passed through to purchasers of its loans to
servicing revenue. Servicing fees are collected by MMC out of monthly loan
payments. Other sources of loan servicing revenues include late charges and
miscellaneous fees. MMC uses a sophisticated computer based mortgage servicing
system that it believes enables it to provide effective and efficient
administering of Conventional and Title I Loans. The servicing system is an
on-line real time system developed and maintained by MMC's affiliate, PEC. It
provides payment processing and cashiering functions, automated payoff
statements, on-line collections, statement and notice mailing along with a full
range of investor reporting requirements. MMC has entered into a subservicing
agreement with PEC for the use of the system and continuous support. The
monthly investor reporting package includes a trial balance, accrued interest
report, remittance report and delinquency reports. Formal written procedures
have been established for payment processing, new loan set-up, customer
service, and tax and insurance monitoring.
MMC is a HUD approved lender and a FNMA approved seller/servicer. As
such, it is subject to a thorough due diligence review of its policies,
procedures, and business, and is qualified to underwrite, sell and service
Title I Loans on behalf of the FHA and FNMA.
MMC's loan collection functions are organized into two areas of
operation: routine collections and management of nonperforming loans.
11
<PAGE> 12
Routine collection personnel are responsible for collecting loan
payments that are less than 60 days contractually past due and providing prompt
and accurate responses to all customer inquiries and complaints. These
personnel report directly to MMC's Vice President of Loan Administration.
Borrowers are contacted on the due date for each of the first six payments in
order to encourage continued prompt payment. Generally, after six months of
seasoning, collection activity will commence if a loan payment has not been
made within five days of the due date. Borrowers usually will be contacted by
telephone at least once every five days and also by written correspondence
before the loan becomes 60 days delinquent. With respect to loan payments that
are less than 60 days late, routine collections personnel utilize a system of
mailed notices and telephonic conferences for reminding borrowers of late
payments and encouraging borrowers to bring their accounts current.
Installment payment invoices and return envelopes are mailed to each borrower
on a monthly basis. MMC has bilingual customer service personnel available.
Once a loan becomes 30 days past due, a collection supervisor
generally analyzes the account to determine the appropriate course of remedial
action. On or about the 45th day of delinquency, the supervisor determines if
the property needs immediate inspection to determine if it is occupied or
vacant. Depending upon the circumstances surrounding the delinquent account, a
temporary suspension of payments or a repayment plan to return the account to
current status may be authorized by the Vice President of Loan Administration.
In any event, it is MMC's policy to work with the delinquent customer to
resolve the past due balance before Title I claim processing or legal action is
initiated.
Nonperforming loan management personnel are responsible for collecting
severely delinquent loan payments (over 60 days late), filing Title I insurance
claims or initiating legal action for foreclosure and recovery. Operating from
MMC's headquarters in Atlanta, Georgia, collection personnel are responsible
for collecting delinquent loan payments and seeking to mitigate losses by
providing various alternatives to further actions, including modifications,
special refinancing and indulgence plans. Title I insurance claim personnel are
responsible for managing Title I insurance claims, utilizing a claim management
system designed to track insurance claims for Title I Loans so that all
required conditions precedent to claim perfection are met. In the case of
Conventional Loans, a foreclosure coordinator will review all previous
collection activity, evaluate the lien and equity position and obtain any
additional information as necessary. The ultimate decision to foreclose, after
all necessary information is obtained, is made by an officer of MMC.
Foreclosure regulations and practices and the rights of the owner in default
vary from state to state, but generally procedures may be initiated if: (i) the
loan is 90 days (120 days under California law) or more delinquent; (ii) a
notice of default on a senior lien is received; or (iii) MMC discovers
circumstances indicating potential loss exposure.
Net loan servicing income was $3.3 million and $873,000 for the years
ended August 31, 1996 and 1995, respectively, constituting 13.4% and 6.4%,
respectively, of MMC's total revenues in such periods. As of August 31, 1996,
MMC had increased the size of the loan portfolio it services to approximately
$214.2 million from approximately $92.3 million as of August 31, 1995, an
increase of approximately $121.9 million or 132.1%. MMC's loan servicing
portfolio is subject to reduction by normal amortization, prepayment of
outstanding loans and defaults.
The following table sets forth certain information regarding MMC's
loan servicing for the periods indicated (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1996 1995 1994 (1)
-------------- -------------- --------------
<S> <C> <C> <C>
Servicing portfolio at beginning of year $92,286 $8,026 $-
Additions to servicing portfolio 139,367 87,751 8,164
Reductions in servicing portfolio (2) (17,464) (3,491) (138)
-------------- -------------- --------------
Servicing portfolio at end of year $214,189 $92,286 $8,026
============== ============== ==============
Servicing portfolio (end of year):
Company-owned loans $4,698 $3,720 $1,471
Sold loans 209,491 88,566 6,555
-------------- -------------- --------------
Total $214,189 $92,286 $8,026
============== ============== ==============
</TABLE>
- ------------------
(1) MMC commenced its Title I lending operations in March 1994.
(2) Reductions result from scheduled payments, prepayments and write-offs
during the period.
12
<PAGE> 13
The following table sets forth the delinquency and Title I insurance
claims experience of loans serviced by MMC as of the dates indicated (thousands
of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1996 1995 1994 (1)
-------------- -------------- --------------
<S> <C> <C> <C>
Delinquency period (2)
31-60 days past due 2.17% 2.58% 2.06%
61-90 days past due 0.85 0.73 0.48
91 days and over past due 4.53 (3) 0.99 0.36
91 days and over past due, net of
claims filed (4) 1.94 0.61 0.26
Claims filed with HUD (5) 2.59 0.38 0.10
Number of Title I insurance claims 255 23 1
Total servicing portfolio at end of period $214,189 $92,286 $8,026
Amount of FHA insurance available (6) $21,205 $9,552 $813
Amount of FHA insurance available as a
percentage of loans serviced (end of year) 9.90% (6) 10.35% 10.13%
Losses on liquidated loans (7) $ 32 $16.8 $-
</TABLE>
___________________________________________
(1) MMC commenced originating loans in March 1994.
(2) Represents the dollar amount of delinquent loans as a percentage of
total dollar amount of loans serviced by MMC (including loans owned by
MMC) as of the date indicated.
(3) During the year ended August 31, 1996, the processing and payment of
claims filed with HUD was delayed.
(4) Represents the dollar amount of delinquent loans net of delinquent
Title I Loans for which claims have been filed with HUD and payment is
pending as a percentage of total dollar amount of loans serviced by
MMC (including loans owned by MMC) as of the date indicated.
(5) Represents the dollar amount of delinquent Title I Loans for which
claims have been filed with HUD and payment is pending as a percentage
of total dollar amount of loans serviced by MMC (including loans owned
by MMC) as of the date indicated.
(6) If all claims with HUD had been processed as of period end, the amount
of FHA insurance available would have been reduced to $16,215,000,
which as a percentage of loans serviced would have been 7.8%.
(7) A loss is recognized upon receipt of payment of a claim or final
rejection thereof. Claims paid in a period may relate to a claim filed
in an earlier period. Since MMC commenced its Title I lending
operations in March 1994, there has been no final rejection of a claim
by the FHA. Aggregate losses on liquidated Title I Loans related to 83
of the 338 Title I insurance claims made by MMC since commencing
operations through August 31, 1996. Losses on liquidated loans will
increase as the balance of the claims are processed by HUD. MMC has
received an average payment from HUD equal to 90% of the outstanding
principal balance of such Title I Loans, plus appropriate interest and
costs.
MMC has received an average amount equal to 96.9% of the outstanding
principal balance of Title I Loans for which claims have been made, each
payment including certain interest and costs. The processing and payment of
claims filed with HUD have been delayed for a number of reasons including (i)
furloughs experienced by HUD personnel in December 1995 and January 1996, (ii)
the growth in the volume of Title I Loans originated from approximately $750
million in 1994 to $1.3 billion in 1995 without a corresponding increase in HUD
personnel to service claims and (iii) the transition of processing operations
to regional centers during the second and third quarters of 1996. It is
expected that once appropriate staffing and training have been completed at HUD
regional centers, the timeframe for payment of HUD claims will be significantly
shortened.
13
<PAGE> 14
SALE OF LOANS
MMC customarily sells the loans it originates to third party purchasers
or, in the case of a third party purchaser not eligible to own a Title I Loan,
sells Title I Loan participation certificates backed by Title I Loans. Whether
MMC sells a loan or a loan participation, MMC typically retains the right to
service the loans for a servicing fee. MMC typically sells loans for an amount
approximating the then remaining principal balance. The purchasers are entitled
to receive interest at yields below the stated interest rates of the loans. In
connection with such sales, MMC is typically required to deposit into a reserve
account the excess servicing spread received by it, less its servicing fee, up
to a specified percentage of the principal balance of the loans, to fund
shortfalls in collections that may result from borrower defaults. To date, the
purchasers in whole loan sales have been two banks and another financial
institution The following table sets forth certain data regarding Title I Loans
sold by MMC during the periods indicated (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1996 1995 1994 (1)
-------------- -------------- --------------
<S> <C> <C> <C>
Principal amount of loans sold to third party purchasers $137,908 (2) $85,363 $6,555
Gain on sales of loans to third party purchasers 17,994 12,233 579
Net unrealized gain on mortgage related securities 2,697 - -
Weighted average stated interest rate on loans sold to third
party purchasers 14.09% 14.53% 14.15%
Weighted average pass-through interest rate on loans sold to
third party purchasers 7.50% 8.36% 8.54%
Weighted average excess spread retained on loans sold 6.59% 6.17% 5.61%
</TABLE>
___________________________________________________________
(1) MMC commenced originating loans in March 1994.
(2) Includes $10.5 million of Conventional Loans.
At August 31, 1996 and 1995, MMC's Statement of Financial Condition
reflected excess servicing rights of approximately $12.1 million and $14.5
million, respectively. MMC also retains mortgage related securities through
securitization transactions. At August 31, 1996, MMC's Statement of Financial
Condition reflected $22.9 million of mortgage related securities. MMC derives a
significant portion of its income by realizing gains upon the sale of loans and
loan participations due to the excess servicing rights associated with such
loans. Excess servicing rights represent the excess of the interest rate
payable by a borrower on a loan over the interest rate passed through to the
purchaser of an interest in the loan, less MMC's normal servicing fee and other
applicable recurring fees. Mortgage related securities consist of certificates
representing the excess of the interest rate payable by an obligor on a sold
loan over the yield on pass-through certificates sold pursuant to a
securitization transaction, after payment of servicing and other fees. When
loans are sold, MMC recognizes as current revenue the present value of the
excess servicing rights expected to be realized over the anticipated average
life of the loans sold less future estimated credit losses relating to the
loans sold. The capitalized excess servicing rights and valuation of mortgage
related securities are computed using prepayment, default and interest rate
assumptions that MMC believes are reasonable based on experience with its own
portfolio, available market data and ongoing consultation with industry
participants. The amount of revenue recognized by the Company upon the sale of
loans or loan participations will vary depending on the assumptions utilized.
The weighted average discount rate used to determine the present value of the
balance of capitalized excess servicing rights reflected on MMC's Statement of
Financial Condition at August 31, 1996 and 1995 was approximately 12%.
Capitalized excess servicing rights are amortized over the lesser of
the estimated or actual remaining life of the underlying loans as an offset
against the excess servicing rights component of servicing income actually
received in connection with such loans. Although MMC believes that it has made
reasonable estimates of the excess servicing rights likely to be realized, the
rate of prepayment and the amount of defaults utilized by MMC are estimates and
experience may vary from its estimates. The gain recognized by the Company upon
the sale of loans will have been overstated if prepayments or defaults are
greater than anticipated. Higher levels of future prepayments would result in
capitalized excess servicing rights amortization expense exceeding realized
excess servicing rights, thereby adversely affecting MMC's servicing income and
resulting in a charge to earnings in the
14
<PAGE> 15
period of adjustment. Similarly, if delinquencies or liquidations were to be
greater than was initially assumed, capitalized excess servicing rights
amortization would occur more quickly than originally anticipated, which would
have an adverse effect on servicing income in the period of such adjustment.
MMC periodically reviews its prepayment assumptions in relation to current
rates of prepayment and, if necessary, reduces the remaining asset to the net
present value of the estimated remaining future excess servicing income. Rapid
increases in interest rates or competitive pressures may result in a reduction
of future excess servicing income, thereby reducing the gains recognized by MMC
upon the sale of loans or loan participations in the future.
At August 31, 1996 and 1995, MMC's Statement of Financial Condition
reflected mortgage servicing rights of approximately $3.8 million and $1.1
million, respectively. The fair value of capitalized mortgage servicing rights
was estimated by taking the present value of expected net cash flows from
mortgage servicing using assumptions MMC believes market participants would use
in their estimates of future servicing income and expense, including
assumptions about prepayment, default and interest rates. Capitalized mortgage
servicing rights are amortized in proportion to and over the period of
estimated net servicing income. The estimate of fair value was based on a range
of 100 to 125 basis points per year servicing fee, reduced by estimated costs
of servicing, and using a discount rate of 12% in the years ended August 31,
1996 and 1995. MMC has developed its assumptions based on experience with its
own portfolio, available market data and ongoing consultation with industry
participants.
In furtherance of MMC's strategy to sell loans through
securitizations, in March 1996 and August 1996, MMC completed its first two
securitizations pursuant to which it sold pools of $84.2 million and $48.8
million, respectively, of Title I Loans. MMC previously reacquired at par $77.7
million and $36.2 million of such loans, respectively. Pursuant to these
securitizations, pass-through certificates evidencing interests in the pools of
loans were sold in a public offering. MMC continues to subservice the sold
loans and is entitled to receive from payments in respect of interest on the
sold loans, a servicing fee equal to 1.25% of the balance of each loan with
respect to the March transaction and 1% with respect to the August transaction.
In addition, with respect to both transactions, MMC received certificates
(carried as mortgage related securities on MMC's statements of financial
condition), representing the interest differential, after payment of servicing
and other fees, between the interest paid by the obligors of the sold loans and
the yield on the sold certificates. MMC may be required to repurchase loans
that do not conform to the representations and warranties made by MMC in the
securitization agreements.
MMC typically earns net interest income during the "warehouse" period
between the closing or assignment of a loan and its delivery to a purchaser. On
loans held for sale, MMC earns interest at long-term rates, financed by lines
of credit which bear interest at short-term interest rates. Normally,
short-term interest rates are lower than long-term interest rates and MMC earns
a positive spread on its loans held for sale. The average warehouse period for
a loan ranges from 6 to 90 days, and the balance of loans in warehouse was
approximately $4.6 million and $3.7 million as of August 31, 1996 and 1995,
respectively. MMC's interest income, net of interest expense was $988,000 and
$473,000 for the years ended August 31, 1996 and 1995, respectively.
INTEREST RATE RISKS
Changes in interest rates affect MMC's business in a variety of ways,
including decreased demand for loans during periods of higher interest rates,
fluctuations in profits derived from the difference between short-term and
long-term interest rates and increases in prepayment rates during periods of
lower interest rates. The profits realized by MMC from home improvement loans
are, in part, a function of the difference between fixed long-term interest
rates, at which MMC originates its home improvement loans, and adjustable
short-term interest rates, at which MMC finances such loans until the closing
of the sale of such loans. Generally, short-term rates are lower than long-term
rates and MMC benefits from the positive interest rate differentials during the
time the loans are held by MMC pending the closing of the sale of such loans.
During the period from 1994 through the present, the interest rate differential
was high and this fact contributed significantly to MMC's net interest income.
The interest rate differential may not continue at such favorable levels in the
future.
Changes in interest rates during the period between the time an
interest rate is established on a loan and the time such loan is sold affect
the revenues realized by MMC from loans. In connection with the origination of
loans, MMC issues loan commitments for periods of up to 45 days in the case of
Correspondents and 90 days in the case of Dealers. Furthermore, the period of
time between the closing on a loan and the sale of such loan generally ranges
from 10 to 90 days. Increases in interest rates during these periods will
result in lower gains (or even losses) on sales of loans than would be recorded
if interest rates had remained stable or had declined. Changes in interest
rates after
15
<PAGE> 16
the sale of loans also affect the profits realized by MMC with respect to loan
sale transactions in which the yield to the purchaser is based on an adjustable
rate. During the years ended August 31, 1996 and 1995, MMC sold loans under an
agreement which provides for the yield to the purchaser to be adjusted monthly
to a rate equal to 200 basis points over the one-month London Interbank Offered
Rate (LIBOR). An increase in LIBOR would result in a decrease in MMC's future
income from such sold loans resulting in a charge to earnings in the period of
adjustment.
Interest rate levels also affect MMC's excess servicing spread. MMC
generally retains the servicing rights to the loans it sells. The yield to the
purchaser is generally lower than the average stated interest rates on the
loans, as a result of which MMC earns an excess servicing spread on the loans
it sells. Increases in interest rates or competitive pressures may result in
reduced servicing spreads, thereby reducing or eliminating the gains recognized
by MMC upon the sale of loans in the future.
SEASONALITY
Home improvement loan volume tracks the seasonality of home
improvement contract work. Volume tends to build during the spring and early
summer months, particularly with regard to pool installations. A decline is
typically experienced in late summer and early fall until temperatures begin to
drop. This change in seasons precipitates the need for new siding, window and
insulation contracts. Peak volume is experienced in November and early December
and declines dramatically from the holiday season through the winter months.
Debt consolidation and home equity loan volume are not impacted by seasonal
climate changes and, with the exclusion of the holiday season, tend to be
stable throughout the year.
PREFERRED EQUITIES CORPORATION
GENERAL
PEC acquires, develops and converts rental and condominium apartment
buildings and hotels for sale as timeshare interests and engages in the retail
sale of land. PEC's strategy is to acquire properties in desirable destination
resort areas that offer a range of recreational activities and amenities. PEC
markets and sells timeshare interests in its resorts in Las Vegas and Reno
Nevada; Honolulu, Hawaii; Brigantine, New Jersey; Steamboat Springs, Colorado;
and Indian Shores near St. Petersburg, Florida; as well as land in Nevada and
Colorado. PEC recently acquired properties in Orlando, Florida; Steamboat
Springs, Colorado; and Las Vegas, Nevada to be converted and sold as timeshare
interests. In recent years, several major lodging, hospitality and
entertainment companies, including The Walt Disney Company, Hilton Hotels
Corporation, Marriott Ownership Resorts, Inc. and Hyatt Corporation, among
others, have commenced developing and marketing timeshare interests in resort
properties. The Company believes that the entry into the timeshare industry of
certain of these large and well-known lodging, hospitality and entertainment
companies has contributed to the growth and acceptance of the industry. In
order to enhance its competitive position, in April 1995 PEC entered into a
strategic alliance with Hospitality Franchise Systems, Inc. (HFS) pursuant to
which PEC was granted a ten-year (including a renewal option) exclusive license
to operate both its existing and future timeshare properties under the name
"Ramada Vacation Suites." The American Resort Development Association estimates
that approximately 1.65 million families in the United States own timeshare
interests in resorts worldwide and that sales of timeshare interests in the
United States aggregated approximately $1.8 billion in 1994.
TIMESHARE PROPERTIES AND SALES
PEC acquires, develops and converts rental and condominium apartment
buildings and hotels for sale as timeshare interests. PEC's strategy is to
acquire properties in desirable destination resort areas that offer a range of
recreational activities and amenities. The timeshare interests offered by PEC
in its resorts other than in Hawaii generally consist of undivided fee
interests in the land and facilities comprising the property or an undivided
fee interest in a particular unit, pursuant to which the owner acquires the
perpetual right to weekly occupancy of a residence unit each year. In its
resort in Hawaii, PEC offers "right-to-use" interests, pursuant to which the
owner has occupancy rights for one week each year until December 31, 2009, the
last full year of the underlying land lease for the resort property. During
fiscal 1996, 1995, and 1994, PEC sold 6,982, 5,365, and 5,441 timeshare
interests, respectively, at prices ranging from $3,950 to $23,950.
In order to enhance its competitive position, in April 1995, PEC
entered into a strategic alliance pursuant to which PEC was granted a ten-year
(including a renewal option) exclusive license to operate both its existing and
future timeshare properties under the name "Ramada Vacation Suites." PEC has
renamed its timeshare resorts.
16
<PAGE> 17
The Company believes that this affiliation will enable it to capitalize on the
Ramada reputation, name recognition and customer profile, which closely matches
PEC's customer profile. The arrangement provides for the payment by PEC of an
initial access fee of $1 million, which has been paid, and monthly recurring
fees equal to 1% of PEC's Gross Sales (as defined) each month through January
1996 and 1.5% of PEC's Gross Sales each month commencing in February 1996. The
initial term of the arrangement is 5 years and PEC has the option to renew the
arrangement for an additional term of 5 years, if PEC has met certain
conditions, including the addition of at least 20,000 timeshare interests
during the initial term and the payment of minimum annual fees. In addition to
the grant of the license, the arrangement provides for the establishment of
joint marketing programs.
PEC currently operates timeshare resorts in Las Vegas and Reno,
Nevada; Honolulu, Hawaii; Brigantine, New Jersey; Steamboat Springs, Colorado;
and Indian Shores, Florida; and recently purchased an additional property in
Orlando, Florida and Steamboat Springs, Colorado. PEC is considering the
purchase of additional properties for use in its timeshare operations.
PEC's Ramada Vacation Suites at Las Vegas, formerly known as The Grand
Flamingo Club, includes 30 buildings with a total of 429 studio units and 1 and
2 bedroom units which have been converted for sale as 21,879 timeshare
interests, of which 4,212 remained available for sale as of August 31, 1996. The
resort is in close proximity to the strip in Las Vegas and features swimming
pools and other amenities. PEC is in the process of converting additional
adjacent properties it owns. PEC has recently completed the expansion of the
common areas to include an expanded lobby, convenience store and expanded sales
facilities. At August 31, 1996, a total of 5 buildings containing 64 units were
under conversion to timeshare interests.
The Ramada Vacation Suites at Reno, formerly known as the Reno Spa
Resort, consists of a 95-unit hotel that has been converted for sale as 4,845
timeshare interests, of which 626 remained available for sale as of August 31,
1996. The resort features an indoor swimming pool, exercise facilities, sauna,
jacuzzi and sundeck.
PEC's White Sands Waikiki is an 80-unit hotel consisting of three
buildings that have been converted for sale as 4,160 timeshare interests, of
which 467 remained available for sale as of August 31, 1996. The hotel is
currently being renamed Ramada Vacation Suites at Honolulu. The resort is
within walking distance of a public beach and features a swimming pool and
jacuzzi. PEC holds the buildings, equipment and furnishings under a land lease
expiring in March 2010, under which PEC makes annual rental payments of
approximately $192,000.
The Ramada Vacation Suites on Brigantine Beach consists of a 91-unit
hotel and a 17-unit three story building, formerly known as the Brigantine Inn
and the Brigantine Villas, respectively, that have been converted for sale as
5,508 timeshare interests, of which 519 remained available for sale as of
August 31, 1996. The resort is situated on beachfront property in close
proximity to Atlantic City, New Jersey and features an enclosed swimming pool,
cocktail lounge, bar and restaurant.
The Ramada Vacation Suites at Steamboat Springs consists of 60 one and
two bedroom units, which have been converted for sale as 3,060 timeshare
interests. Of these, 1,813 remained available for sale as of August 31, 1996.
PEC acquired this condominium resort in 1994 and completed the conversion in
1995. PEC has constructed a 5,500-square foot amenities building at this
facility which features a lobby, front desk, spa and sauna.
The Ramada Vacation Suites at Indian Shores, formerly known as the
Aloha Bay Apartments, consists of a two building complex, that has been
recently converted into a total of 32 one and two bedroom units to be sold as
1,632 timeshare interests. The Resort is located on the intercoastal waterway
and is in close proximity to Tampa, Florida. The timeshare interests became
available for sale upon completion of improvements and registration with the
state of Florida, which occurred in September, 1996.
The Ramada Vacation Suites of Orlando, formerly known as Ramada Suites
at Tango Bay, consists of a 7 building complex, that upon conversion will
consist of a total of 102 units to be sold as 5,202 timeshare interests. The
resort is in Orlando, Florida. The timeshare interests will be available for
sale upon completion of the first phase of improvements and registration with
the state of Florida, which is expected to be completed by the summer of 1997.
The Ramada Vacation Suites - Hilltop, formerly known as The Overlook
Lodge, is a 117-room complex complete with indoor swimming pool, restaurant,
cocktail lounge and meeting room facilities. Upon conversion, the complex will
consist of 56 one and two-bedroom units to be sold as 2,856 timeshare
interests. The resort is located in Steamboat Springs, Colorado, in close
proximity to the area's ski slopes and attractions. The timeshare interests
will be
17
<PAGE> 18
available for sale upon completion of improvements and registration with the
state of Colorado, which is expected to be completed by the fall of 1997.
The following table set forth certain information regarding the
timeshare interests at the Company's resort properties:
<TABLE>
<CAPTION>
STEAMBOAT
LAS VEGAS RENO WAIKIKI BRIGANTINE SPRINGS TOTAL
--------- ---------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Maximum number of timeshare
interests 21,879 4,845 4,160 5,508 3,060 39,452
Net number of timeshare
interests sold through
August 31, 1996 17,667 4,219 3,693 4,989(1) 1,247 31,815
Number of timeshare
interests available for
sale at August 31, 1996 4,212 626 467 519 1,813 7,637
Percent sold through
August 31, 1996 81% 87% 89% 91% 41% 81%
Number of timeshare
interests sold during
the year ended August
31, 1996 4,068 585 648 90 1,591 6,982
Number of timeshare
interests reacquired
during the year ended
August 31, 1996 through:
Contract cancellations 694 213 122 89 98 1,216
Exchanges 2,003 391 350 81 480 3,305
Acquired for unpaid
maintenance fees 173 44 160 27 - 404
--------- --------- --------- --------- --------- ---------
Total number of
timeshare interests
reacquired 2,870 648 632 197 578 4,925
--------- --------- --------- --------- --------- ---------
Net number of timeshare
interests sold
(reacquired) during the
year ended August 31, 1996 1,198 (63) 16 (107) 1,013 2,057
Additional timeshare
interests under
development (2) 3,624 - - - - -
Sales prices of timeshare
interests available at
August 31, 1996 range
From $ 6,150 6,250 3,950 5,150 6,950 N/A
To $ 15,000 9,850 5,950 15,450 23,950 N/A
</TABLE>
- ---------------------------------
(1) 4,823 timeshare interests were sold by the prior developer.
(2) PEC recently purchased additional units to be converted to timeshare
interests, and are not included above. In Nevada, the addition was 64
units to be converted into 3,264 timeshare interests. In Florida, the
addition was 134 units to be converted into 6,834 timeshare interests.
In Colorado, the addition was 56 units to be converted into 2,856
timeshare interests.
18
<PAGE> 19
For the fiscal years ended August 31, 1996, 1995, and 1994 PEC's
consolidated revenue from sales of timeshare interests was $27.8 million, $20.7
million and $19.5 million, respectively, representing approximately 47.5%,
37.7% and 43.1% of total revenues, respectively.
RCI EXCHANGE NETWORK
The attractiveness of timeshare interest ownership in resorts is
enhanced significantly by the availability of exchange networks allowing owners
to exchange their occupancy right in the resort in which they own an interest
for an occupancy right in another participating network resort. Several
companies, including Resorts Condominiums International (RCI), provide broad
based timeshare interest exchange networks, and PEC has qualified its resort
properties for participation in the RCI network.
RCI has a total of more than 2,983 participating resort facilities
located worldwide. Approximately 41.8% of the participating facilities are
located in the United States and Canada. The cost of the annual subscription
renewal fee in RCI, which is at the option and expense of PEC's customers, is
approximately $67 per year. Membership in RCI entitles PEC's customers, based
upon availability, trading power and the payment of a variable exchange fee to
RCI, to exchange their occupancy right in the resort in which they own an
interest for an occupancy right at the same or a different time in another
participating resort of equal trading power.
OWNERS' ASSOCIATIONS AND PROPERTY MANAGEMENT
PEC's resort properties require ongoing management services.
Independent not-for-profit corporations known as Owners' Associations have been
established to administer each of PEC's resorts other than the resort in
Honolulu. PEC's resort in Honolulu is administered by the White Sands Resort
Club, a division of PEC together with the Owners' Associations
(Associations). Owners of timeshare interests in each of these resorts are
responsible for the payment of annual assessment fees to the respective
Association, which are intended to fund all of the operating expenses at the
resort facilities and accumulate reserves for replacement of furnishings,
fixtures and equipment, and building maintenance. Annual assessment fees for
1996 ranged from $258 to $445. PEC has in the past financed budget deficits of
the Associations, but is not obligated to do so in the future.
If the owner of a timeshare interest defaults in the payments of the
annual assessment fee, the Association may impose a lien on the related
timeshare interest. PEC has agreed to pay to the Associations the annual
assessment fees of timeshare interest owners who are delinquent with respect to
such fees, but have paid PEC in full for their timeshare interest. In exchange
for the payment by PEC of such fees, the Associations assign their liens for
non-payment on the respective timeshare interests to PEC. In the event the
timeshare interest holder does not satisfy the lien after having an opportunity
to do so, PEC typically acquires a quitclaim deed or forecloses on and acquires
the timeshare interest for the amount of the lien and any foreclosure costs.
PEC has entered into management arrangements with the Associations
pursuant to which PEC receives annual management and administrative fees in
exchange for providing or arranging for various property management services,
such as bookkeeping, staffing, budgeting, maintenance, and housekeeping
services. The management arrangements are typically for initial terms ranging
from three to five years, and automatically renew for successive additional one
year terms unless canceled by the Association. No management arrangement has
been canceled to date. The Company believes that proper management is
important for maintaining customer satisfaction and protecting PEC's investment
in its inventory of unsold timeshare interests.
LAND SALES
PEC is engaged in the retail sale of land in Nevada and Colorado for
residential, commercial, industrial and recreational use. PEC acquires lots
and large tracts of unimproved land and then subdivides the land into lots and
parcels for retail sale. Residential lots range in size from one-quarter acre
to one and one-half acres, while commercial and industrial lots vary in size.
PEC's residential lots range in price from $11,500 to $46,500, commercial lots
range in price from $17,000 to $76,500 and industrial lots range in price from
$16,750 to $45,750. Improvements such as roads and utilities and, in some
cases, amenities are typically part of the development program in Nevada.
During fiscal 1996, 1995 and 1994, PEC sold 1,617, 1,467 and 1,699 residential
lots, and 30, 51 and 61 commercial and industrial lots, respectively. PEC has
a continuing program to plat the properties that it owns. Purchasers of lots
and parcels frequently exchange their property after the initial purchase for
other property interests offered by PEC. Additionally,
19
<PAGE> 20
PEC is required from time to time to cancel the purchase of lots and parcels as
a result of payment defaults or customer cancellations following inspections of
the property and pursuant to contractual provisions.
A substantial portion of PEC's sales of retail lots and land parcels
have been in its Calvada subdivisions, containing approximately 30,000 lots in
the Pahrump Valley, Nye County, Nevada, located approximately 60 miles from Las
Vegas. The lots are designated single family residential, multiple family
residential, mobile home, hotel/motel, industrial or commercial. PEC owns a
public utility company that provides water and sewer service to portions of the
subdivisions and two golf courses that are available to property owners and the
public. The community of Pahrump has a population estimated at approximately
23,000 and contains an urgent care medical facility, shopping, fast food
restaurants, hotel/casino facilities and several schools.
The following table illustrates certain statistics regarding the
Pahrump Valley subdivisions:
<TABLE>
<S> <C>
Number of acres acquired since 1969 18,614
Number of lots platted 29,246
Net number of lots sold through August 31, 1996 28,970
Percent of lots sold through August 31, 1996 99%
Number of platted lots available for sale at August 31, 1996 305
Number of acres available for platting 205
Number of lots to be platted 581
FOR THE YEAR ENDED AUGUST 31, 1996:
-----------------------------------
Number of lots sold 1,648
Number of lots canceled 452
Number of lots exchanged 710
---------
Number of lots sold, net of cancellations and exchanges 486
=========
</TABLE>
Central Nevada Utilities Company, a wholly-owned subsidiary of PEC,
operates a public sewer and water utility for portions of PEC's Nevada
subdivisions and certain other properties located within that subsidiary's
certificated service area (which is subject to the regulation of the Nevada
Public Service Commission).
PEC also sells larger unimproved tracts of land in Colorado. PEC has
acquired unimproved land in Huerfano County, Colorado, which is being sold for
recreational use in parcels of at least 35 acres and at prices ranging from
$11,000 to $42,750 depending on location and size. These parcels are sold
without any planned improvements and without water rights, which have been
reserved by PEC. Substantially all of the parcels have been sold, with
approximately 120 parcels remaining in inventory.
PEC has also acquired improved and unimproved land in Park County,
Colorado, which is being sold for recreational use in parcels typically ranging
in size from five to nine acres or larger and at prices ranging from $12,000 to
$29,995. These parcels are sold without any planned improvements, except for a
recreational facility which includes a basketball court, baseball field and
picnic facilities.
20
<PAGE> 21
The following table illustrates certain statistics regarding the
parcels in Huerfano and Park Counties, Colorado:
<TABLE>
<S> <C>
Number of acres acquired since 1969 51,474
Number of parcels platted 2,952
Net number of parcels sold through August 31, 1996 2,718
Percent of parcels sold through August 31, 1996 92%
Number of platted parcels available for sale at August 31, 1996 234
FOR THE YEAR ENDED AUGUST 31, 1996:
-----------------------------------
Number of parcels sold 870
Number of parcels canceled 276
Number of parcels exchanged 454
---------
Number of lots sold, net of cancellations and exchanges 140
=========
</TABLE>
For the fiscal years ended August 31, 1996, 1995 and 1994, PEC's net
revenue from land sales was approximately $18 million, $20.8 million and $13.5
million, respectively, representing approximately 30.7%, 38% and 29.9% of total
revenues, respectively.
TRUST ARRANGEMENTS
Title to certain of PEC's resort properties and land parcels in
Huerfano County, Colorado is held in trust by trustees in order to meet
regulatory requirements applicable at the time of commencement of sales.
Trustees administer the collection of certain of PEC's notes receivable,
collect the proceeds generated by the sale of timeshare interests and the
annual assessment fees from timeshare interest owners and retain funds for the
payment of insurance, taxes and capital improvements. The trustee pays the
balance of the collections on timeshare projects over to PEC on a regular
basis, after deducting certain impounds, provided that annual assessment fees
have been disbursed by PEC according to a budget submitted by PEC. Under the
trust and management agreements, PEC has the exclusive rights to the control
and management of the facilities held in trust.
CUSTOMER FINANCING
PEC provides financing to virtually all the purchasers of its
timeshare interests, retail lots and land parcels, most of whom make a down
payment equal to at least 10% of the purchase price. The financing is
generally evidenced by non-recourse installment sale contracts as well as notes
secured by deeds of trust. The term of the financing generally ranges from two
to ten years with principal and interest payable monthly in level payments.
Interest rates are fixed and generally range from 0% to 16% per year based on
prevailing market rates and the amount of the down payment made relative to the
sales price. PEC has a sales program whereby no stated interest is charged on
those sales where the aggregate down payment is at least 50% of the purchase
price and the balance is payable in 24 or fewer monthly payments. PEC believes
its financing is attractive to purchasers who find it convenient to handle all
facets of the purchase through a single source. At August 31, 1996, PEC had a
serviced portfolio of 18,408 notes receivable relating to sales of
timeshare interests and land, which receivables had an aggregate outstanding
principal balance of $120.5 million, a weighted average maturity of
approximately 6.6 years and a weighted average interest rate of 11.5%.
PEC has financing arrangements with four institutional lenders for the
financing of customer receivables, which provide for borrowings of up to an
aggregate of $109.5 million. These lines of credit bear interest at variable
rates tied to the prime rate and are secured by timeshare and land receivables
and inventory. At August 31, 1996, an aggregate of $59.3 million was
outstanding under such lines of credit and $43.2 million was available for
borrowing. PEC periodically sells its timeshare and land receivables to
various third party purchasers and uses a portion of the sales proceeds to
reduce the outstanding balances of its lines of credit, thereby increasing the
borrowing availability under such lines by the amount of prepayment. The sales
have been for yields to the purchaser less than the weighted average yield on
the receivables, with PEC entitled to retain the difference. The sales
agreements generally provide for PEC to continue servicing the sold
receivables, and require that PEC repurchase or replace accounts that have
become more than 90 days contractually delinquent, or as to which certain
warranties and representations are determined to be
21
<PAGE> 22
incorrect. In addition, the sales agreements generally require the maintenance
of cash reserve accounts for losses and contain minimum net worth requirements
and other covenants, the non-compliance with which would allow the purchaser to
replace PEC as the servicer. The sales agreements for timeshare receivables
contain covenants that generally require PEC to use its best efforts to remain
the manager of the related resorts, and to cause the homeowners associations to
maintain appropriate insurance and pay real estate taxes. Performance by PEC
of such covenants generally are guaranteed by the Company. The following table
sets forth the principal balances of receivables sold by PEC in the periods
indicated (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C>
$16,003 $32,517 $23,993
</TABLE>
At August 31, 1996, PEC was contingently liable to replace or
repurchase receivables sold with recourse in the aggregate amount of $69.6
million, if and as such receivables become delinquent. PEC generally writes
off or fully reserves all receivables that are more than 90 days delinquent.
The following table sets forth information with respect to receivables owned
and sold that were more than 60 but less than 90 days delinquent as of the
dates indicated (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
60-day delinquent $2,547 $2,330 $2,144 $2,930 $3,749
Total receivables $128,299 $120,675 $109,360 $103,280 $101,234
60-day delinquency percentage 1.99% 1.93% 1.96% 2.84% 3.70%
</TABLE>
PEC provides an allowance for cancellation at the time it recognizes
revenues from sales of timeshare interests, which PEC believes, based on its
experience and its analysis of economic conditions, will be adequate to absorb
losses on receivables that become uncollectible. Upon the sale of the
receivables, the allowance related to those receivables is reduced and the
future estimated contingency for notes receivables sold with recourse is
appropriately increased.
MARKETING
PEC markets timeshare interests and land through on-site and off-site
sales offices. PEC's sales staff of 339 persons receive commissions based on
net sales volume. PEC maintains fully-staffed on-site sales offices at its
timeshare properties in Las Vegas and Reno, Nevada, and Steamboat Springs,
Colorado, as well as the Las Vegas principal offices, and at its land projects
in Nevada and Colorado. At its other timeshare properties, PEC maintains
smaller on-site sales offices staffed with one to two sales persons. PEC also
maintains off-site sales offices in West Covina, California; San Diego,
California; Dallas, Texas; and Denver, Colorado. PEC is exploring additional
locations for off-site sales offices. PEC's marketing efforts are targeted
primarily at tourists meeting its customer profile. Currently, approximately
63% of sales are made through the Las Vegas sales office. One of the principal
sales techniques utilized by PEC in Las Vegas is to offer pre- screened
potential customers a gift such as show tickets in exchange for attending PEC's
sales presentations. The marketing techniques utilized at PEC's
sales offices at locations other than Las Vegas include (i) exhibition booths
located at shows, fairs and other attractions, that generate inquiries from
prospective customers, whom PEC then contacts by telephone, (ii) referrals from
existing customers, (iii) limited direct mail programs, and (iv) brokers
specializing in lead generation. Various premiums and inducements are offered
to prospective customers to obtain their attendance at sales presentations,
primarily the offer of short term accommodations at certain of PEC's timeshare
resorts.
As part of its marketing strategy, PEC maintains an internal exchange
program. This program enables owners of PEC's timeshare interests to exchange
their occupancy right in the resort in which they own an interest for an
occupancy right at the same or a different time in another of PEC's timeshare
resorts. In addition, PEC has a sales program pursuant to which purchasers of
its timeshare interests, retail lots and land may exchange their equity
interests in one property for an interest in another of PEC's properties. For
example, a purchaser of a timeshare interest in one of PEC's timeshare resorts
may exchange his equity interest for an interest in a different unit within the
same resort, for an
22
<PAGE> 23
interest in one of PEC's other resorts or for a retail lot or land parcel.
The agreement of sale for a timeshare interest or land may be rescinded
within various statutory rescission periods. For land sales made at a location
other than the property, the customer may generally cancel the contract within a
specified period, usually five months from the date of purchase, provided that
the contract is not in default, and provided the customer has completed a
developer guided inspection and tour of the subject property first, and then
requests the cancellation. At August 31, 1996, $131,975 of recognized sales
remained subject to such cancellation. If a customer defaults after all
rescission and cancellation periods have expired, all payments are generally
retained by PEC, and the customer forfeits all rights to the property.
COMPETITION
The consumer finance, timeshare and real estate industries are highly
competitive. Competitors in the home improvement and debt consolidation loan
business include mortgage banking companies, commercial banks, credit unions,
thrift institutions, credit card issuers and finance companies. Competitors in
the timeshare and real estate business include hotels, other timeshare
properties and real estate properties. Certain of the Company's competitors are
substantially larger and have more capital and other resources than the Company.
MMC faces substantial competition within both the home improvement and
debt consolidation loan industry. The home improvement and debt consolidation
loan industry is dominated by widely diversified mortgage banking companies,
commercial banks, savings and loan institutions, credit card companies,
financial service affiliates of dealers and unregulated financial service
companies, many of which have substantially greater personnel and financial
resources than those of MMC. At present, these types of competitors dominate
the home improvement and debt consolidation loan industry; however, no one
lender or group of lenders dominates the industry. According to a report issued
by HUD, MMC was the fourth largest lender of Title I Loans, based on volume of
loans originated, for the quarter ended June 30, 1996. Due to the variance in
the estimates of the size of the conventional home improvement loan market, MMC
is unable to accurately estimate its competitive position in that market. MMC
believes that Greentree Financial Corp., The Money Store, First Plus Financial
Inc., Associates First Capital Corporation and Empire Funding Corp. are some of
its largest direct competitors. MMC competes principally by providing prompt,
professional service to its Correspondents and Dealers and, depending on
circumstances, by providing competitive lending rates.
Competition can take many forms including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and term of
the loan, and interest rates. In addition, the current level of gains realized
by MMC and its existing competitors on the sale of loans could attract
additional competitors into this market with the possible effect of lowering
gains on future loan sales owing to increased loan origination competition.
PEC's timeshare plans compete directly with many other timeshare
plans, some of which are in facilities located in Las Vegas, Reno, Lake Tahoe,
Honolulu, Atlantic City, Orlando, Tampa, and Steamboat Springs. In recent
years, several major lodging, hospitality and entertainment companies have
begun to develop and market timeshare properties. In addition, PEC competes
with condominium projects and with traditional hotel accommodations in these
areas. Certain of these competing projects and accommodations are larger and
more luxurious than PEC's facilities. There are currently available
approximately 95,000 hotel and motel rooms in Las Vegas, Nevada, 36,000 in
Honolulu, Hawaii, 20,600 in Washoe County, Nevada, which includes Reno and Lake
Tahoe, 23,400 in Atlantic City, New Jersey and 1,366 in Steamboat Springs,
Colorado.
ENVIRONMENTAL REGULATION
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or chemical
releases at such property, and may be held liable to a governmental entity or
to third parties for property damage, personal injury and investigation and
cleanup costs incurred by such parties in connection with the contamination.
Such laws typically impose cleanup responsibility and liability without regard
to whether the owner knew of or caused the presence of the contaminants, and
the liability under such laws has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to
23
<PAGE> 24
properly remediate such property, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not the facility
is owned or operated by such person. In addition, the owner or former owners
of a site may be subject to common law claims by third parties based on damages
and costs resulting from environmental contamination emanating from a site.
GOVERNMENT REGULATION
The Company's consumer finance, timeshare and real estate operations
are subject to extensive regulation, suspension and licensing by federal and
state authorities. The following is a summary of the regulations applicable to
the Company.
MMC's consumer lending activities are subject to the Federal
Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity
Protection Act of 1994), ECOA, the Fair Credit Reporting Act of 1970, as
amended, RESPA and Regulation X, the Home Mortgage Disclosure Act, the Federal
Debt Collection Practices Act and the Housing Act, as well as other federal and
state statutes and regulations affecting MMC's activities. Failure to comply
with these requirements can lead to loss of approved status, termination or
suspension of servicing contracts without compensation to the servicer, demands
for indemnifications or mortgage loan repurchases, certain rights of rescission
for mortgage loans, class action lawsuits and administrative enforcements
actions.
TITLE I LOAN AND CONSUMER FINANCING
MMC presently is subject to the rules and regulations of, and
examinations by, HUD, FHA and other federal and state regulatory authorities
with respect to originating, underwriting, funding, acquiring, selling and
servicing consumer and mortgage loans. In addition, there are other federal and
state statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for loans, prohibit discrimination, provide for
inspection and appraisals of properties, require credit reports on prospective
borrowers, regulate payment features and, in some cases, fix maximum interest
rates, fees and loan amounts. MMC is required to submit annual audited
financial statements to various governmental regulatory agencies that require
the maintenance of specified net worth levels. MMC's affairs are also subject
to examination, at all times, by the Federal Housing Commissioner to assure
compliance with FHA regulations, policies and procedures. For more information
regarding regulation of MMC under Title I, see "Title I Loan Program."
MMC is a HUD approved Title I mortgage lender and is subject to the
supervision of HUD. MMC is also a FNMA approved seller/servicer and is subject
to the supervision of FNMA. In addition, MMC's operations are subject to
supervision by state authorities (typically state banking or consumer credit
authorities), many of which generally require that MMC be licensed to conduct
its business. This normally requires state examinations and reporting
requirements on an annual basis.
The Federal Consumer Credit Protection Act (FCCPA) requires a written
statement showing an annual percentage rate of finance charges and requires
that other information be presented to debtors when consumer credit contracts
are executed. The Fair Credit Reporting Act requires certain disclosures to
applicants concerning information that is used as a basis for denial of credit.
ECOA prohibits discrimination against applicants with respect to any aspect of
a credit transaction on the basis of sex, marital status, race, color,
religion, national origin, age, derivation of income from public assistance
program, or the good faith exercise of a right under the FCCPA.
The interest rates which MMC may charge on its loans are subject to
state usury laws, which specify the maximum rate which may be charged to
consumers. In addition, both federal and state truth-in-lending regulations
require that MMC disclose to its customers prior to execution of the loans, all
material terms and conditions of the financing, including the payment schedule
and total obligation under the loans. MMC believes that it is in compliance in
all material respects with such regulations.
24
<PAGE> 25
TIMESHARE REGULATION
Nevada Revised Statutes Chapter 119A requires the Company to give each
customer a Public Offering Statement that discloses all aspects of the
timeshare program, including the terms and conditions of sale, the common
facilities, the costs to operate and maintain common facilities, the Company's
history and all services and facilities available to the purchasers. Section
514E of Hawaii Revised Statutes provides for similar information to be provided
to all prospective purchasers through the use of the Hawaii Disclosure
Statement. Section 11000, et seq., of the California Business and Professions
Code also provides for similar information to be provided to all prospective
purchasers through the use of an Out-of-State Time Share Permit issued by the
California Department of Real Estate. Section 45 of the New Jersey Statutes
Annotated provides for similar information to be provided to all prospective
purchasers through the use of a Public Offering Statement. Title 12, Article 61
of the Colorado Revised Statutes provides for similar information to be
provided to all prospective purchasers, in their contracts of sales or by
separate written documents. Nevada and Colorado require a five day rescission
period for all timeshare purchasers. The rescission period required by Hawaii
and New Jersey is seven days. The rescission period required by Florida is ten
days. The rescission period in California for out-of-state sales is five days.
The Nevada, California, New Jersey, Hawaii, Colorado and Florida timeshare
statutes have stringent restrictions on sales and advertising practices and
require the Company to utilize licensed sales personnel.
The Company believes that it has made all required filings with state,
city and county authorities and is in material compliance with all state and
local regulations governing sales of timeshare interests. The Company believes
that such regulations have not had a material adverse effect on any phase of
the Company's operations, including the over-all cost of acquiring property.
Compliance with or changes in official interpretations of regulations might,
however, impose additional compliance costs on the Company that cannot be
predicted.
REAL ESTATE REGULATION
The real estate industry is subject to extensive regulation. The
Company is subject to compliance with various federal, state and local
environmental, zoning and other statutes and regulations regarding the
acquisition, subdivision, development and sale of real estate and various
aspects of its financing operations. The Interstate Land Sales Full Disclosure
Act establishes strict guidelines with respect to the subdivision and sale of
land in interstate commerce. HUD has enforcement powers with respect to this
statute. In many instances, (e.g., Huerfano County, Colorado land sales) the
Company has been exempt from HUD registration requirements because of the size
or number of the subdivided parcels and the limited nature or type of its
offerings. The Company registers its timeshare properties with various state
agencies. The Company must disclose financial information concerning the
property, evidence of title, a description of the intended manner of offering,
proposed advertising materials, and must bear the costs of such registration,
which include legal and filing fees.
The Company believes that it is in compliance in all material respects
with all applicable federal, state and local regulations. The Company believes
that such regulations have not had a material adverse effect on any phase of
its operations. Compliance with future changes in regulations might, however,
impose additional compliance costs on the Company that cannot be predicted.
The city and county governments in areas where the Company operates
have enacted licensing and other ordinances that affect timeshare projects.
EMPLOYEES
As of August 31, 1996, the Company had 1,433 employees, of whom 1,190
were full-time employees and 243 were part-time employees. Of these, 166 were
employed full-time in consumer finance activities, including 6 executive
officers, 74 managerial and staff professional personnel, 13 marketing and
sales specialists and 73 general administrative and support personnel and loan
processors, and 1,256 were employed in timeshare and real estate activities,
including 661 sales and marketing officers and personnel, 213 general and
administrative officers, managers and support staff, 382 hotel personnel, and
11 utility company personnel. None of the Company's employees are represented
by a collective bargaining unit. The Company believes that its relations with
its employees are satisfactory.
25
<PAGE> 26
ITEM 2. PROPERTIES
At August 31, 1996, the Company had 305 residential, commercial and
industrial lots, 234 recreational land parcels, 190 recreational vehicle pads,
and 7,637 timeshare interests in its inventory. In addition, the Company
maintains the following properties:
The Company's principal executive offices are located at 4310 Paradise
Road, Las Vegas, Nevada 89109, where it occupies approximately 31,000 square
feet of office space in a building it owns. Title to the property is held by
the Company.
The Company has acquired a second office building located in Las
Vegas, Nevada. The building is approximately 60,000 square feet, of which the
Company initially intends to occupy approximately 30,000 square feet. The
remaining approximately 30,000 square feet will be leased to tenants on a short
term basis.
The Company leases an executive office at 1125 N.E. 125th Street in
North Miami, Florida, comprising approximately 3,200 square feet, at a rental
of $2,400 per month. The lease expires in August 1998.
MMC leases 45,950 square feet of office space at 1000 Parkwood
Circle, Atlanta, Georgia. This lease is for an initial six year term expiring
August 2002 with a conditional option to extend the term to August 2007 at a
monthly rental of $73,711 with 2% annual increases. MMC also leases 10,478
square feet of office space in Atlanta, Georgia, at a rental of $13,193 per
month, pursuant to a lease that expires in March 1999.
The Company leases various other facilities on a short-term or month
to month basis for off-site sales offices and lending offices in various cities
throughout the United States.
ITEM 3. LEGAL PROCEEDINGS
In the matter of the PEC Apartment Subsidiaries litigation previously
reported upon, an order for judgment of $3,346,000 was rendered against PEC on
its limited guaranty, in connection with the defendants' counterclaim. Pursuant
to a stipulation between the parties dated as of May 15, 1995, PEC paid the
amount of $2,900,000 on June 15, 1995 in full settlement of this matter.
Because the reserve recorded in the financial statements of the Company
exceeded the amount of the settlement, the Company recognized a gain on
discontinued operations of $1,323,000.
On July 5, 1995, Pahrump Valley Vineyards, Inc. filed a complaint in
the 5th Judicial District Court, Nye County, Nevada, against CNUC, a subsidiary
of PEC. The plaintiff claimed compensatory damages in excess of $25,000 in each
of 4 counts alleging trespass, nuisance, negligence and breach of contract for
the alleged supplying of contaminated water by CNUC to the plaintiff, and also
prayed for punitive damages in excess of $25,000. Following discovery, PEC's
insurance carrier settled the case by payment of $35,000 to the plaintiffs.
Following the Company's November 10, 1995 announcement disclosing
certain accounting adjustments, an action was filed on November 13, 1995, in
the United States District Court, District of Nevada by Christopher Dunleavy,
as a purported class action against the Company, certain of the Company's
officers and directors and the Company's independent auditors. The complaint
alleges, among other things, that the defendants violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder in connection with
the preparation and issuance of certain of the Company's financial reports
issued in 1994 and 1995, including certain financial statements reported on by
the Company's independent auditors. The complaint also alleges that one of the
director defendants violated the federal securities laws by engaging in
"insider trading." The named plaintiff seeks to represent a class consisting
of purchasers of the Company's Common stock between January 14, 1994 and
November 9, 1995, and seeks damages in an unspecified amount, costs, attorney's
fees and such other relief as the court may deem just and proper. The Company
believes that it has substantial defenses to the action, however, the Company
presently cannot predict the outcome of this matter.
On November 16, 1995, a second action was filed in the United States
District Court for the District of Nevada by Alan Peyser as a purported class
action against the Company and certain of its officers and directors, which was
served on the Company on December 20, 1995. The complaint alleges, among other
things, that the defendants violated the federal securities laws by making
statements and issuing certain financial reports in 1994 and 1995 that
overstated the Company's earnings and business prospects. The named plaintiff
seeks to represent a class consisting of purchasers of the Company's common
stock between November 28, 1994 and November 9,
26
<PAGE> 27
1995. The complaint seeks damages in an unspecified amount, cost, attorney's
fees and such other relief as the Court may deem just and proper. The Company
believes that it has substantial defenses to the action, however, the Company
presently cannot predict the outcome of this matter.
On or about June 10, 1996, the Dunleavy Action and Peyser Action were
consolidated under the caption "In re Mego Financial Corp. Securities
Litigation," Master File No. CV-9-95-01082-LD (RLJ), pursuant to a stipulation
by the parties. On or about July 26, 1996, Michael Nadler filed a motion in
the above matter requesting that he be added as a class representative and that
his attorney be added as additional counsel for the class. On or about August
26, 1996, a Motion in Opposition to the motion to add a class representative
was filed by the Company and certain other defendants. Neither motion has been
heard or decided by the court.
In the general course of business the Company, at various times, has
been named in other lawsuits. The Company believes that it has meritorious
defenses to these lawsuits and that resolution of these matters will not have a
material adverse affect on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended August 31, 1996.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market
and since April 1, 1994, prices have been quoted on the Nasdaq National Market,
under the symbol MEGO. Prior to April 1, 1994, the common stock was quoted on
the Nasdaq Small Cap Market (the "NSCM") under the symbol MEGO and, prior to
May 1, 1994, was traded on the Boston Stock Exchange under the symbol MGO. The
following table sets forth the high and low sales prices of the common stock as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
-------------- --------------
<S> <C> <C>
FISCAL YEAR 1995:
-----------------
First Quarter $4 3/4 $3 1/4
Second Quarter 4 5/8 3 3/4
Third Quarter 7 3 11/16
Fourth Quarter 10 3/8 6 11/16
FISCAL YEAR 1996:
-----------------
First Quarter $11 1/8 $4 1/2
Second Quarter 8 5/8 6
Third Quarter 9 3/4 7 3/4
Fourth Quarter 9 3/8 5 3/8
FISCAL YEAR 1997:
-----------------
First Quarter (through November 8, 1996) $10 $5 5/8
</TABLE>
As of November 8, 1996, there were 2,596 holders of record of the
18,433,121 outstanding shares of common stock. The closing sales price for
the common stock on November 8, 1996 was $9.25.
The Company did not pay any dividends on the common stock during the
fiscal years ended August 31, 1996 and 1995. The Company intends to retain
future earnings for the operation and expansion of its business and does not
currently anticipate paying cash dividends on the common stock. Any future
determination as to the payment of such cash dividends would depend on a number
of factors including future earnings, results of operations, capital
requirements, the Company's financial condition and any restrictions under
credit agreements existing from time to time, as well as such other factors as
the Board of Directors might deem relevant. No assurance can be given that the
Company will pay any dividends in the future.
28
<PAGE> 29
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected Income Statement Data and Balance Sheet Data set forth
below have been derived from the consolidated financial statements of the
Company. The consolidated financial statements as of August 31, 1996, 1995,
and 1994 and for each of the three years in the period ended August 31, 1996
have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere herein. The consolidated financial statements as of August
31, 1993 and 1992 and for each of the two years in the period ended August 31,
1993 have been audited by Deloitte & Touche LLP, independent auditors, and are
not included herein.
The selected financial information set forth below should be read in
conjunction with the consolidated financial statements, the related notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME (LOSS) BY SUBSIDIARIES:
MMC:
Revenues:
Gain on sale of loans $17,994 $12,233 $579 $ - $ -
Net unrealized gain on mortgage related
securities 2,697 - - - -
Interest income, net of interest expense 988 473 172 - -
Loan servicing income 3,348 873 - - -
--------- --------- --------- --------- ---------
Total revenues 25,027 13,579 751 - -
Total costs and expenses 13,872 7,660 2,262 - -
--------- --------- --------- --------- ---------
Operating income (loss) $11,155 $5,919 $(1,511) $ - $ -
========= ========= ========= ========= =========
PEC:
Revenues:
Timeshare and land sales, net $45,746 $41,494 $33,055 $34,933 $28,439
Gain on sale of receivables 1,116 1,586 875 631 -
Interest income 6,560 6,838 7,914 8,238 8,175
Other 5,115 4,898 3,463 3,630 2,729
--------- --------- --------- --------- ---------
Total revenues 58,537 54,816 45,307 47,432 39,343
Total costs and expenses 57,200 46,510 39,756 41,844 36,188
--------- --------- --------- --------- ---------
Operating income $1,337 $8,306 $5,551 $5,588 $3,155
========= ========= ========= ========= =========
INCOME STATEMENT DATA:
Consolidated operating income from
subsidiaries $12,492 $14,225 $4,040 $5,588 $3,155
Payments to assignors - (7,252) (8,526) (4,632) (3,325)
Other income (expense), net (4,474) (2,786) (527) 409 1,509
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 8,018 4,187 (5,013) 1,365 1,339
Income taxes 3,167 3,293 761 2,218 2,382
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 4,851 894 (5,774) (853) (1,043)
Income from discontinued operations - 873 - - -
--------- --------- --------- --------- ---------
Income (loss) before minority interest 4,851 1,767 (5,774) (853) (1,043)
Minority interest in income of 80%-owned
subsidiary - - - 126 63
--------- --------- --------- --------- ---------
Net income (loss) 4,851 1,767 (5,774) (979) (1,106)
Cumulative preferred stock dividends 240 360 360 - -
--------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock $4,611 $1,407 $(6,134) $(979) $(1,106)
========= ========= ========= ========= =========
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS) PER SHARE:
Primary:
Income (loss) from continuing
operations, net of minority interest $.24 $.03 $(.34) $(.06) $(.07)
Income from discontinued operations - .05 - - -
--------- --------- --------- --------- ---------
Net income (loss) $.24 $.08 $(.34) $(.06) $(.07)
========= ========= ========= ========= =========
Weighted average number of shares
outstanding (thousands) 19,087 18,087 17,820 17,145 16,701
========= ========= ========= ========= =========
Fully diluted:
Income from continuing operations, net
of minority interest $.24 $.02
Income from discontinued operations - .05
--------- ---------
Net income $.24 $.07
========= =========
Weighted average number of shares
outstanding (thousands) 19,087 18,939
========= =========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $165,597 $112,757 $88,302 $91,153 $88,937
Total liabilities 130,055 81,175 68,779 66,144 65,412
Minority interest - - - - 1,619
Subordinated debt 9,691 9,352 - - -
Redeemable preferred stock - 3,000 3,000 3,000 -
Total stockholders' equity 25,851 19,230 16,523 22,009 21,906
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, including the notes thereto,
contained elsewhere herein.
GENERAL
The business of the Company, after the acquisition of PEC (see
"Business--Purchase of Preferred Equities Corporation") and the commencement of
operations of MMC (see "Business of MMC"), is primarily the business of
generating consumer receivables by marketing timeshare interests, retail lots
and land parcels and generating home improvement loans; and collecting the
related notes receivable and loans.
MMC
MMC began originating loans on March 1, 1994 and, accordingly, MMC's
results of operations for the years ended August 31, 1996 and 1995 include full
years' of operations, while results for the year ended August 31, 1994 include
only six months of loan originations.
MMC recognizes revenue from the gain on sale of loans, interest income
and servicing income. Interest income, net, represents the interest received on
loans in MMC's portfolio prior to their sale, net of interest paid under its
credit agreements. MMC continues to service all loans sold to date. Net loan
servicing income represents servicing fee income and other ancillary fees
received for servicing loans less the amortization of capitalized mortgage
servicing rights. Mortgage servicing rights are amortized over the estimated
life of the future net servicing fee income.
30
<PAGE> 31
MMC sells its loans through whole loan sales to third party
purchasers, retaining the right to service the loans and to receive any amounts
in excess of the guaranteed yield to the purchasers. In addition, MMC has
commenced the sale of loans through securitizations. Certain of the regular
interests of the related securitizations are sold, with the interest only and
residual class securities retained by MMC.
Gain on sale of loans includes the gain on sale of mortgage related
securities and loans held for sale. The gain on sale of mortgage related
securities is determined by an allocation of the cost of the securities based
on the relative fair value of the securities sold and the securities retained.
MMC generally retains an interest only strip security and residual interest
security. The fair value of the interest only strip and residual interest
security is the present value of the estimated cash flows to be received after
considering the effects of estimated prepayments and credit losses, net of FHA
insurance recoveries. The net unrealized gain on mortgage related securities
represents the difference between the allocated cost basis of the securities
and the estimated fair value.
As the holder of the residual securities, MMC is entitled to receive
certain excess cash flows. These excess cash flows are calculated as the
difference between (a) principal and interest paid by borrowers and (b) the sum
of (i) pass-through interest and principal to be paid to the holders of the
regular securities and interest only securities, (ii) trustee fees, (iii)
third-party credit enhancement fees, (iv) servicing fees and (v) estimated loan
pool losses. MMC's right to receive the excess cash flows is subject to the
satisfaction of certain reserve requirements which are specific to each
securitization and are used as a means of credit enhancement.
MMC carries interest only and residual securities at fair value. As
such, the carrying value of these securities is affected by changes in market
interest rates and prepayment and loss experiences of these and similar
securities. MMC estimates the fair value of the interest only and residual
securities utilizing prepayment and credit loss assumptions MMC believes to be
appropriate for each particular securitization. To MMC's knowledge, there is no
active market for the sale of these interest only and residual securities. The
range of values attributable to the factors used in determining fair value is
broad. Although MMC believes that it has made reasonable estimates of the fair
value of the mortgage related securities, the rate of prepayments and default
rates utilized are estimates, and actual experience may vary from its
estimates.
The present value of expected net cash flows from the sale of loans is
recorded at the time of sale as excess servicing rights and mortgage related
securities. Excess servicing rights are amortized as a charge to income, as
payments are received on the retained interest differential over the estimated
life of the underlying loans. The expected cash flows used to determine the
excess servicing rights asset and mortgage related securities have been reduced
for potential losses, net of FHA insurance recoveries, under recourse
provisions of the sales agreements. The allowance for credit losses on loans
sold with recourse represents MMC's estimate of losses to be incurred in
connection with the recourse provisions of the sales agreements.
To determine the fair value of the mortgage servicing rights and
excess servicing rights, MMC projects net cash flows expected to be received
over the life of the loans. Such projections assume certain servicing costs,
prepayment rates and credit losses. These assumptions are similar to those used
by MMC to value the residual securities. As of August 31, 1996, mortgage
servicing rights totaled $3.8 million, excess servicing rights totaled $12.1
million and mortgage related securities totaled $22.9 million for MMC.
There can be no assurance that MMC's estimates used to determine the
fair value of mortgage and excess servicing rights will remain appropriate for
the life of the loans. If actual loan prepayments or credit losses exceed MMC's
estimates, the carrying value of MMC's mortgage and excess servicing rights may
have to be written down through a charge against earnings. MMC will not write
up such assets to reflect slower than expected prepayments, although slower
prepayments may increase future earnings as MMC will receive cash flows in
excess of those anticipated.
MMC discounts cash flows on its loan sales at the rate it believes an
independent third-party purchaser would require as a rate of return. The cash
flows were discounted to present value using discount rates which averaged 12%
for the years ended August 31, 1996, 1995, and 1994. MMC has developed its
assumptions based on experience with its own portfolio, available market data
and ongoing consultation with its financial advisors.
The weighted average discount rate used to determine the present value
of the balance of capitalized excess servicing rights and capitalized mortgage
servicing rights reflected on MMC's Statement of Financial Condition at August
31, 1996 and 1995 was approximately 12%. Capitalized excess servicing rights
are amortized over the lesser
31
<PAGE> 32
of the estimated or actual remaining life of the underlying loans as an offset
against the excess servicing rights component of servicing income actually
received in connection with such loans.
Although MMC believes that it has made reasonable estimates of the
fair value of the mortgage related securities, the excess servicing rights and
mortgage servicing rights likely to be realized, the rate of prepayment and the
amount of defaults utilized by MMC are estimates and actual experience may vary
from its estimates. The gain recognized by MMC upon the sale of loans and
unrealized gain on mortgage related securities will have been overstated if
prepayments or defaults are greater than anticipated. Higher levels of future
prepayments could result in excess servicing rights and mortgage servicing
rights amortization expense exceeding realized excess servicing rights and
mortgage servicing rights, thereby adversely affecting MMC's servicing income
and resulting in a charge to earnings in the period of adjustment. Similarly,
if delinquencies or liquidations were to be greater than initially assumed,
excess servicing rights and mortgage servicing rights amortization would occur
more quickly than originally anticipated, which would have an adverse effect on
loan servicing income in the period of such adjustment. MMC periodically
reviews its prepayment assumptions in relation to current rates of prepayment
and, if necessary, reduces the remaining asset to the net present value of the
estimated remaining future excess servicing rights. Rapid increases in interest
rates or competitive pressures may result in a reduction of excess servicing
income recognized by MMC upon the sale of loans in the future, thereby reducing
the gains recognized by MMC upon such sales. Higher levels of prepayments than
initially assumed would result in a charge to earnings in the period of
adjustment.
Increases in interest rates or higher than anticipated rates of loan
prepayments or credit losses on the underlying loans of MMC's mortgage related
securities or similar securities may require MMC to write down the value of
such mortgage related securities and result in a material adverse impact on
MMC's results of operations and financial condition. MMC is not aware of an
active market for the mortgage related securities, excess servicing rights or
mortgage servicing rights
MMC continues to implement its business growth strategy through both
product line and geographic diversification and expansion of its Correspondent
and Dealer operations, in an effort to increase both loan origination volume
and servicing volume. Implementation of this strategy has increased MMC's
total assets through growth in excess servicing rights, mortgage servicing
assets and mortgage related securities and has been funded through increased
borrowings. While this growth has increased MMC's revenues through increased
gain on sales of loans, loan servicing income and net interest income, it has
also increased the general and administrative expense and provision for credit
losses associated with the growth in loans originated and serviced. Continued
increases in MMC's total assets and increasing earnings can continue only so
long as origination volumes continue to exceed paydowns of loans serviced and
previous period origination volumes. Additionally, the fair value of mortgage
related securities, mortgage servicing rights and excess servicing rights owned
by MMC may be adversely affected by changes in the interest rate environment
which could affect the discount rate and prepayment assumptions used to value
the assets. Any such adverse change in assumptions could have a material
adverse effect on MMC's results of operations and financial condition.
PEC
PEC recognizes revenue primarily from sales of timeshare interests in
resort areas and land, gain on sale of receivables and interest income. PEC
also sells its consumer receivables while generally retaining the servicing
rights. Revenue from sales of timeshare interests and land is recognized after
the requisite rescission period has expired and at such time as the purchaser
has paid at least 10% of the sales price for sales of timeshare interests and
20% of the sales price for land sales. Land sales typically meet these
requirements within eight to ten months from closing, and sales of timeshare
interests typically meet these requirements at the time of sale. The sales
price, less a provision for cancellation is recorded as revenue and the
allocated cost related to such net revenue of the timeshare interest or land
parcel is recorded as expense in the year that revenue is recognized. When
revenue related to land sales is recognized, the portion of the sales price
attributable to uncompleted required improvements, if any, is deferred.
Notes receivable with payment delinquencies of 90 days or more have
been considered in determining the allowance for cancellation. Cancellations
occur when the note receivable is determined to be uncollectible and the
related collateral, if any, has been recovered. Cancellation of a note
receivable in the year the revenue is recognized is accounted for as a reversal
of the revenue. Cancellation of a note receivable subsequent to the year the
revenue was recognized is charged to the allowance for cancellation.
32
<PAGE> 33
Gain on sale of notes receivable includes the present value of the
differential between contractual interest rates charged to borrowers on notes
receivable sold by PEC and the interest rates to be received by the purchasers
of such notes receivable, after considering the effects of estimated
prepayments and a normal servicing fee. PEC generally retains the servicing
rights and participation in certain cash flows from the sold notes receivable.
PEC generally sells its notes receivable at par value.
The present value of expected net cash flows from the sale of notes
receivable are recorded at the time of sale as excess servicing rights. Excess
servicing rights are amortized as expense, as payments are received on the
retained interest differential over the estimated life of the underlying notes
receivable. Excess servicing rights are recorded at the lower of unamortized
cost or estimated fair value. The expected cash flows used to determine the
excess servicing rights asset have been reduced for potential losses under
recourse provisions of the sales agreements. The future estimated contingency
for notes receivable sold with recourse represents PEC's estimate of losses to
be incurred in connection with the recourse provisions of the sales agreements
and is shown separately as a liability in the Company's Consolidated Statements
of Financial Condition.
In discounting cash flows related to notes receivable sales, PEC
defers servicing income at an annual rate of 1% and discounts cash flows on its
sales at the rate it believes a purchaser would require as a rate of return.
Earned servicing income is included in financial income. The cash flows were
discounted to present value using discount rates which averaged 15% in both
fiscal 1996 and fiscal 1995. PEC has developed its assumptions based on
experience with its own portfolio, available market data and ongoing
consultation with its investment bankers.
In determining expected cash flows, management considers economic
conditions at the date of sale. In subsequent periods, these estimates may be
revised as necessary using the original discount rate, and any losses arising
from prepayment and loss experience will be recognized as realized.
Provision for cancellation relating to notes receivable is recorded as
expense in amounts sufficient to maintain the allowance at a level considered
adequate to provide for anticipated losses resulting from customers' failure
to fulfill their obligations under the terms of their notes. PEC records a
provision for cancellations at the time revenue is recognized, based on
historical experience and current economic factors. The related allowance for
cancellation represents PEC's estimate of the amount of its probable future
credit losses on the recognized notes receivable which may become
uncollectable. The allowance for cancellations is reduced by actual
cancellations experienced, including cancellations related to previously sold
notes receivable which were reacquired pursuant to the recourse obligations
discussed herein. Such allowance is also reduced to establish the liability
for future estimated cancellation as notes receivable are sold. PEC's judgment
in determining the adequacy of this allowance is based upon a periodic review
of its portfolio of notes receivable. These reviews take into consideration
changes in the nature and level of the portfolio, current economic conditions
which may affect the purchasers' ability to pay, collateral values and overall
portfolio quality. Changes in the allowance as a result of such reviews are
included in the provision for cancellations.
Recourse to PEC on sales of notes receivable is governed by the
agreements between the purchasers and PEC. The future estimated contingency
for notes receivable sold with recourse represents PEC's estimate of its
probable future credit losses to be incurred over the lives of the notes
receivable. A liability for future estimated contingency for notes receivable
sold with recourse was established at the time of each sale based upon PEC's
analysis of all probable losses resulting from PEC's recourse obligations under
each agreement of sale. For notes receivable sold after September 30, 1992, the
liability is determined in accordance with Emerging Issues Task Force (EITF)
Issue No. 92-2, on a "discounted to present value" basis using an interest rate
equivalent to the risk-free
33
<PAGE> 34
market rate for securities with a duration similar to that estimated for the
underlying notes receivable. For notes receivable sold prior to September 30,
1992, the liability remains on a non-discounted basis.
Fees for servicing notes receivable originated or acquired by PEC and
sold with servicing rights retained are generally based on a stipulated
percentage of the outstanding principal balance of such notes receivable and
are recognized when earned. Interest received on notes receivable sold, less
amounts paid to investors, is reported as financial income. Capitalized excess
servicing rights are amortized systematically to reduce notes receivable
servicing income to an amount representing normal servicing income and the
present value discount. Late charges and other miscellaneous income are
recognized when collected. Costs to service notes receivable are recorded to
expense as incurred. Interest income represents the interest received on loans
held in PEC's portfolio, the accretion of the discount on the excess servicing
rights and interest on cash funds.
Total costs and expenses consist primarily of commissions and selling
expenses, general and administrative expenses, direct costs of sales of
timeshare interests and land, depreciation and amortization and interest
expense. Commissions and selling costs directly attributable to unrecognized
sales are accounted for as deferred selling costs until such time as the sale
is recognized. The Company incurs a portion of operating expenses of the
timeshare owners' associations based on ownership of unsold timeshare interests
at each of the respective timeshare properties. These costs are referred to as
"association assessments" and are included in the Consolidated Statements of
Operations in general and administrative expense.
REAL ESTATE RISK
Real estate development involves significant risks, including risks
that suitable properties will not be available at reasonable prices, that
acquisition, development and construction financing may not be available on
favorable terms or at all, that infrastructure and construction costs may
exceed original estimates, that construction may not be completed on schedule,
and that upon completion of construction and improvements, properties may not
be sold on favorable terms or at all. In addition, PEC's timeshare activities,
as well as its ownership, improvement, subdivision and sale of land, are
subject to comprehensive federal, state and local laws regulating environmental
and health matters, protection of endangered species, water supplies, zoning,
land development, land use, building design and construction and other matters.
Such laws and difficulties in obtaining, or the failure to obtain, the
requisite licenses, permits, allocations, authorizations and other entitlements
pursuant to such laws can adversely impact the development and completion of
PEC's projects. The enactment of "slow-growth" or "no-growth" initiatives in
any area where PEC sells land or timeshares could also delay or preclude
entirely the development of such properties.
RESTATEMENT AND SEC INVESTIGATION
As previously reported, the Company has restated certain of its
previously issued financial statements, including for the year ended August 31,
1994, upon which its independent auditors had rendered unqualified opinions.
As a result of the restatement of the Company's financial statements and
certain trading in its common stock, the Securities and Exchange
Commission has commenced a formal investigation to determine, among other
things, whether the Company, and/or its officers and directors, violated
applicable federal securities laws in connection with the preparation and
filing of the Company's previously issued financial statements or such
trading. Possible penalties for violation of federal securities laws include
civil remedies, such as fines and injunctions, as well as criminal sanctions.
CERTAIN PAYMENTS AND AMORTIZATION OF NEGATIVE GOODWILL
In connection with the assignment to the Company in 1988 by affiliates
of certain officers and directors of the Company (Assignors) of the right to
acquire PEC, the Company became obligated to make quarterly payments to the
Assignors equal to 63% of the cash balances of PEC, during the 7 year period
ended January 31, 1995, that could be used to pay a dividend without violating
PEC's loan agreements. Accrual of amounts owed under such assignment agreement
to the Assignors ended on January 31, 1995, when their right to the accrual
expired, at which time PEC owed the Assignors $13.3 million. On March 2, 1995,
$10 million of such amount was converted to Subordinated debt. See Note 22 of
Notes to the Consolidated Financial Statements for further discussion. At the
time of the acquisition of PEC, the underlying book value of the net assets
acquired exceeded the purchase price paid by the Company by $42.3 million
resulting in the creation of negative goodwill in that amount (Revaluation
Adjustment). Of this amount $20
34
<PAGE> 35
million was not amortized but was instead reduced as additional payments were
accrued to the Assignors. Amounts accrued to the Assignors in excess of $20
million were expensed as such accruals were made. The amortization of the
remaining $22.3 million of the Revaluation Adjustment was directly affected by
the level of collections of the receivables of PEC included in the acquired
assets. As proceeds of these receivables were collected, through installment
payments or sale, a portion of the Revaluation Adjustment included as a contra
account in notes receivable was recorded to income as amortization of negative
goodwill, which amortization was completed at February 28, 1995. The Company
also amortizes over a five-year period ending February 1998, negative goodwill
related to the excess of the underlying book value over the purchase price paid
in 1993 for the acquisition of the minority interest of Vacation Spa Resorts,
Inc. (VSR), formerly an 80%-owned subsidiary. The Consolidated Financial
Statements of the Company accordingly reflect amortization of a portion of the
Revaluation Adjustment (Revaluation Amortization), amortization of the negative
goodwill associated with the acquisition of the VSR minority interest and
accrual of payments to Assignors.
RESULTS OF OPERATIONS
Year Ended August 31, 1996 Compared to Year Ended August 31, 1995
MMC
MMC originated $139.4 million of loans during fiscal 1996 compared to
$87.8 million of loans during fiscal 1995, an increase of 58.8%. The increase
is a result of the overall growth in MMC's business, including an increase in
the number of active Correspondents and Dealers and an increase in the number
of states served. At August 31, 1996, MMC had approximately 310 active
Correspondents and 435 active Dealers, compared to approximately 150 active
Correspondents and 170 active Dealers at August 31, 1995. Of the $139.4 million
of loans originated in fiscal 1996, $11.6 million were conventional loans. MMC
did not originate conventional loans in fiscal 1995.
The following table sets forth certain data regarding loans originated
by MMC during fiscal 1996 and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Loan Originations:
Principal amount of loans:
Correspondents:
Title I $82,596,197 59.3% $63,792,680 72.7%
Conventional 11,582,108 8.3 - -
------------- ------ ---------- ------
Total Correspondents 94,178,305 67.6 63,792,680 72.7
------------- ------ ---------- ------
Dealers - Title I 45,188,721 32.4 23,957,829 27.3
------------- ------ ---------- ------
Total $139,367,026 100.0% $87,750,509 100.0%
============= ====== ========== ======
Number of loans:
Correspondents:
Title I 4,382 50.9% 3,437 59.1%
Conventional 392 4.6 - -
------------- ------ ---------- ------
Total Correspondents 4,774 55.5 3,437 59.1
------------- ------ ---------- ------
Dealers - Title I 3,836 44.5 2,381 40.9
------------- ------ ---------- ------
Total 8,610 100.0% 5,818 100.0%
============= ====== ========== ======
</TABLE>
See Notes 4 and 7 of Notes to Consolidated Financial Statements for
further discussion.
35
<PAGE> 36
Total revenues increased 84.3% to $25 million for fiscal 1996 from
$13.6 million for fiscal 1995. The increase was primarily the result of the
increased volume of loans originated and the sale of such loans. The following
table sets forth the principal balance of loans sold or securitized and related
gain on sale data for fiscal 1996 and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Loans Sold:
Title I Loans $127,414 $85,363
Conventional 10,494 -
------------ ------------
Total $137,908 $85,363
============ ============
Gain on sale of loans $17,994 $12,233
Net unrealized gain on mortgage related securities 2,697 -
------------ ------------
Gain on sale of loans and unrealized gain on mortgage
related securities $20,691 $12,233
============ ============
Gain on sale of loans as a percentage of principal
balance of loans sold 13.0% 14.3%
============ ============
Gain on sale of loans and unrealized gain on mortgage
related securities as a percentage of principal
balance of loans sold 15.0% 14.3%
============ ============
</TABLE>
See Note 4 of Notes to Consolidated Financial Statements for further
discussion.
Loan servicing income increased 283.5% to $3.3 million for fiscal 1996
from $873,000 for fiscal 1995. The increase was primarily the result of a 61.6%
increase in the amount of loan sale activity in fiscal 1996 with the servicing
rights retained by MMC, to $137.9 million for fiscal 1996 from $85.4 million
for fiscal 1995.
Interest income on loans held for sale and mortgage related
securities, net of interest expense, increased 108.9% to $988,000 during fiscal
1996 from $473,000 during fiscal 1995. The increase was primarily the result of
the increase in the average size of the portfolio of loans held for sale, and
the increased mortgage related securities portfolio.
MMC intends to consider strategies to mitigate the interest rate risks
associated with the loan origination/warehousing function, funding its
portfolio of mortgage related securities, excess servicing rights, mortgage
servicing rights, and valuation of these assets. Implementation of interest
rate risk management strategies may decrease spreads, decrease gain on sale of
loans, or otherwise decrease revenues from that which might otherwise occur in
a stable interest rate environment without such strategies in place. MMC
intends to thoroughly analyze the cost of such strategies compared to the risks
which would be mitigated prior to implementation of any strategy.
The provision for credit losses increased 74.8% to $1.5 million for
fiscal 1996 from $864,000 for fiscal 1995. The increase in the provision was
directly related to the increase in volume of loans originated in fiscal 1996
compared to fiscal 1995. The provision for credit losses is based upon periodic
analysis of the portfolio, economic conditions and trends, historical credit
loss experience, borrowers' ability to repay, collateral values, and estimated
FHA insurance recoveries on loans originated and sold. As MMC increases its mix
of conventional loan originations as compared to Title I loan originations, the
provision for credit losses as a percentage of loans originated can be expected
to increase due to the increased credit risk associated with conventional
loans. Servicing costs on a per loan basis may also increase as problem
conventional loans may require greater costs to service.
Total general and administrative expenses increased 90.2% to $11.8
million for fiscal 1996 from $6.2 million for fiscal 1995. The increase was
primarily a result of increased payroll related to the hiring of additional
underwriting, loan processing, administrative, loan quality control and other
personnel in contemplation of the expansion of MMC's business and costs related
to the opening of additional offices.
36
<PAGE> 37
Payroll and benefits expense increased 39.3% to $5 million for fiscal
1996 from $3.6 million for fiscal 1995. The number of employees increased from
105 as of fiscal year end 1995 to 170 as of fiscal year end 1996, due to
increased staff necessary to support the business expansion and improve quality
control.
Commissions and selling expenses increased 264.7% to $2 million for
fiscal 1996 from $552,000 for fiscal 1995 while loan originations increased by
$51.6 million from fiscal 1995 to 1996. The sales network expanded to
substantially all states, adding new personnel and offices to further the loan
origination growth strategy.
Professional services increased 313.6% to $732,000 for fiscal 1996
from $177,000 for fiscal 1995 due primarily to increased audit and legal
services and consultation fees.
FHA insurance increased 147.6% to $572,000 for fiscal 1996 from
$231,000 for fiscal 1995. The increase was primarily attributable to the
increased volume of loan originations and loans serviced.
Other general and administrative expenses increased 190.7% to $2.1
million for fiscal 1996 from $713,000 for fiscal 1995 primarily due to
increased expenses related to expansion of facilities and increased
communications expense. MMC is enhancing its loan production systems. These
enhancements are expected to cost approximately $50,000 and will be funded from
MMC's normal operating cash flow.
Income before income taxes increased 88.5% to $11.2 million for fiscal
1996 from $5.9 million for fiscal 1995.
As a result of the foregoing, MMC's net income increased 90% to $6.9
million for fiscal 1996 from $3.6 million for fiscal 1995.
PEC
Total revenues for PEC increased 6.8% or $3.7 million during fiscal
1996 compared to fiscal 1995 primarily due to an increase in timeshare sales to
$27.8 million in fiscal 1996 from $20.7 million in fiscal 1995.
Timeshare interests and land sales, net, increased to $45.7 million in
fiscal 1996 from $41.5 million in fiscal 1995, an increase of 10.2%. Gross
sales of timeshare interests increased to $33.2 million in fiscal 1996 from
$26.3 million in fiscal 1995, an increase of 26.3%. Net sales of timeshare
interests increased to $27.8 million from $20.7 million, an increase of 34.3%.
The provision for cancellation represented 16.3% and 21.3% of gross sales of
timeshare interests for the years ended August 31, 1996 and 1995, respectively.
The decrease in the provision for cancellation was primarily due to an
improvement in historical performance of cancellations, resulting in a lower
allowance requirement.
Gross sales of land decreased to $22.3 million in fiscal 1996 from
$24.7 million in fiscal 1995, a decrease of 9.6%. Net sales of land decreased
to $18 million in fiscal 1996 from $20.8 million in fiscal 1995, a decrease of
13.7%. The provision for cancellation represented 19.6% and 15.8% of gross
sales of land for the years ended August 31, 1996 and 1995, respectively. The
1996 decrease in land sales was the result of PEC shifting its emphasis as part
of its strategic plan from sales of land to sales of timeshare interests due to
its diminishing inventory of land.
PEC's gain on sale of receivables decreased to $1.1 million for fiscal
1996 from $1.6 million for fiscal 1995. This decrease resulted from sales of
timeshare receivables and land receivables decreasing to $16 million in fiscal
1996 from $32.5 million in fiscal 1995. PEC periodically sells receivables in
order to reduce the outstanding balances under its lines of credit.
PEC's interest income decreased to $6.6 million in fiscal 1996 from
$6.8 million for fiscal 1995, primarily due to a relatively flat interest rate
environment combined with a decrease in the average balance of notes receivable
outstanding.
Financial income increased to $544,000 in fiscal 1996 from $276,000 in
fiscal 1995, an increase of 97.1%. The increase is a result of the increased
number of loans serviced by PEC, generating increased servicing fees.
37
<PAGE> 38
Revenues from incidental operations decreased to $3 million in fiscal
1996 from $3.6 million in fiscal 1995, a decrease of 17.3%, primarily due to a
decrease in utility fees partially offset by an increase in golf fee revenue.
Other revenues increased to $1.6 million in fiscal 1996 from $797,000 in fiscal
1995, an increase of 97.7%.
As a result of the foregoing, total PEC revenues increased to $58.5
million during fiscal 1996 from $54.8 million during fiscal 1995.
Total costs and expenses increased to $57.2 million for fiscal 1996
from $46.5 million for fiscal 1995, an increase of 23%. The increase resulted
primarily from an increase in commission and selling expenses to $30.4 million
from $23.7 million, an increase of 28.1%; an increase in general and
administrative costs to $11.6 million from $9.3 million, an increase of 25.3%,
and an increase in direct costs of timeshare interest sales to $4 million from
$3 million, an increase of 34.3%. PEC's selling expenses increased primarily
as a result of costs relating to the establishment of new marketing programs
and strategies designed to increase sales of timeshare interests, market
research costs, additional staffing, increased advertising costs, costs
associated with the re-naming of PEC's timeshare resorts to Ramada Vacation
Suites and additional sales offices. The increase in general and
administrative costs is primarily due to increases in payroll related to hiring
of additional administrative personnel, maintenance fees related to unsold
timeshare inventory, owners' association costs, and professional fees. The
increase in direct costs of timeshare interest sales is primarily due to the
increased volume of sales. As a percentage of gross sales of timeshare
interests and land, commission and selling expenses relating thereto increased
to 54.7% in fiscal 1996 from 46.5% in fiscal 1995, and cost of sales increased
to 10.5% in fiscal 1996 from 10.1% in fiscal 1995. Sales prices of timeshare
interests are typically lower than those of land while selling costs are
generally the same for timeshare interests and land; accordingly, PEC generally
realizes lower profit margins from sales of timeshare interests than sales of
land.
Depreciation expense increased to $1.5 million in fiscal 1996 from
$1.1 million in fiscal 1995, an increase of 34.9%. The increase is a result
of the additions made to property and equipment during fiscal 1996. Property
and equipment, net of accumulated depreciation increased to $19.4 million at
August 31, 1996 from $12.3 million at August 31, 1995, an increase of 58.3%.
Interest expense increased to $5.6 million in fiscal 1996 from $4.7
million in fiscal 1995, an increase of 20.1%. The increase is a result of an
increase in outstanding balances of notes payable including two additional
lines of credit.
As a result of the foregoing, PEC's income before income taxes
decreased to $1.3 million in fiscal 1996 from $8.3 million in fiscal 1995, a
decrease of 83.9%. The decrease is largely due to the increase of commissions
and selling expense and in general and administrative expense, together with a
decrease in land sales.
COMPANY
Income from continuing operations increased $4 million to $4.9 million
in fiscal 1996 from $894,000 in fiscal 1995, due principally to an increase of
$3.3 million in MMC net income and a decrease in payments to assignors expense
to $0 in 1996 compared to $7.3 million in 1995. These were partially offset
by a decrease of $5.4 million in PEC net income, due to increased expenses
related to expansion of selling operations. See prior discussion for MMC and
PEC.
Total costs and expenses during fiscal 1996 were $76.7 million, an
increase of 17.3% over $65.4 million in fiscal 1995. Increased commissions and
selling expenses and general and administrative expenses increased 37.9% for
fiscal 1996 compared to 1995 due primarily to the expansion of timeshare and
land marketing efforts in PEC. Additionally, Mego Financial incurs interest
expense payable to assignors and Subordinated debt. Total general and
administrative expenses for Mego Financial Corp. (parent only) were primarily
comprised of professional services, external financial reporting expenses, and
regulatory and other public company corporate expenses.
38
<PAGE> 39
Year Ended August 31, 1995 Compared to Year Ended August 31, 1994
MMC
MMC commenced originating loans in March 1994. Total revenues
increased 1,708.1% to $13.6 million for fiscal 1995 from $751,000 for fiscal
1994. The increase was primarily the result of the increased volume of loans
originated and the sale of such loans. MMC originated $87.8 million of loans
during fiscal 1995 compared to $8.2 million of loans during fiscal 1994, an
increase of 974.9%. The increase was a result of the overall growth in
Company's business. At August 31, 1995, MMC had approximately 150 active
Correspondents and 170 active Dealers in 34 states, compared to approximately
14 active Correspondents and 30 active Dealers in 14 states at August 31, 1994.
The following table sets forth certain data regarding Title I Loans
originated by MMC during fiscal 1994 and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------
1995 1994
------------------------- --------------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents $63,792,680 72.7% $5,251,647 64.3%
Dealers 23,957,829 27.3 1,492,318 18.3
Bulk purchase - - 1,420,150 17.4
------------ ---------- ------------ ----------
Total $87,750,509 100.0% $8,164,115 100.0%
============ ========== ============ ==========
Number of loans:
Correspondents 3,437 59.1% 338 47.4%
Dealers 2,381 40.9 164 23.0
Bulk purchase - - 211 29.6
------------ ---------- ------------ ----------
Total 5,818 100.0% 713 100.0%
============ ========== ============ ==========
</TABLE>
MMC sold $85.4 million in principal balance of loans during fiscal
1995, recognizing a gain on sale of loans of $12.2 million. MMC sold $6.6
million in principal balance of loans during fiscal 1994 recognizing a gain on
sale of loans of $579,000. As a percentage of loans sold, gain on sale of loans
was 14.3% during fiscal 1995 compared to 8.8% during fiscal 1994. The increase
in gain on sale was primarily a result of increased volume of loans sold and a
wider differential between the stated interest rate on the loans and the yield
to purchasers. The weighted average gross excess spread on sold loans was 6.2%
and 5.6% for fiscal 1995 and 1994, respectively. The weighted average discount
rate used in the determination of the gain on sale for both periods was 12%.
Loan servicing income was $873,000 during fiscal 1995. This income was
the result of the sale of $85.4 million of Title I Loans, with the right to
service the loans being retained by MMC. MMC had no loan servicing income in
fiscal 1994 because MMC did not sell any loans until August 31, 1994.
Interest income, net of interest expense, increased 175% to $473,000
during fiscal 1995 from $172,000 during fiscal 1994. The increase was primarily
the result of the growth in the size of the portfolio of loans held for sale of
151.3% to $3.7 million at August 31, 1995 from $1.5 million at August 31, 1994.
The provision for credit losses increased 800% to $864,000 for fiscal
1995 from $96,000 for fiscal 1994 due to increased loan originations. Provision
for credit losses relating to unsold loans is recorded as expense in amounts
sufficient to maintain the allowance at a level considered adequate to provide
for anticipated losses resulting from liquidation of outstanding loans. The
provision for credit losses is based upon periodic analysis of the portfolio,
economic conditions and trends, historical credit loss experience, borrowers'
ability to repay, collateral values, and estimated FHA insurance recoveries on
Title I Loans.
Depreciation and amortization expense increased 196.3% to $403,000 for
fiscal 1995 from $136,000 for fiscal 1994 as a result of the purchase of
additional equipment, the expansion of MMC's facilities and additional software
development costs.
39
<PAGE> 40
Other interest expense increased 750% to $187,000 for fiscal 1995 from
$22,000 for fiscal 1994 as a result of increased capitalized lease obligations.
Total general and administrative expenses increased 209.1% to $6.2
million for fiscal 1995 from $2 million for fiscal 1994. The increase was
primarily a result of increased payroll related to the hiring of additional
personnel in contemplation of the expansion and projected growth of MMC's
business and costs related to the opening of additional offices. Commissions
and selling expenses increased to $552,000 for fiscal 1995 from $13,000 for
fiscal 1994 due to the expansion of the sales network and facilities to support
increased loan origination growth. Included in general and administrative
expenses were servicing fees paid to PEC in the amount of $232,000 and $13,000
for fiscal 1995 and 1994, respectively, and management fees paid to PEC in the
amount of $690,000 and $442,000 for fiscal 1995 and 1994, respectively. FHA
insurance expense increased to $231,000 for fiscal 1995 from $11,000 for fiscal
1994 due to increased volume of Title I Loan originations.
Income (loss) before income taxes increased to income of $5.9 million
for fiscal 1995 from a loss of $1.5 million for its six months of operations in
fiscal 1994.
Effective September 1, 1994, MMC adopted SFAS 122 which requires that
a mortgage banking enterprise recognize as separate assets the rights to
service mortgage loans for others, regardless of how those servicing rights are
acquired. The effect of adopting SFAS 122 on MMC's financial statements was to
increase income before income taxes by $1.1 million for fiscal 1995.
As a result of the foregoing, net income (loss) increased to net
income of $3.6 million for fiscal 1995 from a net loss of $1.5 million for
fiscal 1994.
PEC
Total revenues of PEC increased 21% to $54.8 million for fiscal 1995
from $45.3 million for fiscal 1994. The increase was primarily the result of
increased net land sales of $20.8 million during fiscal 1995 compared to $13.5
million during fiscal 1994, an increase of 53.8%, and an 80.4% increase in
incidental operations to $3.6 million for fiscal 1995 from $2 million in fiscal
1994.
Timeshare interests and land sales, net, increased to $41.5 million
for fiscal 1995 from $33.1 million for fiscal 1994, an increase of 25.5%.
Gross sales of timeshare interests increased to $26.3 million in fiscal 1995
from $24.7 million in fiscal 1994, an increase of 6.5%. Net sales of timeshare
interests increased to $20.7 million in fiscal 1995 from $19.5 million in
fiscal 1994, an increase of 5.9%. The provision for cancellation represented
21.3% and 20.9% of gross sales of timeshare interests for the years ended
August 31, 1995 and 1994, respectively.
Gross sales of land increased to $24.7 million in fiscal 1995 from
$15.4 million in fiscal 1994, an increase of 60.1%. Net sales of land
increased to $20.8 million from $13.5 million, an increase of 53.8%. The
provision for cancellation represented 15.8% and 12.3% of gross sales of land
for the years ended August 31, 1995 and 1994, respectively. The increase in
sales of timeshare interests and the increase in sales of land were primarily
the result of additional sales programs and new properties in Colorado.
Gain on sale of notes receivables increased to $1.6 million for fiscal
1995 from $875,000 for fiscal 1994, an increase of 81.3%. This increase
resulted from net sales of timeshare interest and land receivables increasing
to $41.5 million during fiscal 1995 from $33.1 million during fiscal 1994, an
increase of 25.5%. PEC periodically sells receivables in order to reduce the
outstanding balances under its lines of credit.
Interest income decreased to $6.8 million for fiscal 1995 from $7.9
million for fiscal 1994, a decrease of 13.6%. This decrease resulted primarily
from a reduction in PEC's portfolio of receivables arising from sales of
receivables exceeding originations.
Income from incidental operations increased to $3.6 million for fiscal
1995 from $2 million for fiscal 1994, an increase of 80.4%. The increase was
primarily due to increased utility fees and golf fee revenue.
Total costs and expenses increased to $46.5 million for fiscal 1995
from $39.8 million for fiscal 1994, an increase of 17%. This increase resulted
primarily from an increase in commissions and selling expenses to $23.7 million
for fiscal 1995 from $18.9 million, an increase of 25%, and an increase in cost
of sales to $5.4 million in fiscal
40
<PAGE> 41
1995 from $4.7 million in fiscal 1994, an increase of 16.3%. As a percentage
of gross sales of timeshare interests, housing sales, land sales, and
commissions and expenses relating thereto decreased to 46.5% for fiscal 1995
from 47.2% for fiscal 1994, and cost of sales relating thereto decreased to
10.6% for fiscal 1995 from 11.4% for fiscal 1994.
Timeshare costs of sales increased 10.9% to $3 million for fiscal 1995
from $2.7 million for fiscal 1994. Land sale costs increased to $2.2 million
for fiscal 1995 from $1.4 million for fiscal 1994, an increase of 50.8%. Cost
of housing sales decreased to $265,000 for fiscal 1995 from $531,000 for fiscal
1994, a decrease of 50.1%.
General and administrative costs increased 9.5% to $9.3 million for
fiscal 1995 compared to $8.5 million for fiscal 1994, primarily due to
increased staffing and training for sales of land and timeshares and other
administrative related expansion costs.
As a result of the foregoing, PEC's income from continuing operations,
excluding income from discontinued operations, increased to $5.4 million for
fiscal 1995 from $3.7 million for fiscal 1994, an increase of 44.9%.
COMPANY
Income from continuing operations increased to $894,000 in fiscal 1995
from a loss of $5.8 million in fiscal 1994, due principally to an increase of
$5.2 million in MMC net income due to a full year of operation in 1995 compared
to 6 months of operations in 1994. PEC's net income increased $2.5 million due
to increased land and timeshare sales activity.
Net timeshare and land sales increased to $41.5 million for fiscal 1995
compared to $33.1 million for fiscal 1994, due to increased marketing efforts,
expansion of marketing areas and focus on increasing volume. Net timeshare and
land inventories increased 50.8% or $8.5 million during fiscal 1995 compared to
fiscal 1994. See prior discussion for MMC and PEC.
Amortization of negative goodwill decreased to $216,000 for fiscal
1995, from $472,000 for fiscal 1994, a decrease of 54.2%. Included in such
amortization was $170,000 and $420,000 in fiscal 1995 and 1994, respectively
relating to the purchase of PEC in 1988, with $50,000 in both fiscal 1995 and
fiscal 1994 relating to the acquisition of the minority interest in Vacation
Spa Resorts .
As a result of the foregoing, total revenues increased to $69.6
million for fiscal 1995, from $46.8 million for fiscal 1994, an increase of
48.6%.
Gain on discontinued operations occurred as a result of an order for
judgment against the Company in litigation involving certain subsidiaries of
PEC in the amount of $3.4 million, which amount was settled for $2.9 million in
May 1995 and paid in June 1995. Excess of liability over assets of
discontinued operations (a provision for loss) had been provided in the amount
of $4.2 million, which was adjusted to reflect the actual loss, resulting in a
gain on discontinued operations of $1.3 million during fiscal 1995.
Total costs and expenses increased to $65.4 million for fiscal 1995
from $51.8 million for fiscal 1994, an increase of 26.1%. This increase is
primarily the result of an increase in the operations of MMC and an increase in
commissions and selling expenses resulting from a higher volume of sales of
timeshare interests and land during the 1995 period.
Payments to assignors decreased to $7.3 million for fiscal 1995 from
$8.5 million for fiscal 1994, a decrease of 14.9%. Accrual of amounts payable
to assignors ceased on January 31, 1995.
As a result of the foregoing, net income from continuing operations
increased to $894,000 for fiscal 1995 from a net loss of $5.8 million for fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company was $3.2 million at August
31, 1996 compared to $7.3 million at August 31, 1995.
41
<PAGE> 42
The Company's principal cash requirements relate to loan originations,
the acquisition of timeshare properties and land, and the payment of
commissions and selling expenses in connection with timeshare and land sales.
MMC and PEC each require continued access to sources of debt financing and
sales in the secondary market of loans and receivables, respectively.
MMC -- Dependence On Securitization Transactions
The values of and markets for the sale of MMC's loans are dependent
upon a number of factors, including general economic conditions, interest rates
and government regulations. Adverse changes in those factors may affect MMC's
ability to originate or sell loans in the secondary market for acceptable
prices within reasonable time frames. The ability of MMC to sell loans in the
secondary market is essential for continuation of MMC's loan origination
activities. A reduction in the size of the secondary market for home
improvement loans would adversely affect MMC's ability to sell its loans in the
secondary market with a consequent adverse impact on MMC's profitability and
future originations.
MMC entered into its first two securitization transactions, which
involve the pooling and sale of loans, in March 1996 and August 1996 and
intends to continue to sell loans through securitization transactions from time
to time as opportunities arise. Pursuant to these securitizations, pass-through
certificates evidencing interests in the pools of loans were sold in public
offerings. There can be no assurance that MMC will be able to securitize its
loan production efficiently. Securitization transactions may be affected by a
number of factors, some of which are beyond MMC's control, including, among
other things, conditions in the securities markets in general, conditions in
the asset- backed securitization market, the conformity of loan pools to rating
agency requirements and, to the extent that monoline insurance is used, the
requirements of such insurers. Adverse changes in the securitization market
could impair MMC's ability to originate and sell loans through securitizations
on a favorable or timely basis. Any such impairment could have a material
adverse effect upon MMC's results of operations and financial condition.
Furthermore, MMC's quarterly operating results can fluctuate significantly as a
result of the timing and level of securitizations.
MMC -- Negative Cash Flow
As a result of the substantial growth in loan originations, MMC has
operated since March 1994, and expects to continue to operate for the
foreseeable future, on a negative cash flow basis. During the year ended August
31, 1996, MMC operated on a negative cash flow basis using $15.3 million in
operations that was funded primarily from borrowings, due primarily to an
increase in loans originated and MMC's sale of loans. In connection with whole
loan sales and securitizations, MMC recognizes a gain on sale of the loans upon
the closing of the transaction and the delivery of the loans, but does not
receive the cash representing such gain until it receives the excess servicing
spread, which is payable over the actual life of the loans sold. MMC incurs
significant expenses in connection with securitizations and incurs tax
liabilities as a result of the gain on sale. MMC must maintain external sources
of cash to fund its operations and pay its taxes and therefore must maintain
warehouse lines of credit and other external funding sources. If the capital
sources of MMC were to decrease, the rate of growth of MMC would be negatively
affected.
The pooling and servicing agreements relating to MMC's securitizations
require MMC to build over-collateralization levels through retention within
each securitization trust of excess servicing distributions and application
thereof to reduce the principal balances of the senior interests issued by the
related trust or cover interest shortfalls. This retention causes the aggregate
principal amount of the loans in the related pool to exceed the aggregate
principal balance of the outstanding investor certificates. Such
over-collateralization amounts serve as credit enhancement for the related
trust and therefore are available to absorb losses realized on loans held by
such trust. MMC continues to be subject to the risks of default and foreclosure
following the sale of loans through securitizations to the extent excess
servicing distributions are required to be retained or applied to reduce
principal or cover interest shortfalls from time to time. Such retained amounts
are predetermined by the entity issuing the guarantee of the related senior
interests and are a condition to obtaining insurance and an AAA/Aaa rating
thereon. In addition, such retention delays cash distributions that otherwise
would flow to MMC through its retained interest, thereby adversely affecting
the flow of cash to MMC.
MMC's cash requirements arise from loan originations, payments of
operating and interest expenses and deposits to reserve accounts related to
loan sale transactions. Loan originations are initially funded principally
through MMC's $20 million warehouse line of credit pending the sale of loans in
the secondary market.
42
<PAGE> 43
Substantially all of the loans originated by MMC are sold. Net cash used in
MMC's operating activities for the years ended August 31, 1995 and 1996 was
approximately $11.8 million and $15.3 million, respectively. This use was
funded primarily from the reinvestment of proceeds from the sale of loans in
the secondary market totaling approximately $85 million and $135.5 million for
the years ended August 31, 1995 and 1996, respectively. The loan sale
transactions required the subordination of certain cash flows payable to MMC to
the payment of scheduled principal and interest due to the loan purchasers. In
connection with certain of such sale transactions, a portion of amounts payable
to MMC from the excess interest spread is required to be maintained in a
reserve account to the extent of the subordination requirements. The
subordination requirements generally provide that the excess interest spread is
payable to the reserve account until a specified percentage of the principal
balances of the sold loans is accumulated therein.
Excess interest spread payable to MMC is subject to being utilized
first to replenish cash paid from the reserve account to fund shortfalls in
collections of interest from borrowers who default on the payments on the loans
until MMC's deposits into the reserve account equal the specified percentage.
The excess interest required to be deposited and maintained in the respective
reserve accounts is not available to support the cash flow requirements of MMC.
At August 31, 1996, amounts on deposit in such reserve accounts totaled $4.5
million.
Adequate credit facilities and other sources of funding, including the
ability of MMC to sell loans in the secondary market, are essential for the
continuation of MMC's loan origination operations. At August 31, 1996, MMC had
a $20 million warehouse line of credit (Warehouse Line) for the financing of
loan originations which expires in August 1997. At August 31, 1996, $3.3
million was outstanding under the Warehouse Line and $16.7 million was
available. The Warehouse Line bears interest at the prime rate plus 1% per year
and is secured by loans prior to sale. The agreement with the lender requires
MMC to maintain a minimum tangible net worth of $12.5 million plus 50% of MMC's
cumulative net income after May 1, 1996, and a minimum level of profitability
of at least $500,000 per rolling six month period. In addition, MMC had a $10
million revolving credit facility from the same lender, with respect to which
$10 million was outstanding on that date. This facility was secured by a pledge
of MMC's excess servicing rights and the interest only and residual class
certificates (Certificates) relating to securitizations carried as mortgage
related securities on MMC's statements of financial condition, payable to MMC
pursuant to its securitization agreements. The revolving loan has an 18-month
revolving credit period followed by a 30-month amortization period, and
requires MMC to maintain a minimum tangible net worth of $12.5 million plus 50%
of MMC's cumulative net income after May 1, 1996, and a minimum level of
profitability of at least $500,000 per rolling six month period. Borrowings
under the revolving loan cannot exceed the lesser of (i) 40% of MMC's excess
servicing rights and Certificates or (ii) 6 times the aggregate of the excess
servicing rights and Certificate payments actually received by MMC over the
most recent 3-month period. While MMC believes that it will be able to maintain
its existing credit facilities and obtain replacement financing as its credit
arrangements mature and additional financing, if necessary, there can be no
assurance that such financing will be available on favorable terms, or at all.
From time to time, MMC has sold loans through whole loan sales. In
August 1994, MMC entered into an agreement with a bank pursuant to which an
aggregate of $38.3 million in principal amount of loans had been sold at
December 31, 1995, for an amount equal to their remaining principal balance and
accrued interest. Pursuant to the agreement, the purchaser is entitled to
receive interest at a rate equal to the sum of 187.5 basis points and the yield
paid on 4 year Federal Government Treasury obligations at the time of the sale.
MMC retained the right to service the loans and the right to receive the
difference (Excess Interest) between the sold loans' stated interest rate and
the yield to the purchaser. MMC is required to maintain a reserve account equal
to 1% of the declining principal balance of the loans sold pursuant to the
agreement funded from the Excess Interest received by MMC less its servicing
fee to fund shortfalls in collections from borrowers who default in the payment
of principal or interest.
In April 1995, MMC entered into a continuing agreement with a
financial institution pursuant to which an aggregate of approximately $175.8
million in principal amount of loans had been sold at August 31, 1996 for an
amount equal to their remaining principal balances. Pursuant to the agreement,
the purchaser is entitled to receive interest at a variable rate equal to the
sum of 200 basis points and the one- month LIBOR rate as in effect from time to
time. MMC retained the right to service the loans and the right to receive the
Excess Interest. MMC is required to maintain a reserve account equal to 2.5% of
the proceeds received by MMC from the sale of loans pursuant to the agreement
plus the Excess Interest received by MMC less its servicing fee to fund
shortfalls in collections from borrowers who default in the payment of
principal or interest. In May 1995 and June 1995, MMC reacquired an aggregate
of approximately $25 million of such Title I Loans for an amount equal to their
remaining principal balance, which were sold to a financial institution. In
March 1996 and August 1996, MMC reacquired an additional $77.7 million and
$36.2 million, respectively, of the Title I Loans in connection with its first
two securitization
43
<PAGE> 44
transactions. In September 1996, MMC entered into a repurchase agreement with
the financial institution pursuant to which MMC pledged the interest only
certificates from its two 1996 securitizations in exchange for a $3 million
advance. In November 1996, MMC entered into an agreement with the same
financial institution, providing for the purchase of up to $2 billion of loans
over a 5 year period. Pursuant to the agreement, Mego Financial issued to the
financial institution four-year warrants to purchase 1,000,000 shares of Mego
Financial's common stock at an exercise price of $7.125 per share. The
agreement also provides (i) that so long as the aggregate principal balance of
loans purchased by the financial institution and not resold to third parties
exceeds $100 million, the financial institution shall not be obligated to
purchase, and MMC shall not be obligated to sell, loans under the agreement and
(ii) that the percentage of conventional loans owned by the financial
institution at any one-time and acquired pursuant to the agreement shall not
exceed 65% of the total amount of loans owned by the financial institution at
such time and acquired pursuant to the agreement. The value of the warrants,
estimated at $3 million (0.15% of the commitment amount) as of the commitment
date, will be charged to MMC and amortized as the commitment for the purchase
of loans is utilized. The financial institution has also agreed to provide MMC
a separate one-year facility of up to $11 million, less any amounts advanced
under the repurchase agreement, for the financing of the interest only and
residual certificates from future securitizations.
In May 1995, MMC entered into an agreement with a bank pursuant to
which an aggregate of $25 million in principal amount of loans had been sold at
June 30, 1995 for an amount equal to their remaining principal balance.
Pursuant to the agreement, the purchaser is entitled to receive interest at a
rate equal to the sum of 190 basis points and the yield paid on four-year
Federal Government Treasury obligations at the time of the sale. MMC retained
the right to service the loans and the right to receive the Excess Interest.
The agreement requires MMC to maintain a reserve account equal to 1% of the
declining principal balance of the loans sold pursuant to the agreement funded
from the Excess Interest received by MMC less its servicing fee to fund
shortfalls in collections from borrowers who default in the payment of
principal or interest.
In furtherance of MMC's strategy to sell loans through
securitizations, in March 1996 and August 1996, MMC completed its first two
securitizations pursuant to which it sold pools of $84.2 million and $48.8
million, respectively, of Title I Loans. MMC previously reacquired at par $77.7
million and $36.2 million of such loans, respectively. Pursuant to these
securitizations, pass-through certificates evidencing interests in the pools of
loans were sold in a public offering. MMC continues to subservice the sold
loans and is entitled to receive from payments in respect of interest on the
sold loans, a servicing fee equal to 1.25% of the balance of each loan with
respect to the March transaction and 1% with respect to the August transaction.
In addition, with respect to both transactions, MMC certificates received are
carried as mortgage related securities on MMC's Statement of Financial
Condition representing the interest differential, after payment of servicing
and other fees, between the interest paid by the obligors of the sold loans and
the yield on the sold certificates. MMC may be required to repurchase loans
that do not conform to the representations and warranties made by MMC in the
securitization agreements.
As further described in Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Subsequent Event, in November
1996, MMC issued 2,300,000 shares of its common stock and $40 million of 12.5%
Senior Subordinated Notes due 2001 in public offerings. MMC currently intends
to use approximately $13.2 million of the aggregate net proceeds received from
the offerings to repay amounts due to Mego Financial Corp. and PEC and
approximately $17 million to reduce the amounts outstanding under MMC's
warehouse and revolving lines of credit which currently bear interest at rates
ranging from 1% to 2% over the prime rate and which expire in August 1997 and
December 1997, respectively and to repay $3 million under a repurchase
agreement. Funds received by Mego Financial Corp. and PEC will be used in their
respective operations. The remaining net proceeds will be used by MMC to
provide capital to originate and securitize loans. Pending such use, the net
proceeds received by the Company will be invested in high quality, short term
interest-bearing investment and deposit accounts.
PEC -- Liquidity
PEC's cash requirements arise from the acquisition of timeshare
properties and land, payments of operating expenses, payments of principal and
interest on debt obligations, and payments of commissions and selling expenses
in connection with the sale of timeshare interests and land. Commissions and
selling expenses payable by PEC in connection with sales of timeshare interests
and land typically exceed the down payments received at the time of sale, as a
result of which PEC generates a cash shortfall. This cash shortfall and PEC's
other cash requirements are funded primarily through sales of receivables,
PEC's lines of credit in the aggregate amount of $109.5 million and cash flows
from operations.
44
<PAGE> 45
At August 31, 1996, PEC had arrangements with 4 institutional lenders
for 5 agreements for the financing of receivables in connection with sales of
timeshare interests and land and the acquisition of timeshare properties and
land, which provide for 5 lines of credit of up to an aggregate of $109.5
million. Such lines of credit are secured by timeshare and land receivables.
At August 31, 1996, an aggregate of $65.9 million was outstanding under such
lines of credit, and $43.6 million was available for borrowing. At August 31,
1996 and 1995, $65.9 million and $38.1 million, respectively, had been borrowed
under these lines. Under the terms of these lines of credit, the Company may
borrow up to a range of 75% to 85% of the balances of the pledged timeshare and
land receivables. Summarized line of credit information and accompanying notes
relating to these five lines of credit outstanding at August 31, 1996, consist
of the following (thousands of dollars):
<TABLE>
<CAPTION>
BORROWING
AMOUNT AT MAXIMUM
AUGUST 31, BORROWING REVOLVING MATURITY INTEREST
1996 AMOUNT EXPIRATION DATE (D) DATE RATE
- ------------- ------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
$47,297 $57,000 (a) December 31, 1996 September 22, 2003 Prime + 2.25%
7,821 15,000 (b) December 31, 1996 August 1, 2000 Prime + 2.5%
4,865 15,000 (c) June 27, 1998 June 27, 2005 LIBOR + 4.25%
2,925 15,000 (c) February 6, 1998 August 6, 2005 LIBOR + 4.25%
2,967 7,500 (b) December 31, 1996 June 30, 2000 Prime + 2.5%
</TABLE>
(a) Restrictions include PEC's requirement to maintain a tangible net
worth of at least $25 million during the borrowing term, and
thereafter this requirement is permitted to decrease to $15
million depending on the loan balance.
(b) Restrictions include PEC's requirement to maintain a tangible net
worth of $25 million during the life of the loan.
(c) Restrictions include PEC's requirement to maintain a tangible net
worth of $17 million during the life of the loan.
(d) Revolving expiration date represents the expiration of the
revolving features of the lines of credit, at which time the
credit lines assume fixed maturity.
Set forth below is a schedule of the cash shortfall arising from recognized and
unrecognized sales for the periods indicated (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Commissions and selling expenses
attributable to recognized and
unrecognized sales $29,863 $23,969 $19,924
Less: Down payments 13,231 12,796 10,792
------------ ------------ ------------
Cash Shortfall $16,632 $11,173 $9,132
============ ============ ============
</TABLE>
During the fiscal years ended August 31, 1996 and 1995, PEC sold notes
receivable of $16 million and $32.5 million to three major financial
institutions from which $9.7 million and $20.6 million of the proceeds were
used to pay down debt for the fiscal years ended August 31, 1996 and 1995,
respectively. The receivables which have interest rates depending on the
transaction, of 11.8% - 13.9% and 11.8% - 13.7% in 1996 and 1995, respectively,
were sold to yield returns of 8.3% - 10.6% and 8.8% - 11% in 1996 and 1995,
respectively, to the purchasers, with any excess interest received from the
obligors being payable to PEC.
At August 31, 1996, PEC was contingently liable to replace or
repurchase notes receivable sold with recourse totalling $69.6 million. PEC
sells notes receivable subject to recourse provisions as contained in each
agreement. PEC is obligated under these agreements to replace or repurchase
accounts that become over 90 days delinquent or otherwise subject to
replacement or repurchase. The repurchase provisions provides for substitution
of receivables as recourse for $67 million of sold notes receivable and cash
payments for repurchase relating to $2.5
45
<PAGE> 46
million of sold notes receivable. At August 31, 1996 and 1995, the
undiscounted amounts of the $8.4 million and $7.1 million recourse obligations
on such notes receivable were $9.6 million and $8.1 million, respectively.
PEC periodically reviews the adequacy of this liability. These reviews take
into consideration changes in the nature and level of the portfolio, current
and future economic conditions which may affect the obligors' ability to pay,
collateral values and overall portfolio quality.
Recourse to PEC on sales of notes receivable is governed by the
agreements between the purchasers and PEC. The future estimated
contingency for notes receivable sold with recourse represents PEC's
estimate of its probable future credit losses to be incurred over the lives of
the notes receivable. Proceeds from the sale of notes receivable sold with
recourse were $17.1 million and $34.1 million for the years ended August 31,
1996 and 1995, respectively. A liability for future estimated contingency for
notes receivable sold with recourse was established at the time of each sale
based upon PEC's analysis of all probable losses resulting from
PEC's recourse obligations under each agreement of sale. For notes
receivable sold after September 30, 1992, the liability is determined in
accordance with Emerging Issues Task Force (EITF) Issue No. 92-2, on a
"discounted to present value" basis using an interest rate equivalent to the
risk-free market rate for securities with a duration similar to that estimated
for the underlying notes receivable.
Company -- Liquidity
During November 1994 and January 1995, payments aggregating $1.1
million were made to the Assignors to pay a portion of the accrued liability.
At January 31, 1995, when accruals ceased, $13.3 million was payable to the
Assignors. On March 2, 1995, the Assignors agreed to defer payment of $10
million (Subordinated Debt) of the amounts due to them pursuant to an amendment
to the Assignment and Assumption Agreement providing for the subordination of
such amounts to payment of debt for money borrowed by the Company or
obligations of the Company's subsidiaries guaranteed by the Company. Warrants
to purchase 1 million shares of common stock, at an exercise price of $4.25 per
share (the closing market price per share on March 2, 1995), were granted to
the Assignors in consideration of the payment deferral and subordination. The
warrants contain restrictions on transfer and are exercisable after March 1,
1996 and until March 1, 2000. Interest on the Subordinated Debt is to be paid
semi-annually at the rate of 10% per year starting September 1, 1995, and the
Subordinated Debt is to be repaid in seven equal semi-annual payments of $1.4
million plus interest commencing March 1, 1997. On June 14, 1995, the Company
paid an aggregate of $809,000 to the Assignors, including interest in the
amount of $59,000. At August 31, 1996, $2.6 million, other than the
Subordinated Debt, was payable to the Assignors, which amount also bears
interest at the rate of 10% per year. Payments to Assignors are secured by a
pledge of all of PEC's outstanding stock. During fiscal 1996, the Company paid
interest of $1,196,000 to the Assignors on Subordinated debt and other amounts
payable. See "Item 13. Certain Relationships and Related Transactions."
During fiscal years 1996 and 1995, the Company used cash of $33.2
million and $5.1 million, respectively, in operating activities. The increase
was due primarily to increased loan fundings by MMC.
During fiscal years 1996 and 1995, the Company used cash of $9.7
million and $3.7 million, respectively, in investing activities, which was
substantially expended for the purchase of property and equipment.
During fiscal years 1996 and 1995, the Company provided cash of $38.8
million and $5.2 million, respectively, in financing activities as a result of
borrowings.
Capital expenditures during fiscal years 1996 and 1995 were $21.1
million and $14 million, respectively, for the acquisition of inventory and
$9.3 million and $3.8 million, respectively, for the purchase of property and
equipment. The Company made additional capital expenditures in 1996 for the
acquisition of inventory, renovation of future timeshare inventory,
refurbishment of present timeshare inventory, and the acquisition of
replacement equipment. The Company believes that its capital requirements will
be met from cash balances, internally generated cash, existing lines of credit,
sales of receivables, and the modification, replacement or addition to its
lines of credit.
46
<PAGE> 47
FINANCIAL CONDITION
August 31, 1996 Compared to August 31, 1995
Cash decreased 56.6% to $3.2 million at August 31, 1996 from $7.3
million at August 31, 1995 primarily as a result of the timing of loan
originations, sales, and borrowings.
Restricted cash deposits increased 2.9% to $6.7 million at August 31,
1996 from $6.5 million at August 31, 1995 due to increased volume of loans
serviced for others pursuant to agreements which restrict a small percentage of
cash relative to the volume of loans serviced, as well as loan payments
collected from borrowers on accounts serviced for others.
Notes receivable, net, increased 30.4% to $40.5 million at August 31,
1996 from $31.1 million at August 31, 1995 primarily as a result of MMC loan
originations increasing to $139.4 million for fiscal 1996 from $87.8 million
for fiscal 1995, and the timing of loan sales. The following table sets forth
certain data regarding loans originated by MMC during fiscal 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents:
Title I $82,596,197 59.3% $63,792,680 72.7%
Conventional 11,582,108 8.3 - -
------------- ------------- ------------- -------------
Total Correspondent 94,178,305 67.6 63,792,680 72.7
------------- ------------- ------------- -------------
Dealers - Title I 45,188,721 32.4 23,957,829 27.3
------------- ------------- ------------- -------------
Total $139,367,026 100.0% $87,750,509 100.0%
============= ============= ============= =============
Number of loans:
Correspondents:
Title I 4,382 50.9% 3,437 59.1%
Conventional 392 4.6 - -
------------- ------------- ------------- -------------
Total Correspondent 4,774 55.5 3,437 59.1
------------- ------------- ------------- -------------
Dealers - Title I 3,836 44.5 2,381 40.9
------------- ------------- ------------- -------------
Total 8,610 100.0% 5,818 100.0%
============= ============= ============= =============
</TABLE>
Net timeshare and land sales increased to $45.7 million at August 31,
1996 from $41.5 million at August 31, 1995 which increased net
notes receivable. Net timeshare and land sales are set forth in the following
table (thousands of dollars).
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Timeshare sales, net $27,778 $20,682 $7,096 34.3%
Land sales, net 17,968 20,812 (2,844) (13.7)
----------- ----------- ----------
Total timeshare and land
sales, net $45,746 $41,494 $4,252 10.2%
=========== =========== ==========
</TABLE>
Excess servicing rights decreased 13.9% to $14.3 million at August 31,
1996 from $16.6 million at August 31, 1995. Excess servicing rights are
calculated using prepayment, default and interest rate assumptions that the
Company believes market participants would use for similar rights. The Company
believes that the excess servicing rights recognized at the time of sale do not
exceed the amount that would be received if such rights were sold at fair
market value in the marketplace. The decrease in excess servicing rights was
primarily a result of loans sold with excess servicing rights recognized which
were reacquired and included in the fiscal 1996 securitizations as well as
47
<PAGE> 48
normal amortization of such excess servicing rights. The excess cash flow
created through securitization which had been recognized as excess servicing
rights on loans reacquired and securitized are included in the cost basis of
the mortgage related securities.
Mortgage related securities were $22.9 million at August 31, 1996 as a
result of MMC's securitization transactions during fiscal 1996. There was no
corresponding asset at August 31, 1995. See Notes 8 and 9 of Notes to
Consolidated Financial Statements.
Mortgage servicing rights increased 255.7% to $3.8 million at August
31, 1996 from $1.1 million at August 31, 1995 as a result of additional sales
of mortgage originations and the resulting increase in sales of loans serviced
to $137.9 million during fiscal 1996 from $85.4 million during fiscal 1995.
Timeshare and land inventories increased 60.1% to $40.6 million at
August 31, 1996 from $25.4 million at August 31, 1995 primarily in Nevada, as a
result of additional inventory previously under construction and made available
for sale in fiscal 1996.
Property and equipment, net, increased 59.8% to $20.3 million at
August 31, 1996 from $12.7 million at August 31, 1995 due to increased
purchases of office equipment related to facility expansion.
Notes and contracts payable increased 88.9% to $84.4 million at August
31, 1996 from $44.7 million at August 31, 1995 due to increased levels of
excess mortgage servicing rights and mortgage related securities created
through loan securitization which were available for financing to meet the
Company's cash requirements.
Accounts payable and accrued liabilities increased to $19.7 million at
August 31, 1996 from $14 million at August 31, 1995, primarily as a result of
increases in accrued payroll, interest and other unpaid operational costs.
Future estimated contingency for notes receivable sold with recourse
increased 16.2% to $9.3 million at August 31, 1996 from $8 million at August 31,
1995. Loans sold with recourse which were reacquired and included in the 1996
securitizations decreased the amount needed for this allowance while increased
loan sales increased the allowance requirements. Recourse to the Company on
sales of loans is governed by the agreements between the purchasers and the
Company. The allowance for credit losses on loans sold with recourse represents
the Company's estimate of its probable future credit losses to be incurred over
the lives of the loans considering estimated future FHA insurance recoveries on
Title I Loans. No allowance for credit losses on loans sold with recourse is
established on loans sold through securitizations, as the Company has no
recourse obligation under those securitization agreements. Estimated credit
losses on loans sold through securitizations are considered in MMC's valuation
of its residual interest securities.
Deferred income taxes payable increased 35.5% to $11 million at August
31, 1996 from $8.1 million at August 31, 1995 due to increased income.
Stockholder's equity increased 34.4% to $25.9 million at August 31,
1996 from $19.2 million at August 31, 1995 as a result of net income applicable
to common stock of $4.6 million during fiscal 1996.
August 31, 1995 Compared to August 31, 1994
Cash decreased 33.2% to $7.3 million at August 31, 1995 from $11
million at August 31, 1994 primarily as a result of the timing of loan
originations, sales and borrowings.
Restricted cash deposits increased 760% to $6.5 million at August 31,
1995 from $752,000 at August 31, 1994, due to activity on loans serviced
for others pursuant to agreements which restrict a small percentage of cash
relative to the volume of loans serviced, as well as loan payments collected
from borrowers
Notes receivable, net, decreased 15% to $31.1 million at August 31,
1995 from $36.5 million at August 31, 1994 primarily due to sales of
receivables exceeding increases in newly recognized notes receivable.
Excess servicing rights increased 671.9% to $16.6 million at August
31, 1995 from $2.1 million at August 31, 1994. Excess servicing rights are
calculated using prepayment, default and interest rate assumptions that the
Company believes market participants would use for similar rights. The Company
believes that the excess servicing
48
<PAGE> 49
rights recognized at the time of sale do not exceed the amount that would be
received if such rights were sold at fair market value in the marketplace. The
increase in excess servicing rights was primarily a result of increases in
loans sold with excess servicing rights.
Mortgage servicing rights were $1.1 million at August 31, 1995 as a
result of sales of loans which resulted in an increase in the principal balance
of sold loans serviced and implementation of SFAS No. 122. There was no
corresponding asset at August 31, 1994.
Timeshare and land inventories increased to $25.4 million at August
31, 1995 from $16.8 million at August 31, 1994, an increase of 50.8%. The
increase was primarily due to the acquisition and renovation of timeshare
interests.
Notes and contracts payable increased 12.3% to $44.7 million at August
31, 1995 from $39.8 million at August 31, 1994 due to increased borrowings
under the Company's lines of credit and the timing of loan sales.
Accounts payable and accrued liabilities increased 129.1% to $14
million at August 31, 1995 from $6.1 million at August 31, 1994, primarily as a
result of increases in accrued payroll, interest and other operational costs,
due to expansion and growth of the Company.
Future estimated contingency for notes receivable sold with recourse
increased 117.6% to $8 million at August 31, 1995 from $3.7 million at August
31, 1994, primarily due to increased loans sold under recourse provisions.
Recourse to the Company on sales of loans is governed by the agreements between
the purchasers and the Company. The allowance for credit losses on loans sold
with recourse represents the Company's estimate of its probable future credit
losses to be incurred over the lives of the loans, considering estimated future
FHA insurance recoveries on Title I Loans and other factors.
Payable to assignors decreased 63.8% to $2.6 million at August 31,
1995 from $7.1 million at August 31, 1994, as a result of accrued amounts
payable exceeding payments made and the reclassification of $10 million to
subordinated debt.
Excess of liability over assets of discontinued operations decreased
to $0 at August 31, 1995 from $4.2 million at August 31, 1994, as a result of
an order for judgment against the Company in litigation involving certain
subsidiaries of PEC in the amount of $3.4 million, which amount was settled for
$2.9 million in May 1995 and paid in June 1995.
Deposits, which represent the cash funds received on unrecognized land
sales, increased by 63% to $3.6 million at August 31, 1996 from $2.2 million
at August 31, 1994.
Deferred income taxes payable increased 49.7% to $8.1 million at
August 31, 1995 from $5.4 million at August 31, 1994 due to increased income.
Stockholder's equity increased 16.4% to $19.2 million at August 31,
1995 from $16.5 million at August 31, 1994 as a result of net income applicable
to common stock of $1.4 million and the issuance of 1,000,000 common stock
warrants valued at $1.3 million.
POSSIBLE TERMINATION OF SERVICING RIGHTS
As described in Note 10 of Notes to Consolidated Financial Statements,
the pooling and servicing agreements relating to the Company's securitization
transactions contain provisions with respect to the maximum permitted loan
delinquency rates and loan default rates, which, if exceeded, would allow the
termination of the Company's right to service the related loans. At September
30, 1996, the default rates on the pool of loans sold in the March 1996
securitization transaction exceeded the permitted limit set forth in the
related pooling and servicing agreement. Accordingly, this condition could
result in the termination of the Company's servicing rights with respect to
that pool of loans by the trustee, the master servicer or the insurance company
providing credit enhancement for that transaction. The mortgage servicing
rights on this pool of loans were approximately $1.4 million at August 31,
1996. Although the insurance company has indicated that it, and to its
knowledge, the trustee and the master servicer has no present intention to
terminate the Company's servicing rights, no assurance can be given that one or
more of such parties will not exercise its right to terminate. In the event of
such termination, there would be an adverse effect on the valuation of the
Company's mortgage servicing rights and the results of
49
<PAGE> 50
operations in the amount of the mortgage servicing rights ($1.4 million before
tax and $870,000 after tax at August 31, 1996) on the date of termination.
SUBSEQUENT EVENT
In November 1996, MMC issued 2,300,000 shares of its common stock in
a public offering at $10.00 per share. As a result of this transaction, the
Company's ownership in MMC declined from 100% at August 31, 1996 to 81.1%. The
Company continues to have voting control on all matters submitted to
shareholders of MMC, including the election of directors and approval of
extraordinary corporate transactions. Concurrently with the common stock
offering, MMC issued $40 million of 12.5% Senior Subordinated Notes due in
2001 in a public offering . MMC currently intends to use approximately $13.2
million of the aggregate net proceeds received from the offerings to repay
amounts due to Mego Financial Corp. and PEC and approximately $17 million to
reduce the amounts outstanding under MMC's warehouse and revolving lines of
credit which currently bear interest at rates ranging from 1% to 2% over the
prime rate and which expire in August 1997 and December 1997, respectively, and
to repay $3 million under a repurchase agreement. Funds received by Mego
Financial Corp. and PEC will be used in their respective operations. The
remaining net proceeds will be used by MMC to provide capital to originate and
securitize loans. Pending such use, the net proceeds received by the Company
will be invested in high quality, short term interest-bearing investment and
deposit accounts.
EFFECTS OF CHANGING PRICES AND INFLATION
The Company's operations are sensitive to increases in interest rates
and to inflation. Increased borrowing costs resulting from increases in
interest rates may not be immediately recoverable from prospective purchasers.
Inflationary increases are difficult to pass on to customers since increases in
sales prices often results in lower sales closing rates and higher
cancellations. The Company's notes receivable consist primarily of fixed-rate
long term installment contracts that do not increase or decrease as a result of
changes in interest rates charged to the Company. In addition, delinquency and
cancellation rates may be affected by changes in the national economy.
SEASONALITY
Sales of timeshare interests and land are seasonal. For the fiscal
years ended August 31, 1996, 1995 and 1994 quarterly sales as a percentage of
annual sales, for each of the fiscal quarters averaged: quarters ended November
30-25%, quarters ended February 28-20.3%, quarters ended May 31-28.9%, and
quarters ended August 31-25.9%. The majority of the Company's customers are
tourists. The Company's major marketing area, Las Vegas, Nevada, reaches peaks
of tourist activity at periods different from the Company's other major
marketing areas, Reno, Nevada, Southern California, Atlantic City, New Jersey,
Denver and Park and Huerfano Counties, Colorado, which are more active in
summer than in winter. The Company's other major marketing area, Honolulu,
Hawaii, is not subject to seasonality as are the two new resorts opening in
fiscal 1997 in Florida. The Company is not dependent upon a limited number of
customers whose loss would have a materially adverse effect on the Company.
Home improvement loan volume tracks the seasonality of home
improvement contract work. Volume tends to build during the spring and early
summer months, particularly with regard to pool installations. A decline is
typically experienced in late summer and early fall until temperatures begin to
drop. This change in seasons precipitates the need for new siding, window and
insulation contracts. Peak volume is experienced in November and early December
and declines dramatically from the holiday season through the winter months.
Debt consolidation and home equity loan volume are not impacted by seasonal
climate changes and, with the exclusion of the holiday season, tend to be
stable throughout the year.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (the FASB) has issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS 121). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The Company does not
anticipate any material effect upon adoption on the results of operations or
financial condition.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123), which establishes financial accounting and reporting
standards for stock-based employee compensation plans. This
50
<PAGE> 51
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from nonemployees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. SFAS 123 is effective for fiscal years beginning December 15, 1995.
The Company intends to provide the pro forma and other additional disclosure
about stock-based employee compensation plans in its 1997 financial statements
as required by SFAS 123.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS 125) was issued by FASB in
June 1996. SFAS 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. This
statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. It
requires that liabilities and derivatives incurred or obtained by transferors
as part of a transfer of financial assets be initially measured at fair value.
SFAS 125 also requires that servicing assets be measured by allocating the
carrying amount between the assets sold and retained interests based on their
relative fair values at the date of transfer. Additionally, this statement
requires that the servicing assets and liabilities be subsequently measured by
(a) amortization in proportion to and over the period of estimated net
servicing income and (b) assessment for asset impairment or increased
obligation based on the fair values. The statement will require that the
Company's existing and future excess servicing receivables be measured at fair
market value and be reclassified as interest only strip securities and
accounted for in accordance with SFAS 115. As required by the statement, the
Company will adopt the new requirements effective January 1, 1997. It is not
anticipated that upon implementation, the statement will have any material
impact on the financial statements of the Company, as the book value of the
Company's excess servicing rights and mortgage related securities approximates
fair value. Upon adoption of SFAS 125, the Company's subsidiary, PEC, will
begin recognizing servicing rights and notes receivable held for sale, similar
to the method currently used by MMC on mortgage servicing rights under SFAS
122. This will have the impact of increasing the gain on sale of notes at the
time of sale and reducing future servicing fee income on PEC generated
receivables sold after January 1, 1997.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which represent the Company's expectations and beliefs concerning future
events, including the sufficiency of the Company's cash flow for the Company's
future liquidity and capital resource needs. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements,
including, without limitation, the following: decline in demand for home
improvement and debt consolidation loans; decline in demand for timeshare
interests; the effect of general economic conditions generally and specifically
changes in interest rates; the effect of competition; the Company's dependence
on the availability of financing; the Company's ability to sell its loans and
receivables; and the regulation of the Company by federal, state and local
regulatory authorities. Actual events or results may differ as a result of
these and other factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data
of the Company and its subsidiaries are included herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Financial Condition - August 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended August 31, 1996, 1995, and 1994 F-4 - F-5
Consolidated Statements of Stockholders' Equity for the years ended August 31, 1996, 1995, and 1994 F-6
Consolidated Statements of Cash Flows for the years ended August 31, 1996, 1995, and 1994 F-7 - F-8
Notes to Consolidated Financial Statements for the years ended August 31, 1996, 1995, and 1994 F-9 - F-29
Independent Auditors' Report on Financial Statement Schedules S-1
Valuation and Qualifying Accounts for the year ended August 31, 1996 S-2
Valuation and Qualifying Accounts for the year ended August 31, 1995 S-3
Valuation and Qualifying Accounts for the year ended August 31, 1994 S-4
All other schedules are omitted because of the absence of conditions under which they are required
or because the required information is included in the financial statements.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
51
<PAGE> 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ------- -----------------------------------------------
<S> <C> <C>
Robert Nederlander 63 Chairman of the Board, Chief Executive Officer
and Director
Jerome J. Cohen 68 President and Director
Don A. Mayerson 69 Executive Vice President, General Counsel and
Secretary
Herbert B. Hirsch 60 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Eugene I. Schuster 59 Vice President and Director
Jon A. Joseph, Jr. 49 Vice President and Associate General Counsel
Paul K. Sadler 38 Vice President, Management Information Systems
David A. Cleveland 39 Vice President and Chief Accounting Officer
John E. McConnaughy, Jr. 67 Director
Wilbur L. Ross, Jr. 58 Director
Jeff S. Moore 38 President and Chief Operating Officer of MMC
James L. Belter 53 Executive Vice President and Chief Financial
of MMC
Frederick H. Conte 44 Executive Vice President and Chief Operating Officer
of PEC
Stuart Harelik 56 Senior Vice President Marketing and Sales of PEC
</TABLE>
Robert Nederlander has been the Chairman of the Board and Chief
Executive Officer of the Company since January 1988, when affiliates of the
Assignors including Mr. Cohen acquired approximately 43% of the outstanding
Common stock of the Company (Share Acquisition). See "Certain Relationships and
Related Transactions." Mr. Nederlander is the Chairman of the Executive
Committee and a member of the Audit Committee. Since July 1995, Mr. Nederlander
has served on the Board of Directors of HFS, which, together with its
subsidiary, entered into an agreement in April 1995 with the Company pursuant to
which the Company is licensed to use the "Ramada" name in its timeshare
operations. Mr. Nederlander has been Chairman of the Board of Riddell Sports
Inc. since April 1988 and was Riddell Sports Inc.'s Chief Executive Officer from
April 1988 through March 1993. From February 1992 until June 1992, Mr.
Nederlander was also Riddell Sports Inc.'s interim President and Chief Operating
Officer. Since November 1981, Mr. Nederlander has been President and a Director
of the Nederlander Organization, Inc., owner and operator of one the world's
largest chains of legitimate theaters. He served as the Managing General
Partner of the New York Yankees from August 1990 until December 1991, and has
been a limited partner since 1973. Since October 1985, Mr. Nederlander has been
President of Nederlander Television and Film Productions, Inc.; Vice Chairman of
the Board from February 1988 to early 1993 of Vacation Spa Resorts, Inc., an
affiliate of Mego Financial; and Chairman of the Board of Allis-Chalmers Corp.
from May 1989 to 1993, and Vice Chairman from 1993 to October 1996. He remains
a director. Mr. Nederlander was elected to the Board of Directors of Mego
Mortgage Corporation in September 1996. In October 1996, Mr. Nederlander became
a director of News Communications Inc., a publisher of community oriented free
circulation newspapers. Mr. Nederlander was a senior partner in the law firm
of Nederlander, Dodge and Rollins in Detroit, Michigan, from 1960 to 1989.
Mr. Nederlander does not currently serve on a full time basis in his capacities
with the Company.
Jerome J. Cohen has been the President and a Director of the Company
since the Share Acquisition. Mr. Cohen serves as a member of the Executive
Committee and is Chairman of the Board and Chief Executive Officer of MMC, and
is President and Chief Executive Officer of PEC. Since April 1992, Mr. Cohen
has been a Director of Atlantic Gulf Communities Inc., formerly known as
General Development Corporation, a publicly held company engaged in land
development, land sales and utility operations in Florida and Tennessee.
52
<PAGE> 53
Don A. Mayerson has been the Secretary of the Company since the Share
Acquisition and the Executive Vice President and General Counsel of the Company
since April 1988.
Herbert B. Hirsch has been the Senior Vice President, Chief Financial
Officer, Treasurer and a Director of the Company since the Share Acquisition.
Mr. Hirsch serves as a member of the Executive Committee.
Eugene I. Schuster has been a Vice President and a Director of the
Company since the Share Acquisition. Mr. Schuster is a member of the Stock
Option Committee. Since July 1983, Mr. Schuster has been the President and
Chief Executive Officer and a director of Quest Bio Technology, Inc., a
publicly held biotechnology research and development firm. Since September
1985, Mr. Schuster has been a director of Wavemat, Inc., a publicly held
company engaged in the manufacture and sale of microwave equipment for advanced
materials processing. Since January 1988 and May 1988, respectively, Mr.
Schuster has been the Chief Executive Officer and Chairman, of Cellex
BioSciences, a publicly held manufacturer of automated cell culture systems.
Mr. Schuster is a director and executive officer of a number of privately held
venture capital, business development and biotechnology companies. Mr.
Schuster does not currently serve on a full time basis in his capacities with
the Company.
David A. Cleveland became Chief Accounting Officer of the Company in
September 1996. Mr. Cleveland served as Senior Vice President and Controller
of PriMerit Bank from June 1990 to July 1996. Prior to that, he was Chief
Financial Officer of Pacific Coast Savings and Loan Association. Mr. Cleveland
is a Certified Public Accountant.
John E. McConnaughy, Jr. has been a Director of the Company since
1984. Mr. McConnaughy serves as Chairman of the Audit Committee and a member
of the Stock Option and Executive Incentive Compensation Committees. Mr.
McConnaughy also served as Chairman of the Board and Chief Executive Officer of
GEO International Corporation (GEO), a privately held nondestructive testing,
screen printing and oil field services company, from 1981 until October 1992.
GEO filed for protection under Chapter 11 of the U.S. Bankruptcy Code in
October 1993. Mr. McConnaughy has served as a member of the Board of Directors
of Riddell Sports, Inc. since 1988.
Wilbur L. Ross, Jr. has been a Director of the Company since 1984.
Mr. Ross serves as a member of the Audit, Stock Option and Executive Incentive
Compensation Committees. Mr. Ross has been a Senior Managing Director of
Rothschild, Inc., an investment banking firm, since August 1976. Mr. Ross was
a director of GEO from 1987 to January 1992. Mr. Ross serves as a director of
Syms Corporation, a publicly held corporation.
KEY EMPLOYEES
Jeff S. Moore has been a director of MMC since June 1992, at which
time he was elected its Executive Vice President. He was elected as Chief
Operating Officer of MMC in December 1993 and as President in April 1995. Mr.
Moore was the founder and served as President, Chief Executive Officer and a
director of Empire Funding Corp., a nationwide Title I Lender, from August 1985
until March 1992, at which time he sold his interest in the company.
James L. Belter has been Executive Vice President of MMC since April
1995 and Chief Financial Officer since September 1996. Prior to joining MMC,
from May 1989 to September 1993, Mr. Belter served as the President, Chief
Operating Officer and a director of Del-Val Capital Corporation, a commercial
finance company. From April 1985 to April 1989, Mr. Belter served as Executive
Vice President of Security Capital Credit Corporation, a commercial finance
company, where he was responsible for the formation of the company's
installment receivable lending division. From November 1976 to April 1985, Mr.
Belter served as a corporate Vice President of Barclays Business Credit, Inc.
where he managed a unit specializing in financing portfolios of consumer
contracts including residential second mortgages, home improvement contracts,
timeshare and land sales.
Frederick H. Conte has been with PEC since 1978, and its Executive
Vice President and Chief Operating Officer since February 1988.
Stuart Harelik has been the Senior Vice President of Marketing and Sales of PEC
since March 1989.
Jon A. Joseph has been a Vice President and Associate General Counsel
of the Company since July 1995. Mr. Joseph was Executive Vice President of
Valley Bank of Nevada from 1984 to 1991. In 1991, Valley Bank of Nevada was
acquired by Bank of America. Mr. Joseph remained with the legal department of
Bank of America until June 1, 1995.
53
<PAGE> 54
Paul K. Sadler has been with PEC as manager of Management Information
Services since 1985 and was elected Vice President of the Company in June 1995.
ADDITIONAL INFORMATION CONCERNING OFFICERS AND DIRECTORS
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board of Directors. The Company's directors
hold office until the next annual meeting of shareholders and until their
successors have been duly elected and qualified. The Company reimburses all
directors for their expenses in connection with their activities as directors
of the Company. Directors of the Company who are also employees of the Company
do not receive additional compensation for their services as directors.
Members of the Board of Directors of the Company who are not employees of the
Company receive an annual fee of $40,000. Directors are also reimbursed for
their expenses incurred in attending meetings of the Board of Directors and its
committees.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding common stock, to file with the Securities
and Exchange Commission (SEC) initial reports of ownership and reports of
changes in ownership of common stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports are required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation earned by the Company's chief executive officer and each
of the five other most highly compensated executive officers whose annual
salary and bonus during the fiscal years presented exceeded $100,000 (Named
Executive Officers). The Company did not grant any stock options to the Named
Executive Officers during the fiscal year ended August 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- AWARDS
------------
NUMBER OF
FISCAL OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION GRANTED (B) COMPENSATION (C)
- ------------------------------ ---- --------- -------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert Nederlander 1994 $100,000 $ - $ - 35,000 $1,500
Chairman of the Board and 1995 126,925 - - - 1,500
Chief Executive Officer 1996 150,000 2,885 3,789 - 2,293
Jerome J. Cohen 1994 $300,000 $ 5,769 $ 1,437 35,000 $2,225
President 1995 300,000 120,369 3,227 - 2,250
1996 300,000 216,666 6,279 - 2,250
Don A. Mayerson 1994 $200,000 $ 3,846 $ - 35,000 $2,226
Executive Vice President, 1995 200,000 49,686 - - 2,250
General Counsel and 1996 200,000 86,680 5,305 - 2,250
Secretary
Herbert B. Hirsch 1994 $200,000 $ 3,846 $ - 35,000 $2,226
Senior Vice President, Chief 1995 200,000 49,686 - - 2,250
Financial Officer and 1996 200,000 86,680 1,512 - 2,250
Treasurer
Stuart Harelik 1994 $125,000 $344,830 $ - 25,000 $2,302
Senior Vice President 1995 125,000 438,064 - - 2,250
Marketing and Sales of PEC 1996 125,000 411,766 - - 2,250
Jeffrey S. Moore 1994 $126,771 $ - $ 5,400 25,000 $ -
President and Chief Operating 1995 200,003 - 13,963 - -
Officer of MMC 1996 200,003 86,084 13,625 - -
</TABLE>
_____________________________
54
<PAGE> 55
(A) Mr. Harelik receives a contingent bonus based on a percentage of the
sales made in excess of specified sales levels as set forth in his
contract of employment which expires August 31, 2000. In 1994,
Messrs. Cohen, Mayerson and Hirsch received bonuses equal to one
week's salary at year end in accordance with the Company's Christmas
bonus formula. In addition to those bonuses, on April 13, 1996,
pursuant to contractual arrangements, incentive compensation
attributable to the year ended August 31, 1995 was paid to Messrs.
Cohen, Mayerson and Hirsch and is included in the above table as
1995 compensation. Incentive compensation attributable for the year
ended August 31, 1996, but not yet paid, is included in the above
table as 1996 compensation.
(B) The Company adopted the Stock Option Plan on November 17, 1993, and
options were granted to certain executive officers on December 22,
1993 and subsequently to other employees, subject to shareholder
approval of the Stock Option Plan. The Stock Option Plan was approved
by the shareholders on February 9, 1994. One-fifth of each grant to
the named executive officers became exercisable on December 22, 1994
and an additional one-fifth became exercisable on December 22, 1995.
See "Aggregated Fiscal Year-End Option Table" and "Stock Option Plan."
(C) Represents the Company's matching contributions of 25% of the
employee's contribution to the Company's 401(k) Plan on behalf of the
employee.
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of August 31,
1996. No stock options were exercised by the Named Executive Officers during
the fiscal year ended August 31, 1996.
AGGREGATED FISCAL YEAR-END OPTION TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD AT OPTIONS HELD AT
AUGUST 31, 1996 AUGUST 31, 1996 (1)
------------------------------------ -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Nederlander 14,000 21,000 $ 40,250 $ 60,375
Jerome J. Cohen 14,000 21,000 43,750 65,625
Don A. Mayerson 14,000 21,000 43,750 65,625
Herbert B. Hirsch 14,000 21,000 43,750 65,625
Stuart Harelik 10,000 15,000 31,250 46,875
Jeff S. Moore 10,000 15,000 31,250 46,875
</TABLE>
- -------------------------
(1) The closing sales price of the Company's common stock as reported as Nasdaq
National Market
on August 31, 1996 was $5.625.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Jerome J.
Cohen which expires on January 31, 2000. The agreement provides for an annual
base salary of $300,000 plus 2.5% of Incentive Income as defined in the
Company's Incentive Plan (See "Executive Incentive Compensation Plan"). Mr.
Cohen's employment agreement does not provide for an early termination bonus or
other additional compensation based on performance.
MMC has entered into an employment agreement with Jeffrey S. Moore
which expires on December 31, 1998 and which provides for an annual base salary
of $200,000. In addition, Mr. Moore is to receive an incentive bonus each
calendar year equal to 1.5% of MMC's after tax income, provided that certain
scheduled sales goals are met, as well as deferred compensation of 1% of the
gain on sale from sales of loans during such year, payable in 48 equal
installments. In the event payments of the incentive bonus and deferred
compensation due in any year exceed $500,000, then the excess over $500,000 is
only payable with the approval of MMC's Board of Directors.
PEC has entered into an employment contract with Stuart Harelik which
expires on August 31, 2000 and provides for an annual base salary of $125,000.
In addition, Mr. Harelik is to receive a contingent bonus each year equal to
the sum of 1.25% of Net Sales (as defined) in excess of $20 million up to $50
million plus .75% of Net Sales in excess of $50 million.
55
<PAGE> 56
STOCK OPTION PLAN
Under the Company's Stock Option Plan, 525,000 shares of Common Stock
were reserved for issuance upon exercise of options. The Stock Option Plan is
designed to serve as an incentive for retaining qualified and competent
employees.
The Stock Option Committee of the Company's Board of Directors,
administers and interprets the Stock Option Plan and is authorized, in its
discretion, to grant options thereunder to all eligible employees of the
Company (currently 1,062 individuals), including officers of the Company. The
Stock Option Plan provides for the granting of both "incentive stock options"
(as defined in Section 422A of the Internal Revenue Code) and nonstatutory
stock options. Options can be granted under the Stock Option Plan on such
terms and at such prices as determined by the Board, or a committee thereof,
except that the per share exercise price of options may not be less than 80% of
the fair market value of the common stock on the date of grant, and, in the
case of an incentive stock option, the per share exercise price may not be less
than 100% of such fair market value. In the case of incentive stock options
granted to a 10% shareholder, the per share exercise price may not be less
than 110% of the fair market value and the expiration is five years from grant
date. The aggregate fair market value of the shares covered by incentive stock
options granted under the Stock Option Plan that become exercisable by a
grantee for the first time in any calendar year is subject to a $100,000 limit.
Options granted under the Stock Option Plan are exercisable after the
period or periods specified in the option agreement. Options granted under the
Stock Option Plan are not exercisable after the expiration of ten years from
the date of grant and are not transferable other than by will or by the laws of
descent and distribution.
Under MMC's Stock Option Plan, which was effective upon the
consummation of MMC's public stock offering, 925,000 shares of MMC's Common
Stock were reserved for issuance upon exercise of stock options. The options,
even if vested, may not be exercised without the written approval of Mego
Financial Corp. Such shares will be accompanied by stock appreciation rights
which will become exercisable as determined by the Board, or a committee
thereof, only if Mego Financial Corp. does not give approval to the exercise of
the options. This MMC plan was designed as a means to retain and motivate key
employees and directors. MMC's Board of Directors, or a committee thereof,
administers and interprets this MMC plan and is authorized to grant options
thereunder to all eligible employees and directors of MMC, except that no
incentive stock options (as defined in Section 422 of the Internal Revenue code)
may be granted to a director who is not also an employee of MMC, Mego Financial
Corp. or a subsidiary of MMC.
This plan provides for the granting of both incentive stock options
and unqualified stock options. Options will be granted on such terms and at
such prices as determined by MMC's Board of Directors, or a committee thereof,
except that the per share exercise price of incentive stock options cannot be
less than the fair market value of the common stock on the date of grant. Each
option is exercisable after the period or periods specified in the related
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Options granted to an individual who owns (or is
deemed to own) at least 10% of the total combined voting power of all classes
of stock of MMC or the Company must have an exercise price of at least 110% of
the fair market value of the common stock on the date of grant and a term of no
more than five years. MMC is authorized to make or guarantee loans to optionees
to enable them to exercise their options. Such loans must (I) provide for
recourse to the optionee, (ii) bear interest at a rate no less than the prime
rate of interest, and (iii) be secured by the shares of common stock purchased.
The Board of Directors of MMC has the authority to amend or terminate this plan,
provided that no such action may impair the rights of the holder of any
outstanding option without the written consent of such holder, and provided
further that certain amendments are subject to stockholder approval. Unless
terminated sooner, this MMC plan, will continue in effect until all options
granted thereunder have expired or been exercised, provided that no options may
be granted ten years after commencement of the MMC plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not designated a Compensation Committee,
but has delegated the responsibility and authority for setting and overseeing
the administration of policy which governs the compensation of all of the
Company's employees (with the exception of Messrs. Nederlander, Cohen,
Mayerson, Hirsch and Schuster) to its President, Jerome J. Cohen. The
compensation paid to Messrs. Nederlander, Cohen, Mayerson, Hirsch and Schuster
is determined by the Board of Directors. The directors who are also executive
officers of the Company do not participate in deliberations of the Board of
Directors of the Company concerning their own compensation. In fiscal 1995,
Mr. Nederlander's annual salary was increased to $150,000, and Mr. Schuster's
annual salary was increased to $60,000.
56
<PAGE> 57
EXECUTIVE INCENTIVE COMPENSATION PLAN
On June 22, 1994, effective for the year ending August 31, 1995, the
Board of Directors of the Company approved an Executive Incentive Compensation
Plan (Incentive Plan) for executives and other key employees of the Company and
its subsidiaries who contribute to the success of the Company. Under the terms
of the Incentive Plan, awards of incentive compensation may be made by an
Incentive Compensation Committee of the Board of Directors of the Company,
which committee shall be composed of not less than two members. The Incentive
Plan provides that the Board of Directors may amend, suspend or terminate the
Incentive Plan at any time. Incentive Compensation for any fiscal year is
defined as an amount equal to 7.5% of incentive income (Incentive Income) for
such year. Incentive Income for any fiscal year is defined as the amount
reported as income before taxes in the consolidated financial statements of the
Company for such year. The maximum amount of all awards of Incentive
Compensation for any fiscal year shall not exceed (a) 7.5% of Incentive Income
for such year, reduced by (b) the amount of Incentive Income which must be paid
by the Company to employees pursuant to any contractual obligation of the
Company, increased by (c) any unawarded Incentive Compensation carried forward
from a prior fiscal year.
On June 22, 1994, the Board of Directors also approved an employment
agreement with Mr. Jerome J. Cohen, President of the Company, and agreements
with Messrs. Don A. Mayerson and Herbert B. Hirsch, executive officers of the
Company, pursuant to which Messrs. Cohen, Mayerson and Hirsch are entitled to
receive 2.5%, 1% and 1% respectively, of Incentive Income of the Company, as
defined in the Incentive Plan, for the five year period commencing with fiscal
1995, which amounts would directly reduce the amounts available for awards
under the Incentive Plan.
SPLIT DOLLAR INSURANCE PLAN
On April 5, 1995, the Board of Directors of the Company established a
split-dollar life insurance plan (Split-Dollar Plan) pursuant to which the
Company pays the premiums for certain "second to die" life insurance policies
on the lives of Robert Nederlander, Jerome J. Cohen, Don A. Mayerson and
Herbert B. Hirsch, executive officers of the Company (Messrs. Nederlander,
Cohen and Hirsch are also directors of the Company), and their respective
spouses, for a period not to exceed five years, at an annual aggregate premium
outlay of $400,000. Each policy is in the name of a trust established for
family beneficiaries selected by such officers. On August 3, 1995, the Company
approved a life insurance policy for Mr. Schuster at an annual cost of $100,000
for a period of five years. Pursuant to the plan, and with respect to each
policy, after ten years, or earlier upon the deaths of the respective insured
parties, or certain other eventualities, the Company will receive the amount of
premiums paid on the policy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 8, 1996, information
with respect to the beneficial ownership of the common stock by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers, and (iv) all directors and executive
officers of the Company as a group. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENT
- ----------------------------------------- ---------------- ----------------------
<S> <C> <C>
Robert Nederlander(2) . . . . . . . . . . . . . . . . . . 2,133,697 11.6% Common
Eugene I. Schuster and Growth Realty Inc. (GRI)(3) . . . 1,933,634 10.5% Common
Jerome J. Cohen(4) . . . . . . . . . . . . . . . . . . . 1,127,823 6.1% Common
Herbert B. Hirsch(5) . . . . . . . . . . . . . . . . . . 1,699,623 9.2% Common
Don A. Mayerson(6) . . . . . . . . . . . . . . . . . . . 824,414 4.5% Common
John E. McConnaughy, Jr.(7) . . . . . . . . . . . . . . . 616,503 3.3% Common
Wilbur L. Ross, Jr.(8) . . . . . . . . . . . . . . . . . 152,500 * Common
Jeff S. Moore (9) . . . . . . . . . . . . . . . . . . . 17,000 * Common
Stuart Harelik (10) . . . . . . . . . . . . . . . . . . 15,700 * Common
All Officer and Directors as a Group (9 persons)(11) . . 8,520,894 46.2% Common
- -------------------
</TABLE>
* Less than 1%.
57
<PAGE> 58
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from November 27, 1996 upon
the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Form 10-K filing.
(2) 810 Seventh Avenue, 21st Floor, New York, New York 10019. Includes
21,000 shares issuable under an option granted pursuant to the Stock
Option Plan, to the extent exercisable within the next 60 days and
250,000 shares issuable upon the exercise of warrants held by an
affiliate of Mr. Nederlander. See "Certain Relationships and Related
Transactions."
(3) 321 Fisher Building, Detroit, Michigan 48202. These shares are held
of record by GRI, a wholly owned subsidiary of Venture Funding, Ltd.
of which Mr. Schuster is a principal shareholder, Director and Chief
Executive Officer. Includes 250,000 shares issuable upon the exercise
of warrants held by an affiliate of Mr. Schuster. See "Certain
Relationships and Related Transactions."
(4) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161.
Includes 21,000 shares issuable under an option granted pursuant to
the Stock Option Plan, to the extent exercisable within the next 60
days and 200,000 shares issuable upon the exercise of warrants held by
Mr. Cohen. Excludes 103,503 shares owned by Mr. Cohen's spouse,
500,000 shares owned by a trust for the benefit of his children over
which Mr. Cohen does not have any investment or voting power, as to
which he disclaims beneficial ownership.
(5) 230 East Flamingo Road, Las Vegas, Nevada 89109. Includes 21,000
shares issuable under an option granted pursuant to the Stock Option
Plan, to the extent exercisable within the next 60 days and 200,000
shares issuable upon the exercise of warrants held by Mr. Hirsch.
Excludes 10,000 shares held by Mr. Hirsch as custodian for a minor
child as to which he disclaims beneficial ownership, and 21,666 shares
held by a family trust, as to which he disclaims beneficial ownership.
(6) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161.
Includes 21,000 shares issuable under an option granted pursuant to the
Stock Option Plan, to the extent exercisable within the next 60 days
and 100,000 shares issuable upon the exercise of warrants held by Mr.
Mayerson. Excludes 56,667 shares owned by Mr. Mayerson's spouse, as
to which he disclaims beneficial ownership.
(7) 1011 High Ridge Road, Stamford, Connecticut 06905. Excludes 3,000
shares owned by a member of Mr. McConnaughy's family, as to which he
disclaims beneficial ownership.
(8) 1251 Avenue of the Americas, 51st Floor, New York, New York 10020.
Excludes 15,000 shares owned by a member of Mr. Ross' family and
250,000 shares owned by Rothschild, Inc., of which Mr. Ross is a
Managing Director, over which Mr. Ross does not have any investment or
voting power, and as to which he disclaims beneficial ownership.
(9) 1000 Parkwood Circle, Atlanta, Georgia 30339. Includes 15,000 shares
issuable under an option granted pursuant to the Stock Option Plan, to
the extent exercisable within the next 60 days.
(10) 4310 Paradise Road, Las Vegas, Nevada 89109. Includes 15,000 shares
issuable under an option granted pursuant to the Stock Option Plan, to
the extent exercisable within the next 60 days.
(11) See Notes (2)-(10).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Purchase of Preferred Equities Corporation. Pursuant to a Stock
Purchase and Redemption Agreement dated October 6, 1987 and amended October 25,
1987, Comay Corp., an affiliate of Messrs. Cohen and Mayerson (Comay), GRI, an
affiliate of Mr. Schuster, RRE Corp., an affiliate of Mr. Nederlander (together
with its assignee, RER Corp., another affiliate of Mr. Nederlander, RER), and
H&H Financial Inc., an affiliate of Mr. Hirsch (H&H), obtained the rights (PEC
Purchase Rights) to acquire PEC, a privately-held Nevada corporation engaged in
retail land sales, resort time-sharing and other real estate related
activities. (Comay, GRI, RER and H&H are collectively referred to as the
Assignors).
58
<PAGE> 59
Certain Arrangements Between the Company and Affiliates of Certain
Officers and Directors.
Pursuant to the Assignment and Assumption Agreement, dated February 1,
1988 as subsequently amended, the Assignors assigned (Assignment) their PEC
Purchase Rights to the Company. As part of the consideration for the
Assignment to the Company, the Assignors were entitled to receive from the
Company, on a quarterly basis until January 31, 1995, amounts equal in the
aggregate to 63% of the "Unrestricted Cash Balances" of PEC. The Assignment
and Assumption Agreement defines Unrestricted Cash Balances of PEC as the cash
on hand and on deposit of PEC and its subsidiaries as of the end of a fiscal
quarter that could be used to make a dividend or other payment to the Company
without violating the most restrictive loan agreement to which PEC is a party
or by which PEC is bound.
At January 31, 1995, at which point the accrual of payments ceased,
the Company owed the Assignors an aggregate of $13.3 million pursuant to the
Assignment and Assumption Agreement. Pursuant to an amendment (the Amendment)
to the Assignment and Assumption Agreement, dated March 2, 1995, the Assignors
agreed to defer payment of the $10 million of Subordinated Debt and to
subordinate the payment of such amount to them to the Company's repayment of
certain borrowings and the repayment of certain obligations of subsidiaries of
the Company, the repayment of which obligations were guaranteed by the Company.
Pursuant to the Amendment, the Company is required to pay interest semi-
annually on the Subordinated Debt at a rate of 10% per year between September
1, 1995 and March 1, 1997, and make seven equal semi-annual payments of $1.4
million plus interest commencing March 1, 1997. In addition to the
Subordinated Debt, at May 31, 1995, $3.3 million was payable to the Assignors,
which amount bears interest at the rate of 10% per year, payable semi-annually
pursuant to the provisions of the Assignment and Assumption Agreement
(Unsubordinated Amount). During fiscal 1996, the Company paid an aggregate of
$1.2 million to the Assignors, all of which represented interest. The
Unsubordinated Amount is payable no later than March 1, 1997. All amounts owed
to the Assignors are secured by a pledge of all the stock of PEC.
In consideration of the payment deferral and subordination described
above, warrants (Warrants) for 1,000,000 shares of common stock at an exercise
price of $4.25 per share (the closing market price per share on March 2, 1995)
were granted to the Assignors. The Warrants contain restrictions on transfer
and are exercisable between March 2, 1996 and March 1, 2000.
The amount of options exercisable at August 31, 1996 were 155,000 plus
an additional 74,000 that will become exercisable within 60 days after the
Form 10-K filing date.
In April 1995, PEC entered into an arrangement with HFS, of which Mr.
Nederlander became a director in July 1995. See "Business- Preferred Equities
Corporation-Timeshare Properties and Sales."
59
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) See Item 8 above for a list of financial statements and
financial statement schedules included as part of this
Annual Report on Form 10-K.
(b) No reports on Form 8-K were filed during the last quarter of
fiscal 1996.
(c) Exhibits.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1(1) Disclosure Statement dated October 3, 1983,
together with Schedules A through G and Debtors'
Plan, filed as Exhibit (2) to Mego International (a
predecessor of the Company) Form 10-K for the year
ended February 28, 1983, and incorporated herein by
reference.
2.2(8) Articles of Merger of Vacation Spa Resorts,
Inc. with and into Preferred Equities
Corporation dated March 10, 1993, Agreement and
Plan of Merger dated as of July 24, 1992, among
Preferred Equities Corporation and Vacation Spa
Resorts, Inc., Amendment to Agreement and Plan of
Merger dated July 14, 1992, and Amendment to
Agreement and Plan of Merger dated December 7,
1992.
3.1(a)(1) Certificate of Incorporation of the Company, as
amended, filed as Exhibit 3.1 to the Company's
Form 10-K for the fiscal year ended August 31,
1987 and incorporated herein by reference.
3.1(b)(5) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated June 19, 1992.
3.1(c)(8) Certificate of Amendment of the Certificate of
Incorporation of the Company, dated August 26,
1993.
3.2(1) By-laws of the Company, as amended.
3.3(10) Mego Mortgage Corporation Amended and Restated
Certificate of Incorporation of Mego Mortgage
Corporation.
3.4(10) Mego Mortgage Corporation By-laws of Mego Mortgage
Corporation, as amended.
4.1(10) Mego Mortgage Corporation Specimen Common Stock
Certificate.
10.4(a)(1) Stock Purchase Agreement dated October 25, 1987
by and among the Company, and Robert
Nederlander, Jerome J. Cohen, Don A. Mayerson,
Herbert Hirsch and Growth Realty Inc. ("GRI")
(collectively, the "Purchasers") filed as
Exhibit A to a Schedule 13D dated October 25,
1987, filed by Jerome J. Cohen, et al., and
incorporated herein by reference.
10.4(b)(1) Letter dated January 7, 1988 from the
Purchasers of the Company, updating
representations made by the Company, in the Stock
Purchase Agreement (Exhibit 10.5(a)) filed as
Exhibit 10.2 to a Current Report on Form 8-K of
the Company, dated January 7, 1988, and
incorporated herein by reference.
10.5(a)(1) Assignment Agreement dated October 25, 1987 by and
among Comay Corp. ("Comay"), GRI, RER Corp.
("RER") (as successor in interest to RRE Corp.)
and H&H Financial, Inc. ("H&H") (collectively the
"Assignors") and the Company, with respect to
shares of Common Stock of Preferred Equities
Corporation ("PEC"), filed as Exhibit B to a
Schedule 13D dated October 25, 1987 filed by
Jerome J. Cohen, et al., and incorporated herein by
reference.
10.5(b)(1) Assignment and Assumption Agreement dated
February 1, 1988 by and among the Assignors and
the Company filed as Exhibit 10.2 to a Current
Report of Form 8-K of the Company, dated February
1, 1988 and incorporated herein by reference.
10.5(c)(1) Amendment to Exhibit 10.6(b) dated as of July
29, 1988 filed as Exhibit 10.3 to a Current
Report on Form 8-K of the Company, dated August 1,
1988 and incorporated herein by reference.
10.6(a)(1) Stock Purchase and Redemption Agreement dated as
of October 6, 1987 by and among PEC, Comay, GRI,
RRE Corp., H&H, Linda Sterling and the 1971 Rosen
Family Stock Trust filed as Exhibit C to a
Schedule 13D dated October 25, 1987 filed by Jerome
J. Cohen, et al., and incorporated herein by
reference.
10.6(b)(1) Amendment dated as of October 25, 1987 of Exhibit
10.7(a) filed as Exhibit 10.3(b) to a Current
Report on Form 8-K of the Company dated
February 1, 1988, and incorporated herein by
reference.
10.7(1) Loan and Security Agreement dated February 1,
1988 by and between the Company and Greyhound
Real Estate Finance Company filed as Exhibit 10.7
to a Current Report on Form 8-K of the Company
dated February 1, 1988 and incorporated herein by
reference.
10.8(1) Pledge and Security Agreement dated February 1,
1988 by and among the Company and Comay, GRI, REF,
H&H and PEC regarding the pledge of PEC stock
pursuant to the Assignment Agreement and the
Assignment and Assumption Agreement (Exhibits
10.6(a) and (b)) filed as Exhibit 10.8 to the
Form 8 Amendment dated April 18, 1988 to a Current
Report on Form 8-K of the Company dated February 1,
1988 and incorporated herein by reference.
60
<PAGE> 61
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.9(1) Purchase Agreement dated June 30, 1988 by and
among Preferred Equities Corporation ("PEC"),
Southern Colorado Properties, Inc., Colorado Land
and Grazing Company and The Oxford Finance
Companies, Inc. filed as Exhibit 10.1 to a
Quarterly Report of the Company on Form 10-Q
for the quarter ended May 31, 1988 and
incorporated herein by reference.
10.10(2) Amendment to Exhibit 10.5(b), dated July 29, 1988.
10.11(3) Amended and Restated Loan and Security Agreement
between Greyhound Real Estate Finance Company and
Vacation Spa Resorts, Inc., dated May 10, 1989
and Amended and Restated Promissory Note and
Guarantee and Subordination Agreement.
10.12(3) Amendment No. 2 to Loan and Security Agreement
between Greyhound Real Estate Finance Company and
Vacation Spa Resorts, Inc., dated April 16, 1990
and Amendment No. 2 to Promissory Note and
Guarantee and Subordination Agreement.
10.13(3) Purchase Agreement dated 24th day of September,
1990 by and among Brigantine Inn, Ltd., Brigantine
Preferred Properties, Inc. and Preferred Equities
Corporation.
10.14(3) Purchase Agreement dated 24th day of September,
1990 by and among Brigantine Villas, L.P.,
Brigantine Preferred Properties, Inc., and
Preferred Equities Corporation.
10.15(4) Amendment No. 3 to Loan and Security Agreement
between Greyhound Real Estate Finance Company and
Preferred Equities Corporation, dated May 31,
1991 and Amendment No. 2 to Promissory Note.
10.16(4) Amendment No. 3 to Loan and Security Agreement
between Greyhound Real Estate Finance Company and
Vacation Spa Resorts, Inc., dated May 31, 1991
and Amendment No. 2 to Promissory Note.
10.17(4) Loan and Security Agreement between Dorfinco
Corporation and Preferred Equities Corporation,
dated July 31, 1991 and related Promissory Note
dated August 9, 1991.
10.18(4) Forbearance and Assumption Agreement, Guarantee
and Second Amendment to Loan and Security
Agreement between Chemical Bank of New Jersey,
Brigantine Villas, L.P. and Brigantine
Preferred Properties, Inc., dated June 12,
1991, Amended and Restated Promissory Note dated
June 18, 1991, and Second Amendment to Mortgage
dated June 18, 1991.
10.19(5) Stock Purchase Agreement dated August 13, 1992
between the Company and PEC.
10.20(5) Amendment No. 4 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities
Corporation, dated January 13, 1992, and Amendment
No. 3 to Amended and Restated Promissory Note.
10.21(5) Agreement to Wholesale Financing and related
Promissory Note between ITT Commercial Finance
Corp. and Calvada Homes, Inc., dated January 17,
1992.
10.22(5) Purchase and Sale Agreement between Golden West
Homes and Calvada Homes, Inc., dated February
26, 1992.
10.23(5) Standard Form of Agreement between Owner and
Contractor between Calvada Homes, Inc. and Emfad
Enterprises, Inc., dated March 23, 1992.
10.24(5) Loan Modification and Extension Agreement between
Valley Bank of Nevada and Preferred Equities
Corporation dated January 30, 1992.
10.25(5) Amendment No. 2 to Amended and Restated Loan
Agreement between Valley Bank of Nevada and
Vacation Spa Resorts, Inc., dated February 20,
1992, and related Promissory Note dated February
20, 1992.
10.26(6) Purchase and Servicing Agreement dated as of
October 15, 1992 among Vacation Spa Resorts,
Inc. and Preferred Equities Corporation as
Sellers, Preferred Equities Corporation as
Servicer, and NBD Bank, N.A. as Purchaser.
10.27(6) Guaranty Agreement as of October 15, 1992 made by
Vacation Spa Resorts, Inc., Preferred Equities
Corporation, and the Company in favor of NBD Bank,
N.A.
10.28(6) Letter from Greyhound Financial Corporation
dated December 4, 1992 extending the borrowing
term of the Amended and Restated Loan and
Security Agreement dated May 10, 1992, between
Greyhound Real Estate Finance Company and
Preferred Equities Corporation and Loan and
Security Agreement dated March 30, 1989, between
Greyhound Real Estate Finance Company and Vacation
Spa Resorts, Inc., to December 31, 1992.
10.29(7) Asset Sale Agreement dated December 22, 1992,
by and between Brigantine Preferred Properties,
Inc. as Seller, and The Oxford Finance Companies as
Buyer.
10.30(7) Amendment No. 5 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities Corporation,
dated February 23, 1993, Amendment No. 4 to Loan
and Security Agreement between Greyhound Real
Estate Finance Company and Vacation Spa Resorts,
Inc., dated February 23, 1993.
10.31(7) First Amendment to Stock Purchase Agreement
dated March 10, 1993, by and between the Company
and Preferred Equities Corporation.
10.32.(7) Amendment No. 6 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities Corporation,
dated June 28, 1993, and three(3) related
Promissory Notes, relating to the Grand
Flamingo Winnick, Grand Flamingo Fountains, and
Preferred Equities Corporation corporate offices.
61
<PAGE> 62
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.33(7) Second Amendment to Loan and Security Agreement
dated June 30, 1993, between Dorfinco Corp. and
Preferred Equities Corporation, and First Amendment
to Promissory Note.
10.34(7) Agreement for Sale of Notes Receivable arising
from Timeshares sales dated August 3, 1993, by
and between Brigantine Properties, Inc. as
Seller, and The Oxford Finance Companies as
Buyer.
10.35(7) Purchase and Sale Agreement dated August 30,
1993, between Preferred Equities Corporation as
Developer, and Marine Midland Bank, N.A., and
Wellington Financial Corp.
10.36(7) Purchase Agreement dated August 31, 1993, between
Mego Financial Corp. as Seller, and Legg Mason
Special Investment Trust as Buyer, for the
purchase of 300,000 shares of the Company's
Preferred Stock.
10.37(8) Amended and Restated Loan Agreement between
Bank of America Nevada and Preferred Equities
Corporation, dated September 10, 1993.
10.38(8) Agreement for Line of Credit and Commercial
Promissory Note between Mego Mortgage
Corporation and First National Bank of Boston,
dated January 4, 1994.
10.39(8) Amendment No. 7 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities Corporation,
dated January 24, 1994.
10.40(8) Agreement between Mego Mortgage Corporation
and Hamilton Consulting, Inc., dated January
31, 1994.
10.41(8) Loan Purchase and Sale Agreement dated March 22,
1994, between Mego Mortgage Corporation as Buyer,
and Southwest Beneficial Finance, Inc. as Seller.
10.42(8) Amendment No. 8 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities Corporation,
dated April 15, 1994.
10.43(8) Purchase and Servicing Agreement dated as of June
1, 1994, between Preferred Equities Corporation
as Seller and Servicer, and NBD Bank, N.A. as
Purchaser.
10.44(8) Purchase and Servicing Agreement dated as of
July 6, 1994, between Preferred Equities
Corporation as Seller, and First National Bank of
Boston as Purchaser.
10.45(8) Amendment No. 9 to Amended and Restated Loan and
Security Agreement between Greyhound Real Estate
Finance Company and Preferred Equities
Corporation, dated August 31, 1994, and Amendment
No. 4 to Amended and Restated Promissory Note
dated August 31, 1994, Amendment No. 6 to Loan
and Security Agreement between Greyhound Real
Estate Finance Company and Preferred Equities
Corporation dated August 31, 1994, and Amendment
No. 4 to Promissory Note dated August 31,
1994, between Preferred Equities Corporation as
successor-in-interest to Vacation Spa
Resorts, Inc., and Greyhound Financial
Corporation.
10.46(8) Master Loan Purchase and Servicing Agreement dated
as of August 26, 1994, between Mego Mortgage
Corporation as Seller, and First National Bank of
Boston, as Purchaser.
10.47(9) Third Amendment to Loan and Security Agreement and
Assumption Agreement dated August 23, 1994, by and
between Preferred Equities Corporation, Colorado
Land and Grazing Corp. and Dorfinco Corporation.
10.48(9) General Loan and Security Agreement dated
October 5, 1994, between Steamboat Suites, Inc.
and Textron Financial Corporation.
10.49(9) Purchase and Servicing Agreement, Second
Closing, dated November 29, 1994, between
Preferred Equities Corporation and NBD Bank, N.A.
10.50(9) Form of Agreement with respect to the Company's
"Split-Dollar" Life Insurance Plan, including
Form of Assignment of Limited Interest in Life
Insurance as Collateral Security.
10.51(9) Construction Loan Agreement dated January 20,
1995, by and between Preferred Equities
Corporation and NBD Bank.
10.52(9) Amendment No. 10 to Amended and Restated Loan and
Security Agreement dated January 26, 1995, by and
between Greyhound Financial Corporation and
Preferred Equities Corporation.
10.53(9) Loan Agreement re: Calvada Golf Course dated
January 31, 1995, by and among The First
National Bank of Boston and Preferred Equities
Corporation.
10.54(9) Second Amendment to Assignment and Assumption
Agreement dated March 2, 1995, by and between
RER Corp., Comay Corp., Growth Realty, Inc. and
H&H Financial, Inc. and Mego Financial Corp.
10.55(9) First Amendment to General Loan and Security
Agreement dated February 27, 1995, between
Steamboat Suites, Inc. and Textron Financial
Corporation.
10.56(9) Master Loan Purchase and Servicing Agreement
dated April 1, 1995, by and between Greenwich
Capital Financial Products, Inc. and Mego Mortgage
Corporation.
10.57(9) Licensing Agreement dated April 18, 1995, by and
among Hospitality Franchise Systems, Inc., Ramada
Franchise Systems, Inc. and Preferred Equities
Corporation.
10.58(9) Purchase and Servicing Agreement, Third Closing,
dated May 24, 1995, between NBD Bank, N.A. and
Preferred Equities Corporation.
10.59(9) Participation and Servicing Agreement dated May
25, 1995, by and between Atlantic Bank, N.A. and
Mego Mortgage Corporation.
10.60(9) Purchase and Servicing Agreement, dated as of
August 31, 1995, between Preferred Equities
Corporation, Colorado Land and Grazing Corp. and
First National Bank of Boston.
62
<PAGE> 63
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.61(9) Warehousing Credit and Security Agreement, dated
as of August 11, 1995, between Mego Mortgage
Corporation and First National Bank of Boston.
10.62(10) Mego Mortgage Corporation Stock Option Plan
10.63(10) Form of Tax Allocation and Indemnity Agreement
entered into between Mego Mortgage
Corporation and the Company.
10.64(10) Loan Program Sub-Servicing Agreement between the
Mego Mortgage Corporation and Preferred Equities
Corporation dated as of September 1, 1996.
10.65(10) Servicing Agreement by and among Mego Mortgage
FHA Title I Loan Trust 1996-1, First Trust of
New York, National Association, as Trustee,
Norwest Bank Minnesota, N.A. as Master Servicer
and the Registrant, as Servicer dated as of March
21, 1996.
10.66(10) Loan Purchase Agreement between Financial Asset
Securities Corp., as Purchaser, and the Mego
Mortgage Corporation, as Seller, dated as of March
21, 1996.
10.67(11) Indemnification Agreement among MBIA Insurance
Corporation, as Insurer, Mego Mortgage Corporation,
as Seller and Greenwich Capital Markets, Inc. as
Underwriter, dated as of March 29, 1996.
10.68(10) Pooling and Servicing Agreement, dated as of March
21, 1996, among Mego Mortgage Corporation, Financial
Asset Securities Corp., as Depositor, First Trust of
New York, National Association, as Trustee and
Contract of Insurance Holder and Norwest Bank
Minnesota, N.A., as Master Servicer.
10.69(11) Insurance Agreement among MBIA Insurance
Corporation, as Insurer, Norwest Bank Minnesota,
N.A., as Master Servicer, Mego Mortgage Corporation,
as Seller, Servicer and Claims Administrator,
Financial Asset Securities Corp., as Depositor,
Greenwich Capital Financial Products, Inc., and
First Trust of New York, National Association, as
as Trustee and Contract of Insurance Holder, dated
as of March 21, 1996.
10.70(11) Credit Agreement dated as of June 28, 1996
between Mego Mortgage Corporation and First
National Bank of Boston as Agent.
10.71(10) Loan Purchase Agreement dated as of August 1,
1996 between Financial Asset Securities Corp., as
Purchaser, and Mego Mortgage Corporation, as
Seller.
10.72(10) Pooling and Servicing Agreement dated as of
August 1, 1996 between Financial Asset Securities
Corp., as Purchaser, and Mego Mortgage Corporation,
as Seller.
10.73(11) Amendment No. 1 to Warehousing Credit and
Security Agreement dated as of August 9, 1996
between Mego Mortgage Corporation and First
National Bank of Boston.
10.74(10) Office Lease by and between MassMutual and Mego
Mortgage Corporation dated April 1996.
10.75(11) Amendment to Master Loan Purchase and Servicing
Agreement between Greenwich Capital Financial
Products, Inc., and Mego Mortgage Corporation dated
February 1, 1996.
10.76(11) Amendment No. 2 to Master Loan Purchase and
Servicing Agreement between Greenwich Capital
Financial Products, Inc., and Mego Mortgage
Corporation dated July 1, 1996.
10.77(10) Services and Consulting Agreement between Mego
Mortgage Corporation and Preferred Equities
Corporation dated as of September 1, 1996.
10.78(11) Employment Agreement between Mego Mortgage
Corporation and Jeffrey S. Moore dated January
1, 1994.
10.79(11) Form of Indenture entered into between Mego Mortgage
Corporation and the Indenture Trustee.
10.80(10) Master Repurchase Agreement dated as of September
4, 1996 between Mego Mortgage Corporation and
Greenwich Capital Markets, Inc.
10.81(10) Letter agreement dated October 1, 1996 between
Mego Mortgage Corporation and Greenwich Capital
Markets, Inc.
10.82(10) Amended and Restated Master Loan Purchase and
Servicing Agreement dated as of October 1, 1996
among Mego Mortgage Corporation, Mego Financial
Corp. and Greenwich Capital Markets, Inc.
10.83(10) Form of Agreement entered into between Mego
Mortgage Corporation and Mego Financial Corp.
10.84(10) Commitment letter between Mego Mortgage Corporation
and Greenwich Capital Markets, Inc. dated
September 17, 1996.
10.85 Amendment No. 11 to Amended and Restated Loan and
Security Agreement dated September 22, 1995, by and
between Finova Capital Corporation and Preferred
Equities Corporation and related Promissory Note
relating to Aloha Bay Phase II.
10.86 Amendment No. 12 to Amended and Restated Loan and
Security Agreement dated September 29, 1995, by
and between Finova Capital Corporation and
Preferred Equities Corporation and Amended and
Restated Promissory Note relating to Corporate
Office Building.
10.87 Fourth Amendment to Loan and Security Agreement
and Assumption Agreement dated September 30, 1995,
by and between Preferred Equities Corporation,
Colorado Land and Grazing Corp., Mego Financial
Corp. and Dorfinco Corporation.
63
<PAGE> 64
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.88 Request for Receivables Purchase dated November
16, 1995, by and between Preferred Equities
Corporation as Seller and NBD Bank as Purchaser.
10.89 Second Amendment to General Loan and Security
Agreement dated November 30, 1995, by and between
Steamboat Suites, Inc. and Textron Financial
Corporation and Restated and Amended Receivables
Promissory Note.
10.90 Amendment No. 13 to Amended and Restated Loan and
Security Agreement dated December 13, 1995, by and
between Finova Capital Corporation and Preferred
Equities Corporation and three (3) related
Promissory Notes, relating to the Grand Flamingo
Towers Lobby, Ida and Winnick Building Additions.
10.91 Purchase and Sale Agreement dated December 29,
1995, by and between Overlook Lodge Limited
Liability Company as Seller and Preferred Equities
Corporation as Purchaser.
10.92 Second Amendment to Purchase and Sale Agreement
dated February 8, 1996, as previously amended by
an Amendment to Purchase and Sale Agreement
dated May 10, 1994, between Preferred Equities
Corporation, Marine Midland Bank, and Wellington
Financial Corp.
10.93 Acquisition and Construction Loan Agreement dated
March 29, 1996, by and between Heller Financial,
Inc. and Preferred Equities Corporation and
three (3) related Promissory Notes; Acquisition
Promissory Note, Revolving Renovation
Promissory Note, and Receivables Promissory
Note.
10.94 Construction Loan Agreement dated April 30,
1996, by and between Preferred Equities
Corporation and NBD Bank and related Promissory
Note.
10.95 Amendment No. 14 to Amended and Restated Loan and
Security Agreement dated June 5, 1996, by and
between Finova Capital Corporation and Preferred
Equities Corporation and Second Amended and
Restated Promissory Note, relating to Headquarters
and FCFC Property.
10.96 Amendment No. 15 to Amended and Restated Loan and
Security Agreement dated August 16, 1996, by and
between Finova Capital Corporation and Preferred
Equities Corporation; Amendment No. 7 to Loan and
Security Agreement; Amendment No. 5 to Amended and
Restated Promissory Note; Amendment No. 5 to
Promissory Note; Amendment No. 1 to Promissory
Note [Towers Lobby]
10.97 Request for Receivables Purchase dated July 30,
1996, by and between Preferred Equities
Corporation as Seller and NBD Bank as Purchaser.
10.98 Preferred Stock redemption agreement by and between
Mego Financial Corp. and Legg Mason Special
Investment Trust, Inc.
10.99 Amendment to Common Stock Purchase Warrant issued by
Mego Financial Corp. to Legg Mason Investment Trust,
Inc.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule (For SEC Use Only)
- ------------------------------------
(1) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1988 and incorporated herein by reference.
(2) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1989 and incorporated herein by reference.
(3) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1990 and incorporated herein by reference.
(4) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1991 and incorporated herein by reference.
(5) Filed as part of the Company's Registration Statement on Form S-4
originally filed August 31, 1992 and incorporated herein by reference.
(6) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1992 and incorporated herein by reference.
(7) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1993 and incorporated herein by reference.
(8) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1994 and incorporated herein by reference.
(9) Filed as part of the Company's Form 10-K for fiscal year ended August
31, 1995 and incorporated herein by reference.
(10) Filed as part of the Registration Statement on Form S-1 filed by Mego
Mortgage Corporation, as amended (File No. 333-12443), and incorporated
herein by reference.
(11) Filed as part of the Registration Statement on Form S-1 filed by Mego
Mortgage Corporation, as amended (File No. 333-13421), and
incorporated herein by reference.
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MEGO FINANCIAL CORP.
Date: November 27, 1996 By: /s/ JEROME J. COHEN
--------------------------------
Jerome J. Cohen, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ ROBERT NEDERLANDER Chairman of the Board, Chief November 27, 1996
--------------------------------- Executive Officer and Director
Robert Nederlander
/S/ JEROME J. COHEN President and Director November 27, 1996
---------------------------------
Jerome J. Cohen
/S/ HERBERT B. HIRSCH Senior Vice President, Chief November 27, 1996
--------------------------------- Financial Officer, Treasurer and
Herbert B. Hirsch Director
/S/ EUGENE I. SCHUSTER Vice President and Director November 27, 1996
---------------------------------
Eugene I. Schuster
/S/ DAVID A. CLEVELAND Vice President and Chief Accounting November 27, 1996
--------------------------------- Officer
David A. Cleveland
/S/ WILBUR L. ROSS, JR. Director November 27, 1996
---------------------------------
Wilbur L. Ross, Jr.
/S/ JOHN E. MCCONNAUGHY, JR. Director November 27, 1996
---------------------------------
John E. McConnaughy, Jr.
</TABLE>
65
<PAGE> 66
MEGO FINANCIAL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Statements of Financial Condition -
August 31, 1996 and 1995 F-3
Consolidated Statements of Operations - Years Ended
August 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity - Years Ended
August 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows - Years Ended
August 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Mego Financial Corp. and Subsidiaries
Las Vegas, Nevada
We have audited the accompanying statements of financial condition of Mego
Financial Corp. and its subsidiaries (the "Company") as of August 31, 1996 and
1995, and the related consolidated financial statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended August 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Mego Financial Corp. and
subsidiaries at August 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, in 1995 the
Company adopted Statement of Financial Accounting Standards No. 122, Accounting
for Mortgage Servicing Rights effecive September 1, 1994.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 25, 1996, except for Note 24 as to which the date is
November 22, 1996
F-2
<PAGE> 68
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(thousands of dollars, except per share amounts)
August 31,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $3,185 $7,338
Restricted cash 6,657 6,467
Notes receivable, net of allowances for cancellations, valuation discounts, and credit losses of
$16,794 and $16,866 at August 31, 1996 and 1995, respectively 40,485 31,054
Mortgage related securities, at fair value 22,944 0
Excess servicing rights 14,268 16,565
Mortgage servicing rights 3,827 1,076
Timeshare interests held for sale 36,890 19,820
Land and improvements inventory 3,721 5,542
Other investments 1,972 1,531
Property and equipment, net of accumulated depreciation of
$13,550 and $11,848 at August 31, 1996 and 1995, respectively 20,262 12,681
Deferred selling costs 2,901 3,332
Other assets 8,485 7,351
----------- -----------
TOTAL ASSETS $165,597 $112,757
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable $84,449 $44,715
Accounts payable and accrued liabilities 19,662 13,998
Payable to assignors 2,579 2,579
Future estimated contingency for notes receivable sold with recourse 9,332 8,030
Deposits 2,971 3,619
Negative goodwill 82 131
Deferred income taxes 10,980 8,103
----------- -----------
Total liabilities before subordinated debt and redeemable preferred stock 130,055 81,175
----------- -----------
Subordinated debt 9,691 9,352
----------- -----------
Redeemable preferred stock, Series A, 12% cumulative preferred stock, $.01 par
value, $10 redemption value, 0 and 300,000 shares issued and outstanding at
August 31, 1996 and 1995, respectively 0 3,000
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value (authorized -- 5,000,000 shares)
Common stock, $.01 par value (authorized -- 50,000,000 shares; issued and outstanding --
18,433,121 and 18,087,556 at August 31, 1996 and 1995, respectively) 184 180
Additional paid-in capital 6,504 4,498
Retained earnings 19,163 14,552
----------- -----------
Total stockholders' equity 25,851 19,230
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $165,597 $112,757
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 69
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share amounts)
For the years ended August 31,
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Timeshare interest sales, net $27,778 $20,682 $19,521
Land sales, net 17,968 20,812 13,534
Housing sales 0 205 515
Gain on sale of notes receivable 19,110 13,819 1,454
Net unrealized gain on mortgage related securities 2,697 0 0
Interest income 8,698 8,179 8,368
Financial income 3,892 1,149 0
Amortization of negative goodwill 49 216 472
Incidental operations 2,995 3,620 2,007
Other 1,527 890 954
--------- --------- ---------
Total revenues 84,714 69,572 46,825
--------- --------- ---------
COSTS AND EXPENSES
Direct cost of:
Timeshare interest sales 3,998 2,977 2,684
Land sales 1,844 2,164 1,435
Housing sales 0 265 531
Incidental operations 2,257 2,343 2,342
Commissions and selling 30,351 23,690 18,949
Depreciation and amortization 1,920 1,534 1,208
Provision for credit losses 1,510 864 96
Interest expense 8,597 6,961 4,836
General and administrative 26,219 17,335 11,231
Payments to assignors 0 7,252 8,526
--------- --------- ---------
Total costs and expenses 76,696 65,385 51,838
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 8,018 4,187 (5,013)
INCOME TAXES 3,167 3,293 761
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 4,851 894 (5,774)
GAIN ON DISCONTINUED OPERATIONS, NET OF INCOME TAXES OF $450 0 873 0
--------- --------- ---------
NET INCOME (LOSS) 4,851 1,767 (5,774)
CUMULATIVE PREFERRED STOCK DIVIDENDS 240 360 360
--------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $4,611 $1,407 ($6,134)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 70
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(thousands of dollars, except per share amounts)
For the years ended August 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE:
Primary:
Income (loss) from continuing operations $0.24 $0.03 ($0.34)
Income from discontinued operations 0 0.05 0
------------ ------------ ------------
Net income (loss) $0.24 $0.08 ($0.34)
============ ============ ============
Weighted average number of common shares and
common share equivalents outstanding 19,087,387 18,087,153 17,820,170
============ ============ ============
Fully Diluted:
Income from continuing operations $0.24 $0.02
Income from discontinued operations 0 0.05
------------ ------------
Net income $0.24 $0.07
============ ============
Weighted average number of common shares and
common share equivalents outstanding 19,087,387 18,939,201
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 71
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Common Stock
--------------
$.01 par value Additional
-------------- paid-in Retained
Shares Amount capital earnings Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1993 17,631,169 $178 $2,612 $19,219 $22,009
Issuance of common stock 475,000 3 647 -- 650
Redemption of common stock (19,419) (1) (61) -- (62)
Dividends on preferred stock -- -- -- (300) (300)
Net loss -- -- -- (5,774) (5,774)
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1994 18,086,750 180 3,198 13,145 16,523
Issuance of 1,000,000 common stock warrants
in connection with subordinated debt valued
at $1.30 per share -- -- 1,300 -- 1,300
Issuance of common stock in connection
with exercise of stock options 806 -- -- -- --
Dividends on preferred stock -- -- -- (360) (360)
Net income -- -- -- 1,767 1,767
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1995 18,087,556 180 4,498 14,552 19,230
Issuance of common stock in connection
with exercise of stock options 2,218 1 9 -- 10
Issuance of common stock in connection
with redemption of preferred stock 343,347 3 1,997 -- 2,000
Dividends on preferred stock -- -- -- (240) (240)
Net income -- -- -- 4,851 4,851
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1996 18,433,121 $184 $6,504 $19,163 $25,851
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 72
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
For the years ended August 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $4,851 $1,767 ($5,774)
------------ ------------ ------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Amortization of negative goodwill (49) (216) (472)
Charges to allowance for cancellation and credit losses (6,918) (6,611) (7,909)
Provisions for cancellation and credit losses 11,288 10,359 7,775
Provisions for uncollectible owners' association advances 12 1,050 365
Cost of sales 5,842 5,406 4,650
Depreciation and amortization expense 1,920 1,534 1,208
Gain on sale of notes receivables (1,116) (1,586) (875)
Gain on discontinued operations -- (1,323) --
Increase (decrease) in future estimated contingency for notes
receivable sold with recourse 3,080 4,943 2,340
Additions to excess servicing rights (21,242) (15,336) (1,611)
Amortization of excess servicing rights 2,758 917 367
Repayments of mortgage related securities 92 -- --
Accretion of residual interest on mortgage related securities (243) -- --
Net unrealized gain on mortgage related securities (2,697) -- --
Additions to mortgage servicing rights (3,306) (1,176) --
Amortization of mortgage servicing rights 555 100 --
Deferred income taxes 2,877 2,689 761
Amortization of future estimated contingency for notes
receivable sold with recourse (1,812) (1,423) (1,696)
Repayments on notes receivable, net 24,680 17,965 24,614
Proceeds from sale of notes receivable 152,601 119,055 31,097
Purchase of land and timeshare interests (21,091) (13,951) (5,339)
Changes in operating assets and liabilities:
Increase in restricted cash (190) (5,715) (252)
Increase in notes receivable, net (190,902) (133,147) (43,949)
Decrease (increase) in other assets 327 (795) (544)
Decrease (increase) in deferred selling costs 431 (277) (1,003)
Increase in accounts payable and accrued liabilities 5,664 6,036 1,722
Increase (decrease) in deposits (648) 1,399 802
Increase in payable to assignors -- 6,100 3,927
Decrease in excess of liabilities over assets of
discontinued operations -- (2,899) --
------------ ------------ ------------
Total adjustments (38,087) (6,902) 15,978
------------ ------------ ------------
Net cash provided by (used in) operating activities (33,236) (5,135) 10,204
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,327) (3,797) (2,573)
Proceeds from sale of property and equipment 19 3 150
Additions to other investments (1,381) (262) (3,903)
Decreases in other investments 940 350 4,111
------------ ------------ ------------
Net cash used in investing activities (9,749) (3,706) (2,215)
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 73
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(thousands of dollars)
For the years ended August 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 201,243 122,334 41,040
Reduction of debt (161,510) (117,429) (45,958)
Preferred stock dividends (240) (360) (300)
Redemption of preferred stock (1,000) -- --
Redemption of common stock -- -- (62)
Payments on subordinated debt (1,000) -- --
Increase in subordinated debt 1,339 652 --
------------ ------------ ------------
Net cash provided by (used in) financing activities 38,832 5,197 (5,280)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,153) (3,644) 2,709
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR 7,338 10,982 8,273
------------ ------------ ------------
CASH AND CASH EQUIVALENTS -- END OF YEAR $3,185 $7,338 $10,982
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Cash paid during the year for:
Interest, net of amounts capitalized $9,136 $5,567 $4,698
============ ============ ============
Income taxes $25 $3 $--
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
The Company issued 475,000 shares of its common
stock to an unrelated entity for services rendered to
Mego Mortgage $-- $-- $650
============ ============ ============
Issuance of subordinated debt to assignors $-- $10,000 $--
============ ============ ============
In connection with the issuance of subordinated debt
the Company issued 1,000,000 common stock warrants to
the assignors $-- $1,300 $--
============ ============ ============
In connection with the securitization of loans and creation of
mortgage related securities, the Company retained interest
only securities and residual interest securities $20,096 $-- $--
============ ============ ============
Redemption of preferred stock through issuance of common stock $2,000 $-- $--
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 74
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
1. NATURE OF OPERATIONS
Mego Financial Corp. (Mego) is a specialty financial services company
that, through its subsidiaries, Mego Mortgage Corporation (MMC) and
Preferred Equities Corporation (PEC), is engaged primarily in
originating, selling and servicing consumer receivables generated
through home improvement loans and timeshare and land sales. Mego
Financial Corp. and its subsidiaries are herein collectively referred
to as the Company. MMC originates Title I home improvement loans
(Title I Loans) insured by the Federal Housing Administration (FHA) of
the Department of Housing and Urban Development (HUD) through a
network of loan correspondents and home improvement contractors. In
May 1996, MMC commenced the origination of conventional home
improvement and home equity loans through its network of loan
correspondents. PEC markets and finances timeshare interests in
select resort areas, as well as land. By providing financing to
virtually all of its customers, PEC also originates consumer
receivables that it sells and services. Timeshare and land sales have
historically accounted for most of the Company's revenues and profits;
however, since March 1994, when MMC commenced operations, originating,
selling and servicing home improvement loans have accounted for an
increasing portion of revenues and profits. Mego was incorporated
under the laws of the state of New York in 1954 under the name Mego
Corp. and, in 1992, changed its name to Mego Financial Corp. In
February 1988, Mego acquired PEC, pursuant to an assignment by the
Assignors, as defined below, of their contract right to purchase PEC.
See Note 2 for further discussion.
To facilitate its sales of timeshare interests, the Company has
entered into several trust agreements. The trustees administer the
collection of the related notes receivable. The Company has assigned
title to certain of its resort properties and its interest in certain
notes receivable to the trustees.
2. ACQUISITION OF PREFERRED EQUITIES CORPORATION
The acquisition of PEC on February 1, 1988, was effected pursuant to
an Assignment Agreement, dated October 25, 1987, between Mego and
several corporations (Assignors) and a related Assignment and
Assumption Agreement, (Assignment and Assumption Agreement), dated
February 1, 1988, and amended on July 29, 1988 between Mego and the
Assignors (collectively, such agreements constitute the Assignment).
The acquisition of PEC was accomplished by PEC's issuing 2 shares of
its common stock to the Company for a purchase price of approximately
$50,000. Immediately prior to that time, the previously outstanding
shares held by others were surrendered and redeemed by PEC at a cost
to PEC of approximately $10,463,000 plus fees and expenses, leaving
Mego with all of the outstanding shares of PEC.
The right to purchase shares from PEC was obtained by Mego pursuant to
the Assignment, which assigned to the Company the right to purchase
shares from PEC pursuant to the Stock Purchase and Redemption
Agreement, dated October 6, 1987 , between PEC and the Assignors, as
amended on October 25, 1987. Consideration for the Assignment
consisted of promissory notes (Purchase Notes) from Mego to the
Assignors in the aggregate amount of $2,000,000 and additional
payments to the Assignors as described below. The Purchase Notes were
paid in full prior to August 31, 1988. After the payment of the
Purchase Notes, the Assignors were entitled to receive from the
Company on a quarterly basis, as determined as of the end of each
quarter, additional payments equal in the aggregate to 63% of PEC's
consolidated unrestricted cash balances, for a period ending on
January 31, 1995. The additional payments are collateralized by a
pledge of PEC stock to the Assignors.
On March 2, 1995, Mego entered into the Second Amendment to Assignment
and Assumption Agreement (Amendment) whereby the Assignors agreed to
defer payment of $10,000,000 of the amount payable to Assignors and
to subordinate such amounts in right of payment applied to debt for
money borrowed by Mego or obligations of subsidiaries guaranteed by
Mego. Warrants for 1,000,000 shares of Mego common stock, at an
exercise price of $4.25 per share (the closing market price per share
on March 2, 1995) were granted to the Assignors in consideration of
the payment deferral and subordination. The warrants contain
restrictions on transfer and are exercisable until March 1, 2000. The
Amendment calls for interest to be paid semi-annually at the rate of
10% per annum starting September 1, 1995, and 7 equal semi annual
payments of $1,429,000 plus interest, commencing March 1, 1997. The
payments are collateralized by a pledge of PEC stock. See Notes 16
and 22 for further discussion.
F-9
<PAGE> 75
3. EXCESS OF BOOK VALUE OF NET ASSETS ACQUIRED OVER ACQUISITION COST
On February 1, 1988, the underlying book value of the net assets of
PEC exceeded Mego's acquisition cost by the amount of $42,315,000.
Management allocated the excess book value to assets existing at the
acquisition date (primarily notes receivable which mature over
approximately seven to ten years), as a revaluation adjustment. As
collections are made on the receivables (either through installment
payments or upon sale of receivables), a portion of the revaluation
adjustment is recorded to income as amortization. For the fiscal years
ended August 31, 1996, 1995, and 1994, such amortization amounted to
$0, $166,000, and $422,000, respectively. The Company previously
determined that $20,000,000 of the revaluation adjustment should not
be amortized. Payments to assignors have aggregated $47,401,000
through January 31, 1995 at which time the accrual of payments to
Assignors ceased. Amounts in excess of $20,000,000 have been expensed
and $0, $7,252,000 and $8,526,000 have been included in costs and
expenses for the 12 months ended August 31, 1996, 1995 and 1994,
respectively. See Notes 2 and 22 for further discussion.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Mego and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. See Note 1 for further discussion.
Parent Company Only Basis--At August 31, 1996 and 1995, Mego, on a
"parent company only" basis, reflected total assets of $58,708,000 and
$51,529,000, respectively, which are comprised principally of its
equity investment in subsidiaries of $46,082,000 and $41,280,00,
respectively and liabilities of $23,166,000 and $22,947,000,
respectively, excluding subordinated debt.. At August 31, 1996,
liabilities were comprised principally of deferred income taxes of
$11,669,000, payable to Assignors of $2,579,000, and payable to PEC of
$7,445,000, excluding subordinated debt. At August 31, 1995,
liabilities excluding subordinated debt were comprised principally of
deferred income taxes of $8,103,000, payable to Assignors of
$2,579,000, and payable to PEC of $7,741,000. At August 31, 1996 and
1995, subordinated debt of $9,691,000 and $9,352,000, respectively,
was outstanding. At August 31, 1996 and 1995, Mego had outstanding
redeemable preferred stock with an aggregate redemption price of $0
and $3,000,000, respectively. See Notes 2, 16, and 17 for further
discussion.
Cash Equivalents--Cash equivalents consist primarily of certificates
of deposit, repurchase agreements and commercial paper with original
maturities of ninety days or less.
Restricted Cash--Restricted cash represents cash on deposit which
relates to utility subsidiary customer deposits and betterment fees;
cash on deposit in accordance with notes receivable sale agreements;
and untransmitted funds received from collection of notes receivable
which have not as yet been disbursed to the purchasers of such notes
receivable in accordance with the related sale agreements.
Notes Receivable--Substantially all of the notes receivable are held
for sale and are carried at the lower of cost or market on an
aggregate basis by type of receivable. The cost basis is the
outstanding principal balance of the notes reduced by the allowances
for cancellation and credit losses and by the net deferred origination
fees and certain direct origination costs that are recognized upon
sale.
Allowances for Cancellation and Credit Losses--Provisions for
cancellation and credit losses relating to notes receivable are
recorded as expense in amounts sufficient to maintain the allowance at
a level considered adequate to provide for anticipated losses
resulting from customers' failure to fulfill their obligations under
the terms of their notes receivable. The Company records a provision
for cancellations and credit loss at the time revenue is recognized,
based upon periodic analysis of the portfolio, collateral values,
estimated FHA insurance recoveries, historical credit loss experience,
borrowers' ability to repay, and current economic factors. The
allowance for cancellations and credit losses represents the Company's
estimate of its probable future credit losses to be incurred over the
lives of the notes. The allowance for cancellations and credit losses
is reduced by actual cancellations and losses experienced, including
cancellations, related to previously sold notes receivable which were
reacquired pursuant to the recourse obligations discussed herein. Such
allowance is also reduced to establish the separate liability for
future estimated cancellation and credit losses as notes receivable
are sold. Recourse to the Company on sales of notes receivable is
governed by the agreements between the purchasers and the Company. No
allowance for credit losses on loans sold with recourse is established
on loans sold through securitizations, as the Company has no recourse
obligation under those securitization agreements. Estimated credit
losses on loans sold through securitizations are considered in the
Company's valuation of its residual interest securities. The Company's
judgment in determining the adequacy of this allowance is based upon a
periodic review of its portfolio of notes receivable. These reviews
take into consideration changes in the nature
F-10
<PAGE> 76
and level of the portfolio, current economic conditions which may
affect the purchasers' ability to pay, the changes in collateral
values and overall portfolio quality. Changes in the allowance as a
result of such reviews are reflected in the provision for cancellation
and credit losses.
Mortgage Related Securities--In 1996, the Company securitized a
majority of loans originated by MMC into the form of a REMIC. A REMIC
is a trust issuing multi-class securities with certain tax advantages
to investors and which derives its cash flow from a pool of underlying
mortgages. Certain of the senior classes of the REMIC are sold, and an
interest only strip and a subordinated residual class are retained by
the Company. The subordinated residual class is in the form of
residual certificates and are classified as residual interest
securities. The documents governing the Company's securitizations
require the Company to establish initial overcollateralization or
build overcollateralization levels through retention of distributions
by the REMIC trust otherwise payable to the Company as the residual
interest holder. This overcollateralization causes the aggregate
principal amount of the loans in the related pool and/or cash reserves
to exceed the aggregate principal balance of the outstanding investor
certificates. Such excess amounts serve as credit enhancement for the
related REMIC trust. To the extent that borrowers default on the
payment of principal or interest on the loans, losses will reduce the
overcollateralization and cash flows otherwise payable to the residual
interest security holder to the extent that funds are available. If
payment defaults exceed the amount of overcollateralization, as
applicable, the insurance policy maintained by the related REMIC trust
will pay any further losses experienced by holders of the senior
interests in the related REMIC trust. The Company does not have any
recourse obligations for credit losses in the REMIC trust. The
residual interests are amortized to operations over the contractual
lives of the loans, considering future estimated prepayments utilizing
an amortization method which approximates the level yield method.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115) on September 1, 1995. There was no cumulative
financial statement impact as a result of adopting SFAS 115.
In accordance with the provisions of SFAS 115, the Company classifies
residual interest securities and interest only securities as trading
securities which are recorded at fair value with any unrealized gains
or losses recorded in the results of operations in the period of the
change in fair value. Valuations at origination and at each reporting
period are based on discounted cash flow analyses. The cash flows are
estimated as the excess of the weighted average coupon on each pool of
loans securitized over the sum of the pass-through interest rate,
servicing fees, a trustee fee, an insurance fee and an estimate of
annual future credit losses, net of FHA insurance recoveries, related
to the loans securitized, over the life of the loans. These cash
flows are projected over the life of the loans using prepayment,
default, and loss assumptions that the Company believes market
participants would use for similar financial instruments and are
discounted using an interest rate that the Company believes a
purchaser unrelated to the seller of such a financial instrument would
require. The Company utilized prepayment assumptions of 14%, estimated
loss factor assumptions of 1%, and weighted average discount rates of
12%. The valuation includes consideration of characteristics of the
loans including loan type and size, interest rate, origination date,
and term. The Company also uses other available information such as
externally prepared reports on prepayment rates and industry default
rates of the type of loan portfolio under review. To the Company's
knowledge, there is no active market for the sale of these mortgage
related securities. The range of values attributable to the factors
used in determining fair value is broad. Although the Company believes
that it has made reasonable estimates of the fair value of the
mortgage related securities, the rate of prepayments and default rates
utilized are estimates, and actual experience may vary.
Mortgage Servicing Rights--At August 31, 1995, effective September 1,
1994, the Company adopted the provisions of SFAS No. 122 "Accounting
for Mortgage Servicing Rights, an amendment of SFAS No. 65" (SFAS 122)
which requires that a mortgage banking enterprise recognize as
separate assets the rights to service mortgage loans for others
however those servicing rights are acquired. The effect of adopting
SFAS 122 on the Company's financial statements was to increase income
before income taxes by $1,076,000 for the year ended August 31, 1995.
The fair value of capitalized mortgage servicing rights is estimated
by calculating the present value of expected net cash flows from
mortgage servicing using assumptions the Company believes market
participants would use in their estimates of future servicing income
and expense, including assumptions about prepayment, default and
interest rates. Mortgage servicing rights are amortized in proportion
to and over the period of estimated net servicing income. The estimate
of fair value was based on a 125 basis points per annum servicing fee
reduced by estimated costs of servicing using a discount rate of 12%
for the year ended August 31, 1996, and a 100 basis points per annum
servicing fee reduced by estimated costs of servicing using a discount
rate of 12% for the year ended August 31, 1995. At August 31, 1996 and
August 31, 1995, the book value of mortgage servicing rights
approximated fair value. The Company periodically reviews mortgage
servicing rights to determine impairment. This review is performed on
a disaggregated basis, based upon date of origination.
F-11
<PAGE> 77
Impairment is recognized in a valuation allowance for each pool in the
period of the impairment. The Company has developed its assumptions
based on experience with its own portfolio, available market data and
ongoing consultation with its investment bankers.
Timeshare Interests Held for Sale--Costs incurred in connection with
preparing timeshare interests for sale are capitalized and include all
costs of acquisition, renovation and furnishings. Timeshare interests
held for sale are valued at the lower of cost or net realizable value.
Timeshare inventory that is to be recovered from future cancellations
of sales is provided for as estimated inventory to be recovered from
future cancellations and is recorded at its estimated cost.
Land and Improvements Inventory--Land and improvements inventory
include carrying costs capitalized during the development period and
costs of improvements incurred to date and are stated at cost, not in
excess of market value. Land and improvements inventory that is to be
recovered from future cancellations of sales is provided for as
estimated inventory to be recovered from future cancellations and is
recorded at its estimated cost.
Property and Equipment--Property and equipment is stated at cost and
is depreciated over its estimated useful life (generally 3-40 years)
using the straight-line method. Costs of maintenance and repairs that
do not improve or extend the life of the respective assets are
recorded as expense.
Utility Accounting Policies -- The Company, through a wholly-owned
subsidiary, provides water and sewer services to customers in the
Pahrump valley of Nevada. The Company is subject to regulation by the
Public Service Commission of Nevada and the Company's accounting
policies conform to generally accepted accounting principles as
applied in the case of regulated public utilities in accordance with
the accounting requirements of the regulatory authority having
jurisdiction. Contributions in aid of construction (CIAC) received by
the Company from its customers are included as a separate liability
and amortized over the period of 9 - 25 years, which represents the
estimated remaining useful life of the corresponding improvements.
Amortization of CIAC reduces amortization expense. CIAC is included
in accounts payable and accrued liabilities in the amounts of
$4,494,000 and $3,750,000 at August 31, 1996 and 1995, respectively.
The Company excludes from the CIAC liability, a sum equal to the
income tax expense related to the receipt of CIAC funds.
Future Estimated Contingency for Notes Receivable Sold with
Recourse--Recourse to the Company on sales of notes receivable is
governed by the agreements between the purchasers and the Company.
The future estimated contingency for notes receivable sold with
recourse represents the Company's estimate of its probable future
credit losses to be incurred over the lives of the notes receivable.
Proceeds from the sale of notes receivable sold with recourse were
$135,200,000 and $119,055,000 and $31,097,000 for the years ended
August 31, 1996, 1995 and 1994, respectively. A liability for future
estimated contingency for notes receivable sold with recourse was
established at the time of each sale based upon the Company's analysis
of all probable losses resulting from the Company's recourse
obligations under each agreement of sale. For notes receivable sold
after September 30, 1992, the liability was determined in accordance
with Emerging Issues Task Force (EITF) Issue No. 92-2, on a
"discounted to present value" basis using an interest rate equivalent
to the risk-free market rate for securities with a duration similar to
that estimated for the underlying notes receivable. For notes
receivable sold prior to September 30, 1992, the liability remains on
a non-discounted basis.
Income Taxes--The Company utilizes the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the Company to
adhere to an asset/liability approach for financial accounting and
reporting for income taxes. Income taxes are provided for the tax
effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related primarily
to differences between the bases of the balance sheet for financial
and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when they are recovered or
settled. Deferred taxes also are recognized for operating losses that
are available to offset future taxable income and tax credits that are
available to offset future income taxes.
Revenue and Profit Recognition--Timeshare Interests and Land Sales
--Sales of timeshare interests and land are recognized and included in
revenues after certain "down payment" and other "continuing
investment" criteria are met. Land sale revenues are recognized using
the deposit method in accordance with the provisions of SFAS No. 66
"Accounting for Sales of Real Estate." The agreement for sale
generally provides for a down payment and a note secured by a deed of
trust or mortgage payable to the Company in monthly installments,
including interest, over a period of up to ten years. Revenue is
recognized after the requisite rescission period has expired and at
such time as the purchaser has paid at least 10% of the sales price
for sales of timeshare interests and 20% of the sales price for land
sales. Land sales usually meet these requirements within eight to ten
months from closing, and sales of timeshare interests usually meet
these requirements at the time of sale. The sales price, less a
provision for
F-12
<PAGE> 78
cancellation, is recorded as revenue and the allocated cost related to
such net revenue of the timeshare interest or land is recorded as
expense in the year that revenue is recognized. When revenue related
to land sales is recognized, the portion of the sales price
attributable to uncompleted required improvements, if any, is
deferred.
All payments received prior to the recognition of the sale as revenue
are accounted for as deposits. Selling costs directly attributable to
unrecognized sales are accounted for as deferred selling costs until
the sale is recognized.
For land sales made at a location other than at the property, the
purchaser may cancel the contract within a specified inspection
period, usually five months from the date of purchase, provided that
the purchaser is not in default under the terms of the contract. At
August 31, 1996, $131,975 of recognized sales remain subject to such
cancellation. If a purchaser defaults under the terms of the contract,
after all rescission and inspection periods have expired, all payments
are generally retained by the Company.
If the underlying note receivable is at a "below market" interest
rate, a valuation discount is applied to the note receivable balance
and amortized over its term so that the effective yield is 8% - 12%
depending on the year of sale.
Notes receivable with payment delinquencies of 90 days or more have
been considered in determining the allowance for cancellation.
Cancellations occur when the note receivable is determined to be
uncollectible and related collateral, if any, has been recovered.
Cancellation of a note receivable in the year the revenue is
recognized is accounted for as a reversal of the revenue.
Cancellation of a note receivable subsequent to the year the revenue
was recognized is charged to the allowance for cancellation.
Revenue Recognition--Gain on Sales of Notes Receivable -- Gain on sale
of notes receivable includes the gain on sale of mortgage related
securities and the gain on sale of notes receivable. In accordance
with EITF Issue No. 88-11, the gain on sale of mortgage related
securities is determined by an allocation of the cost of the
securities based on the relative fair value of the securities sold and
the securities retained. In sales of loans through securitization
transactions, the Company generally retains interest only strip
securities and residual interest securities.The fair value of the
interest only strip securities and residual interest securities is the
present value of the estimated cash flow to be received after
considering the effects of estimated prepayments and credit losses.
The interest only strip securities and residual interest securities
are included in mortgage related securities in the Consolidated
Statements of Financial Condition.
Gain on sale of notes receivable includes the present value of the
differential between contractual interest rates charged to borrowers
on notes receivable sold by the Company and the interest rates to be
received by the purchasers of such notes receivable, after considering
the effects of estimated prepayments and a normal servicing fee. The
Company retains certain participations in cash flows from the sold
notes receivable and generally retains the associated servicing
rights. The Company generally sells its notes receivable at par value.
The present value of expected net cash flows from the sale of notes
receivable are recorded at the time of sale as excess servicing
rights. Excess servicing rights are amortized as a charge to income,
as payments are received on the retained interest differential over
the estimated life of the underlying notes receivable. Excess
servicing rights are recorded at the lower of unamortized cost or
estimated fair value. The expected cash flows used to determine the
excess servicing rights asset have been reduced for potential losses
net of potential FHA insurance recoveries, under recourse provisions
of the sales agreements. The future estimated contingency for notes
receivable sold with recourse represents the Company's estimate of
losses to be incurred in connection with the recourse provisions of
the sales agreements and is shown separately as a liability in the
Company's Consolidated Statements of Financial Condition.
In discounting cash flows related to notes receivable sales, the
Company defers servicing income at an annual rate of 1% - 1.25%, and
discounts cash flows on its sales at the rate it believes a purchaser
would require as a rate of return. Earned servicing income is included
in financial income. The cash flows were discounted to present value
using discount rates which averaged between 12% and15% in both fiscal
1996 and fiscal 1995. The Company has developed its assumptions based
on experience with its own portfolio, available market data and
ongoing consultation with its investment bankers.
In determining expected cash flows, management considers economic
conditions at the date of sale. In subsequent periods, these estimates
may be revised as necessary using the original discount rate, and any
losses arising from prepayment and loss experience will be recognized
as realized.
F-13
<PAGE> 79
Interest Income--Interest income is recorded as earned. Interest
income represents the interest earned on notes receivable, mortgage
related securities, and short term investments. In accordance with
EITF Issue No. 89-4, the Company computes an effective yield based on
the carrying amount of each mortgage related security and its
estimated future cash flow. This yield is then used to accrue interest
income on the mortgage related security.
During the period that a Title I Loan is 30 days through 270 days
delinquent, the Company accrues interest at the HUD guaranteed rate of
7% in lieu of the contractual rate of the loan. When a Title I Loan
becomes over 270 days contractually delinquent, it is placed on
non-accrual status and interest is recognized only as cash is
received. Interest income on other notes receivable greater than 90
days delinquent is generally recognized on a cash basis.
Financial Income-- Fees for servicing notes receivable originated or
acquired by the Company and sold with servicing rights retained are
generally based on a stipulated percentage of the outstanding
principal balance of such notes receivable and are recognized when
earned. Interest received on notes receivable sold, less amounts paid
to investors, is reported as financial income. Capitalized excess
servicing rights and mortgage servicing rights are amortized
systematically to reduce income to an amount representing normal
servicing income and the present value discount. Late charges and
other miscellaneous income are recognized when collected. Costs to
service notes receivable are recorded as expense when incurred.
Timeshare Owners' Associations-- The Company incurs a portion of
operating expenses of the timeshare owners' associations based on
ownership of the unsold timeshare interests at each of the respective
timeshare properties. These costs are referred to as Association
Assessments and are included in the Consolidated Statements of
Operations in general and administrative expense. See Note 22 for
further discussion.
Loan Origination Costs and Fees--Loan origination costs and fees,
including non-refundable loan origination fees and incremental direct
costs associated with loan originations are deferred and amortized
over the lives of the loans. Unamortized loan origination costs are
recorded as expense or income upon the sale of the related loans.
Organizational Costs of MMC -- Organizational costs associated with
the commencement of originating, purchasing, selling and servicing of
Title I Loans by MMC are being amortized over a five year period by
MMC which commenced on March 1, 1994. Such amortization is included in
depreciation and amortization expense on the Consolidated Statements
of Operations. Accumulated amortization related to organizational
costs was $482,000 and $289,000 at August 31, 1996 and 1995,
respectively.
Earnings (loss) per common share-- Earnings (loss) per common share
are based on the net income (loss) applicable to common stock for each
period divided by the weighted average number of common shares and
common share equivalents outstanding during the period. Earnings per
common share assuming full dilution are computed by dividing net
income applicable to common stock by the weighted average number of
common shares plus common share equivalents using the treasury stock
method. In loss periods, anti- dilutive common share equivalents are
excluded.
Recently Issued Accounting Standards--The Financial Accounting
Standards Board (the FASB) has issued Statement No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121). SFAS 121 requires that long- lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The Company does not
anticipate any material effect upon adoption on results of operation
or financial condition.
(C) In October 1995, FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123), which establishes financial
accounting and reporting standards for stock-based employee
compensation plans. This statement also applies to transactions in
which an entity issues its equity instruments to acquire goods or
services from nonemployees. Those transactions must be accounted for
based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably
measurable. SFAS 123 is effective for fiscal years beginning after
December 15, 1995. The Company intends to provide the pro forma and
other additional disclosure about stock-based employee compensation
plans in its fiscal 1997 financial statements as required by SFAS 123.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS 125) was issued by
FASB in June 1996. SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. This statement also provides
F-14
<PAGE> 80
consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. It requires
that liabilities and derivatives incurred or obtained by transferors
as part of a transfer of financial assets be initially measured at
fair value. SFAS 125 also requires that servicing assets be measured
by allocating the carrying amount between the assets sold and retained
interests based on their relative fair values at the date of transfer.
Additionally, this statement requires that the servicing assets and
liabilities be subsequently measured by (a) amortization in proportion
to and over the period of estimated net servicing income and (b)
assessment for asset impairment or increased obligation based on the
fair values. The statement will require that the Company's existing
and future excess servicing receivables be measured at fair market
value and be reclassified as interest only strip securities and
accounted for in accordance with SFAS 115. As required by the
statement, the Company will adopt the new requirements effective
January 1, 1997. It is not anticipated that upon implementation, the
statement will have any material impact on the financial statements of
the Company, as the book value of the Company's excess servicing
rights and mortgage related securities approximates fair value. Upon
adoption of SFAS 125, the Company's subsidiary, PEC, will begin
recognizing servicing rights and notes receivable held for sale,
similar to the method currently used by MMC with respect to mortgage
servicing rights under SFAS 122. This will have the impact of
increasing the gain on sale of notes at the time of sale and reducing
future servicing fee income from PEC generated receivables sold after
January 1, 1997.
Reclassification- Certain reclassifications have been made to conform
prior years with the current year presentation.
Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments"
(SFAS 107), requires disclosure of estimated fair value information
for financial instruments, whether or not recognized in the Statements
of Financial Condition. Fair values are based upon estimates using
present value or other valuation techniques in cases where quoted
market prices are not available. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of
the instrument. SFAS 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
Estimated fair values, carrying values and various methods and
assumptions used in valuing the Company's financial instruments at
August 31, 1996 are set forth below (thousands of dollars):
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents (a) $ 3,185 $ 3,185
Notes receivable, net (b) 40,485 41,973
Mortgage related securities (c) 22,944 22,944
Excess servicing rights (c) 14,268 14,268
Mortgage servicing rights (c) 3,827 3,827
Financial Liabilities:
Notes and contracts payable (d) 84,449 84,449
Deposits (e) 2,971 2,971
</TABLE>
(a) Carrying value was used as the estimate of fair value.
(b) Since it is the Company's business to sell loans it originates,
the fair value was estimated by using outstanding commitments from
investors adjusted for non-qualified loans and the collateral
securing such loans.
F-15
<PAGE> 81
(c) The fair value was estimated by discounting future cash flows of
the instruments using discount rates, default, loss and prepayment
assumptions based upon available market data, opinions from
investment bankers and portfolio experience.
(d) Notes payable generally are adjustable rate, indexed to the prime
rate, or to the 90 day London Interbank Offering Rate (LIBOR);
therefore, carrying value approximates fair value. Contracts
payable represent capitalized equipment leases with a weighted
average interest rate of 9.9%, which approximates fair value.
(e) Deposits represent down payments received from customers prior to
the recognition of a sale under GAAP. The carrying value
approximates the estimated fair value for these deposits.
At August 31, 1996, the Company had $59,597,000 in outstanding
commitments to originate and purchase loans and no other off- balance
sheet financial instruments. A fair value of the commitments was
estimated at $6,800,000 by calculating a theoretical gain or loss on
the sale of a funded loan adjusted for an estimate of loan commitments
not expected to fund, considering the difference between investor
yield requirements and the committed loan rates. The estimated fair
value is not necessarily representative of the actual gain to be
recorded on such loan sales in the future.
The fair value estimates made at August 31, 1996 were based upon
pertinent market data and relevant information on the financial
instruments at that time. These estimates do not reflect any premium
or discount that could result from the sale of the entire portion of
the financial instruments. Because no market exists for a substantial
portion of the financial instruments, fair value estimates may be
based upon judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based upon existing on-and-off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For instance, the
Company has certain fee-generating business lines (e.g., its loan
servicing operations) that were not considered in these estimates
since these activities are not financial instruments. In addition, the
tax implications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and
have not been considered in any of the estimates.
6. CONCENTRATIONS OF RISK
Availability of Funding Sources--The Company funds substantially all
of the notes receivable, timeshare inventory and land inventory which
it originates or purchases with borrowings through its financing
facilities and internally generated funds. These borrowings are in
turn repaid with the proceeds received by the Company from such notes
receivable through loan sales, repayments, or securitizations. Any
failure to renew or obtain adequate financing under its financing
facilities, or other borrowings, or any substantial reduction in the
size of or pricing in the markets for the Company's notes receivable,
could have a material adverse effect on the Company's operations. To
the extent that the Company is not successful in maintaining or
replacing existing financings, it would have to curtail its operations
or sell assets, thereby having a material adverse effect on the
Company's results of operations and financial condition.
Dependence on Securitizations--In 1996, the Company pooled and sold
through securitizations an increasing percentage of the loans that it
originated. The Company derives a significant portion of its income
by recognizing gains on sale of loans through securitizations which
are due in part to the fair value, recorded at the time of sale, of
residual interests and interest only securities retained. Adverse
changes in the securitization market could impair the Company's
ability to sell loans through securitizations on a favorable or timely
basis. Any such impairment could have a material adverse effect upon
the Company's results of operations and financial condition.
The Company has relied on credit enhancement and overcollateralization
to achieve the "AAA/Aaa" rating for the senior interests in its
securitizations. The credit enhancement has generally been in the
form of an insurance policy issued by an insurance company insuring
the timely repayment of senior interests in each of the REMIC trusts.
There can be no assurance that the Company will be able to obtain
credit enhancement in any form from the current insurer or any other
provider of credit enhancement on acceptable terms or that future
securitizations will be similarly rated. A downgrading of the
insurer's credit rating or its withdrawal of credit enhancement could
have a material adverse effect on the Company's results of operations
and financial condition.
F-16
<PAGE> 82
Geographic Concentrations-- The Company services notes receivable in
all 50 states, the District of Columbia and Canada. At August 31,
1996, 33% of the dollar value of notes receivable serviced had been
originated in California, and 9% in Florida. No other state accounted
for more than 10% of the servicing portfolio. The risk inherent in
such concentrations is dependent upon regional and general economic
stability which affects property values and the financial stability of
the borrowers. The Company's timeshare and land inventories are
concentrated in Nevada, New Jersey, Colorado, and Florida. The risk
inherent in such concentrations is in the continued popularity of
these resort destinations, which affects the marketability of the
Company's products.
Credit Risk--The Company is exposed to on-balance sheet credit risk
related to its notes receivable and mortgage related securities. The
Company is exposed to off-balance sheet credit risk related to loans
which the Company has committed to originate and loans sold under
recourse provisions. The outstanding balance of loans sold with
recourse provisions totaled $134,084,000 and $117,469,000 at August
31, 1996 and 1995, respectively.
Off-Balance Sheet Activities--These financial instruments consist of
commitments to extend credit to borrowers and commitments to purchase
loans from others. As of August 31, 1996 and 1995, the Company had
outstanding commitments to extend credit or purchase loans in the
amounts of $59,597,000 and $53,447,000, respectively. These
commitments do not represent the expected total cash outlay of the
Company, as historically only 40% of these commitments result in loan
originations or purchases. The prospective borrower or seller is
under no obligation as a result of the Company's commitment. The
Company's credit and interest rate risk is therefore limited to those
commitments which result in note originations and purchases. The
commitments are made for a specified fixed rate of interest, therefore
the Company is exposed to interest rate risk, to the extent changes in
market interest rates change prior to the origination and prior to the
sale of the loans.
Interest Rate Risk--The Company's profitability is in part determined
by the difference, or "spread," between the effective rate of interest
received on the loans originated or purchased by the Company and the
interest rates payable under its financing facilities to fund the
Company's notes receivable and inventory held for sale and the yield
required by investors on notes receivable sales and loan
securitizations. The spread can be adversely affected after a note is
originated or purchased and while it is held during the warehousing
period by increases in the interest rate demanded by investors in
securitizations or sales. In addition, because the notes originated
and purchased by the Company have fixed rates, the Company bears the
risk of narrowing spreads because of interest rate increases during
the period from the date the notes are originated or purchased until
the closing of the sale or securitization of such notes.
Additionally, the fair value of mortgage related securities, mortgage
servicing rights and excess servicing rights owned by the Company may
be adversely affected by changes in the interest rate environment
which could affect the discount rate and prepayment assumptions used
to value the assets. Any such adverse change in assumptions could
have a material adverse effect on the Company's results of operations
and financial condition.
7. NOTES RECEIVABLE
Notes receivable consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Related to timeshare sales $24,973 $20,661
Related to land sales 27,601 23,509
Related to Title I and conventional home improvement loans 4,705 3,750
------- -------
Total 57,279 47,920
------- -------
Less: Allowances for cancellation and credit losses 16,342 16,523
Valuation discount 452 343
------- -------
16,794 16,866
------- -------
Total $40,485 $31,054
======= =======
</TABLE>
The Company provides financing to the purchasers of its timeshare
interests and lands. This financing is generally evidenced by notes
secured by deeds of trust as well as non-recourse installment sales
contracts. These notes receivable are generally payable over a period
of up to 10 years, bear interest at rates ranging from 0% to 16% and
require equal monthly installments of principal and interest.
F-17
<PAGE> 83
The Company has entered into financing arrangements with certain
purchasers of timeshare interests and lands whereby no stated interest
rate is charged if the aggregate down payment is at least 50% of the
purchase price and the balance is payable in 24 or fewer monthly
payments. Notes receivable of $5,991,000 and $6,855,000 at August 31,
1996 and 1995, respectively, made under this arrangement are included
in the table above. A valuation discount is established to provide for
an effective interest rate (currently 10%) on notes receivable bearing
no stated interest rate at the time of sale, and is applied to the
principal balance and amortized over the term of note. The effective
interest rate is based upon the economic interest rate environment and
similar industry data.
The Company is obligated under certain agreements for the sale of
notes receivable and certain loan agreements to maintain various
minimum net worth requirements. The most restrictive of these
agreements requires PEC to maintain a minimum net worth of $25,000,000
and MMC to maintain a minimum tangible net worth requirement of
$12,500,000 plus 50% of MMC's cumulative net income since May 1,
1996. (50% of MMC's cumulative net income for the period May 1, 1996
to August 31, 1996 was $1.1 million.) Additionally, MMC is required to
maintain a minimum level of profitability of at least $500,000 per
rolling 6 month period.
At August 31, 1996 and 1995, receivables aggregating $54,247,000 and
$41,299,000, respectively, were pledged to lenders to collateralize
certain of the Company's indebtedness. Receivables which qualify for
the lenders' criteria may be pledged as collateral whether or not such
receivables have been recognized for accounting purposes. See Note 15
for further discussion.
Allowance for Cancellation and Credit Losses--The Company provides an
allowance for cancellation and credit losses, in an amount which in
the Company's judgment will be adequate to absorb losses on notes
receivable and after FHA insurance recoveries on the loans, that may
become uncollectible. The Company's judgment in determining the
adequacy of this allowance is based on its continual review of its
portfolio which utilizes historical experience and current economic
factors. These reviews take into consideration changes in the nature
and level of the portfolio, historical rates, collateral values, and
current and future economic conditions which may affect the obligors'
ability to pay, collateral values and overall portfolio quality.
Changes in the allowance for cancellation and credit losses for notes
receivable consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $24,553 $21,697 $22,913
Provisions for credit losses and cancellations 11,288 10,359 7,775
Amounts charged to allowance for cancellations (8,712) (7,503) (8,991)
Reductions due to reacquisition and securitization (1,455) - -
------- ------- -------
Balance at end of year $25,674 $24,553 $21,697
======= ======= =======
Allowance for cancellation and credit losses $16,342 $16,523 $18,007
Future estimated contingency for notes receivable
sold with recourse 9,332 8,030 3,690
------- ------- -------
Total $25,674 $24,553 $21,697
======= ======= =======
</TABLE>
During 1996, $113,917,000 of notes receivable sold with recourse were
repurchased and securitized as further described in Note 4.
Reductions due to reacquisition and securitization represent the
allowance for credit losses on notes receivable sold with recourse
transferred to the cost basis of the mortgage related securities as a
result of these transactions.
Number of Notes Receivable Accounts Serviced -- The number of notes
receivable accounts serviced at August 31, 1996 and 1995, was
approximately 32,602 and 21,901, respectively. At August 31, 1996 and
1995, the amount of notes receivable with payment delinquencies of 90
days or more was approximately $14,561,000 and $5,254,000,
respectively on serviced accounts.
F-18
<PAGE> 84
Loans serviced and originated consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Loans originated:
Amount of Title I Loan originations $ 127,785 $ 87,751
Amount of conventional loan originations 11,582 -
Notes receivable additions 51,535 45,396
------------- -------------
Total $ 190,902 $ 133,147
============= =============
Loans serviced (including notes securitized, notes sold
to investors and notes receivable held for sale):
Title I Loans $ 202,766 $ 92,286
Conventional loans 11,423 -
Timeshare and land 120,709 114,333
------------- -------------
Total $ 334,898 $ 206,619
============= =============
</TABLE>
8. MORTGAGE RELATED SECURITIES
Mortgage related securities consist of interest only strips and
residual interest certificates of FHA Title I Loan asset-backed
securities collateralized by loans originated, purchased and serviced
by the Company.
Mortgage related securities are classified as trading securities and
are recorded at estimated fair value. Changes in the estimated fair
value are recorded in current operations. As of August 31, 1996
mortgage related securities consist of the following (thousands of
dollars):
<TABLE>
<S> <C>
Interest only securities $ 4,602
Residual interest securities 18,342
-------
Total $22,944
=======
</TABLE>
No mortgage related securities were owned during 1995.
Activity in mortgage related securities consist of the following for
the year ended August 31, 1996 (thousands of dollars):
<TABLE>
<S> <C>
Balance at beginning of year $ -
Additions due to securitizations, at cost 20,096
Net unrealized gain 2,697
Accretion of residual interest 243
Principal reductions (92)
-------
Total $22,944
=======
</TABLE>
9. EXCESS SERVICING RIGHTS
Activity in excess servicing rights consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 16,565 $ 2,146 $ 902
Plus: Additions 21,242 15,336 1,611
Less: Amortization (2,758) (917) (367)
Amounts related to loans repurchased, securitized and
transferred to mortgage related securities (20,781) - -
----------- ----------- -----------
Balance at end of year $ 14,268 $ 16,565 $ 2,146
=========== =========== ===========
</TABLE>
F-19
<PAGE> 85
As of August 31, 1996, 1995 and 1994, excess servicing rights
consisted of excess cash flows on serviced loans totaling
$140,780,000, $133,284,000 and $37,758,000, yielding weighted average
interest rates of 12.6%, 12.9% and 12.1%, net of normal servicing and
pass- through fees and weighted average pass-through yields to the
investor of 8.6%, 8.7% and 9.2%, respectively. These loans were sold
under recourse provisions as described in Note 4 of Notes to
Consolidated Financial Statements.
During 1996, $113,917,000 of loans sold were repurchased and
securitized as further described in Note 4. Excess servicing rights
related to the loans repurchased and securitized of $20,781,000 were
transferred to the cost basis of the mortgage related securities as a
result of these transactions.
Of the Title I Loans sold in the year ended August 31, 1995,
$56,922,000 of such loans were sold to a purchaser, in a series of
sales commencing on April 21, 1995, under a continuing sales agreement
which provides for the yield to the purchaser to be adjusted monthly
to a rate equal to 200 basis points (2%) per annum over the one-month
London Interbank Offered Rate (LIBOR). LIBOR was 5.875% per annum at
August 31, 1995. The principal balance of loans subject to the LIBOR
adjustment was $29,255,000 at August 31, 1996. The effect of an
increase or decrease in LIBOR of 100 basis points (1%) applied to
those loans would be a decrease or increase, respectively, to the
Company's future pre-tax income of approximately $956,000. For
timeshare and land loans during fiscal 1996, $12,329,000 of the total
loans sold were sold to one purchaser, in a series of sales, providing
a yield to the purchaser at fixed rates, ranging from 8.3% - 9.4%. Of
the notes receivable sold during fiscal 1995, $17,296,000 of such
loans were sold to the same purchaser in a series of sales providing a
yield to the purchaser at fixed rates ranging from 8.8% - 10%.
10. MORTGAGE SERVICING RIGHTS
Activity in mortgage servicing rights consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,076 $ - $ -
Plus: Additions 3,306 1,176 -
Less: Amortization (555) (100) -
------------ ------------ -------------
Balance at end of year $ 3,827 $ 1,076 $ -
============= ============= =============
</TABLE>
The Company had no valuation allowance for mortgage servicing rights
during 1996, 1995, and 1994, as the cost basis of mortgage servicing
rights approximated fair value.
The pooling and servicing agreements relating to the securitization
transactions contain provisions with respect to the maximum permitted
loan delinquency rates and loan default rates, which, if exceeded,
would allow the termination of the Company's rights to service the
related loans. At September 30, 1996, the default rates on one
pooling and servicing agreement exceeded the permitted level. The
mortgage servicing rights for this agreement were approximately $1.4
million at August 31, 1996. In the event of such termination, there
would be an adverse effect on the valuation of the Company's mortgage
servicing rights.
11. INVENTORIES
Timeshare interests held for sale consist of the following (thousands
of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Timeshare interests (including capitalized interest of $486 and $190 in 1996 and
1995, respectively) $14,353 $ 9,689
Timeshare interests under construction (including capitalized interest
of $389 and $291 in 1996 and 1995, respectively) 19,338 7,687
Inventory of timeshare interests estimated to be recovered from future
cancellations 3,199 2,444
----- -----
Total $36,890 $19,820
======= =======
</TABLE>
F-20
<PAGE> 86
At August 31, 1996 and 1995, 7,637 and 6,328 of timeshare interests,
respectively, were available for sale. The number of apartment units
of 254 and 90 at August 31, 1996 and 1995, respectively, were under
construction and awaiting completion of remodeling, renovation,
furnishing, conversion and registration, representing 12,954 and
4,590, respectively, of timeshare interests.
Land and improvements inventory consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land and improvements $ 2,186 $ 3,432
Inventory of land and improvements estimated to be
recovered from future cancellations 1,535 2,110
------------ ------------
Total $ 3,721 5,542
============ ============
</TABLE>
12. OTHER INVESTMENTS
Other investments in the following locations, at lower of cost or
market, consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Water rights:
Huerfano County, Colorado $ 524 $ 581
Nye County, Nevada 98 95
Land:
Nye County, Nevada 863 525
Park County, Colorado 13 9
Clark County, Nevada 51 84
Other 423 237
------------ ------------
Total $ 1,972 $ 1,531
============ ============
</TABLE>
13. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation, consist
of the following (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Water and sewer system $13,752 $10,645
Furniture and equipment 6,422 4,843
Buildings 8,451 4,792
Vehicles 2,304 2,173
Recreational facilities and equipment 1,192 1,082
Land 1,342 689
Leasehold improvements 349 305
------- -------
33,812 24,529
Less: Accumulated depreciation 13,550 11,848
------- -------
Total property and equipment, net $20,262 $12,681
======= =======
</TABLE>
F-21
<PAGE> 87
14. OTHER ASSETS
Other assets consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Other receivables $2,161 $1,251
Miscellaneous assets 1,784 1,255
Deposits and impounds 560 448
Licenses 1,067 1,167
Other receivables collateralized by trust deeds 222 235
Receivable from owners' associations (Notes 4 and 22) 623 1,188
Organizational costs of MMC 482 675
Prepaid expenses and other 1,586 1,132
------ ------
Total $8,485 $7,351
====== ======
</TABLE>
15. NOTES AND CONTRACTS PAYABLE
The Company's debt including lines of credit consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Notes collateralized by receivables (a) $41,568 $26,785
Mortgages collateralized by real estate properties (b) 31,078 16,525
Notes collateralized by excess servicing rights and
mortgage related securities (c) 10,000 -
Installment contracts and other notes payable 1,803 1,405
------- -------
Total $84,449 $44,715
======= =======
</TABLE>
The details of the notes payable are summarized as follows (thousands
of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
(A) NOTES COLLATERALIZED BY RECEIVABLES
Borrowings bearing interest at prime plus: 1% to 2.5% in 1996 including "lines
of credit" (see below) and 1% to 2.5% in 1995 $41,443 $26,595
Promissory notes payable 125 190
------- -------
Total notes collateralized by receivables $41,568 $26,785
======= =======
(B) MORTGAGES COLLATERALIZED BY REAL ESTATE PROPERTIES
Mortgages collateralized by the respective underlying assets with various
repayment terms and fixed interest rates of 10% to 12.5% in 1996 and 10% in
1995 and variable rates of prime plus: 1.25% to 3% and 90 day LIBOR plus
4.25% in 1996 and prime plus: 2.5% in 1995 $31,078 $16,525
======= =======
(C) NOTES COLLATERALIZED BY EXCESS SERVICING RIGHTS (NOTE 8) AND MORTGAGE RELATED
SECURITIES (NOTES 7 AND 9) $10,000 $ -
======= =======
</TABLE>
The prime rate of interest was 8.25% and the 90 day LIBOR was
5.53% at August 31, 1996.
F-22
<PAGE> 88
Maturities -- Scheduled maturities of the Company's contracts payable,
excluding lines of credit are as follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
BALANCE 1997 1998 1999 2000 2001
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$1,803 $721 $605 $293 $179 $5
</TABLE>
Lines of Credit -- PEC entered into 5 agreements for lines of credit
not to exceed $109,500,000 which are collateralized by security
interests in timeshare and land receivables and are guaranteed by the
Company. At August 31, 1996 and 1995, an aggregate of $65,875,000 and
$38,123,000 had been borrowed under such lines of credit. Under the
terms of such lines of credit, PEC may borrow up to 75% to 85% of the
balances of the pledged timeshare and land receivables. MMC entered
into 2 lines of credit agreements with the same lender, not to exceed
an aggregate of $30,000,000, one of which is collateralized by
security interests in loans held for sale, and the other by excess
servicing rights and mortgage related securities.
Summarized line of credit information relating to these five lines of
credit outstanding at August 31, 1996, consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
BORROWING
AMOUNT AT MAXIMUM
AUGUST 31, BORROWING REVOLVING MATURITY INTEREST
1996 AMOUNT EXPIRATION DATE (F) DATE RATE
------- ------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
$47,297 $57,000 (a) December 31, 1996 September 22, 2003 Prime +2.25%
7,821 15,000 (b) December 31, 1996 August 1, 2000 Prime +2.5%
4,865 15,000 (c) June 27, 1998 June 27, 2005 LIBOR +4.25%
2,925 15,000 (c) February 6, 1998 August 6, 2005 LIBOR +4.25%
2,967 7,500 (b) December 31, 1996 June 30, 2000 Prime +2.5%
3,265 20,000 (d) August 9, 1997 August 9, 1997 Prime +1.0%
10,000 10,000 (d) (e) December 31, 1997 June 30, 2000 Prime +2.0%
</TABLE>
(a)Restrictions include the Company's requirement to maintain
a tangible net worth in PEC of at least $25,000,000 during the
borrowing term, and thereafter this requirement is permitted
to decrease to $15,000,000 depending on the loan balance.
(b)Restrictions include the Company's requirement to maintain
a tangible net worth in PEC of $25,000,000 during the life of
the loan.
(c)Restrictions include the Company's requirement to maintain
a tangible net worth in PEC of $17,000,000 during the life of
the loan.
(d)Restrictions include the Company's requirement to maintain
MMC's tangible net worth at $12,500,000 plus 50% of MMC's
cumulative net income since May 1, 1996. (50% of MMC's
cumulative net income for the period May 1, 1996 to August 31,
1996 was $1.1 million). Additionally, MMC is required to
maintain a minimum level of profitability of at least $500,000
per rolling 6 month period.
(e)Borrowings by MMC under this facility cannot exceed the
lesser of (a) 40% of MMC's excess servicing rights and
mortgage related securities or (b) six times the aggregate of
the excess servicing rights and mortgage related securities
payments actually received by the Company over the most recent
3 month period.
(f)Revolving expiration date represents the expiration dates
of the revolving features of the lines of credit, at which
time the credit lines assume fixed maturity.
At August 31, 1996 and 1995, contracts payable consisted of $932,000
and $419,000, respectively, in obligations under lease purchase
arrangements secured by property and equipment, bearing a weighted
average interest rate of 9.48%.
F-23
<PAGE> 89
16. SUBORDINATED DEBT
On March 2, 1995, Mego entered into the Amendment whereby the
Assignors agreed to defer payment of $10 million of the amount
payable to assignors and to subordinate such amounts in right of
payment to debt for money borrowed by Mego or obligations of
subsidiaries guaranteed by Mego. Warrants for 1,000,000 shares of
Mego Common Stock, at an exercise price of $4.25 per share (the
closing market price per share on March 2, 1995) were granted to the
Assignors in consideration of the payment deferral and subordination.
The warrants contain restrictions on transfer and are exercisable
after March 1, 1996 and until March 1, 2000. The Amendment calls for
interest to be paid semi-annually at the rate of 10% per annum
starting September 1, 1995, and seven equal semi-annual payments of
$1,429,000 plus interest, commencing March 1, 1997. The effective
interest rate after considering the effect of accreted interest is
14.7%. See Note 2 for further discussion. The following table
represents subordinated debt activity since inception (thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Face amount of debt $10,000 $10,000
Less: Value of warrants issued (1,300) (1,300)
------- -------
Subordinated debt - original value 8,700 8,700
Accreted interest since inception 1,991 652
Less: Interest payments since inception (1,000) -
------ ------
Subordinated debt at August 31 $9,691 $9,352
====== ======
</TABLE>
17. REDEEMABLE PREFERRED STOCK
The Company had designated 300,000 shares of its 5,000,000 authorized
preferred shares as Series A, 12% Cumulative Preferred Stock, par
value, $.01 per share. The remaining 4,700,000 authorized preferred
shares have not been designated. As of August 31, 1993, the Company
sold 300,000 shares of its Series A, 12% Cumulative Preferred Stock
(Preferred Stock), at a price of $10 per share. The Preferred Stock
was stated at its par value of $.01 per share, and redemption value of
$10 per share. The Company was obligated to redeem 100,000 shares of
Preferred Stock on August 31, 1995, at $10 per share. In August 1995,
the Company gave notice of redemption of 100,000 shares. On September
1, 1995, after receipt of the certificates, the Company redeemed
100,000 shares of its Preferred Stock. On August 31, 1996, the holder
of the Company's 200,000 shares of outstanding 12% cumulative
preferred stock with a redemption price of $2,000,000 redeemed their
shares for 343,347 shares of the Company's common stock. The number
of common shares exchanged was based upon the 10 day average closing
stock price of $5.825 for the Company's common stock immediately prior
to August 31, 1996. In conjunction with the exchange, the expiration
date of the warrants outstanding to purchase 300,000 shares of the
Company's common stock at a price of $1.20, issued in conjunction
with the preferred stock, and due to expire on August 31, 1996 was
extended to August 31, 1997.
F-24
<PAGE> 90
18. STOCKHOLDERS' EQUITY
The Company has a stock option plan, adopted November 1993, for
officers and key employees which provides for non-qualified and
qualified incentive options. The Stock Option Committee of the Board
of Directors determines the option price (not to be less than fair
market value for qualified incentive options) at the date of grant.
The options generally expire ten years from the date of grant and are
exercisable over the period stated in each option at the cumulative
rate of 20% per year commencing December 22, 1994, for three years and
the remaining 40% after December 22, 1997.
<TABLE>
<CAPTION>
RESERVED PRICE PER
SHARES NUMBER SHARE
-------- -------- ------------
<S> <C> <C> <C>
At November 17, 1993 525,000 - -
Granted to more than 10% stockholder - 35,000 $2.75
Granted to others - 355,000 $2.50
------- -------
At August 31, 1994 525,000 390,000 $2.50/2.75
Exercised (2,000) (2,000)
Forfeited - (8,000)
Granted - 85,000 $8.00/8.75
------- -------
At August 31, 1995 523,000 465,000
Exercised (4,000) (4,000)
Forfeited - (6,000)
Granted - 25,000 $5.875
------- -------
At August 31, 1996 519,000 480,000 $2.50/8.75
======= =======
</TABLE>
The number of options exercisable under this plan at August 31, 1996,
was 170,000 at a range of $2.50 to $8.75 per share.
19. TIMESHARE INTEREST SALES AND LAND SALES
Timeshare interest sales, net-- A summary of the components of
timeshare interest sales is as follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Timeshare interest sales $33,178 $26,272 $24,670
Less: Provision for cancellation 5,400 5,590 5,149
------- ------- -------
Total $27,778 $20,682 $19,521
======= ======= =======
</TABLE>
Land sales, net -- A summary of the components of land sales is as
follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------
1996 1995 1994
--------- ------------ ----------
<S> <C> <C> <C>
Land sales $22,346 $24,717 $15,434
Less: Provision for cancellation 4,378 3,905 1,900
------- ------- -------
Total $17,968 $20,812 $13,534
======= ======= =======
</TABLE>
20. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries for its tax year which ends the last day of February.
The Company adopted SFAS 109 effective September 1, 1992. There was
no cumulative effect of adopting SFAS 109 on the Company's financial
statements. The estimated income tax payable as of August 31, 1996,
is approximately $1,344,000. The tax provision for 1996 consists of
$290,000 current provision and $2,877,000 deferred provision. The tax
provision for 1995 consists of $1,054,000 current provision, including
the $450,000 of
F-25
<PAGE> 91
tax associated with discontinued operations, and $2,689,000 deferred
provision. The provision for 1994 consisted entirely of deferred
provision.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, (b) temporary differences between the timing of revenue
recognition for book purposes and for income tax purposes, and (c)
operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax liability
as of August 31, 1996 and 1995 are as follows (thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax carrying value
of assets $ 3,064 $3,508
Timing of revenue recognition 8,348 4,606
------- ------
11,412 8,114
------- ------
Deferred tax assets:
Other 432 11
------- ------
Net deferred tax liability $10,980 $8,103
======= ======
</TABLE>
The provision for taxes as reported is different from the tax
provision computed by applying the statutory federal rate of 34%. The
differences are as follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income (loss) before income taxes,
including gain on discontinued
operations $8,018 $4,187 $(5,013)
====== ====== ========
Tax at the statutory federal rate $2,726 $1,424 $(1,704)
Increase (decrease) in taxes
resulting from:
State income taxes, net of
federal income tax benefit 442 264 --
Payments to assignors -- 813 2,218
Realization of purchase price
adjustments -- 70 217
Amortization of negative goodwill -- - 17
Contributions in aid of
construction 81 929 114
Preferred stock dividends (82) (122) (122)
Other -- (85) 21
------ ------ ----
Total $3,167 $3,293 $761
====== ====== ====
</TABLE>
21. DISCONTINUED OPERATIONS
Gain on discontinued operations occurred as a result of an order for
judgment against PEC in the matter of the PEC Apartment Subsidiaries
in the amount of $3,356,000, which amount was settled for $2,900,000
on May 15, 1995, and paid on June 15, 1995. Excess of liability over
assets of discontinued operations (a provision for loss) had been
provided in the amount of $4,222,000 resulting in a gain on
discontinued operations of $873,000 after deducting $450,000 of taxes
to be reflected on the income statement. See Note 23 for further
discussion.
F-26
<PAGE> 92
22. RELATED PARTY TRANSACTIONS
Timeshare Owners' Associations--Owners' Associations have been
incorporated for the Grand Flamingo, Reno Spa, Brigantine and
Steamboat Springs timesharing resorts. The respective Owners'
Associations are independent not-for-profit corporations. PEC acts as
the managing agent for these Owners' Associations and the White Sands
Resort Club, which is a division of PEC (Associations) and received
management fees for its services of $2,081,000 and $1,988,000 in 1996
and 1995, respectively. Such fees were recorded as a reduction of
general and administrative expense. The owners of timeshare interests
in each Association are responsible for payment to the Associations of
assessments, which are intended to fund all of the operating expenses
at each of the resort facilities. The Company's share of the
Association assessments, net of room income, was $983,000 and $56,000
for 1996 and 1995, respectively, and have been recorded as general and
administrative expense. This increase was primarily due to the newer
resorts recording a full year's operations in fiscal 1996 versus a
partial year in fiscal 1995. The Company has in the past financed
budget deficits of the Associations as is reflected in the receivable
from such Associations, but is not obligated to do so in the future.
Since January 1988, the Company has agreed to pay to the Associations
the assessments of timeshare interest owners who are delinquent with
respect to their assessments, but have paid the Company in full for
their timeshare interests. In exchange for these payments, the
Associations assign their liens for non-payment of assessments on the
respective timeshare interests to the Company. In the event the
timeshare interest holder does not satisfy the lien after having an
opportunity to do so, the Company acquires the timeshare interest for
the amount of the lien and any foreclosure costs.
At August 31, 1996 and 1995, $623,000 and $1,188,000, respectively,
was due from Owners' Associations. These amounts are included in
other assets at August 31, 1996 and 1995.
Payments to Assignors-- Certain transactions have been entered into
with the Assignors, who are affiliates of certain officers and
directors of the Company, and these transactions are more fully
described in Note 2. During the years ended August 31, 1996, 1995, and
1994, approximately $1,196,000, $2,301,000, and $4,904,000, including
interest of $1,196,000, $473,000 and $304,000, respectively, were paid
to the Assignors. See Note 16 for further discussion.
Transactions with Management-- On September 24, 1990, Brigantine
Preferred Properties, Inc. (Properties), a Nevada Corporation that is
a wholly-owned subsidiary of the Company, entered into agreements with
Brigantine Inn, Ltd., a New Jersey Limited Partnership (Inn), and
Brigantine Villas, L.P., a New Jersey Limited Partnership (Villas),
herein referred to as the Inn Agreement and the Villas Agreement,
respectively, for the acquisition of certain assets (primarily
inventory of timeshare interests and related assets) and the
assumption of certain liabilities of the Inn and Villas. Inn and
Villas were in the business of selling timeshare interests in two
adjacent facilities located near Atlantic City, New Jersey.
Goodwill of $1,837,000 associated with this transaction has been
amortized over a 3 year period ending September 30, 1993. At August
31, 1994, all of the Company's obligations owed to the Inn and Villas
had been paid in full.
During December 1992, Properties purchased approximately $6,025,000 of
timeshare receivables from Inn for a purchase price of approximately
$3,524,000. The purchase price was financed through the sale by
Properties of approximately $3,720,000 of the acquired receivables to
a financial institution. In connection with the sale, the Company
guaranteed the repurchase and other obligations of Properties and
agreed to maintain a net worth of at least $22,500,000. As collateral
for its obligations under the sale agreement, Properties also pledged
approximately $750,000 of the acquired timeshare receivables to the
purchaser. The amount of the collateral required under the sale
agreement reduces by approximately 20% per year. In connection with
this transaction, Properties recorded an allowance for cancellation
and a future estimated contingency for notes receivable sold with
recourse aggregating approximately $2,000,000.
PEC provides account servicing for related and non-related entities
which consists of providing billing and collection services and
receiving funds. The Company also provides the same services for MMC.
Deferred servicing revenues arise from sales of receivables with the
Company becoming the servicing agent for the purchasers. At August 31,
1996 and 1995, the Company was servicing for these entities and for
its own receivables approximately 32,602 and 21,901 accounts,
respectively.
F-27
<PAGE> 93
23. COMMITMENTS AND CONTINGENCIES
Future Improvements -- Central Nevada Utilities Company, (CNUC)
subsidiary, has issued performance bonds of $13,556,000 outstanding at
August 31, 1996, to ensure the completion of water, sewer and other
improvements in portions of the Calvada development areas. The cost of
the improvements will be offset by the future receipt of betterment
fees and connection fees.
Leases --The Company leases certain real estate for sales and general
and administrative usage. The Company also leases its Hawaii real
estate for timeshare usage. Rental expense for fiscal years 1996,
1995, and 1994 was $2,731,000, $2,446,000, and $1,865,000,
respectively. Future minimum rental payments under operating leases
are set forth below (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
----------------------
<S> <C>
1997 $1,941
1998 1,830
1999 1,331
2000 1,144
2001 1,154
Thereafter 2,639
-----
Total $10,039
=======
</TABLE>
Litigation -- In the matter of the PEC Apartment Subsidiaries
litigation previously reported upon, an order for judgment of
$3,346,000 was rendered against PEC on its limited guaranty, in
connection with the defendants' counterclaim. Pursuant to a
stipulation between the parties dated as of May 15, 1995, PEC paid the
amount of $2,900,000 on June 15, 1995 in full settlement of this
matter. Because the reserve recorded in the financial statements of
the Company exceeded the amount of the settlement, the Company
recognized a gain on discontinued operations of $1,323,000.
On July 5, 1995, Pahrump Valley Vineyards, Inc. filed a complaint in
the 5th Judicial District Court, Nye County, Nevada, against CNUC, a
subsidiary of PEC. The plaintiff claimed compensatory damages in
excess of $25,000 in each of 4 counts alleging trespass, nuisance,
negligence and breach of contract for the alleged supplying of
contaminated water by CNUC to the plaintiff, and also prayed for
punitive damages in excess of $25,000. Following discovery, PEC's
insurance carrier settled the case by payment of $35,000 to the
plaintiffs.
Following the Company's November 10, 1995 announcement disclosing
certain accounting adjustments, an action was filed on November 13,
1995, in the United States District Court, District of Nevada by
Christopher Dunleavy, as a purported class action against the Company,
certain of the Company's officers and directors and the Company's
independent auditors. The complaint alleges, among other things, that
the defendants violated Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 thereunder in connection with the preparation
and issuance of certain of the Company's financial reports issued in
1994 and 1995, including certain financial statements reported on by
the Company's independent auditors. The complaint also alleges that
one of the director defendants violated the federal securities laws by
engaging in "insider trading." The named plaintiff seeks to represent
a class consisting of purchasers of the Company's Common Stock between
January 14, 1994 and November 9, 1995, and seeks damages in an
unspecified amount, costs, attorney's fees and such other relief as
the court may deem just and proper. The Company believes that it has
substantial defenses to the action, however, the Company presently
cannot predict the outcome of this matter.
On November 16, 1995, a second action was filed in the United States
District Court for the District of Nevada by Alan Peyser as a
purported class action against the Company and certain of its officers
and directors, which was served on the Company on December 20, 1995.
The complaint alleges, among other things, that the defendants
violated the federal securities laws by making statements and issuing
certain financial reports in 1994 and 1995 that overstated the
Company's earnings and business prospects. The named plaintiff seeks
to represent a class consisting of purchasers of the Company's common
stock between November 28, 1994 and November 9, 1995. The complaint
seeks damages in an unspecified amount, cost, attorney's fees and such
other relief as the Court may deem just and proper. The Company
believes that it has substantial defenses to the action, however, the
Company presently cannot predict the outcome of this matter.
F-28
<PAGE> 94
On or about June 10, 1996, the Dunleavy Action and Peyser Action were
consolidated under the caption "In re Mego Financial Corp. Securities
Litigation," Master File No. CV-9-95-01082-LD (RLJ), pursuant to a
stipulation by the parties. On or about July 26, 1996, Michael Nadler
filed a motion in the above matter requesting that he be added as a
class representative and that his attorney be added as additional
counsel for the class. On or about August 26, 1996, a Motion in
Opposition to the motion to add a class representative was filed by
the Company and certain other defendants. Neither motion has been
heard or decided by the court.
In the general course of business the Company, at various times, has
been named in other lawsuits. The Company believes that it has
meritorious defenses to these lawsuits and that resolution of these
matters will not have a material adverse affect on the financial
condition or results of operations of the Company.
Contingencies--At August 31, 1996, irrevocable letters of credit in
the amount of $2,084,000 were issued and outstanding to secure certain
obligations of the Company. These letters are collateralized by notes
receivable in the amount of $2,497,000.
License Agreement--In April 1995, PEC entered into a strategic alliance
pursuant to which PEC was granted a ten-year (including a renewal
option) exclusive license to operate both its existing and future
timeshare properties under the name "Ramada Vacation Suites". PEC has
renamed its timeshare resorts. The arrangement provides for the
payment by PEC of an initial access fee of $1 million, which has been
paid, and monthly recurring fees equal to 1% of PEC's Gross Sales (as
defined) each month through January 1996 and 1.5% of PEC's Gross Sales
each month commencing in February 1996. The initial term of the
arrangement is 5 years and PEC has the option to renew the arrangement
for an additional term of 5 years.
24. SUBSEQUENT EVENTS
In September 1996, MMC received a commitment from a financial
institution providing for the purchase of up to $2 billion of loans
over a 5 year period. Upon closing of the final agreement, the
Company will issue to the financial institution 4 year warrants to
purchase 1,000,000 shares of the Company's common stock at an exercise
price of $7.125 per share. The value of the warrants, estimated at
$3,000,000 (0.15% of the commitment amount) as of the commitment date,
will be recorded as a commitment fee and charged to expense as the
commitment is utilized. The financial institution has also agreed to
provide MMC a separate one year facility of up to $11,000,000, less
any amounts advanced under a separate $3,000,000 repurchase agreement,
for the financing of the interest only and residual certificates from
future securitizations.
In November 1996, MMC issued 2,300,000 shares of its common stock in a
public offering at $10.00 per share. As a result of this transaction,
the Company's ownership in MMC declined from 100% at August 31, 1996 to
81.1%. The Company continues to have voting control on all matters
submitted to shareholders of MMC, including the election of directors
and approval of extraordinary corporate transactions. Concurrently
with the common stock offering, MMC issued $40 million of 12.5% Senior
Subordinated Notes due in 2001 in a public offering. MMC currently
intends to use approximately $13.2 million of the aggregate net
proceeds received from the offerings to repay amounts due to Mego
Financial Corp. and PEC and approximately $17 million to reduce the
amounts outstanding under MMC's warehouse and revolving lines of credit
which currently bear interest at rates ranging from 1% to 2% over the
prime rate and which expire in August 1997 and December 1997,
respectively, and to repay $3 million under a repurchase agreement.
Funds received by Mego Financial Corp. and PEC will be used in their
respective operations. The remaining net proceeds will be used by MMC
to provide capital to originate and securitize loans. Pending such
use, the net proceeds received by the Company will be invested in high
quality, short term interest-bearing investment and deposit accounts.
F-29
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Mego Financial Corp. and Subsidiaries
Las Vegas, Nevada
We have audited the consolidated financial statements of Mego Financial Corp.
and its subsidiaries (the "Company") as of August 31, 1996 and 1995, and for
each of the three years in the period ended August 31, 1996, and have issued
our report thereon dated October 25, 1996, included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedule
of the Company, listed in Item 8 of this Form 10-K. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when,
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 25, 1996
S-1
<PAGE> 96
SCHEDULE VIII
MEGO FINANCIAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
For the Year Ended August 31, 1996
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowances for cancellations $16,523 $11,288 $-- $(11,469) $16,342
Unamortized valuation discount 343 471 -- (362) 452
Revaluation adjustment -- -- -- -- --
----------- ------------ ------------ ------------ ------------
$16,866 $11,759 $-- $(11,831) $16,794
=========== ============ ============ ============ ============
</TABLE>
- ---------------------------
(a) Excess of book value over cost at September 1, 1989.
(b) Amortization of excess of book value over cost.
S-2
<PAGE> 97
SCHEDULE VIII
MEGO FINANCIAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
For the Year Ended August 31, 1995
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances for cancellations and credit losses $18,007 $10,359 $-- $(11,843) $16,523
Unamortized valuation discount 281 103 -- (41) 343
Revaluation adjustment 166 (a) -- -- (166)(b) --
-------- ------- ----- ---------- --------
$18,454 $10,462 $0 $(12,050) $16,866
======== ======= ===== ========== ========
</TABLE>
- --------------------------
(a) Excess of book value over cost at September 1, 1989.
(b) Amortization of excess of book value over cost.
S-3
<PAGE> 98
SCHEDULE VIII
MEGO FINANCIAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
For the Year Ended August 31, 1994
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances for cancellations $19,933 $7,775 $-- $(9,701) $18,007
Unamortized valuation discount 275 292 -- (286) 281
Revaluation adjustment 588 (a) -- -- (422)(b) 166
----------- ------------ ------------ ------------ ------------
$20,796 $8,067 $-- $(10,409) $18,454
=========== ============ ============ ============ ============
</TABLE>
- ----------------------------
(a) Excess of book value over cost at September 1, 1989.
(b) Amortization of excess of book value over cost.
S-4
<PAGE> 1
EXHIBIT 10.85
AMENDMENT NO. 11 TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 11 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT is entered into as of this 22nd day of September, 1995, by
and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower").
R E C I T A L S
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated Loan Agreement")
that evidences a loan from GREFCO to Borrower (the "Modified Loan") that is
secured by, among other things, Receivables Collateral.
B. The Modified Loan and Restated Loan Agreement was
amended by an Amendment Number One to Amended and Restated Loan and Security
Agreement dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"); by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated as of April 15, 1994 (the "Eighth Amendment"), by an Amendment
No. 9 to Amended and Restated Loan and Security Agreement dated as of August
31, 1994 (the "Ninth Amendment"), and by an Amendment No. 10 to Amended and
Restated Loan and Security Agreement dated as of January 26, 1995 (the "Tenth
Amendment"). The Restated Loan Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the
Sixth Amendment, the Seventh Amendment, the Eighth Amendment, the Ninth
Amendment, the Tenth Amendment and this Eleventh Amendment and all other
documents evidencing or executed in connection with the Loan are referred to
hereinafter as the "Loan Documents." The Restated Loan Agreement, as amended
by the First Amendment, Second Amendment, Third Amendment, Fourth Amendment,
Fifth Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment and Tenth Amendment, is referred to hereinafter as the "Loan
Agreement." The Loan contemplated by the Loan Agreement, as amended by this
Eleventh Amendment, is referred to hereinafter as the "Loan." All
<PAGE> 2
capitalized terms used in this Eleventh Amendment will have the meanings
assigned to such terms in the Loan Agreement unless those terms are otherwise
defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO was
liquidated into GFC. Further, pursuant to such plan of liquidation, GREFCO
assigned the Note and all of GREFCO's rights under the Loan Agreement and other
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Borrower has requested and Lender has agreed to fund
(pursuant to the terms and conditions of this Eleventh Amendment), as part of
the Loan, Advances to finance the acquisition, renovation, development and
construction of two (2) timeshare resort facilities in Indian Shores, Florida,
one of which will consist of thirty-two (32) timeshare units and known as
"Aloha Bay Phase I," more particularly described in Exhibit A attached hereto
("Aloha Bay Phase I"), and one of which will consist of sixteen (16) timeshare
units and known as "Aloha Bay Phase II," more particularly described in Exhibit
B attached hereto ("Aloha Bay Phase II").
E. Borrower has also requested and Lender has agreed, in
accordance with and subject to the conditions contained in the Loan Agreement,
as modified by this Eleventh Amendment, to make Advances of the Loan, from time
to time, against Instruments or Contracts arising from Aloha Bay Phase I and
Aloha Bay Phase II.
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Eleventh Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which consideration is hereby
acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent
described in Paragraph 10 of this Eleventh Amendment are met to the
satisfaction of Lender, which satisfaction will be evidenced by Lender's
execution of this Eleventh Amendment unless otherwise provided herein, the Loan
Agreement is hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by adding to Article I the
following definitions:
"Aloha Bay Phase I": shall have the meaning set forth in the Recitals of this
Eleventh Amendment.
"Aloha Bay Phase II": shall have the meaning set forth in the Recitals of this
Eleventh Amendment.
-2-
<PAGE> 3
"Aloha Bay Phase I Acquisition Advance": shall have the meaning set forth in
Paragraph 2 of this Eleventh Amendment.
"Aloha Bay Phase II Acquisition Advance": shall have the meaning set forth in
Paragraph 4 of this Eleventh Amendment.
"Aloha Bay Phase I Loan Fee": shall mean the loan
fee payable by Borrower to Lender equal to one-half percent (.5%) of
each of the Advances made by Lender to Borrower under the Loan in
connection with Aloha Bay Phase I, which shall be due and payable in
full by Borrower on the date that each such Advance is funded.
"Aloha Bay Phase II Loan Fee": shall mean the loan
fee payable in connection with Advances made by Lender to Borrower
with respect to Aloha Bay Phase II, which shall be in an amount equal
to one-half percent (.5%) of each such Advance and due and payable in
full by Borrower on the date that each such Advance with respect to
Aloha Bay Phase II is funded.
"Aloha Bay Phase I Incentive Fee": shall mean the
incentive fee provided for in Paragraph 9.4.1 of this Eleventh
Amendment.
"Aloha Bay Phase II Incentive Fee": shall mean the
incentive fee provided for in Paragraph 9.4.2 of this Eleventh
Amendment.
"Aloha Bay Phase I Maturity Date": shall mean the
maturity date applicable to all Advances under the Loan with respect
to Aloha Bay Phase I, which shall be the first to occur of the
following dates: (a) the date which shall occur twenty-four (24)
months after the date of the final Advance with respect to Aloha Bay
Phase I, or (b) May 31, 1998.
"Aloha Bay Phase II Maturity Date": shall mean the
maturity date applicable to all Advances under the Loan with respect
to Aloha Bay Phase II, which shall be the first to occur of the
following dates: (a) the date which shall occur twenty-four (24)
months after the date of the final Advance with respect to Aloha Bay
Phase II, or (b) December 31, 1998.
"Aloha Bay Phase I Mortgage": shall have the meaning
set forth in Paragraph 8 of this Eleventh Amendment.
"Aloha Bay Phase II Mortgage": shall have the
meaning set forth in Paragraph 8 of this Eleventh Amendment.
-3-
<PAGE> 4
"Aloha Bay Phase I Note": shall have the meaning set
forth in Paragraph 6 of this Eleventh Amendment.
"Aloha Bay Phase II Note": shall have the meaning
set forth in Paragraph 7 of this Eleventh Amendment.
"Aloha Bay Phase I Release Fees": shall have the
meaning set forth in Paragraph 9.1 of this Eleventh Amendment.
"Aloha Bay Phase II Release Fees": shall have the
meaning set forth in Paragraph 9.2 of this Eleventh Amendment.
"Eleventh Amendment": shall mean this Amendment No.
11 to Amended and Restated Loan and Security Agreement.
1.2 The definitions of the following terms in
Article I of the Loan Agreement, including, to the extent applicable, the First
Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth
Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment and Tenth Amendment, are hereby amended and restated in their
entirety to read as follows:
"Borrowing Term": shall mean the period of time
during which Lender is committed to make advances under the Loan
Agreement as amended by the Eleventh Amendment, which commitment shall
terminate (a) as to Aloha Bay Phase I, on the first to occur of that
date which is six (6) months after the Aloha Bay Phase I Acquisition
Advance or May 31, 1996, and (b) as to Aloha Bay Phase II, on December
31, 1996.
"Documents": shall mean the Note, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh
Amendment, the Eighth Amendment, the Ninth Amendment, the Tenth
Amendment, the Eleventh Amendment, the 2.5 MM Note, the Suites Phase
II Note, the Ida Building One Note, the Ida Building Two Note, the
Aloha Bay Phase I Note, the Aloha Bay Phase II Note, the Guarantee,
the Deed of Trust, the Headquarters Deed of Trust, the Ida Building
One Deed of Trust, the Ida Building Two Deed of Trust, the Aloha Bay
Phase I Mortgage, the Aloha Bay Phase II Mortgage, the Assignments,
the Contracts, the Instruments, the Agency Agreement, the Oversight
Agreement, this Agreement, and all other documents and instruments
executed in connection with the Loan, together with any and all
renewals, extensions, amendments, restatements or replacements
thereof, whether now or hereafter existing.
-4-
<PAGE> 5
"Project": shall mean each of Aloha Bay Phase I (as
defined in the Eleventh Amendment), Aloha Bay Phase II (as defined in
the Eleventh Amendment), Ida Building One (as defined in the Tenth
Amendment), Ida Building Two (as defined in the Tenth Amendment),
South Park Ranches (as defined in the Ninth Amendment), Suites Phase
II (as defined in the Eighth Amendment), Fountains (as defined in the
Sixth Amendment), Winnick (as defined in the Sixth Amendment), Suites
Phase I (as defined in the Fourth Amendment) and those certain real
estate developments which are owned by the Borrower or the Trustee,
located in Nye County and Clark County in the State of Nevada, and
Huerfano County in the State of Colorado, which are more particularly
described in Exhibit "P-1" to the First Amendment.
"Unit": shall mean a real property fee or
right-to-use interest in all or a portion of the Project which permits
the purchaser or owner thereof the right to occupy a dwelling unit
therein for a one-week interval of time during the calendar year, or
in which such purchaser or owner has an interest as a tenant-in-common
in such dwelling unit and related undivided interest in common
elements appurtenant thereto, together with the right to use such unit
for a one-week period of time during any calendar year.
1.3 The introductory subparagraph of Paragraph
3.1 of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"3.1(a) As security for Borrower's payment and
Performance of all Obligations owed to Lender under the Documents
(including, without limitation, the 2.5 MM Note, the Suites Phase II
Note, the Ida Building One Note, the Ida Building Two Note, the Aloha
Bay Phase I Note and the Aloha Bay Phase II Note (subject to the
limitations set forth in the Aloha Bay Phase I Mortgage and the Aloha
Bay Phase II Mortgage with respect to Aloha Bay Phase I and Aloha Bay
Phase II)), Borrower hereby grants, transfers and assigns to Lender a
Security Interest in and to all of Borrower's right, title and
interest in and to all of the following:"
1.4 The introductory subparagraph of Paragraph
3.1(b) of the Loan Agreement (which was added to the Loan Agreement pursuant to
the Fourth Amendment) is hereby amended and restated in its entirety to read as
follows:
"(b) As further security for Borrower's payment
and Performance of all Obligations owed to Lender under the Documents
(including, without limitation, the 2.5 MM Note, the Suites Phase II
Note, the Ida Building One Note, the Ida Building Two Note, the Aloha
Bay Phase I Note and the Aloha Bay Phase II Note (subject to the
limitations set forth in the Aloha Bay Phase I Mortgage and the Aloha
Bay Phase II Mortgage with respect to Aloha Bay Phase I and Aloha Bay
Phase II)), Borrower hereby grants, transfers and assigns to Lender a
Security Interest in and to all of Borrower's right, title and
interest in and to all of the following:"
-5-
<PAGE> 6
1.5 Paragraph 7.2 of the Loan Agreement is hereby
amended by adding the phrase "(exclusive of the aggregate outstanding principal
balance of the 2.5 MM Note, the Suites Phase II Note, the Ida Building One
Note, the Ida Building Two Note, the Aloha Bay Phase I Note and the Aloha Bay
Phase II Note)" immediately following the word "Loan" at both places where the
term "Loan" appears in the first sentence thereof.
1.6 Paragraph 9.1(a) of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"(a) Lender fails to receive from Borrower when
due and payable (i) any amount that Borrower is obligated to pay on
the Note, (ii) any amount that Borrower is obligated to pay on the 2.5
MM Note, (iii) any amount that Borrower is obligated to pay on the
Suites Phase II Note, (iv) any amount that Borrower is obligated to
pay on the Ida Building One Note, (v) any amount that Borrower is
obligated to pay on the Ida Building Two Note, (vi) any amount that
Borrower is obligated to pay on the Aloha Bay Phase I Note, (vii) any
amount that Borrower is obligated to pay on the Aloha Bay Phase II
Note, or (viii) any other payment due under the Documents; and such
failure shall continue for five (5) days after notice thereof to
Borrower, except for the payment of the final installment due under
each of the Note, the 2.5 MM Note, the Suites Phase II Note, the Ida
Building One Note, the Ida Building Two Note, the Aloha Bay Phase I
Note and the Aloha Bay Phase II Note, for which no grace period is
allowed;"
Paragraph 9.1 of the Loan Agreement is hereby amended by
adding the following provision as paragraph 9.1(m):
"(m) Borrower is in default of that Franchise
Agreement between Borrower and Hospitality Franchise Systems, Inc.,
dated as of April 18, 1995, to the extent such default has a material
and adverse effect on the Project."
2. ALOHA BAY PHASE I ACQUISITION ADVANCE. As an Advance
against the Maximum Loan Amount, Lender shall make a loan (the "Aloha Bay Phase
I Acquisition Advance") to Borrower in an amount equal to the lesser of (a)
$2,430,000, or (b) 90% of the bona fide out-of- pocket costs and expenses
incurred by Borrower through the date of such Advance in acquiring Aloha Bay
Phase I, as established by evidence satisfactory to Lender (exclusive of any
overhead of or profits to Borrower or any of the Control Group). The following
terms and conditions shall apply to the Aloha Bay Phase I Acquisition Advance:
2.1 At such time as all conditions with respect
to the Aloha Bay Phase I Acquisition Advance in this Eleventh Amendment have
been satisfied in Lender's discretion, Lender shall disburse the Aloha Bay
Phase I Acquisition Advance to Borrower in a single Advance on a date mutually
agreeable to the parties hereto. Lender shall have no
-6-
<PAGE> 7
obligation to disburse any portion of the Aloha Bay Phase I Acquisition Advance
after September 29, 1995.
2.2 Borrower shall use the proceeds of the Aloha
Bay Phase I Acquisition Advance to pay for a portion of Borrower's costs in
purchasing Aloha Bay Phase I.
2.3 Borrower shall pay to Lender the Aloha Bay
Phase I Loan Fee applicable to the Aloha Bay Phase I Acquisition Advance
simultaneously with such Advance.
2.4 The Aloha Bay Phase I Acquisition Advance
shall not be included in the Mortgage Loan Facility or deemed to be an Advance
under the Mortgage Loan Facility.
3. ALOHA BAY PHASE I RENOVATION ADVANCES. As an Advance
against the Maximum Loan Amount, Lender shall make a loan (the "Aloha Bay Phase
I Renovation Advances") to Borrower, subject to the conditions precedent stated
in Paragraph 10 below, in amounts not to exceed the lesser of (a) $3,600,000,
less the amount of the Aloha Bay Phase I Acquisition Advance, or (b) 90% of the
bona fide out-of-pocket costs and expenses incurred by Borrower through the
date of such Advance in renovating the Aloha Bay Phase I, as established by
evidence satisfactory to Lender (exclusive of any overhead of or profits to
Borrower or any of the Control Group (for the purposes of the foregoing, the
term "overhead" shall not be deemed to include reasonable and customary
salaries paid to employees of Borrower performing renovations with respect to
Aloha Bay Phase I)). Borrower shall use the proceeds of any Aloha Bay Phase I
Renovation Advances to reimburse Borrower for Borrower's costs incurred in
renovating and refurbishing Aloha Bay Phase I. Lender shall have no obligation
to fund any Aloha Bay Phase I Renovation Advances until such time as all
conditions with respect thereto in this Eleventh Amendment have been satisfied
in Lender's discretion, and Lender shall have no obligation to make any further
Aloha Bay Phase I Renovation Advances after the first to occur of the following
dates: (i) six (6) months after the Aloha Bay Phase I Acquisition Advance or
(ii) May 31, 1996. The Aloha Bay Phase I Renovation Advances shall not be
included in the Mortgage Loan Facility or be deemed to be Advances under the
Mortgage Loan Facility.
4. ALOHA BAY PHASE II ACQUISITION ADVANCE. As an
Advance against the Maximum Loan Amount, Lender shall make a loan (the "Aloha
Bay Phase II Acquisition Advance") to Borrower in an amount equal to the lesser
of (a) $450,000 or (b) 90% of the total bona fide out- of-pocket costs and
expenses to Borrower in acquiring Aloha Bay Phase II, as established by
evidence satisfactory to Lender (exclusive of any overhead of or profits to
Borrower or any of the Control Group). The following terms and conditions
shall apply to the Aloha Bay Phase II Acquisition Advance:
-7-
<PAGE> 8
4.1 At such time as all conditions with respect
to the Aloha Bay Phase II Acquisition Advance in Paragraph 10(q) of this
Eleventh Amendment have been satisfied in Lender's discretion, Lender shall
disburse the Aloha Bay Phase II Acquisition Advance to Borrower in a single
advance on a date mutually agreeable to the parties hereto. Lender shall have
no obligation to disburse any portion of the Aloha Bay Phase II Acquisition
Advance prior to the first (1st) day of the fourth (4th) calendar month after
the Aloha Bay Phase I Acquisition Advance is made to Borrower pursuant to
Paragraph 2 above, nor after December 31, 1996.
4.2 Borrower shall use the proceeds of the Aloha
Bay Phase II Acquisition Advance to pay for a portion of its costs in
purchasing the land for Aloha Bay Phase II.
4.3 Borrower shall pay the Aloha Bay Phase II
Loan Fee applicable to the Aloha Bay Phase II Acquisition Advance
simultaneously with the making of such Advance.
4.4 The Aloha Bay Phase II Acquisition Advance
shall not be included in the Mortgage Loan Facility or be deemed to be an
Advance under the Mortgage Loan Facility.
5. ALOHA BAY PHASE II CONSTRUCTION ADVANCES. As an
Advance against the Maximum Loan Amount, in addition to the Aloha Bay Phase I
Acquisition Advance, the Aloha Bay Phase I Renovation Advances and the Aloha
Bay Phase II Acquisition Advance, Lender shall make a loan (the "Aloha Bay
Phase II Construction Advances") to Borrower, subject to the satisfaction of
the conditions precedent stated in Paragraph 10(q) and 10(r) below, in amounts
not to exceed the lesser of (a) $1,350,000, less the amount of the Aloha Bay
Phase II Acquisition Advance, (b) 90% of Borrower's bona fide out-of-pocket
costs and expenses incurred through the date of each such Advance in
construction, furnishing. fixturizing and equipping the Aloha Bay Phase II, as
established by evidence satisfactory to Lender (exclusive of any overhead of or
profits to Borrower or any of the Control Group (for the purposes of the
foregoing, the term "overhead" shall not be deemed to include reasonable and
customary salaries paid to employees of Borrower performing construction
activities with respect to Aloha Bay Phase II)), or (c) a dollar amount which
would cause the aggregate of the Aloha Bay Phase I Acquisition Advance, all
Aloha Bay Phase I Renovation Advances, the Aloha Bay Phase II Acquisition
Advance, and all Aloha Bay Phase II Construction Advances to exceed
$5,000,000.00. Borrower shall use the proceeds of any Aloha Bay Phase II
Construction Advances to pay or reimburse Borrower for Borrower's costs
incurred in constructing the Aloha Bay Phase II. Notwithstanding anything
contained herein to the contrary, Lender shall have no obligation to make any
Aloha Bay Phase II Construction Advances after December 31, 1996. The Aloha
Bay Phase II Construction Advances shall not be included in the Mortgage Loan
Facility or be deemed to be Advances under the Mortgage Loan Facility.
-8-
<PAGE> 9
6. ALOHA BAY PHASE I NOTE.
6.1 The Aloha Bay Phase I Acquisition Advance and
Aloha Bay Phase I Renovation Advances made with respect to Aloha Bay Phase I
shall be evidenced by a single Promissory Note (the "Aloha Bay Phase I Note")
of Borrower, in a form acceptable to Lender, executed and delivered to Lender
simultaneously with the execution of this Eleventh Amendment, in the amount of
up to $3,600,000, payable to Lender upon the terms and conditions contained
herein and therein. Lender and Borrower hereby agree that, notwithstanding any
provision to the contrary in the Loan Agreement, the terms and conditions of
the Aloha Bay Phase I Note and this Paragraph 6 shall apply with respect to
repayment of the Aloha Bay Phase I Note. To the extent that Borrower's
indebtedness to Lender arising from the Aloha Bay Phase I Note is evidenced by
both the Note (as distinguished from the Aloha Bay Phase I Note) and the Aloha
Bay Phase I Note, receipts by Lender in payment or satisfaction of such
indebtedness (including receipt by Lender of Aloha Bay Phase I Release Fees as
provided in Paragraph 9.1 hereof) shall be credited against sums due under both
the Note and the Aloha Bay Phase I Note and/or any judgment entered thereon.
6.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have no right to prepay the Aloha
Bay Phase I Note, other than through the application of Aloha Bay Phase I
Release Fees against the principal balance thereof, as provided in Paragraph
6.3 hereof.
6.3 The principal balance of the Aloha Bay Phase
I Note shall be repaid as follows: At such time as Borrower conveys a Unit in
Aloha Bay Phase I to a Purchaser, Borrower shall make a principal reduction
payment to Lender under the Aloha Bay Phase I Note in an amount equal to the
Aloha Bay Phase I Release Fee. Notwithstanding anything herein to the
contrary, if not sooner paid, the entire remaining balance of the Aloha Bay
Phase I Note, together with all accrued and unpaid interest and all other sums
due and owing therein, shall be due and payable in full on the earlier of (a)
the date which occurs twenty-four (24) months following the date that Lender
makes the last Aloha Bay Phase I Renovation Advance (or in the event there is
no such day in the 24th month, on the last day of such month), or (b) May 31,
1998. Aloha Bay Phase I Release Fees paid to Lender in connection with the
release of Units from the Security Interests shall be applied toward the next
principal installment to become due under the Aloha Bay Phase I Note.
7. ALOHA BAY PHASE II NOTE.
7.1 The Aloha Bay Phase II Acquisition Advance
and Aloha Bay Phase II Construction Advances made with respect to Aloha Bay
Phase II shall be evidenced by a single Promissory Note (the "Aloha Bay Phase
II Note") of Borrower, in a form
-9-
<PAGE> 10
acceptable to Lender, executed and delivered to Lender simultaneously with the
Aloha Bay Phase II Acquisition Advance, in the amount of up to $1,350,000,
payable to Lender upon the terms and conditions contained herein and therein.
Lender and Borrower hereby agree that, notwithstanding any provision to the
contrary in the Loan Agreement, the terms and conditions of the Aloha Bay Phase
II Note and this Paragraph 7 shall apply with respect to repayment of the Aloha
Bay Phase II Note. To the extent that Borrower's indebtedness to Lender
arising from the Aloha Bay Phase II Note is evidenced by both the Note (as
distinguished from the Aloha Bay Phase II Note) and the Aloha Bay Phase II
Note, receipts by Lender in payment or satisfaction of such indebtedness
(including receipt by Lender of Aloha Bay Phase II Release Fees as provided in
Paragraph 9.2 hereof) shall be credited against sums due under both the Note
and the Aloha Bay Phase II Note and/or any judgment entered thereon.
7.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have no right to prepay the Aloha
Bay Phase II Note, other than through the application of Aloha Bay Phase II
Release Fees against the principal balance thereof, as provided in Paragraph
7.3 hereof.
7.3 The principal balance of the Aloha Bay Phase
II Note shall be repaid as follows: At such time as Borrower conveys a Unit in
Aloha Bay Phase II to a Purchaser, Borrower shall make a principal reduction
payment to Lender under the Aloha Bay Phase II Note in an amount equal to the
Aloha Bay Phase II Release Fee. Notwithstanding anything herein to the
contrary, if not sooner paid, the entire remaining balance of the Aloha Bay
Phase II Note, together with all accrued and unpaid interest and all other sums
due and owing therein, shall be due and payable in full on the earlier of (a)
the date which occurs twenty-four (24) months following the date that Lender
makes the last Aloha Bay Phase II Construction Advance (or in the event there
is no such day in the 24th month, on the last day of such month), or (b)
December 31, 1998. Aloha Bay Phase II Release Fees paid to Lender in
connection with the release of Units from the Security Interests shall be
applied toward the next principal installment to become due under the Aloha Bay
Phase II Note.
8. SECURITY. As provided in Paragraphs 3.1(a) and (b)
of the Loan Agreement, the payment and Performance of the Aloha Bay Phase I
Note and the Aloha Bay Phase II Note shall be secured by the Security Interests
granted to Lender pursuant to the Loan Agreement, as amended by this Eleventh
Amendment. Furthermore, pursuant to a separate Mortgage, Assignment of Rents
and Proceeds and Security Agreement with respect to Aloha Bay Phase I , in a
form acceptable to Lender (referred to herein as the "Aloha Bay Phase I
Mortgage"), and a separate Mortgage, Assignment of Rents and Proceeds and
Security Agreement with respect to Aloha Bay Phase II (the "Aloha Bay Phase II
Mortgage"), the payment and Performance of the Aloha Bay Phase I Note and Aloha
Bay Phase II Note, respectively, and, subject to the limitations set forth in
the Aloha Bay Phase I Mortgage and the Aloha Bay Phase II Mortgage, all other
obligations owed to Lender under
-10-
<PAGE> 11
the Documents shall be secured by a first priority lien on and security
interest in Aloha Bay Phase I and Aloha Bay Phase II; all buildings and other
improvements now or hereafter erected thereon; all fixtures, equipment and
other personal property now or hereafter located on or attached or affixed in
any manner to Aloha Bay Phase I and Aloha Bay Phase II; all leases, income,
rents, royalties, revenues, issues, profits or proceeds from Aloha Bay Phase I
and Aloha Bay Phase II; and other items of collateral in connection therewith,
all as more fully set forth in the Aloha Bay Phase I Mortgage and Aloha Bay
Phase II Mortgage.
9. RELEASES.
9.1 Lender hereby agrees that it will release
from the effect of the Security Interests granted herein and in the Aloha Bay
Phase I Mortgage, and from the effect of any UCC Financing Statement, Units in
Aloha Bay Phase I which are sold by Borrower upon (a) the payment to Lender of
a release fee (the "Aloha Bay Phase I Release Fee") equal to $2,900 per Unit,
(b) the payment of an Incentive Fee (as provided in Paragraph 9.4 below) in the
amount of $20 per Unit until such time as Borrower has repaid the Aloha Bay
Phase I Note in full, and thereafter in the amount of $2,900 per Unit until
such time as Borrower has paid to Lender a total Incentive Fee as to Aloha Bay
Phase I of $32,640, all as provided in Paragraph 9.4.1 below, and (c) the
satisfaction of the Release Conditions (as defined in Paragraph 9.3 below).
Payments of interest due under the Aloha Bay Phase I Note shall not be credited
against any Aloha Bay Phase I Release Fees.
9.2 Lender hereby agrees that it will release
from the effect of the Security Interests granted herein and in the Aloha Bay
Phase II Mortgage, and from the effect of any UCC Financing Statement, Units in
Aloha Bay Phase II which are sold by Borrower upon (a) the payment to Lender of
a release fee (the "Aloha Bay Phase II Release Fee") equal to $2,205 per Unit,
(b) the payment of an Incentive Fee (as provided in Paragraph 9.4 below) in the
amount of $20 per Unit until such time as Borrower has repaid the Aloha Bay
Phase II Note in full, and thereafter in the amount of $2,205 per Unit until
such time as Borrower has paid to Lender a total Incentive Fee as to Aloha Bay
Phase II of $16,320, all as provided in Paragraph 9.4.2 hereof, and (c) the
satisfaction of the Release Conditions. Payments of interest due under the
Aloha Bay Phase II Note shall not be credited against any Aloha Bay Phase II
Release Fees.
9.3 The Release Conditions are as follows:
(i) No Event of Default shall have occurred or be
continuing and no event shall then exist, which with notice, passage
of time or both would constitute an Event of Default;
(ii) The Unit to be released must have been sold
by Borrower in the ordinary course of Borrower's business in a bona
fide arms-length transaction;
-11-
<PAGE> 12
(iii) The Purchaser of the Unit shall not be
affiliated with Borrower or with any of the Control Group;
(iv) Lender shall have received a written request
for such release in which Borrower certifies as to compliance with
items (i) through (iii) above, and further certifies that all other
requirements for such release have been satisfied;
(v) Borrower has paid all of Lender's
out-of-pocket expenses incurred in connection with such release and
has submitted to Lender all necessary documents for the same.
For the purposes hereof, a person or entity shall be deemed affiliated with
Borrower or the Control Group if it is a shareholder, officer, director, agent,
employee, salesman, broker or creditor of Borrower or the Control Group, or
relative of Borrower or the Control Group or of any of the foregoing, or any
other person or entity related to or affiliated with Borrower or the Control
Group, including, without limitation, the Guarantor and any independent
contractors. No partial release of a Unit shall impair or affect Lender's
remaining Security Interests or any term or provision of the Loan Agreement.
9.4 As additional consideration to Lender,
Borrower shall pay to Lender an incentive fee (the "Incentive Fee") as follows:
9.4.1 Borrower shall pay to Lender an
Incentive Fee equal to $32,640 with respect to the Units sold in Aloha
Bay Phase I or released from the Aloha Bay Phase I Mortgage. The
Incentive Fee as to Aloha Bay Phase I shall be paid in installments of
$20 per Unit sold or released in Aloha Bay Phase I until such time as
the Borrower has repaid the Aloha Bay Phase I Note in full.
Thereafter, the Incentive Fee shall be paid in installments of $2,900
per Unit sold or released in Aloha Bay Phase I until the entire
Incentive Fee as to Aloha Bay Phase I is paid in full. Payments of
the Incentive Fee, in installments of $20 per Unit, shall be made
together with Aloha Bay Phase I Release Fees described in Paragraph
9.1 above, until the Aloha Bay Phase I Note is repaid in full;
thereafter, payments of the Incentive Fee as to Aloha Bay Phase I, in
installments of $2,900 per Unit, shall be made at the earlier of the
conveyance to a Purchaser of each sold Unit in Aloha Bay Phase I or
the release of such Unit from the Aloha Bay Phase I Mortgage. The
Incentive Fee described herein shall be in addition to the principal
and interest payments due under the Aloha Bay Phase I Note. The
Incentive Fee may be prepaid in whole or in part at any time. The
Incentive Fee payable pursuant to this subparagraph is the same
Incentive Fee payable under Paragraph 6.1 of the Aloha Bay Phase I
Mortgage.
9.4.2 Borrower shall pay to Lender an
Incentive Fee equal to $16,320 with respect to the Units sold in Aloha
Bay Phase II or released from the Aloha Bay Phase II Mortgage. The
Incentive Fee as to Aloha Bay Phase II shall be
-12-
<PAGE> 13
paid in installments of $20 per Unit sold or released in Aloha Bay
Phase II until such time as the Aloha Bay Phase II Note is paid in
full. Thereafter, the Incentive Fee shall be paid in installments of
$2,205 per Unit sold or released in Aloha Bay Phase II until the
entire Incentive Fee as to Aloha Bay Phase II is paid in full.
Payments of the Incentive Fee, in installments of $20 per Unit, shall
be made together with Aloha Bay Phase II Release Fees described in
Paragraph 9.2 above, until the Aloha Bay Phase II Note is repaid in
full; thereafter, payments of the Incentive Fee as to Aloha Bay Phase
II, in installments of $2,205 per Unit, shall be made at the earlier
of the conveyance to a Purchaser of each sold Unit in Aloha Bay Phase
II or the release of such Unit from the Aloha Bay Phase II Mortgage.
The Incentive Fee described herein shall be in addition to the
principal and interest payments due under the Aloha Bay Phase II Note.
The Incentive Fee may be prepaid in whole or in part at any time. The
Incentive Fee payable pursuant to this subparagraph is the same
Incentive Fee payable under Paragraph 6.1 of the Aloha Bay Phase II
Mortgage.
9.5 Upon the release of a Unit from the Aloha Bay
Phase I Mortgage or the Aloha Bay Phase II Mortgage, as the case may be, such
release shall also constitute a release from the lien of the Aloha Bay Phase I
Mortgage or the Aloha Bay Phase II Mortgage, respectively, and from the lien of
Lender's Security Interest, of any Purchaser Notes or Purchaser Mortgages
subsequently arising from the sale of such Unit; provided, however, that
notwithstanding the foregoing, such Purchaser Notes and Purchaser Mortgages
shall continue to be subject to Lender's Security Interest to the extent that
such Purchaser Notes or Purchaser Mortgages constitute Receivables Collateral.
9.6 At such time as the principal, interest and
all other sums payable under the Aloha Bay Phase I Note have been paid in full,
together with the entire Incentive Fee as to Aloha Bay Phase I, Lender shall,
upon the request of Borrower, release and terminate the Aloha Bay Phase I
Mortgage and the accompanying UCC Financing Statement and any related security
interests, provided that there does not then exist an Event of Default or any
act or event which with notice, passage of time or both would constitute an
Event of Default. All instruments effecting such release and termination shall
be prepared by Borrower and submitted to Lender unless Lender otherwise
specifies in its sole discretion. Such instruments shall be in a form and
substance reasonably satisfactory to Lender.
9.7 At such time as the principal, interest and
all other sums payable under the Aloha Bay Phase II Note have been paid in
full, together with the entire Incentive Fee as to Aloha Bay Phase II, Lender
shall, upon the request of Borrower, release and terminate the Aloha Bay Phase
II Mortgage and the accompanying UCC Financing Statement and any related
security interests, provided that there does not then exist an Event of Default
or any act or event which with notice, passage of time or both would constitute
an Event of Default. All instruments effecting such release and termination
shall be prepared by Borrower and submitted to Lender unless Lender otherwise
specifies in its sole discretion. Such instruments shall be in a form and
substance reasonably satisfactory to Lender.
-13-
<PAGE> 14
10. CONDITIONS PRECEDENT. Lender's obligation to make
the Aloha Bay Phase I Acquisition Advance, the Aloha Bay Phase II Acquisition
Advance, the Aloha Bay Phase I Renovation Advances and the Aloha Bay Phase II
Construction Advances are subject to the following conditions precedent, all of
which must be satisfied at or prior to the funding of the Aloha Bay Phase I
Acquisition Advance, except with respect to the conditions precedent set forth
in Paragraph 10(q) below, which conditions must be satisfied at or prior to the
funding of the Aloha Bay Phase II Acquisition Advance and except with respect
to the conditions precedent set forth in Paragraph 10(r) below, which
conditions must be satisfied at or prior to the funding of any Aloha Bay Phase
II Construction Advances.
(a) Borrower shall have delivered to Lender the
following executed documents, all in form satisfactory to Lender:
(i) The Aloha Bay Phase I Note;
(ii) Environmental Certificate with
Representations, Covenants and Warranties, with respect to the
Aloha Bay Phase I, in form acceptable to Lender;
(iii) The Aloha Bay Phase I Mortgage;
(iv) An opinion from Borrower's counsel,
which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require.
(v) This Eleventh Amendment;
(vi) From the Guarantor of the Loan, a
"Consent of Guarantor," in a form acceptable to Lender;
(vii) A corporate resolution of Borrower;
(viii) A corporate resolution of Guarantor;
(ix) UCC Financing Statements for filing
and/or recording with respect to Aloha Bay Phase I;
(x) Such other documents or instruments
required by Lender to fully perfect the liens and security
interests of Lender described or contemplated herein;
(xi) Such other items as Lender may
require.
-14-
<PAGE> 15
(b) RESERVED.
(c) Borrower shall have delivered to Lender a
current Phase I environmental assessment for Aloha Bay Phase I,
performed by an environmental consultant acceptable to Lender,
indicating that Aloha Bay Phase I does not contain and is not affected
by existing or potential environmental contamination. If Lender is
not satisfied with the results of the Phase I environmental assessment
or if Lender becomes aware of any environmental issues impacting Aloha
Bay Phase I, Lender shall have the right to require a site audit and
regulatory compliance evaluation of Aloha Bay Phase I, which shall be
prepared by an environmental engineer acceptable to Lender retained at
the cost of Borrower and Lender's obligations hereunder shall be
subject to Lender's approval of such audit and evaluation.
(d) Borrower shall have delivered to Lender a
current ALTA survey of Aloha Bay Phase I, certified to Lender by a
licensed engineer or surveyor acceptable to Lender, showing, inter
alia, the dimensions of the Aloha Bay Phase I, access thereto, streets
and street lines, easements, location of all improvements and all
other physical details thereof. In addition, Borrower shall have
delivered to Lender a current title report with respect to Aloha Bay
Phase I from a title insurance company acceptable to Lender and Lender
shall have approved the condition of title thereto as shown therein.
(e) Lender shall have inspected Aloha Bay Phase I
and shall be satisfied as to the condition thereof.
(f) Borrower shall have obtained and delivered to
Lender, at Borrower's expense, an ALTA extended coverage mortgagee's
title insurance policy or policies acceptable to Lender, with such
endorsements as Lender may require, issued by a title insurance
company satisfactory to Lender, in the amount of $3,632,640 insuring
that the Aloha Bay Phase I Mortgage is a first and prior lien on the
Aloha Bay Phase I, subject only to title exceptions approved by
Lender.
(g) Borrower shall have delivered to Lender
evidence satisfactory to Lender that Aloha Bay Phase I is not located
within a special flood hazard area or evidence satisfactory to Lender
that Aloha Bay Phase I is insured, upon such terms and in such amounts
as shall be satisfactory to Lender, against risks of physical damage
caused by flooding.
(h) Borrower shall have obtained such public
liability, casualty and other insurance policies covering Aloha Bay
Phase I as Lender may require, written by insurers and in amounts and
forms satisfactory to Lender.
-15-
<PAGE> 16
(i) Lender shall have reviewed and approved
credit references of Borrower and Guarantor.
(j) Lender shall have determined that the
operations of Borrower do not violate in any material respect any
applicable laws, ordinances, rules and regulations of governmental
authorities or agencies.
(k) Unless waived in writing by Lender, Lender
shall have reviewed and approved a current UCC, tax lien, judgment and
litigation search on Borrower and Guarantor.
(l) Borrower shall have paid all closing costs,
title company charges, recording fees and taxes, appraisal fees and
expenses, survey fees, travel expenses, architect/engineer inspection
fees and expenses, fees and expenses of Lender's counsel, and all
other costs and expenses incurred by Lender in connection with the
preparation, closing and disbursement of each of the Advances made
with respect to Aloha Bay Phase I pursuant to this Eleventh Amendment.
(m) Borrower shall have paid the Aloha Bay Phase
I Loan Fee in the amount required to be paid with respect to each of
the Advances made by Lender pursuant hereto with respect to Aloha Bay
Phase I.
(n) Borrower shall have delivered to Lender a
fully-executed copy of the purchase agreements or option agreements,
and all amendments thereto, in connection with Borrower's acquisition
of the Aloha Bay Phase I and option to acquire Aloha Bay Phase II.
(o) Lender shall have reviewed and approved
Borrower's budget for the renovation and refurbishment of Aloha Bay
Phase I.
(p) Borrower shall have delivered to Lender, and
Lender shall have approved and be satisfied with, evidence of
Borrower's required equity interest in Aloha Bay Phase I.
(q) Prior to the funding of the Aloha Bay Phase
II Acquisition Advance, and any Aloha Bay Phase II Construction
Advances, Borrower shall have delivered to Lender the following
executed documents, in form satisfactory to Lender, (the forms of any
such documents agreed to by the parties in connection with the Aloha
Bay Phase I Acquisition Advance and Aloha Bay Phase I Renovation
Advances shall be deemed to be satisfactory hereunder) together with
all other materials described below and otherwise satisfied to
Lender's satisfaction the following additional conditions precedent:
-16-
<PAGE> 17
(1) The Aloha Bay Phase II Note;
(2) Environmental Certificate with
Representations, Covenants and Warranties with respect to
Aloha Bay Phase II in form acceptable to Lender;
(3) Aloha Bay Phase II Mortgage;
(4) An opinion from Borrower's counsel,
which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require;
(5) UCC Financing Statements for filing
and/or recording with respect to
Aloha Bay Phase II;
(6) A current Phase I Environmental
Assessment for Aloha Bay Phase II, performed by an
environmental consultant acceptable to Lender, indicating that
Aloha Bay Phase II does not contain and is not affected by
existing or potential environmental contamination. If Lender
is not satisfied with the results of the Phase I Environmental
Assessment, or if Lender becomes aware of any environmental
issues impacting Aloha Bay Phase II, Lender shall have the
right to require a site audit and regulatory compliance
evaluation of Aloha Bay Phase II, which shall be prepared by
an environmental engineer acceptable to Lender retained at the
cost of Borrower and Lender's obligations hereunder with
respect to Aloha Bay Phase II shall be subject to Lender's
approval of such audit and evaluation;
(7) Borrower shall have delivered to
Lender a current ALTA survey of Aloha Bay Phase II, certified
to Lender by a licensed engineer or surveyor acceptable to
Lender, showing, inter alia, the dimensions of Aloha Bay Phase
II, access thereto, streets and street lines, easements,
location of all improvements and all other physical details
thereof. In addition, Borrower shall have delivered to Lender
a current title report with respect to Aloha Bay Phase II from
a title insurance company acceptable to Lender and Lender
shall have approved the condition of title thereto as shown
therein.
(8) Lender shall have inspected Aloha
Bay Phase II and shall be satisfied as to the condition
thereof;
(9) Borrower shall have obtained and
delivered to Lender, at Borrower's expense, an ALTA extended
coverage mortgagee's title insurance policy or policies
acceptable to Lender, with such endorsements as Lender may
require, issued by a title insurance company satisfactory to
Lender, in the
-17-
<PAGE> 18
amount of $1,366,320 insuring that the Aloha Bay Phase II
Mortgage is a first and prior lien on Aloha Bay Phase II,
subject only to title exceptions approved by Lender (provided,
that any title exceptions which were approved by Lender in
connection with the recordation of the Aloha Bay Phase I
Mortgage, shall be deemed to be approved);
(10) Borrower shall have delivered to
Lender evidence satisfactory to Lender that Aloha Bay Phase II
is not located within a special flood hazard area or evidence
satisfactory to Lender that Aloha Bay Phase II is insured,
upon such terms and in such amounts as shall be satisfactory
to Lender, against risks of physical damage caused by
flooding;
(11) Borrower shall have obtained such
public liability, casualty and other insurance policies
covering Aloha Bay Phase II as Lender may require, written by
insurers and in amounts and form satisfactory to Lender;
(12) Borrower shall have paid all closing
costs, title company charges, recording fees and taxes,
appraisal fees and expenses, survey fees, travel expenses,
architect/engineer inspection fees and expenses, fees and
expenses of Lender's counsel, and all other costs and expenses
incurred by Lender in connection with the preparation, closing
and disbursement of each of the Advances made with respect to
Aloha Bay Phase II pursuant to this Eleventh Amendment;
(13) Borrower shall have paid the Aloha
Bay Phase II Loan Fee in the amount required to be paid with
respect to each of the Advances made with respect to Aloha Bay
Phase II pursuant hereto;
(14) Borrower shall have delivered to
Lender an executed notice of Borrower's exercise of the option
to acquire Aloha Bay Phase II;
(15) Borrower shall have delivered to
Lender, and Lender shall have approved and be satisfied with,
evidence of Borrower's required equity interest in Aloha Bay
Phase II;
(16) Borrower shall have satisfied the
Aloha Bay Phase I Post-Closing Condition as described in
Paragraph 12 of this Eleventh Amendment;
(17) Lender shall have received, reviewed
and approved Borrower's budget for the construction of Aloha
Bay Phase II;
-18-
<PAGE> 19
(18) Copies of all plans and
specifications for the construction of Aloha Bay Phase II,
together with evidence that the same have been approved by all
applicable federal, state and local authorities;
(19) Evidence that Aloha Bay Phase II is
properly zoned for the improvements to be constructed and
their intended use as a time-share resort and such zoning is
final and not subject to challenge;
(20) Borrower shall not have commenced
construction of any improvements on Aloha Bay Phase II nor
performed site clearance work or any other pre-construction
activity which would give rise to any mechanic's liens with
respect to Aloha Bay Phase II;
(r) Prior to the funding of any Aloha Bay Phase
II Construction Advances, Borrower shall have delivered to Lender the
following, all of which shall be satisfactory to Lender:
(1) Final itemized breakdown of the cost
to (A) construct the improvements for Aloha Bay Phase II, and
(B) acquire furniture, fixtures and equipment to be contained
within Aloha Bay Phase II;
(2) Borrower shall deliver to Lender an
update of the ALTA survey of Aloha Bay Phase II indicating the
location of the foundations for the building improvements to
be constructed thereon and, after completion of all building
improvements, shall deliver to Lender an as-built ALTA survey
of Aloha Bay Phase II.
(3) Such insurance as required by Lender
with respect to Aloha Bay Phase II, written by insurers in
amounts and forms satisfactory to Lender, which insurance
shall be obtained at the sole cost of Borrower;
(4) Copies of all building and other
necessary or appropriate permits issued by each federal, state
and local authority having jurisdiction over the Property and
its intended uses in permitting construction of the
improvements thereon in accordance with the plans and
specifications therefor;
(5) Not later than ten (10) days prior
to the first Aloha Bay Phase II Construction Advance, copies
of all agreements between Borrower and any contractors
(together with copies of all contracts between the general
contractor and all subcontractors), architects, engineers,
managers or supervisors related to the construction,
maintenance, repair, leasing, management and operation of the
Aloha Bay Phase II, together with written agreements by such
persons or entities that they will perform for Lender the
services contracted to Borrower, notwithstanding the
occurrence of any event
-19-
<PAGE> 20
of default and any foreclosure of the Aloha Bay Phase II
Mortgage (provided that such persons or entities continue to
receive payments under their respective contracts and provided
that Borrower is not required to deliver any such agreements
with respect to any subcontract unless specifically requested
by Lender in writing), and the consent of such persons or
entities to the collateral assignment by Borrower to Lender of
their respective contracts;
(6) A job progress schedule showing the
planned timing, progress of construction and completion date
for the improvements to be constructed, together with a
projected monthly funding schedule with respect to the
construction of Aloha Bay Phase II. Such job progress
schedule, and funding schedules shall be supported by firm
contracts or purchase orders, must contain in detail all
"soft" costs, and all costs for furniture, fixtures and
equipment. The construction budget shall include an adequate
interest reserve satisfactory to Lender in its sole
discretion, together with a contingency reserve for unexpected
and unanticipated costs, and shall not include any fees or
other amount payable to Borrower or its Affiliates;
(7) The certification by Borrower, the
Borrower's supervisory architect, the contractor and an
independent architect of Lender's selection (provided that
Borrower's obligation to pay for Lender's independent
architect's inspections shall not exceed $3,000.00), that:
(A) all work (including work, the cost of which was paid from
sources other than the Loan) performed is in substantial
accordance with the plans and specifications therefor; (B) all
governmental licenses and permits required for such
improvement as then completed have been obtained and will be
exhibited to the Lender upon request; (C) the improvements
(including improvements, the cost of which was paid from
sources other than the Loan) as then completed do not violate
and, if further completed in accordance with the plans and
specifications therefor, will not violate any law, ordinance,
rule or regulation or covenant, condition or restriction
affecting Aloha Bay Phase II; (D) the remaining undisbursed
proceeds of the Aloha Bay Phase II Construction Advances are
sufficient to pay for the completion of Aloha Bay Phase II;
(E) the information set forth in Borrower's request for an
Aloha Bay Phase II Construction Advance is true and accurate
in all material respects; (F) the Aloha Bay Phase II
Construction Advance is in an amount not in excess of the
value of the work and materials for which such Advance is
requested;
(8) Paid invoices and lien waivers
relating to the construction of the improvements for all work
through the date of the previous request for an Advance by
Borrower;
-20-
<PAGE> 21
(9) Evidence that any inspection
required by any state, city or other governmental authority
has been completed with results satisfactory to that
authority;
(10) Simultaneously with each Aloha Bay
Phase II Construction Advance, an endorsement to Lender's
title insurance policy insuring that no intervening matters
have affected the priority of the Aloha Bay Phase II Mortgage
since its recordation (which endorsement shall be supplied to
Lender immediately prior to the contemplated Advance).
(11) Such other items as Lender may
require.
11. RECEIVABLES ADVANCES; LENDER'S ASSURANCES. In
addition to the conditions set forth for the effectiveness of this Eleventh
Amendment as set forth in Paragraph 10 above, Lender's obligation to make
Advances of the Loan, from time to time, against Instruments or Contracts
arising from the sale of Units in the Aloha Bay Phase I or the Aloha Bay Phase
II is subject to and conditioned upon such Instruments or Contracts qualifying
as Eligible Receivables and is furthermore subject to and conditioned upon the
satisfaction of all other conditions precedent to the making of the Advance, as
set forth in the Loan Agreement. In connection therewith, but without limiting
the generality of the foregoing, Lender's obligation to make Advances of the
Loan against Instruments or Contracts arising from the sale of Units in the
Aloha Bay Phase I and the Aloha Bay Phase II is subject to Lender's receipt and
approval of copies of the registrations/consents to sell/public offering
statements/prospectuses and/or approvals thereof required to be issued by or
used in all jurisdictions in which such Units will be offered for sale. In the
event that, as part of Borrower's operation of Aloha Bay Phase I and Aloha Bay
Phase II (after construction of same) as timeshare resorts, Borrower records a
declaration of condominium or similar documentation with respect to the Aloha
Bay Phase I and/or Aloha Bay Phase II (which declaration or other documentation
shall be subject to Lender's review and approval in its sole and absolute
discretion), Lender shall provide such assurances as may be required under
Florida law or regulation or as otherwise required by any governmental agencies
applicable to Borrower's sale of Units in any state in which Borrower does
business, which assurances shall include, if necessary, modifying the Aloha Bay
Phase I Mortgage and Aloha Bay Phase II Mortgage, that (a) any insurance
proceeds (as defined in the Aloha Bay Phase I Mortgage or Aloha Bay Phase II
Mortgage, as applicable) payable as a result of any damage or destruction to
Aloha Bay Phase I or Aloha Bay Phase II, as applicable, will be made available
for purposes of repair and restoration of Aloha Bay Phase I or Aloha Bay Phase
II, as applicable, subject to such conditions and restrictions which may be
required by Lender (which conditions and restrictions may include without
limitation, the requirement that, to the extent permitted by law, Lender hold
such insurance proceeds and control the disbursement thereof as repairs are
actually made), and (b) in the event that Lender foreclosures its lien under
the Aloha Bay Phase I Mortgage or Aloha Bay Phase II Mortgage, as applicable,
Lender will not disturb the rights of any purchasers of any Units therein.
-21-
<PAGE> 22
12. ALOHA BAY PHASE I POST-CLOSING CONDITIONS. Borrower
hereby agrees that, as additional conditions to Lender's obligation to fund the
Aloha Bay Phase II Acquisition Advance and any Aloha Bay Phase II Construction
Advances, and as conditions subsequent to Lender's obligations under this
Eleventh Amendment, Borrower shall, within one hundred twenty (120) days after
the date of this Eleventh Amendment, (a) cause all construction debris
currently located on Aloha Bay Phase I and identified in that Updated Phase I
Assessment Report prepared by FGS, Inc., dated July 25, 1994, as including, but
not limited to, wood, wood pallet, pipes and empty 55-gallon drums (the
"Construction Debris"), to be completely removed from Aloha Bay Phase I in
accordance with all applicable governmental laws, rules, regulations and
requirements, and provide written evidence of the removal of the Construction
Debris to Lender not later than one hundred twenty (120) days after the date of
this Eleventh Amendment, which written confirmation shall be made by FGS, Inc.,
and (b) provide a letter addressed to Lender, from Borrower's Nevada counsel
(which counsel is acceptable to Lender), which letter provides such assurances
as may be reasonbly requested by Lender, that the litigation matter referred to
in Item No. 10 of Schedule 1 of Exhibit "C" attached hereto should have no
material adverse effect on Borrower's business and financial condition due to
the relationship between the defendant in such matter and Borrower.
13. COMMISSIONS. Lender shall not be obligated to pay
any loan commission and/or brokerage fee in connection with the Advances of the
Loan made pursuant to this Eleventh Amendment. Borrower shall pay any and all
such commissions and fees, if any, and hereby agrees to indemnify, defend and
hold harmless Lender from any claim for any such commissions or fees. Lender
represents and warrants to Borrower that Lender has no knowledge of broker
involvement in the transactions contemplated by this Eleventh Amendment.
14. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the indebtedness in accordance with the terms of the Documents.
Borrower further acknowledges and represents 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 Documents, with or
without notice or lapse of time.
15. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid, enforceable and collectable obligations of Borrower,
and that Borrower presently has no existing claims, defenses (personal or
otherwise) or rights of setoff whatsoever with respect to the Obligations of
Borrower under the Loan Agreement or any of the other Documents. Borrower
furthermore agrees that it has 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 or GREFCO.
-22-
<PAGE> 23
16. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by Exhibit "C" attached hereto, Borrower hereby reaffirms to
Lender each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Documents with the same force and effect
as if each were separately stated herein and made as of the date hereof.
17. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment and Tenth
Amendment, and of each of the other Documents shall continue in full force and
effect and shall remain unaffected and unchanged except as specifically amended
hereby. In the event of any conflict between the terms and conditions of this
Eleventh Amendment and any of the other Documents, the provisions of this
Eleventh Amendment shall control.
18. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Eleventh Amendment.
19. EFFECTIVENESS OF AMENDMENT. This Eleventh Amendment
shall not be effective until the same is executed and accepted by Lender in the
State of Arizona.
IN WITNESS WHEREOF, this instrument is executed as of the day
and year first above written.
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By: By:
----------------------------------- --------------------------------
Donald R. Middleton, Vice President Title:
----------------------------
STATE OF ARIZONA )
) ss
County of Maricopa )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared DONALD R.
MIDDLETON, known to me to be the Vice President of PREFERRED EQUITIES
CORPORATION, a Nevada corporation, who acknowledged to me that the same was the
free act and deed of such corporation and that he, being authorized by proper
authority to do so, executed the
-23-
<PAGE> 24
same on behalf of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1995.
-----------------------------------
Notary Public
My commission expires:
____________________
STATE OF ARIZONA )
) ss
County of Maricopa )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared
_____________________________________________________________, known to me to
be the _____________________________ of FINOVA CAPITAL CORPORATION, a Delaware
corporation, who acknowledged to me that the same was the free act and deed of
such corporation and that s/he, being authorized by proper authority to do so,
executed the same on behalf of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1995.
-----------------------------------
Notary Public
My commission expires:
____________________
-24-
<PAGE> 25
[ALOHA BAY PHASE I]
PROMISSORY NOTE
U.S. $3,600,000.00 September 22, 1995
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Note ("Holder") may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of THREE
MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS (U.S. $3,600,000.00), or so
much thereof as has been disbursed and not repaid, together with interest on
the unpaid principal balance from time to time outstanding from the date hereof
until paid, as more fully provided for below.
Interest due under this Note shall (a) accrue daily on the
basis of the actual number of days in the computation period, (b) be calculated
on the basis of a year consisting of 360 days, and (c) be payable monthly in
arrears on the later of (i) ten (10) days after Lender mails an invoice or
statement therefor to Maker or (ii) the due date set forth in said invoice or
statement. Interest shall accrue initially at an annual interest rate
("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on
the date of the initial advance of the loan evidenced by this Note ("Initial
Prime") plus 2-1/4% per annum, subject to adjustment on each Interest Rate
Change Date (as hereinafter defined), but in no event to exceed the maximum
contract rate permitted under the Applicable Usury Law (as hereinafter
defined). The interest rate shall change on each Interest Rate Change Date by
adding to or subtracting from the Initial Interest Rate, as the case may be,
the change, if any, between Initial Prime and Prime in effect on the applicable
Interest Rate Change Date. As used in this Note, the following capitalized
terms have the meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly announced,
from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged
by Citibank to its most creditworthy commercial borrowers
notwithstanding the fact that some borrowers of Citibank may
borrow from Citibank at rates of less than such announced
Prime rate; and
"Interest Rate Change Date" means (a) the first business day
of Citibank, N.A., in New York, New York, during the calendar
month following the date of the initial advance of the loan
evidenced by this Note and (b) the first business day of
Citibank, N.A., during each successive month thereafter.
<PAGE> 26
The principal sum of this Note shall be repaid in the manner
set forth in the Loan Agreement (as defined below), the applicable provisions
of which are incorporated herein by reference as if fully set forth herein.
Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
This Note is executed pursuant to that certain Amendment No.
11 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this Note; (ii) Overdue Rate, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; (iii) Aloha Bay Phase I Commitment Fee; (iv) any incentive fees payable
under the Loan Agreement; and (v) all Additional Sums (as hereinafter defined),
if any. Maker agrees to pay an effective contracted for rate of interest which
is the sum of the above-referenced elements.
-2-
<PAGE> 27
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is not prepayable in whole or in part other than as
a result of the application to the unpaid principal balance hereof of Aloha Bay
Phase I Release Fees arising from the release of Units from the Security
Interests.
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceeding, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
Holder shall not by any act or omission or commission be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on any
other occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be
cumulative and none is exclusive and such remedies may be exercised
concurrently or consecutively at Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
-3-
<PAGE> 28
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon
Maker, its successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Loan
Agreement. If more than one person or other entity has executed this Note as
Maker, the obligations of such persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Note or the subject matter hereof brought by Holder and
(b) without limiting the generality of the foregoing, hereby waives and agrees
not to assert by way of motion, defense or otherwise in any such suit, action
or proceeding any claim that Maker is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. In the event
(a) any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstance the amount of
interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that
-4-
<PAGE> 29
it is in excess of the maximum contract rate permitted by the Applicable Usury
Law, (3) any such excess which may have been collected shall be either applied
as a credit against the then unpaid principal amount hereof or refunded to
Maker, at Holder's option, and (4) the effective rate of interest will be
automatically reduced to the maximum amount of interest permitted by the
Applicable Usury Law. It is further agreed, without limiting the generality of
the foregoing, that to the extent permitted by the Applicable Usury Law: (x)
all calculations of interest which are made for the purpose of determining
whether such rate would exceed the maximum contract rate permitted by the
Applicable Usury Law shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise in connection with such loan; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the maximum
contract rate allowed under the Applicable Usury Law, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Holder from time to time, if and when the
effective interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to the
date of calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Maker further agrees that should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
prohibited by the Applicable Usury Law, should the maximum contract rate
permitted by the Applicable Usury Law be decreased because of a change in the
law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
PREFERRED EQUITIES
CORPORATION, a Nevada corporation
"Maker"
By:_______________________________________________
Donald R. Middleton, Vice President
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
-5-
<PAGE> 30
Attn: President
-6-
<PAGE> 1
EXHIBIT 10.86
AMENDMENT NO. 12 TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 12 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT is entered into as of the 29th day of September, 1995, by
and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower").
R E C I T A L S
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated Loan Agreement")
that evidences a loan from GREFCO to Borrower (the "Modified Loan") that is
secured by, among other things, Receivables Collateral.
B. The Modified Loan and Restated Loan Agreement was
amended by an Amendment Number One to Amended and Restated Loan and Security
Agreement dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"); by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated as of April 15, 1994 (the "Eighth Amendment"), by an Amendment
No. 9 to Amended and Restated Loan and Security Agreement dated as of August
31, 1994 (the "Ninth Amendment"), by an Amendment No. 10 to Amended and
Restated Loan and Security Agreement dated as of January 26, 1995 (the "Tenth
Amendment"), and by an Amendment No. 11 to Amended and Restated Loan and
Security Agreement dated as of September 22, 1995 (the "Eleventh Amendment").
The Restated Loan Agreement, the First Amendment, the Second Amendment, the
Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth
Amendment, the Seventh Amendment, the Eighth Amendment, the Ninth Amendment,
the Tenth Amendment, the Eleventh Amendment and this Twelfth Amendment and all
other documents evidencing or executed in connection with the Loan are referred
to hereinafter as the "Loan Documents." The Restated Loan Agreement, as
amended by the First Amendment, Second Amendment, Third Amendment, Fourth
Amendment, Fifth Amendment, Sixth Amendment, Seventh Amendment, Eighth
Amendment, Ninth Amendment, Tenth Amendment and Eleventh
<PAGE> 2
Amendment, is referred to hereinafter as the "Loan Agreement." The Loan
contemplated by the Loan Agreement, as amended by this Twelfth Amendment, is
referred to hereinafter as the "Loan." All capitalized terms used in this
Twelfth Amendment will have the meanings assigned to such terms in the Loan
Agreement unless those terms are otherwise defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO was
liquidated into GFC. Further, pursuant to such plan of liquidation, GREFCO
assigned the Note and all of GREFCO's rights under the Loan Agreement and other
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Borrower has requested and Lender has agreed to fund
(pursuant to the terms and conditions of this Twelfth Amendment), as part of
the Loan, an Advance against the Maximum Loan Amount, to refinance a portion of
the loan made by Lender with respect to the Headquarters, as evidenced by the
2.5 MM Note, and for purposes of providing Borrower with additional working
capital.
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Twelfth Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which consideration is hereby
acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent
described in Paragraph 5 of this Twelfth Amendment are met to the satisfaction
of Lender, which satisfaction will be evidenced by Lender's execution of this
Twelfth Amendment unless otherwise provided herein, the Loan Agreement is
hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by adding
to Article I the following definitions:
"Headquarters Readvance": shall have the meaning set
forth in Paragraph 2 of this Twelfth Amendment.
"Headquarters Readvance Loan Fee": shall mean the
loan fee payable by Borrower to Lender equal to one percent (1%) of
the amount of the Headquarters Readvance which shall be due and
payable on the date the Headquarters Readvance is funded.
"Twelfth Amendment": shall mean this Amendment No.
12 to Amended and Restated Loan and Security Agreement.
-2-
<PAGE> 3
1.2 The definitions of the following terms in
Article I of the Loan Agreement, including, to the extent applicable, the First
Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth
Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment, Tenth Amendment and Eleventh Amendment, are hereby amended and
restated in their entirety to read as follows:
"2.5 MM Note": shall mean the 2.5 MM Note,
as modified and amended pursuant to the Amended and Restated
2.5 MM Note described in Paragraph 3 of the Twelfth Amendment.
"Headquarters Deed of Trust": shall mean the
Headquarters Deed of Trust, as modified and amended pursuant
to that First Modification of Deed of Trust [Headquarters]
dated as of August 31, 1994 and recorded in Book 941021,
Instrument No. 00641, Official Records of Clark County,
Nevada, and by that Second Modification to Deed of Trust
[Headquarters] described in Paragraph 4 of the Twelfth
Amendment.
2. HEADQUARTERS READVANCE. As an Advance against the
Maximum Loan Amount, Lender shall make a loan (the "Headquarters Readvance") to
Borrower in an amount equal to the lesser of (a) $1,000,000, or (b) the
difference between $2,500,000 and the outstanding principal balance of the 2.5
MM Note as of the date of the Twelfth Amendment. The following terms and
conditions shall apply to the Headquarters Readvance:
2.1 At such time as all conditions with respect
to the Headquarters Readvance in this Twelfth Amendment have been satisfied in
Lender's discretion, Lender shall disburse the Headquarters Readvance to
Borrower in a single Advance on a date mutually agreeable to the parties
hereto. Lender shall have no obligation to disburse any portion of the
Headquarters Readvance after September 29, 1995.
2.2 Borrower shall use the proceeds of the
Headquarters Readvance for working capital purposes.
2.3 Borrower shall pay to Lender the Headquarters
Readvance Loan Fee simultaneously with such advance.
2.4 The Headquarters Readvance shall not be
included in the Mortgage Loan Facility or be deemed to be an Advance under the
Mortgage Loan Facility.
3. AMENDED AND RESTATED 2.5 MM NOTE.
3.1 The outstanding principal balance of the 2.5
MM Note as of the date of the Twelfth Amendment, together with the Headquarters
Readvance shall be
-3-
<PAGE> 4
evidenced by an amended and restated promissory note, which shall amend and
modify the 2.5 MM Note (the "Amended and Restated 2.5 MM Note"), and shall be
in the form attached hereto as Exhibit "A", executed and delivered to Lender
simultaneously with the execution of this Twelfth Amendment. Lender and
Borrower hereby agree that, notwithstanding any provision to the contrary in
the Loan Agreement, the terms and conditions of the Amended and Restated 2.5 MM
Note and this Paragraph 3 shall apply with respect to repayment of the Amended
and Restated 2.5 MM Note. To the extent that Borrower's indebtedness to Lender
arising from the Amended and Restated 2.5 MM Note is evidenced by both the Note
(as distinguished from the Amended and Restated 2.5 MM Note) and the Amended
and Restated 2.5 MM Note, receipts by Lender in payment or satisfaction of such
indebtedness shall be credited against sums due under both the Note and the
Amended and Restated 2.5 MM Note and/or any judgment entered thereon. Within
thirty (30) days after the Headquarters Readvance is made, Lender shall return
the original 2.5 MM Note dated as of June 28, 1993 to Borrower, marked
"Superceded by Amended and Restated Promissory Note dated as of September 29,
1995."
3.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have no right to prepay the Amended
and Restated 2.5 MM Note, other than as provided in the Amended and Restated
2.5 MM Note.
3.3 Notwithstanding anything herein to the
contrary, if not sooner paid, the entire outstanding balance of the Amended and
Restated 2.5 MM Note, together with all accrued and unpaid interest and all
other sums due and owing therein, shall be due and payable in full on the fifth
(5th) anniversary of the date of the Headquarters Readvance.
4. SECURITY. As provided in Paragraphs 3.1(a) and (b)
of the Loan Agreement, the payment and performance of the Amended and Restated
2.5 MM Note shall continue to be secured by the Security Interests granted to
Lender pursuant to the Loan Agreement, as amended by this Twelfth Amendment.
In addition, the Headquarters Deed of Trust, as modified by the First
Modification of Deed of Trust [Headquarters], shall be further modified and
amended pursuant to a Second Modification of Deed of Trust [Headquarters], in
the form attached hereto as Exhibit "B", which shall cause the Headquarters
Deed of Trust to continue to secure repayment of the 2.5 MM Note, as restated
and amended by the Amended and Restated 2.5 MM Note, and all other obligations
owed to Lender under the Documents.
5. CONDITIONS PRECEDENT. Lender's obligation to make
the Headquarters Readvance is subject to the following conditions precedent,
all of which must be satisfied at or prior to the funding of the Headquarters
Readvance.
(a) Borrower shall have delivered to Lender the
following executed documents, all in form satisfactory to Lender:
-4-
<PAGE> 5
(i) The Amended and Restated 2.5 MM Note,
in the form attached hereto as Exhibit "A";
(ii) An updated Environmental Certificate
with Representations, Covenants and Warranties, with respect
to the Headquarters, in form acceptable to Lender;
(iii) The Second Modification to Deed of
Trust [Headquarters] in the form attached hereto as Exhibit
"B";
(iv) An opinion from Borrower's counsel,
which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require.
(v) This Twelfth Amendment;
(vi) From the Guarantor of the Loan, a
"Consent of Guarantor," in a form acceptable to Lender;
(vii) A corporate resolution of Borrower;
(viii) A corporate resolution of Guarantor;
(ix) Such other documents or instruments
required by Lender to fully perfect the liens and security
interests of Lender described or contemplated herein;
(x) Such other items as Lender may
require.
(b) RESERVED.
(c) Borrower shall have delivered to Lender a
letter from the environmental consultant who performed the Phase I
environmental assessment for Headquarters previously delivered to
Lender indicating that such consultant has reviewed current records of
all applicable federal, state and local environmental regulatory
agencies and that the Headquarters is not included on any such list or
subject to pending investigation by any such agency.
(e) Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a datedown endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Lawyers Title Insurance Company, or a new ALTA
extended coverage mortgagee's title insurance policy issued by a title
insurance company acceptable to Lender, with such
-5-
<PAGE> 6
additional endorsements as Lender may require, insuring that the
Headquarters Deed of Trust continues to be a first and prior lien on
the Headquarters, subject only to such additional title exceptions as
may be approved by Lender.
(e) Unless waived by Lender in writing, Lender
shall have reviewed and approved credit references of Borrower and
Guarantor. The foregoing condition shall be deemed to have been
waived by Lender upon Lender's funding of the Headquarters Readvance.
(f) Unless waived in writing by Lender, Lender
shall have reviewed and approved a current UCC, tax lien, judgment and
litigation search on Borrower and Guarantor. The foregoing condition
shall be deemed to have been waived by Lender upon Lender's funding of
the Headquarters Readvance.
(g) Borrower shall have paid, or shall have
assumed the obligation or otherwise provided for the payment of all
closing costs, title company charges, recording fees and taxes,
appraisal fees and expenses, survey fees, travel expenses,
architect/engineer inspection fees and expenses, fees and expenses of
Lender's counsel, and all other costs and expenses incurred by Lender
in connection with the preparation, closing and disbursement of the
Headquarters Readvance pursuant to this Twelfth Amendment.
(h) Borrower shall have paid the Headquarters
Readvance Loan Fee in the amount required to be paid with respect to
the Headquarters Readvance made by Lender pursuant hereto.
6. COMMISSIONS. Lender shall not be obligated to pay
any loan commission and/or brokerage fee in connection with the Advances of the
Loan made pursuant to this Twelfth Amendment. Borrower shall pay any and all
such commissions and fees, if any, and hereby agrees to indemnify, defend and
hold harmless Lender from any claim for any such commissions or fees. Lender
represents and warrants to Borrower that Lender has no knowledge of broker
involvement in the transactions contemplated by this Twelfth Amendment.
7. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the indebtedness in accordance with the terms of the Documents.
Borrower further acknowledges and represents that no event has occurred and no
condition presently exists that would constitute a default or event of default
by Borrower under the Loan Agreement or any of the other Documents, with or
without notice or lapse of time.
8. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid,
-6-
<PAGE> 7
enforceable and collectable obligations of Borrower, and that Borrower
presently has no existing claims, defenses (personal or otherwise) or rights of
setoff whatsoever with respect to the Obligations of Borrower under the Loan
Agreement or any of the other Documents. Borrower furthermore agrees that it
has 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 or GREFCO.
9. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by Exhibit "C" attached hereto, Borrower hereby reaffirms to
Lender each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Documents with the same force and effect
as if each were separately stated herein and made as of the date hereof.
10. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth
Amendment and Eleventh Amendment, and of each of the other Documents shall
continue in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. In the event of any conflict between
the terms and conditions of this Twelfth Amendment and any of the other
Documents, the provisions of this Twelfth Amendment shall control.
11. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Twelfth Amendment.
12. EFFECTIVENESS OF AMENDMENT. This Twelfth Amendment
shall not be effective until the same is executed and accepted by Lender in the
State of Arizona.
IN WITNESS WHEREOF, this instrument is executed as of the day
and year first above written.
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By: By:
----------------------------------- ----------------------------------
Donald R. Middleton, Vice President Title:
---------------------------
-7-
<PAGE> 8
STATE OF ARIZONA )
) ss
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared DONALD R.
MIDDLETON, known to me to be the Vice President of PREFERRED EQUITIES
CORPORATION, a Nevada corporation, who acknowledged to me that the same was the
free act and deed of such corporation and that he, being authorized by proper
authority to do so, executed the same on behalf of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1995.
---------------------------------
Notary Public
My commission expires:
____________________
STATE OF ARIZONA )
) ss
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared
_____________________________________________________________, known to me to
be the _____________________________ of FINOVA CAPITAL CORPORATION, a Delaware
corporation, who acknowledged to me that the same was the free act and deed of
such corporation and that s/he, being authorized by proper authority to do so,
executed the same on behalf of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1995.
---------------------------------
Notary Public
My commission expires:
____________________
-8-
<PAGE> 9
[HEADQUARTERS]
AMENDED AND RESTATED PROMISSORY NOTE
U.S. $2,500,000.00 As of September 29, 1995
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Amended and Restated Note ("Holder") may from time to time
designate in writing, in lawful money of the United States of America, the
principal sum of TWO MILLION FIVE HUNDRED THOUSAND UNITED STATES DOLLARS (U.S.
$2,500,000), or so much thereof as has been disbursed and not repaid, together
with interest on the unpaid principal balance from time to time outstanding
from the date hereof until paid, as more fully provided for below.
Interest due under this Amended and Restated Note (the "Note")
shall (a) accrue daily on the basis of the actual number of days in the
computation period and (b) be calculated on the basis of a year consisting of
360 days. Interest shall accrue initially at an annual interest rate ("Initial
Interest Rate") equal to Prime (as hereinafter defined) in effect on the date
of this Note ("Initial Prime") plus 2-1/4% per annum, subject to adjustment on
each Interest Rate Change Date (as hereinafter defined), but in no event to
exceed the maximum contract rate permitted under the Applicable Usury Law (as
hereinafter defined). The interest rate shall change on each Interest Rate
Change Date by adding to or subtracting from the Initial Interest Rate, as the
case may be, the change, if any, between Initial Prime and Prime in effect on
the applicable Interest Rate Change Date. As used in this Note, the following
capitalized terms have the meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly announced,
from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged
by Citibank to its most creditworthy commercial borrowers
notwithstanding the fact that some borrowers of Citibank may
borrow from Citibank at rates of less than such announced
Prime rate; and
"Interest Rate Change Date" means (a) the first business day
of Citibank, N.A., in New York, New York, during the calendar
month following the date of this Note and (b) the first
business day of Citibank, N.A., during each successive month
thereafter.
<PAGE> 10
This Note shall be repaid in immediately available funds in
sixty (60) monthly installments of principal and interest calculated in the
manner set forth below. The first monthly installment shall be due and payable
on November 1, 1995 and subsequent monthly installments shall be due and
payable on the first Business Day of each and every month thereafter. The
first fifty-nine (59) installments shall be in an amount equal to interest (in
arrears) and a monthly principal payment which shall equal the principal
payment obtained when the beginning principal balance of this Note is amortized
over a sixty (60) month principal amortization schedule using the Initial
Interest Rate. Any remaining principal and all other sums due and owing
pursuant hereto plus accrued and unpaid interest shall be due and payable on
October 1, 2000 (the "Maturity Date").
Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
This Note is executed pursuant to that certain Amendment No.
12 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this
-2-
<PAGE> 11
Note; (ii) Overdue Rate, calculated and applied to the amounts due under this
Note in accordance with the provisions hereof; (iii) Headquarters Readvance
Loan Fee; and (iv) all Additional Sums (as hereinafter defined), if any. Maker
agrees to pay an effective contracted for rate of interest which is the sum of
the above referenced elements.
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is prepayable in whole but not in part at any time
subject to the following conditions:
(a) Not less than thirty (30) days prior to the date
on which Maker desires to make such prepayment, Maker shall deliver to
Holder written notice of Maker's intention to prepay, which notice shall
be irrevocable and shall state the prepayment date; and
(b) Maker pays to Holder, concurrently with such
prepayment (i) a prepayment premium (the "Prepayment Premium") equal
to (A) three percent (3%) of the amount prepaid if such prepayment is
made on or before June 30, 1996, (B) two percent (2%) of the amount
prepaid if such prepayment is made after June 30, 1996 and on or before
June 30, 1997 and (C) one percent (1%) of the amount prepaid if such
prepayment is made after June 30, 1997 and on or before June 30, 1998
and (ii) accrued and unpaid interest through the date of such prepayment
on the principal balance being prepaid (it being agreed and understood
that no Prepayment Premium shall be payable if this Note is prepaid at
any time after June 30, 1998). The foregoing notwithstanding, in the
event a prepayment of this Note occurs as a result of an acceleration
by Holder of the balance due pursuant to its right to declare an
acceleration hereof under the terms of the Loan Agreement, the
Prepayment Premium shall equal five percent (5%) of the principal being
prepaid, notwithstanding the date upon which such acceleration occurs.
-3-
<PAGE> 12
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceedings, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
Holder shall not by any act or omission or commission be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on any
other occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be
cumulative and none is exclusive and such remedies may be exercised
concurrently or consecutively at Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon
Maker, its successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Loan
Agreement. If more than one person or other entity has executed this Note as
Maker, the obligations of such persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of
-4-
<PAGE> 13
Arizona, Maricopa County, and to the process, jurisdiction and venue of the
United States District Court for Arizona, for the purposes of suit, action or
other proceedings arising out of or relating to this Note or the subject matter
hereof brought by Holder and (b) without limiting the generality of the
foregoing, hereby waives and agrees not to assert by way of motion, defense or
otherwise in any such suit, action or proceeding any claim that Maker is not
personally subject to the jurisdiction of the above-named courts, that such
suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. In the event
(a) any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstance the amount of
interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (3) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Maker, at Holder's option, and
(4) the effective rate of interest will be automatically reduced to the maximum
amount of interest permitted by the Applicable Usury Law. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law: (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
maximum contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the loan evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise in connection with such loan;
and (y) in the event that the effective rate of interest on the loan should at
any time exceed the maximum contract rate allowed under the Applicable Usury
Law, such excess interest that would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law shall be paid to Holder
from time to time, if and when the effective interest rate on the loan
otherwise falls below the maximum amount permitted by the Applicable Usury Law,
-5-
<PAGE> 14
to the extent that interest paid to the date of calculation does not exceed the
maximum contract rate permitted by the Applicable Usury Law, until the entire
amount of interest which would have otherwise been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. Maker
further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
This Note is an amendment and restatement of that certain
Promissory Note, dated as of June 28, 1993, by Maker to the order of Lender.
This Note shall not constitute a waiver of any existing default or breach of a
covenant and shall have no retroactive effect; provided, however, that any and
all written waivers given heretofore are hereby extended to the date hereof.
PREFERRED EQUITIES
CORPORATION, a Nevada corporation
"Maker"
By:
-----------------------------------
Donald R. Middleton, Vice President
Federal Taxpayer Identification
Number: 88-0106662
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: President
-6-
<PAGE> 1
EXHIBIT 10.87
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, made as of 30th day of September, 1995, by and between
PREFERRED EQUITIES CORPORATION, a Nevada Corporation, having an address of 4310
Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as
"Preferred"); and
COLORADO LAND AND GRAZING CORP., a Colorado Corporation, having an
address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to
as "CLGC")(Preferred and CLGC are hereinafter collectively referred to as the
"Borrower" and any documents required to be executed by (or prepared for) the
Borrower pursuant to this Agreement shall be executed by (or prepared for) each
Borrower); and
MEGO FINANCIAL CORPORATION, a New York corporation having an address of
4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as
"Guarantor"); and
DORFINCO CORPORATION, a Delaware Corporation, having an address of 40
Westminster Street, P.O. Box 6687, Providence, Rhode Island 02940-6687
(hereinafter referred to as "Lender")
WITNESSETH:
WHEREAS, On August 9, 1991, Preferred executed in favor of Lender a
note evidencing a revolving line of credit loan (the "Loan") in the maximum
principal sum of Five Million Dollars ($5,000,000.00) which note was amended by
a First Amendment to Promissory Note dated June 30, 1993, which amendment,
inter alia, increased the maximum amount of the Loan to Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) and by a Second Amendment to
Promissory Note dated August 23, 1994 and by a Third Amendment to Promissory
Note of even date herewith("Note Amendment")(Said note, as amended, being
hereinafter referred to as the "Note"); and
WHEREAS, the above described Note evidences sums advanced or to be
advanced pursuant to a Loan and Security Agreement dated July 31, 1991, which
agreement was amended by a First Amendment dated January 8, 1992, and by Second
Amendment to Loan and Security Agreement dated June 30, 1993 and by a Third
Amendment to Loan and Security Agreement and Assumption Agreement dated August
23, 1994 which amendment inter alia, added CLGC as a Borrower (the Loan and
Security Agreement, as amended, being hereinafter referred to as the "Loan
Agreement"); and
WHEREAS, Preferred, through CLGC, its wholly owned subsidiary, is
currently marketing residential lots (the "SPR Lots") in a subdivision known as
South Park Ranches, located in Park County, Colorado (the "SPR Subdivision");
and
<PAGE> 2
WHEREAS, Preferred and CLGC have requested that Lender modify the
terms of the Loan, upon the terms and provisions hereinafter set forth, in
order to extend the Term and the Revolving Credit Period as well as certain
other provisions.
NOW THEREFORE, in consideration of the foregoing recitals, and in
further consideration of the mutual covenants contained herein, and intending
to be legally bound hereby, the parties hereto mutually agree as follows:
I. AMENDMENTS
1. Notwithstanding any provision contained in Paragraph 1.1(e) of
the Loan Agreement, or elsewhere in the Loan Agreement or in any other Loan
Document, the parties hereto mutually agree that total unrepaid advances
against Eligible Notes Receivable generated from fee simple sales of SPR Lots
shall at no time exceed Five Million Dollars ($5,000,000.00) in the aggregate.
2. The parties hereto mutually agree that Paragraph 1.1(u) of the
Loan Agreement is hereby deleted in its entirety, and in lieu thereof the
following provision is inserted:
"1.1 (u) FINAL MATURITY DATE. June 30, 2000."
3. The parties hereto mutually agree that Paragraph 1.1 (ss) of
the Loan Agreement is hereby deleted in its entirety, and in lieu thereof, the
following provision is inserted:
"1.1 (ss) REVOLVING CREDIT PERIOD. The period from the Closing
Date to September 30, 1996."
4. The parties hereto mutually agree that Paragraph 1.1 (vv) of
the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the
following provision is inserted:
"1.1 (vv) TERM. The period commencing on the Closing Date and
continuing until June 30, 2000. The Term includes both the
Revolving Credit Period and the period during which no
Advances are permitted."
5. The parties hereto mutually agree that Paragraph 2.2 of the
Loan Agreement is hereby deleted in its entirety, and in lieu thereof the
following provision is inserted:
"2.2 NON-REVOLVING PERIOD. Notwithstanding anything
contained herein to the contrary, no Advances of the Loan will
be made after September 30, 1996."
2
<PAGE> 3
6. Notwithstanding Section 2.5 of the Loan Agreement, the parties
hereto mutually agree that Borrower shall be allowed to prepay the Loan by an
amount not to exceed Five Million Dollars ($5,000,000.00). Any such prepayment
must be made not later than October 31, 1995 and must be accompanied by a
pre-payment fee equal to one percent (1.0%) of the Loan amount prepaid.
II. REAFFIRMATIONS
1. Nothing contained herein shall be construed in any manner so
as to affect the validity or prior time lien of any security interest held by
Lender, its successors and assigns, in any Collateral described in the Loan
Agreement. Borrower acknowledges and agrees that the Note, Loan Agreement,
Custodial Agreement, Lockbox Agreement, Assignment, Environmental
Indemnification Agreement and all other Loan Documents (as modified herein)
shall remain in full force and effect, unimpaired by this Agreement and that
they are valid, binding and enforceable documents, duly executed and delivered
by Borrower, and that Borrower has no offsets or defenses to the enforcement of
the terms and provisions contained therein.
2. Borrower, and as applicable, the Guarantor, hereby reaffirm,
restate and incorporate by this reference all of their respective
representations, warranties and covenants as updated hereunder made in the Loan
Agreement (including as amended hereby), as if the same were made as of this
date and with reference to the Loan Agreement as amended hereby. In addition,
Borrower (and, as applicable, the Guarantor) represents and warrants as
follows:
a. This Fourth Amendment (and the Note Amendment) has been
duly authorized by Borrower and is the legal, valid and binding obligation of
Borrower, enforceable against it in accordance with its terms subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws affecting creditor's rights and remedies
generally and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law); and, as
applicable with respect to the Guarantor, this Fourth Amendment is the legal,
valid and binding obligation of the Guarantor, enforceable against it in
accordance with its terms subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
b. The execution, delivery and performance of this Fourth
Amendment and the documents, instruments and materials to be delivered in
connection herewith and the transactions contemplated hereby do not and will
not result in any breach of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon the Collateral or the
Subdivisions pursuant to, any provision of law, or any
3
<PAGE> 4
indenture, agreement or instrument to which Borrower or the Guarantor is a
party or by which the Borrower or the Guarantor may be bound or affected except
for liens in favor of Lender and the Deeds of Trust.
c. There are no Defaults or Events of Default pursuant to the
Loan Documents; Lender has fully performed its obligations under the Loan
Documents which Lender is required to perform as of the date hereof, and
neither Borrower nor the Guarantor has any defense, set-offs, claims,
counterclaims or recoupments against Lender or with respect to the Loan.
3. Borrower and the Guarantor hereby reaffirm their respective
obligations, agreements and undertakings as set forth in the Loan Documents,
and acknowledge that the Indebtedness, or with respect to the Guarantor, the
guaranteed Obligations defined in the Guaranty, are the valid, legally binding
and enforceable obligations of Borrower, and the Guarantor, respectively.
III. CLOSING CONDITIONS AND ADDITIONAL TERMS
1. The obligation of Lender to enter into this Fourth Amendment
and, in addition to all of the other conditions precedent set forth in the Loan
Agreement or the other Loan Documents, to fund any further Advance pursuant to
the terms hereof, shall be subject to the satisfaction of each of the following
conditions precedent by no later than the Expiration Date defined in the Fourth
Amendment Commitment Letter.
a. Simultaneously with the execution hereof, Borrower
shall pay to Lender any unpaid portion of the commitment fee referred to in
Paragraph IV of the Commitment Letter from Lender to Preferred issued July 28,
1995 and accepted by Preferred on July 31, 1995 ("Fourth Amendment Commitment
Letter").
b. Borrower shall pay Lender Two Thousand Five Hundred
Dollars ($2,500) toward attorney's fees and costs incurred by Lender in
connection with the preparation of this Fourth Amendment and related
documentation in accordance with the provisions of Paragraph VI of the Fourth
Amendment Commitment Letter.
c. Lender shall have received from Borrower the original
executed Note Amendment, and a fully executed original or executed counterpart
originals of this Fourth Amendment.
d. Lender shall have received from Lionel Sawyer & Collins,
counsel for the Borrower and Mego Financial Corp., a New York corporation
("Guarantor"), or other counsel reasonably acceptable to Lender, closing
opinions in form and substance reasonably acceptable to Lender, dated as of the
Fourth Amendment Closing Date.
e. Except for information contained in certificates provided
pursuant to Article III(1)(h) hereof, the representations and warranties
contained in the Loan
4
<PAGE> 5
Agreement and in this Fourth Amendment, and in the certifications and closing
documents delivered in connection herewith, shall be true and correct in all
material respects, and all covenants and agreements to have been complied with
performed by Borrower (or Guarantor), shall have been fully complied with and
performed to the satisfaction of Lender.
f. Neither Borrower nor Guarantor shall have taken any action
or permitted any condition to exist which would have been prohibited by any
provision of the Fourth Amendment Commitment Letter or the Loan Documents.
g. No Default or Event of Default shall exist immediately
prior to the closing hereof, or after giving effect to such closing, or
immediately after the making of any Advance requested in connection with such
closing.
h. Lender shall have received a certificate or certificates
in form and substance satisfactory to it, dated as of the Fourth Amendment
closing date and signed by the president or other authorized officer of the
Borrower, certifying that the conditions specified in this Fourth Amendment
have been fulfilled, and "bringing down" the representations and warranties
contained in the Loan Agreement.
i. Borrower shall deliver to Lender, and Lender shall have
approved, by no later than the Fourth Amendment closing date:
i. A certificate of current good standing for the
Borrower, together with copies of any amendments to the certificate of
incorporation or bylaws of the Borrower, certified to be true, correct
and complete by the Borrower, its secretary or assistant secretary, or
the Nevada or Colorado Secretary of State, as applicable;
ii. Evidence satisfactory to Lender that all taxes
and assessments, including without limitation, those specified in
Section 4.1 (q) of the Loan Agreement, owed by or for which Borrower
is responsible for collection have been paid or will be paid prior to
delinquency;
iii. A certificate of secretary or assistant
secretary of Borrower certifying the adoption by the Board of
Directors thereof of a resolution authorizing specified officers of
Borrower to enter and execute this Fourth Amendment, the Note
Amendment and all other documents, certificates and instruments to be
executed and delivered in connection with the Fourth Amendment
closing, and to consummate the transactions contemplated hereunder;
iv. A certificate of the secretary or assistant
secretary of the Borrower certifying the incumbency of, and verifying
the authenticity of the signatures of, the officers of Borrower
authorized to sign this Fourth Amendment, the Note Amendment and the
other documents, instruments and materials to be executed and
delivered in connection herewith;
5
<PAGE> 6
v. A certificate of the secretary or assistant
secretary of Guarantor certifying the adoption by the Board of
Directors thereof of a resolution authorizing specified officers of
the Guarantor to enter and execute this Fourth Amendment and all other
documents, certificates and instruments to be executed and delivered
in connection with the Fourth Amendment closing, and to consummate the
transactions contemplated hereunder;
vi. A certificate of the secretary or assistant
secretary of the Guarantor certifying the incumbency of, and verifying
the authenticity of signatures of, the officers of the Guarantor
authorized to sign this Fourth Amendment and the other documents,
instruments and materials to be executed and delivered in connection
herewith;
vii. To the extent any of the same have not
previously been delivered to Lender, true, correct and complete copies
of any amendments since the Closing Date, to any of the Lot Sale
Documents (as defined in Section 4.1 [o] of the Loan Agreement),
together with such copies of any Lot Sale Documents, or required
governmental permits or licenses obtained, subsequent to the Closing
Date and not previously delivered to Lender; and
viii. Such updated litigation and UCC searches as
Lender may require.
j. All actions taken in connection with the execution or
delivery of this Fourth Amendment, all documents, certificates, instruments and
materials relating hereto, shall be reasonably satisfactory to Lender and its
counsel. Lender and its counsel shall have received copies of such documents
and papers as Lender or such counsel may reasonably request in connection
herewith all in form and substance satisfactory to Lender and its counsel.
k. Borrower shall have paid all fees and expenses required to
be paid prior to or at the closing pursuant to this Fourth Amendment.
IV. GUARANTOR'S OBLIGATIONS
1. The Guarantor:
a. has reviewed the Fourth Amendment Commitment Letter and
this Fourth Amendment with counsel of it's choice, and accepts and consents to
the terms of this Fourth Amendment and the transactions provided for herein;
b. acknowledges and agrees that it receives material benefit
and valuable consideration as a result of the transactions provided for herein
or contemplated hereunder;
6
<PAGE> 7
c. ratifies and reaffirms the Guaranty, and all of the terms
provisions, agreements, conditions and undertakings contained in the Guaranty
or any of the Loan Documents (as applicable to the Guarantor), all of which
remain unmodified except as modified herein and in full force and effect;
d. acknowledges and confirms its continuing obligations under
the Guaranty and agrees to be bound by the terms thereof, and that it has been
since July 31, 1991 and remains liable with respect to the guaranteed
Obligations as defined and provided in the Guaranty;
e. acknowledges and agrees that the guaranteed Obligations
encompass and apply to all Advances, including Advances from and after the
Fourth Amendment closing date, and to all Obligations, including Obligations
arising pursuant to this Fourth Amendment;
f. is fully aware of the financial and other conditions of
the Borrower and the SPR Subdivision, and is executing and delivering this
Fourth Amendment based solely upon its own independent investigation and not
upon any representation or statement of Lender;
g. except for information contained in certificates provided
pursuant to IV(1)(i) hereof reaffirms, restates and incorporates by this
reference all of the representations, warranties and covenants made in the
Guaranty as if the same were made as of this date;
h. acknowledges that its agreements, consents and
acknowledgments contained herein, and the provisions of the Guaranty (which are
reaffirmed by Guarantor), are a material inducement to Lender to enter into
this Fourth Amendment, and that, but for the Guaranty, and the Guarantor's
agreements as set forth herein, Lender would decline to enter into this Fourth
Amendment; and
i. shall deliver to Lender a certificate or certificates in
form and substance satisfactory to it, dated as of the Fourth Amendment Closing
Date and signed by the president or other authorized officer of the Guarantor,
certifying that the conditions specified in this Fourth Amendment have been
fulfilled, and "bringing down" the representations and warranties contained in
the Guaranty.
V. MISCELLANEOUS
a. This Fourth Amendment is entered into for the benefit of
the parties hereto, and is binding on the respective heirs, successors or
assigns; provided that Borrower may not transfer or assign any of its rights or
obligations under this Fourth Amendment without the prior written consent of
Lender. Guarantor is a party to this
7
<PAGE> 8
Fourth Amendment solely for the purposes of affirming its obligations in
accordance with Article IV hereof.
b. This Fourth Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Fourth Amendment shall become
effective upon Lender's receipt of one or more counterparts hereof timely
executed by Borrower, the Guarantor and Lender. This Fourth Amendment may not
be amended or modified, and no term or provision hereof may be waived, except
by written instrument signed by the parties hereto.
c. Section headings have been inserted in this Fourth
Amendment as a matter of convenience of reference only; such headings are not
part of this Fourth Amendment and shall not be used in the interpretation of
this Fourth Amendment.
d. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF BORROWER, THE GUARANTOR AND LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY
ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS FOURTH
AMENDMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OF OTHERWISE, OR WITH RESPECT TO
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF
BORROWER, THE GUARANTOR AND LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO
CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY
OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED UNLESS
SUCH FAILURE TO CONSOLIDATE WOULD RESULT IN INABILITY TO ENFORCE A CLAIM.
FURTHER, BORROWER AND THE GUARANTOR HEREBY CERTIFY THAT NO REPRESENTATIVE OR
AGENT OF LENDER, NOR LENDER'S COUNSEL, HAS REPRESENTED EXPRESSLY OR OTHERWISE,
THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER AND THE GUARANTOR
ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO
LENDER'S ACCEPTANCE OF THIS FOURTH AMENDMENT AND THE OTHER LOAN DOCUMENTS.
e. This Agreement and all other Loan Documents shall be
governed by the laws of the State of Nevada in all respects, including matters
of construction, performance and enforcement, except to the extent that the
procedural laws of the State of
8
<PAGE> 9
Colorado govern the enforcement of any remedy against Collateral or property
located in the State of Colorado, and excluding principles governing conflicts
of laws.
f. Capitalized terms used herein which are not otherwise
defined shall have the meaning ascribed in the Note and/or the Loan Agreement.
g. Whenever possible, the terms of this Agreement and the
terms of all prior amendments shall be read together, but to the extent of any
irreconcilable conflict, the terms of this Fourth Amendment shall govern.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have set their hands and seals the day and year first above
written.
ATTEST: BORROWER:
PREFERRED EQUITIES CORPORATION
_____________________________ By:_________________________________
COLORADO LAND AND GRAZING
CORP.
_____________________________ By:_________________________________
GUARANTOR:
MEGO FINANCIAL CORP.
_____________________________ By:_________________________________
LENDER:
DORFINCO CORPORATION
_____________________________ By:_________________________________
The address of the within named Lender is:
40 Westminster Street
P.O. Box 6687
Providence, Rhode Island 02940-6687
_____________________________
on behalf of Lender
9
<PAGE> 10
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1995 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of PREFERRED EQUITIES CORPORATION, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My commission expires:
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1995 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of COLORADO LAND AND GRAZING CORP., being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My commission expires:
10
<PAGE> 11
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1995 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of MEGO FINANCIAL CORPORATION, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My commission expires:
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1995 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of DORFINCO CORPORATION, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
___________________________________
Notary Public
My commission expires:
PG001
11
<PAGE> 12
THIRD AMENDMENT TO PROMISSORY NOTE
----------------------------------
THIS THIRD AMENDMENT TO PROMISSORY NOTE, made as September 30, 1995,
by and between PREFERRED EQUITIES CORPORATION, a Nevada Corporation, having an
address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to
as "Preferred"), and
COLORADO LAND AND GRAZING CORP., a Colorado Corporation, having an address of
4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as
"CLGC"), and
DORFINCO CORPORATION, a Delaware Corporation, having an address of 40
Westminster Street, P.O. Box 6687, Providence, Rhode Island 02940-
6687(hereinafter referred to as "Lender").
WITNESSETH:
WHEREAS, On August 9, 1991, Preferred executed in favor of Lender a
note evidencing a revolving line of credit loan (the "Loan") in the maximum
principal sum of Five Million Dollars ($5,000,000.00) which note was amended by
a First Amendment to Promissory Note dated June 30, 1993, which amendment,
inter alia, increased the maximum amount of the Loan to Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) which note was further amended by a
Second Amendment to Promissory Note dated August 23, 1994 (Said note, as
amended, being hereinafter referred to as the "Note"); and
WHEREAS, the above described Note evidences sums advanced or to be
advanced pursuant to a Loan and Security Agreement dated July 31, 1991, which
Agreement was amended by a First Amendment dated January 8, 1992, and by Second
Amendment to Loan and Security Agreement dated June 30, 1993, and by a Third
Amendment to Loan and Security Agreement and Assumption Agreement (the "Third
Amendment") dated August 23, 1994, which amendment, inter alia, added CLGC as a
Borrower and by a Fourth Amendment to Loan and Security Agreement of even date
herewith (the "Fourth Amendment") (the Loan and Security Agreement, as amended,
being hereinafter referred to as the "Loan Agreement"); and
WHEREAS, Preferred and CLGC have requested that Lender modify the
terms of the Loan, upon the terms and provisions hereinafter set forth, in
order to extend the Term and the Revolving Credit Period as well as other
certain provisions; and
NOW THEREFORE, in consideration of the foregoing recitals, and in
further consideration of the mutual covenants contained herein, and intending
to be legally bound hereby, the parties hereto mutually agree as follows:
<PAGE> 13
1. The foregoing recitals are hereby incorporated herein by reference
thereto.
2. The parties hereto mutually agree that Paragraph 3(a) of the Note
is hereby deleted in its entirety, and in lieu thereof the following provision
is inserted:
"(a) Monthly Interest Payments. Commencing on September 1,
1991 and continuing on the first (1st) day of each and every
month thereafter through and including June 1, 2000, all
interest accrued at the Basic Interest Rate shall be due and
payable monthly in arrears."
3. The parties hereto mutually agree that paragraph 3(c) of the Note
is hereby deleted in its entirety, and in lieu thereof the following provision
is inserted:
"(c) Repayment on Maturity. On June 30, 2000, (THE "FINAL
MATURITY DATE"), or on such earlier date as the Note becomes
due and payable, whether by acceleration or otherwise, the
entire outstanding principal balance hereof, together with
accrued but unpaid interest thereon and all other sums owing
to Holder hereunder or under the Loan Documents, shall be due
and payable in full."
4. Notwithstanding Section 8(a) of the Note the parties may prepay an
amount up to Five Million Dollars ($5,000,000.00) accompanied by a prepayment
premium equal to 1% of the amount prepaid in accordance with the provisions of
the Loan Agreement.
5. Nothing contained herein shall be construed in any manner so as to
affect the validity or prior time lien of any security interest held by Lender,
its successors and assigns, in any Collateral described in the Loan Agreement.
Borrower acknowledges and agrees that the Note is a valid, binding and
enforceable document, duly executed and delivered by Borrower, and that
Borrower has no offsets or defenses to the enforcement of the terms and
provisions contained therein.
6. Simultaneously with the execution hereof, Lender shall make a
notation on the original Note indicating the existence of this Third Amendment.
7. The execution of this Third Amendment shall serve as additional
evidence of the obligation of Borrower (as that term was modified by the Third
Amendment to include CLGC) to repay the sum of Seven Million Five Hundred
Thousand Dollars ($7,500,000.00) to Lender in accordance with the terms,
covenants, provisions and conditions contained in the Note, as modified herein,
which terms, covenants, provisions and conditions are incorporated herein by
reference thereto.
8. Except as specifically set forth herein, all terms and provisions
set forth in the Note shall remain in full force and effect, unimpaired by this
Third Amendment.
2
<PAGE> 14
9. This Third Amendment shall be governed by the laws of the State of
Nevada in all respects, including matters of construction, performance and
enforcement, excluding principles governing conflicts of laws.
10. Capitalized terms used herein which are not otherwise defined
shall have the meaning ascribed in the Note and/or the Loan Agreement.
11. Wherever possible, the terms of this Agreement and the terms of
all prior amendments shall be read together, but to the extent of any
irreconcilable conflict, the terms of the Agreement shall govern.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have set their hands and seals the day and year first above
written.
ATTEST: BORROWER:
PREFERRED EQUITIES CORPORATION
By:
- ---------------------------------- --------------------------------
Title: Title:
--------------------------- -----------------------------
COLORADO LAND AND GRAZING CORP.
By:
- ---------------------------------- --------------------------------
Title: Title:
--------------------------- -----------------------------
DORFINCO CORPORATION
By:
- ---------------------------------- --------------------------------
Title:
------------------------------
pg0003
3
<PAGE> 15
CORPORATE ACKNOWLEDGMENT
STATE OF _________________________ )
) SS:
COUNTY OF _________________ )
ON THIS, the ____________ day of _________________, 1995 before me, a
Notary Public in and for the Sate and county aforesaid, the undersigned
officer, personally appeared ___________________, who acknowledged himself to
be the _______________________________________, of PREFERRED EQUITIES
CORPORATION, being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the name of the corporation by
himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
____________________________________
Notary Public
MY COMMISSION EXPIRES:
4
<PAGE> 16
CORPORATE ACKNOWLEDGMENT
STATE OF _________________________ )
) SS:
COUNTY OF _________________ )
ON THIS, the ____________ day of _________________, 1995 before me, a
Notary Public in and for the Sate and county aforesaid, the undersigned
officer, personally appeared ___________________, who acknowledged himself to
be the _______________________________________, of COLORADO LAND AND GRAZING
CORP., being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by
himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
________________________________
Notary Public
MY COMMISSION EXPIRES:
5
<PAGE> 17
CORPORATE ACKNOWLEDGMENT
STATE OF _________________________ )
) SS:
COUNTY OF _________________ )
ON THIS, the ____________ day of _________________, 1995 before me, a
Notary Public in and for the Sate and county aforesaid, the undersigned
officer, personally appeared ___________________, who acknowledged himself to
be the _______________________________________, of DORFINCO CORPORATION, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself/herself as such
officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_________________________________
Notary Public
MY COMMISSION EXPIRES:
pg0003
6
<PAGE> 1
EXHIBIT 10.88
REQUEST FOR RECEIVABLE PURCHASE
-------------------------------
November _____, 1995
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Financial Services Division
Preferred Equities Corporation, a Nevada corporation (the "Seller"),
hereby requests, pursuant to Section 2.02(a) of the Purchase and Servicing
Agreement, dated as of June 1, 1994 (the "Purchase Agreement"), between the
Seller and NBD Bank, N.A., which has been succeeded by NBD Bank, a Michigan
banking corporation (the "Purchaser"), that the Purchaser purchase those
Receivables described on Schedule A hereto (the "Proposed Pool") on November
______, 1995 (the "Payment Date"). Capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Purchase
Agreement.
In support of this request, the Seller hereby represents and warrants
to the Purchaser that:
1. Except as specified in paragraph 9 below, the representations
and warranties contained in Section 2.03 and 6.01 of the Purchase Agreement and
in paragraph 5 of the Guaranty Agreement are true and correct on and as of the
date hereof, and will be true and correct on the date such purchase is made
(both before and after the Payment Date), as if such representations and
warranties were made on and as of such dates.
2. No Event of Transfer, and no event or condition which might
become such an Event of Transfer with notice or with lapse of time, or both,
exists or shall have occurred and be continuing on the Payment Date (whether
before or after the consummation of the transactions contemplated hereby are
consummated).
3. The aggregate Principal Balance of such Receivables included
in the Proposed Pool on October 31, 1995 (the "Cutoff Date") is $4,829,809.43
comprised of $2,295,677.96 for the Timeshare Receivables (comprised of
$295,161.80 in respect of Agreements for Deed and $2,000,516.16 in respect of
Deed of Trust Agreements) and $2,534,131.47 for the Land Receivables, as more
specifically detailed in Schedule A hereto.
<PAGE> 2
4. As of the Cutoff Date, each Receivable included in the
Proposed Pool has a remaining term to maturity of not greater than 80 months in
the case of Timeshare Receivables and 108 months in the case of Land
Receivables; and no such Receivable has a Principal Balance as of the Cutoff
Date that is less than $2,500.00 or more than $12,364.05 in the case of
Timeshare Receivables or less than $4,000.00 or more than $63,464.14 in the
case of Land Receivables included in the Proposed Pool (Section 2.03(i)).
5. As of the Cutoff Date, with respect to the Proposed Pool, the
aggregate original purchase price agreed to be paid by the Obligors is not less
than $3,500,896.83 in the case of the Timeshare Receivables and not less than
$4,189,685.00 in the case of the Land Receivables included in the Proposed Pool
(Section 2.03(i)).
6. As of the Cutoff Date, the actual weighted average remaining
life of the Receivables included in the Proposed Pool, determined on the basis
of scheduled maturity dates, is 67 months in the case of the Timeshare
Receivables, 97 months in the case of the Land Receivables and 83 months for
all Receivables (Section 2.03(ii)).
7. As of the Cutoff Date, the weighted average APR of the
Receivables included in the Proposed Pool is not less than 12.91% in the case
of the Timeshare Receivables, 10.82% in the case of the Land Receivables, and
11.82% for all Receivables (Section 2.03(iii)).
8. The Timeshare Receivables identified in Schedule A hereto, if
any, identified under the headings Grand Flamingo Towers and Grand Flamingo
Villas, are all of the Timeshare Receivables included in the Proposed Pool
which arise from sales of Financed Property in the Grand Flamingo Towers and
Grand Flamingo Villas and which constitute Agreements for Deed (Section
2.03(iv)(b)).
9. Exceptions, if any, to the representations and warranties of
the Seller contained in Section 2.03(iv)(a), (c), (e), (h) and (j) and Section
2.03(xiv) are: none.
10. For purposes of Section 5.03 of the Purchase Agreement, the
per annum yield for the Proposed Pool shall be _______ percent (___%) per
annum.
PREFERRED EQUITIES CORPORATION
By: ________________________________
Its: _______________________________
<PAGE> 3
As contemplated by the definition of Original Pool Balance, the Seller
represents and warrants that the Original Pool Balance for such Receivables
included in the Proposed Pool shall be $4,829,809.43 comprised of $2,295,677.96
for the Timeshare Receivables included in such Pool (comprised of $295,161.80
in respect of Agreements for Deed and $2,000,516.16 in respect of Deed of Trust
Agreements) and $2,534,131.47 for the Land Receivables included in such Pool,
representing the aggregate Principal Balance of such Receivables as of the
close of business on the Cutoff Date for such Pool, which Original Pool Balance
shall be the purchase price to be paid by the Purchaser for such Pool.
Acceptance of the proceeds of such purchase by the Seller shall be deemed to be
a further representation and warranty that the representations and warranties
made herein are true and correct at the time such proceeds are disbursed.
PREFERRED EQUITIES CORPORATION
By: ________________________________
Its: ________________________________
9
<PAGE> 1
EXHIBIT 10.89
SECOND AMENDMENT TO GENERAL LOAN AND SECURITY AGREEMENT
THIS Second Amendment to General Loan and Security Agreement (the
"Amendment"), made as of 30th day of November, 1995, by and between STEAMBOAT
SUITES, INC., a Colorado Corporation, having an address of 1485 Pine Grove
Road, Steamboat Suites, Colorado 80477 (hereinafter referred to as "Debtor");
and
TEXTRON FINANCIAL CORPORATION, a Delaware Corporation, having an
address of 40 Westminster Street, P.O. Box 6687, Providence, Rhode Island
02940-6687 (hereinafter referred to as "Lender")
RECITALS
This Amendment modifies and amends that certain General Loan and
Security Agreement dated as of October 5, 1994 as modified by First Amendment
to General Loan and Security Agreement dated as of February 27, 1995
(collectively the "Existing GLSA", the Existing GLSA, as amended hereby and as
further amended from time to time is referred to herein as the "Agreement")
Debtor has requested that Lender modify certain terms of the Loan upon
the terms and provisions hereinafter set forth in order to increase the maximum
Receivables Borrowing Base and certain eligibility requirements for Eligible
Notes Receivable.
NOW THEREFORE, in consideration of the foregoing recitals, and in
further consideration of the mutual covenants contained herein, and intending
to be legally bound hereby, the parties hereto mutually agree as follows:
I. INTERPRETATION OF AMENDMENT
A. Terms Defined
Capitalized terms used in this Amendment and not defined herein shall
have the respective meanings specified in the Existing GLSA, as amended hereby.
As used in this Amendment, the following terms have the respective meanings
specified below:
Agreement - as defined in the Recitals hereto.
Amendment or this Amendment - as defined in the Recitals hereto.
B. Directly or Indirectly
Where any provision in the Amendment refers to an action taken by any
Person or which such Person is prohibited from taking, such provisions shall be
applicable whether such action is taken directly or indirectly by such Person.
C. Headings
Section headings have been inserted in this Amendment as a matter of
convenience of reference only; such section headings are not part of this
Amendment and shall not be used in the interpretation of this Amendment.
<PAGE> 2
II. AMENDMENTS
A. Definitions.
1. The definitions set forth below are hereby added to
Section 1.1 of the Existing GLSA so as to preserve the alphabetical ordering of
the definitions set forth therein:
"Second GLSA Amendment Effective Date - means November 30,
1995."
"Second GLSA Amendment means that certain amendment of this
Agreement to provide for the revised "receivable facility" as
contemplated therein."
2. The parties hereto mutually agree that the definition
of "ELIGIBLE NOTE RECEIVABLE" under Section 1.1 of the Agreement shall be
modified to delete Subsection (c) in its entirety, and in lieu thereof the
following provision is inserted:
"(c) the unpaid balance of such Pledged Note Receivable
shall be due and payable not later than 84 months from the date
thereof, provided that, if any Pledged Note Receivable has a remaining
term of more than 84 months but less than or equal to 120 months and
would otherwise qualify as an Eligible Note Receivable, such Pledged
Note Receivable shall be deemed to be an Eligible Note Receivable for
so long as the aggregate outstanding principal balances of all
Eligible Notes Receivable having remaining terms of more than 84
months but less than or equal to 120 months (determined immediately
after giving effect to such Pledged Note Receivable having become an
Eligible Note Receivable) shall not exceed 50% of the aggregate
principal balance of all Eligible Notes Receivable outstanding at the
time of such determination; to the extent that, at any time, the
aforesaid 50% test shall be violated, a quantity of Pledged Notes
Receivable then having terms of more than 84 months but less than or
equal to 120 months and then being treated as Eligible Notes
Receivable shall be treated as no longer being Eligible Notes
Receivable to the extent necessary to cause the aforesaid 50% test to
then be satisfied;"
3. The parties hereto mutually agree that definition of
"Receivable Borrowing Base" is hereby deleted in its entirety, and in lieu
thereof, the following provision is inserted:
"RECEIVABLES BORROWING BASE - means, at any time, the lesser of
(a) $15,000,000 minus (i) the principal amount of the
Inventory Loan outstanding at such time, minus (ii) the principal
amount outstanding at such time of the $7,500,000 loan facility
extended to Preferred Equities by Dorfinco, and
(b) the sum, without duplication, of (i) 70% of the
aggregate of the unpaid principal balances of all Eligible Notes
Receivable outstanding at such time plus (ii) 80% of the aggregate of
the unpaid principal balances of all Eligible Notes Receivable in
respect of which at least one scheduled monthly installment payment
shall have been made."
4. The parties hereto mutually agree that the definition of
"Receivables Note" is hereby deleted in its entirety, and in lieu thereof the
following provision is inserted:
2
<PAGE> 3
"RECEIVABLES NOTE - means that certain promissory note effective as of
October 6, 1994, amended and restated substantially in the form of
Exhibit B-1 to this Agreement and the Second GLSA Amendment.
Receivable Advances up to $7,500,000 were not made in respect of such
promissory note until the First GLSA Amendment became effective and
Receivable Advances with respect to the Receivables Borrowing Base, as
amended by this Amendment shall be made in respect of such amended and
restated promissory note upon the Second GLSA Amendment Effective
Date."
III. REAFFIRMATIONS
1. Nothing contained herein shall be construed in any manner so
as to affect the validity or prior time lien of any security interest held by
Lender, its successors and assigns, in any Collateral described in the
Agreement except that the Inventory Deed of Trust shall be limited to a
security interest of up to $7,500,000 for the Inventory Note and Receivables
Note. Debtor acknowledges and agrees that the Notes, Agreement, Inventory Deed
of Trust, Assignment of Pledged Notes Receivables, Pledged Note Receivables
Deeds of Trust and Pledged Contracts, Guaranty Agreement, Subordination
Agreements, Agency Agreement and all other Security Documents (as modified
herein) shall remain in full force and effect, unimpaired by this Amendment and
that they are valid, binding and enforceable documents, duly executed and
delivered by Debtor, and that Debtor has no offsets or defenses to the
enforcement of the terms and provisions contained therein.
2. Except as provided in Schedule 1 hereto, Debtor, and as
applicable, the Guarantors, hereby reaffirm, restate and incorporate by this
reference all of their respective representations, warranties and covenants as
updated hereunder made in the Agreement (including, as amended hereby), as if
the same were made as of this date and with reference to the Agreement as
amended hereby. In addition, Debtor (and, as applicable, the Guarantors)
represents and warrants as follows:
a. This Amendment (and the Receivables Note as amended and
restated) has been duly authorized by Debtor and is the legal, valid and
binding obligation of Debtor, enforceable against it in accordance with its
terms subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting creditor's rights
and remedies generally and to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
and, as applicable with respect to the Guarantors, this Amendment is the legal,
valid and binding obligation of the Guarantors, enforceable against them in
accordance with its terms subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws affecting
creditor's rights and remedies generally and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
b. The execution, delivery and performance of this Amendment
and the documents, instruments and materials to be delivered in connection
herewith and the transactions contemplated hereby do not and will not result in
any breach of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon the Collateral, any provision of law, or any
indenture, agreement or instrument to which Debtor or any Guarantor is a party
or by which the Debtor or Guarantors may be bound or affected except for liens
in favor of Lender and the Pledged Notes Receivable Deeds of Trust.
3
<PAGE> 4
c. There are no Defaults or Events of Default pursuant to the
Security Documents; Lender has fully performed its obligations under the
Security Documents which Lender is required to perform as of the date hereof,
and neither Debtor nor the Guarantors have any defense, set-offs, claims,
counterclaims or recoupments against Lender or with respect to the Loan.
3. Debtor and the Guarantor hereby reaffirm their respective
obligations, agreements and undertakings as set forth in the Security
Documents, and acknowledge that the Obligations, or with respect to the
Guarantors, the guaranteed Indebtedness defined in the Guaranty and as amended
herein, are the valid, legally binding and enforceable obligations of Debtor,
and the Guarantors, respectively.
IV. CLOSING CONDITIONS AND ADDITIONAL TERMS
1. The obligation of Lender to enter into this Amendment and, in
addition to all of the other conditions precedent set forth in the Agreement or
the other Loan Documents, to fund any further Advance pursuant to the terms
hereof, shall be subject to the satisfaction of each of the following
conditions precedent by no later than February 29, 1996.
a. Debtor shall pay Lender Two Thousand Five Hundred
Dollars ($2,500) as payment in full for attorney's fees and costs incurred by
Lender in connection with the preparation of this Amendment and related
documentation.
b. Lender shall have received from Debtor the original
executed Receivables Note as amended and restated, and a fully executed
original or executed counterpart originals of this Amendment. Upon receipt of
such Receivables Note, as amended and restated, the Receivables Note dated
October 6, 1994 shall be marked superceded and returned to Debtor.
c. Lender shall have received from John Holloway, Esq.,
counsel for the Debtor and counsel for Guarantors, or other counsel reasonably
acceptable to Lender, closing opinions in form and substance reasonably
acceptable to Lender, dated as of the Amendment closing date.
d. Except for information contained in certificates
provided pursuant to Article IV(1)(g) and (h) hereof or any schedule to this
Amendment, the representations and warranties contained in the Agreement and in
this Amendment, and in the certifications and closing documents delivered in
connection herewith, shall be true and correct in all material respects, and
all covenants and agreements to have been complied with and performed by Debtor
(or Guarantor), shall have been fully complied with and performed to the
satisfaction of Lender.
e. Neither Debtor nor Guarantors shall have taken any
action or permitted any condition to exist which would have been prohibited by
any provision of the Security Documents.
f. No Default or Event of Default shall exist
immediately prior to the closing hereof, or after giving effect to such
closing, or immediately after the making of any Advance requested in connection
with such closing.
4
<PAGE> 5
g. Lender shall have received a certificate or
certificates in form and substance satisfactory to it, dated as of the
Amendment closing date and signed by the president or other authorized officer
of the Debtor, certifying that the conditions specified in this Amendment have
been fulfilled, and "bringing down" the representations and warranties
contained in the Agreement.
h. Debtor shall deliver to Lender, and Lender shall have
approved, by no later than the Amendment closing date:
i. A certificate of current good standing for
Debtor, together with copies of any amendments to the certificate of
incorporation or bylaws of Debtor since February 27, 1995, certified
to be true, correct and complete by the Debtor, its secretary or
assistant secretary, or the Colorado Secretary of State;
ii. Evidence satisfactory to Lender that all taxes
and assessments, including without limitation, those specified in
Section 7.1 (a) of the Agreement, owed by or for which Debtor is
responsible for collection have been paid or will be paid prior to
delinquency;
iii. A certificate of the secretary or assistant
secretary of Debtor certifying the adoption by the Board of Directors
thereof of a resolution authorizing specified officers of Debtor to
enter into and execute this Amendment, the Receivables Note and all
other documents, certificates and instruments to be executed and
delivered in connection with the Amendment closing, and to consummate
the transactions contemplated hereunder;
iv. A certificate of the secretary or assistant
secretary of Debtor certifying the incumbency of, and verifying the
authenticity of the signatures of, the officers of Debtor authorized
to sign this Amendment, the Receivables Note and the other documents,
instruments and materials to be executed and delivered in connection
herewith;
v. A certificate of the secretary or assistant
secretary of each Guarantor certifying the adoption by the Board of
Directors thereof of a resolution authorizing specified officers of
the Guarantor to enter into and execute this Amendment and all other
documents, certificates and instruments to be executed and delivered
in connection with the Amendment closing, and to consummate the
transactions contemplated hereunder; and
vi. A certificate of the secretary or assistant
secretary of each Guarantor certifying the incumbency of, and
verifying the authenticity of signatures of, the officers of each
Guarantor authorized to sign this Amendment and the other documents,
instruments and materials to be executed and delivered in connection
herewith;
i. All actions taken in connection with the execution or
delivery of this Amendment, and all documents, certificates, instruments and
materials relating hereto, shall be reasonably satisfactory to Lender and its
counsel. Lender and its counsel shall have received
5
<PAGE> 6
copies of such documents and papers as Lender or such counsel may reasonably
request in connection herewith all in form and substance satisfactory to Lender
and its counsel.
j. Debtor shall have paid all fees and expenses required to
be paid prior to or at the closing pursuant to this Amendment.
V. GUARANTORS' OBLIGATIONS
1. Each Guarantor:
a. has reviewed this Amendment with counsel of it's choice,
and accepts and consents to the terms of this Amendment and the transactions
provided for herein;
b. acknowledges and agrees that it receives material benefit
and valuable consideration as a result of the transactions provided for herein
or contemplated hereunder;
c. ratifies and reaffirms the terms of its Guaranty
Agreement, and all of the terms provisions, agreements, conditions and
undertakings contained in the Guaranty Agreement or any of the Security
Documents (as applicable to the Guarantor), all of which remain unmodified,
except as modified herein and in full force and effect;
d. acknowledges and confirms (i) its continuing obligations
under the Guaranty Agreement and agrees to be bound by the terms thereof, and
(ii) that it has been since October 5, 1994 and remains liable with respect to
the guaranteed Indebtedness as defined and provided in its Guaranty Agreement;
e. acknowledges and agrees that the guaranteed Indebtedness
encompasses and apply to all Advances, including Advances from and after the
Amendment closing date, and to all Indebtedness, including Indebtedness arising
pursuant to this Amendment;
f. is fully aware of the financial and other conditions of
the Debtor and is executing and delivering this Amendment based solely upon its
own independent investigation and not upon any representation or statement of
Lender;
g. except for information contained in certificates provided
pursuant to V(1)(i) hereof reaffirms, restates and incorporates by this
reference all of the representations, warranties and covenants made in its
Guaranty Agreement as if the same were made as of this date;
h. acknowledges that its agreements, consents and
acknowledgments contained herein, and the provisions of its Guaranty Agreement
(which are reaffirmed by Guarantor), are a material inducement to Lender to
enter into this Amendment, and that, but for the Guaranty Agreement, and the
Guarantor's agreements as set forth herein, Lender would decline to enter into
this Amendment; and
i. shall deliver to Lender a certificate or certificates in
form and substance satisfactory to it, dated as of the Amendment closing date
and signed by the president or other authorized officer of the Guarantor,
certifying that the conditions specified in this Amendment
6
<PAGE> 7
have been fulfilled, and "bringing down" the representations and warranties
contained in the Guaranty Agreement.
VI. MISCELLANEOUS
a. This Amendment is entered into for the benefit of the
parties hereto, and is binding on the respective heirs, successors or assigns;
provided that Debtor may not transfer or assign any of its rights or
obligations under this Amendment without the prior written consent of Lender.
Guarantors are a party to this Amendment solely for the purposes of affirming
their respective obligations in accordance with Article V hereof.
b. This Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Amendment shall become effective upon
Lender's receipt of one or more counterparts hereof timely executed by Debtor
and the Guarantors. This Amendment may not be amended or modified, and no term
or provision hereof may be waived, except by written instrument signed by all
of the parties hereto.
c. Section headings have been inserted in this Amendment as a
matter of convenience of reference only; such headings are not part of this
Amendment and shall not be used in the interpretation of this Amendment.
d. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF DEBTOR, THE GUARANTORS AND LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY
ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS
AMENDMENT, THE OTHER SECURITY DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OF OTHERWISE, OR WITH
RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF
DEBTOR, THE GUARANTORS AND LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO
CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY
OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED UNLESS
SUCH FAILURE TO CONSOLIDATE WOULD RESULT IN INABILITY TO ENFORCE A CLAIM.
FURTHER, DEBTOR AND THE GUARANTORS HEREBY CERTIFY THAT NO REPRESENTATIVE OR
AGENT OF LENDER, NOR LENDER'S COUNSEL, HAS REPRESENTED EXPRESSLY OR OTHERWISE,
THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. DEBTOR AND THE GUARANTORS ACKNOWLEDGE
THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER'S
ACCEPTANCE OF THIS AMENDMENT AND THE OTHER SECURITY DOCUMENTS.
7
<PAGE> 8
e. This Amendment and all other Security Documents shall
be governed by the laws of the State of Colorado in all respects, including
matters of construction, performance and enforcement.
f. Whenever possible, the terms of this Amendment and
the terms of the Agreement and all prior amendments shall be read together, but
to the extent of any irreconcilable conflict, the terms of this Amendment shall
govern.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have set their hands and seals the day and year first above
written.
ATTEST: DEBTOR:
STEAMBOAT SUITES, INC.
_____________________________ By:_________________________________
LENDER:
TEXTRON FINANCIAL
CORPORATION
By:
- ----------------------------- ---------------------------------
------------------------------------
on behalf of Lender
ACKNOWLEDGED AND AGREED:
GUARANTOR:
PREFERRED EQUITIES
CORPORATION
_____________________________ By:_________________________________
GUARANTOR:
MEGO FINANCIAL CORP.
_____________________________ By:_________________________________
The address of the within named Lender is:
40 Westminster Street
P.O. Box 6687
Providence, Rhode Island 02940-6687
MHC0801
8
<PAGE> 9
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1996 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of STEAMBOAT SUITES, INC., being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_____________________________
Notary Public
My commission expires:
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1996 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of PREFERRED EQUITIES CORPORATION, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_____________________________
Notary Public
My commission expires:
9
<PAGE> 10
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1996 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of MEGO FINANCIAL CORPORATION, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
______________________________
Notary Public
My commission expires:
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF ____________:
COUNTY OF __________:
ON THIS, the ___ day of ___________, 1996 before me, a Notary Public
in and for the State and County aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_____________________ of TEXTRON FINANCIAL CORPORATION, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
______________________________
Notary Public
My commission expires:
10
<PAGE> 11
EXHIBIT B-1
RESTATED AND AMENDED RECEIVABLES PROMISSORY NOTE
$15,000,000
November 30, 1995 Effective as of October 6, 1994
Steamboat Springs, Colorado
FOR VALUE RECEIVED and pursuant to the terms of this Restated and
Amended Receivables Promissory Note (this "NOTE"), the undersigned, STEAMBOAT
SUITES, INC., a Colorado corporation (the "DEBTOR"), promises to pay to the
order of TEXTRON FINANCIAL CORPORATION, a Delaware corporation (the "LENDER")
(the Lender and all subsequent holders of this Note being hereinafter referred
to as the "HOLDER"), at 40 Westminster Street, Providence, Rhode Island 02903,
Attention: Processing Center Manager, or at such other place as the Holder
hereof may designate in writing, the principal sum of up to FIFTEEN MILLION
DOLLARS ($15,000,000), or so much thereof as shall be outstanding hereunder
from time to time as a result of advances or principal by the Lender to the
Debtor pursuant to that certain General Loan and Security Agreement between the
Debtor and the Lender, dated as of October 5, 1994(as amended by First
Amendment to General Loan and Security Agreement dates as of February 27, 1995
("FIRST AMENDMENT") and Second Amendment to General Loan and Security Agreement
dated as of November 30, 1995 ("SECOND AMENDMENT") and as further amended from
time to time, (collectively the "AGREEMENT"), in respect of Receivables
Advances (as such term is defined in the Agreement), together with interest on
the unpaid principal amount from time to time outstanding under this Note at
the rate or rates of interest provided therefor in the Agreement.
The aforesaid principal amount and interest thereon shall be due and
payable on the dates and in the manner as provided in the Agreement in respect
of the Receivables Loan (as such term is defined in the Agreement). All
principal, interest and any other amounts due under this Note shall be payable
in lawful money of United States of America at the place or places above
stated.
The Debtor may prepay the principal sum outstanding from time to time
hereunder as provided in the Agreement.
To the extent provided in the Agreement, this Note is secured by a
security interest in the Collateral (as such term is defined in the Agreement)
which shall include, without limitation, the Inventory Deed of Trust (as such
term is defined in the Agreement), and is jointly and severally guaranteed by
the Guarantor (as such term is defined in the Agreement).
<PAGE> 12
This Note is the restated and amended Receivables Note described in
the Second Amendment and has been issued pursuant to the Agreement. This Note
is executed and delivered as of November 30, 1995 but is effective as of
October 6, 1994 and shall amend, restate and renew (without constituting a
revocation, cancellation or extinguishment of) the Note executed by Debtor on
the Closing Date (as defined in the Agreement). All of the terms, covenants
and conditions of the Agreement (including all Exhibits and Schedules thereto)
and all other instruments evidencing or securing the indebtedness hereunder are
hereby made a part of this Note and are deemed incorporated herein in full.
In the event of an Event of Default (as such term is defined in the
Agreement), the Holder may, at its option and in accordance with the terms of
the Agreement and the other Security Document (as defined in the Agreement), in
addition to any other remedies to which it may be entitled, declare the total
unpaid principal balance of the indebtedness evidenced hereby, together with
all accrued but unpaid interest thereon, and all other sums owing hereunder,
under the Agreement or under any other Security Document, immediately due and
payable.
The Debtor and the Holder intend to comply at all times with
applicable usury laws. All agreements between the Debtor and the Holder,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of demand or
acceleration of the maturity of this Note or otherwise, shall the interest
contracted for charged, received, paid or agreed to be paid to the Holder
hereunder exceed the maximum allowable rate permissible under applicable law,
or in the asbence of a maximum allowable rate under applicable law, then, 45%
per annum (the "Maximum Rate"). The Holder may, in determining the Maximum
Rate in effect from time to time, take advantage of any law, rule or regulation
in effect from time to time available to the Holder which exempts the Holder
from any limit upon the rate of interest it may charge or grants to the Holder
the right to charge a higher rate of interest than that otherwise permitted by
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to the Holder in excess of the Maximum Rate, the interest payable to
the Holder shall be reduced to the Maximum Rate; and if from any circumstances
Holder shall ever receive anything of value deemed interest by applicable law
in excess of the Maximum Rate, an amount equal to any excessive interest shall
be applied to the reduction of the principal of the Receivables Loan and not to
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal of the Receivables Loan, such excess shall be refunded to
the Debtor. All interest paid or agreed to be paid to the Holder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full period until payment in full of the principal so
that the interest on the Receivables Loan for such full period shall not exceed
the Maximum Rate. Debtor agrees that in determining whether or not any
interest payment under the Security
<PAGE> 13
Documents exceeds the Maximum Rate, any non-principal payment (except payments
specifically described in the Security Documents as "interest") including
without limitation, prepayment fees and late charges, shall to the maximum
extent not prohibited by law, be an expense, fee or premium rather than
interest. The Holder hereby expressly disclaims any intent to contract for,
charge or receive interest in an amount which exceeds the Maximum Rate. The
provisions of this Note are hereby modified to the extent necessary to conform
with the limitations and provisions of this paragraph.
Time is of the essence for the performance and observance of each
agreement and obligation of the Debtor under this Note and under the Security
Documents.
This Note also evidences Debtor's obligation to repay with interest
all additional moneys advanced or expended from time to time by the Holder to
or for the account of the Debtor or otherwise to be added to the principal
balance hereof as provided in any of the Security Documents, whether or not the
principal amount hereof shall thereby exceed the principal amount above stated.
The Debtor and all sureties, endorsers, guarantors and all other
parties now or hereafter liable for the payment of this Note, in whole or in
part, hereby severally waive presentment for payment, demand and protest and
notice of protest, acceleration, or dishonor and non-payment of this Note, and
expressly consent to any extension of time of payment hereof or of any
installment hereof, to the release of any party liable for this obligation, to
the release, change or modification of any of the Collateral, and any such
extension, modification or release may be made without notice to any of said
parties and without in any way affecting or discharging this liability.
No single or partial exercise of any power hereunder, under the
Agreement or under any other Security Document shall preclude other or further
exercise thereof or the exercise of any other power. The Holder shall at all
times have the right to proceed against any portions of the Collateral in such
order and in such manner as the Holder may deem appropriate, without waiving
any rights with respect to any other security. No delay or omission on the
part of the Holder in exercising any right or remedy hereunder or the
acceptance of one or more installments from any person after a default
hereunder, under the Agreement or under any other Security Document shall
operate as a waiver of such right or remedy in connection with any future
default.
In the event any one or more of the provisions contained in this Note
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
<PAGE> 14
The Holder is hereby authorized by the Debtor to record in the manual
or data processing records of the Holder, or on the grid schedule annexed to
this Note, the date and amount of each Receivables Advance extended to the
Debtor by the Lender hereunder and the date and amount of each repayment of
principal and each payment of interest on account of the Receivable Loan. In
the absence of manifest error, such records and schedule shall be conclusive as
to the outstanding principal amount of all Receivables Advances and the payment
of interest accrued hereunder; provided, however, that the failure of the
Holder to make any such record entry with respect to any Receivables Advance or
any payment in respect of the Receivables Loan shall not limit or otherwise
affect the obligations of the Debtor under this Note or the other Security
Documents.
THIS NOTE AND ALL TRANSACTIONS HEREUNDER OR EVIDENCED HEREIN SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
OF THE STATE OF COLORADO.
The Debtor has caused this Note to be signed in its corporate name by
its duly authorized officer on the date first above written.
STEAMBOAT SUITES, INC.
By: ________________________________
Name:
Title:
[CORPORATE SEAL]
MHC0810
<PAGE> 1
EXHIBIT 10.90
AMENDMENT NO. 13 TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 13 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT is entered into as of this 13th day of December, 1995, by
and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower").
R E C I T A L S
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated Loan Agreement")
that evidences a loan from GREFCO to Borrower (the "Modified Loan") that is
secured by, among other things, Receivables Collateral.
B. The Modified Loan and Restated Loan Agreement were
amended by an Amendment Number One to Amended and Restated Loan and Security
Agreement dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"); by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated as of April 15, 1994 (the "Eighth Amendment"), by an Amendment
No. 9 to Amended and Restated Loan and Security Agreement dated as of August
31, 1994 (the "Ninth Amendment"), by an Amendment No. 10 to Amended and
Restated Loan and Security Agreement dated as of January 26, 1995 ("Tenth
Amendment"), by an Amendment No. 11 to Amended and Restated Loan and Security
Agreement dated as of September 22, 1995 (the "Eleventh Amendment"), and by an
Amendment No. 12 to Amended and Restated Loan and Security Agreement dated as
of September 29, 1995 (the "Twelfth Amendment"). The Restated Loan Agreement,
the First Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the
Eighth Amendment, the Ninth Amendment, the Tenth Amendment, the Eleventh
Amendment, the Twelfth Amendment and this Thirteenth Amendment and all other
documents evidencing or executed in connection with the Loan are referred to
hereinafter as the "Loan Documents." The Restated Loan Agreement, as amended
by the First Amendment, Second Amendment, Third Amendment, Fourth Amendment,
Fifth Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment, Tenth Amendment, Eleventh Amendment and Twelfth Amendment is
referred to hereinafter as the "Loan Agreement." The Loan contemplated by the
Loan Agreement, as amended by this Thirteenth Amendment, is referred to
hereinafter as the "Loan." All capitalized terms used in this Thirteenth
Amendment will have the
<PAGE> 2
meanings assigned to such terms in the Loan Agreement unless those terms are
otherwise defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO was
liquidated into GFC. Further, pursuant to such plan of liquidation, GREFCO
assigned the Note and all of GREFCO's rights under the Loan Agreement and other
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Borrower has requested and Lender has agreed to
further modify the Loan in accordance with the terms of, and subject to the
conditions contained in, this Thirteenth Amendment.
E. Borrower has requested and Lender has agreed (in
accordance with and subject to the terms of this Thirteenth Amendment), as part
of the Loan under the Loan Agreement, to increase the amount of the Mortgage
Loan Facility portion of the Loan used by Borrower to finance the acquisition
and refurbishment of timeshare resorts from $6,500,000 to $12,000,000.
F. Borrower has also requested and Lender has agreed to
fund (pursuant to the terms and conditions of this Thirteenth Amendment)
additional Advances under the Mortgage Loan Facility to finance the acquisition
and renovation of two (2) additional timeshare resort facilities located at:
(i) 171 Winnick Avenue, Las Vegas, Nevada, consisting of 22 timeshare units,
more particularly described in Exhibit "A" attached hereto (the "Winnick
Building Addition"), and (ii) 190-196 Ida Avenue, Las Vegas, Nevada, consisting
of 24 timeshare units, more particularly described in Exhibit "B" attached
hereto (the "Ida Building Addition").
G. Borrower has also requested and Lender has agreed, in
accordance with and subject to the terms and conditions contained in the Loan
Agreement, as modified by this Thirteenth Amendment, to finance the cost of the
expansion and renovation of the lobby in that timeshare resort facility owned
by Borrower and known as "The Towers," which is more particularly described in
Exhibit "C" attached hereto (the "Towers"). Such Advances shall be made under
the Mortgage Loan Facility.
H. Borrower has also requested and Lender has agreed, in
accordance with and subject to the conditions contained in the Loan Agreement,
as modified by this Thirteenth Amendment, to make Advances of the Loan, from
time to time, against Instruments or Contracts arising from the Winnick
Building Addition and the Ida Building Addition.
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Thirteenth Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which consideration is
hereby acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent described
- 2 -
<PAGE> 3
in Paragraph 12 of this Thirteenth Amendment are met to the satisfaction of
Lender, which satisfaction will be evidenced by Lender's execution of this
Thirteenth Amendment unless otherwise provided herein, the Loan Agreement is
hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by adding to Article I the
following definitions:
"Ida Building Addition": shall have the meaning set forth in the Recitals of
the Thirteenth Amendment.
"Ida Building Addition Acquisition Advance": shall
have the meaning set forth in Paragraph 4 of the Thirteenth Amendment.
"Ida Building Addition Deed of Trust": shall have the meaning set forth in
Paragraph 10 of the Thirteenth Amendment.
"Ida Building Addition Incentive Fee": shall mean
the Incentive Fee provided for in Paragraph 11.4.2 of the Thirteenth
Amendment.
"Ida Building Addition Note": shall have the meaning
set forth in Paragraph 8.1 of the Thirteenth Amendment.
"Ida Building Addition Release Fee": shall have the
meaning set forth in Paragraph 11.2 of the Thirteenth Amendment.
"Ida Building Addition Renovation Advances": shall
have the meaning set forth in Paragraph 5 of the Thirteenth Amendment.
"Thirteenth Amendment": shall mean this Amendment
No. 13 to Amended and Restated Loan and Security Agreement.
"Towers Advances": shall have the meaning set forth
in Paragraph 6 of the Thirteenth Amendment.
"Towers Note": shall have the meaning set forth in
Paragraph 9 of the Thirteenth Amendment.
"Towers Note Principal Reduction Fee": shall have
the meaning set forth in Paragraph 9.3 of the Thirteenth Amendment.
"Towers Lobby Expansion": shall have the meaning set
forth in Paragraph 6 of the Thirteenth Amendment.
"Winnick Building Addition": shall have the meaning
set forth in the Recitals of the Thirteenth Amendment.
"Winnick Building Addition Acquisition Advance":
shall have the meaning set forth in Paragraph 2 of the Thirteenth
Amendment.
- 3 -
<PAGE> 4
"Winnick Building Addition Deed of Trust": shall
have the meaning set forth in Paragraph 10 of the Thirteenth
Amendment.
"Winnick Building Addition Incentive Fee": shall
mean the Incentive Fee provided for in Paragraph 11.4.1 of the
Thirteenth Amendment.
"Winnick Building Addition Note": shall have the
meaning set forth in Paragraph 7.1 of the Thirteenth Amendment.
"Winnick Building Addition Renovation Advances":
shall have the meaning set forth in Paragraph 3 of the Thirteenth
Amendment.
"Winnick Building Addition Release Fee": shall have
the meaning set forth in Paragraph 11.1 of the Thirteenth Amendment.
1.2 The definitions of the following terms in
Article I of the Loan Agreement, including, to the extent applicable, the First
Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth
Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment, Tenth Amendment, Eleventh Amendment and Twelfth Amendment are hereby
amended and restated in their entirety to read as follows:
"Documents": shall mean the Note, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh
Amendment, the Eighth Amendment, the Ninth Amendment, the Tenth
Amendment, the Eleventh Amendment, the Twelfth Amendment, the
Thirteenth Amendment, the 2.5 MM Note, the Suites Phase II Note, the
Ida Building One Note, the Ida Building Two Note, the Aloha Bay Phase
I Note, the Aloha Bay Phase II Note, the Winnick Building Addition
Note, the Ida Building Addition Note, the Towers Note, the Guarantee,
the Deed of Trust, the Headquarters Deed of Trust, the Ida Building
One Deed of Trust, the Ida Building Two Deed of Trust, the Aloha Bay
Phase I Mortgage, the Aloha Bay Phase II Mortgage, the Winnick
Building Addition Deed of Trust, the Ida Building Addition Deed of
Trust, the Assignments, the Contracts, the Instruments, the Agency
Agreement, the Oversight Agreement, this Agreement, and all other
documents and instruments executed in connection with the Loan,
together with any and all renewals, extensions, amendments,
restatements or replacements thereof, whether now or hereafter
existing.
"Mortgage Loan Facility": shall mean that portion of
the Loan not to exceed $12,000,000 under which Advances may be made to
Borrower on a revolving basis in order to finance Borrower's
acquisition and refurbishment of time-share resorts. The Advances
made under the Mortgage Loan Facility include the First Suites Phase
II Loan Advance, the Second Suites Phase II Loan Advance, the Ida
Building One Acquisition Advance, the Ida Building Two Acquisition
Advance, the Winnick Building Addition Acquisition Advance, the
Winnick Building Addition Renovation Advances, the Ida Building
Addition Acquisition Advance, the Ida Building Addition Renovation
Advances, the Towers Advances and any other Advances made by Lender to
Borrower after the date of the Thirteenth Amendment to finance
Borrower's acquisition and
- 4 -
<PAGE> 5
refurbishment of time-share resorts, exclusive of the following
Advances which are not included within the Mortgage Loan Facility:
the Receivables Over-Advances as provided for in the Tenth Amendment,
the Aloha Bay Phase I Acquisition Advance, Aloha Bay Phase I
Renovation Advances, the Aloha Bay Phase II Acquisition Advance, Aloha
Bay Phase II Construction Advances, and the Advances evidenced by the
2.5 MM Note.
"Project": shall mean each of the Winnick Building
Addition (as defined in the Thirteenth Amendment), Ida Building
Addition (as defined in the Thirteenth Amendment), Aloha Bay Phase I
(as defined in the Eleventh Amendment), Aloha Bay Phase II (as defined
in the Eleventh Amendment), Ida Building One (as defined in the Tenth
Amendment), Ida Building Two (as defined in the Tenth Amendment),
South Park Ranches (as defined in the Ninth Amendment), Suites Phase
II (as defined in the Eighth Amendment), Fountains (as defined in the
Sixth Amendment), Winnick (as defined in the Sixth Amendment), Suites
Phase I (as defined in the Fourth Amendment) and those certain real
estate developments which are owned by the Borrower or the Trustee,
located in Nye County and Clark County in the State of Nevada, and
Huerfano County in the State of Colorado, which are more particularly
described in Exhibit "P-1" to the First Amendment.
"Ida Building One Deed of Trust": shall mean the Ida
Building One Deed of Trust, as modified and amended pursuant to that
First Modification of Deed of Trust [Ida Building One] recorded
November 22, 1995 in Book 951122 as Instrument No. 01278, Official
Records of Clark County, Nevada, and by that Second Modification of
Deed of Trust [Ida Building One] described in Paragraph 9.3 of the
Thirteenth Amendment.
"Ida Building Two Deed of Trust": shall mean the Ida
Building Two Deed of Trust, as modified and amended pursuant to that
First Modification of Deed of Trust [Ida Building Two] described in
Paragraph 9.3 of the Thirteenth Amendment.
1.3 The term "Borrowing Term," as defined in
Article I of the Loan Agreement, is hereby amended by including therein the
periods of time during which Lender is committed to make Advances under the
Loan Agreement, as amended by the Thirteenth Amendment, with respect to the
properties described in this Paragraph 1.3, which commitment shall terminate
(a) as to the Winnick Building Addition, on October 31, 1996; (b) as to the Ida
Building Addition, on October 31, 1996; and (c) as to the Towers Lobby
Expansion, on October 31, 1996.
1.4 The introductory subparagraph of Paragraph
3.1 of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
"3.1(a) As security for Borrower's payment and
Performance of all Obligations owed to Lender under the Documents
(including, without limitation, the 2.5 MM Note, the Suites Phase II
Note, the Ida Building One Note, the Ida Building Two Note, the Aloha
Bay Phase I Note (subject to the limitations set forth in the Aloha Bay
Phase I Mortgage with respect to Aloha Bay Phase I), the Aloha Bay
Phase II Note (subject to the limitations set forth in
- 5 -
<PAGE> 6
the Aloha Bay Phase II Mortgage with respect to Aloha Bay Phase II),
the Winnick Building Addition Note, the Ida Building Addition Note,
and the Towers Note, Borrower hereby grants, transfers and assigns to
Lender a Security Interest in and to all of Borrower's right, title
and interest in and to all of the following:"
1.5 The introductory subparagraph of Paragraph
3.1(b) of the Loan Agreement (which was added to the Loan Agreement pursuant to
the Fourth Amendment) is hereby amended and restated in its entirety to read as
follows:
"(b) As further security for Borrower's payment
and Performance of all Obligations owed to Lender under the Documents
(including, without limitation, the 2.5 MM Note, the Suites Phase II
Note, the Ida Building One Note, the Ida Building Two Note, the Aloha
Bay Phase I Note (subject to the limitations set forth in the Aloha
Bay Phase I Mortgage with respect to Aloha Bay Phase I), the Aloha Bay
Phase II Note (subject to the limitations set forth in the Aloha Bay
Phase II Mortgage with respect to Aloha Bay Phase II), the Winnick
Building Addition Note, the Ida Building Addition Note, and the Towers
Note, Borrower hereby grants, transfers and assigns to Lender a
Security Interest in and to all of Borrower's right, title and
interest in and to all of the following:"
1.6 Paragraph 7.2 of the Loan Agreement is hereby
amended by adding the phrase "(exclusive of the aggregate outstanding principal
balance of the 2.5 MM Note, the Suites Phase II Note, the Ida Building One
Note, the Ida Building Two Note, the Aloha Bay Phase I Note, the Aloha Bay
Phase II Note, the Winnick Addition Note, the Ida Building Addition Note, and
the Towers Note)" immediately following the word "Loan" at both places where
the term "Loan" appears in the first sentence thereof.
1.7 Paragraph 9.1(a) of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"(a) Lender fails to receive from Borrower when
due and payable (i) any amount that Borrower is obligated to pay on
the Note, (ii) any amount that Borrower is obligated to pay on the 2.5
MM Note, (iii) any amount that Borrower is obligated to pay on the
Suites Phase II Note, (iv) any amount that Borrower is obligated to
pay on the Ida Building One Note, (v) any amount that Borrower is
obligated to pay on the Ida Building Two Note, (vi) any amount that
Borrower is obligated to pay on the Aloha Bay Phase I Note, (vii) any
amount that Borrower is obligated to pay on the Aloha Bay Phase II
Note, (viii) any amount that Borrower is obligated to pay on the
Winnick Building Addition Note, (ix) any amount that Borrower is
obligated to pay on the Ida Building Addition Note, (x) any amount
that Borrower is obligated to pay on the Towers Note, or (xi) any
other payment due under the Documents; and such failure shall continue
for five (5) days after notice thereof to Borrower, except for the
payment of the final installment due under each of the Note, the 2.5
MM Note, the Suites Phase II Note, the Ida Building One Note, the Ida
Building Two Note, the Aloha Bay Phase I Note, the Aloha Bay Phase II
Note, the Winnick Building Addition Note, the Ida Building Addition
Note, or the Towers Note, for which
- 6 -
<PAGE> 7
no grace period is allowed;"
2. WINNICK BUILDING ADDITION ACQUISITION ADVANCE. As an
Advance against the Maximum Loan Amount and the Mortgage Loan Facility, Lender
shall make a loan (the "Winnick Building Addition Acquisition Advance") to
Borrower in an amount equal to the lesser of (a) $1,350,000, or (b) 90% of the
bona fide costs and expenses incurred or to be incurred by Borrower in
acquiring the Winnick Building Addition, as established by evidence
satisfactory to Lender (exclusive of any overhead of or profits to Borrower or
any of the Control Group). The following terms and conditions shall apply to
the Winnick Building Addition Acquisition Advance:
2.1 At such time as all conditions with respect
to the Winnick Building Addition Acquisition Advance in this Thirteenth
Amendment have been satisfied in Lender's discretion, Lender shall disburse the
Winnick Building Addition Acquisition Advance to Borrower in a single Advance
on a date mutually agreeable to the parties hereto; provided , however, that
Lender shall have no obligation to disburse any portion of the Winnick Building
Addition Acquisition Advance after January 21, 1996.
2.2 Borrower shall use the proceeds of the
Winnick Building Addition Acquisition Advance to pay for a portion of
Borrower's costs in purchasing the Winnick Building Addition.
2.3 Borrower shall pay to Lender the Mortgage
Loan Commitment Fee applicable to the Winnick Building Addition Acquisition
Advance simultaneously with such Advance.
3. WINNICK BUILDING ADDITION RENOVATION ADVANCES. As an
Advance against the Maximum Loan Amount and the Mortgage Loan Facility, Lender
shall make a loan (the "Winnick Building Addition Renovation Advances") to
Borrower, in a total amount not to exceed the lesser of (a) $750,000 or (b) 90%
of the total bona fide out-of-pocket costs and expenses incurred by Borrower
through the date of such Advance in renovating the Winnick Building Addition,
as established by evidence satisfactory to Lender (exclusive of any overhead of
or profits to Borrower or any of the Control Group (for the purposes of the
foregoing, the term "overhead" shall not be deemed to include reasonable and
customary salaries paid to employees of Borrower performing renovations with
respect to the Winnick Building Addition)). Borrower shall use the proceeds of
any Winnick Building Addition Renovation Advances to reimburse Borrower for
Borrower's costs incurred in renovating and refurbishing the Winnick Building
Addition. Lender shall have no obligation to fund any Winnick Building
Addition Renovation Advances until such time as all conditions with respect
thereto in this Thirteenth Amendment have been satisfied in Lender's
discretion, and Lender shall have no obligation to make any further Winnick
Building Addition Renovation Advances after October 31, 1996.
4. IDA BUILDING ADDITION ACQUISITION ADVANCE. As an
Advance against the Maximum Loan Amount and the Mortgage Loan Facility, Lender
shall make a loan (the "Ida Building Addition Acquisition Advance") to Borrower
in an amount equal to the lesser of (a) $825,000, or (b) 90% of the total bona
fide out-of-pocket costs
- 7 -
<PAGE> 8
and expenses to Borrower in acquiring the Ida Building Addition, as established
by evidence satisfactory to Lender (exclusive of any overhead of or profits to
Borrower or any of the Control Group). The following terms and conditions
shall apply to the Ida Building Addition Acquisition Advance:
4.1 At such time as all conditions with respect
to the Ida Building Addition Acquisition Advance in this Thirteenth Amendment
have been satisfied in Lender's discretion, Lender shall disburse the Ida
Building Addition Acquisition Advance to Borrower in a single advance on a date
mutually agreeable to the parties hereto; provided, however, that Lender shall
have no obligation to disburse any portion of the Ida Building Addition
Acquisition Advance after December 21, 1995.
4.2 Borrower shall use the proceeds of the Ida
Building Addition Acquisition Advance to pay for a portion of its costs in
purchasing the Ida Building Addition.
4.3 Borrower shall pay the Mortgage Loan
Commitment Fee applicable to the Ida Building Addition Acquisition Advance
simultaneously with the making of such Advance.
5. IDA BUILDING ADDITION RENOVATION ADVANCES. As an
Advance against the Maximum Loan Amount and the Mortgage Loan Facility, Lender
shall make a loan (the "Ida Building Addition Renovation Advances") to Borrower
in a total amount equal to the lesser of (a) $675,000, or (b) 90% of the total
bona fide out-of-pocket costs and expenses incurred by Borrower through the
date of such Advance in renovating the Ida Building Addition, as established by
evidence satisfactory to Lender (exclusive of any overhead of or profits to
Borrower or any of the Control Group (for the purposes of the foregoing, the
term "overhead" shall not be deemed to include reasonable and customary
salaries paid to employees of Borrower performing renovations with respect to
the Ida Building Addition)). Borrower shall use the proceeds of any Ida
Building Addition Renovation Advances to reimburse Borrower for Borrower's
costs incurred in renovating and refurbishing the Ida Building Addition.
Lender shall have no obligation to fund any Ida Building Addition Renovation
Advances until such time as all conditions with respect thereto in this
Thirteenth Amendment have been satisfied in Lender's discretion, and Lender
shall have no obligation to make any further Ida Building Addition Renovation
Advances after October 31, 1996.
6. TOWERS ADVANCES. As an Advance against the Maximum
Loan Amount and the Mortgage Loan Facility, Lender shall make a loan (the
"Towers Advances") to Borrower in a total amount not to exceed the lesser of:
(a) $700,000, or (b) 90% of the bona fide out-of- pocket costs and expenses
incurred by Borrower through the date of such Advance in expanding, renovating
and refurbishing the main lobby area within the Towers (the "Towers Lobby
Expansion"), as established by evidence satisfactory to Lender (exclusive of
any overhead of or profits to Borrower or any of the Control Group (for the
purposes of the foregoing, the term "overhead" shall not be deemed to include
reasonable and customary salaries paid to employees of Borrower performing
renovations in connection with the Towers Lobby Expansion)). Borrower shall
use the proceeds of any Towers Advances to reimburse Borrower for Borrower's
costs incurred in performing the Towers Lobby Expansion. Lender shall
- 8 -
<PAGE> 9
have no obligation to fund any Towers Advances until such time as all
conditions with respect thereto in this Thirteenth Amendment have been
satisfied in Lender's discretion, and Lender shall have no obligation to make
any further Towers Advances after October 31, 1996.
7. WINNICK BUILDING ADDITION NOTE.
7.1 The Winnick Building Addition Acquisition
Advance and Winnick Building Addition Renovation Advances made with respect to
the Winnick Building Addition shall be evidenced by a single Promissory Note
(the "Winnick Building Addition Note") of Borrower, in a form acceptable to
Lender, executed and delivered to Lender simultaneously with Borrower's request
for the Winnick Building Addition Acquisition Advance, in the amount of up to
$2,100,000, payable to Lender upon the terms and conditions contained herein
and therein. Lender and Borrower hereby agree that, notwithstanding any
provision to the contrary in the Loan Agreement, the terms and conditions of
the Winnick Building Addition Note and this Paragraph 7 shall apply with
respect to repayment of the Winnick Building Addition Note. To the extent that
Borrower's indebtedness to Lender arising from the Winnick Building Addition
Note is evidenced by both the Note (as distinguished from the Winnick Building
Addition Note) and the Winnick Building Addition Note, receipts by Lender in
payment or satisfaction of such indebtedness (including receipt by Lender of
Winnick Building Addition Release Fees as provided in Paragraph 11.1 hereof)
shall be credited against sums due under both the Note and the Winnick Building
Addition Note and/or any judgment entered thereon.
7.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have the right to prepay the
Winnick Building Addition Note only in the event and upon the condition that
Borrower (a) pays all sums due and payable to Lender in connection with the
Winnick Building Addition Note, (b) has given Lender at least thirty (30) days
prior written notice of the prepayment, and (c) pays to Lender at the time of
prepayment a prepayment premium equal to one percent (1%) of the then unpaid
principal balance of the Winnick Building Addition Note, together with any
unpaid portion of the Winnick Building Addition Incentive Fee as described in
Paragraph 11.4.1 below. Except as provided in the foregoing, Borrower shall
have no right to prepay the Winnick Building Addition Note, other than through
the application of Winnick Building Addition Release Fees against the principal
balance thereof, as provided in Paragraph 7.3 hereof.
7.3 The principal balance of the Winnick Building
Addition Note shall be repaid as follows: At such time as Borrower conveys a
Unit in the Winnick Building Addition to a Purchaser, Borrower shall make a
principal reduction payment to Lender under the Winnick Building Addition Note
in an amount equal to the Winnick Building Addition Release Fee.
Notwithstanding anything herein to the contrary, if not sooner paid, the entire
remaining balance of the Winnick Building Addition Note, together with all
accrued and unpaid interest and all other sums due and owing thereon, shall be
due and payable in full on the date which occurs twenty-four (24) months
following the date that Lender makes the last Winnick Building Renovation
Advance (or in the event there is no such day in the 24th month, on the last
day of such month). Winnick Building Addition Release Fees paid to Lender in
connection with the release of Units from the Security Interests shall be
applied toward the next principal
- 9 -
<PAGE> 10
installment to become due under the Winnick Building Addition Note.
8. IDA BUILDING ADDITION NOTE.
8.1 The Ida Building Addition Acquisition Advance
and Ida Building Addition Renovation Advances made with respect to Ida Building
Addition shall be evidenced by a single Promissory Note (the "Ida Building
Addition Note") of Borrower, in a form acceptable to Lender, executed and
delivered to Lender simultaneously with Borrower's request for the Ida Building
Addition Acquisition Advance, in the amount of up to $1,500,000, payable to
Lender upon the terms and conditions contained herein and therein. Lender and
Borrower hereby agree that, notwithstanding any provision to the contrary in
the Loan Agreement, the terms and conditions of the Ida Building Addition Note
and this Paragraph 8 shall apply with respect to repayment of the Ida Building
Addition Note. To the extent that Borrower's indebtedness to Lender arising
from the Ida Building Addition Note is evidenced by both the Note (as
distinguished from the Ida Building Addition Note) and the Ida Building
Addition Note, receipts by Lender in payment or satisfaction of such
indebtedness (including receipt by Lender of Ida Building Addition Release Fees
as provided in Paragraph 11.2 hereof) shall be credited against sums due under
both the Note and the Ida Building Addition Note and/or any judgment entered
thereon.
8.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have the right to prepay the Ida
Building Addition Note only in the event and upon the condition that Borrower
(a) pays all sums due and payable to Lender in connection with the Ida Building
Addition Note, (b) has given Lender at least thirty (30) days prior written
notice of the prepayment, and (c) pays to Lender at the time of prepayment a
prepayment premium equal to one percent (1%) of the then unpaid principal
balance of the Ida Building Addition Note, together with any unpaid portion of
the Ida Building Addition Incentive Fee as described in Paragraph 11.4.2 below.
Except as provided in the foregoing, Borrower shall have no right to prepay the
Ida Building Addition Note, other than through the application of Ida Building
Addition Release Fees against the principal balance thereof, as provided in
Paragraph 8.3 hereof.
8.3 The principal balance of the Ida Building
Addition Note shall be repaid as follows: At such time as Borrower conveys a
Unit in the Ida Building Addition to a Purchaser, Borrower shall make a
principal reduction payment to Lender under the Ida Building Addition Note in
an amount equal to the Ida Building Addition Release Fee. Notwithstanding
anything herein to the contrary, if not sooner paid, the entire remaining
balance of the Ida Building Addition Note, together with all accrued and unpaid
interest and all other sums due and owing thereon, shall be due and payable in
full on ) the date which occurs twenty-four (24) months following the date that
Lender makes the last Ida Building Addition Renovation Advance (or in the event
there is no such day in the 24th month, on the last day of such month). Ida
Building Addition Release Fees paid to Lender in connection with the release of
Units from the Security Interests shall be applied toward the next principal
installment to become due under the Ida Building Addition Note.
9. TOWERS NOTE.
- 10 -
<PAGE> 11
9.1 The Towers Advances made with respect to the
Towers Lobby Expansion shall be evidenced by a single promissory note (the
"Towers Note") of Borrower, in a form acceptable to Lender, executed and
delivered to Lender simultaneously with the execution of this Thirteenth
Amendment, in the amount of up to $700,000, payable to Lender upon the terms
and conditions contained herein and therein. Lender and Borrower hereby agree
that, notwithstanding any provision to the contrary in the Loan Agreement, the
terms and conditions of the Towers Note and this Paragraph 9 shall apply with
respect to repayment of the Towers Note. To the extent that Borrower's
indebtedness to Lender arising from the Towers Note is evidenced by both the
Note (as distinguished from the Towers Note) and the Towers Note, receipts by
Lender in payment or satisfaction of such indebtedness (including receipt by
Lender of Towers Note Principal Reduction Fees as provided in Paragraph 9.3
hereof) shall be credited against sums due under both the Note and the Towers
Note and/or any judgment entered thereon.
9.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have the right to prepay the Towers
Note only in the event and upon the condition that Borrower (a) pays all sums
due and payable to Lender in connection with the Towers Note, (b) has provided
Lender with at least thirty (30) days prior written notice of the prepayment,
and (c) pays to Lender at the time of prepayment a prepayment premium equal to
one percent (1%) of the then unpaid principal balance of the Towers Note.
Except as provided in the foregoing, Borrower shall have no right to prepay the
Towers Note, other than through the application of Towers Note Principal
Reduction Fees against the principal balance thereof, as provided in Paragraph
9.3 hereof.
9.3 The principal balance of the Towers Note
shall be repaid as follows: At such time as Borrower conveys a Unit in Suites
Phase II, Ida Building One, Ida Building Two, the Winnick Building Addition, or
the Ida Building Addition, to a Purchaser at any time after (a) thirty (30)
days after the last Towers Advance is made to Borrower, or (b) November 30,
1996, whichever occurs first, Borrower shall make a principal reduction payment
to Lender under the Towers Note in an amount equal to $200 (the "Towers Note
Principal Reduction Fee"). The Towers Note Principal Reduction Fee shall be
paid to Lender simultaneously with the payment of the Suites Phase II Release
Fee, Ida Building One Release Fee, Ida Building Two Release Fee, Winnick
Building Addition Release Fee or the Ida Building Addition Release Fee, as the
case may be, until the Towers Note is paid in full, whereupon the Towers Note
Principal Reduction Fee shall no longer be required to be paid in connection
with the foregoing described release fees. Simultaneously with the execution
of this Thirteenth Amendment, Borrower shall execute and deliver to Lender
appropriate modifications to the Ida Building One Deed of Trust (the "Second
Modification of Deed of Trust [Ida Building One]") and the Ida Building Two
Deed of Trust (the "First Modification of Deed of Trust [Ida Building Two]")
which shall incorporate the provisions of this Paragraph 9.3 relating to the
payment of the Towers Note Principal Reduction Fee together with the release
fees payable by Borrower under such deeds of trust as prerequisites to the
release of Units in Ida Building One and Ida Building Two, respectively.
Notwithstanding anything herein to the contrary, if not sooner paid, the entire
remaining balance of the Towers Note, together with all accrued and unpaid
interest and all other sums due and owing therein, shall be due and payable in
full on the earlier of (a) the date which occurs twenty-five (25) months
following the date that
- 11 -
<PAGE> 12
Lender makes the last Towers Advance (or in the event there is no such day in
the 25th month, on the last day of such month), or (b) November 30, 1998.
Towers Note Principal Reduction Fees paid to Lender in connection with the
release of Units from the Security Interests shall be applied toward the next
principal installment to become due under the Towers Note.
10. SECURITY. As provided in Paragraphs 3.1(a) and (b)
of the Loan Agreement, the payment and Performance of the Winnick Building
Addition Note, the Ida Building Addition Note and the Towers Note shall be
secured by the Security Interests granted to Lender pursuant to the Loan
Agreement, as amended. Furthermore, pursuant to a separate Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement with respect to the
Winnick Building Addition, in a form acceptable to Lender (referred to herein
as the "Winnick Building Addition Deed of Trust"), and a separate Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement with respect to
Ida Building Addition (the "Ida Building Addition Deed of Trust"), the payment
and Performance of the Winnick Building Addition Note and Ida Building Addition
Note, respectively, and all other obligations owed to Lender under the
Documents shall be secured by a first priority lien on and security interest in
the Winnick Building Addition and Ida Building Addition; all buildings and
other improvements now or hereafter erected thereon; all fixtures, equipment
and other personal property now or hereafter located on or attached or affixed
in any manner to the Winnick Building Addition and Ida Building Addition; all
leases, income, rents, royalties, revenues, issues, profits or proceeds from
Winnick Building Addition and Ida Building Addition; and other items of
collateral in connection therewith, all as more fully set forth in the Winnick
Building Addition Deed of Trust and Ida Building Addition Deed of Trust.
11. RELEASES.
11.1 Lender hereby agrees that it will release
from the effect of the Security Interests granted herein and in the Winnick
Building Addition Deed of Trust, and from the effect of any UCC Financing
Statement, Units in the Winnick Building Addition which are sold by Borrower
upon (a) the payment to Lender of a release fee (the "Winnick Building Addition
Release Fee") equal to $2,500 per Unit, (b) the payment of an Incentive Fee (as
provided in Paragraph 11.4.1 below) in the amount of $20 per Unit until such
time as Borrower has repaid the Winnick Building Addition Note in full, and
thereafter in the amount of $2,500 per Unit until such time as Borrower has
paid to Lender a total Incentive Fee as to Winnick Building Addition of
$22,440, all as provided in Paragraph 11.4.1 below, (c) if applicable, the
payment to Lender of the Towers Note Principal Reduction Fee in the amount of
$200.00, and (d) the satisfaction of the Release Conditions (as defined in
Paragraph 11.3 below). Payments of interest due under the Winnick Building
Addition Note shall not be credited against any Winnick Building Addition
Release Fees.
11.2 Lender hereby agrees that it will release
from the effect of the Security Interests granted herein and in the Ida
Building Addition Deed of Trust, and from the effect of any UCC Financing
Statement, Units in the Ida Building Addition which are sold by Borrower upon
(a) the payment to Lender of a release fee (the "Ida Building Addition Release
Fee") equal to $1,650 per Unit, (b) the payment of an Incentive Fee (as
provided in Paragraph 11.4.2 below) in the amount of $20 per Unit
- 12 -
<PAGE> 13
until such time as Borrower has repaid the Ida Building Addition Note in full,
and thereafter in the amount of $1,650 per Unit until such time as Borrower has
paid to Lender a total Incentive Fee as to Ida Building Addition of $24,480,
all as provided in Paragraph 11.4.2 hereof, (c) if applicable, the payment to
Lender of the Towers Note Principal Reduction Fee in the amount of $200.00, and
(d) the satisfaction of the Release Conditions. Payments of interest due under
the Ida Building Addition Note shall not be credited against any Ida Building
Addition Release Fees.
11.3 The Release Conditions are as follows:
(i) No Event of Default shall have occurred or be
continuing and no event shall then exist, which with notice, passage
of time or both would constitute an Event of Default;
(ii) The Unit to be released must have been sold
by Borrower in the ordinary course of Borrower's business in a bona
fide arms-length transaction;
(iii) The Purchaser of the Unit shall not be
affiliated with Borrower or with any of the Control Group;
(iv) Lender shall have received a written request
for such release in which Borrower certifies as to compliance with
items (i) through (iii) above, and further certifies that all other
requirements for such release have been satisfied;
(v) Borrower has paid all of Lender's
out-of-pocket expenses incurred in connection with such release and
has submitted to Lender all necessary documents for the same.
For the purposes hereof, a person or entity shall be deemed affiliated with
Borrower or the Control Group if it is a shareholder, officer, director, agent,
employee, salesman, broker or creditor of Borrower or the Control Group, or
relative of Borrower or the Control Group or of any of the foregoing, or any
other person or entity related to or affiliated with Borrower or the Control
Group, including, without limitation, the Guarantor and any independent
contractors. No partial release of a Unit shall impair or affect Lender's
remaining Security Interests or any term or provision of the Loan Agreement.
11.4 As additional consideration to Lender,
Borrower shall pay to Lender an incentive fee (the "Incentive Fee") as follows:
11.4.1 Borrower shall pay to Lender an Incentive Fee
equal to $22,440 with respect to the Units sold in the Winnick
Building Addition or released from the Winnick Building Addition Deed
of Trust. The Incentive Fee as to the Winnick Building Addition shall
be paid in installments of $20 per Unit sold or released in Winnick
Building Addition until such time as the Borrower has repaid the
Winnick Building Addition Note in full. Thereafter, the Incentive Fee
shall be paid in installments of $2,500 per Unit sold or released in
the Winnick Building Addition until the entire Incentive Fee as to
Winnick Building
- 13 -
<PAGE> 14
Addition is paid in full. Payments of the Incentive Fee, in
installments of $20 per Unit, shall be made together with Winnick
Building Addition Release Fees described in Paragraph 11.1 above,
until the Winnick Building Addition Note is repaid in full;
thereafter, payments of the Incentive Fee as to the Winnick Building
Addition, in installments of $2,500 per Unit, shall be made at the
earlier of the conveyance to a Purchaser of each sold Unit in the
Winnick Building Addition or the release of such Unit from the Winnick
Building Addition Deed of Trust. The Incentive Fee described herein
shall be in addition to the principal and interest payments due under
the Winnick Building Addition Note. The Incentive Fee may be prepaid
in whole or in part at any time. The Incentive Fee payable pursuant
to this subparagraph is the same Incentive Fee payable under Paragraph
6.1 of the Winnick Building Addition Deed of Trust.
11.4.2 Borrower shall pay to Lender an Incentive Fee
equal to $24,480 with respect to the Units sold in the Ida Building
Addition or released from the Ida Building Addition Deed of Trust.
The Incentive Fee as to the Ida Building Addition shall be paid in
installments of $20 per Unit sold or released in the Ida Building
Addition until such time as the Ida Building Addition Note is paid in
full. Thereafter, the Incentive Fee shall be paid in installments of
$1,650 per Unit sold or released in the Ida Building Addition until
the entire Incentive Fee as to the Ida Building Addition is paid in
full. Payments of the Incentive Fee, in installments of $20 per Unit,
shall be made together with Ida Building Addition Release Fees
described in Paragraph 11.2 above, until the Ida Building Addition
Note is repaid in full; thereafter, payments of the Incentive Fee as
to the Ida Building Addition, in installments of $1,650 per Unit,
shall be made at the earlier of the conveyance to a Purchaser of each
sold Unit in the Ida Building Addition or the release of such Unit
from the Ida Building Addition Deed of Trust. The Incentive Fee
described herein shall be in addition to the principal and interest
payments due under the Ida Building Addition Note. The Incentive Fee
may be prepaid in whole or in part at any time. The Incentive Fee
payable pursuant to this subparagraph is the same Incentive Fee
payable under Paragraph 6.1 of the Ida Building Addition Deed of
Trust.
11.5 Upon the release of a Unit from the Winnick
Building Addition Deed of Trust or the Ida Building Addition Deed of Trust, as
the case may be, such release shall also constitute a release from the lien of
the Winnick Building Addition One Deed of Trust or the Ida Building Addition
Deed of Trust, respectively, and from the lien of Lender's Security Interest,
of any Purchaser Notes or Purchaser Mortgages subsequently arising from the
sale of such Unit; provided, however, that notwithstanding the foregoing, such
Purchaser Notes and Purchaser Mortgages shall continue to be subject to
Lender's Security Interest to the extent that such Purchaser Notes or Purchaser
Mortgages constitute Receivables Collateral.
11.6 At such time as the principal, interest and
all other sums payable under the Winnick Building Addition Note have been paid
in full, together with the entire Incentive Fee as to the Winnick Building
Addition, Lender shall, upon the request of Borrower, release and terminate the
Winnick Building Addition Deed of Trust and the accompanying UCC Financing
Statement and any related security interests, provided that there does not then
exist an Event of Default or any act or event which with notice, the passage of
time or both would constitute an Event of Default.
- 14 -
<PAGE> 15
All instruments effecting such release and termination shall be prepared by
Borrower and submitted to Lender unless Lender otherwise specifies in its sole
discretion. Such instruments shall be in a form and substance reasonably
satisfactory to Lender.
11.7 At such time as the principal, interest and
all other sums payable under the Ida Building Addition Note have been paid in
full, together with the entire Incentive Fee as to the Ida Building Addition,
Lender shall, upon the request of Borrower, release and terminate the Ida
Building Addition Deed of Trust and the accompanying UCC Financing Statement
and any related security interests, provided that there does not then exist an
Event of Default or any act or event which with notice, the passage of time or
both would constitute an Event of Default. All instruments effecting such
release and termination shall be prepared by Borrower and submitted to Lender
unless Lender otherwise specifies in its sole discretion. Such instruments
shall be in a form and substance reasonably satisfactory to Lender.
12. CONDITIONS PRECEDENT.
12.1 Lender's obligation to make any of the
Advances described in this Thirteenth Amendment is subject to the following
conditions precedent, all of which must be satisfied at or prior to the funding
of the first of any of such Advances:
(a) Borrower shall have delivered to Lender the
following executed documents, all in form satisfactory to Lender:
(i) This Thirteenth Amendment;
(ii) An opinion from Borrower's counsel,
which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require;
(iii) From the Guarantor of the Loan, a
"Consent of Guarantor," in a form acceptable to Lender;
(iv) A corporate resolution of Borrower;
(v) A corporate resolution of Guarantor;
(vi) The Second Modification to Deed of
Trust [Ida Building One];
(vii) The First Modification to Deed of
Trust [Ida Building Two];
(viii) Such other documents or instruments
required by Lender to fully perfect the liens and security
interests of Lender described or contemplated herein;
(ix) Such other items as Lender may
require.
- 15 -
<PAGE> 16
(b) Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Lawyers' Title Insurance Company with respect to
the Ida Building One Deed of Trust, and issued in favor of Lender by
Chicago Title Insurance Company with respect to the Ida Building Two
Deed of Trust, respectively insuring that the Ida Building One Deed of
Trust continues to be a first and prior lien on the Ida Building One,
subject only to such additional title exceptions as may be approved by
Lender, notwithstanding the effect of the recordation of the Second
Modification to Deed of Trust [Ida Building One], and that the Ida
Building Two Deed of Trust continues to be a first and prior lien on
the Ida Building Two, subject only to such additional title exceptions
as may be approved by Lender, notwithstanding the effect of the
recordation of the First Modification of Deed of Trust [Ida Building
Two].
(c) Lender shall have reviewed and approved
credit references of Borrower.
(d) Lender shall have determined that the
operations of Borrower do not violate in any material respect any
applicable laws, ordinances, rules and regulations of governmental
authorities or agencies.
(e) Unless waived in writing by Lender, Lender
shall have reviewed and approved a current UCC, tax lien, judgment and
litigation search on Borrower. The foregoing condition shall be
deemed to have been waived upon Lender's execution of this Thirteenth
Amendment.
(f) Borrower shall have paid all closing costs,
title company charges, recording fees and taxes, appraisal fees and
expenses, survey fees, travel expenses, architect/engineer inspection
fees and expenses, fees and expenses of Lender's counsel, and all
other costs and expenses incurred by Lender in connection with the
preparation, closing and disbursement of the Advances made pursuant to
this Thirteenth Amendment.
(g) Borrower shall have delivered to Lender a
fully-executed copy of the purchase agreements, and all amendments
thereto, in connection with Borrower's acquisition of the Winnick
Building Addition and Ida Building Addition.
(h) Lender shall have reviewed and approved
Borrower's budget for renovation and refurbishment of the Winnick
Building Addition and Ida Building Addition, and Borrower's budget
with respect to the Towers Lobby Expansion.
(i) Borrower shall have delivered to Lender, and
Lender shall have approved and be satisfied with, evidence of
Borrower's equity interest in each of the Winnick Building Addition
and Ida Building Addition.
12.2 Lender's obligation to make the Winnick
Building Addition Acquisition Advance or any Winnick Building Addition
Renovation Advances
- 16 -
<PAGE> 17
is subject to the following conditions precedent, all of which must be
satisfied at or prior to the funding of the Winnick Building Addition
Acquisition Advance:
(a) Borrower shall have satisfied all
of the conditions precedent set forth in Paragraph 12.1 above;
(b) Borrower shall have delivered to
Lender the following executed documents, all in form satisfactory to
Lender:
(i) Winnick Building Addition Note;
(ii) Environmental Certificate with
Representations, Covenants and Warranties with respect to the
Winnick Building Addition;
(iii) Winnick Building Addition Deed
of Trust;
(iv) UCC Financing Statements for
filing and/or recording with respect to the Winnick Building
Addition;
(v) Such other documents or
instruments required by Lender to fully perfect the liens and
security interests of Lender described or contemplated herein
with respect to the Winnick Building Addition.
(c) Borrower shall have delivered to
Lender a current Phase I Environmental Assessment for the Winnick
Building Addition performed by an environmental consultant acceptable
to Lender, indicating that the Winnick Building Addition does not
contain and is not affected by existing or potential environmental
contamination. If Lender is not satisfied with the results of the
Phase I Environmental Assessment or if Lender becomes aware of any
environmental issues impacting the Winnick Building Addition, Lender
shall have the right to require a site audit and regulatory compliance
evaluation of the Winnick Building Addition, which shall be prepared
by an environmental engineer acceptable to Lender and retained at the
cost of Borrower, and Lender's obligations hereunder shall be subject
to Lender's approval of such audit and evaluation.
(d) Borrower shall have delivered to
Lender a current ALTA survey of the Winnick Building Addition,
certified to Lender by a licensed engineer or surveyor acceptable to
Lender, showing, inter alia, the dimensions of the Winnick Building
Addition, access thereto, streets and street lines, easements,
location of all improvements and all other physical details thereof.
In addition, Borrower shall have delivered to Lender a current title
report with respect to the Winnick Building Addition from a title
insurance company acceptable to Lender and Lender shall have approved
the condition of title thereto as shown therein.
(e) Lender shall have inspected the
Winnick Building Addition and shall be satisfied as to the condition
thereof.
- 17 -
<PAGE> 18
(f) Borrower shall have obtained and
delivered to Lender, at Borrower's expense, an ALTA extended coverage
mortgagee's title insurance policy or policies acceptable to Lender,
with such endorsements as Lender may require, issued by a title
insurance company satisfactory to Lender, which shall be in the amount
of $2,122,440, and insuring that the Winnick Building Addition Deed of
Trust is a first and prior lien on the Winnick Building Addition,
subject only to title exceptions approved by Lender.
(g) Borrower shall have delivered to
Lender evidence satisfactory to Lender that the Winnick Building
Addition is not located within a special flood hazard area or evidence
satisfactory to Lender that the Winnick Building Addition is insured,
upon such terms and in such amounts as shall be satisfactory to
Lender, against risks of physical damage caused by flooding.
(h) Borrower shall have obtained such
public liability, casualty and other insurance policies covering the
Winnick Building Addition as Lender may require, written by insurers
in amounts and forms satisfactory to Lender.
(i) Borrower shall have paid the
applicable Mortgage Loan Commitment Fee in the amount required to be
paid (i) with respect to the Winnick Building Addition Acquisition
Advance, at the time the Winnick Building Addition Acquisition Advance
is made by Lender, and (ii) with respect to the Winnick Building
Addition Renovation Advances, at the time each such Winnick Building
Addition Renovation Advance is made by Lender pursuant hereto.
12.3 Lender's obligation to make the Ida Building
Addition Acquisition Advance or any Ida Building Addition Renovation Advances
is subject to the following conditions precedent, all of which must be
satisfied at or prior to the funding of the Ida Building Addition Acquisition
Advance:
(a) Borrower shall have satisfied all of
the conditions precedent set forth in Paragraph 12.1 above.
(b) Borrower shall have delivered to
Lender the following executed documents, all in form satisfactory to
Lender:
(i) Ida Building Addition Note;
(ii) Environmental Certificate with
Representations, Covenants and Warranties with respect to the
Ida Building Addition;
(iii) Ida Building Addition Deed of
Trust;
(iv) UCC Financing Statements for
filing and/or recording with respect to the Ida Building
Addition;
- 18 -
<PAGE> 19
(v) Such other documents or
instruments required by Lender to fully perfect the liens and
security interests of Lender described or contemplated herein
with respect to the Ida Building Addition.
(c) Borrower shall have delivered to
Lender a current Phase I Environmental Assessment for the Ida Building
Addition performed by an environmental consultant acceptable to
Lender, indicating that the Ida Building Addition does not contain and
is not affected by existing or potential environmental contamination.
If Lender is not satisfied with the results of the Phase I
Environmental Assessment or if Lender becomes aware of any
environmental issues impacting the Ida Building Addition, Lender shall
have the right to require a site audit of the Ida Building Addition,
which shall be prepared by an environmental engineer acceptable to
Lender and retained at the cost of Borrower, and Lender's obligations
hereunder shall be subject to Lender's approval of such audit. In
addition, Borrower shall have delivered to Lender a regulatory
compliance evaluation of the Ida Building Addition acceptable to
Lender; provided, however, that if Borrower has not delivered such
regulatory compliance evaluation by the date Borrower requests the Ida
Building Addition Acquisition Advance, then the delivery of such
evaluation shall no longer be a condition precedent to the Ida
Building Addition Acquisition Advance, but shall become a condition
subsequent which must be satisfied within forty-five (45) days after
the date of this Thirteenth Amendment.
(d) Borrower shall have delivered to
Lender a current ALTA survey of the Ida Building Addition, certified
to Lender by a licensed engineer or surveyor acceptable to Lender,
showing, inter alia, the dimensions of the Ida Building Addition,
access thereto, streets and street lines, easements, location of all
improvements and all other physical details thereof. In addition,
Borrower shall have delivered to Lender a current title report with
respect to the Ida Building Addition from a title insurance company
acceptable to Lender and Lender shall have approved the condition of
title thereto as shown therein.
(e) Lender shall have inspected the Ida
Building Addition and shall be satisfied as to the condition thereof.
(f) Borrower shall have obtained and
delivered to Lender, at Borrower's expense, an ALTA extended coverage
mortgagee's title insurance policy or policies acceptable to Lender,
with such endorsements as Lender may require, issued by a title
insurance company satisfactory to Lender, which shall be in the amount
of $1,524,480, and insuring that the Ida Building Addition Deed of
Trust is a first and prior lien on the Ida Building Addition, subject
only to title exceptions approved by Lender.
(g) Borrower shall have delivered to
Lender evidence satisfactory to Lender that the Ida Building Addition
is not located within a special flood hazard area or evidence
satisfactory to Lender that the Ida Building Addition is insured, upon
such terms and in such amounts as shall be satisfactory to Lender,
against risks of physical damage caused by flooding.
- 19 -
<PAGE> 20
(h) Borrower shall have obtained such
public liability, casualty and other insurance policies covering the
Ida Building Addition as Lender may require, written by insurers in
amounts and forms satisfactory to Lender.
(i) Borrower shall have paid the
applicable Mortgage Loan Commitment Fee in the amount required to be
paid (i) with respect to the Ida Building Addition Acquisition
Advance, at the time the Ida Building Addition Acquisition Advance is
made by Lender, and (ii) with respect to Ida Building Addition
Renovation Advances, at the time each such Ida Building Addition
Renovation Advance is made by Lender pursuant hereto.
12.4 Lender's obligation to make any Towers
Advances is subject to the following conditions precedent, all of which must be
satisfied at or prior to the funding of the initial Towers Advance:
(a) Borrower shall have satisfied all of
the conditions precedent described in Paragraph 12.1 above.
(b) Borrower shall have executed and
delivered to Lender the Towers Note in a form acceptable to Lender.
13. RECEIVABLES ADVANCES. In addition to the conditions
set forth for the effectiveness of this Thirteenth Amendment as set forth in
Paragraph 12 above, Lender's obligation to make Advances of the Loan, from time
to time, against Instruments or Contracts arising from the sale of Units in the
Winnick Building Addition or the Ida Building Addition is subject to and
conditioned upon such Instruments or Contracts qualifying as Eligible
Receivables and is furthermore subject to and conditioned upon the satisfaction
of all other conditions precedent to the making of the Advance, as set forth in
the Loan Agreement. In connection therewith, but without limiting the
generality of the foregoing, Lender's obligation to make Advances of the Loan
against Instruments or Contracts arising from the sale of Units in the Winnick
Building Addition and the Ida Building Addition is subject to Lender's receipt
and approval of copies of the registrations/consents to sell/public offering
statements/prospectuses and/or approvals thereof required to be issued by or
used in all jurisdictions in which such Units will be offered for sale.
14. COMMISSIONS. Lender shall not be obligated to pay
any loan commission and/or brokerage fee in connection with the Advances of the
Loan made pursuant to this Thirteenth Amendment. Borrower shall pay any and
all such commissions and fees, if any, and hereby agrees to indemnify, defend
and hold harmless Lender from any claim for any such commissions or fees.
Lender represents and warrants to Borrower that Lender has no knowledge of
broker involvement in the transactions contemplated by this Thirteenth
Amendment.
15. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the indebtedness in accordance with the terms of the Documents.
Borrower further acknowledges and represents that no event has occurred and no
condition presently exists that would constitute a default or event of default
by Lender under the Loan
- 20 -
<PAGE> 21
Agreement or any of the other Documents, with or without notice or lapse of
time.
16. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid, enforceable and collectable obligations of Borrower,
and that Borrower presently has no existing claims, defenses (personal or
otherwise) or rights of setoff whatsoever with respect to the Obligations of
Borrower under the Loan Agreement or any of the other Documents. Borrower
furthermore agrees that it has 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 or GREFCO.
17. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by Exhibit "D" attached hereto, Borrower hereby reaffirms to
Lender each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Documents with the same force and effect
as if each were separately stated herein and made as of the date hereof.
18. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth
Amendment, Eleventh Amendment and Twelfth Amendment and of each of the other
Documents shall continue in full force and effect and shall remain unaffected
and unchanged except as specifically amended hereby. In the event of any
conflict between the terms and conditions of this Thirteenth Amendment and any
of the other Documents, the provisions of this Thirteenth Amendment shall
control.
19. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Thirteenth Amendment.
20. EFFECTIVENESS OF AMENDMENT. This Thirteenth
Amendment shall not be effective until the same is executed and accepted by
Lender in the State of Arizona.
IN WITNESS WHEREOF, this instrument is executed as of the day
and year first above written.
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION, a
a Nevada corporation Delaware corporation
By:__________________________ By:________________________________
Donald R. Middleton, Vice President Title:_____________________________
- 21 -
<PAGE> 22
STATE OF ARIZONA )
) ss
County of Maricopa )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared DONALD R.
MIDDLETON, known to me to be the Vice President of PREFERRED EQUITIES
CORPORATION, a Nevada corporation, who acknowledged to me that the same was the
free act and deed of such corporation and that he, being authorized by proper
authority to do so, executed the same on behalf of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of ______________, 1995.
_________
Notary Public
My commission expires:
______________________________
STATE OF ARIZONA )
) ss
County of Maricopa )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared
_____________________________________________________________, known to me to
be the _____________________________ of FINOVA CAPITAL CORPORATION, a Delaware
corporation, who acknowledged to me that the same was the free act and deed of
such corporation and that s/he, being authorized by proper authority to do so,
executed the same on behalf of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of ______________, 1995.
_________
Notary Public
My commission expires:
______________________
- 22 -
<PAGE> 23
[TOWERS LOBBY]
PROMISSORY NOTE
U.S. $700,000.00 December 13, 1995
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Note ("Holder") may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of up to SEVEN
HUNDRED THOUSAND AND NO/100 DOLLARS (U.S. $700,000.00), or so much thereof as
has been disbursed and not repaid, together with interest on the unpaid
principal balance from time to time outstanding from the date hereof until
paid, as more fully provided for below.
Interest due under this Note shall (a) accrue daily on the
basis of the actual number of days in the computation period, (b) be calculated
on the basis of a year consisting of 360 days, and (c) be payable monthly in
arrears on the later of (i) ten (10) days after Lender mails an invoice or
statement therefor to Maker or (ii) the due date set forth in said invoice or
statement. Interest shall accrue initially at an annual interest rate
("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on
the date of the initial advance of the loan evidenced by this Note ("Initial
Prime") plus 2-1/4% per annum, subject to adjustment on each Interest Rate
Change Date (as hereinafter defined), but in no event to exceed the maximum
contract rate permitted under the Applicable Usury Law (as hereinafter
defined). The interest rate shall change on each Interest Rate Change Date by
adding to or subtracting from the Initial Interest Rate, as the case may be,
the change, if any, between Initial Prime and Prime in effect on the applicable
Interest Rate Change Date. As used in this Note, the following capitalized
terms have the meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly
announced, from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged by
Citibank to its most creditworthy commercial borrowers notwithstanding
the fact that some borrowers of Citibank may borrow from Citibank at
rates of less than such announced Prime rate; and
"Interest Rate Change Date" means (a) the first
business day of Citibank, N.A., in New York, New York, during the
calendar month following the date of the initial advance of the loan
evidenced by this Note and (b) the first business day of Citibank,
N.A., during each successive month thereafter.
The principal sum of this Note shall be repaid in the manner
set forth in the Loan Agreement (as defined below), the applicable provisions
of which are incorporated herein by reference as if fully set forth herein.
________________ Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
<PAGE> 24
This Note is executed pursuant to that certain Amendment No.
13 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this Note; (ii) Overdue Rate, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; (iii) Mortgage Loan Commitment Fee as to the Towers Advances; and (iv)
all Additional Sums (as hereinafter defined), if any. Maker agrees to pay an
effective contracted for rate of interest which is the sum of the above
referenced elements.
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is not prepayable in whole or in part, except as
specifically provided in the Loan Agreement.
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceeding, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
Holder shall not by any act or omission or commission be deemed
to waive any
-2-
<PAGE> 25
of its rights or remedies hereunder unless such waiver be in writing and signed
by an authorized officer of Holder and then only to the extent specifically set
forth therein; a waiver on one occasion shall not be construed as continuing or
as a bar to or waiver of such right or remedy on any other occasion. All
remedies conferred upon Holder by this Note or any other instrument or
agreement connected herewith or related hereto shall be cumulative and none is
exclusive and such remedies may be exercised concurrently or consecutively at
Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon
Maker, its successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Loan
Agreement. If more than one person or other entity has executed this Note as
Maker, the obligations of such persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Note or the subject matter hereof brought by Holder and
(b) without limiting the generality of the foregoing, hereby waives and agrees
not to assert by way of motion, defense or otherwise in any such suit, action
or proceeding any claim that Maker is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. In the event
(a) any such excess of interest otherwise
-3-
<PAGE> 26
would be contracted for, charged or received from Maker or otherwise in
connection with the loan evidenced hereby, or (b) the maturity of the
indebtedness evidenced by this Note is accelerated in whole or in part, or (c)
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstance the amount of interest contracted for, shared or
received in connection with the loan evidenced hereby, would exceed the maximum
contract rate permitted by the Applicable Usury Law, then in any such event (1)
the provisions of this paragraph shall govern and control, (2) neither Maker
nor any other person or entity now or hereafter liable for the payment hereof
will be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum contract rate permitted by the Applicable Usury Law,
(3) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Maker, at
Holder's option, and (4) the effective rate of interest will be automatically
reduced to the maximum amount of interest permitted by the Applicable Usury
Law. It is further agreed, without limiting the generality of the foregoing,
that to the extent permitted by the Applicable Usury Law: (x) all calculations
of interest which are made for the purpose of determining whether such rate
would exceed the maximum contract rate permitted by the Applicable Usury Law
shall be made by amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby, all interest at
any time contracted for, charged or received from Maker or otherwise in
connection with such loan; and (y) in the event that the effective rate of
interest on the loan should at any time exceed the maximum contract rate
allowed under the Applicable Usury Law, such excess interest that would
otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Holder from time to time, if and when the
effective interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to the
date of calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Maker further agrees that should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
prohibited by the Applicable Usury Law, should the maximum contract rate
permitted by the Applicable Usury Law be decreased because of a change in the
law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
"Maker"
By:_____
Donald R. Middleton, Vice President
Federal Taxpayer Identification
Number: 88-0106662
-4-
<PAGE> 27
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: President
-5-
<PAGE> 28
[IDA ADDITION]
PROMISSORY NOTE
U.S. $1,500,000.00 December 13, 1995
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Note ("Holder") may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of up to ONE
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS (U.S. $1,500,000.00), or so
much thereof as has been disbursed and not repaid, together with interest on
the unpaid principal balance from time to time outstanding from the date hereof
until paid, as more fully provided for below.
Interest due under this Note shall (a) accrue daily on the
basis of the actual number off days in the computation period, (b) be calculated
on the basis of a year consisting of 360 days, and (c) be payable monthly in
arrears on the later of (i) ten (10) days after Lender mails an invoice or
statement therefor to Maker or (ii) the due date set forth in said invoice or
statement. Interest shall accrue initially at an annual interest rate
("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on
the date of the initial advance of the loan evidenced by this Note ("Initial
Prime") plus 2-1/4% per annum, subject to adjustment on each Interest Rate
Change Date (as hereinafter defined), but in no event to exceed the maximum
contract rate permitted under the Applicable Usury Law (as hereinafter
defined). The interest rate shall change on each Interest Rate Change Date by
adding to or subtracting from the Initial Interest Rate, as the case may be,
the change, if any, between Initial Prime and Prime in effect on the applicable
Interest Rate Change Date. As used in this Note, the following capitalized
terms have the meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly
announced, from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged by
Citibank to its most creditworthy commercial borrowers notwithstanding
the fact that some borrowers of Citibank may borrow from Citibank at
rates of less than such announced Prime rate; and
"Interest Rate Change Date" means (a) the first
business day of Citibank, N.A., in New York, New York, during the
calendar month following the date of the initial advance of the loan
evidenced by this Note and (b) the first business day of Citibank,
N.A., during each successive month thereafter.
The principal sum of this Note shall be repaid in the manner
set forth in the Loan Agreement (as defined below), the applicable provisions
of which are incorporated herein by reference as if fully set forth herein.
Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
<PAGE> 29
This Note is executed pursuant to that certain Amendment No.
13 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this Note; (ii) Overdue Rate, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; (iii) Mortgage Loan Commitment Fee as to the Ida Building Addition
Acquisition Advance and all Ida Building Addition Renovation Advances, as
defined in the Loan Agreement; (iv) the Ida Building Addition Incentive Fee (as
defined in the Loan Agreement); and (v) all Additional Sums (as hereinafter
defined), if any. Maker agrees to pay an effective contracted for rate of
interest which is the sum of the above referenced elements.
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is not prepayable in whole or in part, except as
specifically provided in the Loan Agreement.
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceeding, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
-2-
<PAGE> 30
Holder shall not by any act or omission or commission be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on any
other occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be
cumulative and none is exclusive and such remedies may be exercised
concurrently or consecutively at Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon
Maker, its successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Loan
Agreement. If more than one person or other entity has executed this Note as
Maker, the obligations of such persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Note or the subject matter hereof brought by Holder and
(b) without limiting the generality of the foregoing, hereby waives and agrees
not to assert by way of motion, defense or otherwise in any such suit, action
or proceeding any claim that Maker is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents
-3-
<PAGE> 31
require the payment or permit the collection of interest in excess of the
maximum contract rate permitted by the Applicable Usury Law. In the event (a)
any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstance the amount of
interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (3) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Maker, at Holder's option, and
(4) the effective rate of interest will be automatically reduced to the maximum
amount of interest permitted by the Applicable Usury Law. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law: (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
maximum contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the loan evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise in connection with such loan;
and (y) in the event that the effective rate of interest on the loan should at
any time exceed the maximum contract rate allowed under the Applicable Usury
Law, such excess interest that would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law shall be paid to Holder
from time to time, if and when the effective interest rate on the loan
otherwise falls below the maximum amount permitted by the Applicable Usury Law,
to the extent that interest paid to the date of calculation does not exceed the
maximum contract rate permitted by the Applicable Usury Law, until the entire
amount of interest which would have otherwise been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. Maker
further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
"Maker"
By:_____
Donald R. Middleton, Vice President
Federal Taxpayer Identification
-4-
<PAGE> 32
Number: 88-0106662
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: President
-5-
<PAGE> 33
[WINNICK ADDITION]
PROMISSORY NOTE
U.S. $2,100,000.00
December 13, 1995
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Note ("Holder") may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of up to TWO
MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS (U.S. $2,100,000.00), or so
much thereof as has been disbursed and not repaid, together with interest on
the unpaid principal balance from time to time outstanding from the date hereof
until paid, as more fully provided for below.
Interest due under this Note shall (a) accrue daily on the
basis of the actual number of days in the computation period, (b) be calculated
on the basis of a year consisting of 360 days, and (c) be payable monthly in
arrears on the later of (i) ten (10) days after Lender mails an invoice or
statement therefor to Maker or (ii) the due date set forth in said invoice or
statement. Interest shall accrue initially at an annual interest rate
("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on
the date of the initial advance of the loan evidenced by this Note ("Initial
Prime") plus 2-1/4% per annum, subject to adjustment on each Interest Rate
Change Date (as hereinafter defined), but in no event to exceed the maximum
contract rate permitted under the Applicable Usury Law (as hereinafter
defined). The interest rate shall change on each Interest Rate Change Date by
adding to or subtracting from the Initial Interest Rate, as the case may be,
the change, if any, between Initial Prime and Prime in effect on the applicable
Interest Rate Change Date. As used in this Note, the following capitalized
terms have the meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly
announced, from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged by
Citibank to its most creditworthy commercial borrowers notwithstanding
the fact that some borrowers of Citibank may borrow from Citibank at
rates of less than such announced Prime rate; and
"Interest Rate Change Date" means (a) the first
business day of Citibank, N.A., in New York, New York, during the
calendar month following the date of the initial advance of the loan
evidenced by this Note and (b) the first business day of Citibank,
N.A., during each successive month thereafter.
The principal sum of this Note shall be repaid in the manner
set forth in the Loan Agreement (as defined below), the applicable provisions
of which are incorporated herein by reference as if fully set forth herein.
Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
<PAGE> 34
This Note is executed pursuant to that certain Amendment No.
13 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this Note; (ii) Overdue Rate, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; (iii) Mortgage Loan Commitment Fee as to the Winnick Building Addition
Acquisition Advance and all Winnick Building Addition Renovation Advances, as
defined in the Loan Agreement; (iv) the Winnick Building Addition Incentive Fee
(as defined in the Loan Agreement); and (v) all Additional Sums (as hereinafter
defined), if any. Maker agrees to pay an effective contracted for rate of
interest which is the sum of the above referenced elements.
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is not prepayable in whole or in part, except as
specifically provided in the Loan Agreement.
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceeding, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
-2-
<PAGE> 35
Holder shall not by any act or omission or commission be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on any
other occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be
cumulative and none is exclusive and such remedies may be exercised
concurrently or consecutively at Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon
Maker, its successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Loan
Agreement. If more than one person or other entity has executed this Note as
Maker, the obligations of such persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Note or the subject matter hereof brought by Holder and
(b) without limiting the generality of the foregoing, hereby waives and agrees
not to assert by way of motion, defense or otherwise in any such suit, action
or proceeding any claim that Maker is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents
-3-
<PAGE> 36
require the payment or permit the collection of interest in excess of the
maximum contract rate permitted by the Applicable Usury Law. In the event (a)
any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstance the amount of
interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (3) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Maker, at Holder's option, and
(4) the effective rate of interest will be automatically reduced to the maximum
amount of interest permitted by the Applicable Usury Law. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law: (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
maximum contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the loan evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise in connection with such loan;
and (y) in the event that the effective rate of interest on the loan should at
any time exceed the maximum contract rate allowed under the Applicable Usury
Law, such excess interest that would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law shall be paid to Holder
from time to time, if and when the effective interest rate on the loan
otherwise falls below the maximum amount permitted by the Applicable Usury Law,
to the extent that interest paid to the date of calculation does not exceed the
maximum contract rate permitted by the Applicable Usury Law, until the entire
amount of interest which would have otherwise been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. Maker
further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
"Maker"
By:____
Donald R. Middleton, Vice President
Federal Taxpayer Identification
-4-
<PAGE> 37
Number: 88-0106662
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: President
-5-
<PAGE> 1
EXHIBIT 10.91
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into on this ____ day
of December, 1995, by and between OVERLOOK LODGE LIMITED LIABILITY COMPANY, a
Colorado limited liability company ("Seller"), and PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Purchaser"). In consideration of the
mutual covenants and promises herein set forth, the parties agree as follows:
1. PURCHASE AND SALE. Seller agrees to sell to Purchaser and
Purchaser agrees to purchase from Seller that certain parcel of real property
(the "Land") commonly known as Overlook Lodge located at 1000 Highpoint Drive,
Steamboat Springs, Routt County, Colorado, as more particularly described on
Exhibit "A" attached to this Agreement, together with all of Seller's right,
title and interest in and to all of the following property and rights:
(a) All improvements located on the Land, including buildings,
structures and other facilities (the "Improvements"). The
Land and the Improvements are hereinafter collectively
referred to as the "Realty";
(b) All fixtures, equipment, furniture and items of personal
property used in the operation, repair and maintenance of the
Realty, and situated on the Realty (the "Personalty");
(c) All trademarks, tradenames including but not limited to
"Overlook Lodge", licenses, leases, permits, franchise
agreements, authorizations and approvals, if any, pertaining
to ownership and/or operation of the Realty which are
separable and transferable, including but not limited to the
Contracts, Insurance Policies, Licenses, Plans and Studies, as
defined in Section 6. hereof; and
(d) All strips and gores of land lying adjacent to the Realty (but
which are not otherwise part of the Property, as hereafter
defined), together with all easements, privileges,
rights-of-way, riparian and
1
<PAGE> 2
other water rights, and appurtenances pertaining to or
accruing to the benefit of the Realty that are owned or
controlled by Seller, if any.
The Realty and all of the other property and rights described in this Section
1. and Section 6. to the extent Contracts acceptable to Purchaser are assigned
to Purchaser pursuant to 14(f) hereof are hereinafter collectively called the
"Property".
2. PURCHASE PRICE. The purchase price to be paid by Purchaser
to Seller for the Property is Three Million Two Hundred Fifty Thousand and
No/100 ($3,250,000.00) Dollars (the "Purchase Price").
3. TERMS OF PAYMENT. The Purchase Price shall be paid to Seller
as follows:
(a) $25,000 deposit as part down payment (hereinafter referred to,
together with any additional down payments and any interest
earned thereon, as the "Earnest Money"), delivered to the
Escrow Agent, (defined in Section 4.), on November 21, 1995;
(b) An additional $75,000 in Earnest Money, payable to the Escrow
Agent upon execution of this Agreement; and
(c) The balance of the Purchase Price will be payable in cash to
Seller at Closing (defined in Section 4.).
4. CLOSING DATE. The sale of the Property from Seller to
Purchaser will be closed (the "Closing") through an escrow (the "Escrow"), in
accordance with customary escrow closings for Routt County, Colorado,
established with Eagle County Title Corporation, 953 South Frontage Road West,
Suite 100, Vail, Colorado 81657, Attn: Norman Larkins ("Escrow Agent"). The
Escrow Agent shall deposit the Earnest Money in an interest-bearing account
with a federally insured Colorado commercial bank (the "Earnest Money Deposit")
until the expiration of the Inspection Period at which time the Escrow Agent
shall either (i)
2
<PAGE> 3
deliver the Earnest Money to Seller if Purchaser does not terminate this
Agreement or (ii) return the Earnest Money to Purchaser if Purchaser elects to
terminate this Agreement pursuant to Section 7. If Purchaser elects not to
terminate this Agreement on or before the expiration of the Inspection Period,
then prior to such delivery of the Earnest Money Deposit to Seller, the Escrow
Agent shall record in the Routt County Colorado real property records, pursuant
to an escrow instruction executed contemporaneously herewith, a memorandum of
this Agreement against the Land (the "Lien"), and thereafter, other than for
non-performance by Seller, the Earnest Money Deposit shall be considered
non-refundable, so long as Seller continues to be in compliance with all of its
obligations under this Agreement. Purchaser shall provide Seller and Escrow
Agent with written notice of the date of Closing (the "Closing Date") not later
than thirty (30) calendar days prior to the Closing Date. If Purchaser does
not terminate the Agreement and the Earnest Money is delivered to Seller, the
Earnest Money will be credited against the Purchase Price at Closing. The
Earnest Money to be credited against the Purchase Price will be increased by a
per diem accrual of imputed interest on the Earnest Money calculated from the
date of disbursement to Seller to and including the Closing Date, by dividing
the annual rate of interest paid by the depository holding the Earnest Money
Deposit on the date of disbursement to Seller by 360, times the number of days
from the Earnest Money delivery date to Seller to and including the Closing
Date.
3
<PAGE> 4
The Closing Date shall occur on or before April 30, 1996 unless
extended as provided herein; however, in no event shall the Closing occur prior
to April 15, 1996 or later than September 30, 1996 (the "Outside Closing
Date").
4A. EXTENDED CLOSING DATE. Purchaser shall have five (5) options to
extend the Closing Date from the last business day of the month commencing
April 30, 1996 (each hereinafter referred to respectively as a "Monthly
Extension") to the last day of the next following month; however, in no event
shall the closing occur later than the Outside Closing Date. Each Monthly
Extension shall be exercised by delivery to the Seller of $25,000.00 paid by
check, on or before the last day of the month for the ensuing monthly
extension. Monthly Extension payments shall not be credited against the
Purchase Price and shall be a payment made directly to Seller in consideration
for the extension of the Closing Date.
In the event the Closing occurs after April 30, 1996, on a Closing
Date other than the last day of a given month, then the Monthly Extension
payment for said month will be prorated as of the Closing Date.
5. TITLE. Within ten (10) days following execution of this
Agreement by both parties, Seller, at Seller's expense, shall deliver to
Purchaser a commitment (the "Commitment") for an owner's ALTA Form B
Marketability title insurance policy from Chicago Title Insurance Company (the
"Title Policy"). The Commitment is to be ordered through Commonwealth Land
Title Company of Dallas, 717 North Harwood Street, Suite 2610, Maxus Energy
Tower, Dallas, TX 75201, Attn: Tim Hardin ("Title Company") who shall utilize
Escrow Agent for the abstract/title work, in favor of Purchaser in the amount
of the Purchase Price. The Commitment shall be endorsed and updated at
Seller's expense within ten (10) days before Closing. The Title Policy will be
delivered to Purchaser at Seller's expense at Closing. The Commitment, any
endorsement or update thereof, and the Title Policy shall show Seller to be
vested with good, marketable and
4
<PAGE> 5
insurable fee simple title to the Realty, free and clear of all liens,
encumbrances and other matters, except only the following (the "Permitted
Exceptions"):
(a) Ad valorem real estate taxes for the year of Closing, provided
same are not then due and payable, and subsequent years;
(b) All applicable zoning ordinances and regulations, none of
which shall prohibit or otherwise interfere with all uses
presently being made of the Property and/or Purchaser's
intended use of the Property as an interval ownership
(timeshare) resort (the "Intended Use");
(c) Those matters acceptable to Purchaser as determined and shown
on Exhibit "B", to be attached prior to the expiration of the
Inspection Period; and
(d) Restrictions or matters appearing on the plat or otherwise
common to the subdivision of which the Property might be a
part, none of which shall prohibit or otherwise interfere with
all uses presently being made of the Property and/or
Purchaser's Intended Use of the Property.
Title shall be deemed good, marketable and insurable only if the
Commitment allows for issuance of the Title Policy effective as of Closing Date
at minimum promulgated risk rate premiums, without any guarantees and without
any exceptions, standard or otherwise, other than the Permitted Exceptions.
Purchaser shall have until the expiration of thirty (30) days (the "Title
Review Period") from receipt of the Commitment and hard copies of all items
noted as exceptions therein, within which to examine same. Purchaser, at its
expense, shall order a survey (the "Survey") immediately upon execution of this
Agreement and Purchaser shall have until the expiration of thirty (30) days
(the "Survey Review Period") from receipt of the Survey to examine same;
however, in no event shall the Title Review Period or the Survey Review Period
extend beyond the Inspection Period. If Purchaser finds title or the data
shown on the Survey to be defective, Purchaser
5
<PAGE> 6
shall, no later than the expiration of the Title Review Period or Survey Review
Period, notify Seller in writing specifying any such defect(s) (the "Defects")
(which Defects shall also include any UCC-1 Financing Statements filed against
any of the Personalty with the Colorado Secretary of State); provided that if
Purchaser fails to give Seller written notice of Defects before the expiration
of the Title Review Period or the Survey Review Period, then any such Defects
shown in the Commitment or Survey shall be described on Exhibit "B" and shall
be deemed to be waived as title objections to Closing. Purchaser may raise as
additional objections, however, any matters first shown by the endorsement of
the Commitment. If Purchaser has given Seller timely written notice of Defects
and the Defects cause title to the Property to be other than as represented in
this Agreement, Seller shall use its best efforts to cause such Defects to be
cured by the Closing Date, but shall be under no obligation to pay any sum of
money to obtain a cure, except for the removal by payment, bonding, or
otherwise of any lien against the Property capable of removal by the payment of
money or bonding. In the event that Seller is unable or not obligated
hereunder to cure a Defect, Seller shall give Purchaser written notice of any
such Defect(s) and Purchaser, within ten (10) days of receipt of such written
notice shall have the option of either: (i) waiving such Defect(s); or (ii)
cancelling this Agreement, in which event the Escrow Agent shall return the
Earnest Money Deposit to Purchaser. In the event that Seller does not
eliminate any Defects not waived by Purchaser pursuant to the preceding
sentence as of the Closing Date, Purchaser shall have the option of either: (i)
6
<PAGE> 7
Closing and accepting the title "as is," and deducting from the Purchase Price
the amount of any lien or encumbrance which can be satisfied by the payment of
money; or (ii) cancelling this Agreement in which event the Escrow Agent shall
return the Earnest Money Deposit to Purchaser, whereupon both parties shall be
released from all further obligations under this Agreement, except only for
those obligations which are intended to survive Closing and/or any earlier
termination of this Agreement, unless such Defects were caused by Seller's
willful act or willful omission subsequent to the execution hereof, in which
event Seller shall remain liable to Purchaser for damages caused thereby.
Seller shall execute appropriate documents as required for "gap coverage" by
the title insurer.
6. DELIVERIES. Within ten (10) days following execution of this
Agreement by both parties (and thereafter, as applicable), Seller shall deliver
to Purchaser true, correct and complete copies of:
(b) All contracts, franchise agreements, pre-paid reservation
deposits or other reservation agreements, leases, tenancies,
arrangements, licenses, concessions, easements, service
arrangements, employment contracts or agreements, brokerage
agreements, and any and all other contracts or agreements,
either recorded or unrecorded, written or oral, affecting the
Property or any portion thereof, or the use thereof (the
"Contracts"), a true, correct and complete list of which
Contracts shall be attached hereto as Exhibit "C", and all new
Contracts hereafter entered into by Seller as, and solely to
the extent, permitted hereby;
(c) All insurance policies presently in effect relating to the
Property or any portion thereof or the use thereof, including
but not limited to fire and extended coverage, liability
insurance, workmen's compensation insurance and flood
insurance (the "Insurance Policies");
7
<PAGE> 8
(d) All certificates of occupancy, access permits, liquor
licenses, food and beverage licenses, permits, licenses,
authorizations or approvals (other than those which are no
longer in effect) issued by any governmental body or agency
having jurisdiction over the Property, related to the
ownership and/or operation of the Property (the "Licenses");
(e) The bill or bills issued for the years 1993, 1994 and 1995
when available for real estate and personal property taxes and
any subsequently issued notices pertaining to real estate or
personal property taxes or assessments applicable to the
Property;
(f) All engineering and architectural plans and as-built plans,
specifications, and drawings relating to the Property (the
"Plans") and all engineering and environmental studies or
audits relating to the Property ("Studies"), which are within
the control or possession of Seller.
Furthermore, following execution of this Agreement by both parties
(and thereafter, as applicable) Seller shall make available to Purchaser during
normal business hours at the offices of Seller on the Realty, all documents,
books and records, and other relevant information relating to the ownership and
operation of the Property, including but not limited to:
(aa) The bill or bills issued in the years 1993, 1994, and 1995 to
date for utility usage at the Property; and
(bb) Operating and financial statements for the Property, including
but not limited to, profit and loss statements, balance
sheets, and payroll records for the years 1993, 1994 and 1995
year to date.
7. CONDITIONS PRECEDENT. The obligation of Purchaser to proceed
to Closing shall be subject to the following conditions precedent to Closing:
(a) Purchaser shall have until March 1, 1996 (the "Inspection
Period") to examine the Contracts, the Insurance Policies, the
Licenses, the Plans and the Studies to decide whether they are
satisfactory to Purchaser and to make such physical, zoning,
land use, environmental, and other examinations, inspections
and investigations of the Property or the use or operation
thereof which Purchaser, in Purchaser's sole discretion, may
determine to make. In the event Purchaser is not satisfied
with any of the foregoing, determined in Purchaser's sole and
absolute discretion for any or no reason, Purchaser may cancel
this transaction as hereinafter provided.
(b) Purchaser shall have until the expiration of the
8
<PAGE> 9
Inspection Period to make a physical inspection(s) of the
Property by architects, engineers, and/or environmental
specialists, and/or other agents, and/or employees of
Purchaser's choice, for the purpose of determining the
condition and suitability of the Property. In the event that,
based upon such inspection, Purchaser is not satisfied with
the condition of the Property, determined in Purchaser's sole
discretion for any or no reason, Purchaser may cancel this
transaction as hereinafter provided.
(c) As of the Closing, there shall be no leases, contracts,
arrangements or any other agreements of any nature whatsoever,
whether oral or written, other than the Contracts that are
acceptable to Purchaser, affecting the Property, that cannot
be cancelled by Purchaser upon not more than thirty (30) days'
notice and without payment of premium or charge therefor.
(d) As of the Closing, there shall be no advance reservations for
post-Closing guest room occupancy and all guest rooms at the
Property shall be free and clear of any and all occupants.
(e) As of the Closing, all of Seller's employees employed at the
Property shall be re-assigned or terminated, and no such
employees shall have any claim whatsoever against Purchaser
and/or the Property for back wages, withholding taxes or any
other matter.
(f) At all times during the term of this Agreement and as of
Closing, all of the representations and warranties by Seller
contained in this Agreement shall be true and correct in all
material respects.
In the event any of the foregoing conditions precedent are not
fulfilled as of the Closing Date (or earlier date as specified in subsection
(a) and (b) above where written notice of cancellation must be given on or
before expiration of the Inspection Period), then Purchaser shall have the
option of either: (i) waiving the condition and closing "as is", without
reduction in the Purchase Price or claim against Seller therefor, or (ii)
cancelling this Agreement by written notice to Seller given by not later than
the Closing Date, in which event the Seller shall return the Earnest Money
Deposit to Purchaser,
9
<PAGE> 10
whereupon both parties shall be released from all further obligations under
this Agreement, except those obligations which are specifically stated to
survive termination or Closing of this transaction.
8. SELLER'S REPRESENTATIONS. As a specific inducement for
Purchaser to enter into this Agreement, Seller represents and warrants to
Purchaser and agrees with Purchaser as follows:
(a) Seller has not entered into any pre-paid or other reservation
agreements, leases, tenancies, occupancy agreements,
contracts, arrangements, licenses, concessions, easements, or
other agreements, including, without limitation, service
arrangements and employment agreements, either recorded or
unrecorded, written or oral, affecting the Property, or any
portion thereof or the use thereof, other than the Contracts
and the Insurance Policies. Each of the Contracts: (i) is in
good standing and not in default or would be in default
subject to the giving of notice or passage of time or both,
(ii) fully assignable to Purchaser without any change in the
terms and provisions thereof, and (iii) except as expressly
provided to the contrary on Exhibit "C", may be cancelled by
Purchaser upon not more than thirty (30) days notice without
payment of premium or penalty therefor. No tenant occupying
space under a lease or any other agreement (i) has prepaid any
rent or any other sums, (ii) is holding over contrary to the
wishes of Seller, (iii) is entitled to the construction of any
tenant improvements or common area improvements, (iv) has any
right to set off against any amount of rent due or to become
due, and (v) has no understanding or agreement with Seller
regarding occupancy or any other usage of the Property except
as expressly shown on Exhibit "C". Seller shall not modify
any of the Contracts, or the Insurance Policies nor shall
Seller cancel or permit the cancellation of any of the
Insurance Policies, and Seller shall not enter into any new
Contract or other agreement affecting the Property, or any
portion thereof or the use thereof, other than for month to
month tenancies cancelable at will and Property room
reservations for occupancy to the Closing Date, without the
prior written consent of Purchaser.
(b) To the best of Seller's knowledge, Seller has received no
written notice of: (i) any pending improvement liens to be
made by any governmental authority with respect to the
Property; (ii) any violations of building codes and/or zoning
ordinances or other governmental regulations with respect to
the Property; (iii) any
10
<PAGE> 11
pending or threatened lawsuits with respect to the Property;
(iv) any pending or threatened condemnation proceedings with
respect to the Property; or (v) any defects or inadequacies in
the Property which would adversely affect the insurability of
the Property or increase the cost thereof.
(c) To the best of Seller's knowledge, Seller has received no
written notice of any fact or condition which would result in
the termination or impairment of access to the Property or the
discontinuation of necessary sewer, water, electric, gas,
telephone or other utilities or services to the Property.
(d) To the best of Seller's knowledge, all of the structural
elements, mechanical systems, utility systems and roofs of the
Property, and all of the Personalty included in this
transaction, are in good working order as of the Closing Date
and as of the Closing Date are not in need of repair or
replacement, ordinary wear and tear and routine maintenance
excepted. This Seller representation and warranty shall
terminate at Closing.
(e) During the period between the date of this Agreement and
Closing, Seller shall continue to operate and manage the
Property in a prudent, businesslike and responsible manner
consistent with its operation and management prior to the date
of this Agreement, except for the restrictions herein on
advance reservations, and keep same clear of accumulations of
trash, debris or overgrowth of vegetation. Seller shall: (i)
continue to maintain all of the present services to the
Property, (ii) make all repairs and replacements in the
ordinary course of business to the Property, (iii) not remove
any of the Personalty from the Property except in replacement
of same, and (iv) maintain the Insurance Policies in full
force and effect. In addition, Seller shall make all payments
due prior to Closing in connection with the Property,
including all utility payments and payments on any other
obligations affecting the Property. Any alterations,
installations, decorations, repairs (other than emergencies)
and other work to be performed by Seller prior to Closing,
must be first approved by Purchaser.
(f) Except only for those Defects which are to be satisfied and
released at Closing, Seller is vested with good, marketable
and insurable fee simple title to the Realty subject only to
the Lien, if and when recorded and the Permitted Exceptions as
provided herein; and Seller is vested with good and marketable
title to all of the Personalty free of all financing and other
liens or encumbrances (except only for those which are to be
satisfied and released at Closing).
11
<PAGE> 12
(g) Seller shall comply prior to Closing with all laws, rules,
regulations, and ordinances of all governmental authorities
having jurisdiction over the Property. Seller shall be
responsible for and shall promptly pay all amounts owed for
labor, materials supplied, services rendered and/or any other
bills or amounts related to Seller and Seller's ownership
and/or operation of the Property prior to Closing. Prior to
Closing Seller shall cooperate with Purchaser in obtaining, or
filing to obtain, any and all licenses and governmental
approvals deemed necessary by Purchaser for Purchaser's
Intended Use of the Property, including executing any and all
applications as may be required or necessary.
(h) Prior to Closing, no portion of the Property nor any interest
therein, beneficial or otherwise, shall, except for any
existing debt that is to be repaid at Closing, be alienated,
encumbered (other than by the Lien, if and when recorded),
conveyed or otherwise transferred. In addition, Seller shall
not initiate any negotiations for the potential sale of the
Property with any third party during the term hereof.
(i) Seller is a limited liability company duly formed and validly
existing under the laws of the State of Colorado. The
execution, delivery and performance of this Agreement by
Seller have been duly authorized and no consent of any other
person or entity to such execution, delivery and performance
is required to render this document a valid and binding
instrument enforceable against Seller in accordance with its
terms. Neither the execution of this Agreement or the
consummation of the transactions contemplated hereby will: (i)
result in a breach of, or default under, any agreement to
which Seller is a party or by which the Property is bound, or
(ii) violate any restrictions to which Seller is subject.
(j) Seller is not a "foreign person" within the meaning of the
United States tax laws and to which reference is made in
Internal Revenue Code Section 1445(b)(2).
(k) To the best of Seller's knowledge, without any independent
investigation or inquiry, but excluding the review of a Phase
I Environmental Assessment which may be supplied to Seller by
and through Purchaser, there has not been and there is not
now: (i) any Hazardous Substance (as hereinafter defined)
present on the Realty, (ii) any present or past generation,
recycling, reuse, sale, storage, handling, transport and/or
disposal of any Hazardous Substance on the Realty, or (iii)
any failure to comply with any applicable local, state or
federal environmental laws, regulations,
12
<PAGE> 13
ordinances or administrative or judicial orders relating to
the generation, recycling, reuse, sale, storage, handling,
transport and/or disposal of any Hazardous Substance. Seller
has not received any notice from any governmental authority
regarding the presence of any Hazardous Substance, any present
or past generation, recycling, reuse, sale, storage, handling,
transport and/or disposal of any Hazardous Substance or any
failure to comply with any applicable local, state or federal
environmental laws, regulations, ordinances or administrative
or judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and/or disposal of
any Hazardous Substance. As used herein, the term "Hazardous
Substance" means any substance or material defined or
designated as a hazardous or toxic waste material or
substance, or other similar term by any federal, state or
local environmental statute, regulation or ordinance presently
or hereinafter in effect, as such statute, regulation or
ordinance may be amended from time to time.
(l) Except as is disclosed on Exhibit "C", there will be no
pre-paid reservation deposit agreements allowing for guest
room occupancy later than April 15, 1996, leases or other
occupancy agreements, either written or oral, which affect the
Property and Seller will have exclusive possession of the
Property as of the Closing Date.
All representations and warranties made herein by Seller shall
be continuing and shall be true and correct on and as of the Closing
Date with the same force and effect as if made at that time, and all
of such representations and warranties shall survive the Closing
(except as to Section 8 (d) above which shall terminate at Closing,
and except to the extent the party relying on such representation or
warranty has knowledge or notice of a defect prior to the Closing but
nevertheless elects to consummate the Closing); provided, however,
that all representations and warranties (other than those expressed in
the Closing Documents as defined in Section 14), to the extent not the
basis of litigation instituted within six (6) months after the Closing
(time being of the essence), shall automatically expire and be of no
further force or effect.
PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SET FORTH IN SECTION
8 HEREOF AND THE SPECIAL WARRANTY DEED, THE BILL OF SALE AND OTHER CLOSING
DOCUMENTS TO BE DELIVERED BY SELLER AT THE CLOSING, SELLER HAS NOT MADE, AND
SELLER HEREBY SPECIFICALLY DISCLAIMS, ANY WARRANTY, GUARANTY OR
REPRESENTATIONS, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, OR
CONCERNING (i) THE NATURE AND CONDITION OF THE PROPERTY,
13
<PAGE> 14
INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, AND THE SUITABILITY
THEREOF AND OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER
MAY ELECT TO CONDUCT THEREON AND (ii) THE COMPLIANCE OF THE PROPERTY OR ITS
OPERATION WITH ANY LAWS, ORDINANCES OR REGULATIONS OF ANY GOVERNMENT OR OTHER
BODY. PURCHASER ACKNOWLEDGES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT
THE PROPERTY, PURCHASER IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE
PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER EXCEPT
TO THE EXTENT SET FORTH IN THIS AGREEMENT OR IN DOCUMENTS OR INFORMATION
DELIVERED BY SELLER TO PURCHASER PURSUANT TO THIS AGREEMENT. EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT, PURCHASER FURTHER ACKNOWLEDGES THAT ANY
INFORMATION PROVIDED AND TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS
OBTAINED FROM A VARIETY OF SOURCES AND SELLER (i) HAS NOT MADE ANY INDEPENDENT
INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND (ii) MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION EXCEPT TO THE EXTENT SET FORTH IN THIS AGREEMENT OR IN DOCUMENTS OR
INFORMATION DELIVERED BY SELLER TO PURCHASER PURSUANT TO THIS AGREEMENT.
SUBJECT TO SECTION 8 HEREOF, PURCHASER AGREES TO ACCEPT THE PROPERTY, AND
ACKNOWLEDGES THAT THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE BY
SELLER, ON AN "AS IS, WHERE IS, AND WITH ALL FAULTS" BASIS. PURCHASER
EXPRESSLY ACKNOWLEDGES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN SECTION 8 HEREOF AND ANY WARRANTY OF TITLE CONTAINED IN THE
SPECIAL WARRANTY DEED, BILL OF SALE OR OTHER CLOSING DOCUMENTS TO BE DELIVERED
BY SELLER TO PURCHASER AT CLOSING, SELLER MAKES NO WARRANTY OR REPRESENTATION
OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF
LAW, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, WITH RESPECT TO THE
PROPERTY.
FURTHER, EXCEPT AS SET FORTH IN SECTION 8 HEREOF, SELLER MAKES NO
REPRESENTATION OR WARRANTY WITH RESPECT TO THE PRESENCE ON OR BENEATH THE
PROPERTY (OR ANY PARCEL IN PROXIMITY THERETO) OF HAZARDOUS SUBSTANCES OR
MATERIALS WHICH ARE CATEGORIZED AS HAZARDOUS OR TOXIC UNDER ANY LOCAL, STATE OR
FEDERAL LAW, STATUTE, ORDINANCE, RULE OR REGULATION PERTAINING TO ENVIRONMENTAL
OR SUBSTANCE REGULATION, CONTAMINATION, CLEANUP OR DISCLOSURE AND SHALL HAVE NO
LIABILITY TO PURCHASER THEREFORE. BY ACCEPTANCE OF THIS AGREEMENT AND THE
SPECIAL WARRANTY DEED TO BE DELIVERED BY SELLER AT THE CLOSING, PURCHASER
ACKNOWLEDGES THAT PURCHASER'S OPPORTUNITY FOR
14
<PAGE> 15
INSPECTION AND INVESTIGATION OF THE PROPERTY (AND OTHER PARCELS IN PROXIMITY
THERETO) WILL BE ADEQUATE TO ENABLE PURCHASER TO MAKE PURCHASER'S OWN
DETERMINATION WITH RESPECT TO THE PRESENCE ON OR BENEATH THE PROPERTY (AND
OTHER PARCELS IN PROXIMITY THERETO) OF SUCH HAZARDOUS SUBSTANCES OR MATERIALS,
AND EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, PURCHASER ACCEPTS THE RISK
OF THE PRESENCE OF ANY SUCH SUBSTANCES OR MATERIALS. NOTHING CONTAINED HEREIN
IS INTENDED TO (i) RELIEVE SELLER FROM ANY LIABILITY IT MAY HAVE TO PURCHASER
OR TO THIRD PARTIES WITH RESPECT TO ENVIRONMENTAL MATTERS ARISING UNDER LOCAL,
STATE, OR FEDERAL ENVIRONMENTAL LAW, STATUTE, RULE OR REGULATION OR (ii) IMPOSE
UPON PURCHASER ANY IMPLIED INDEMNITY TO SELLER WITH RESPECT TO SUCH
ENVIRONMENTAL MATTERS.
IF DESIRED BY SELLER, THE LANGUAGE CONTAINED IN THIS SECTION OF THE
AGREEMENT SHALL BE INCORPORATED INTO ANY AND ALL DOCUMENTS EXECUTED IN
CONNECTION WITH THE CLOSING OF THE SALE OF THE PROPERTY TO PURCHASER.
9. REPRESENTATIONS OF PURCHASER. As a specific inducement for
Seller to enter into this Agreement, Purchaser, to the best of its knowledge
and belief, represents that the execution, delivery and performance of this
Agreement by Purchaser, subject to review and approval of the Board of
Directors, or Executive Committee thereof, of Purchaser, which review and
approval will be completed by the end of the Inspection Period, shall be the
legal, valid and binding agreement of the Purchaser.
10. DEFAULT PROVISIONS. In the event of the failure or refusal of
the Purchaser to close this transaction on or before the Closing Date as same
may be extended pursuant to the terms hereof, without fault on Seller's part
and without failure of title or any conditions precedent to Purchaser's
obligations hereunder, Seller shall receive or retain the Earnest Money Deposit
as agreed upon liquidated damages for said breach and as Seller's sole and
exclusive remedy for default of Purchaser, whereupon the parties shall be
relieved of all further
15
<PAGE> 16
obligations hereunder, except those obligations which are specifically stated
herein to survive the termination or Closing of this transaction.
In the event of a default by Seller under this Agreement, Purchaser at
its option shall have the right to: (i) receive the return of the Earnest Money
Deposit from Seller whereupon the parties shall be released from all further
obligations under this Agreement, except those obligations which are
specifically stated herein to survive the termination or Closing of this
transaction, unless the default was caused by the willful act, willful
omission, or the material misrepresentation of Seller in which event Seller
shall continue to be liable for damages caused thereby, anything to the
contrary notwithstanding, or, alternatively, (ii) seek specific performance of
the Seller's obligations hereunder and/or any other equitable remedies, without
thereby waiving damages.
Notwithstanding the foregoing, in the event of a default by either
party of any obligation which specifically survives Closing, then the
non-defaulting party shall be entitled to seek any legal redress permitted by
law or equity. The provisions hereof shall survive Closing.
11. PRORATIONS. Real estate and personal property taxes,
Insurance Policies (if assignable and assumed by Purchaser), rents (whether or
not actually collected), interest, costs and revenues, Monthly Extension
payment, if any, and all other proratable items shall be prorated as of the
Closing Date. Seller shall be responsible for the payment of all utility bills
and shall receive credit for any prepaid utility deposits as of
16
<PAGE> 17
the Closing Date. Seller shall pay all sales and/or use tax due on revenues
received and purchases made at or prior to the Closing Date and shall comply
with all statutory provisions necessary for Purchaser to avoid transferee
liability for same. In the event the taxes for the year of Closing are
unknown, the tax proration will be based upon the taxes for the prior year, and
at the request of either party, the taxes for the year of Closing shall be
reprorated and adjusted when the tax bill for such year is received and the
actual amount of taxes is known. The provisions of this section shall survive
the Closing.
12. IMPROVEMENT LIENS. Certified, confirmed or ratified liens for
governmental improvements as of the Closing Date, if any, shall be paid in full
by Seller, and pending liens for governmental improvements as of the Closing
Date shall be assumed by the Purchaser, provided that where the improvement has
been substantially completed as of the Closing Date, such pending lien shall be
considered certified.
13. CLOSING COSTS. The parties shall bear the following costs:
(a) The Purchaser shall be responsible for payment of the
following: (i) the cost of examining the Commitment and
updating and/or obtaining the Survey, (ii) any and all costs
and expenses of architectural, engineering and other
inspection and feasibility studies and reports incident to
Purchaser's inspections, and (iii) clerk's recordation fees
for recording the special warranty deed.
(b) The Seller shall be responsible for payment of the following:
(i) any costs associated with issuance of the Commitment
(including the premium for the Title Policy); and (ii) any
transfer taxes in connection with the delivery of the deed and
bill of sale including documentary stamp tax and surtax, and
(iii) recording costs on documents necessary to clear title.
(c) Each party shall pay its own legal fees except as
17
<PAGE> 18
provided in Section 22(c) below.
(d) The parties shall equally share the cost of Escrow.
14. CLOSING. The Closing shall be held at the offices of the
Escrow Agent.
At Closing, Seller shall execute and deliver to Purchaser through
Escrow the following Closing Documents:
(a) a good and sufficient special warranty deed subject only to
the Permitted Exceptions;
(b) an appropriate mechanic's lien affidavit, sufficient in form
and content for any title insurance company to delete the
standard exceptions for mechanic's liens, and, to the extent
of work performed in the ninety (90) days prior to Closing,
appropriate releases and indemnities to allow Purchaser to
obtain title insurance coverage over any unfiled liens;
(c) an affidavit of exclusive possession;
(d) an appropriate bill of sale with special warranty of title for
the Personalty;
(e) a non-foreign affidavit and/or certificate pursuant to Section
8(j) above;
(f) appropriate assignments and originals of all Contracts
acceptable to Purchaser pursuant to Section 7(c) hereof
including leases, deposits, Licenses, easements, and
rights-of-way;
(g) assignments and originals of any of the Insurance Policies,
contract rights, guarantees and warranties, intangible rights
and other property and rights included in this transaction
that Purchaser elects to take by assignment;
(h) appropriate evidence of Seller's formation, existence and
authority to sell and convey the Property;
(i) an appropriate "gap" affidavit and/or indemnity as required by
the title insurer;
(j) The Title Policy;
(k) estoppel certificates and attornment agreements acceptable to
Purchaser for all leases acceptable to Purchaser that are not
cancelable upon the giving of thirty (30) days notice or less;
(l) proof, satisfactory to Purchaser, of payment of all
18
<PAGE> 19
employee wages and associated payroll taxes; and
(m) such other items as may be required by Escrow Agent to
consummate the Closing.
At Closing, Purchaser shall deliver through Escrow to the Seller:
(a) The balance of the Purchase Price in cash; and
(b) Such other documents as may be required by Escrow Agent to
consummate the Closing.
At Closing, Seller and Purchaser shall each execute counterpart
Closing statements and such other documents as are reasonably necessary to
consummate this transaction.
15. NO BROKERAGE COMMISSION OR FINDER'S FEE. Except for Seller's
separate agreement with Colorado Group Realty, Inc. (the "Broker") and Broker's
separate agreement with any other broker or finder with respect to the
splitting of any of Broker's fee, each party hereto represents to the other
that it has not authorized any broker or finder to act on its behalf in
connection with the sale and purchase hereunder and that it has not dealt with
any broker or finder purporting to act on behalf of any other party, other than
for any sums owed Broker by Seller which are the sole and specific
responsibility of Seller, and each party hereto agrees to indemnify and hold
harmless the other party from and against any and all claims, losses, damages,
costs or expenses of any agreement, arrangement, or understanding alleged to
have been made by such party or on its behalf with any broker or finder in
connection with this Agreement or the transaction contemplated hereby.
16. ASSIGNABILITY. Purchaser shall be entitled to assign its
rights hereunder to any affiliate of Purchaser, provided that
19
<PAGE> 20
upon any such assignment the assignee assumes all obligations of Purchaser
hereunder, and Purchaser shall not be released from its obligations hereunder.
17. INSPECTIONS. With respect to the inspections contemplated under
Sections 6 and 7 of this Agreement, Seller agrees to allow Purchaser and
Purchaser's agents complete access to the Property to conduct engineering,
environmental and other studies or tests on the Property, provided, however,
that (i) the cost and expenses of Purchaser's investigations and tests shall be
borne solely by Purchaser, (ii) prior to the expiration of the Inspection
Period, Purchaser shall restore the Property to the condition which existed
prior to Purchaser's entry thereon and investigation thereof, (iii) in the
event the Closing does not occur and Seller is not in breach of this Agreement,
Purchaser shall deliver to Seller copies of all tests, reports and inspections
owned by Purchaser and conducted by Purchaser with respect to the Property, and
(iv) Purchaser shall not permit any mechanic's or materialmen's liens to attach
to the Property by reason of the performance of any work or the purchase of any
materials by Purchaser or any other party in connection with any studies or
tests conducted pursuant to this section. The foregoing covenants and
agreements of Purchaser shall survive any termination of this Agreement. All
information furnished by Seller to Purchaser in accordance with this Agreement
or obtained by Purchaser in the course of its investigations shall be treated
as confidential information by Purchaser and prior to Closing, Purchaser will
use its best efforts to prevent its agents and employees from divulging such
information except to parties
20
<PAGE> 21
reasonably necessary to analyze and investigate such information including, but
not limited to, Purchaser's attorneys and representatives and prospective
lenders. Purchaser shall indemnify, defend, and hold Seller harmless from and
against any claims, liabilities, causes of action, damages, losses and
expenses(including reasonable attorneys' fees) incident to, resulting from or
in any way arising out of any tests or inspections conducted by Purchaser on
the Property. The language contained in this section shall survive Closing and
any termination of this Agreement.
18. ESCROW AGENT. The Escrow Agent and Title Company shall not be
liable for any actions taken in good faith, but only for its gross or willful
negligence. Purchaser and Seller hereby agree to indemnify and hold the
Escrow Agent and Title Company harmless from and against any loss, liability,
claim or damage whatsoever (including reasonable attorney's fees and court
costs at trial and all appellate levels) the Escrow Agent and Title Company may
incur or be exposed to in its capacity as escrow agent hereunder except for
that caused by Escrow Agent's or Title Company's gross negligence or willful
misconduct. If there be any dispute as to disposition of any proceeds held by
the Escrow Agent pursuant to the terms of this Agreement, the Escrow Agent is
hereby authorized to interplead said amount or the entire proceeds with any
court of competent jurisdiction and thereby be released from all obligations
hereunder. So long as the Earnest Money Deposit is deposited with a federally
insured Colorado commercial bank, the Escrow Agent shall not be liable for any
failure of the Earnest Money Deposit depository.
21
<PAGE> 22
19. NOTICES. Any notices required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand, sent by recognized overnight courier (such as Federal
Express), sent by facsimile transmission or mailed by certified or registered
mail, return receipt requested, in a postage prepaid envelope, and addressed as
follows:
If to the Purchaser: Preferred Equities Corporation
4310 Paradise Road
Las Vegas, NV 89109
Attn: Fred Conte,
Executive Vice President
Fax No. (702) 369-4398
With a copy to: Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jon A. Joseph, Esq.
Fax No. (702) 369-4398
and a copy to: John P. Holloway, Jr., Esq.
330 South Lincoln, #222
P.O. Box 770908
Steamboat Springs, CO 80477
Fax No. (970) 879-5621
If to the Seller: Overlook Lodge Limited Liability Co.
c/o EFO Holdings, Inc.
1111 West Mockingbird Lane,#1400
Dallas, TX 75247
Attn: Kathryn R. Esping, Manager
Fax No. (214) 905-2307
With a copy to: Mr. Jim Cook
Colorado Group Realty, Inc.
2145 Resort Drive, Suite 205
P.O. Box 880045
Steamboat Springs, CO 80488
Fax No. (970) 870-2803
With a copy to: Robert L. Abbott, Esq.
Stutzman & Bromberg, P.C.
2323 Bryan Street, Ste. 2200
Dallas, TX 75201
Fax No. (214) 969-4999
If to Escrow Agent: Eagle County Title Corporation
953 South Frontage Road West, #100
Vail, CO 81657
Attn: Norman Larkins
Fax No. (970) 476-6426
22
<PAGE> 23
Notices personally delivered or sent by overnight courier shall be deemed given
on the date of delivery, notices transmitted by facsimile shall be deemed given
on the date sent provided that the transmitting machine confirms transmission
in writing (or otherwise, upon actual receipt by the other party) and notices
mailed in accordance with the foregoing shall be deemed given three (3) days
after deposit in the U.S. mails. Signatures on documents transmitted via
facsimile shall be binding as if an original signature. A copy of all notices
shall be provided to the Escrow Agent.
20. RISK OF LOSS. Seller shall continue to bear the risk of loss
up to and including the Closing Date. The Property shall be conveyed to
Purchaser in the same condition as on the date of this Agreement, ordinary wear
and tear excepted. Seller shall not remove anything from the Property between
now and Closing except for replacements in the ordinary course of business. In
the event that the Property or any material portion thereof is taken by eminent
domain prior to Closing, Purchaser shall have the option of either: (i)
cancelling this Agreement and receiving a refund of the Earnest Money Deposit
whereupon both parties shall be relieved of all further obligations under this
Agreement, except those obligations which are specifically stated herein to
survive the termination or Closing of this transaction, or (ii) Purchaser may
proceed with Closing in which case Purchaser shall be entitled to all
condemnation awards and settlements. In the event that the Improvements and/or
Personalty are damaged or destroyed by fire or other casualty prior to Closing,
Seller shall have the option to repair and
23
<PAGE> 24
restore the Property to the same condition as before the fire or casualty and
the Closing Date shall be deferred for up to sixty (60) days to permit such
repair and restoration. If Seller elects not to repair and restore or if
Seller is unable to repair and restore within such sixty (60) day period, then
Purchaser shall have the option of either: (i) cancelling this Agreement and
receiving a refund of the Earnest Money Deposit, whereupon both parties shall
be released from all further obligations under this Agreement, except those
obligations which are specifically stated herein to survive the termination or
Closing of this transaction, or (ii) proceeding with Closing in which case
Purchaser shall be entitled to all insurance proceeds and to a credit equal to
the insurance deductibles.
21. INDEMNITY. Seller shall indemnify and hold Purchaser harmless
from any and all liability, including costs and attorneys' fees (at trial and
all appellate levels) for:
(a) Any sales tax due on any rentals or sales prior to the
Closing;
(b) Any charges under contracts for services to the Property
existing now or at any time prior to Closing;
(c) Any security deposits of tenants received by Seller prior to
Closing;
(d) Any personal property taxes remaining unpaid for calendar
years prior to the year of Closing;
(e) Any claims made against Purchaser or the Property by Seller's
employee(s) employed at the Property;
(f) Any claims made against Purchaser by persons who claim to have
pre-paid lodging expenses in association with post-Closing
reservations;
(g) Any claims made against Purchaser or the Property by persons
or governmental agencies who claim monies due, for periods
prior to Closing, for wages or other payments for employee(s)
benefits and any and all payroll taxes, including but not
limited to, federal, state, local and other tax withholdings
and federal
24
<PAGE> 25
and state unemployment taxes; and
(h) Any material misrepresentations made by Seller, except for the
representation under Section 8(d) which shall be accurate at
Closing, but which shall not survive Closing.
Purchaser shall indemnify and hold Seller harmless from any and all
liability, including cost and attorneys' fees (at trial and all appellate
levels) and claims which might be made against the Seller relating to the
ownership and operation of the Property after the Closing.
The provisions of this section shall survive the Closing, except the
provisions in section 21 (h) above which shall terminate 180 days from the Date
of Closing.
22. MISCELLANEOUS.
(a) This Agreement shall be construed and governed in accordance
with the laws of the State of Colorado. All of the parties to
this Agreement have been represented by competent counsel and
have participated fully in the negotiation and preparation
hereof; and, accordingly, this Agreement shall not be more
strictly construed against any one of the parties hereto.
(b) In the event any term or provision of this Agreement be
determined by appropriate judicial authority to be illegal or
otherwise invalid, such provision shall be given its nearest
legal meaning or be construed as deleted as such authority
determines, and the remainder of this Agreement shall be
construed to be in full force and effect.
(c) In the event of any litigation between the parties under this
Agreement, the prevailing party shall be entitled to
reasonable attorney's fees and court costs at all trial and
appellate levels. The provisions of this subsection shall
survive the Closing coextensively with other surviving
provisions of this Agreement.
(d) Time is of the essence of this Agreement. If any date upon
which, or by which, action required under this Agreement is a
Saturday, Sunday or legal holiday recognized by the Federal
government and/or the State of Colorado, then the date for
such action shall be extended to the first day that is after
such date and is not a Saturday, Sunday or legal holiday
recognized
25
<PAGE> 26
by the Federal government and/or the State of Colorado.
(e) In construing this Agreement, the singular shall be held to
include the plural, the plural shall include the singular, the
use of any gender shall include every other and all genders,
and captions and section headings shall be disregarded.
(f) All of the exhibits attached to this Agreement are
incorporated in, and made a part of, this Agreement.
23. ENTIRE AGREEMENT. This Agreement and the Exhibits attached
hereto constitute the entire agreement between the parties and there are no
other agreements, representations or warranties other than as set forth herein.
This Agreement may not be changed, altered or modified except by an instrument
in writing signed by the party against whom enforcement of such change would be
sought. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
EXECUTED as of the date first above written in several counterparts, each
of which shall be deemed an original, but all constituting only one agreement.
SELLER:
OVERLOOK LODGE LIMITED LIABILITY
COMPANY, A Colorado limited
liability company
By:____________________________________
Name:__________________________________
Title:_________________________________
Witnessed by:
26
<PAGE> 27
_____________________________
PURCHASER:
PREFERRED EQUITIES
CORPORATION, a Nevada
corporation
By: ________________________
Name: Frederick H. Conte
Title: Executive Vice President
Witnessed by:
_____________________________
Exhibit "A"
Title Description
27
<PAGE> 28
Exhibit "B"
Permitted Exceptions
28
<PAGE> 29
Exhibit "C"
Contracts
29
<PAGE> 1
EXHIBIT 10.92
SECOND AMENDMENT TO
PURCHASE AND SALE AGREEMENT
AMENDMENT dated as of February 8, 1996, to Purchase and Sale Agreement
dated as of August 30, 1993, as previously amended by an Amendment to Purchase
and Sale Agreement dated as of May 10, 1994 (the "Agreement"), between
PREFERRED EQUITIES CORPORATION ("Developer"), MARINE MIDLAND BANK ("Marine")
and WELLINGTON FINANCIAL CORP. ("Wellington"). Terms defined in the Agreement
have their defined meanings when used in this Amendment.
1. The Recital of the Agreement is amended to read as follows:
Recital
Developer, Marine and Wellington wish to enter into an agreement under
which Developer will offer to sell to Marine notes (individually, "Note", and
collectively, "Notes"), and mortgages or deeds of trust (individually,
"Mortgage", and collectively, "Mortgages") securing the Notes evidencing the
sale and financing of timeshare interests in Reno Spa Resort Club, Reno,
Nevada; Grand Flamingo Resort Club, Las Vegas, Nevada (which includes Grand
Flamingo Towers, Grand Flamingo Villas, Grand Flamingo Terraces, Grand Flamingo
Suites, Grand Flamingo Winnick and Grand Flamingo Fountains); and The Suites at
Steamboat, Steamboat Springs, Colorado ("Project"), and the Marine will
purchase from Developer the Notes and Mortgages of those purchasers of
timeshare interest ("Obligors") who are acceptable to it.
2. It is understood that Notes and Mortgages representing the
financing of the sale of timeshare interests in The Suites at Steamboat will be
endorsed and assigned first by Steamboat Suites, Inc. to Developer and then by
Developer to Marine. All such endorsements and assignments shall be with
recourse.
PREFERRED EQUITIES CORPORATION
By ______________________________________
MARINE MIDLAND BANK
By ______________________________________
Alton H. Lyles, Vice President
WELLINGTON FINANCIAL CORP.
By ______________________________________
Irwin R. LePow, President
<PAGE> 1
EXHIBIT 10.93
ACQUISITION AND CONSTRUCTION
LOAN AGREEMENT
BETWEEN HELLER FINANCIAL, INC., AS LENDER
AND PREFERRED EQUITIES CORPORATION, AS BORROWER
DRAFT
MARCH 27, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Acquisition Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Acquisition Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Affidavit of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Application for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Approved Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Approved Construction Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Approved Timeshare Document Filing Schedule . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Architect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Borrower's Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 Construction Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Debtor Relief Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 Declaration of CCRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.20 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.23 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.24 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.25 Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.26 Governmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.27 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.28 Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.29 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.30 Improvements Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.31 Inspecting Architects/Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.32 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.33 Interval Incentive Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.34 Interval Receivables Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.35 Interval Release Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.36 Interval Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.37 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.38 Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.39 Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.40 Loan Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.41 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.43 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.44 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
1.45 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.46 Renovation Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.47 Renovation Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.48 Resort Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.49 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.50 Title Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.51 Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 2 - ADVANCES OF THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Commitment of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Maximum Renovation Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Interest on the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.4 Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.5 Conditions Precedent to Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Final Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Changes in Plans and Specifications, Approved Budget or Approved Construction Schedule . . . . . . . . . . 15
2.8 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.9 Conditions Precedent for the Benefit of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Borrower Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 Suits, Actions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Valid and Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Title to the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.7 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.8 System Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.9 Submittals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.10 Utility Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.11 Governmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.12 Property Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.13 Flood Hazards/Wetlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.14 Contracts with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.15 Inducement to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 4 - COVENANTS AND AGREEMENTS BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Mandatory Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Compliance With Governmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Construction of the Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Correction of Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.5 Storage of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Inspection of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Notices by Governmental Authority, Casualty, Condemnation . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
4.8 Application of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.9 Borrower's Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 Direct Disbursement and Application by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.13 Inspection of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.14 No Liability of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 No Conditional Sale Contracts, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Defense of Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.17 Prohibition on Transfer of Property or Assignment of Borrower's Interest . . . . . . . . . . . . . . . . . 25
4.18 Payment of Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.19 Restrictions and Annexation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.20 Current Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.21 Tax Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.22 Notice of Litigation, Claims, and Financial Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.23 No Occupancy Contrary to Builder's Risk Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.24 Hold Harmless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.25 Cross Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.26 Modifications to Resort Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.27 Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 5 - RIGHTS AND REMEDIES OF LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1 Rights of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.2 Acceleration and Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Cessation of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 Funds of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.5 No Waiver or Exhaustion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.6 Marshalling Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 6 - GENERIC TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Entire Agreement and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Election of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5 Form and Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.6 Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.7 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.8 Borrower in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.9 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.12 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.13 Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.14 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.15 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
6.16 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
EXHIBIT:
A Application for Advance
B Approved Budget
C Easement Area
D Approved Construction Schedule
E Approved Timeshare Document Filing Schedule
F Permitted Exceptions
G Property Description
H Litigation Disclosure
I Approved Transaction
J Subordinated Obligations
-iv-
<PAGE> 6
ACQUISITION AND CONSTRUCTION LOAN AGREEMENT
THIS LOAN AGREEMENT, dated _________________, 1996, is made by
and between HELLER FINANCIAL, INC., a Delaware corporation ("Lender"), whose
address is 11th Floor - Real Estate Financial Services, 500 West Monroe,
Chicago, Illinois 60661, and PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Borrower"), whose address is 4310 Paradise Road, Las Vegas,
Nevada 89109, in respect of an acquisition and construction loan as set forth
herein.
ARTICLE 1 - DEFINITIONS
For purposes of this Loan Agreement, the following terms shall
have the respective meanings assigned to them.
1.1 Acquisition Commitment. The term "Acquisition
Commitment" shall mean the lesser of Four Million Eight Hundred Sixty Five
Thousand Dollars and No/100 ($4,865,000.00) or 90% of Borrower's cost to
acquire the Property pursuant to that certain Purchase and Sale Agreement dated
August 6, 1995 between Borrower, as purchaser, and The Villas at Monterey
Limited Partnership, 209 Tango Limited Partnership and First Wilkow Venture, as
seller, as amended ("Sale Agreement").
1.2 Acquisition Note. The term "Acquisition Note" shall
mean the Promissory Note from Borrower to Lender evidencing the Acquisition
Commitment dated of even date herewith, which is in the original principal
amount of Four Million Eight Hundred Sixty Five Thousand Dollars and No/100
($4,865,000.00).
1.3 Advance. The term "Advance" shall mean a
disbursement by Lender of any of the proceeds of the Loan and/or the Borrower's
Deposit pursuant to the Renovation Commitment and each such Advance shall be
for reimbursement to Borrower of amounts paid by Borrower through the date of
such Advance in accordance with the Approved Budget.
1.4 Affidavit of Borrower. The term "Affidavit of
Borrower" shall mean a sworn affidavit of Borrower (and such other parties as
Lender may require) to the effect that all statements, invoices, bills, and
other expenses incident to the acquisition of the Property and the construction
of the Improvements incurred to a specified date, whether or not specified in
the Approved Budget, have been paid in full, except for amounts retained
pursuant to the Construction Contract.
1.5 Application for Advance. The term "Application for
Advance" shall mean a written application on an AIA or other forms as set forth
in Exhibit "A" attached hereto, by Borrower (and such other parties as Lender
may require) to Lender specifying by name, current address, and amount all
independent third parties to whom Borrower is obligated for labor, materials,
or services supplied for the construction of the Improvements and
<PAGE> 7
all other expenses incident to the Loan, the Property, and the construction of
the Improvements and specifying those budgeted items which have been performed
by Borrower's employees, requesting an Advance for reimbursement for the
payment of such items, containing an Affidavit of Borrower, accompanied by such
schedules, affidavits, releases, waivers, statements, invoices, bills, and
other documents as Lender and Title Company may reasonably request provided
such affidavits, releases and waivers shall only be required for independent
third parties as specified in the Application for Advance.
1.6 Approved Budget. The term "Approved Budget" shall
mean the Budget attached as Exhibit "B" for the renovation of 102 two-bedroom
condominium units to be used for timeshare purposes and construction of a 3,000
square foot sales and amenity building (the "Amenity Building") on the Property
and the construction of the Gate House to be located on the easement area
described in Exhibit "C." The term Approved Budget shall also include any
decreases or increases as permitted hereunder in accordance with Section 2.7.
1.7 Approved Construction Schedule. The term "Approved
Construction Schedule" shall mean the schedule and order of renovation and
construction of the Improvements set forth in Exhibit "D" and any modifications
thereto permitted in accordance with Section 2.7.
1.8 Approved Timeshare Document Filing Schedule. The
term "Approved Timeshare Document Filing Schedule" shall mean the schedule
attached as Exhibit "E" for filing and approval of the Timeshare Public
Offering Statement for the Resort Property with and by all Governmental
Authorities for the sale of Interval Units and the operation of the Resort
Property.
1.9 Architect. The term "Architect" shall mean Fugleberg
Koch Architects, the architect for design of the Amenity Building.
1.10 Architectural Contract. The term "Architectural
Contract" shall mean all written agreements between Borrower and Architect for
architectural services pertaining to construction of the Amenity Building.
1.11 Association. The term "Association" shall mean the
association to be created pursuant to the Declaration of CCRs.
1.12 Borrower. The term "Borrower" shall mean Preferred
Equities Corporation, a Nevada corporation, and its successors and assigns,
provided that Borrower shall be subject to all restrictions on assignment and
transfer of the Property or any
-2-
<PAGE> 8
part thereof or interest thereon that are contained in this Loan Agreement and
the Loan Instruments.
1.13 Borrower's Deposit. The term "Borrower's Deposit"
shall mean such cash sums as Lender may deem necessary pursuant to Section 4.7
for completion of repair or reconstruction of casualty or condemnation loss or
Section 2.7 for budget increases or changes to the Plans.
1.14 Completion. The term "Completion" shall mean the
substantial completion of the Improvements in accordance with the Approved
Budget, the Approved Construction Schedule, the Construction Contract, the
Architectural Contract for the Amenity Building and the Plans, as evidenced by
(i) a certificate of occupancy (or its equivalent), if applicable, permitting
legal occupancy thereof issued by the local Governmental Authorities with
jurisdiction over construction of the Improvements, (ii) a certificate of the
contractor in form and substance satisfactory to Lender regarding completion of
the Amenity Building, and (iii) a certificate of the Inspecting
Architects/Engineers in form and substance satisfactory to Lender.
1.15 Construction Contract. The term "Construction
Contract" shall mean all construction contracts executed by Borrower for the
construction of the Improvements, including, without limitation, contracts
between Borrower and Contractor.
1.16 Contractor. The term "Contractor" shall mean the
general contractor to be retained by Borrower for the construction of the
Amenity Building. At least sixty (60) days prior to commencement of
construction of the Amenity Building, Borrower shall submit to Lender for
approval the Plans for the Amenity Building, and the fully executed Assignment
of Construction Contract substantially in the form attached as Exhibit "1.16"
or such other form as Lender may reasonably accept.
1.17 Costs. The term "Costs" shall mean all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Lender including repair costs, payments to remove or protect against liens,
attorneys' fees for pre-trial, trial and appellate matters (including fees of
Lender's inside counsel), receivers' fees, appraisers' fees, engineers' fees,
accountants' fees, independent consultants' fees (including environmental
consultants), all costs and expenses incurred in connection with any of the
foregoing, Lender's out-of-pocket costs and expenses related to any audit or
inspection of the Property, outlays for documentary and expert evidence,
stenographers' charges, stamp taxes, intangible taxes, publication costs, and
costs (which may be estimates as to items to be expended after entry of an
order or judgment) for procuring all such abstracts of title, title and
-3-
<PAGE> 9
UCC searches, and examination, title insurance policies, and similar data and
assurances with respect to title as Lender may deem reasonably necessary either
to prosecute any action or to evidence to bidders at any foreclosure sale of
the Property the true condition of the title to, or the value of, the Property.
1.18 Debtor Relief Laws. The term "Debtor Relief Laws"
shall mean any applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, insolvency, reorganization, or similar laws affecting the rights
or remedies of creditors generally, as in effect from time to time.
1.19 Declaration of CCRs. The term "Declaration of CCRs"
shall mean collectively the Declaration of Covenants, Conditions and
Restrictions for Ramada Vacation Suites at Tango Bay, and any supplements,
amendment, or modifications thereto to be created and recorded in the public
records of Orange County, Florida governing the Property.
1.20 Default. The term "Default" shall mean any event
which, with the giving of notice or the passage of time or both, would become
an Event of Default.
1.21 Event of Default. The term "Event of Default" shall
mean the occurrence of any one of the following:
(a) Any indebtedness evidenced, governed or
secured by any of the Loan Instruments is not paid within five (5) days of the
date when due, whether by acceleration or otherwise.
(b) Borrower's failure to maintain any of the
Insurance Policies or any transfer of or lien or encumbrance imposed upon the
Property or any part thereof or interest therein in violation of Sections 4.17
or 4.18 below or any other restriction on transfer or liens set forth in the
Loan Instruments.
(c) Any covenant in this Agreement, other than
matters governed by Sections 1.21(a) and (b) hereof, is not fully and timely
performed, and Borrower does not cure such failure to perform for a period of
thirty (30) days after written notice thereof from Lender to Borrower
(provided, however, that if any such failure concerning a non-monetary covenant
or condition is reasonably susceptible of cure but not within said thirty (30)
day period, then no Event of Default shall be deemed to exist hereunder so long
as Borrower commences such cure within said thirty (30) day period and
diligently and in good faith pursues such cure to completion within ninety (90)
days of said written notice from Lender to Borrower).
-4-
<PAGE> 10
(d) Any Default or Event of Default or any
failure of Borrower to abide by the terms of or fulfill its obligations under
the other Loan Instruments, after the passage of any applicable cure period set
forth therein.
(e) Any statement, representation or warranty in
the Loan Instruments, any Financial Statements or any other writing delivered
to Lender in connection with the Loan is false, misleading or erroneous in any
material respect.
(f) Once construction has begun, the cessation of
the construction of the Improvements for more than thirty (30) days without the
written consent of Lender, unless such cessation is caused by strike, riot,
shortage of materials or acts of God, provided that an Event of Default shall
exist if such cessation continues for more than sixty (60) days for any reason.
(g) Failure of the construction of the
Improvements or any materials for which an Advance has been requested to
substantially comply with the Plans, the Approved Budget, the Approved
Construction Schedule, or any Governmental Requirements which noncompliance is
not cured to Lender's satisfaction within thirty (30) days after written notice
from Lender to Borrower.
(h) Completion of the Improvements or any element
thereof has not occurred on the applicable Improvements Completion Date as set
forth in the Approved Construction Schedule subject to strike, riot, shortage
of materials, acts of God or other matters beyond the control of Borrower;
provided, however, that an Event of Default shall exist if Completion is
delayed for more than sixty (60) days for any reason beyond the Final
Completion Date.
(i) The Borrower or Guarantor:
(1) does not pay its debts as they
become due or admits in writing its inability to pay its debts or makes a
general assignment for the benefit of creditors; or
(2) commences any case, proceeding or
other action seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any Debtor Relief Laws; or
(3) in any involuntary case, proceeding
or other action commenced against it which seeks to have an order for relief
entered against it, as debtor, or seeks reorganization, arrangement,
liquidation, dissolution or composition of it or its debts under any Debtor
Relief Laws, (i) fails to obtain a dismissal of such case, proceeding or other
action within sixty
-5-
<PAGE> 11
(60) days of its commencement, or (ii) converts the case from one chapter of
the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an
order for relief; or
(4) conceals, removes, or permits to be
concealed or removed any part of its property, with intent to hinder, delay or
defraud its creditors or any of them, or makes or suffers a transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or makes any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have
not been paid; or suffers or permits, while insolvent, any creditor to obtain a
lien upon any of its property through legal proceedings which is not vacated
within sixty (60) days from the date thereof; or
(5) has a trustee, receiver, custodian
or other similar official appointed for, or take possession of, all or any part
of the Property or any other of its property or has any court take jurisdiction
of any other of its property which continues for a period of sixty (60) days
(except where a shorter period is specified in the immediately following
subparagraph (6)); or
(6) fails to have discharged within a
period of thirty (30) days any attachment, sequestration, or similar writ
levied upon any property of such owner; or
(7) fails to pay within thirty (30) days
of issuance or entry any final money judgment, after appeal, and subject to
Section 4.18 any tax, lien, or attachment in the amount of Fifty Thousand
Dollars and No/100 ($50,000.00) or greater.
(j) Title to all or any part of the Property
(other than (i) obsolete or worn personal property replaced by adequate
substitutes of equal or greater value than the replaced items when new or (ii)
personal property no longer necessary for the operation of the Property,
provided removal of such personal property does not materially affect the value
or operation of the Property) shall become vested in any party other than the
Borrower, whether by operation of law or otherwise, except for the conveyance
of Interval Units in the ordinary course of business and in accordance with
this Loan Agreement and the other Loan Instruments.
(k) Borrower records or permits to be recorded
against the Property a Notice of Limitation limiting future advances which may
be made under the Mortgage.
(l) Any default by Borrower under the documents
-6-
<PAGE> 12
and instruments evidencing and securing the Interval Receivables Loan after the
passage of any applicable grace or cure period.
(m) Failure by Borrower to meet the requirements
of the Approved Timeshare Document Filing Schedule.
(n) Failure of the Borrower to maintain the
minimum Net Worth.
(o) Failure of Borrower to draw the first Advance
under the Interval Receivables Loan on or before the earlier of January 1, 1997
or sixty (60) days after final approval of the POS; provided such date shall be
extended on a day-for-day basis by any delay caused by Lender's review of the
POS beyond the times specified in Exhibit "E."
1.22 Financial Reports. The term "Financial Reports"
shall mean (a) with respect to Borrower, a balance sheet of assets and
liabilities (including all material contingent liabilities) and related
statements of income and cash flow, during the term of the Loan monthly
statements of the operation of the Property (including monthly sales report,
monthly operating statements and monthly statements of delinquency of receipts
and payments) as of the last day of each month, (b) with respect to Guarantor,
a balance sheet of assets and liabilities (including all material contingent
liabilities) and related statements of income and cash flow, and (c) quarterly
unaudited financial statements of Borrower and Guarantor consisting of a
current balance sheet of assets and liabilities and related statements of
income and cash flow to be delivered to Lender within sixty (60) days after the
end of each fiscal quarter, and (d) annual audited financial statements of
Borrower and Guarantor and unaudited financial statements of the Association
(for so long as Borrower controls the Association) to be delivered to Lender
within one hundred twenty (120) days after the end of each applicable fiscal
year.
1.23 Financial Statements. The term "Financial
Statements" shall mean all financial statements, reports, summaries and other
financial information delivered by Borrower to Lender as of the date of this
Agreement in connection with Lender's underwriting of the Loan and the
Property.
1.24 GAAP. The term "GAAP" shall mean generally accepted
accounting principles, applied on a consistent basis, set forth in Opinions of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
which are applicable in the circumstances as of the date in question; and the
requisite that such principles be applied on a consistent basis means that the
accounting principles in a current period are
-7-
<PAGE> 13
comparable in all material respects to those applied in a preceding period,
with any exceptions thereto noted.
1.25 Governmental Authority. The term "Governmental
Authority" shall mean the United States of America, the State of Florida, the
County of Orange, and any other governmental authorities having jurisdiction
over Borrower, Guarantor, the Property or the sale of Interval Units.
1.26 Governmental Requirements. The term "Governmental
Requirements" shall mean all Federal, State and local rules, regulations,
ordinances, laws and statutes which affect the Property or Borrower's right to
sell Interval Units.
1.27 Guarantee. The term "Guarantee" shall mean the
Payment and Completion Guaranty executed by Guarantor to the Lender.
1.28 Guarantor. The term "Guarantor" shall mean Mego
Financial Corp., a New York corporation.
1.29 Improvements. The term "Improvements" shall mean the
102 condominium units to be sold as Interval Units, the Amenity Building, the
parking area and pool area, and the Gate House as described in the Plans, the
Approved Budget and the Approved Construction Schedule. References in this
Loan Agreement to construction of Improvements means construction or renovation
of the Improvements, as applicable.
1.30 Improvements Completion Date. The term "Improvements
Completion Date" shall mean the deadline for Completion of each element of the
Improvements as set forth on the Approved Construction Schedule.
1.31 Inspecting Architects/Engineers. The term
"Inspecting Architects/Engineers" shall mean such employees, representatives
and agents of Lender or third parties, who will, from time to time, conduct
inspections of the Property, review Borrower's compliance with this Loan
Agreement and offer other services related thereto.
1.32 Insurance Policies. The term "Insurance Policies"
shall mean:
(a) All-risk builder's risk insurance during the
construction of the Amenity Building, in an amount equal to 100% of the
replacement cost of the Amenity Building, providing all-risk coverage on the
Amenity Building and materials stored on the Property and elsewhere, and
including the perils of collapse, water damage and, if requested by Lender,
flood, earthquake,
-8-
<PAGE> 14
business interruption and other risks;
(b) All-risk insurance on the Property until the
Loan is paid in full, as determined by Lender, in the amount of at least 100%
of the replacement cost of such Improvements or in such amounts as Lender may
reasonably require, providing all-risk coverage on the Improvements, and, if
requested by Lender, to include the perils of flood, earthquake, business
interruption and other risks;
(c) Comprehensive General Liability Insurance for
owners and contractors, including blanket contractual liability, products and
completed operations, personal injury (including employees), independent
contractors and explosion, hazards for not less than Two Million Dollars and
No/100 ($2,000,000.00) arising out of any one occurrence or in any increased
amount reasonably required by Lender;
(d) Workers' Compensation Insurance for
contractors for statutory limits; and
(e) Such other insurance, including but not
limited to business interruption insurance, as Lender may reasonably require.
All Insurance Policies shall be issued on forms and by
companies reasonably satisfactory to Lender and shall be delivered to Lender or
in the alternative, certificates of such insurance shall be delivered to Lender
if such insurance is obtained through blanket policies of Borrower. All-risk
Insurance Policies shall have loss made payable to Lender as mortgagee together
with the standard mortgage clause in a form satisfactory to Lender.
Comprehensive General Liability, Comprehensive Automobile Liability and
Workers' Compensation coverages shall have a provision giving Lender thirty
(30) days, prior notice of cancellation or material change of the coverage.
1.33 Interval Incentive Fee. The term "Interval Incentive
Fee" shall mean a mandatory payment to Lender during the term of the Loan of
Twenty Dollars and No/100 ($20.00) per Interval Unit to be paid on condition of
the release of an Interval Unit.
1.34 Interval Receivables Loan. The term "Interval
Receivables Loan" shall mean the financing arrangements entered into between
Borrower and Lender whereby Lender is providing Borrower with financing for
certain receivables of Borrower generated from Borrower's sale of Interval
Units, which is evidenced by an Interval Receivables Loan and Security
Agreement of even date herewith (the "Receivables Loan Agreement") and
-9-
<PAGE> 15
certain other loan documents.
1.35 Interval Release Payment. The term "Interval Release
Payment" shall mean mandatory payments of (i) One Thousand Two Hundred Eighty
Dollars and No/100 ($1,280.00) per Interval Unit to be applied first to
interest due and payable and then to the principal balance outstanding from
time to time under the Acquisition Commitment, and (ii) Seven Hundred Twenty
Dollars and No/100 ($720.00) per Interval Unit to be applied first to interest
due and payable and then to the principal balance outstanding from time to time
under the Renovation Commitment, both to be paid upon the sale of each Interval
Unit. The sale of such Interval Units may be by (i) direct cash payment to
Borrower, or (ii) installment purchase financed by Borrower or third parties.
Upon the making of these Interval Release Payments and the Interval Incentive
Fee and provided Borrower is not in default hereunder, Lender shall release
such Interval Unit from the Mortgage.
1.36 Interval Unit. The term "Interval Unit" shall have
the same meaning as the term "Interval" in the Receivables Loan Agreement.
1.37 Lender. The term "Lender" shall mean Heller
Financial, Inc., a Delaware corporation, and its successors and assignees of
the Loan.
1.38 Loan. The term "Loan" shall mean the loan by Lender
to Borrower, in the maximum amount of the Acquisition and Renovation
Commitment, not to exceed, in the aggregate, the advance of (a) the lesser of
Four Million Eight Hundred Sixty Five Thousand Dollars and No/100
($4,865,000.00) or 90% of the costs of acquisition of the Property plus (b)
100% of the costs of labor, materials, and services supplied for the
construction of the Improvements and all other expenses incident to
construction of the Property, as to each item only to the extent specified in
the Approved Budget which amount shall not exceed a total of Three Million
Dollars and No/100 ($3,000,000.00) over the term of the Loan and shall not
exceed the amount of One Million Five Hundred Thousand Dollars and No/100
($1,500,000.00) outstanding at any one time.
1.39 Loan Commitment. The term "Loan Commitment" shall
mean a maximum of Seven Million, Eight Hundred Sixty Five Thousand Dollars and
No/100 ($7,865,000.00) (of which no more than $6,365,000.00 may be outstanding
at any one time), which is the maximum amount of Advances of the Loan which
Lender may be obligated to make under this Loan Agreement, and is comprised of
the Acquisition Commitment and the Renovation Commitment.
1.40 Loan Instruments. The term "Loan Instruments"
-10-
<PAGE> 16
shall mean this Loan Agreement, the Mortgage, the Acquisition Note, the
Renovation Note, the Guarantee, the financing statements, and such other
instruments evidencing, securing, perfecting or pertaining to the Loan as
shall, from time to time, be executed and delivered by Borrower, Guarantor, or
any other party to Lender pursuant to this Loan Agreement, including, without
limitation, each Affidavit of Borrower, each Application for Advance, and the
Approved Budget.
1.41 Mortgage. The term "Mortgage" shall mean the
Mortgage, Assignment of Rents and Security Agreement from Borrower to Lender
dated of even date herewith securing the payment of the Acquisition Note and
Renovation Note, and the payment and performance of all obligations specified
in the Mortgage and the Loan Instruments, and evidencing a valid and
enforceable lien on the Property.
1.42 Net Worth. The term "Net Worth" shall mean the
amount of Seventeen Million Dollars and No/100 ($17,000,000.00) as determined
in accordance with GAAP without taking into consideration any sums due Borrower
from Guarantor.
1.43 Permitted Exceptions. The term "Permitted
Exceptions" shall mean those exceptions to and encumbrances on title to the
Property which Lender has approved at the date of this Loan Agreement and which
are described on Exhibit "F" hereto.
1.44 Plans. The term "Plans" shall mean the final working
drawings and specifications for the construction of the Amenity Building, which
have been prepared by the Architect and approved by Lender and as may be
modified pursuant to Section 2.7.
1.45 Property. The term "Property" shall mean the land
described in Exhibit "G" attached hereto and incorporated herein by reference,
together with the easement rights described in that certain Easement Agreement
to be recorded with the Mortgage in the Public Records of Orange County,
Florida, to property described on Exhibit "C" and where the context requires
shall also mean the Improvements and all other property constituting the
"Property," as described in the Mortgage.
1.46 Renovation Commitment. The term "Renovation
Commitment" shall mean Three Million Dollars ($3,000,000), which is the maximum
amount of Advances Lender is obligated to make under this Loan Agreement for
construction and renovation; provided, however, at no time shall the principal
balance outstanding under the Renovation Note exceed $1,500,000.00.
1.47 Renovation Note. The term "Renovation Note" shall
mean the Revolving Renovation Promissory Note of even date
-11-
<PAGE> 17
herewith from Borrower to Lender evidencing the Renovation Commitment in the
original principal amount of One Million Five Hundred Thousand Dollars and
No/100 ($1,500,000.00).
1.48 Resort Property. The term "Resort Property" shall
mean "Ramada Vacation Suites at Tango Bay," a timeshare condominium to be
developed by Borrower as a timeshare project on the Property.
1.49 Survey. The term "Survey" shall mean a current
survey of the Property meeting the standards of the American Land Title
Association and certified by the surveyor to Lender in form and substance
satisfactory to Lender, and if applicable, a recorded plat or map of the
Property, as required by Lender, which such plat or map shall be approved and
accepted by all Governmental Authorities having jurisdiction of the Property.
1.50 Title Company. The term "Title Company" shall mean
First American Title Insurance Company.
1.51 Title Insurance. The term "Title Insurance" shall
mean a title insurance policy in the amount of Six Million Three Hundred
Sixty-five Thousand Dollars and No/100 ($6,365,000.00) insuring that the
Mortgage constitutes a valid first priority lien covering the Property subject
only to the Permitted Exceptions, issued by the Title Company to Lender.
ARTICLE 2 - ADVANCES OF THE LOAN
2.1 Commitment of Lender. Concurrently with the
recording of the Mortgage, Lender shall advance the amount of the Acquisition
Commitment to Borrower. Subject to the conditions hereof, and provided that
there exists no Default and no Event of Default, and further provided that the
outstanding balance of the Renovation Commitment shall not exceed the maximum
amount set forth in Section 2.2 below, Lender will make Advances to Borrower in
the aggregate maximum amount of the Renovation Commitment in accordance with
this Loan Agreement. Lender shall be obligated to make such Advances only in
the maximum amount of the Renovation Commitment. In addition, Lender shall not
be obligated to make an Advance if at any time the combined outstanding balance
of the Acquisition Note, the Renovation Note and the promissory note given by
Borrower to Lender pursuant to the Interval Receivables Loan would exceed
Fifteen Million Dollars and No/100 ($15,000,000.00) in the aggregate if such
Advance were made by Lender. The term of the Acquisition Loan and the
Renovation Loan shall be for thirty-six (36) months from the date hereof. The
Advances under the Renovation Commitment shall be drawn by Borrower within
twenty-four (24) months of the date hereof.
-12-
<PAGE> 18
2.2 Maximum Renovation Loan Balance. Notwithstanding
anything to the contrary contained in this Loan Agreement or the Loan
Instruments, the outstanding principal balance of the Renovation Note
(including all Advances) shall never exceed One Million Five Hundred Thousand
Dollars and No/100 ($1,500,000.00).
2.3 Interest on the Loan. Interest on the Loan, at the
rate or rates specified in the Acquisition and Renovation Notes, shall be
computed on the unpaid principal balance which exists from time to time and
shall be computed with respect to each Advance only from the date of such
Advance. Such interest on the Loan shall be paid by Borrower to Lender on a
monthly basis as provided in the applicable note. As a courtesy, Lender's
practice is to send out monthly billing statements on or about the twentieth
(20th) day of the month prior to the month in which such payment is due;
however, the failure of Lender to send out such a billing statement shall not
relieve Borrower of its obligation to pay interest in accordance with the
applicable notes.
2.4 Advances. Advances pursuant to the Renovation
Commitment shall be made by Lender as specified in the Approved Budget, upon
compliance by Borrower with this Loan Agreement. From time to time, Borrower
shall submit an Application for an Advance to Lender requesting an Advance for
the reimbursement of payment of costs of labor, materials, and services
supplied for the construction of the Improvements or for the payment of other
costs and expenses incident to the Loan, or the construction of the
Improvements, as specified in the Approved Budget. Borrower shall not submit
Applications for an Advance more than two times per month nor more frequently
than once per week, and each Application for Advance shall be for an amount not
less than One Hundred Thousand Dollars and No/100 ($100,000.00). Advances
shall be limited to the amounts shown in corresponding line items in the
Approved Budget and shall not exceed the aggregate of (a) the costs of labor,
materials, and services incorporated in to the Improvements in a manner
acceptable to Lender, plus (b) the purchase price of all uninstalled materials
to be utilized in the construction of the Improvements and to be stored on the
Property, less (c) all prior Advances for payment of costs of labor, materials,
and services for the construction of the Improvements. Each Advance shall be
issued by Lender within ten (10) days of Lender's receipt of Borrower's
Application for Advance, provided Borrower is in compliance with conditions to
such Advance set forth herein. In addition to the conditions set forth below,
Lender's obligation to make Advances shall be subject to the receipt by Lender,
on a monthly basis, of reports from Lender's Inspecting Architects/Engineers
certifying that the Improvements are on schedule under the Approved Completion
Schedule(s) and are in compliance with the Approved Budget and the Plans, as
applicable.
-13-
<PAGE> 19
2.5 Conditions Precedent to Advances. As a condition
precedent to each Advance hereunder, Borrower shall satisfy or deliver evidence
of the following requirements:
(a) an Application for Advance;
(b) execute and deliver to, procure for and
deposit with, and pay to Lender and, if appropriate, record in the proper
records with all filing and recording fees paid, the Loan Instruments and such
other documents, instruments, and certificates as Lender or Title Company may
require;
(c) An Affidavit of Borrower;
(c) There shall then exist no Default or Event of Default;
(d) The representations and warranties made in
this Loan Agreement shall be true and correct in all material respects on and
as of the date of each Advance, with the same effect as if made on that date.
Borrower shall inform Lender of any changes or revisions to the representations
and warranties set forth herein by disclosing such facts in the Affidavit of
Borrower. If any such changes or revisions are determined by Lender in its
sole discretion to be materially adverse, Lender may refuse to make the
requested Advance.
(e) Borrower will procure and deliver to Lender
(i) releases or waivers of mechanics' liens from any independent third parties
providing labor, materials or supplies for construction or renovation of the
Improvements, and (ii) copies of checks, paid bills or invoices and purchase
orders for all items in excess of One Thousand Dollars and No/100 ($1,000.00)
showing payment to all such third parties who have furnished materials or
services or performed labor of any kind in connection with the construction of
any of the Improvements covered by the Application for Advance;
(f) The Title Insurance shall be endorsed and
extended to the date of such Advance to cover each Advance with no additional
title exception objectionable to Lender;
(g) General ledger detail reports with respect to
such Application for Advance; and
(h) Copies of all building and other construction
or development permits and approvals issued through the date of such Advance.
-14-
<PAGE> 20
(i) With respect to any Improvements which have
been completed as required under the Approved Construction Schedule, evidence
that all Governmental Requirements have been satisfied, including, but not
limited to, delivery of certificates of occupancy (or its equivalent)
permitting the Improvements to be legally occupied.
(j) Prior to the first Advance for construction
of the Amenity Building, a fully executed copy of the Assignment of
Construction Contract and a Payment and Completion Bond for construction of the
Amenity Building.
2.6 Final Advance. As a condition precedent to the final
Advance, in addition to all other requirements herein, completion of all
Improvements shall have occurred and Borrower must satisfy the following
requirements and, if required by Lender, deliver to Lender evidence of such
satisfaction:
(a) A completion certificate from the Inspecting
Architects/Engineers;
(b) Evidence that all Governmental Requirements
have been satisfied, including but not limited to, delivery to Lender of a
certificate of occupancy (or its equivalent) if issued by local Governmental
Authorities, permitting the Improvements to be legally occupied;
(c) Evidence that no mechanic's or materialman's
lien or other encumbrance has been filed and remains in effect against the
Property;
(d) Final lien releases or waivers by the
Architect, Contractor, and all subcontractors, materialmen, and other
independent third parties who have supplied labor, materials, or services for
the construction of the Improvements, or who otherwise might be entitled to
claim a contractual, statutory, or constitutional lien against the Property,
subject to retainage;
(e) Evidence in a form reasonably satisfactory to
the Lender that all Improvements are in compliance with the accessibility
requirements of the federal Fair Housing Act and the Florida and federal
Americans with Disabilities Act.
(f) a survey of the Amenity Building showing no
encroachment off the Resort Property or on any easement; and
(g) The Title Insurance shall be endorsed and
extended to the date of the final Advance with no additional exception
objectionable to Lender.
-15-
<PAGE> 21
2.7 Changes in Plans and Specifications, Approved Budget
or Approved Construction Schedule. Without the prior written approval of
Lender there shall be no change in the Plans or the Approved Budget which would
(i) either increase or decrease the cost of the Improvements individually more
than Twenty Five Thousand Dollars ($25,000.00), (ii) together with costs
associated with prior changes in the Plans or the Approved Budget result in an
increase in the total costs of changes in the Plans in the Approved Budget over
Fifty Thousand Dollars ($50,000.00), (iii) affect the structural components of
the Improvements; or (iv) cause the estimated time to complete the Improvements
to extend beyond the Improvements Completion Date as set forth in the Approved
Construction Schedule and neither the Plans nor the Approved Budget shall be
modified in any way which would detract from the value of the Improvements.
Requested changes shall be submitted to Lender for approval on a form
acceptable to Lender accompanied by a copy of the plans and specifications or a
revised budget applicable to the changes. Such changes must, prior to being
effective, be duly approved by Lender and all other persons required by Lender.
Lender shall review and approve or disapprove any such change request within
ten (10) days of receipt of such written request from Borrower. Lender is
under no duty to inform Borrower of the quality or suitability of the Plans or
any amendment or alteration thereto. As a condition to any such approval,
Lender may require, in its sole discretion, confirmation satisfactory to Lender
of the cost increase, if any, which would result from performance of the work
contemplated under such change, and if it appears that performance of such work
shall result in such an increase, Lender may, in its sole discretion, condition
its approval upon a Borrower's Deposit of the amount of such increase or other
evidence satisfactory to Lender in its discretion that Borrower has the funds
necessary to provide for such cost increase. Without the prior written
approval of the Lender, there shall be no change in the Approved Construction
Schedule which change would extend the final Improvements Completion Date or
any interim Improvements Completion Date by more than thirty (30) days. Lender
shall review and approve or disapprove any such requested change within ten
(10) days of Lender's receipt of such written request from Borrower. Except as
restricted herein, Borrower may make changes to the Plans or the Approved
Budget or Approved Construction Schedule upon written notice to Lender of such
change.
2.8 No Waiver. No Advance shall constitute a waiver of
any condition precedent to the obligation of Lender to make any further Advance
or preclude Lender from thereafter declaring the failure of Borrower to satisfy
such condition precedent to be an Event of Default.
-16-
<PAGE> 22
2.9 Conditions Precedent for the Benefit of Lender. All
conditions precedent to the obligation of Lender to make any Advance are
imposed hereby solely for the benefit of Lender, and no other party may require
satisfaction of any such condition precedent or be entitled to assume that
Lender will refuse to make any Advance in the absence of strict compliance with
such conditions precedent. All requirements of this Loan Agreement agreed to
by Borrower and for the benefit of Lender may be waived by Lender, in whole or
in part, at any time.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
OF BORROWER
Borrower hereby represents; and warrants as follows:
3.1 Borrower Existence. Borrower is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Nevada and qualified to do business in the State of Florida with its principal
place of business at its address set forth above.
3.2 Guarantor. Guarantor is a corporation duly formed,
validly existing and in good standing under the laws of the State of New York
with its principal place of business at 4310 Paradise Road, Las Vegas, Nevada
89109.
3.3 Financial Statements. The Financial Statements are
true, correct, and complete in all material respects as of the dates specified
therein and the balance sheets, profit and loss statements and statements of
cash flow fairly present the financial condition of Borrower and, if required,
of Guarantor as of the dates specified. No material adverse change has
occurred in the financial condition of Borrower or Guarantor since the dates of
the Financial Statements.
3.4 Suits, Actions, Etc. Other than as disclosed on
Exhibit "H" hereto, there are no actions, suits, or proceedings pending or, to
the knowledge of Borrower, threatened, in any court or before or by any
Governmental Authority against or affecting Borrower, Guarantor, or the
Property, which, if adversely determined, would have a material adverse effect
on the Property or impair the ability of Borrower or Guarantor to complete its
obligation under the Loan Instruments or which involve the validity,
enforceability, or priority of any of the Loan Instruments, at law or in
equity. The consummation of the transactions contemplated hereby, and the
performance of any of the terms and conditions hereof and of the other Loan
Instruments, will not result in a breach of, or constitute a default in
Borrower's or Guarantor's organizational documents or in any mortgage, deed of
trust, lease, promissory note, loan agreement,
-17-
<PAGE> 23
credit agreement, partnership agreement, or other agreement to which Borrower
or Guarantor is a party or by which Borrower or Guarantor may be bound or
affected. To the best of their knowledge, neither Borrower nor Guarantor is in
default of any order of any court or any requirement of any Governmental
Authority.
3.5 Valid and Binding Obligation. All of the Loan
Instruments, and all other documents referred to herein to which Borrower or
Guarantor is a party, upon execution and delivery will constitute valid and
binding obligations of Borrower and Guarantor, enforceable in accordance with
their terms except as limited by Debtor Relief Laws.
3.6 Title to the Property. Borrower holds full legal and
equitable title to the Property, subject only to the Permitted Exceptions.
3.7 Disclosure. There is no fact of which Borrower is
aware that Borrower has not disclosed to Lender in writing that could
materially adversely affect the property, business or financial condition of
Borrower, Guarantor or the Property. Borrower has furnished Lender with a true
and complete copy of all documents relating to construction of the
Improvements.
3.8 System Compliance. The storm and sanitary sewer
system, water system, all mechanical systems of the Property and other parts of
the Improvements do (or when constructed will) comply with all applicable
environmental, pollution control and ecological laws, ordinances, rules and
regulations, and all Governmental Authorities having jurisdiction of the
Property have issued or to the best of Borrower's knowledge will issue all
necessary permits, licenses or other authorizations for the construction of the
Improvements (specifically including the named systems).
3.9 Submittals. The Loan Instruments and all Financial
Statements, Plans, budgets, schedules, opinions, certificates, confirmations,
contractor's statements, applications, rent rolls, affidavits, agreements,
Construction Contract, Architectural Contract and other materials submitted to
the Lender in connection with or in furtherance of the Loan Instruments by or
on behalf of the Borrower or Guarantor fully and fairly state in all material
respects the matters with which they purport to deal, and neither misstate any
material fact, nor, separately or in the aggregate, fail to state any material
fact necessary to make the statements made not misleading; provided, however,
that such representation and warranty is made to the best of Borrower's
knowledge with respect to such materials submitted to Lender which were
prepared by parties other than Borrower or
-18-
<PAGE> 24
its employees.
3.10 Utility Availability. All utility and municipal
services required for the construction, occupancy and operation of the
Improvements, including, but not limited to, water supply, storm and sanitary
sewer systems, electric and telephone facilities, are available for use and
tap-on at the boundaries of the Property and will be available in sufficient
amounts for the normal and intended use of the Improvements, and written
permission has been or will be obtained from the applicable utility companies
or municipalities to connect the Improvements into each of said services.
3.11 Governmental Requirements. The Property and the
Improvements are and at all times during the Loan will be constructed, operated
and sold in compliance with all zoning requirements, building codes,
subdivision improvement agreements, licensing requirements, all covenants,
conditions and restrictions of record, and all other Governmental Requirements
and there are no Governmental Requirements prohibiting the use and operation of
the Property for timeshare purposes. The zoning and subdivision approval of
the Property and the right and ability to construct, use or operate the
Improvements are not in any way dependent on or related to any real estate
other than the Property. To Borrower's knowledge, there are no, nor are there
any alleged or asserted, violations of Governmental Requirements, law,
regulations, ordinances, codes, permits, licenses, declarations, covenants,
conditions, or restrictions of record, or other agreements relating to the
Property or the Improvements or any part thereof. Borrower has obtained or is
not aware of reasons why it cannot obtain all necessary permits, licenses,
consents and approvals to develop and operate the Property as a time-share
project.
3.12 Property Access. The Property has adequate access
through fully improved private or dedicated roads.
3.13 Flood Hazards/Wetlands. The Property is in flood
zone "C" as defined in the Flood Disaster Protection Act of 1973, as amended,
and the Property is not located within a wetlands as defined by any
Governmental Authority.
3.14 Contracts with Affiliates. Except for the
relationships and transactions (the "Approved Transactions") disclosed to
Lender in writing and set forth on Exhibit "I", Borrower owns no stock or
interest in any other person or entity and has no affiliates which have any
involvement or interest in the Property in any way. All Approved Transactions
were negotiated in good faith, are arms-length transactions and all terms,
covenants and conditions which govern the Approved Transactions are at market
rate. The representation and warranty
-19-
<PAGE> 25
made in this Section 3.14 shall remain true throughout the term of the Loan
provided, however, Borrower may have the right to acquire and create new
subsidiaries.
3.15 Inducement to Lender. The representations and
warranties in this Article and the covenants and agreements of Borrower set
forth in Article 4 below and contained in the Loan Instruments are made by
Borrower as an inducement to Lender to make the Loan and Borrower understands
that Lender is relying on such representations, warranties, covenants and
agreements which shall be true and correct at all times while the Loan is
outstanding and shall survive any (a) bankruptcy proceedings involving
Borrower, Guarantor or the Property, or (b) foreclosure of the Mortgage, or (c)
conveyance of title to the Property to the Lender in lieu of foreclosure of the
Mortgage. Acceptance of each Advance constitutes reaffirmation, as of the date
of such acceptance, of the representations, warranties, covenants and
agreements of Borrower in the Loan Instruments except as disclosed in the
Affidavit of Borrower (if accepted by Lender), on which Lender shall rely in
making such Advance.
ARTICLE 4 - COVENANTS AND AGREEMENTS
BORROWER
Borrower hereby covenants and agrees as follows:
4.1 Mandatory Principal Payments. Borrower shall pay
Lender the Interval Release Payment for each Interval Unit at the time each
Interval Unit is sold, which payments shall be applied under the Loan as set
forth herein and in the other Loan Instruments. Borrower shall pay Lender the
Interval Incentive Fee at the time each Interval Unit is sold. Commencing with
the first month after the first Improvements Completion Date, no later than the
tenth (10th) day of each month, Borrower shall deliver to Lender a sales report
for the Resort Property showing all sales of Interval Units during the
immediately prior month, which sales report shall be certified by Borrower as
accurate and shall be consistent with the payments made by Borrower to Lender
in accordance with this Section 4.1. On or before the fifteenth (15th) day and
the last day of each month, Lender shall provide Borrower with partial releases
from the lien of the Mortgage for each Interval Unit for which Lender has been
paid the applicable Interval Release Payment and the applicable Interval
Incentive Fee at least five (5) days prior to such date.
4.2 Compliance With Governmental Requirements. Borrower
shall timely comply with all Governmental Requirements applicable to the
Borrower, the Improvements and the Resort Property. Borrower assumes full
responsibility for the compliance of the Plans, the Property and the
Improvements with all
-20-
<PAGE> 26
Governmental Requirements and with sound building and engineering practices,
and, notwithstanding any approvals by Lender, Lender shall have no obligation
or responsibility whatsoever for the Plans or any other matter incident to the
Property or the construction of the Improvements. Immediately upon Borrower's
receipt of any notice from a Governmental Authority of noncompliance with any
Governmental Requirements, Borrower shall provide Lender with written notice
thereof.
4.3 Construction of the Improvements. Borrower shall
commence construction of the Improvements on or before the Commencement Date
and the construction of the Improvements shall be prosecuted with diligence and
continuity, in a good and workmanlike manner, and in accordance with sound
building and engineering practices, all applicable Governmental Requirements,
the Plans, the Approved Budget, the Approved Construction Schedule, and all
covenants, conditions and restrictions. Borrower shall not permit cessation of
work for a period in excess of those periods specified in Section 1.22(f) of
this Loan Agreement and shall complete construction of the Improvements on or
before the applicable Improvements Completion Date, free and clear of all liens
other than the Permitted Exceptions and the Loan Instruments (except those as
to which Borrower has furnished a bond or other security acceptable to Lender
and otherwise complied with the requirements of Section 4.18 below).
4.4 Correction of Defects. Borrower shall correct or
cause to be corrected (a) any defect in the Improvements, (b) any material
departure in the construction of the Improvements from the Plans, Governmental
Requirements, covenants, conditions and restrictions, if applicable, or (c) any
encroachment by any part of the Improvements, or any structure located on the
Property, on any easement, property line, or restricted area, or any
encroachment by any such structure on any building line.
4.5 Storage of Materials. Borrower shall cause all
materials supplied for, or intended to be utilized in, the construction of the
Improvements, but not affixed to or incorporated into the Improvements or the
Property, to be stored on the Property, with adequate safeguards, as reasonably
required by Lender, to prevent loss, theft, damage, or commingling with other
materials or projects.
4.6 Inspection of the Property. Borrower shall permit
Lender, and its agents and representatives, to enter upon the Property and any
location where materials intended to be utilized in the construction of the
Improvements are stored, for the purpose of inspection of the Property and such
materials at all reasonable times.
-21-
<PAGE> 27
4.7 Notices by Governmental Authority, Casualty,
Condemnation. Borrower shall timely comply with and promptly furnish to Lender
true and complete copies of any notice or claim by any Governmental Authority
pertaining to the Property. Borrower shall promptly notify Lender of any fire
or other casualty or any notice of taking or eminent domain action or
proceeding affecting the Property, or the threat of any such action or
proceeding of which Borrower becomes aware.
Provided no Event of Default then exists and Borrower
certifies as to same, the net insurance proceeds shall be paid to Lender but
shall be made available by Lender for the restoration or repair of the Property
if (i) in Lender's reasonable judgment: (a) restoration or repair and the
continued operation of the Resort Property is economically feasible, and (b)
the value of Lender's security is not reduced; (ii) the cost of restoration or
repair does not exceed the net insurance proceeds or Borrower or the
Association shall provide a Borrower's Deposit or other evidence satisfactory
to Lender in its sole discretion that Borrower or the Association can pay all
costs of restoration in excess of such net insurance proceeds; (iii) the loss
does not occur in the six (6) month period preceding the Maturity Date as
defined in the Acquisition Note and the Renovation Note; (iv) Borrower has
sufficient business interruption insurance to provide alternative
accommodations for all owners or users of Interval Units at the Project
affected by such casualty loss; and (v) Lender's Inspecting Architect/Engineers
certify that the restoration of the Property can be completed at least ninety
(90) days prior to the Maturity Date. Borrower or the Association shall pay
all amounts, in addition to the net insurance proceeds, necessary to pay in
full the cost of the restoration or repair.
Notwithstanding the foregoing, it shall be a
condition precedent to any disbursement of insurance proceeds held by Lender
hereunder that Lender shall have approved (x) all plans and specifications for
any proposed repair or restoration; (y) the construction schedule; and (z) the
architect's and general contractor's contracts for restoration. Lender may
establish other conditions it deems reasonably necessary to assure the work is
fully completed in a good and workmanlike manner free of all liens or claims by
reason thereof, and in compliance with all applicable laws, rules and
regulations. At Lender's option, the net insurance proceeds shall be disbursed
pursuant to a construction escrow acceptable to Lender. If an Event of Default
then exists, or any of the conditions set forth in this subsection have not
been met or satisfied, the net insurance proceeds (after deduction of Lender's
reasonable costs and expenses, if any, in collecting same) shall be applied to
the Loan in such order and manner as Lender may elect, whether or not due and
payable, with
-22-
<PAGE> 28
any excess paid to Borrower.
The proceeds of any award, payment or claim for
damages, direct or consequential, in connection with any condemnation or other
taking of any Interval Unit or any portion of the Property, or for conveyances
in lieu of condemnation, are hereby assigned to and shall be paid to Lender.
Lender is authorized (but is under no obligation) to collect any such proceeds.
The proceeds of any such award shall be made available by Lender for repair or
restorations of the Property in the same manner and upon the same conditions as
those set forth above for net insurance proceeds.
Anything to the contrary herein notwithstanding, for
so long as any part of the Property is subject to the Declaration of CCRs, any
and all insurance proceeds arising from any damage or destruction to the
Property and any and all awards and payments with respect to condemnation or
conveyances in lieu thereof received by Lender shall be delivered and paid out
by Lender to the insurance trustee under the Declaration of CCRs, to be
distributed and used in accordance with the provisions of the Declaration of
CCRs.
4.8 Application of Advances. Borrower shall apply all
Advances for reimbursement of costs and expenses specified in the Approved
Budget, and for no other purpose.
4.9 Borrower's Deposit. In accordance with Sections 2.7
and 4.7 above, Lender may require a Borrower's Deposit to be made which Lender
shall place in an interest bearing account and disburse in accordance with
Sections 2.7 or 4.7 as applicable.
4.10 Direct Disbursement and Application by Lender. Upon
an Event of Default hereunder, Lender shall have the right, but not the
obligation, to disburse and directly apply the proceeds of any Advance or the
unadvanced balance of the Loan to the satisfaction of any of Borrower's
obligations hereunder or under any of the other Loan Instruments. Any Advance
by Lender for such purpose, except Borrower's Deposit, shall be part of the
Loan and shall be secured by the Loan Instruments. Borrower hereby authorizes
Lender to hold, use, disburse, and apply the Loan and the Borrower's Deposit,
if any, for payment of costs of construction of the Improvements, reasonable
expenses incident to the Loan and the Property, and the payment or performance
of any obligation of Borrower hereunder or under any of the other Loan
Instruments. Borrower hereby assigns and pledges the proceeds of the Loan and
the Borrower's Deposit to Lender for such purposes. Upon an Event of Default,
Lender may advance and incur such Costs as Lender reasonably deems necessary
for the completion of construction of the Improvements and to preserve the
Property, and
-23-
<PAGE> 29
any other security for the Loan, and such Costs, even though in excess of the
amount of the Loan, shall be secured by the Loan Instruments and payable to
Lender.
4.11 Costs and Expenses. Borrower shall pay when due all
costs and expenses required by this Loan Agreement, including, without
limitation, (a) all taxes and assessments applicable to the Property, (b) all
fees for filing or recording the Loan Instruments, (c) all fees and commissions
lawfully due to brokers, salesmen, and agents in connection with the Loan or
the Property, (Lender hereby warrants to Borrower that it has not engaged any
brokers, salesmen or agents in connection with the Loan) (d) all reasonable
fees and expenses, including the cost of the Survey, (e) all premiums for the
Insurance Policies, and (f) all other costs and expenses payable to third
parties incurred by Borrower in connection with the consummation of the
transactions contemplated by this Loan Agreement.
4.12 Additional Documents. Borrower shall execute and
deliver to Lender, from time to time as requested by Lender, such other
documents as shall reasonably be necessary to provide the rights and remedies
to Lender granted or provided for by the Loan Instruments.
4.13 Inspection of Books and Records. Borrower shall
permit Lender at all reasonable times, upon five (5) days advance written
notice to Borrower, to examine and copy the books and records of Borrower
pertaining to the Loan and the Property, and all sales and marketing records,
contracts, statements, invoices, bills, and claims for labor, materials, and
services supplied for the construction of the Improvements; provided, however,
all such books, records and information contained therein shall be treated as
strictly confidential and shall not be disclosed to any third party (other than
Lender's accountants, attorneys and consultants in connection with the Loan,
and as may be required by law) without written consent of Borrower.
4.14 No Liability of Lender. Except in the case of
Lender's gross negligence or wilful misconduct, Lender shall have no liability,
obligation, or responsibility whatsoever with respect to the construction of
the Improvements except to advance the Loan and the Borrower's Deposit pursuant
to this Loan Agreement. Lender shall not be obligated to inspect the Property
or the construction of the Improvements, nor be liable or responsible for any
defect in the Property or the Improvements by reason of inspecting same, nor be
liable for the performance or default of Borrower, Architect, the Inspecting
Architects/Engineers, Contractor, or any other party, or for any failure to
construct, complete, protect, or insure the Improvements, or for the payment of
costs of labor, materials, or
-24-
<PAGE> 30
services supplied for the construction of the Improvements, or for the
performance of any obligation of Borrower whatsoever. Nothing including
without limitation any Advance or acceptance of any document or instrument,
shall be construed as a representation or warranty, express or implied, to any
party by Lender.
4.15 No Conditional Sale Contracts, Etc. No materials,
equipment, or fixtures shall be supplied, purchased, or installed for the
construction of the Improvements pursuant to security agreements, conditional
sale contracts, lease agreements, or other arrangements or understandings
whereby a security interest or title is retained by any party or the right is
reserved or accrues to any party to remove or repossess any materials,
equipment, or fixtures intended to be utilized in the construction or operation
of the Improvements.
4.16 Defense of Actions. Lender may (but shall not be
obligated to) commence, appear, in, or defend any action or proceeding
purporting to affect the Loan, the Property, or the respective rights and
obligations of Lender and Borrower pursuant to this Loan Agreement. Lender may
(but shall not be obligated to) pay all reasonable necessary expenses,
including reasonable attorneys' fees and expenses incurred in connection with
such proceedings or action, which Borrower agrees to repay to Lender on demand;
provided, however, in any action directly between Borrower and Lender, the
provisions of Section 6.14 shall apply.
4.17 Prohibition on Transfer of Property or Assignment of
Borrower's Interest. Borrower shall not (a) create any new ownership interest
in Borrower, or (b) except for the (1) sale of Interval Units in arms length
transactions, (2) the lien of the Loan Instruments, (3) the transfer of
personal property permitted herein, or (4) the Permitted Exceptions, transfer,
lease or mortgage (i) all or any part of the Property, or any interest therein,
or (ii) any ownership interest in Borrower (including any interest in the
profits, losses or cash distributions in any way relating to the Property)
except this shall not serve to prohibit the sale or hypothecation by Borrower
of notes and mortgages generated by Borrower in connection with the sale of
Interval Units subject to Lender's rights under the Exclusive Financing
Agreement between the parties of even date herewith. In addition, if at least
two of the following, Fred Conte, Jerome Cohen, Herb Hirsch or Don Mayerson
fail to remain a principal officer of Borrower with authority to make all
material business decisions, then Lender may at Lender's option, declare all of
the indebtedness evidenced by the Acquisition Note and/or the Renovation Note
to be immediately due and payable, and Lender may invoke any remedies permitted
by the Loan Instruments. Intestate transfers or transfers by devise shall not
constitute a transfer for the purposes of the foregoing provisions.
-25-
<PAGE> 31
4.18 Payment of Charges. Borrower shall promptly pay or
cause to be paid when due all costs and expenses incurred in connection with
the Property and the construction of the Improvements, and Borrower shall keep
the Property free and clear of any lien, tax, judgment, charge, or claim (the
"Charges") other than the encumbrances of the Mortgage, the Permitted
Exceptions, and other liens approved in writing by Lender. Notwithstanding
anything to the contrary contained in this Loan Agreement, Borrower (a) may,
discharge in accordance with applicable law any such Charge or contest the
validity or amount of any claim of any contractor, consultant, architect, or
other person providing labor, materials, or services with respect to the
Property, (b) may contest any tax or special assessments levied by any
Governmental Authority, and (c) may contest the enforcement of or compliance
with any Governmental Requirements, and such contest on the part of Borrower
shall not be an Event of Default hereunder and shall not release Lender from
its obligations to make Advances hereunder; provided, however, that during the
pendency of any such contest Borrower shall, if requested by Lender, furnish to
Lender and Title Company an indemnity bond from a corporate surety satisfactory
to Lender and Title Company in an amount equal to one hundred fifty percent
(150%) of the amount being contested or other security reasonably acceptable to
them, and provided further that Borrower shall pay any amount adjudged by a
court of competent jurisdiction (including appellate courts) to be due, with
all costs, interest, and penalties thereon, before such judgment becomes a lien
on the Property and provided further Borrower is able to fulfill all of
Borrower's obligations under this Loan Agreement during the pendency of any
such contest.
4.19 Restrictions and Annexation. Other than the
Permitted Exceptions, Borrower shall not impose any restrictive covenants,
easements or other encumbrances upon the Property, execute or file any
subdivision plat affecting the Property, or consent to the annexation of the
Property to any city without the prior written consent of Lender, which shall
not be unreasonably withheld.
4.20 Current Financial Reports. Borrower shall (1) on or
before sixty (60) days after the end of each applicable fiscal quarter, deliver
to Lender quarterly Financial Reports of Borrower, certified by Borrower to be
a fair and accurate summary of the information set forth therein, (2) on or
before one hundred twenty (120) days after the end of each applicable fiscal
year, deliver to Lender then current Financial Reports of Borrower, Guarantor
and the Association (so long as Borrower is in control thereof), which, except
for those of the Association, shall be audited by a certified public accountant
and prepared in accordance with GAAP, and (3) from time to time, as Lender may
-26-
<PAGE> 32
reasonably request, deliver to Lender additional financial reports of Borrower,
Guarantor and the Association.
4.21 Tax Receipts. Borrower shall furnish Lender with
receipts or tax statements marked "Paid" to evidence the payment of all taxes
levied on the Property prior to the date such taxes become delinquent.
4.22 Notice of Litigation, Claims, and Financial Change.
Borrower shall promptly inform Lender of (a) any litigation against Borrower or
Guarantor or affecting the Property, which, if determined adversely, might have
a material adverse effect upon the financial condition of Borrower or Guarantor
or upon the Property, or might cause an Event of Default, (b) any claim or
controversy which might become the subject of such litigation, and (c) any
material adverse change in the financial condition of Borrower or Guarantor.
4.23 No Occupancy Contrary to Builder's Risk Policy. The
Improvements or any element thereof shall not be occupied until Borrower has
obtained and furnished to Lender (a) a certificate of occupancy (or its
equivalent), if applicable, issued by the local Governmental Authorities with
jurisdiction over construction of the Improvements, and (b) replacement
coverage in the form of an all-risk insurance policy upon the completed
Improvements or element thereof, which policy will not be impaired by the
occupancy of the Improvements and is reasonably satisfactory to Lender.
4.24 Hold Harmless. Except for Lender's acts or
omissions which constitute gross negligence or willful misconduct, Borrower
shall defend, at its own cost and expense, and hold Lender harmless from, any
proceeding or claim in any way relating to the Property or the Loan
Instruments. Subject to the provisions of Section 6.14, all Costs incurred by
Lender in protecting its interests hereunder, including all court costs and
reasonable attorney's fees and expenses, shall be borne by Borrower. The
provisions of this Section shall survive the payment in full of the Loan and
all other indebtedness secured by the Mortgage and the release of the Mortgage
as to events occurring and causes of action arising before such payment and
release.
4.25 Cross Default. The Mortgage shall also provide that
any Event of Default under the documents evidencing and securing the Interval
Receivables Loan shall be an Event of Default under the Mortgage and the other
Loan Instruments. The documents and instruments evidencing and securing the
Interval Receivables Loan shall also secure the Acquisition Note and the
Renovation Note. Any Event of Default hereunder or under the
-27-
<PAGE> 33
other Loan Instruments shall be an Event of Default under the Receivables Loan
Agreement.
4.26 Modifications to Resort Documents. Borrower shall
not without Lender's prior written consent, which consent shall not be
unreasonably withheld, amend, modify or supplement the Declaration of CCRs or
any of the other documents relating to the creation or operation of the
timeshare project on the Resort Property ("Resort Documents") unless such
amendment, modification or supplement is required either to cause additional
Interval Units to be annexed into the timeshare regime or by law, whereupon
Borrower shall implement same and give prompt written notice thereof to Lender.
Lender shall, in writing, reject or approve such written request to modify,
amend or supplement the Resort Documents within thirty (30) days of receipt of
such request from Borrower.
4.27 Subordinated Obligations. Borrower hereby represents
and warrants to Lender that those matters described on Exhibit "J" hereto
constitute all Borrower's debts, liabilities and obligations to any Affiliates
of Borrower except for salaries and other compensation due officers and
directors as of February 29, 1996. Upon an Event of Default, Borrower will
not, directly or indirectly, (a) permit any payment to be made in respect of
any indebtedness, liabilities or obligations direct or contingent, to any
Affiliates (excluding trade payables incurred in the ordinary course of
business), which payments shall be and are hereby made subordinate to the
payment of principle of, and interest on, the Acquisition Note, the Renovation
Note, or any indebtedness secured under the Interval Receivables Loan or (b)
permit the amendment, rescission or other modification of any of Borrower's
subordinated obligations in such a manner as to affect adversely the lien
priority of the Lender in any property, real or personal, pledged to secure any
of the foregoing Loan Instruments. For purposes of this provision the term
"Affiliate" shall mean an individual, trust, estate, partnership, limited
liability company, corporation or any other incorporated or unincorporated
organization ("Person") that (i) directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Borrower, Guarantor or (ii) any officer, director, or partner of Borrower or
Guarantor or any relative of any of the foregoing. The term "Control" shall
mean possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person whether through ownership
of voting securities, by contract or otherwise.
ARTICLE 5 - RIGHTS AND REMEDIES OF LENDER
5.1 Rights of Lender. Upon the occurrence of an Event of
Default, Lender shall have the right, in addition to any other
-28-
<PAGE> 34
right or remedy of Lender as set forth in the Loan Instruments, but not the
obligation, in its own name or in the name of Borrower, to enter into
possession of the Property; to perform all work necessary to complete the
construction of the Improvements substantially in accordance with the Plans,
Governmental Requirements, and the requirements of any lessee, if applicable;
and to employ watchmen and other safeguards to protect the Property. Borrower
hereby appoints Lender as the attorney-in-fact of Borrower, with full power of
substitution, and in the name of Borrower, if Lender elects to do so, upon the
occurrence of an Event of Default, to (a) use such sums as are reasonably
necessary, including any proceeds of the Loan and the Borrower's Deposit, if
any, make such changes or corrections in the Plans, the construction of the
Improvements, the Approved Budget, the Approved Construction Schedule, and
employ such architects, engineers, and contractors as may be reasonably
required for the purpose of completing the construction of the Improvements
substantially in accordance with the Plans and Governmental Requirements, (b)
execute all applications and certificates in the name of Borrower which may be
required for completion of construction of the Improvements, (c) endorse the
name of Borrower on any checks or drafts representing proceeds of the Insurance
Policies, or other checks or instruments payable to Borrower with respect to
the Property, (d) do every act with respect to the construction of the
Improvements which Borrower may do, and (e) prosecute or defend any action or
proceeding incident to the Property. The power of attorney granted hereby is a
power coupled with an interest and is irrevocable. Lender shall have no
obligation to undertake any of the foregoing actions, and, if Lender should do
so, it shall have no liability to Borrower for the sufficiency or adequacy of
any such actions taken by Lender.
5.2 Acceleration and Other Remedies. Upon the occurrence
of an Event of Default, Lender may, at its option, declare the Loan immediately
due and payable, and Lender may exercise any or all of its remedies set forth
in the Loan Instruments.
5.3 Cessation of Advances. Upon the occurrence of an
Event of Default, the obligation of Lender to disburse the Loan and the
Borrower's Deposit and all other obligations of Lender hereunder shall, at
Lender's option, immediately terminate.
5.4 Funds of Lender. Any funds of Lender used for any
purpose referred to in this Article 5 shall constitute Advances secured by the
Loan Instruments and shall bear interest at the rate specified in the
Renovation Note to be applicable after default hereunder.
5.5 No Waiver or Exhaustion. No waiver by Lender of
-29-
<PAGE> 35
any of its rights or remedies hereunder, in the other Loan Instruments, or
otherwise, shall be considered a waiver of any other or subsequent right or
remedy of Lender; no delay or omission in the exercise or enforcement by Lender
of any rights or remedies shall ever be construed as a waiver of any right or
remedy of Lender; and no exercise or enforcement, of any such rights or
remedies shall ever be held to exhaust any right or remedy of Lender.
5.6 Marshalling Waiver. Borrower waives any and all
rights to require the marshalling of assets in connection with the exercise of
any of the remedies hereunder.
ARTICLE 6 - GENERIC TERMS AND CONDITIONS
6.1 Notices. Any notice or other communication required
or permitted to be given shall be in writing addressed to the respective party
as set forth below and may be personally served, telecopied or sent by
overnight courier or U.S. mail and shall be deemed given: (a) if served in
person, when served; (b) if telecopied, on the date of transmission if before
3:00 p.m. (Chicago time) on a business day otherwise, on the next business day;
provided that a confirmation of the receipt of any such telecopy is obtained
and retained by the sending party and that a hard copy of such notice is also
sent pursuant to (c) or (d) below; (c) if by overnight courier, on the first
business day after delivery to the courier; or (d) if by U.S, Mail, certified
or registered mail, return receipt requested on the fourth (4th) day after
deposit in the mail postage prepaid. For purposes of this Agreement, the term
"business day" shall mean a day on which banks are open for business in both
Illinois and Nevada.
Notices to Borrower: PREFERRED EQUITIES CORPORATION
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Frederick H. Conte
Telecopy: 702/369-8775
With a copy to: PREFERRED EQUITIES CORPORATION
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jon Joseph
Telecopy: 702/369-8775
-30-
<PAGE> 36
Notices to Lender: HELLER FINANCIAL, INC.
Sales Finance Division
Attn: Portfolio Manager,
R.E. Loan No. 95-227
500 West Monroe St., 15th Floor
Chicago, Illinois 60661
Telecopy: (312) 441-7924
With a copy to: HELLER FINANCIAL, INC.
Real Estate Financial Services
Attn: Group General Counsel
R.E. Loan No. 95-227
500 West Monroe St. 15th Floor
Chicago, Illinois 60661
Telecopy: (312) 441-7872
6.2 Entire Agreement and Modifications. The Loan
Instruments constitute the entire understanding and agreement between the
undersigned with respect to the transactions arising in connection with the
Loan and supersede all prior written or oral understandings and agreements
between the undersigned in connection therewith. No provision of this Loan
Agreement or the other Loan Instruments may be modified, waived, terminated,
supplemented, changed or amended except by a written instrument executed by
both parties hereto.
6.3 Severability. In case any of the provisions of this
Loan Agreement shall for any reason be held to be invalid, illegal, or
unenforceable, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof, and this Loan Agreement shall be construed
as if such invalid, illegal, or unenforceable provision had never been
contained herein.
6.4 Election of Remedies. Lender shall have all of the
rights and remedies granted in the Loan Instruments and available at law or in
equity, and these same rights and remedies shall be cumulative and may be
pursued separately, successively, or concurrently against Borrower, Guarantor,
or any property encumbered by the Loan Instruments, at the sole discretion of
Lender. The exercise or failure to exercise any of the same shall not
constitute a waiver or release thereof or of any other right or remedy, and the
same shall be nonexclusive.
6.5 Form and Substance. All documents, certificates,
insurance policies, evidence, and other items required under this Loan
Agreement to be executed and/or delivered to Lender shall be in form and
substance reasonably satisfactory to Lender.
6.6 Limitation on Interest. In no event whatsoever
-31-
<PAGE> 37
shall the amount of interest paid or agreed to be paid to Lender pursuant to
this Loan Agreement, the Acquisition Note or Renovation Note or any of the Loan
Instruments exceed the highest lawful rate of interest permissible under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision of this Loan Agreement, the Acquisition Note, the Renovation Note and
the other Loan Instruments shall involve exceeding the lawful rate of interest
which a court of competent jurisdiction may deem applicable hereto ("Excess
Interest"), then ipso facto, the obligation to be fulfilled shall be reduced to
the highest lawful rate of interest permissible under such law and if, for any
reason whatsoever, Lender shall receive, as interest, an amount which would be
deemed unlawful under such applicable law, such interest shall be applied to
the outstanding principal balance of the Loan (whether or not due and payable),
and not to the payment of interest, or shall be refunded to Borrower if such
Loan has been paid in full. Neither Borrower nor Guarantor or any endorser
shall have any action against Lender for any damages whatsoever arising out of
the payment or collection of any such Excess Interest.
6.7 No Third Party Beneficiary. This Loan Agreement is
for the sole benefit of Lender and Borrower and is not for the benefit of any
third party.
6.8 Borrower in Control. In no event shall Lender's
rights and interests under the Loan Instruments be construed to give Lender the
right to, or be deemed to indicate that Lender is in control of the business,
management or properties of Borrower or has power over the daily management
functions and operating decisions made by Borrower.
6.9 Number and Gender. Whenever used herein, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders. The duties, covenants,
obligations and warranties of Borrower in this Loan Agreement shall be joint
and several obligations of Borrower and of each Borrower if more than one.
6.10 Captions. The captions, headings, and arrangements
used in this Loan Agreement are for convenience only and do not in any way
affect, limit, amplify, or modify the terms and provisions hereof.
6.11 Applicable Law. This Loan Agreement and the Loan
Instruments shall be governed by and construed in accordance with the laws of
the State of Illinois and the laws of the United States applicable to
transactions within such state, except that the provisions of the laws of the
State of Florida shall be applicable to the creation, perfection and
enforcement of the lien
-32-
<PAGE> 38
created by the Mortgage.
6.12 Venue. BORROWER AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT
OF, RELATED TO OR FROM THIS LOAN AGREEMENT OR THE OTHER LOAN INSTRUMENTS SHALL
BE LITIGATED, AT LENDER'S SOLE DISCRETION AND ELECTION, ONLY IN COURTS HAVING A
SITUS WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS
AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED
WITHIN SAID COUNTY AND STATE. BORROWER HEREBY IRREVOCABLY APPOINTS AND
DESIGNATES C T CORPORATION SYSTEM, WHOSE ADDRESS IS BORROWER, C/O C T
CORPORATION SYSTEM, 208 S. LASALLE STREET, CHICAGO, ILLINOIS 60604, AS ITS DULY
AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES THAT SERVICE OF SUCH
PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON SUCH
PARTY PROVIDED A COPY OF SUCH SERVICE OF PROCESS IS ALSO WITHIN THREE (3) DAYS
THEREAFTER TRANSMITTED TO BORROWER IN ACCORDANCE WITH SECTION 6.1 HEREOF EXCEPT
IN THE CASE OF SERVICE OF PROCESS FOR ACTIONS WHEREIN THE BORROWER'S RESPONSE
IS DUE IN LESS THAN TWENTY (20) DAYS, A COPY OF SUCH PROCESS WILL BE SENT TO
BORROWER ON THE SAME DAY AS SERVICE ON C T CORPORATION SYSTEM. IN THE EVENT
SERVICE IS UNDELIVERABLE BECAUSE SUCH AGENT MOVES OR CEASES TO DO BUSINESS IN
CHICAGO, ILLINOIS, BORROWER SHALL, WITHIN TEN (10) DAYS AFTER LENDER'S REQUEST,
APPOINT A SUBSTITUTE AGENT (IN CHICAGO, ILLINOIS) ON ITS BEHALF AND WITHIN SUCH
PERIOD NOTIFY LENDER OF SUCH APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT
TIMELY APPOINTED, LENDER SHALL, IN ITS SOLE DISCRETION, HAVE THE RIGHT TO
DESIGNATE A SUBSTITUTE AGENT UPON FIVE (5) DAYS NOTICE TO BORROWER. BORROWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST IT BY LENDER ON THE LOAN INSTRUMENTS IN ACCORDANCE
WITH THIS PARAGRAPH.
6.13 Jury Trial Waiver. BORROWER AND LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LOAN AGREEMENT AND THE OTHER
LOAN INSTRUMENTS AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND LENDER,
AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF
OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF TRIAL
BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH OF THEM HAS ALREADY RELIED ON
THIS WAIVER IN ENTERING INTO THIS LOAN AGREEMENT AND THE OTHER LOAN INSTRUMENTS
AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED
FUTURE DEALINGS. BORROWER AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN
REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF
THIS LOAN AGREEMENT AND THE OTHER LOAN INSTRUMENTS AND IN THE MAKING (IF
-33-
<PAGE> 39
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
6.14 Attorney's Fees. In any action hereunder between
the parties hereto, the prevailing party shall be entitled to reasonable
attorneys' fees including those for pretrial, trial and appellate proceedings.
6.15 Escrow. It is understood that certain local
requirements mandate that Borrower escrow all sales proceeds received from
consumers for the sale of Interval Units at the Property during the pendency of
construction of the Improvements and until closing of the purchase of an
Interval Unit. The parties agree that an escrow agent ("Escrow Agent") shall
hold the sales proceeds during the pendency of construction and release them as
may be allowed by local law having jurisdiction over the Property. The parties
further agree that the Escrow Agent must be jointly approved by both Lender and
Borrower, and that Seminole Title Company, is approved as the Escrow Agent.
6.16 Commitment Fee. Borrower has agreed to pay Lender a
commitment fee in the amount of One Hundred Fifty Thousand Dollars and No/100
($150,000.00) in connection with the Loan and the Interval Receivables Loan
which Borrower agrees is fully earned and payable. Borrower has previously
paid Lender the amount of Twenty Thousand Dollars and No/100 ($20,000.00)
representing a portion of the Lender's commitment fee. At the execution and
delivery of this Loan Agreement, Borrower shall pay Lender the sum of One
Hundred Thirty Thousand Dollars and No/100 ($130,000.00) representing the
balance of the commitment fee for the Loan and the Interval Receivables Loan.
6.17 Counterparts. This Agreement may be signed in
multiple counterparts which taken together shall constitute the entire
agreement between the parties.
IN WITNESS WHEREOF, the parties set their hands the date above
first written.
BORROWER: LENDER:
PREFERRED EQUITIES CORPORATION, HELLER FINANCIAL, INC., a
a Nevada Corporation Delaware corporation
By: ___________________________ By: ___________________________
Its: __________________________ Title: _________________________
-34-
<PAGE> 40
APPROVED BY:
GUARANTOR:
MEGO FINANCIAL CORP., a New York
corporation
By: __________________________
Its: _________________________
_________________________________
-35-
<PAGE> 41
EXHIBIT A
APPLICATION FOR ADVANCE
-36-
<PAGE> 42
EXHIBIT B
APPROVED BUDGET
-37-
<PAGE> 43
EXHIBIT C
EASEMENT AREA
-38-
<PAGE> 44
EXHIBIT D
APPROVED CONSTRUCTION SCHEDULE
1. Commence Construction on Phase I on or before sixty (60) days after
the date of this Agreement (the "Commencement Date").
2. Phase I--42 Units in Buildings _____, to be completed on or before 134
days after the Commencement Date (the "Phase I Completion Date").
3. Phase II--30 Units in Buildings ______ to be completed on or before
134 days after the Phase I Completion Date (the "Phase II Completion
Date").
4. Phase III--30 Units in Buildings ______, the Amenity Building, the
Gate House, the pool and parking areas, to be completed on or before
134 days after the Phase II Completion Date (the "Final Completion
Date").
-39-
<PAGE> 45
EXHIBIT E
APPROVED TIMESHARE DOCUMENT FILING SCHEDULE
1. Completed drafts of the Public Offering Statement for Ramada Vacation
Suites at Tango Bay including the Declaration of CCRs and the
timeshare sales and finance documents but excluding the other exhibits
(the "POS") delivered to Lender for review and approval on or before
sixty days after the date of this Agreement.
2. Lender to approve or provide comments thereto within fifteen (15) days
of receipt of the POS.
3. Borrower to provide redrafts of the POS including all available
exhibits thereto, to Lender for final review within fifteen (15) days
of receipt of Lender's comments.
4. Lender shall have fifteen (15) days for final review of the POS from
receipt of the redrafted POS and during such fifteen (15) day period
Borrower shall deliver to Lender all exhibits necessary for filing the
POS with the Florida Division of Land Sales, Condominiums and Mobile
Homes, Bureau of Timeshare.
5. Borrower upon receipt of final approval of the POS from Lender shall
file the POS with the Florida Division of Land Sales, Condominiums,
and Mobile Homes, Bureau of Timeshare.
6. Borrower shall obtain final approval of the POS no later than December
1, 1996 subject to delays, if any, caused by Lender's review of the
POS. All time frames hereunder shall be extended by the number of
days caused by any such delay in Lender's review.
-40-
<PAGE> 46
EXHIBIT F
PERMITTED EXCEPTIONS
1. Any taxes not yet due and payable.
-41-
<PAGE> 47
EXHIBIT G
PROPERTY DESCRIPTION
-42-
<PAGE> 48
EXHIBIT H
LITIGATION DISCLOSURE
-43-
<PAGE> 49
EXHIBIT I
APPROVED TRANSACTION
NONE
-44-
<PAGE> 50
EXHIBIT J
SUBORDINATED OBLIGATIONS
-45-
<PAGE> 51
Loan No. 95-227
RECEIVABLES PROMISSORY NOTE
$15,000,000.00, __________, 1996
1. PROMISE TO PAY.
FOR VALUE RECEIVED, PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("MAKER") whose address is 4310 Paradise Road, Las Vegas, Nevada
89109, promises to pay to the order of HELLER FINANCIAL, INC., a Delaware
corporation, and its successors and assigns ("HOLDER"), in lawful money of the
United States of America and in immediately available funds, the aggregate
unpaid principal amount of all Advances made by Holder to Maker (the "LOAN")
pursuant to that certain Interval Receivables Loan and Security Agreement,
dated the date hereof, between Holder and Maker, as amended, modified or
supplemented from time to time in accordance with its terms (the "Receivables
Loan Agreement"). This is a revolving Note, the principal amount of which may
increase or decrease from time to time during the term hereof. This Note shall
evidence Advances made under the Receivables Loan Agreement, notwithstanding
that the total aggregate of principal advances and repayments exceed the
original maximum principal amount hereof, and notwithstanding that the
principal balance may be zero at any time. Payments shall be made to Holder at
500 West Monroe Street, 15th Floor, Chicago, Illinois 60661 (or such other
address as Holder may hereafter designate in writing to Maker).
The repayment of the Loan evidenced by this Note is secured by the
Receivables Loan Agreement pursuant to which Maker has assigned, pledged and
granted a security interest to Lender in certain receivables related to the
sale of Intervals and other collateral described therein. This Note, the
Receivables Loan Agreement and any other documents evidencing or securing the
Loan or executed in connection therewith, and any modification, renewal or
extension of any of the foregoing are collectively called the "Receivables Loan
Documents".
This Note has been issued pursuant to the Receivables Loan Agreement,
and all of the terms, covenants and conditions of the Receivables Loan
Agreement (including all Exhibits thereto) and all other instruments evidencing
or securing the indebtedness hereunder are hereby made a part of this Note and
are deemed incorporated herein in full. Defined terms used herein and not
otherwise defined shall have the meanings set forth in the Receivables Loan
Agreement.
-1-
<PAGE> 52
2. PRINCIPAL AND INTEREST
So long as no Event of Default exists, interest shall accrue on the
principal balance hereof from time to time outstanding and Maker shall pay
interest thereon at a rate equal to a floating rate per annum equal to four
percent (4.0%) plus the Base Rate (the aggregate rate referred to as the
"INTEREST RATE"). "BASE RATE" shall mean the rate published each Business Day
in the Wall Street Journal for deposits maturing three (3) months after
issuance under the caption "Money Rates, London Interbank Offered Rates
(Libor)." The Interest Rate for each calendar month shall be fixed based upon
the Base Rate published prior to and in effect on the first (1st) Business Day
of such month. Interest shall be calculated on a 360 day year and charged for
the actual number of days elapsed.
3. PAYMENT.
This Note is subject to mandatory payments as provided in
Section 1.4 of the Receivables Loan Agreement.
Maker shall pay interest to Lender monthly, in arrears, on the
first day of each calendar month, commencing on the first day of the first
calendar month following the first Advance pursuant to the Receivables Loan
Agreement, on the unpaid principal amount of this Note outstanding during the
previous calendar month at a fluctuating interest rate per annum (computed
daily on the basis of a year of 360 days and charged for the actual number of
days elapsed) equal to the Interest Rate; provided, however, that after the
occurrence of an Event of Default under the Receivables Loan Agreement this
Note shall bear interest at the Default Rate set forth below.
The Loan shall be due and payable on or before June 1, 2005, or any
earlier date on which the Loan shall be required to be paid in full, whether by
acceleration or otherwise (the "MATURITY DATE").
4. PREPAYMENT.
This Note is (i) subject to mandatory prepayments in whole or
in part as provided in Section 1.5(b) of the Receivables Loan Agreement; and
(ii) permitted optional prepayments in accordance with Section 1.5(a) of the
Receivables Loan Agreement, subject to applicable Prepayment Premiums.
-2-
<PAGE> 53
Not in limitation of any other mandatory prepayment
requirements under the Receivables Loan Agreement, if at any time the
outstanding aggregate principal balance under (i) this Note; (ii) that certain
promissory note of even date herewith between Holder and Maker in the principal
amount of $4,865,000.00 (the "Acquisition Note"); and (iii) that other certain
revolving promissory note of even date herewith between Holder and Maker in the
maximum principal amount of $1,500,000.00 (the "Renovation Note") exceeds
$15,000,000.00, such excess amount shall be due and payable by Maker to Holder
within five (5) Business Days after notice from Holder without premium or
penalty and such amount shall be applied by Holder to reduce the outstanding
principal balance of any of the above-referenced notes in any manner or amount
that Holder determines.
5. DEFAULT.
A. Events of Default.
An "Event of Default" under this Note shall mean the occurrence of any
Event of Default under any of the Receivables Loan Documents, after giving
effect to any applicable grace or cure period.
B. Remedies.
So long as an Event of Default remains outstanding: (a) interest
shall accrue at a rate equal to the Interest Rate plus four percent (4%) per
annum (the "DEFAULT RATE"); (b) Holder may, at its option and without notice
(such notice being expressly waived), declare the Loan immediately due and
payable; and (c) Holder may pursue all rights and remedies available under the
Receivables Loan Agreement or any other Receivables Loan Documents. Holder's
rights, remedies and powers, as provided in this Note and the other Receivables
Loan Documents, are cumulative and concurrent, and may be pursued singly,
successively or together against Maker, any guarantor of the Loan, the security
described in the Receivables Loan Documents, and any other security given at
any time to secure the payment hereof, all at the sole discretion of Holder.
Additionally, Holder may resort to every other right or remedy available at law
or in equity without first exhausting the rights and remedies contained herein,
all in Holder's sole discretion. Failure of Holder, for any period of time or
on more than one occasion, to exercise its option to accelerate the Maturity
Date shall not constitute a waiver of the right to exercise the same at any
time during the continued existence of any Event of Default or any subsequent
Event of Default.
If any attorney is engaged: (i) to collect the Loan or any
-3-
<PAGE> 54
sums due under the Receivables Loan Documents, whether or not legal proceedings
are thereafter instituted by Holder; (ii) to represent Holder in any
bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Note; (iii) to protect the
liens and security interests of the Receivables Loan Agreement or any of the
Receivables Loan Documents; (iv) to foreclose on the Collateral; (v) to
represent Holder in any other proceedings whatsoever in connection with the
Receivables Loan Agreement or any of the Receivables Loan Documents including
post judgment proceedings to enforce any judgment related to the Receivables
Loan Documents; or (vi) in connection with seeking an out-of-court workout or
settlement of any of the foregoing, then Maker shall pay to Holder all
reasonable costs, attorneys' fees and expenses in connection therewith, in
addition to all other amounts due hereunder.
6. LATE CHARGE.
If payments of principal and/or interest, or any other amounts under
the other Receivables Loan Documents are not timely made or remain overdue for
a period of ten (10) days, Maker, without notice or demand by Holder, promptly
shall pay an amount ("Late Charge") equal to four percent (4%) of each
delinquent payment.
7. GOVERNING LAW; SEVERABILITY.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois. The invalidity, illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to this
end, the provisions of this Note are declared to be severable.
8. WAIVER.
Maker, for itself and all endorsers, guarantors and sureties of this
Note, and their heirs, successors, assigns and legal representatives, hereby
waives presentment for payment, demand, notice of nonpayment, notice of
dishonor, protest of any dishonor, notice of protest and protest of this Note,
and all other notices in connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note except as provided in the
Receivables Loan Agreement, and agrees that their respective liability shall be
unconditional and without regard to the liability of any other party and shall
not be in any manner affected by any indulgence, extension of time, renewal,
waiver or modification granted or consented to by Holder. Maker, for itself
and all endorsers, guarantors and sureties of this Note, and their heirs, legal
representatives, successors and assigns, hereby
-4-
<PAGE> 55
consents to every extension of time, renewal, waiver or modification that may
be granted by Holder with respect to the payment or other provisions of this
Note, and to the release of any makers, endorsers, guarantors or sureties, and
of any collateral given to secure the payment hereof, or any part hereof, with
or without substitution, and agrees that additional makers, endorsers,
guarantors or sureties may become parties hereto without notice to Maker or to
any endorser, guarantor or surety and without affecting the liability of any of
them.
9. SECURITY, APPLICATION OF PAYMENTS.
This Note is secured by the liens, encumbrances and obligations
created hereby and by the other Receivables Loan Documents. Payments will be
applied to any fees, expenses or other costs Maker is obligated to pay under
this Note or the other Receivables Loan Documents, to interest due on the Loan
and to the outstanding principal balance of the Loan, in any order that Holder,
at its sole option, may deem appropriate.
10. MISCELLANEOUS.
A. Amendments.
This Note may not be terminated or amended orally, but only by a
termination or amendment in writing signed by Holder and Maker.
B. Lawful Rate of Interest.
In no event whatsoever shall the amount of interest paid or agreed to
be paid to Holder pursuant to this Note or any of the Receivables Loan
Documents exceed the highest lawful rate of interest permissible under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision of this Note and the other Receivables Loan Documents shall involve
exceeding the lawful rate of interest which a court of competent jurisdiction
may deem applicable hereto ("Excess Interest"), then ipso facto, the obligation
to be fulfilled shall be reduced to the highest lawful rate of interest
permissible under such law and if, for any reason whatsoever, Holder shall
receive, as interest, an amount which would be deemed unlawful under such
applicable law, such interest shall be applied to the principal of the Loan
(whether or not due and payable), and not to the payment of interest, or
refunded to Maker if the Loan has been paid in full. Neither Maker nor any
guarantor or endorser shall have any action against Holder for any damages
whatsoever arising out of the payment or collection of any such Excess
Interest.
C. Captions.
-5-
<PAGE> 56
The captions of the Paragraphs of this Note are for convenience of
reference only and shall not be deemed to modify, explain, enlarge or restrict
any of the provisions hereof.
D. Notices.
Notices shall be given under this Note in conformity with the terms
and conditions of the Receivables Loan Agreement.
E. Joint and Several.
The obligations of Maker under this Note shall be joint and several
obligations of Maker and of each Maker, if more than one, and of each Maker's
heirs, personal representatives, successors and assigns.
F. Time of Essence.
Time is of the essence of this Note and the performance of each of the
covenants and agreements contained herein.
11. VENUE.
MAKER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY,
INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS
NOTE SHALL BE LITIGATED, AT HOLDER'S SOLE DISCRETION AND ELECTION, ONLY IN
COURTS HAVING A SITUS WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS. MAKER
HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED WITHIN SAID COUNTY AND STATE. MAKER HEREBY IRREVOCABLY APPOINTS
AND DESIGNATES C T CORPORATION SYSTEM, WHOSE ADDRESS IS MAKER, C/O C T
CORPORATION SYSTEM, 208 S. LASALLE STREET, CHICAGO, ILLINOIS 60604, AS ITS
DULY AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES THAT SERVICE OF
SUCH PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON
MAKER PROVIDED A COPY OF SUCH SERVICE OF PROCESS IS ALSO SENT WITHIN THREE (3)
DAYS THEREAFTER TO MAKER EXCEPT IN THE CASE OF SERVICE OF PROCESS FOR ACTIONS
WHEREIN THE MAKER'S RESPONSE IS DUE IN LESS THAN TWENTY (20) DAYS, A COPY OF
SUCH PROCESS WILL BE SENT TO MAKER ON THE SAME DAY AS SERVICE ON C T
CORPORATION SYSTEM. IN THE EVENT SERVICE IS UNDELIVERABLE BECAUSE SUCH AGENT
MOVES OR CEASES TO DO BUSINESS IN CHICAGO, ILLINOIS, MAKER SHALL, WITHIN TEN
(10) DAYS AFTER HOLDER'S REQUEST, APPOINT A SUBSTITUTE AGENT (IN CHICAGO,
ILLINOIS) ON ITS BEHALF AND WITHIN SUCH PERIOD NOTIFY HOLDER OF SUCH
APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, HOLDER SHALL,
IN ITS SOLE DISCRETION, HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON
FIVE (5) DAYS NOTICE TO MAKER.
-6-
<PAGE> 57
MAKER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY HOLDER ON THE RECEIVABLES LOAN DOCUMENTS
IN ACCORDANCE WITH THIS PARAGRAPH.
12. SALE OF LOAN.
Holder, at any time and without the consent of Maker, may grant
participations in or sell, transfer, assign and convey all or any portion of
its right, title and interest in and to the Loan, this Note, the Receivables
Loan Agreement and the other Receivables Loan Documents, any guaranties given
in connection with the Loan and any collateral given to secure the Loan. In
the event Holder sells, transfers, conveys or assigns all of Holder's right,
title and interest in this Note or the Loan, Holder shall give notice thereof
to Maker and Holder shall thereupon be released from liability and obligations
of the Lender hereunder and under all other transferred Loan Documents from and
after the date of such transfer provided such transferee agrees to be bound by
the obligations of Lender thereunder and provided such transferee is of equal
or greater financial capacity than Holder. Notice to Maker shall not be
required for any partial sale, transfer, assignment or conveyance of this Note.
13. JURY TRIAL WAIVER.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP THAT
IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER HOLDER NOR ANY
PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE THAT THIS WAIVER IS
A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT MAKER AND
HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THAT
EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. MAKER AND HOLDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
(OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND
IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
IN WITNESS WHEREOF, Maker has executed this Note or has caused the
same to be executed by its duly authorized representatives as of the date set
first forth above.
MAKER:
Preferred Equities Corporation,
a Nevada corporation
-7-
<PAGE> 58
By:________________________________
Print Name:________________________
As Its:____________________________
-8-
<PAGE> 59
STATE OF NEVADA )
) SS.
COUNTY OF _________________)
I hereby certify that on this _________ day of March, 1996, before me,
an officer duly authorized in the State aforesaid and in the County aforesaid
to take acknowledgements, personally appeared _______________________, as
__________________________ of Preferred Equities Corporation, to me known to be
the person who executed the attached Receivables Promissory Note dated March
_________, 1996 in the principal amount of $15,000,000, in the State and County
aforesaid, on behalf of the corporation, and acknowledged before me that he/she
executed the same.
Notary :__________________________________
Print Name:_______________________________
[NOTARIAL SEAL] Notary Public, State of Nevada
My Commission Expires:____________________
Commission Number:________________________
-9-
<PAGE> 60
Loan No. 95-227
REVOLVING RENOVATION PROMISSORY NOTE
$1,500,000.00 _______, 1996
1. Promise to Pay.
FOR VALUE RECEIVED, PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Maker") whose address is 4310 Paradise Road, Las Vegas, Nevada
89109, promises to pay to the order of HELLER FINANCIAL, INC., a Delaware
corporation, and its successors and assigns ("Holder") the sum of One Million
Five Hundred Thousand and No/100 Dollars ($1,500,000.00), together with all
other amounts added thereto pursuant to this Note (the "Loan") (or so much
thereof as may from time to time be outstanding), together with interest
thereon as hereinafter set forth, payable in lawful money of the United States
of America. Payments shall be made to Holder at 500 West Monroe Street, 15th
Floor, Chicago, Illinois 60661 (or such other address as Holder may hereafter
designate in writing to Maker).
The repayment of the Loan evidenced by this Note is secured by among
other things (i) that certain Mortgage, Assignment of Rents and Security
Agreement of even date herewith (the " Mortgage") encumbering, among other
things, the property commonly described as Ramada Vacation Suites at Tango Bay
located in Orange County, Florida (the "Property"), and (ii) that certain
Interval Receivables Loan and Security Agreement of even date herewith (the
"Receivables Security Agreement") pursuant to which Maker has assigned, pledged
and granted a security interest to Lender in certain receivables related to the
sale of Interval Units and other Collateral described therein. This Note, the
Acquisition Promissory Note (the "Acquisition Note"), the Mortgage, the
Acquisition and Construction Loan Agreement (the "Loan Agreement") all of even
date herewith and any other documents evidencing or securing the Loan or
executed in connection therewith, and any modification, renewal or extension of
any of the foregoing are collectively called the "Loan Documents".
This Note has been issued pursuant to the Loan Agreement, and all of
the terms, covenants and conditions of the Loan Agreement (including all
Exhibits thereto) and all other instruments evidencing or securing the
indebtedness hereunder are hereby made a part of this Note and are deemed
incorporated herein in full. Defined terms used herein and not otherwise
defined shall have the meanings set forth in the Loan Agreement.
2. Principal and Interest.
So long as no Event of Default exists, interest shall accrue on the
principal balance hereof from time to time outstanding, and Maker shall pay
interest thereon at a floating rate of interest
<PAGE> 61
per annum equal to four and one-quarter percent (4.25%) plus the Base Rate (the
aggregate rate referred to as the "Interest Rate"). "Base Rate" shall mean the
rate published each business day in the Wall Street Journal for deposits
maturing three (3) months after issuance under the caption "Money Rates, London
Interbank Offered Rates (Libor)". The Interest Rate for each calendar month
shall be fixed based upon the Base Rate published prior to and in effect on the
first (1st) business day of such month. Interest shall be calculated based on
a 360 day year and charged for the actual number of days elapsed.
Maker shall be entitled to Advances (as defined in the Loan
Agreement) under this Note in the maximum aggregate amount of $3,000,000.00
during the first twenty-four (24) months of the term of this Note; provided,
however, at no time shall the outstanding principal balance under this Note
exceed $1,500,000.00. If, at any time, the outstanding balance hereunder
exceeds $1,500,000.00, Maker shall pay such excess amount to Holder within five
(5) business days after notice from Holder.
3. Payment.
Commencing on May 1, 1996, Maker shall pay interest computed at the
Interest Rate monthly in arrears on the first day of each month.
Concurrently with Maker's sale of any Interval Unit (as defined in the
Loan Agreement), Maker shall pay to Holder the Interval Release Payment and
Interval Incentive Fee (each as defined in the Loan Agreement) with respect to
such Interval Unit. The amount of $720.00 of each Interval Release Payment
shall be applied first to accrued but unpaid interest which is past due
hereunder, if any, and then to the outstanding principal balance of this Note.
The balance of the Interval Release Payment shall be applied as set forth in
the Acquisition Note. The Interval Incentive Fee due hereunder shall be the
same as the Interval Incentive Fee due under the Acquisition Note and Maker
shall pay only one such fee per Interval Unit sold.
The outstanding principal balance of this Note together with all
accrued interest shall be due and payable on or before March 29, 1999, or any
earlier date on which the Loan shall be required to be paid in full, whether by
acceleration or otherwise (the "Maturity Date").
4. Prepayment; Interval Incentive Fees.
Maker may prepay this Note in full or in part upon not less than three
(3) days prior written notice to Holder provided that
-2-
<PAGE> 62
at the time of such prepayment Maker pays Holder an Interval Incentive Fee
multiplied by the number of Interval Release Payments which would be necessary
to pay off the outstanding principal balance of this Note at the time of such
prepayment. Only one such Interval Incentive Fee shall be payable by Maker
under this Note and the Acquisition Note. In the event of prepayment of this
Note only, Maker shall be credited with the number of Interval Incentive Fees
paid hereunder in connection with such prepayment against the number of
Interval Incentive Fees due under the Acquisition Note.
Not in limitation of any other mandatory prepayment
requirements under the Loan Agreement, if, at any time, the outstanding
aggregate principal balance under (i) this Note; (ii) the Acquisition Note; and
(iii) that certain other revolving promissory note of even date herewith
between Holder and Maker in the maximum principal amount of $15,000,000.00 (the
"Receivables Note") exceeds the aggregate amount of $15,000,000.00, such excess
amount shall be due and payable by Maker to Holder within five (5) business
days after notice from Holder without premium or penalty and such amount shall
be applied by Holder to reduce the outstanding principal of any of the
referenced notes in any manner or amount as that Holder determines.
5. Default.
5.1 Events of Default.
Events of Default hereunder shall be those set forth in the Loan
Agreement.
5.2 Remedies.
So long as an Event of Default remains outstanding: (a) interest shall
accrue at a rate equal to the Interest Rate plus four percent (4%) per annum
(the "Default Rate"); (b) Holder may, at its option and without notice (such
notice being expressly waived), declare the Loan immediately due and payable;
and (c) Holder may pursue all rights and remedies available under the Mortgage
or any other Loan Documents. Holder's rights, remedies and powers, as provided
in this Note and the other Loan Documents, are cumulative and concurrent, and
may be pursued singly, successively or together against Maker, any guarantor of
the Loan, the security described in the Loan Documents, and any other security
given at any time to secure the payment hereof, all at the sole discretion of
Holder. Additionally, Holder may pursue every other right or remedy available
at law or in equity without first exhausting the rights and remedies contained
herein, all in Holder's sole discretion. Failure of Holder, for any period of
-3-
<PAGE> 63
time or on more than one occasion, to exercise its option to accelerate the
Maturity Date shall not constitute a waiver of the right to exercise the same
at any time during the continued existence of any Event of Default or any
subsequent Event of Default.
If any attorney is engaged: (i) to collect the Loan or any sums due
under the Loan Documents, whether or not legal proceedings are thereafter
instituted by Holder; (ii) to represent Holder in any bankruptcy,
reorganization, receivership or other proceedings affecting creditors' rights
and involving a claim under this Note; (iii) to protect the liens of the
Mortgage or any of the Loan Documents; (iv) to foreclose the Mortgage or
enforce any security interests under the Loan Documents; (v) to represent
Holder in any other proceedings whatsoever in connection with the Mortgage or
any of the Loan Documents including post judgment proceedings to enforce any
judgment related to the Loan Documents; or (vi) in connection with seeking an
out-of-court workout or settlement of any of the foregoing, then Maker shall
pay to Holder all reasonable costs, attorneys' fees and expenses in connection
therewith, in addition to all other amounts due hereunder.
6. Late Charge.
If payments of principal and/or interest, or any other amounts under
the other Loan Documents are not timely made or remain overdue for a period of
five (5) days, Maker, without notice or demand by Holder, promptly shall pay an
amount ("Late Charge") equal to four percent (4%) of each delinquent payment.
7. Governing Law: Severability.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois. The invalidity, illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to this
end, the provisions of this Note are declared to be severable.
8. Waiver.
Maker, for itself and all endorsers, guarantors and sureties of this
Note, and their heirs, successors, assigns, and legal representatives, hereby
waives presentment for payment, demand, notice of nonpayment, notice of
dishonor, protest of any dishonor, notice of protest and protest of this Note
except as provided in the Loan Agreement, and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of the
payment of this Note, and agrees that their respective liability
-4-
<PAGE> 64
shall be unconditional and without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver or modification granted or consented to by Holder. Maker, for
itself and all endorsers, guarantors and sureties of this Note, and their
heirs, legal representatives, successors and assigns, hereby consents to every
extension of time, renewal, waiver or modification that may be granted by
Holder regarding obligations of guarantors, endorsers or sureties with respect
to the payment of other provisions of this Note, and to the release of any
makers, endorsers, guarantors or sureties, and of any collateral given to
secure the payment hereof, or any part hereof, with or without substitution,
and agrees that additional makers, endorsers, guarantors or sureties may become
parties hereto without notice to Maker or to any endorser, guarantor or surety
and without affecting the liability of any of them.
9. Security, Application of Payments.
This Note is secured by the liens, encumbrances and obligations
created hereby and by the other Loan Documents and the terms and provisions of
the other Loan Documents are hereby incorporated herein. Payment will be
applied, at Holder's option, first to any fees, expenses or other costs Maker
is obligated to pay under this Note or the other Loan Documents, second to
interest due on the Loan and third to the outstanding principal balance of the
Loan.
10. Miscellaneous.
10.1 Amendments.
This Note may not be terminated or amended orally, but only by a
termination or amendment in writing signed by Holder and Maker.
10.2 Lawful Rate of Interest.
In no event whatsoever shall the amount of interest paid or agreed to
be paid to Holder pursuant to this Note or any of the Loan Documents exceed the
highest lawful rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Note and the
other Loan Documents shall involve exceeding the lawful rate of interest which
a court of competent jurisdiction may deem applicable hereto ("Excess
Interest"), then ipso facto, the obligation to be fulfilled shall be reduced to
the highest lawful rate of interest permissible under such law and if, for any
reason whatsoever, Holder shall receive, as interest, an amount which
-5-
<PAGE> 65
would be deemed unlawful under such applicable law, such interest shall be
applied to the principal of the Loan (whether or not due and payable), and not
to the payment of interest, or refunded to Maker if such Loan has been paid in
full. Neither Maker nor any guarantor or endorser shall have any action
against Holder for any damages whatsoever arising out of the payment or
collection of any such Excess Interest.
10.3 Captions.
The captions of the Paragraphs of this Note are for convenience of
reference only and shall not be deemed to modify, explain, enlarge or restrict
any of the provisions hereof.
10.4 Notices.
Notices shall be given under this Note in conformity with the terms
and conditions of the Loan Agreement.
10.5 Joint and Several.
The obligations of Maker under this Note shall be joint and several
obligations of Maker and of each Maker, if more than one, and of each Maker's
heirs, personal representatives, successors and assigns.
10.6 Time of Essence.
Time is of the essence of this Note and the performance of each of the
covenants and agreements contained herein.
11. Sale of Loan.
Holder, at any time and without the consent of Maker, may grant
participations in or sell, transfer, assign and convey all or any portion of
its right, title and interest in and to the Loan, this Note, the Mortgage, the
Loan Agreement and the other Loan Documents, any guaranties given in connection
with the Loan and any collateral given to secure the Loan. In the event Holder
sells, transfers, conveys or assigns all of Holder's right, title and interest
in this Note or the Loan, Holder shall give notice thereof to Maker and Holder
shall thereupon be released from liability and obligations of the Lender
hereunder and under all other transferred Loan Documents from and after the
date of such transfer provided such transferee agrees to be bound by the
obligations of Lender thereunder and provided such transferee is of equal or
greater financial capacity than Holder.
-6-
<PAGE> 66
12. Venue.
MAKER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY,
INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS
NOTE SHALL BE LITIGATED, AT HOLDER'S SOLE DISCRETION AND ELECTION, ONLY IN
COURTS HAVING A SITUS WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS. MAKER
HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED WITHIN SAID COUNTY AND STATE. MAKER HEREBY IRREVOCABLY APPOINTS
AND DESIGNATES C T CORPORATION SYSTEM, WHOSE ADDRESS IS MAKER, C/O C T
CORPORATION SYSTEM, 208 S. LASALLE STREET, CHICAGO, ILLINOIS 60604, AS ITS DULY
AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES THAT SERVICE OF SUCH
PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON MAKER
PROVIDED A COPY OF SUCH SERVICE OF PROCESS IS ALSO SENT WITHIN THREE (3) DAYS
THEREAFTER TO MAKER IN ACCORDANCE WITH THE NOTICE PROVISIONS OF THE LOAN
AGREEMENT PROVIDED, HOWEVER, IN THE CASE OF SERVICE OF PROCESS FOR ACTIONS
WHEREIN MAKER'S RESPONSE IS DUE IN LESS THAN TWENTY (20) DAYS, A COPY OF SUCH
PROCESS WILL BE SENT TO MAKER ON THE SAME DAY AS SERVICE ON C T CORPORATION
SYSTEM. IN THE EVENT SERVICE IS UNDELIVERABLE BECAUSE SUCH AGENT MOVES OR
CEASES TO DO BUSINESS IN CHICAGO, ILLINOIS, MAKER SHALL, WITHIN TEN (10) DAYS
AFTER HOLDER'S REQUEST, APPOINT A SUBSTITUTE AGENT (IN CHICAGO, ILLINOIS) ON
ITS BEHALF AND WITHIN SUCH PERIOD NOTIFY HOLDER OF SUCH APPOINTMENT. IF SUCH
SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, HOLDER SHALL, IN ITS SOLE
DISCRETION, HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON FIVE (5) DAYS
NOTICE TO MAKER. MAKER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR
CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY HOLDER ON THE LOAN
DOCUMENTS IN ACCORDANCE WITH THIS PARAGRAPH.
13. Jury Trial Waiver.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP THAT
IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER HOLDER NOR ANY
PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE THAT THIS WAIVER IS
A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT MAKER AND
HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THAT
EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. MAKER AND HOLDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
(OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND
IN
-7-
<PAGE> 67
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
-8-
<PAGE> 68
IN WITNESS WHEREOF, Maker has executed this Note or has caused the
same to be executed by its duly authorized representatives as of the date set
first forth above.
MAKER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: ____________________________________
Its: ___________________________________
-9-
<PAGE> 69
Loan No. 95-227
ACQUISITION PROMISSORY NOTE
$4,865,000.00
_______________, 1996
1. Promise to Pay.
FOR VALUE RECEIVED, PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Maker") whose address is 4310 Paradise Road, Las Vegas, Nevada
89109, promises to pay to the order of HELLER FINANCIAL, INC., a Delaware
corporation, and its successors and assigns ("Holder") the sum of Four Million
Eight Hundred Sixty Five Thousand Dollars and No/100 ($4,865,000.00), together
with all other amounts added thereto pursuant to this Note (the "Loan") (or so
much thereof as may from time to time be outstanding), together with interest
thereon as hereinafter set forth, payable in lawful money of the United States
of America. Payments shall be made to Holder at 500 West Monroe Street, 15th
Floor, Chicago, Illinois 60661 (or such other address as Holder may hereafter
designate in writing to Maker).
The repayment of the Loan evidenced by this Note is secured by among
other things (i) that certain Mortgage, Assignment of Rents and Security
Agreement of even date herewith (the " Mortgage") encumbering, among other
things, the property commonly described as Ramada Vacation Suites at Tango Bay
located in Orange County, Florida (the "Property"), and (ii) that certain
Interval Receivables Loan and Security Agreement of even date herewith (the
"Receivables Security Agreement") pursuant to which Maker has assigned, pledged
and granted a security interest to Lender in certain receivables related to the
sale of Interval Units and other Collateral described therein. This Note, the
Revolving Renovation Promissory Note (the "Renovation Note"), the Mortgage, the
Acquisition and Construction Loan Agreement (the "Loan Agreement") all of even
date herewith and any other documents evidencing or securing the Loan or
executed in connection therewith, and any modification, renewal or extension of
any of the foregoing are collectively called the "Loan Documents".
This Note has been issued pursuant to the Loan Agreement, and all of
the terms, covenants and conditions of the Loan Agreement (including all
Exhibits thereto) and all other instruments evidencing or securing the
indebtedness hereunder are hereby made a part of this Note and are deemed
incorporated herein in full. Defined terms used herein and not otherwise
defined shall have the meanings set forth in the Loan Agreement.
2. Principal and Interest.
So long as no Event of Default exists, interest shall accrue
<PAGE> 70
on the principal balance hereof from time to time outstanding, and Maker shall
pay interest thereon, at a floating rate of interest per annum equal to four
and one-quarter percent (4.25%) plus the Base Rate (the aggregate rate referred
to as the "Interest Rate"). "Base Rate" shall mean the rate published each
business day in the Wall Street Journal for deposits maturing three (3) months
after issuance under the caption "Money Rates, London Interbank Offered Rates
(Libor)". The Interest Rate for each calendar month shall be fixed based upon
the Base Rate published prior to and in effect on the first (1st) business day
of such month. Interest shall be calculated based on a 360 day year and
charged for the actual number of days elapsed.
3. Payment.
Commencing on May 1, 1996, Maker shall pay interest computed at the
Interest Rate monthly in arrears on the first day of each month during the term
of this Note.
Concurrently with Maker's sale of any Interval Unit (as defined in the
Loan Agreement), Maker shall pay to Holder the Interval Release Payment and
Interval Incentive Fee (as defined in the Loan Agreement) with respect to such
Interval Unit. The amount of One Thousand Two Hundred Eighty Dollars and
No/100 ($1,280.00) of each such Interval Release Payment shall be applied
first to accrued but unpaid interest which is past due hereunder, if any, and
then to the outstanding principal balance of this Note. The Interval Incentive
Fee due hereunder shall be the same as the Interval Incentive Fee due under the
Renovation Note and Maker shall pay only one such fee per Interval Unit sold.
The balance of the Interval Release Payment shall be applied as set forth in
the Renovation Note. The Interval Incentive Fee due hereunder shall be the
same as the Interval Incentive Fee due under the Renovation Note and Maker
shall pay only one such fee per Interval Unit sold.
The outstanding principal balance of the Note together with all
accrued interest shall be due and payable on or before March 29, 1999, or any
earlier date on which the Loan shall be required to be paid in full, whether by
acceleration or otherwise (the "Maturity Date").
4. Prepayment; Interval Incentive Fees.
Maker may prepay this Note in full or in part upon not less than three
(3) days prior written notice to Holder provided that at the time of such
prepayment Maker pays Holder an Interval Incentive Fee multiplied by the number
of Interval Release Payments which would be necessary to pay off the
outstanding
-2-
<PAGE> 71
principal balance of this Note at the time of such prepayment. Only one such
Interval Incentive Fee shall be payable by Maker under this Note and the
Renovation Note. In the event of prepayment of this Note only, Maker shall be
credited with the number of Interval Incentive Fees paid hereunder in
connection with such prepayment against the number of Interval Incentive Fees
due under the Renovation Note.
Not in limitation of any other mandatory prepayment
requirements under the Loan Agreement, if, at any time, the outstanding
aggregate principal balance under (i) this Note; (ii) the Renovation Note; and
(iii) that certain revolving promissory note of even date herewith between
Holder and Maker in the maximum principal amount of $15,000,000.00 (the
"Receivables Note") exceeds the aggregate amount of $15,000,000.00, such excess
amount shall be due and payable by Maker to Holder within five (5) business
days after notice from Holder without premium or penalty and services amount
shall be applied by Holder to reduce the outstanding principal of any of the
referenced notes in any manner or amount that Holder determines.
5. Default.
5.1 Events of Default.
Events of Default hereunder shall be those set forth in the Loan
Agreement.
5.2 Remedies.
So long as an Event of Default remains outstanding: (a) interest shall
accrue at a rate equal to the Interest Rate plus four percent (4%) per annum
(the "Default Rate"); (b) Holder may, at its option and without notice (such
notice being expressly waived), declare the Loan immediately due and payable;
and (c) Holder may pursue all rights and remedies available under the Mortgage
or any other Loan Documents. Holder's rights, remedies and powers, as provided
in this Note and the other Loan Documents, are cumulative and concurrent, and
may be pursued singly, successively or together against Maker, any guarantor of
the Loan, the security described in the Loan Documents, and any other security
given at any time to secure the payment hereof, all at the sole discretion of
Holder. Additionally, Holder may pursue every other right or remedy available
at law or in equity without first exhausting the rights and remedies contained
herein, all in Holder's sole discretion. Failure of Holder, for any period of
time or on more than one occasion, to exercise its option to accelerate the
Maturity Date shall not constitute a waiver of the right to exercise the same
at any time during the continued
-3-
<PAGE> 72
existence of any Event of Default or any subsequent Event of Default.
If any attorney is engaged: (i) to collect the Loan or any sums due
under the Loan Documents, whether or not legal proceedings are thereafter
instituted by Holder; (ii) to represent Holder in any bankruptcy,
reorganization, receivership or other proceedings affecting creditors' rights
and involving a claim under this Note; (iii) to protect the liens of the
Mortgage or any of the Loan Documents; (iv) to foreclose the Mortgage or
enforce any security interests under the Loan Documents; (v) to represent
Holder in any other proceedings whatsoever in connection with the Mortgage or
any of the Loan Documents including post judgment proceedings to enforce any
judgment related to the Loan Documents; or (vi) in connection with seeking an
out-of-court workout or settlement of any of the foregoing, then Maker shall
pay to Holder all reasonable costs, attorneys' fees and expenses in connection
therewith, in addition to all other amounts due hereunder.
6. Late Charge.
If payments of principal and/or interest, or any other amounts under
the other Loan Documents are not timely made or remain overdue for a period of
five (5) days, Maker, without notice or demand by Holder, promptly shall pay an
amount ("Late Charge") equal to four percent (4%) of each delinquent payment.
7. Governing Law: Severability.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois. The invalidity illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to this
end, the provisions of this Note are declared to be severable.
8. Waiver.
Maker, for itself and all endorsers, guarantors and sureties of this
Note, and their heirs, successors, assigns, and legal representatives, hereby
waives presentment for payment, demand, notice of nonpayment, notice of
dishonor, protest of any dishonor, notice of protest and protest of this Note,
and all other notices in connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note except as provided in the
Loan Agreement, and agrees that their respective liability shall be
unconditional and without regard to the liability of any other party and shall
not be in any manner affected by any indulgence, extension of time, renewal,
waiver or modification
-4-
<PAGE> 73
granted or consented to by Holder. Maker, for itself and all endorsers,
guarantors and sureties of this Note, and their heirs, legal representatives,
successors and assigns, hereby consents to every extension of time, renewal,
waiver or modification that may be granted by Holder regarding obligations of
guarantors, endorsers or sureties with respect to the payment of other
provisions of this Note, and to the release of any makers, endorsers,
guarantors or sureties, and of any collateral given to secure the payment
hereof, or any part hereof, with or without substitution, and agrees that
additional makers, endorsers, guarantors or sureties may become parties hereto
without notice to Maker or to any endorser, guarantor or surety and without
affecting the liability of any of them.
9. Security, Application of Payments.
This Note is secured by the liens, encumbrances and obligations
created hereby and by the other Loan Documents and the terms and provisions of
the other Loan Documents are hereby incorporated herein. Payment will be
applied, at Holder's option, first to any fees, expenses or other costs Maker
is obligated to pay under this Note or the other Loan Documents, second to
interest due on the Loan and third to the outstanding principal balance of the
Loan.
10. Miscellaneous.
10.1 Amendments.
This Note may not be terminated or amended orally, but only by a
termination or amendment in writing signed by Holder and Maker.
10.2 Lawful Rate of Interest.
In no event whatsoever shall the amount of interest paid or agreed to
be paid to Holder pursuant to this Note or any of the Loan Documents exceed the
highest lawful rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Note and the
other Loan Documents shall involve exceeding the lawful rate of interest which
a court of competent jurisdiction may deem applicable hereto ("Excess
Interest"), then ipso facto, the obligation to be fulfilled shall be reduced to
the highest lawful rate of interest permissible under such law and if, for any
reason whatsoever, Holder shall receive, as interest, an amount which would be
deemed unlawful under such applicable law, such interest shall be applied to
the principal of the Loan (whether or not due and payable), and not to the
payment of interest, or refunded to
-5-
<PAGE> 74
Maker if such Loan has been paid in full. Neither Maker nor any guarantor or
endorser shall have any action against Holder for any damages whatsoever
arising out of the payment or collection of any such Excess Interest.
10.3 Captions.
The captions of the Paragraphs of this Note are for convenience of
reference only and shall not be deemed to modify, explain, enlarge or restrict
any of the provisions hereof.
10.4 Notices.
Notices shall be given under this Note in conformity with the terms
and conditions of the Loan Agreement.
10.5 Joint and Several.
The obligations of Maker under this Note shall be joint and several
obligations of Maker and of each Maker, if more than one, and of each Maker's
heirs, personal representatives, successors and assigns.
10.6 Time of Essence.
Time is of the essence of this Note and the performance of each of the
covenants and agreements contained herein.
11. Sale of Loan.
Holder, at any time and without the consent of Maker, may grant
participations in or sell, transfer, assign and convey all or any portion of
its right, title and interest in and to the Loan, this Note, the Mortgage, the
Loan Agreement and the other Loan Documents, any guaranties given in connection
with the Loan and any collateral given to secure the Loan. In the event Holder
sells, transfers, conveys or assigns all of Holder's right, title and interest
in this Note or the Loan, Holder shall give notice thereof to Maker and Holder
shall thereupon be released from liability and obligations of the Lender
hereunder and under all other transferred Loan Documents from and after the
date of such transfer provided such transferee agrees to be bound by the
obligations of Lender thereunder and provided such transferee is of equal or
greater financial capacity than Holder.
12. Venue.
MAKER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY,
INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF,
-6-
<PAGE> 75
RELATED TO OR FROM THIS NOTE SHALL BE LITIGATED, AT HOLDER'S SOLE DISCRETION
AND ELECTION, ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS. MAKER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND STATE. MAKER HEREBY
IRREVOCABLY APPOINTS AND DESIGNATES C T CORPORATION SYSTEM, WHOSE ADDRESS IS
MAKER, C/O C T CORPORATION SYSTEM, 208 S. LASALLE STREET, CHICAGO, ILLINOIS
60604, AS ITS DULY AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES
THAT SERVICE OF SUCH PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE
OF PROCESS UPON MAKER PROVIDED A COPY OF SUCH SERVICE OF PROCESS IS ALSO SENT
WITHIN THREE (3) DAYS THEREAFTER TO MAKER IN ACCORDANCE WITH THE NOTICE
PROVISIONS OF THE LOAN AGREEMENT PROVIDED, HOWEVER, IN THE CASE OF SERVICE OF
PROCESS FOR ACTIONS WHEREIN MAKER'S RESPONSE IS DUE IN LESS THAN TWENTY (20)
DAYS, A COPY OF SUCH PROCESS WILL BE SENT TO MAKER ON THE SAME DAY AS SERVICE
ON C T CORPORATION SYSTEM. IN THE EVENT SERVICE IS UNDELIVERABLE BECAUSE SUCH
AGENT MOVES OR CEASES TO DO BUSINESS IN CHICAGO, ILLINOIS, MAKER SHALL, WITHIN
TEN (10) DAYS AFTER HOLDER'S REQUEST, APPOINT A SUBSTITUTE AGENT (IN CHICAGO,
ILLINOIS) ON ITS BEHALF AND WITHIN SUCH PERIOD NOTIFY HOLDER OF SUCH
APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, HOLDER SHALL,
IN ITS SOLE DISCRETION, HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON
FIVE (5) DAYS NOTICE TO MAKER. MAKER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY HOLDER ON
THE LOAN DOCUMENTS IN ACCORDANCE WITH THIS PARAGRAPH.
13. Jury Trial Waiver.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP THAT
IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER HOLDER NOR ANY
PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE THAT THIS WAIVER IS
A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT MAKER AND
HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THAT
EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. MAKER AND HOLDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
(OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND
IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
-7-
<PAGE> 76
IN WITNESS WHEREOF, Maker has executed this Note or has caused the
same to be executed by its duly authorized representatives as of the date set
first forth above.
MAKER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: ____________________________________
Its: ___________________________________
-8-
<PAGE> 1
EXHIBIT 10.94
CONSTRUCTION LOAN AGREEMENT
This Construction Loan Agreement is made as of the 30th day of April,
1996 (the "Effective Date"), by and between Preferred Equities Corporation, a
Nevada corporation ("Borrower") and NBD Bank, a Michigan banking corporation
("Lender").
WITNESSETH:
A. Borrower is the owner of certain real estate located in Nye County,
Nevada and legally described on Exhibit A attached hereto (the "Land").
B. Borrower proposes to construct certain infrastructure improvements
including water lines, sewer lines and roadways (the "Improvements") for the
benefit of the Land as well as additional land owned by Borrower and others.
C. Borrower has applied to Lender for a loan in the maximum amount of
One Million Four Hundred Forty Thousand Dollars ($1,440,000) (the "Loan") to
finance construction of the Improvements.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 The following terms as used herein shall have the following
meanings:
Budget: The budget for the Construction described in Section 7.1
hereof.
Change Order: Any amendments or modifications to the Plans and
Specifications, the General Contracts, or the contracts with the Engineer in
excess of $50,000 in any one instance.
Completion Date: The date upon which the Improvements have been
completed in accordance with the terms of this Agreement.
Construction: The construction of the Improvements pursuant to the
Plans and Specifications.
Construction Schedule: The Construction Schedule described in the
General Contracts.
Default Rate: The default rate of interest specified in the Note.
Engineer: Crosby Mead Benton & Associates.
Environmental Law(s): Any law, regulation, rule, policy, ordinance or
similar requirement which governs or protects the environment, enacted from
time to time by the United States, any state, or any county, city or agency or
subdivision of the United States or any state.
General Contracts: The construction contracts for the Construction
between Borrower and General Contractors and/or a construction contract
consistent with the proposal attached hereto
<PAGE> 2
as Exhibit C.
General Contractors: With respect to the roadway improvements,
Wulfenstein Construction and, with respect to the water and sewer improvements,
Floyd's Construction Inc.
Guarantor: Mego Financial Corp., a New York corporation, who shall
guarantee payment and completion of the construction as hereunder required.
Hazardous Material: Any material or substance: (1) which is or becomes
defined as a hazardous substance, pollutant, or contaminant, pursuant to the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
(42 USC {9601 et seq.) as amended and regulations promulgated under it; (2)
containing gasoline, oil, diesel fuel or other petroleum products; (3) which is
or becomes defined as hazardous waste pursuant to the Resource Conservation and
Recovery Act ("RCRA") (42 USC {6901 et seq.) as amended and regulations
promulgated under it; (4) containing polychlorinated biphenyls (PCBs); (5)
containing asbestos; (6) which is radioactive; (7) the presence of which
requires investigation or remediation under any Environmental Law; (8) which is
or becomes defined or identified as a hazardous waste, hazardous substance,
hazardous or toxic chemical, pollutant, contaminant, or biologically hazardous
material under any Environmental Law.
Lender's Consulting Engineer: The Engineer provided that the Engineer
delivers to Lender a written agreement acknowledging that the Engineer is being
retained by the Borrower for the benefit of the Lender to review construction
of the Improvements and provide related services for the benefit of the Lender
in addition to services for which the Engineer has been or may be retained for
the benefit of the Borrower and that notwithstanding the retaining of the
Engineer in this dual capacity, the Lender does not waive any right or claim of
action which may arise or to which Lender may be entitled as a result of the
Engineer's failure to perform any services for which it has been retained on
behalf of Lender.
Loan Documents: The Loan Documents as defined in Section 3.2 below.
Loan Fee: $14,400 to be paid by Borrower to Lender as of the Effective
Date.
Loan Maturity Date: The date which shall be twenty-four (24) months
from the Effective Date.
Loan Opening: The first disbursement of Loan proceeds.
Loan Opening Date: The date of Loan Opening.
Loan Policy of Title Insurance. American Land Title Association Loan
Policy, revised as to the most recent date and showing Lender as the insured
party, all as more fully described in Section 5.1(b) below.
Permitted Exceptions: Those matters listed in Exhibit B hereto to which
the interest of Borrower in the Land may be subject at the Loan Opening Date
and thereafter and any such other title exceptions or objections, if any, as
the Lender, or its counsel, may approve in writing.
Plans and Specifications: Plans and specifications for the construction
of the Improvements as referred to in Section 6.1(b) of this Agreement and
identified on Exhibit D, as such plans and specifications may be amended from
time to time in accordance with this Agreement.
Right-of-Way: The land comprising the publicly dedicated right-of-way
within which the Improvements shall be constructed.
<PAGE> 3
Scheduled Completion Date: April 30, 1997.
Title Insurer: United Title of Nevada or such other title insurance
company licensed in Nevada, as may be approved by Lender.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Borrower. To induce Lender to
execute this Agreement and perform the obligations of Lender hereunder,
Borrower hereby represents and warrants to Lender as follows:
(a) That on the Loan Opening Date and thereafter, Borrower will have
good and marketable fee simple title to the Land, subject only to the Permitted
Exceptions;
(b) That no litigation or proceedings are pending, or to the best of
Borrower's knowledge are threatened, against Borrower or the Guarantor (i)
which will affect the validity or priority of the lien of the Deed of Trust, or
(ii) which will materially affect the ability of Borrower or the Guarantor to
perform their respective obligations pursuant to and as contemplated by the
terms and provisions of this Agreement and the Loan Documents (as defined
hereinafter);
(c) That the matters of fact upon which the opinion of counsel as
recited in Section 5.1(e) hereof are based and, to the best of the Borrower's
knowledge, the matters to which the Engineer shall certify in the Engineer's
certificate as recited in Section 5.1(h) hereof are true;
(d) That the execution, delivery and performance of this Agreement
and the Loan Documents have not constituted (and will not, upon the giving of
notice or lapse of time or both, constitute) a breach or default under any
other agreement to which Borrower, or to the best of its knowledge, the
Guarantor is a party or may be bound or affected, or a violation of any law or
court order which may affect the Improvements or the Land any part thereof, any
interest therein, or the use thereof;
(e) That as of the date hereof (i) no condemnation of any portion of
the Land, (ii) no condemnation or relocation of any roadways abutting the Land,
and (iii) no denial of access to the Land from any point of access to the Land,
has commenced or, to the best of Borrower's knowledge, is contemplated by any
governmental authority;
(f) That the Budget is true and correct and that the amounts set
forth in the Budget present a full and complete representation of all costs,
expenses and fees which Borrower expects to pay or anticipates becoming
obligated to pay to complete the Construction by the Scheduled Completion Date;
(g) Except as restated by subsequent financial statements delivered
to Lender, that all financial statements and information furnished to Lender by
Borrower or the Guarantor are true, correct and complete in all material
respects as of the respective dates thereof and all other information
previously furnished by Borrower or Guarantor to Lender in connection with the
Loan are true, complete and correct in all material respects as of the
respective dates thereof and all financial statements and information furnished
to Lender include all material facts necessary to make the statements and
information not misleading;
(h) That no material adverse change in the financial condition of
Borrower or
<PAGE> 4
the Guarantor has occurred since the last date of submission to Lender of
financial statements and written representations of financial condition;
(i) That neither the Construction of the Improvements or the
proposed use of the Land will violate (i) any statutes, laws, regulations,
rules, ordinances or orders of any kind whatsoever (including without
limitation zoning, building and fire codes, laws, ordinances, regulations or
approvals and Environmental Laws), or (ii) any building permits, restrictions
of record, or any agreement affecting the Improvements or the Land or any part
thereof. Neither the zoning laws nor any other laws governing the right to
construct the Improvements requires use of any real estate other than the
Right-of-Way within which the Improvements shall be constructed. Without
limiting the generality of the foregoing, all consents, licenses and permits
and all other governmental authorizations or approvals required to commence the
Construction of the Improvements and to sell the platted lots comprising the
Land have been obtained or will be obtained prior to the Loan Opening Date and
that all laws, rules and regulations of the State of Nevada or any subdivision
thereof relating to the Construction of the Improvements and the sale of the
lots have been and will be complied with;
(j) That all other consents and approvals from any persons or
entities which are necessary or required for the Construction have been
obtained by Borrower or will be obtained prior to the Loan Opening Date (or
prior to such time as such consents or approvals are required);
(k) That, upon completion of the Construction of the Improvements,
the Land will have adequate water and sanitary sewerage facilities, and means
of vehicular access between the Land and public highways; that to the best of
the Borrower's knowledge, none of the foregoing will be delayed or impeded by
virtue of any requirements under any applicable Environmental Laws;
(l) That neither the Borrower nor, to the best of the Borrower's
knowledge, any previous owner of the Land or the Right-of-Way nor any third
party has ever caused or permitted any Hazardous Material to be placed, held,
located, generated, stored or disposed of on, under or at the Land or the
Right-of-Way, or any part thereof, and the Land or the Right-of-Way has never
been used (whether by the Borrower or to the best knowledge of the Borrower by
any other person) as a dump site or storage site (whether permanent or
temporary) for any Hazardous Material;
(m) That when completed in accordance with the Plans and
Specifications, the Improvements will be constructed within the Right-of-Way
and will not encroach upon any other land;
(n) That each lot comprising the Land is taxed separately and
without regard to any other property which is not included in the real property
subject to the Deed of Trust and for all purposes each lot comprising the Land
may be mortgaged, conveyed and otherwise dealt with as an independent parcel;
(o) That Borrower is not nor will be held, directly or indirectly,
by a "foreign corporation", "foreign partnership", foreign trust", "foreign
estate", "foreign person", or "affiliate" of a "foreign person" within the
meaning of Sections 1445 and 7701 of the Internal Revenue Code and the
regulations promulgated thereunder;
(p) That a substantial portion of the materials necessary for the
completion of Construction of the Improvements have been purchased or will be
purchased prior to the Loan Opening Date; and
(q) That all statements set forth in the Recitals are true and
correct.
2.2 Survival of Representations and Warranties. Borrower agrees that
all of its
<PAGE> 5
representations and warranties set forth in Section 2.1 hereof and elsewhere in
this Agreement will be true at the Loan Opening Date and at all times
thereafter. Each request for disbursement hereunder shall constitute a
reaffirmation of such representations and warranties, subject to modifications
disclosed in the information delivered pursuant to Section 10.1(k) provided
that further disbursements of the Loan proceeds shall be subject to Lender's
approval, in its sole discretion, of such modifications.
ARTICLE 3.
TERMS OF LOAN AND DOCUMENTS
3.1 Agreement to Borrow and Lend. Subject to all of the terms,
provisions and conditions set forth in this Agreement, Lender agrees to make
and Borrower agrees to accept the Loan.
3.2 Loan Documents. Borrower agrees that it will, on or before the Loan
Opening Date, execute and deliver or cause to be delivered to Lender the
following documents and instruments (hereinafter collectively called the "Loan
Documents") in form and substance acceptable to Lender:
(a) A note ("Note") from Borrower payable to the order of Lender in
the original principal amount of One Million Four Hundred Forty Thousand
Dollars ($1,440,000);
(b) A valid deed of trust ("Deed of Trust") on the Land, securing
without limitation the Note, subject only to the Permitted Exceptions;
(c) Collateral assignments to Lender of all of Borrower's right,
title and interest in and to (i) the General Contracts, all other contracts and
agreements executed by Borrower in connection with the Construction, (ii) all
assignable building permits, governmental permits, licenses and authorizations
issued from time to time in connection with the Construction, (iii) the Plans
and Specifications, and (iv) Borrower's agreements with the Engineer retained
by Borrower in connection with the Construction;
(d) Guaranty Agreement (the "Guaranty") by the Guarantor dated the
date hereof;
(e) An affirmation of the representations and covenants set forth in
the Environmental Certificate dated June 14, 1994 ("Environmental Certificate")
from Borrower to Lender regarding Borrower's compliance with Environmental
Laws; and
(f) Such other documents from Borrower, Guarantor or third parties
as may be required by this Agreement or as Lender may reasonably require.
3.3 Interest Rate. The Loan will bear interest at the rate set forth in
the Note. Interest on the Loan shall be computed on the principal sum of each
Loan disbursement from time to time on a basis of a 360-day year, and shall be
charged for the actual number of days within the period for which interest is
being charged. Upon default or delinquency in the making of payments when due,
the interest rate under the Loan shall be at the Default Rate.
3.4 Term of the Loan. The unpaid principal balance, all accrued and
unpaid interest and all other sums due and payable hereunder, under the Note or
other Loan Documents, if not sooner paid, shall be paid in full on the Loan
Maturity Date.
3.5 Prepayments. Borrower shall have the right to make prepayments of
the Loan in
<PAGE> 6
whole or in part as permitted by and in accordance with the terms of the Note.
ARTICLE 4.
LOAN EXPENSE AND ADVANCES;
SECURITY OF MORTGAGE FOR SAME
4.1 Loan Expense. Borrower agrees to pay all expenses of the Loan,
including all recording charges, title insurance charges, costs of surveys,
fees of Lender's Consulting Engineer, reasonable fees and expenses of Lender's
attorneys (other than fees and expenses incurred in connection with the initial
documentation and negotiation of the Loan Documents which shall be paid by
Lender), and all costs and expenses incurred by Lender in connection with the
determination of whether or not Borrower has performed the obligations
undertaken by Borrower hereunder or has satisfied any conditions precedent to
the obligations of Lender hereunder. All such expenses, charges, costs and
fees shall be the Borrower's obligation regardless of whether the Loan is
disbursed in whole or in part unless such failure to disburse is due to
Lender's wrongful failure to disburse hereunder.
4.2 Lender's Loan Fee. Borrower agrees, as consideration for the
execution of this Agreement by Lender and the forward commitment of Lender, to
pay on the Effective Date the Loan Fee.
4.3 Time of Payment of Fees. Borrower shall pay all fees and expenses
incurred by Lender and required to be paid by Borrower under this Agreement at
the Effective Date, the Loan Opening Date and at such subsequent times as
Lender may determine.
4.4 Expenses and Advances Secured by Loan Documents. Any and all
advances or payments made by Lender under this Agreement from time to time, and
any amounts expended by Lender pursuant to Section 15.1(a) hereof or for
Lender's Consulting Engineer's fees and attorneys' fees and expenses, and all
other Loan expenses shall, as and when advanced or incurred by Lender,
constitute additional indebtedness evidenced by the Note and secured by the
Deed of Trust and the other Loan Documents to the same extent and effect as if
the terms and provisions of this Agreement were set forth therein, whether or
not the aggregate of such indebtedness shall exceed the aggregate face amount
of the Note.
ARTICLE 5.
NON-CONSTRUCTION REQUIREMENTS PRECEDENT
TO THE OPENING OF THE LOAN
5.1 Conditions Precedent. Borrower agrees that Borrower will perform
and satisfy all of the following conditions precedent prior to its initial
request for a Loan, and Borrower agrees that Lender's obligation to make the
first disbursement of the Loan and thereafter to make further disbursements of
the proceeds thereof, is conditioned upon Borrower's performance or
satisfaction of all such conditions precedent:
(a) No Event of Default by Borrower or Guarantor shall have occurred
under this Agreement or any of the Loan Documents and Borrower and Guarantor
shall have timely complied with and performed all of Borrower's covenants,
agreements and obligations under this Agreement which by their terms are
required to have been complied with and performed by Borrower.
<PAGE> 7
(b) Borrower shall have furnished to Lender a title insurance
commitment ("Commitment") for an ALTA Loan Policy of Title Insurance in the
full aggregate amount of the Loan, issued by the Title Insurer, establishing
that the Title Insurer is prepared to insure the Deed of Trust as a valid and
subsisting first lien on the Land and all appurtenant easements as reasonably
required by Lender, to the extent of advances of the Loan, subject only to (i)
the Permitted Exceptions, and (ii) customary objections and exceptions relating
to the issuance of a Loan Policy of Title Insurance which, by their nature,
cannot be eliminated until completion of Construction. The Commitment shall
(1) contain a mechanic's lien endorsement in form acceptable to Lender's
counsel; (2) specifically insure the Lender that (y) no restrictions of record
affecting the Land have been violated, and (z) the Land has access to publicly
dedicated streets, and (3) contain such other endorsements as Lender may
require. Borrower agrees to deliver to the Title Insurer such other papers,
instructions and documents as the Title Insurer may require for the issuance of
the Commitment and the issuance of date-down endorsements and interim
certifications relating to the Construction payouts provided in Article 9
hereof and in accordance with all requirements of this Agreement.
(c) Borrower shall have furnished Lender copies of the recorded
plats of the Land, made by a Nevada registered or certified land surveyor,
showing the outline of the Land and, if requested by Lender, evidence
satisfactory to Lender that no improvements have been constructed on the Land.
(d) Borrower shall have furnished to Lender certificates of
insurance for policies for which the premiums have been fully prepaid (which,
in the case of insurance on the Improvements, during the time of Construction
shall be in builder's risk form and which shall include all insurance required
to be carried by Borrower, as "owner", under the provisions of all construction
contracts let by Borrower) which shall be with companies and in form and
amounts and with coverage satisfactory to Lender. Such insurance shall include
the following:
(i) Casualty insurance insuring the Improvements, including
all materials in storage and while in transit during the
construction period, against loss or damage by fire or other
casualty, with extended coverage and with coverage for such other
hazards (including "collapse" and coverage in so-called "all risk"
form);
(ii) Comprehensive general liability insurance (including
contractual liability) for the Land naming Lender as an additional
insured with liability insurance limits of $3,000,000 combined
single limit for personal injury and property damage, with
$20,000,000 "umbrella" coverage; and
(iii) Professional liability insurance covering the Engineer.
Borrower shall have furnished evidence satisfactory to Lender that no part of
the Land is located in an area designated by the Secretary of Housing and Urban
Development as having special flood hazards. Borrower also shall have
furnished evidence satisfactory to Lender that the General Contractors have
obtained workers' compensation insurance in compliance with all applicable
federal, state and local laws. The insurance required hereunder may be
provided under blanket insurance policies. All policies required under this
Section 5.1(d) and all other insurance required under this Agreement shall
provide that the insurance evidenced thereby shall not be canceled or modified
without at least 30 days prior written notice from the insurance carrier to
Lender. Further, Borrower shall deliver renewal certificates of all insurance
required under this Section 5.1(d) and
<PAGE> 8
all other insurance required under this Agreement together with written
evidence of full payment of the annual premiums therefor at least 30 days prior
to the expiration of the existing insurance.
(e) Borrower shall have furnished to Lender an opinion from counsel
for Borrower and the Guarantor in the form satisfactory to Lender and its
counsel.
(f) Borrower shall have furnished Lender evidence satisfactory to
Lender, including certified resolutions of the board of directors of the
Borrower, that the individual executing this Agreement and the other Loan
Documents on behalf of the Borrower has been duly authorized by all appropriate
corporate action to execute and deliver this Agreement and the Loan Documents
on behalf of the Borrower.
(g) Borrower shall have furnished to Lender certified copies of the
articles of incorporation and a good standing certificate for Borrower and the
articles of incorporation and a good standing certificate for the Guarantor.
(h) Lender shall have received a certification from the Lender's
Consulting Engineer to be delivered to Lender pursuant to Section 6.1(b)
hereof.
(i) Borrower shall have furnished to Lender a report or
certification from an environmental consultant satisfactory to Lender stating
there has been no accumulation, storage or disposal of Hazardous Material on,
under or about the Land and the Right-of-Way which violates Environmental Laws.
(j) Borrower shall have complied with the applicable requirements of
Articles 6 and 9 of this Agreement.
ARTICLE 6.
CONSTRUCTION PAYOUT REQUIREMENTS
PRECEDENT TO THE LOAN OPENING
6.1 Required Construction Documents. Borrower shall cause the following
to be furnished to Lender in sufficient time for review by Lender prior to the
Loan Opening Date, all in form and substance satisfactory to Lender:
(a) Executed copies of all of Borrower's existing contracts with
engineers, including its contracts with the Engineer and copies of the General
Contracts.
(b) Plans and Specifications (in duplicate) for the Construction,
together with a certificate of the Engineer in favor of Lender which shall be
in the form attached as Exhibit E.
(c) Such documents as Lender may reasonably require (i) in
connection with applications for disbursements of Loan proceeds; (ii) to
establish the identity and power and authority of any person or persons who may
be authorized by Borrower to execute such documents; (iii) to establish that
all permits, licenses and approvals (including any and all environmental
protection permits) required for the Construction of the Improvements have been
obtained by Borrower; and (iv) to establish that the Improvements, once
constructed, will comply with all applicable zoning, building and fire codes,
laws, regulations and ordinances.
ARTICLE 7.
<PAGE> 9
BUDGET AND
SUFFICIENCY OF LOAN
TO COMPLETE CONSTRUCTION
7.1 Budget. A copy of the final Budget is attached hereto as Exhibit F.
7.2 Loan in Balance. Anything in this Agreement contained to the
contrary notwithstanding, it is expressly understood and agreed that the Loan
shall at all times be "in balance." The Loan shall be deemed to be "in
balance" only at such time and from time to time, as Lender may determine, in
its sole but reasonable discretion, that the then undisbursed portion of the
Loan equals or exceeds the amount necessary to pay for all work done and not
theretofore paid for or to be done in connection with the completion of the
Construction of the Improvements in accordance with the Plans and
Specifications.
Borrower agrees that if for any reason the amount of undisbursed
proceeds of the Loan shall at any time be or become insufficient for the
purposes described in this Section 7.2 regardless of how such condition may
have been brought about, Borrower or Guarantor shall, within five (5) days
after written request by the Lender, deposit the deficiency with the Lender,
provide an alternative source of funds acceptable to Lender in its discretion,
or otherwise cure such condition to the satisfaction of Lender in its
discretion.
ARTICLE 8.
LENDER'S OBLIGATION TO DISBURSE
PROCEEDS OF THE LOAN
8.1 Construction Loan Opening. Upon Borrower's compliance with and
satisfaction of all conditions precedent to the Loan Opening, Lender shall open
the Loan hereunder.
8.2 Conditions to Disbursement After Loan Opening. After the Loan
Opening, Borrower shall be entitled to receive successive disbursements of
proceeds of the Loan in accordance with Article 9 of this Agreement (other than
the final disbursements described in Article 12 hereof) within three (3)
business days after each successive compliance with all applicable conditions
precedent thereto, and provided that (a) prior to each such disbursement no
Event of Default shall have occurred under this Agreement or any of the Loan
Documents, and (b) the Loan is "in balance" as required by Section 7.2 hereof,
and (c) Borrower shall have furnished or caused to be furnished to Lender an
endorsement to the Loan Policy of Title Insurance covering the date of
disbursement and showing the Deed of Trust as a first, prior and paramount lien
on the Land subject only to the Permitted Exceptions. Such disbursements shall
be made no more frequently than twice in each calendar month. In addition,
upon the occurrence and continuance of an Event of Default hereunder, such
disbursements may be made directly to the person or persons entitled to such
disbursement.
ARTICLE 9.
CONSTRUCTION PAYOUT REQUIREMENTS WITH
RESPECT TO ALL DISBURSEMENTS OF THE LOAN
9.1 Applicability of Sections. The provisions contained in this Article
9 shall apply to the Loan Opening and to all disbursements of Loan proceeds
made thereafter.
9.2 Documents to be Furnished for Each Disbursement. As a condition
precedent to each disbursement of the Loan proceeds, Borrower shall furnish or
cause to be furnished to Lender
<PAGE> 10
the following documents covering each disbursement, in form and substance
satisfactory to Lender:
(a) Lender's form of Project Construction Statement properly
executed by Borrower and Lender's Consulting Engineer in form substantially
similar to the form attached as Exhibit E;
(b) Sworn statements for contractors and subcontractors, covering
all work for which disbursement is to be made to a date specified therein, and
covering all work otherwise paid for or to be paid for in connection with the
Construction;
(c) Copies of any Change Orders, whether proposed or executed, which
have not been previously furnished to Lender;
(d) Copies of all construction contracts having a total contract
amount in excess of $50,000 which have been executed since the last
disbursement;
(e) Such other documentation which may be necessary to enable the
Title Insurer to issue a so-called date-down endorsement to the Loan Policy of
Title Insurance; and
(f) If any material dispute arises between or among Borrower,
General Contractors, or any other contractors, subcontractors and/or material
supplier, or if any Change Order is being negotiated by Borrower, upon written
request, a written summary of the nature of such dispute, or the status of such
negotiations, as the case may be.
9.3 Payments Directly to Contractors and Subcontractors. Upon the
occurrence of an Event of Default hereunder, Lender may in its sole discretion
make payments for the cost of the Construction directly to the General
Contractors, any subcontractors or material supplier.
9.4 Lender's Right to Employ Lender's Consulting Engineer. Lender shall
have the right to employ Lender's Consulting Engineer to review the Plans and
Specifications and all other matters related to the Construction, and to
inspect all Construction and the progress of the same. All fees and expenses
of Lender's Consulting Engineer shall be borne by Borrower as a loan expense.
ARTICLE 10.
BORROWER'S AGREEMENTS
10.1 Borrower further covenants and agrees:
(a) Opening of Loan. That all conditions precedent to the Loan
Opening shall be complied with on or prior to the Loan Opening Date;
(b) Construction. That (i) the Construction will commence on or
before the Loan Opening Date, (ii) the Construction will continue with
diligence and continuity and substantially in accordance with the Construction
Schedule, (iii) the Construction will be completed in a good and workmanlike
manner with materials of high quality, free of defects and liens, all
substantially in accordance with the Plans and Specifications (or with any
changes thereto that may be approved in writing by Lender) and all governmental
and quasi-governmental requirements, including all requirements and conditions
set forth in all permits, licenses and other governmental approvals which have
been obtained or are required to be obtained for the Construction of the
Improvements, (iv) the construction of the Improvements will be fully completed
not later than the Scheduled Completion Date.
<PAGE> 11
(c) Changes in Plans and Specifications. That no changes will be
made in the Plans and Specifications which result in expenditures in excess of
$50,000 without the written approval of Lender, except as permitted under
subparagraph (d) below.
(d) Change Orders. That no Change Orders shall be allowed with
respect to the Improvements to any contractor without Lender's prior written
consent; provided that (i) Lender agrees to make its determination as soon as
possible and in any event within two (2) business days of receipt of the Change
Order, (ii) Lender agrees not to withhold its approval of any Change Order
which does not increase the Budget or for which Borrower pays the increased
cost of such item or items directly, and (iii) Borrower shall give Lender, if
requested by Lender, a summary of the status of any negotiations relating to
any Change Order.
(e) Inspection by Lender. That Borrower will cooperate (and will
cause the General Contractors to cooperate) with Lender in arranging for
inspections of the progress of the Construction by Lender's Consulting Engineer
and other representatives of the Lender, from time to time.
(f) Renewal of Insurance. To pay timely all premiums on all
insurance policies required under this Agreement from time to time; and when
and as additional insurance is required from time to time during the term of
the Loan and when and as any policies of insurance may expire, furnish to
Lender, premiums prepaid, additional and renewal insurance policies in
companies, coverage and amounts reasonably satisfactory to Lender, all in
accordance with Sections 5.1(d) above. Notwithstanding this Section 10.1(f),
upon the occurrence of an Event of Default under this Agreement or any of the
Loan Documents, Lender shall have the right (but not the obligation) to place
and maintain insurance required to be placed and maintained by Borrower
hereunder and treat the amounts expended therefor as additional disbursements
of Loan proceeds.
(g) Payment of Taxes. To pay all special assessments which may have
been placed in collection and all real estate taxes and assessments of every
kind upon the Land before the same become delinquent; provided, however, that
Borrower shall have the right to pay such tax under protest or to otherwise
contest any such tax or assessment but only if (x) such contest has the effect
of preventing the collection of such taxes so contested and also prevent the
sale or forfeiture of the Land or the Improvements or any part thereof or any
interest therein, (y) Borrower has notified Lender of its intent to contest
such taxes and (z) Borrower has deposited security in form and amount
reasonably satisfactory to Lender in its sole judgment, and increases the
amount of such security so deposited promptly after Lender's request therefor.
(h) Proceedings to Enjoin or Prevent Construction. That if any
proceedings are filed seeking to enjoin or otherwise prevent or declare
unlawful the Construction of the Improvements or any portion thereof, Borrower
shall at its sole expense (i) cause such proceedings to be vigorously contested
in good faith and (ii) in the event of an adverse ruling or decision, prosecute
all allowable appeals therefrom.
(i) Lender's Attorneys' Fees for Enforcement of Agreement. That in
case of any Event of Default under this Agreement or any of the Loan Documents,
Borrower (in addition to Lender's attorneys' fees and expenses to be paid by
Borrower under Section 4.1 of this Agreement) shall pay all of Lender's
reasonable attorneys' fees and expenses in connection with the enforcement of
this Agreement and the Loan Documents and such fees and expenses shall
constitute additional indebtedness of Borrower to Lender, payable on demand and
secured by the Deed of Trust and other Loan Documents.
(j) Lender's Action for its Own Protection Only. That the authority
herein conferred upon Lender, and any action taken by Lender to inspect the
Improvements, to procure
<PAGE> 12
waivers or sworn statements, to approve contracts, subcontracts and purchase
orders, to approve Plans and Specifications, will be exercised and taken by
Lender and Lender's Consulting Engineer for their own protection only and may
not be relied upon by Borrower for any purposes whatsoever; and neither Lender
nor Lender's Consulting Engineer shall be deemed to have assumed any
responsibility to Borrower with respect to any such action herein authorized or
taken by Lender or Lender's Consulting Engineer or with respect to the
Improvements, the proper construction performance of contracts, subcontracts or
purchase orders by any contractors, subcontractors or material suppliers, or
prevention of mechanics' liens from being claimed or asserted against any of
the Improvements. Any review, investigation or inspection conducted by Lender,
Lender's Consulting Engineer, any engineering or environmental consultants
retained by Lender or any agent or representative of Lender in order to verify
independently Borrower's satisfaction of any conditions precedent to Loan
disbursements under this Agreement, Borrower's performance of any of the
covenants, agreements and obligations of Borrower under this Agreement or the
validity of any representations and warranties made by Borrower hereunder
(regardless of whether or not the party conducting such review, investigation
or inspection should have discovered that any of such conditions precedent were
not satisfied or that any such covenants, agreements or obligations were not
performed or that any such representations or warranties were not true), shall
not affect (or constitute a waiver by Lender of) (i) any of Borrower's
representations and warranties under this Agreement or Lender's reliance
thereon or (ii) Lender's reliance upon any certifications of Borrower or the
General Contractors required under this Agreement or any other facts,
information or reports furnished Lender by Borrower hereunder.
(k) Furnishing Information. That Borrower shall deliver or cause to
be delivered to Lender annual financial statements (audited by an independent
certified public accountant of recognized national standing) for Borrower as
soon as available and in no event later than one hundred twenty (120) days
after the close of each fiscal year. The Borrower shall also deliver or cause
to be delivered to Lender the annual financial statements (audited by an
independent certified public accountant of recognized national standing) of the
Guarantor as soon as available and in no event later than one hundred twenty
(120) days after the close of each fiscal year, which annual statements shall
be certified as true and correct by an authorized representative of the party
to whom such statement relates. Additionally, Borrower will:
(i) deliver or cause to be delivered to Lender unaudited
quarterly financial statements for Borrower and Guarantor certified
by an authorized representative of the party to whom such statements
relate;
(ii) deliver to Lender monthly sales reports regarding the
sold and unsold lots comprising the Land;
(iii) promptly supply Lender with such information concerning
its respective affairs relating to the Construction of the
Improvements as Lender may reasonably request from time to time
hereafter;
(iv) promptly supply or cause to be supplied to Lender such
other information regarding the conditions or operations, financial
or otherwise, of the Borrower and the Guarantor as Lender may
reasonably request from time to time hereafter;
(v) promptly notify Lender of any
<PAGE> 13
condition or event which constitutes (or which upon the giving of
notice or lapse of time or both would constitute) a breach or event
of default of any term, condition, warranty, representation or
provision of this Agreement or of any of the Loan Documents;
(vi) promptly notify Lender of any "material adverse
financial change" in the respective financial conditions of the
Borrower or the Guarantor;
(vii) promptly notify Lender of any "material adverse
financial change" in connection with the Construction of the
Improvements; and
(viii) at any time during regular business hours and upon
reasonable notice, permit Lender or any of its agents or
representatives to have access to and examine all of its books and
records regarding the Construction of the Improvements and the
financial condition of the Borrower and the Guarantor.
(l) Furnishing Reports. At Lender's request, Borrower shall provide
the Lender with copies of all inspections, reports, test results and other
information received by Borrower from time to time from its employees, agents,
representatives, architects, engineers, General Contractors and any other
parties involved in the Construction of the Improvements, which in any way
relate to the Improvements or the Construction, or any part thereof.
(m) Furnishing Notices. At Lender's request, Borrower shall provide
Lender with copies of all material notices pertaining to the Improvements or
any part thereof received by Borrower (or its agents or representatives) from
any federal, state or local governmental official, body, board or department or
from any insurance company providing insurance on any of the Improvements,
within ten (10) business days after such notice is received.
(n) Correction of Defects. That within fifteen (15) days after
notice, Borrower will proceed with diligence to correct all defects in the
Improvements and any material departure from the Plans and Specifications (if
not previously approved by Lender or permitted under this Agreement), or any
other requirement of this Agreement. The disbursement of any Loan proceeds
shall not constitute a waiver of Lender's right to require compliance with this
covenant with respect to any such defect or departure from the Plans and
Specifications or any other requirements of this Agreement. Any dispute as to
the need to correct defects or departures from the Plans and Specifications
shall be determined by the Lender's Consulting Engineer.
(o) Hold Disbursements in Trust. That Borrower shall receive and
hold in trust for the sole benefit of Lender (but not for the benefit of any
other person, including, but not limited to, the General Contractors or any
subcontractors) all advances made hereunder directly to Borrower, for the
purpose of paying costs of Construction in accordance with the Budget.
Borrower shall use the proceeds of the Loan solely for the payment of costs as
specified in the Budget. Borrower will pay all other costs, expenses and fees
relating to the Construction of the Improvements.
(p) Indemnification. That Borrower shall indemnify Lender and hold
Lender harmless from and against all claims, injury, damage, loss and liability
of any and every kind to any persons or property by reason of or resulting from
(i) the Construction, (ii) any and all other work
<PAGE> 14
contemplated herein; or (iii) any other action or inaction by, or matter which
is the responsibility of, Borrower.
(q) Hazardous Materials. Borrower shall comply with the terms of
the Environmental Certificate previously delivered to Lender.
ARTICLE 11.
CASUALTIES
11.1 Lender's Election to Apply Insurance Proceeds on Indebtedness.
In the event of any loss or damage to any portion of the Improvements due to
fire or other casualty, Borrower shall have the right to settle insurance
claims of $50,000 or less, without Lender's consent, and shall have the right
to settle insurance claims in excess of $50,000 with the Lender's prior written
consent. Subject to Section 11.2 hereof, Lender shall have the right (but not
the obligation) to collect, retain and apply to the indebtedness of Borrower
under this Agreement all insurance proceeds (after deduction of all expenses of
collection and settlement, including attorneys' and adjusters' fees and
expenses).
11.2 Borrower's Obligation to Rebuild and Use of Proceeds Therefor.
All insurance proceeds shall be applied against the indebtedness of Borrower to
Lender hereunder, with excess proceeds, if any, being paid by Lender to
Borrower; provided, however, if (a) no Event of Default exists hereunder at the
time the insurance proceeds are to be disbursed and (b) Borrower complies with
all conditions set forth below, Borrower shall be entitled to use the proceeds
of settlement of claims to rebuild the Improvements. The insurance proceeds,
after deduction of all expenses of collection and settlement, including
attorneys' and adjusters' fees and expenses, shall be released to Borrower
provided that Borrower shall:
(i) Expeditiously repair and restore all damage to the portion of
the Improvements in question resulting from such fire or other casualty so that
the Improvements will be completed in accordance with the Plans and
Specifications; and
(ii) If the proceeds of insurance and the undisbursed available
Loan proceeds are, in Lender's sole judgment, insufficient to maintain the Loan
in balance in accordance with the provisions of Section 7.2 of this Agreement,
then Borrower shall promptly deposit with Lender the amount of such deficiency
or otherwise provide to Lender's satisfaction a source of funds to make up such
deficiency.
All proceeds of insurance and funds held by Lender shall first be fully
disbursed before the disbursement of any further proceeds of the Loan. Any
request by Borrower for a disbursement by Lender of insurance proceeds and
funds deposited by Borrower pursuant to Section 11.2(ii) above shall be treated
by Lender as if such request were for an advance of the Loan hereunder, and the
disbursement thereof shall be conditioned upon Borrower's compliance with and
satisfaction of the same conditions precedent as would be applicable under this
Agreement for an advance of the Loan.
ARTICLE 12.
FINAL DISBURSEMENT OF PROCEEDS OF LOAN
12.1 Conditions Precedent to Final Disbursement. Lender shall make
the final disbursement for completion provided that all of the following
conditions have been complied with
<PAGE> 15
and satisfied on or before Scheduled Completion Date:
(a) The Improvements have been completed in accordance with the
Plans and Specifications;
(b) Borrower has furnished Lender with copies of all final waivers
of lien and sworn statements from contractors, subcontractors and material
suppliers;
(c) Borrower has furnished Lender with satisfactory evidence of the
dedication of the Improvements to, and the acceptance of the Improvements by,
Central Nevada Utilities Company;
(d) Borrower has furnished to Lender certificates from Borrower and
the General Contractors, each currently dated, certifying that (i) no notices
of any claimed violations of ordinances arising from the Construction of the
Improvements which have not been cured were served upon the party making such
certification and (ii) the party making such certification is not aware of any
circumstances which could give rise to the issuance of any such notice of
claimed violation;
(e) Borrower has furnished to Lender a certificate from the Engineer
covering the completion date of the Improvements and stating that (i) the
Improvements have been completed in accordance with the Plans and
Specifications and (ii) the Improvements as so completed comply with all
applicable laws and ordinances; and
(f) All other requirements of this Agreement for disbursement of
Loan proceeds have been complied with and satisfied.
ARTICLE 13.
ASSIGNMENTS AND TRANSFERS
13.1 Lender's Right to Assign. Lender, provided it remains obligated
to service the Loan hereunder and to assure Borrower that the Loan is made
available to Borrower pursuant to the terms hereof, shall have the right to
assign, transfer, sell, negotiate, pledge or otherwise hypothecate this
Agreement or any of its rights and security hereunder, including the Note, Deed
of Trust, and any other Loan Documents. Borrower hereby agrees that all of the
rights and remedies of Lender in connection with the interest so assigned shall
be enforceable against Borrower by such assignee with the same force and effect
and to the same extent as the same would have been enforceable by Lender but
for such assignment.
13.2 Prohibition of Assignments and Transfers by Borrower. Borrower
shall not, without the prior written consent of Lender, assign or attempt to
assign its rights under this Agreement. Except as provided hereinafter,
Borrower will not, without the prior written consent of Lender, suffer or
permit the Improvements or any part thereof or any interest therein to be
assigned, sold, pledged, encumbered, transferred, hypothecated or otherwise
disposed of until the provisions of this Agreement have been fully complied
with and the Loan and all other sums evidenced by the Note and/or secured by
the Deed of Trust and other Loan Documents, have been repaid in full.
Notwithstanding the foregoing, Borrower may transfer its interest in the
Improvements after completion of the Construction of the Improvements to
Central Nevada Utilities Company prior to payment of all sums due Lender under
the Note.
13.3 Successors and Assigns. Subject to the foregoing restrictions
on transfer and assignment contained in this Article 13, this Agreement shall
inure to the benefit of and shall be
<PAGE> 16
binding on the parties hereto and their respective successors and assigns.
ARTICLE 14.
EVENTS OF DEFAULT
14.1 Events of Default. The occurrence of any one or more of the
following shall constitute an "Event of Default," as such term is used herein:
(a) If Borrower fails to pay when due any payment of principal or
interest or both of the Loan which failure continues for a period of three (3)
days after notice thereof;
(b) If Borrower fails to perform any of its covenants, agreements
and obligations under this Agreement or any of the Loan Documents other than as
set forth in subparagraph (a) above, which failure continues for a period of
fifteen (15) days after notice thereof;
(c) If at any time Lender or Lender's Consulting Engineer
disapproves of any material Construction work and Borrower fails to cause the
same to be corrected to the reasonable satisfaction of Lender and Lender's
Consulting Engineer within the time period set forth in Section 10.1(n) hereof;
(d) If there occurs any delay in the Construction or discontinuance
of Construction for a period of thirty (30) days other than delays resulting
from labor disputes, fire, unusual delays in transportation of materials,
adverse weather conditions which could not be reasonably anticipated,
unavoidable casualties, or any other causes beyond Borrower's control (other
than lack of funds) which do not extend Construction beyond the Completion
Date;
(e) If there occurs any default under the Note, Deed of Trust or any
of the other Loan Documents, and such default is not cured within the
applicable notice or cure period, if any;
(f) If at any time or times hereafter any representation or warranty
(including the representations and warranties of Borrower set forth in Article
2 of this Agreement), statement, report or certificate now or hereafter made by
Borrower, the Guarantor or the Engineer is not true and correct in any material
respect;
(g) If Borrower fails, within ten (10) days after Lender's written
request therefor, to pay Lender any amount by which the principal indebtedness
under this Agreement may, at any time, exceed the face amount of the Note;
(h) If all or substantially all of the assets of Borrower or the
Guarantor are attached, seized, or are levied upon, or come into the possession
of any receiver, trustee, custodian or assignee for the benefit of creditors,
and the same is not vacated, stayed, dismissed, set aside or otherwise remedied
within sixty (60) days after the occurrence thereof;
(i) If Borrower or the Guarantor is enjoined, restrained or in any
way prevented by any court order from constructing the Improvements, or if a
notice of lien, levy or jeopardy assessment is filed of record with respect to
all or any part of the property of Borrower or the Guarantor or by any
governmental department, office or agency, or if any proceeding is filed or
commenced seeking to enjoin, restrain or in any way prevent the foregoing
parties from conducting all or a substantial part of its business affairs and
failure to vacate, stay, dismiss, set aside or remedy the same within sixty
(60) days after the occurrence thereof;
(j) If any petition is filed by or against the Borrower or the
Guarantor under the
<PAGE> 17
federal Bankruptcy Act or any similar state or federal law, whether now or
hereafter existing (and, in the case of involuntary proceedings, failure to
cause the same to be vacated, stayed or set aside within sixty (60) days after
filing);
(k) If there is any "material adverse financial change" in Borrower
or the Guarantor; for purposes hereof, an entity shall be deemed to have
experienced a "material adverse financial change" if in Lender's reasonable
judgment, an adverse financial change has occurred which could prevent timely
completion of the Construction or timely repayment of the Loan or could prevent
the Guarantors from meeting its obligations under the Guaranty;
(l) If the Guarantor fails to observe or perform any of its
obligations or covenants under the Guaranty and such failure continues beyond
applicable grace periods, if any;
(m) If there is any condition which continues to exist following
applicable cure periods and would for any reason prevent Borrower from
complying with the terms, provisions and conditions of this Agreement and all
of the Loan Documents; or
(n) If any assignment, pledge, encumbrance, transfer, hypothecation
or other disposition of the Improvements or any portion thereof or interest
therein is made in violation of Section 13.2 above.
ARTICLE 15.
LENDER'S REMEDIES UPON ANY EVENT OF DEFAULT
15.1 Remedies Conferred Upon Lender. Upon the occurrence of any
Event of Default, Lender shall, in addition to all remedies conferred upon
Lender by law or in equity and by the terms of the Note, Deed of Trust and the
other Loan Documents, have the right but not the obligation to pursue any one
or more of the following remedies concurrently or successively, it being the
intent hereof that all such remedies shall be cumulative and that no such
remedy shall be to the exclusion of any other:
(a) Complete the Construction, and take any other action whatever
which, in Lender's sole judgment, is necessary to fulfill the covenants,
agreements and obligations of Borrower under this Agreement and the Loan
Documents, including the right to (x) avail itself of and procure performance
of existing contracts and subcontracts, including the General Contracts, and
(y) let any contracts with the same contractors and subcontractors or others
and to employ watchmen to protect the Improvements from injury. Without
restricting the generality of the foregoing, and for the purpose aforesaid,
Borrower hereby appoints and constitutes Lender its lawful attorney in fact
with full power of substitution in the Improvements, and agrees that Lender
shall be entitled to (i) complete the Construction, (ii) use unadvanced funds
remaining in the Loan or which may be reserved, escrowed or set aside for any
purpose whatever at any time, to complete the Construction, (iii) advance
funds, in excess of the face amount of the Note, to complete the Construction,
(iv) make changes in the Plans and Specifications which shall be necessary to
or desirable to complete the Construction in substantially the manner
contemplated by the Plans and Specifications, (v) retain or employ such new
general contractors, subcontractors, architects, engineers, environmental
consultants and inspectors as may be required for said purposes, (vi) execute
all applications and certificates which may be required by any of the Loan
Documents, (vii) prosecute and defend all actions or proceedings connected with
or relating to the Improvements, and (vii) do any and every act which the
Borrower might do in its own behalf; it being understood and agreed that the
foregoing power of attorney shall be a power coupled with an interest and
cannot be revoked;
(b) Withhold further disbursement of the proceeds of the Loan; and
<PAGE> 18
(c) Declare the Note to be immediately due and payable.
15.2 Non-Waiver of Remedies. No waiver of any breach or default
hereunder shall constitute or be construed as a waiver by Lender of any
subsequent breach or default or of any breach or default of any other provision
of this Agreement.
ARTICLE 16.
GENERAL PROVISIONS
16.1 Captions. The captions and headings of various Articles and
Sections of this Agreement and exhibits pertaining hereto are for convenience
only and are not to be considered as defining or limiting in any way, the scope
or intent of the provisions hereof.
16.2 Notices. Any notice, demand request or other communication
which any party hereto may be required or may desire to give hereunder shall be
in writing and shall be deemed to have been properly given if hand delivered or
if mailed by United States registered or certified mail, postage prepaid,
return receipt requested, or by a nationally recognized overnight courier,
addressed as follows:
If to the Borrower:
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Frederick H. Conte
with a copy to:
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jerome J. Cohen
President
with a copy to Guarantor:
Mego Financial Corp.
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jerome J. Cohen
President
If to Lender:
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attn: Richard J. Johnsen
Financial Services Division, 3rd Floor
<PAGE> 19
or at such other address as the party to be served with notice may have
furnished in writing to the party seeking or desiring to serve notice as a
place for the service of notice.
16.3 Modification, Waiver. No modification, waiver, amendment,
discharge or change of this Agreement shall be valid unless the same is in
writing and signed by the party against which the enforcement of such
modification, waiver, amendment, discharge or change is sought.
16.4 Governing Law. This Agreement shall be construed, interpreted
and governed by the laws of the State of Michigan.
16.5 Acquiescence Not to Constitute Waiver of Lender's Requirements.
To the extent that Lender may have acquiesced in any noncompliance with any
conditions precedent to the Loan Opening, or to any subsequent disbursement of
Loan proceeds, such acquiescence shall not be deemed to constitute a waiver by
Lender of such requirements with respect to any future disbursements of Loan
proceeds.
16.6 Disclaimer by Lender. Lender shall not be liable to any
contractors, subcontractors, supplier, laborer, architect, engineer,
environmental consultant, tenant or other party for services performed or
materials supplied in connection with the Construction. Lender shall not be
liable for any debts or claims accruing in favor of any such parties against
Borrower or others or against the Improvements. Borrower is not and shall not
be an agent of the Lender for any purposes. Lender, by making the Loan or any
action taken pursuant to any of the Loan Documents, shall not be deemed a
partner or a joint venturer with Borrower. Lender shall not be deemed to be in
privity of contracts with any contractors or provider of services to the
Improvements, nor shall any payment of funds directly to contractors or
subcontractors or provider of services be deemed to create any third party
beneficiary status or recognition of same by the Lender.
16.7 Right of Lender to Make Advances to Cure Borrower's Defaults.
If Borrower shall fail to perform in a timely fashion any of Borrower's
covenants, agreements or obligations contained in this Agreement or the Loan
Documents, Lender may (but shall not be required to) perform any of such
covenants, agreements and obligations, and any amounts expended by Lender in
so doing, and any amounts expended by Lender pursuant to Section 15.1(a)
hereof, shall constitute additional indebtedness evidenced and secured by the
Note, the Deed of Trust and the other Loan Documents.
16.8 Time Is of the Essence. Time is hereby declared to be of the
essence of this Agreement and of every part hereof.
16.9 Partial Invalidity. In the event any provision of this Loan
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
16.10 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT OR RELATING THERETO OR ARISING FROM ANY RELATIONSHIP WHICH IS
THE SUBJECT OF THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Borrower and Lender have executed this Agreement as of the date first
above written.
Borrower:
<PAGE> 20
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:
Its:
NBD BANK,
a Michigan banking corporation
By:
Its:
<PAGE> 21
COLLATERAL ASSIGNMENT OF PROJECT DOCUMENTS
THIS COLLATERAL ASSIGNMENT OF PROJECT DOCUMENTS dated as of April 30, 1996,
by Preferred Equities Corporation, a Nevada corporation ("Assignor") and NBD
Bank, a Michigan banking corporation ("Assignee").
WITNESSETH:
WHEREAS, Assignee has extended credit to the Assignor pursuant to a certain
Construction Loan Agreement of even date herewith (the "Loan Agreement") and
the Assignor has executed and delivered to Assignee a note of even date
herewith payable to Assignee in the original principal amount of $1,440,000
(the "Note"), payment of which is secured without limitation by a certain Deed
of Trust, Assignment of Rents, Security Agreement, and Financing Statement (the
"Deed of Trust") from Assignor for the benefit of Assignee of even date
herewith covering the real estate described in the Deed of Trust (the
"Mortgaged Premises"); and
WHEREAS, the Assignee, in addition to the collateral provided in the Deed
of Trust, has required the execution and delivery of this Assignment.
NOW, THEREFORE, in consideration of the recitals set forth above and
incorporated herein, and for other good and valuable consideration, Assignor
agrees as follows:
I. Assignor hereby grants, transfers and assigns to Assignee all the
right, title and interest of Assignor in and to the following documents now or
hereafter executed by Assignor:
(i) that certain Construction Agreement between Assignor and
Floyd's Construction, Inc. consistent with a proposal dated as of
____________, 1996 with respect to water and sewer improvements and that
certain letter agreement between Assignor and Wulfenstein Construction
dated September 14, 1995 with respect to roadway improvements
(collectively, the "General Contracts");
(ii) all guarantees, warranties and other undertakings covering
the quality or performance of the work or the quality of the materials
required by the General Contracts;
(iii) all building permits, governmental permits, licenses
and authorizations, now or hereafter used in connection with the
construction of the Improvements as defined in the Loan Agreement, to the
extent assignable;
(iv) the plans and specifications prepared by Crosby Mead Benton
& Associates and identified on Exhibit A attached hereto; and
(v) all other contracts, agreements and other documents now or
hereafter executed or issued in connection with the performance of the
work or the supply of the materials required for the construction of the
Improvements.
The items referred to in paragraphs (i) through (v) above are sometimes
hereinafter collectively referred to as the "Project Documents." The parties
to the Project Documents other than Assignor are hereinafter collectively
called the "Parties."
This Assignment is given for the purpose of securing the payment of all
sums, including without limitation, the payment of principal and interest due
under the Note, now or at any time due Assignee under the the Loan Documents
(as defined in the Loan Agreement) and any extensions, modifications,
amendments and renewals thereof, and the performance and discharge of the
<PAGE> 22
obligations, covenants, conditions and agreements of Assignor contained herein
and of the Borrower contained in the Loan Documents.
II. Assignor agrees:
A. To abide faithfully by, perform and discharge each and every
obligation, covenant, condition and agreement of the Project Documents to be
performed by Assignor and to enforce performance by each of the Parties of each
and every obligation, covenant, condition and agreement to be performed by the
Parties.
B. That the occurrence of any of the following shall constitute an
Event of Default hereunder:
(1) A default by Assignor in the observance or performance of
any obligation, covenant, condition or agreement herein which
continues for a period of thirty (30) days; or
(2) Any representation or warranty made by Assignor herein
which is not true and correct in any material respect as of the date
hereof; or
(3) A default by the Borrower under any of the Loan Documents,
which shall not be cured within the grace or notice period, if any,
provided for therein.
C. That any Event of Default hereunder, as provided above, shall be
deemed to be a default under the Deed of Trust and the Loan Documents. Upon
the occurrence of any Event of Default hereunder, Assignee shall have the right
(but not the obligation), without notice to or demand on Assignor: (1) to
declare all sums evidenced or secured by the Loan Documents and hereby
immediately due and payable, (2) to exercise any and all rights and remedies
provided under the Loan Documents or hereunder as well as such remedies as may
be available at law or in equity, and (3) to correct any such default in such
manner and to such extent as Assignee may deem necessary to protect the
security hereof, including specifically, without limitation, the right (but
not the obligation) to appear in and defend any action or proceeding purporting
to affect the security hereof or the rights or powers of Assignee; and also the
right (but not the obligation) to perform and discharge each and every
obligation, covenant, condition and agreement of Assignor under the Project
Documents, and, in exercising any such powers, to pay necessary costs and
expenses, employ counsel and incur and pay reasonable attorneys' fees and
expenses. Assignee shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or liability
under any of the Project Documents, or by reason of this Assignment.
D. At any time after the occurrence of an Event of Default, Assignee
may, at its option, without notice, and without regard to the adequacy of
security for the indebtedness hereby secured, either in person or by agent,
with or without bringing any action or proceeding, or by a receiver to be
appointed by a court at any time hereafter, enforce for its own benefit the
Project Documents, or any of them. The exercise of any rights under this
Assignment shall not be deemed to cure or waive any default under the Loan
Documents executed in connection therewith, or waive, modify or affect any
notice of default under the Loan Documents executed in connection therewith, or
invalidate any act done pursuant to such notice.
E. That each of the Parties upon written notice from Assignee of the
occurrence of an Event of Default, shall be and is hereby authorized by
Assignor to perform each of their respective contracts for the benefit of
Assignee in accordance with the terms and conditions thereof without any
obligation to determine whether such an Event of Default has in fact occurred.
F. That in the exercise of the powers herein granted to Assignee, no
liability shall
<PAGE> 23
be asserted or enforced against Assignee, all such liability being hereby
expressly waived and released by Assignor. Assignor hereby agrees to indemnify
and hold Assignee free and harmless from and against any and all liability,
expense, cost, loss or damage which Assignee may incur by reason of any act or
omission of Assignor under any of the Project Documents. Should Assignee incur
any liability, expense, cost, loss or damage (1) under the Project Documents
for which it is to be indemnified by Assignor as aforesaid, or (2) by reason of
the exercise of Assignee's rights hereunder (including but not limited to, the
exercise of the rights granted to Assignee under Section II.C hereof), the
amount thereof, including reasonable costs, expenses and attorneys' fees and
expenses, shall be secured hereby and by the Loan Documents (whether or not
such amount, when aggregated with other sums secured by the Loan Documents,
exceeds the face amount of the Note) and shall (a) be due and payable
immediately upon demand by Assignee, and (b) bear interest at the default rate
set forth in the Note.
G. That this Assignment shall be assignable by Assignee to any
assignee of Assignee and all representations, warranties, covenants, powers and
rights herein contained shall be binding upon, and shall inure to the benefit
of, Assignor and Assignee and their respective legal representatives,
successors and assigns.
III. Assignor further hereby covenants and represents to Assignee that (i)
Assignor has not previously assigned, sold, pledged, transferred, mortgaged,
hypothecated or otherwise encumbered the Project Documents or any of them, or
its right, title and interest therein, (ii) Assignor shall not assign, sell,
pledge, transfer, mortgage, hypothecate or otherwise encumber its interests in
the Project Documents or any of them except in connection with a permitted
transfer set forth in the Deed of Trust, (iii) Assignor has not performed any
act which might prevent Assignor from performing its undertakings hereunder or
which might prevent Assignee from operating under or enforcing any of the terms
and conditions hereof or which would limit Assignee in such operation or
enforcement, (iv) Assignor is not in default under the Project Documents or any
of them, and to the best knowledge of Assignor, none of the Parties to the
respective Project Documents is in default thereunder except as disclosed in
writing to Assignee, and (v) upon execution of any of the Project Documents,
Assignor will deliver a copy of such Project Documents to Assignee and will
require such of the Parties thereto as Assignee may designate to execute and
deliver to Assignee a consent to this Assignment.
IV. Any notice, demand, request or other communication which any party
hereto may be required or may desire to give hereunder shall be in writing and
shall be deemed to have been properly given if hand delivered or if mailed by
United States registered or certified mail, postage prepaid, return receipt
requested, or by a nationally recognized overnight courier, addressed as
follows:
If to the Assignor:
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Frederick H. Conte
with a copy to:
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jerome J. Cohen
President
<PAGE> 24
with a copy to:
Mego Financial Corp.
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: Jerome J. Cohen
President
If to Assignee:
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attn: Richard J. Johnsen
Financial Services Division, 3rd Floor
or at such other address as the party to be served with notice may have
furnished in writing to the party seeking or desiring to serve notice as a
place for the service of notice.
V. This Assignment is made for collateral purposes only and the duties
and obligations of Assignor under this Assignment shall terminate when all sums
due Assignee under the Loan Documents are paid in full and all obligations,
covenants, conditions and agreements of Assignor contained in the Loan
Documents executed in connection therewith are performed and discharged.
VI. This Assignment shall be governed by the laws of the State of Michigan.
VII. It is expressly intended, understood and agreed that this Assignment
is made and entered into for the sole protection and benefit of Assignor and
Assignee, and their respective successors and assigns.
VIII. Nothing contained herein or in the Deed of Trust or any of the
Loan Documents shall in any manner be construed as making the parties hereto
partners, joint venturers or any other relationship other than assignor and
assignee. Nothing contained herein shall be deemed to create any third party
beneficiary rights in any party.
IX. Assignor and Assignee intend and believe that each provision in this
Assignment comports with all applicable local, state or federal laws and
judicial decisions. However, if any provision or provisions, or if any portion
of any provision or provisions, in this Assignment is found by a court of law
to be in violation of any applicable local, state or federal ordinance,
statute, law, administrative or judicial decision or public policy, and if such
court should declare such portion, provision or provisions of this Assignment
to be illegal, invalid, unlawful, void or unenforceable as written, then it is
the intent both of Assignor and Assignee that such portion, provision or
provisions shall be given force to the fullest possible extent that they are
legal, valid and enforceable, that the remainder of this Assignment shall be
construed as if such illegal, invalid, unlawful, void or unenforceable portion,
provision or provisions were not contained therein and that the rights,
obligations and interests of Assignor and Assignee under the remainder of this
Assignment shall continue in full force and effect.
WITNESS the due execution of this Assignment as of the date first above
written.
<PAGE> 25
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:
Its:
<PAGE> 26
Drawn out of state
Mail to:
Colleen M. Shevnock
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT, AND FINANCING STATEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND FINANCING
STATEMENT (the "Deed of Trust") dated as of April 30, 1996 from PREFERRED
EQUITIES CORPORATION, a Nevada corporation, (the "Borrower"), to UNITED TITLE
OF NEVADA, a Nevada corporation, as trustee (in such capacity, the "Trustee")
for the benefit of NBD BANK, a Michigan banking corporation, and its successors
and assigns (collectively, the "Bank");
W I T N E S S E T H:
WHEREAS, the Borrower has entered into a Construction Loan Agreement, dated
as of April 30, 1996 (the "Loan Agreement") with the Bank pursuant to which the
Bank may make a construction loan (the "Loan") to the Borrower to finance the
construction of certain infrastructure improvements for the benefit of the
Mortgaged Premises (as defined hereinafter);
WHEREAS, as a condition to the effectiveness of the obligations of the Bank
under the Loan Agreement, the Borrower is obligated, among other things, to
grant a lien on the Mortgaged Premises;
NOW, THEREFORE, to secure (a) the payment of the principal sum of ONE
MILLION FOUR HUNDRED FORTY THOUSAND DOLLARS ($1,440,000.00) together with
interest thereon, in accordance with the terms of a promissory note dated April
30, 1996 issued by the Borrower pursuant to the Loan Agreement (the "Note"),
(b) the performance of the covenants herein contained and any monies expended
by the Bank in connection therewith, and (c) the payment of all obligations and
performance of all covenants of the Borrower under the Loan Agreement and any
other documents, agreements or instruments between the Borrower and the Bank
given in connection therewith (all of the aforesaid indebtedness, obligations
and liabilities of the Borrower being herein called the "Mortgage
Indebtedness" and all of the documents, agreements and instruments between the
Borrower and the Bank evidencing or securing the repayment of, or otherwise
pertaining to, the Mortgage Indebtedness being herein collectively called the
"Operative Documents"), the Borrower does hereby irrevocably grant and convey
unto the Trustee, and its successors and assigns, in trust with the power of
sale, for the benefit of the Bank and its successors and assigns, the land,
premises and property situated in the Township of Pahrump, County of Nye, and
State of Nevada, more specifically described in Exhibit A hereto (the
"Mortgaged Premises");
TOGETHER with all buildings and improvements now or hereafter situated upon
the Mortgaged Premises or any part thereof;
TOGETHER with all additions, modifications and improvements now or
hereafter erected thereon, all rights, appurtenances, easements, rights of way,
licenses, privileges, remainders and reversions appertaining thereto and all
apparatus, building materials, equipment and articles of personal property now
or hereafter attached thereto as fixtures, and replacements thereof from time
to time, including, but not limited to, all heating, refrigerating, air
conditioning, gas, plumbing and
<PAGE> 27
electric apparatus and equipment, all boilers, engines, motors, power
equipment, piping and plumbing fixtures, pumps, tanks, lighting equipment and
systems, fire prevention and sprinkling equipment and systems, and other things
now or hereafter thereon or therein, and the proceeds, including without
limitation insurance proceeds, of any of the foregoing, and all rents, issues
and profits from the Mortgaged Premises (the "Rents") and the buildings and
improvements and facilities thereon under present or future leases, or
otherwise, which are hereby specifically assigned, transferred and set over
unto the Bank, and all right, title and interest of the Borrower, if any, in
and to the land lying in the bed of any street, road, avenue, alley or walkway,
opened or proposed or vacated, or any strip or gore, in front of or adjoining
the Mortgaged Premises, and any and all awards or payments, including interest
thereon, and the right to receive the same, which may be made with respect to
the Mortgaged Premises as a result of (a) the exercise of the right of eminent
domain, (b) the alteration of the grade of any street, (c) any loss of or
damage to any building or other improvement on the Mortgaged Premises (d) any
other injury to or decrease in the value of the Mortgaged Premises or (e) any
refund due on account of the payment of real estate taxes, assessments or other
charges levied against or imposed upon the Mortgaged Premises to the extent of
all amounts which may be secured by this Deed of Trust at the date of receipt
of any such award or payment by the Bank, and of the reasonable counsel fees,
costs and disbursements incurred by the Bank in connection with the collection
of such award or payment, (the foregoing, including the Mortgaged Premises,
being hereinafter collectively referred to as the "Property");
TO HAVE AND TO HOLD the Property, with all the rights, privileges and
appurtenances thereunto belonging or appertaining to the Trustee, his heirs,
successors and assigns, in fee simple forever, upon the trusts and for the uses
and purposes hereinafter set out;
AND THE BORROWER hereby warrants and represents to the Trustee and its
successors and assigns and the Bank and its successors and assigns, that the
Borrower is seized of the Property in fee simple and has the right to convey
the same in fee simple; that the Mortgaged Premises is marketable and free and
clear of all liens or encumbrances (other than Permitted Encumbrances as
hereinafter defined) and that the Borrower will warrant and defend the title to
the Property against the claims of all persons whomsoever; provided, however,
that
THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if the Borrower shall
pay all of the principal of, premium, if any, and interest on the Note and all
other sums payable hereunder and under the Loan Agreement, and if the Borrower
shall comply with all the covenants, terms and conditions of this Deed of Trust
and the Loan Agreement, then this conveyance shall be of no further force and
effect and shall be cancelled of record at the cost of the Borrower.
As used herein "Permitted Encumbrances" means all matters set forth on
Exhibit B hereto.
This Deed of Trust constitutes a "security agreement" as that term is
defined in the Uniform Commercial Code as enacted in the State of Nevada (the
"U.C.C.") with respect to, among other things, any personal property or
fixtures located on the Mortgaged Premises which comprise part of the Property
and the Rents and any part thereof, and creates and Borrower hereby grants to
the Bank a continuing first and prior security interest for the Bank's benefit
in such fixtures, personal property and the Rents to secure the Mortgage
Indebtedness. In that regard, Borrower grants to the Bank all of the rights
and remedies of a secured party under the U.C.C. A financing statement or
statements shall from time to time be executed by the Bank and the Borrower or
by the Borrower alone and filed in the manner required to perfect said security
interest under the U.C.C.
As to the collateral which are or are to become fixtures relating to the
Property and improvements thereon, the parties intend that as to these goods,
this Deed of Trust shall be effective as a financing statement filed as a
fixture filing from the date of its filing for record in the real estate
records of the county in which the Property is located. For such purposes,
the name and address of the Bank as Secured Party and Borrower as Debtor are as
listed in Section 14(a). Information
<PAGE> 28
concerning the collateral can be obtained from the Borrower and the Bank at the
addresses set forth therein.
This Deed of Trust is given to secure present and future obligations under
the Loan Agreement in the amount of $1,440,000 and a number of performance
obligations under the Loan Agreement and the Deed of Trust.
Section 1. Maintenance and Modification of the Property. The Trustee
shall not be under any obligation to operate, maintain or repair the Property.
The Borrower shall not commit or permit to be committed any waste on the
Property and shall keep and maintain the Property in good repair and fully
insured as required by the Loan Agreement and will promptly comply with all
laws, ordinances, orders, rules, regulations and requirements of any
governmental body applicable to the Property. The Bank may at any time, after
reasonable notice to the Borrower and subject to the reasonable security and
safety requirements of the Borrower, enter or cause entry to be made upon the
Property and inspect the Property, and if the Bank finds that the Borrower is
in violation of any of the foregoing provisions, the Bank may, if such
violation is not corrected within 30 days after written notice thereof by the
Bank to the Borrower, enter upon the Property and take such actions as may be
necessary to correct such violation and pay such sums of money as the Bank in
its sole discretion shall determine to be necessary therefor; provided,
however, that if the Borrower shall fail to make any repair, restoration or
replacement which, if begun and continued with due diligence, can be completed
but not within a period of 30 days, then such period shall be extended as shall
be necessary to enable the Borrower to complete such repair, restoration or
replacement through the exercise of due diligence. The Borrower shall not
permit or suffer others to commit a nuisance in or about the Property or itself
commit a nuisance in connection with its use or occupancy of the Property.
Section 2. Charges, Liens and Encumbrances. The Borrower shall pay,
before the same become delinquent or subject to interest or penalties, all
charges, liens and encumbrances, except Permitted Encumbrances, which now are
or may hereafter become a lien upon the Mortgaged Premises or any part thereof,
including but not limited to all ground rents, taxes, assessments, insurance
premiums and utility rates, and in default thereof the Bank may pay, upon 10
days notice to the Borrower, any such charges or encumbrances for the account
of the Borrower, and any such additional sums of money as the Bank may deem to
be necessary for the satisfaction thereof, and the Bank shall be the sole judge
of the legality or validity thereof and of the amounts necessary to be paid in
satisfaction thereof. Borrower shall have the right to contest, in good faith,
the proposed assessment of ad valorem taxes or special assessments by
governmental authorities having jurisdiction over the Mortgaged Premises and
any other charges, liens and encumbrances filed against the Mortgaged Premises;
provided, however, Borrower shall give written notice thereof to the Bank and
the Bank may, in its sole discretion, require Borrower to post a bond or other
collateral satisfactory to the Bank in connection with any such action by
Borrower.
Section 3. Liens. The Borrower will not voluntarily create or permit to
be created against the Property any lien, encumbrance, or charge inferior,
equal or superior to the lien of this Deed of Trust, except as otherwise
permitted by this Deed of Trust and the Loan Agreement. The Borrower will
comply with the terms set forth in the Loan Agreement relating to liens and
encumbrances and except as provided therein will satisfy or discharge any such
liens or encumbrances as may be filed or asserted against the Property within
the time and in the manner provided in the Loan Agreement as the case may be.
Section 4. Grant and Release of Easements. If no Event of Default (as
hereinafter defined) shall have occurred, the Borrower may at any time or times
grant easements, licenses, rights of way and other rights or privileges in the
nature of easements and may release existing interests, easements, licenses,
rights of way and other such rights or privileges, with respect to any part of
the
<PAGE> 29
Property, with or without consideration, and the Bank agrees that it shall
execute and deliver and will cause, request or direct the Trustee to execute
and deliver any instrument necessary or appropriate to grant or release any
such interest, easement, license, right of way or other right or privilege but
only upon receipt of (i) a copy of the instrument of grant or release, (ii) a
written application signed by a representative of the Borrower.
Section 5. Events of Default; Remedies of the Trustee Upon Default.
(a) If any of the following events shall occur:
(i) failure of the Borrower to pay when due the principal of and
interest on the Note which failure continues for a period of three (3)
days after notice thereof; or
(ii) the occurrence of an Event of Default under the Loan
Agreement or any other Operative Document; or
(iii) default in any of the terms, conditions or covenants
contained in this Deed of Trust for a period of thirty (30) days after
receipt by the Borrower of written notice specifying such failure and
requesting that it be remedied, given to the Borrower by the Bank,
unless the Bank shall agree in writing to an extension of time prior
to its expiration; or
(iv) if the Borrower shall sell, lease, transfer, assign, mortgage
or otherwise encumber or dispose of the Property or any part thereof,
except pursuant to the terms of the Loan Agreement or the terms
hereof;
then and in any such event (hereinafter referred to as an "Event of Default")
which shall not have been waived, the Mortgage Indebtedness hereunder shall, at
the option of the Bank, become at once due and payable, regardless of the
maturity date thereof.
(b) All rights of action under this Deed of Trust, if permitted by
applicable law, may be enforced by the Trustee without the production of this
Deed of Trust at any trial or other proceeding relating thereto. The Trustee
and the Bank shall have the right to enter upon the Property to such extent and
as often as the Trustee or Bank, in its or their sole discretion, deems
necessary or desirable in order to prevent or cure any default by the Borrower.
Upon the occurrence of an Event of Default which shall not have been waived,
the Trustee or Bank may take possession of all or any part of the Property
together with the books, papers and accounts of the Borrower pertaining thereto
and necessary for operation and hold, operate and manage the same, and from
time to time make all needful repairs and those improvements which are required
by law as shall be deemed expedient by the Trustee or Bank; and the Trustee or
Bank may lease any part of the Property in the name of and for the account of
the Borrower, and collect, receive and sequester the rent, revenues, receipts,
earnings, income, products and profits therefrom, and out of the same and from
any moneys received from any receiver of any part thereof pay, and set up
proper reserves for the payment of, all proper costs and expenses of so taking,
holding and managing the same, including reasonable compensation to the Trustee
or Bank, its agents and counsel, and any charges of the Trustee or Bank
hereunder, and any taxes and assessments and other charges prior to the lien of
this Deed of Trust which the Trustee or Bank may deem it proper to pay, and all
expenses of such repairs and improvements, and apply the remainder of the
moneys so received in accordance with the provisions hereof. The Trustee or
the Bank will attempt to keep confidential any such confidential books, papers
and accounts taken by the Trustee or Bank pursuant to this section.
The Trustee or Bank shall have the right, after the occurrence of an Event
of Default which shall not have been waived, to the appointment of a receiver
to collect the rents and profits from the Property without consideration of the
value of the premises or the solvency of any person liable for
<PAGE> 30
the payment of the amounts then owing, and all amounts collected by the
receiver shall, after expenses of the receivership, be applied to the payment
of the indebtedness hereby secured, and the Trustee or Bank, at its option, in
lieu of an appointment of a receiver, shall have the right to do the same. If
such receiver should be appointed or if there should be a sale of the said
premises, as provided below, the Borrower, or any person in possession of the
premises thereunder, as tenant or otherwise, shall become a tenant at will of
the receiver or of the purchaser and may be removed by a writ of ejectment,
summary ejectment or other lawful remedy.
(c) Upon the occurrence of an Event of Default which shall not have been
waived, the Trustee is hereby authorized and empowered, upon application of the
Bank, to expose to sale and to sell all or from time to time any part of the
Property at public auction for cash, after first having complied with all
applicable requirements of Nevada law with respect to the exercise of powers of
sale contained in deeds of trust.
(d) The Borrower hereby waives, to the full extent it may lawfully do so,
the benefit of all appraisement, valuation, stay, moratorium, exemption from
execution, extension and redemption laws and any statute of limitations, now or
hereafter in force, and all rights of marshalling in the event of the sale of
the Property or any part thereof or any interest therein.
Section 6. Application of Proceeds. In the event of any sale of the
Mortgaged Premises by foreclosure, through judicial proceedings, by
advertisement or otherwise, the Bank shall apply the proceeds of any such sale
in the order following to: (i) all expenses incurred for the collection of the
Mortgage Indebtedness and the foreclosure of this Deed of Trust, including
reasonable attorneys' fees and disbursements, or such attorneys' fees and
disbursements as are permitted by law, (ii) all sums expended or incurred by
the Trustee or the Bank directly or indirectly in carrying out the terms,
covenants and agreements of the Note, this Deed of Trust and the other
Operative Documents, together with interest thereon as therein provided, (iii)
all accrued and unpaid interest upon the Mortgage Indebtedness, (iv) the unpaid
principal amount of the Mortgage Indebtedness, and (v) the surplus, if any
there be, unless a court of competent jurisdiction decrees otherwise, to the
Borrower.
Section 7. General Covenant. The Borrower shall pay the Mortgage
Indebtedness and will fully perform all of its covenants, agreements and
obligations herein, in the Loan Agreement required to be performed, all at the
times and in the manner provided in this Deed of Trust and the Loan Agreement.
Section 8. Payment of Costs, Attorneys' Fees and Expenses. The Borrower
shall pay any and all costs, reasonable attorneys' fees (without regard to any
statutory presumption) and other expenses of whatever kind incurred by the Bank
in connection with (a) obtaining possession of the Property, (b) the protection
and preservation of the Property pursuant hereto, (c) the collection of any sum
or sums secured hereby, (d) any litigation involving the Property, this Deed of
Trust, any benefit accruing by virtue of the provisions hereof, or the rights
of the Trustee or the Bank, (e) the presentation of any claim under any
administrative or other proceedings in which proof of claim is required by law
to be filed, (f) any additional examination of the title to the Property which
may be reasonably required by the Bank, or (g) taking any steps whatsoever in
enforcing this Deed of Trust, claiming any benefit accruing by virtue of the
rights of the Trustee or the Bank hereunder.
Section 9. Insurance and Taxes. The Borrower will obtain and maintain
certain insurance in accordance with the terms of the Loan Agreement and pay
all lawful taxes, assessments and charges at any time levied or assessed upon
the Property or any part thereof.
Section 10. Environmental Matters. The Borrower shall comply with the
terms of the Environmental Certificate previously delivered to the Bank.
Section 11. No Sale, Etc. of Property. Except as otherwise expressly
provided in Section
<PAGE> 31
15 hereof or by the terms of the Loan Agreement and the Operative Documents,
the Borrower will not sell, lease, transfer, assign, mortgage or otherwise
encumber or dispose of the Property or any part thereof. The execution and
performance of sales agreements to sell individual platted lots of the
Mortgaged Premises in the ordinary course of business and subject to the
provisions of Section 15 hereof shall not constitute a breach of the foregoing
provisions.
Section 12. Advances by Trustee or the Bank. The Trustee or the Bank is
authorized, but shall not be obligated, to make for the account of the Borrower
any payment which is required to be made pursuant to law or any instrument or
agreement secured by a lien prior to the lien created by this Deed of Trust,
the nonpayment of which would constitute a default, including but not limited
to repayments of principal and payments of interest, taxes and insurance
premiums. All sums so advanced shall bear interest at the per annum interest
rate provided in the Note or the maximum rate permitted by law, whichever is
lower, from the date of the advance to the date of repayment, shall attach to
and become a part of the debt secured hereby, and shall become payable at any
time on demand therefor. The failure to make payment on demand shall, at the
option of the Trustee or the Bank, constitute a default hereunder, giving rise
to all of the remedies herein provided for an Event of Default.
The Bank or the Trustee (with the written permission of the Bank) may grant
any extension, forbearance or other indulgence, may release any part of the
Property from the lien hereof and may release any person from liability without
affecting the personal liability of any person for payment of indebtedness
secured hereby or otherwise affecting the lien hereof.
Section 13. The Trustee. The Trustee shall be under no duty to take any
action hereunder or to perform any act which would involve him in expense or
liability or to institute or defend any suit in respect hereof, unless properly
indemnified to his satisfaction. All reasonable expenses, charges, counsel
fees and other disbursements incurred by the Trustee in and about the
administration and execution of the trusts hereby created, and the performance
of his duties and powers hereunder, shall be secured by this Deed of Trust
prior to the lien hereunder securing the Mortgage Indebtedness, and shall bear
interest at the per annum rate of interest provided in the Note, or the maximum
rate permitted by law, whichever is lower. The Bank shall at any time have the
irrevocable right to remove the Trustee without notice or cause and to appoint
his successor by an instrument in writing, duly acknowledged, in such form as
to entitle such written instrument to be recorded in the State of Nevada, and
in the event of the resignation of the Trustee, the Bank shall have the right
to appoint his successor by such instrument, and any successor trustee so
appointed shall be vested with title to the Property, and shall possess all the
powers, duties and obligations herein conferred upon the Trustee in the same
manner and to the same extent as though he or it were named herein as Trustee.
Section 14. Miscellaneous.
(a) Notices. All notices, approvals, consents, requests and other
communications hereunder shall be in writing and, unless otherwise provided
herein, shall be deemed to have been given when delivered or mailed by first
class registered or certified mail, postage prepaid, or by a nationally
recognized overnight courier, addressed as follows: (a) if to the Borrower, at
4310 Paradise Road, Las Vegas, Nevada 89109, or (b) if to the Bank, at 611
Woodward Avenue, Detroit, Michigan 48226, Attention: Richard J. Johnsen,
Financial Services Division, 3rd Floor, or (c) if to the Trustee, at 4100 West
Flamingo Road, Suite 1000, Las Vegas, Nevada 89103. The Borrower, the
Trustee, or the Bank may, by notice given hereunder, from time to time
designate any further or different addresses to which subsequent notices,
approvals, consents, request or other communications shall be sent or
administrative units or officers to whose attention the same shall be directed.
(b) Limitation of Liability of Commissioners, Etc., of the Bank. No
covenant, condition,
<PAGE> 32
agreement or obligation contained herein shall be deemed to be a covenant,
agreement or obligation of a present or future commissioner, officer, employee
or agent of the Bank in his individual capacity. No commissioner, officer,
employee or agent of the Bank shall incur any personal liability with respect
to any other action or failure to act pursuant to this Deed of Trust, provided
such commissioner, officer, employee or agent acts in good faith.
(c) Successors and Assigns. This Deed of Trust shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and the Bank
and the Trustee and their respective successors and assigns.
(d) Execution in Counterparts. This Deed of Trust may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
(e) Applicable Law. This Deed of Trust shall be governed by and construed
in accordance with the applicable laws of the State of Nevada.
(f) Severability. In the event any provision of this Deed of Trust shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
hereof.
Section 15. Partial Release. If no Event of Default then exists under
this Deed of Trust or any other Operative Documents, upon receipt of the
release price of Seven Thousand Five Hundred Dollars ($7,500) per platted lot,
the Bank shall release from the lien of this Deed of Trust the lot for which
payment was made. From and after the existence of any Event of Default, the
Bank shall not be obligated to release any lots from the lien of the Deed of
Trust.
IN WITNESS WHEREOF, the Borrower has caused this Deed of Trust to be
executed in its name and its seal to be affixed hereon and attested by its duly
authorized officers, all of the date first above written.
ATTEST: PREFERRED EQUITIES CORPORATION,
Nevada corporation
By: ________________________________
Its: ___________________________
STATE OF NEVADA )
)SS
COUNTY OF ________ )
This instrument was acknowledged before me on the ____ day of April, 1996,
by __________ as ____________ of PREFERRED EQUITIES CORPORATION, a Nevada
corporation.
_______________________________
Notary Public
________ County, Nevada
My commission expires: ________
<PAGE> 33
<PAGE> 34
PROMISSORY NOTE
$1,440,000 April 30, 1996
FOR VALUE RECEIVED, the undersigned, PREFERRED EQUITIES CORPORATION, a
Nevada corporation (the "Maker"), whose address is 4310 Paradise Road, Las
Vegas, Nevada 89109, hereby promises to pay to the order of NBD BANK, a
Michigan banking corporation (the "Bank"), at the Bank's main banking office
in Detroit, Michigan in lawful currency of the United States of America and in
immediately available funds, the principal sum of ONE MILLION FOUR HUNDRED
FORTY THOUSAND DOLLARS ($1,440,000) or so much thereof as shall be outstanding
pursuant to the terms of a certain Construction Loan Agreement between the
Maker and the Bank dated of even date herewith (the "Loan Agreement"), together
with interest thereon, computed on the basis of a 360-day year for the actual
number of days elapsed, on the unpaid principal balance hereof from time to
time outstanding, in like money and funds, for the period from the date hereof
until such loan shall be paid in full, at the rate per annum equal to two
percent (2.0%) per annum plus the rate per annum announced from time to time by
the Bank as its "prime rate" (the "Prime Rate") (which "prime rate" may not be
the lowest rate charged by the Bank to any of its customers), and with interest
on overdue principal and any other overdue amount payable by the Maker (other
than interest) under the Loan Agreement or any instrument now or hereafter
evidencing or securing the indebtedness evidenced hereby from the date due
(whether at stated maturity, by acceleration or otherwise), until paid at the
rate which is four percent (4%) per annum in excess of the Prime Rate. The
initial rate of interest on this Note shall be based upon the rate described
above in effect on the date hereof; thereafter, such rate shall change on the
effective date of any change in the rate described above.
Principal and interest shall be paid as follows: Interest only shall be
paid on the 31st day of May, 1996 and the last day of each and every month
thereafter until the date which shall be twenty-four months from the date
hereof (the "Maturity Date"). Principal shall be paid as lots are sold and
released by payment of the release price as provided in the Deed of Trust (as
defined below). On the Maturity Date, the entire principal balance outstanding
hereunder, plus accrued interest thereon, shall be due and payable in full.
If default shall be made in the payment of the whole or any part of the
several installments of this Note when due, if an Event of Default shall occur
under the Loan Agreement or under any of the instruments now or hereafter
evidencing or securing the indebtedness evidenced hereby, the holder of this
Note may apply payments received on any amounts due hereunder or under the
terms of any instrument now or hereafter evidencing or securing the
indebtedness as said holder may determine and, if the holder of this Note so
elects, notice of election being expressly waived, the principal remaining
unpaid with accrued interest shall at once become due and payable.
In the event any installment shall be overdue for a period in excess of
ten (10) days, a late charge of four ($.04) cents for each One Dollar ($1.00)
so overdue may be charged by the holder hereof for the purpose of defraying
expenses incident to the handling of the delinquent payment.
This Note is secured by a certain Deed of Trust, Assignment of Rents,
Security Agreement and Financing Statement of even date herewith (the "Deed of
Trust") which is a lien on real estate in Nye County, Nevada (the "mortgaged
premises") and shall be construed by the laws of said state.
Notwithstanding any provision herein or in any instrument now or
hereafter securing this Note, in no event shall the amount of interest paid or
agreed to be paid to the holder of this Note exceed an amount computed at the
highest rate of interest permissible under applicable law. If, from
<PAGE> 35
any circumstances whatsoever, fulfillment of any provision hereof or of the
Deed of Trust or any other instrument securing this Note or all or any part of
the indebtedness evidenced hereby, at the time performance of such provision
shall be due, shall involve exceeding the interest limitation validly
prescribed by law which a court of competent jurisdiction may deem applicable
hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to an
amount computed at the highest rate of interest permissible under such
applicable law.
The undersigned waives presentment, protest and demand, notice of
protest, demand and dishonor and non-payment of this Note and agrees to pay all
costs of collection when incurred, including reasonable attorneys' fees, and to
perform and comply with each of the covenants, conditions, provisions and
agreements of the undersigned contained in every instrument now evidencing or
securing said indebtedness. No extension of the time for the payment of this
Note or any installment hereof made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the original liability under this Note,
either in whole or in part, of any of the undersigned not a party to such
agreement.
This Note may be prepaid, in whole or in part, at any time, without
penalty.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:_________________________________
Its:___________________________
<PAGE> 1
EXHIBIT 10.95
AMENDMENT NO. 14 TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 14 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (the "Fourteenth Amendment") is entered into as of the _____
day of __________, 1996, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender"), and PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Borrower").
R E C I T A L S
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated Loan Agreement")
that evidences a loan from GREFCO to Borrower (the "Modified Loan") that is
secured by, among other things, Receivables Collateral.
B. The Modified Loan and Restated Loan Agreement was
amended by an Amendment Number One to Amended and Restated Loan and Security
Agreement dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"); by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated as of April 15, 1994 (the "Eighth Amendment"), by an Amendment
No. 9 to Amended and Restated Loan and Security Agreement dated as of August
31, 1994 (the "Ninth Amendment"), by an Amendment No. 10 to Amended and
Restated Loan and Security Agreement dated as of January 26, 1995 (the "Tenth
Amendment"), by an Amendment No. 11 to Amended and Restated Loan and Security
Agreement dated as of September 22, 1995 (the "Eleventh Amendment"), by an
Amendment No. 12 to Amended and Restated Loan and Security Agreement dated as
of September 29, 1995 (the "Twelfth Amendment"), and by an Amendment No. 13 to
Amended and Restated Loan and Security Agreement dated as of December 13, 1995
(the "Thirteenth Amendment"). The Restated Loan Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth
Amendment, the Ninth Amendment, the Tenth Amendment, the Eleventh Amendment,
the Twelfth Amendment, the Thirteenth Amendment, and this Fourteenth Amendment
and all other documents evidencing or executed in connection with the Loan are
referred to hereinafter as the "Loan Documents." The Restated Loan Agreement,
as amended by the First Amendment, Second Amendment, Third Amendment, Fourth
Amendment, Fifth Amendment, Sixth Amendment, Seventh Amendment, Eighth
Amendment, Ninth Amendment, Tenth Amendment, Eleventh Amendment, Twelfth
Amendment, and Thirteenth Amendment, is referred to hereinafter as the "Loan
Agreement." The Loan contemplated by the Loan Agreement, as amended by this
Fourteenth Amendment, is referred to hereinafter as the "Loan." All capitalized
terms used in this Fourteenth Amendment will have the meanings assigned to such
terms in the Loan
<PAGE> 2
Agreement unless those terms are otherwise defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO was
liquidated into GFC. Further, pursuant to such plan of liquidation, GREFCO
assigned the Note and all of GREFCO's rights under the Loan Agreement and other
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Borrower has requested and Lender has agreed to fund
(pursuant to the terms and conditions of this Fourteenth Amendment), as part of
the Loan, an Advance against the Maximum Loan Amount, to refinance a portion of
the loan made by Lender with respect to the Headquarters as evidenced by the
2.5 MM Note and for purposes of providing Borrower with funds for the
acquisition of and construction of tenant improvements on an existing office
building located at 1500 East Tropicana, Las Vegas, Nevada, commonly known as
the First Commerce Financial Center (the "FCFC Property").
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Fourteenth Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which consideration is
hereby acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent
described in Paragraph 5 of this Fourteenth Amendment are met to the
satisfaction of Lender, which satisfaction will be evidenced by Lender's
execution of this Fourteenth Amendment unless otherwise provided herein, the
Loan Agreement is hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by adding to Article I the
following definitions:
"FCFC Advance": shall have the meaning set forth in
Paragraph 2 of the Fourteenth Amendment.
"FCFC Facility": shall have the meaning set forth in
Paragraph 2 of the Fourteenth Amendment.
"FCFC Advance Loan Fee": shall mean the loan fee
payable by Borrower to Lender equal to one percent (1%) of the amount
of the FCFC Advance, which shall be due and payable on the date the
FCFC Advance is funded.
"FCFC Deed of Trust": shall have the meaning set
forth in Paragraph 4 of the Fourteenth Amendment.
"FCFC Property": shall have the meaning set forth in
the Recitals of the Fourteenth Amendment. The FCFC Property is
legally described in EXHIBIT "A" attached hereto and incorporated
herein by this reference.
"Fourteenth Amendment": shall mean this Amendment
No. 14 to Amended and Restated Loan and Security Agreement.
"Office Note": shall mean the Second Amended and
Restated Promissory Note [Headquarters and FCFC Property] further
described in Paragraph 3 of
-2-
<PAGE> 3
the Fourteenth Amendment.
1.2 The definition of the following terms in
Article I of the Loan Agreement, including, to the extent applicable, the First
Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth
Amendment, Sixth Amendment, Seventh Amendment, Eighth Amendment, Ninth
Amendment, Tenth Amendment, Eleventh Amendment, Twelfth Amendment, and
Thirteenth Amendment, are hereby amended and restated in their entirety to read
as follows:
"Documents": shall mean the Note, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh
Amendment, the Eighth Amendment, the Ninth Amendment, the Tenth
Amendment, the Eleventh Amendment, the Twelfth Amendment, the
Thirteenth Amendment, the Fourteenth Amendment, the Office Note, the
Suites Phase II Note, the Ida Building One Note, the Ida Building Two
Note, the Aloha Bay Phase I Note, the Aloha Bay Phase II Note, the
Winnick Building Addition Note, the Ida Building Addition Note, the
Towers Note, the Guarantee, the Deed of Trust, the Headquarters Deed
of Trust, the Ida Building One Deed of Trust, the Ida Building Two
Deed of Trust, the Aloha Bay Phase I Mortgage, the Aloha Bay Phase II
Mortgage, the Winnick Building Addition Deed of Trust, the Ida
Building Addition Deed of Trust, the FCFC Deed of Trust, the
Assignments, the Contracts, the Instruments, the Agency Agreement, the
Oversight Agreement, this Agreement, and all other documents and
instruments executed in connection with the Loan, together with any
and all renewals, extensions, amendments, restatements or replacements
thereof, whether now or hereafter existing.
"2.5 MM Note": shall mean the 2.5 MM Note, as
modified and amended pursuant to the Amended and Restated 2.5 MM Note
described in the Twelfth Amendment, an as further modified by the
Office Note described in Paragraph 3 of the Fourteenth Amendment.
"Headquarters Deed of Trust": shall mean the
Headquarters Deed of Trust, as modified and amended pursuant to that
First Modification of Deed of Trust, Assignment of Rents and Proceeds
and Security Agreement [Headquarters] dated as of August 31, 1994 and
recorded in Book 941021, Instrument No. 00641, Official Records of
Clark County, Nevada, as further modified and amended by that Second
Modification to Deed of Trust, Assignment of Rents and Proceeds and
Security Agreement [Headquarters] dated as of September 29, 1995 and
recorded in Book 950929, Instrument No. 03234, Official Records of
Clark County, Nevada, and as further modified and amended pursuant to
that Third Modification of Deed of Trust, Assignment of Rents and
Proceeds and Security Agreement and Notice of Substitution of Trustee
[Headquarters] described in Paragraph 4 of the Fourteenth Amendment.
2. FCFC ADVANCE. As an Advance against the Maximum Loan
Amount, Lender shall make a loan (the "FCFC Advance") to Borrower in an amount
equal to $4,500,000, which, together with the outstanding principal balance of
the 2.5 MM Note as of the date of the Fourteenth Amendment, shall equal the
FCFC Facility. The FCFC Facility shall in no event exceed $7,000,000. The
following terms and conditions shall apply to the FCFC Advance:
2.1 At such time as all conditions with respect to the FCFC Advance
- 3 -
<PAGE> 4
in this Fourteenth Amendment have been satisfied in Lender's discretion, Lender
shall disburse the FCFC Advance to Borrower in a single Advance on a date
mutually agreeable to the parties hereto. Lender shall have no obligation to
disburse any portion of the FCFC Advance after June 7, 1996.
2.2 Borrower shall use the proceeds of the FCFC
Advance for the acquisition of and construction of tenant and other building
improvements in the FCFC Property.
2.3 Borrower has paid to Lender a deposit of
$5,000 to be credited against the FCFC Advance Loan Fee. Borrower shall pay to
Lender the remainder of the FCFC Advance Loan Fee simultaneously with the FCFC
Advance.
2.4 The FCFC Advance shall not be included in the
Mortgage Loan Facility or be deemed to be an Advance under the Mortgage Loan
Facility
3. OFFICE NOTE.
3.1 The outstanding principal balance of the 2.5
MM Note as of the date of the Fourteenth Amendment, together with the FCFC
Advance shall be evidenced by the Office Note, which shall replace the 2.5 MM
Note, shall be in the form attached hereto as EXHIBIT "B", and shall be
executed and delivered to Lender simultaneously with the execution of this
Fourteenth Amendment. Lender and Borrower hereby agree that, notwithstanding
any provision to the contrary in the Loan Agreement, the terms and conditions
of the Office Note and this Paragraph 3 shall apply with respect to repayment
of the Office Note. To the extent that Borrower's indebtedness to Lender
arising from the Office Note is evidenced by both the Note (as distinguished
from the Office Note) and the Office Note, receipts by Lender in payment or
satisfaction of such indebtedness shall be credited against sums due under both
the Note and the Office Note and/or any judgment entered thereon. Within
thirty (30) days after the FCFC Advance is made, Lender shall return the
original Amended and Restated Promissory Note dated as of September 29, 1995 to
Borrower, marked "Superceded by Promissory Note dated as of June 5, 1996."
3.2 Notwithstanding the provisions of Paragraph
7.3.1 of the Loan Agreement, Borrower shall have no right to prepay the Office
Note, other than as provided in the Office Note.
3.3 Notwithstanding anything herein to the
contrary, if not sooner paid, the entire outstanding balance of the Office
Note, together with all accrued and unpaid interest and all other sums due and
owing therein, shall be due and payable in full on the seventh (7th)
anniversary of the date of the FCFC Advance.
3.4 Wherever the terms "2.5 MM Note" and "Amended
and Restated 2.5 MM Note" are used in the Documents, such terms shall
hereinafter be deemed to refer to the Office Note.
4. SECURITY. As provided in Paragraphs 3.1(a) and (b)
of the Loan Agreement, the payment and Performance of the Office Note shall be
and shall continue to be secured by the Security Interests granted to Lender
pursuant to the Loan Agreement, as amended by this Fourteenth Amendment.
Furthermore, pursuant to a separate Deed of Trust, Assignment of Rents and
Proceeds and Security Agreement with respect to the FCFC Property,
- 4 -
<PAGE> 5
in a form acceptable to Lender (referred to herein as the "FCFC Deed of
Trust"), the payment and Performance of the Office Note and all other
obligations owed to Lender under the Documents shall be secured by a first
priority lien on and security interest in the FCFC Property; all buildings and
other improvements now or hereafter erected thereon; all fixtures, equipment
and other personal property now or hereafter located on or attached or affixed
in any manner to the FCFC Property; all leases, income, rents, royalties,
revenues, issues, profits or proceeds from the FCFC Property; and other items
of collateral in connection therewith, all as more fully set forth in the FCFC
Deed of Trust. As additional security, the Headquarters Deed of Trust, as
further modified by the Third Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement and Notice of Substitution of Trustee
[Headquarters] to be executed and delivered by Borrower at Closing, shall
secure repayment of the Office Note and all other Obligations of Borrower to
Lender under the Documents.
5. CONDITIONS PRECEDENT. Lender's obligation to make
the FCFC Advance is subject to the following conditions precedent, all of which
must be satisfied at or prior to the funding of the FCFC Advance.
5.1 Borrower shall have delivered to Lender the following executed
documents, all in form satisfactory to Lender:
(a) The Office Note, in the form attached hereto
as EXHIBIT "B";
(b) An Environmental Certificate with
Representations, Covenants and Warranties, with respect to the FCFC
Property, in form acceptable to Lender;
(c) The FCFC Deed of Trust, in form acceptable
to Lender;
(d) The Third Modification of Deed of Trust
[Headquarters], in form acceptable to Lender;
(e) An opinion from Borrower's counsel, which
counsel must be acceptable to Lender, with respect to such matters as
Lender shall require;
(f) This Fourteenth Amendment;
(g) From the Guarantor of the Loan, a "Consent of
Guarantor," in a form acceptable to Lender;
(h) A corporate resolution of Borrower;
(i) A corporate resolution of Guarantor;
(j) UCC Financing Statements for filing and/or
recording with respect to the FCFC Property;
- 5 -
<PAGE> 6
(k) From each tenant of the FCFC Property, an
estoppel agreement, which estoppel agreement shall be in the form
attached hereto as EXHIBIT "C" with respect to all tenants except
tenants on month-to-month leases, and in the form of EXHIBIT "D" with
respect to all month-to-month tenants;
(l) From all tenants of the FCFC Property who are
not occupying their premises under month-to-month leases,
subordination, nondisturbance and attornment agreements in recordable
forms acceptable to Lender;
(m) Such other documents or instruments required
by Lender to fully perfect the liens and security interests of Lender
described or contemplated herein;
(n) Such other items as Lender may require.
5.2 Borrower shall deliver to Lender, at
Borrower's cost, a report, satisfactory to Lender, of a third-party engineer or
architect acceptable to Lender setting forth the results of such engineer's or
architect's inspection of all of the building improvements located on the FCFC
Property. In addition, Lender shall have inspected the FCFC Property and shall
be satisfied as to the condition thereof. The foregoing condition shall be
deemed to have been satisfied upon Lender's funding of the FCFC Advance.
5.3 Borrower shall have delivered to Lender a
current (dated not more than six (6) months prior to the funding of the FCFC
Advance) Phase I Environmental Assessment for the FCFC Property performed by an
environmental consultant acceptable to Lender, indicating that the FCFC
Property does not contain and is not affected by existing or potential
environmental contamination. If Lender is not satisfied with the results of
the Phase I Environmental Assessment or if Lender becomes aware of any
environmental issues impacting the FCFC Property, Lender shall have the right
to require a site audit and regulatory compliance evaluation of the FCFC
Property, which shall be prepared by an environmental engineer acceptable to
Lender and retained at the cost of Borrower, and Lender's obligations hereunder
shall be subject to Lender's approval of such audit and evaluation.
5.4 Borrower shall have delivered to Lender a
current ALTA survey of the FCFC Property, certified to Lender by a licensed
engineer or surveyor acceptable to Lender, showing, inter alia, the dimensions
of the FCFC Property, access thereto, streets and street lines, easements,
location of all improvements and all other physical details thereof. In
addition, Borrower shall have delivered to Lender a current title report with
respect to the FCFC Property from a title insurance company acceptable to
Lender and Lender shall have approved the condition of title thereto as shown
therein.
5.5 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, an ALTA extended coverage mortgagee's title
insurance policy issued in favor of Lender by a title insurance company
acceptable to Lender, with such additional endorsements as Lender may require,
in the amount of the Office Note, insuring that the FCFC Deed of Trust and
Headquarters Deed of Trust are first and prior liens on the FCFC Property and
Headquarters, respectively, subject only to such title exceptions as may be
approved by Lender.
5.6 Borrower shall have delivered to Lender
evidence satisfactory to Lender that the FCFC Property is not located within a
special flood hazard area or evidence satisfactory to Lender that the FCFC
Property is insured, upon such terms and in such amounts
- 6 -
<PAGE> 7
as shall be satisfactory to Lender, against risks of physical damage caused by
flooding.
5.7 Borrower shall have obtained such public
liability, casualty and other insurance policies covering the FCFC Property as
Lender may require, written by insurers in amounts and forms satisfactory to
Lender.
5.8 Unless waived by Lender in writing, Lender
shall have reviewed and approved credit references of Borrower and Guarantor.
The foregoing condition shall be deemed to have been waived by Lender upon
Lender's funding of the FCFC Advance.
5.9 There shall have occurred no material adverse
change in any real property or in the business or financial condition of the
Borrower and Guarantor since the date of the last financial statement submitted
to Lender.
5.10 Unless waived in writing by Lender, Lender
shall have reviewed and approved a current UCC, tax lien, judgment and
litigation search on Borrower and Guarantor.
5.11 Borrower shall have paid, or shall have
assumed the obligation or otherwise provided for the payment of all closing
costs, title company charges, recording fees and taxes, appraisal fees and
expenses, survey fees, travel expenses, architect/engineer inspection fees and
expenses, fees and expenses of Lender's counsel, and all other costs and
expenses incurred by Lender in connection with the preparation, closing and
disbursement of the FCFC Advance pursuant to this Fourteenth Amendment.
5.12 Borrower shall have paid the FCFC Advance
Loan Fee in the amount required to be paid with respect to the FCFC Advance
made by Lender pursuant hereto.
5.13 Borrower shall have provided Lender with an
appraisal of the FCFC Property made by an appraiser certified in the State of
Nevada and acceptable to Lender, which appraisal shall (a) have been made
within six (6) months prior to the funding of the FCFC Advance, (b) indicate
that the FCFC Property has an "as is" market value of not less than $4,400,000,
and (c) otherwise be acceptable to Lender.
5.14 Lender shall be satisfied, in its sole
discretion, with any and all easement agreements, parking agreements, and
common area or common wall agreements by and among Borrower and the owners of
real property adjoining the FCFC Property.
5.15 Borrower or Borrower's counsel shall have
provided to Lender, for Lender's review, all of the following:
(a) A written summary of all pending litigation
in which either Borrower or Guarantor is named as defendant.
(b) Certified copies of the complaint, answer and
all other substantive pleadings filed in any lawsuit brought against
Borrower or Guarantor by or on behalf of any shareholder of Guarantor.
(c) Copies of any and all insurance policies
which may provide coverage against or with respect to the claims made
in the lawsuits described in subsection 5.15(b) above.
- 7 -
<PAGE> 8
(d) Copies of any and all management letters
written to Guarantor by its accountants Deloitte & Touche L.L.P. with
respect to Guarantor's 1994 and 1995 fiscal years.
5.16 Lender shall be satisfied that Borrower is in
compliance with all terms, covenants and conditions of the Loan Agreement and
that there exists no Event of Default or event that with the passage of time or
the giving of notice or both would constitute an Event of Default under the
Loan Agreement.
5.17 Lender shall be satisfied with the current
status of those lending agreements between Borrower and Heller Financial Corp.
and between Borrower and Textron Financial Corporation, as verbally confirmed
by such lenders to Lender.
6. ADDITIONAL CONDITIONS AND COVENANTS. As further
consideration for Lender's execution of this Fourteenth Amendment and the FCFC
Advance, and in addition to all other covenants and conditions of Borrower
which are set forth in the Loan Agreement, as modified by the Fourteenth
Amendment, Borrower hereby covenants and agrees as follows:
6.1 Not later than one (1) year following the
funding of the FCFC Advance, Borrower shall deliver to Lender evidence
satisfactory to Lender that Borrower has expended at least $400,000 for tenant
improvements and other building improvements on the FCFC Property, which
improvements shall include, without limitation, those repairs and improvements
described in EXHIBIT "E" attached hereto and incorporated herein by this
reference (the "Improvements"). The amount expended by Borrower in connection
with the Improvements may include "soft" costs and reasonable and customary
salaries paid to employees of Borrower performing repair and construction
activities with respect to the FCFC Property.
6.2 Borrower shall cause the payment of any
management fees due to an affiliate of Borrower as fees for the management of
the FCFC Property, if any, to be subordinated to all of Borrower's indebtedness
to Lender. For the purposes hereof, a person or entity shall be deemed an
affiliate of Borrower if it is a shareholder, officer, director or employee of
Borrower or a relative of any of the foregoing, or any other person or entity
related to or affiliated with Borrower, including, without limitation, the
Guarantor and any affiliates of the Guarantor.
6.3 Borrower shall furnish to Lender, not later
than sixty (60) days subsequent to the end of each fiscal quarter of Borrower,
a rent roll and summary of all leasing activities with respect to the FCFC
Property, certified to be correct by Borrower and Borrower's property manager
for the FCFC Property, if any.
6.4 Borrower shall deliver to Lender, for
Lender's review and approval, prior to the effective date thereof, all leases
entered into following the date hereof with respect to the lease of premises in
the FCFC Property in excess of 2,500 square feet and with terms longer than
month-to-month. In the event that Lender fails to approve or reject such a
lease within ten (10) business days following receipt of both a draft of such
lease together with financial statements of the prospective tenant, such lease
shall be deemed approved. Within sixty (60) days following the execution of a
lease with respect to any portion of the FCFC Property, whether or not Lender's
approval to such lease is required, Borrower shall provide Lender with an
estoppel and attornment agreement executed by the new tenant in favor
- 8 -
<PAGE> 9
of Lender, in form and content similar to the form attached hereto as EXHIBIT
"C" with respect to those tenants who are not leasing space under
month-to-month leases, and in the form of EXHIBIT "D" attached hereto with
respect to those tenants leasing space under month-to-month leases.
6.5 On or before July 31, 1996, Borrower shall
enter into a further amendment of the Loan Agreement, pursuant to which the
Maximum Loan Amount shall be increased to $57,000,000. Borrower shall execute
such further documents, including amendments to all deeds of trust and
mortgages executed by Borrower in favor of Lender, and satisfy such additional
conditions thereto as required by Lender at such time.
Any failure by Borrower to satisfy the above covenants and conditions within
the time period specified, if any, shall constitute an Event of Default under
the Loan Agreement.
7. COMMISSIONS. Lender shall not be obligated to pay
any loan commission and/or brokerage fee in connection with the Advances of the
Loan made pursuant to this Fourteenth Amendment. Borrower shall pay any and
all such commissions and fees, if any, and hereby agrees to indemnify, defend
and hold harmless Lender from any claim for any such commissions or fees.
Lender represents and warrants to Borrower that Lender has no knowledge of
broker involvement in the transactions contemplated by this Fourteenth
Amendment.
8. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the indebtedness in accordance with the terms of the Documents.
Borrower further acknowledges and represents that no event has occurred and no
condition presently exists that would constitute a default or event of default
by Borrower under the Loan Agreement or any of the other Documents, with or
without notice or lapse of time.
9. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid, enforceable and collectable obligations of Borrower,
and that Borrower presently has no existing claims, defenses (personal or
otherwise) or rights of setoff whatsoever with respect to the Obligations of
Borrower under the Loan Agreement or any of the other Documents. Borrower
furthermore agrees that it has 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 or GREFCO.
10. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by EXHIBIT "F" attached hereto, or waived by Lender in writing,
Borrower hereby reaffirms to Lender each of the representations, warranties,
covenants and agreements of Borrower as set forth in each of the Documents with
the same force and effect as if each were separately stated herein and made as
of the date hereof.
11. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth
Amendment, Eleventh Amendment, Twelfth Amendment, Thirteenth Amendment, and of
each of the other Documents shall continue in full force and effect and shall
remain unaffected and unchanged except as specifically amended
- 9 -
<PAGE> 10
hereby. In the event of any conflict between the terms and conditions of this
Fourteenth Amendment and any of the other Documents, the provisions of this
Fourteenth Amendment shall control.
12. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Fourteenth Amendment.
13. EFFECTIVENESS OF AMENDMENT. This Fourteenth
Amendment shall not be effective until the same is executed and accepted by
Lender in the State of Arizona.
IN WITNESS WHEREOF, this instrument is executed as of the day
and year first above written.
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By:__________________________ By:_____________________________________
Donald R. Middleton, Title:__________________________________
Vice President
- 10 -
<PAGE> 11
STATE OF ARIZONA )
) ss
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared DONALD R.
MIDDLETON, known to me to be the Vice President of PREFERRED EQUITIES
CORPORATION, a Nevada corporation, who acknowledged to me that the same was the
free act and deed of such corporation and that he, being authorized by proper
authority to do so, executed the same on behalf of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1996.
______________________________________
Notary Public
My commission expires:
____________________
STATE OF ARIZONA )
) ss
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and
for the County and State aforesaid, on this day personally appeared
_____________________________________________________________, known to me to
be the _____________________________ of FINOVA CAPITAL CORPORATION, a Delaware
corporation, who acknowledged to me that the same was the free act and deed of
such corporation and that s/he, being authorized by proper authority to do so,
executed the same on behalf of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of
______________, 1996.
_______________________________________
Notary Public
My commission expires:
____________________
- 11 -
<PAGE> 12
SECOND AMENDED AND RESTATED
PROMISSORY NOTE
[HEADQUARTERS AND FCFC PROPERTY]
U.S. $6,773,778.74 As of June 5, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the
holder of this Second Amended and Restated Promissory Note ("Holder") may from
time to time designate in writing, in lawful money of the United States of
America, the principal sum of SIX MILLION SEVEN HUNDRED SEVENTY-THREE THOUSAND
SEVEN HUNDRED SEVENTY-EIGHT AND 74/100 UNITED STATES DOLLARS (U.S.
$6,773,778.74), or so much thereof as has been disbursed and not repaid,
together with interest on the unpaid principal balance from time to time
outstanding from the date hereof until paid, as more fully provided for below.
Interest due under this Second Amended and Restated Promissory
Note (the "Note") shall (a) accrue daily on the basis of the actual number of
days in the computation period and (b) be calculated on the basis of a year
consisting of 360 days. Interest shall accrue initially at an annual interest
rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in
effect on the first business day of the month of this Note ("Initial Prime")
plus 2-1/4% per annum, subject to adjustment on each Interest Rate Change Date
(as hereinafter defined), but in no event to exceed the maximum contract rate
permitted under the Applicable Usury Law (as hereinafter defined). The
interest rate shall change on each Interest Rate Change Date by adding to or
subtracting from the Initial Interest Rate, as the case may be, the change, if
any, between Initial Prime and Prime in effect on the applicable Interest Rate
Change Date. As used in this Note, the following capitalized terms have the
meaning set forth opposite them below:
"Prime" shall mean the rate of interest publicly announced,
from time to time, by Citibank, N.A., New York, New York
("Citibank"), as the corporate base rate of interest charged
by Citibank to its most creditworthy commercial borrowers
notwithstanding the fact that some borrowers of Citibank may
borrow from Citibank at rates of less than such announced
Prime rate; and
"Interest Rate Change Date" means (a) the first business day
of Citibank, N.A., in New York, New York, during the calendar
month following the date of this Note and (b) the first
business day of Citibank, N.A., during each successive month
thereafter.
This Note shall be repaid in immediately available funds in
eighty-four (84) monthly installments of principal and interest calculated in
the manner set forth below. The first monthly installment shall be due and
payable on July 1, 1996 and subsequent monthly installments shall be due and
payable on the first business day of each and every month thereafter. The
first eighty-three (83) installments shall be in an amount equal to interest
(in arrears) and a monthly principal payment which shall equal the principal
payment obtained when the beginning principal balance of this Note is amortized
over an eighty-four (84) month principal amortization schedule using the
Initial Interest Rate. Any remaining principal and all other
<PAGE> 13
sums due and owing pursuant hereto plus accrued and unpaid interest shall be
due and payable on July 1, 2003 (the "Maturity Date").
Payments of principal and/or interest shall, at the option of
Holder, earn interest after they are due at a rate ("Overdue Rate") equal to
(a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum
contract rate permitted under the Applicable Usury Law, whichever of (a) or (b)
is lesser. Furthermore, in the event of the occurrence of an Event of Default
(as the term "Event of Default" is defined in the Loan Agreement) the unpaid
principal balance of this Note shall, at the option of Holder, accrue interest
at the Overdue Rate.
This Note is executed pursuant to that certain Amendment No.
14 to Amended and Restated Loan and Security Agreement of even date herewith
between Maker and Lender (such Amended and Restated Loan and Security
Agreement, as amended, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement, the applicable provisions of which are incorporated herein by
reference.
All payments made under this Note shall be applied first
against amounts due hereunder or under the Loan Agreement, other than principal
and interest; second, against interest then due under this Note; and third,
against the principal of this Note.
In the event any installment of principal and/or interest
required to be made in connection with the indebtedness evidenced hereby is not
paid when due and, except in the case of the final installment, for which no
grace period is allowed, such default continues for five days after notice
thereof to Maker or an Event of Default occurs, Holder may, at its option,
without notice or demand, declare immediately due and payable the entire unpaid
principal balance hereof, all accrued and unpaid interest thereon, and all
other charges owing in connection with the loan evidenced hereby.
The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the interest
rate, calculated and applied to the principal balance of this Note in
accordance with the provisions of this Note; (ii) Overdue Rate, calculated and
applied to the amounts due under this Note in accordance with the provisions
hereof; (iii) Headquarters Readvance Loan Fee and FCFC Advance Loan Fee; and
(iv) all Additional Sums (as hereinafter defined), if any. Maker agrees to pay
an effective contracted for rate of interest which is the sum of the above
referenced elements.
All fees, charges, goods, things in action or any other sums
or things of value (other than amounts described in the immediately previous
paragraph), paid or payable by Maker (collectively, the "Additional Sums"),
whether pursuant to this Note, the Loan Agreement, the other Documents or any
other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction,
shall be payable by Maker as, and shall be deemed to be, additional interest,
and for such purposes only, the agreed upon and "contracted for rate of
interest" of this lending transaction shall be deemed to be increased by the
rate of interest resulting from the Additional Sums.
This Note is prepayable in whole but not in part at any time subject to the
-2-
<PAGE> 14
following conditions:
(a) Not less than thirty (30) days prior to the
date on which Maker desires to make such prepayment, Maker shall
deliver to Holder written notice of Maker's intention to prepay, which
notice shall be irrevocable and shall state the prepayment date; and
(b) Maker pays to Holder, concurrently with such
prepayment (i) a prepayment premium (the "Prepayment Premium") equal
to (A) three percent (3%) of the amount prepaid if such prepayment is
made on or before June 30, 1996, (B) two percent (2%) of the amount
prepaid if such prepayment is made after June 30, 1996 and on or
before June 30, 1997 and (C) one percent (1%) of the amount prepaid if
such prepayment is made after June 30, 1997 and on or before June 30,
1998 and (ii) accrued and unpaid interest through the date of such
prepayment on the principal balance being prepaid (it being agreed and
understood that no Prepayment Premium shall be payable if this Note is
prepaid at any time after June 30, 1998). The foregoing
notwithstanding, in the event a prepayment of this Note occurs as a
result of an acceleration by Holder of the balance due pursuant to its
right to declare an acceleration hereof under the terms of the Loan
Agreement, the Prepayment Premium shall equal five percent (5%) of the
principal being prepaid, notwithstanding the date upon which such
acceleration occurs.
In the event that Holder institutes legal proceedings to
enforce this Note and Holder is the prevailing party in such proceedings, Maker
agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs
and expenses of such proceedings, including, without limitation, attorneys'
fees.
Holder shall not by any act or omission or commission be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on any
other occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be
cumulative and none is exclusive and such remedies may be exercised
concurrently or consecutively at Holder's option.
Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security herefor. Every such person or
entity further consents that Holder may renew or extend the time of payment of
any part or the whole of the indebtedness at any time and from time to time at
the request of any other person or entity liable therefor. Any such renewals
or extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness
only and not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all of the provisions, conditions, promises and
covenants hereof
-3-
<PAGE> 15
shall be binding in accordance with the terms hereof upon Maker, its successors
and assigns, provided nothing herein shall be deemed consent to any assignment
restricted or prohibited by the terms of the Loan Agreement. If more than one
person or other entity has executed this Note as Maker, the obligations of such
persons and entities shall be joint and several.
This Note has been executed and delivered in Phoenix, Arizona,
and the obligations of Maker hereunder shall be performed in Phoenix, Arizona.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND,
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES. Maker (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Note or the subject matter hereof brought by Holder and
(b) without limiting the generality of the foregoing, hereby waives and agrees
not to assert by way of motion, defense or otherwise in any such suit, action
or proceeding any claim that Maker is not personally subject to the
jurisdiction of the above-named courts, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not. Accordingly, it is agreed that notwithstanding any provisions
to the contrary in this Note, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall this Note or such
documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. In the event
(a) any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstance the amount of
interest contracted for, shared or received in connection with the loan
evidenced hereby, would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Maker nor any other person or
entity now or hereafter liable for the payment hereof will be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
contract rate permitted by the Applicable Usury Law, (3) any such excess which
may have been collected shall be either applied as a credit against the then
unpaid principal amount hereof or refunded to Maker, at Holder's option, and
(4) the effective rate of interest will be automatically reduced to the maximum
amount of interest permitted by the Applicable Usury Law. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law: (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
maximum contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the loan evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise in connection with such loan;
and (y) in the event that the effective rate of interest on the loan should at
any time exceed the maximum contract rate allowed under the Applicable Usury
Law, such excess interest that would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law shall be paid to Holder
from time to time, if and when the effective interest rate on the loan
otherwise falls below the maximum amount permitted by the Applicable Usury Law,
to the extent that interest paid to the date of calculation does not exceed the
maximum contract rate permitted by the Applicable Usury Law, until the
-4-
<PAGE> 16
entire amount of interest which would have otherwise been collected had there
been no ceiling imposed by the Applicable Usury Law has been paid in full.
Maker further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
In the event of any conflict or inconsistency between the
provisions of this Note and the provisions of the Loan Agreement, the
provisions of the Loan Agreement shall control.
This Note is an amendment and restatement of that certain
Amended and Restated Promissory Note, dated as of September 29, 1995, by Maker
to the order of Lender. This Note shall not constitute a waiver of any
existing default or breach of a covenant, if any, and shall have no retroactive
effect; provided, however, that any and all written waivers given heretofore
are hereby extended to the date hereof.
PREFERRED EQUITIES CORPORATION, a
Nevada corporation
"Maker"
By:_______________________________________________
Name:__________________________________________
Its:___________________________________________
Federal Taxpayer Identification
Number: 88-0106662
Address:
4310 Paradise Road
Las Vegas, Nevada 89109
Attn: President
-5-
<PAGE> 1
EXHIBIT 10.96
AMENDMENT NO. 15 TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 15 TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (the "Fifteenth Amendment") is entered into as of the 16th
day of August, 1996, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender"), and PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Borrower").
R E C I T A L S
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated Loan Agreement")
that evidences a loan from GREFCO to Borrower (the "Modified Loan") that is
secured by, among other things, Receivables Collateral.
B. The Modified Loan and Restated Loan Agreement was
amended by an Amendment Number One to Amended and Restated Loan and Security
Agreement dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"), by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated as of April 15, 1994 (the "Eighth Amendment"), by an Amendment
No. 9 to Amended and Restated Loan and Security Agreement dated as of August
31, 1994 (the "Ninth Amendment"), by an Amendment No. 10 to Amended and
Restated Loan and Security Agreement dated as of January 26, 1995 (the "Tenth
Amendment"), by an Amendment No. 11 to Amended and Restated Loan and Security
Agreement dated as of September 22, 1995 (the "Eleventh Amendment"), by an
Amendment No. 12 to Amended and Restated Loan and Security Agreement dated as
of September 29, 1995 (the "Twelfth Amendment"), by an Amendment No. 13 to
Amended and Restated Loan and Security Agreement dated as of December 13, 1995
(the "Thirteenth Amendment") and by an Amendment No. 14 to Amended and Restated
Loan and Security Agreement dated as of June 5, 1996. The Restated Loan
Agreement, the First Amendment,
<PAGE> 2
the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment,
the Ninth Amendment, the Tenth Amendment, the Eleventh Amendment, the Twelfth
Amendment, the Thirteenth Amendment, the Fourteenth Amendment and this
Fifteenth Amendment and all other documents evidencing or executed in
connection with the Loan are referred to hereinafter as the "Loan Documents."
The Restated Loan Agreement, as amended by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth Amendment, Eleventh
Amendment, Twelfth Amendment, Thirteenth Amendment, and the Fourteenth
Amendment, is referred to hereinafter as the "Loan Agreement." The loan
contemplated by the Loan Agreement, as amended by this Fifteenth Amendment, is
referred to hereinafter as the "Loan." All capitalized terms used in this
Fifteenth Amendment will have the meanings assigned to such terms in the Loan
Agreement unless those terms are otherwise defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO was
liquidated into GFC. Further, pursuant to such plan of liquidation, GREFCO
assigned the Note and all of GREFCO's rights under the Loan Agreement and other
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Borrower has requested and Lender has agreed to
further modify the Loan in accordance with the terms of and subject to the
conditions contained in this Fifteenth Amendment in order to increase the
Maximum Loan Amount.
E. Borrower has further requested and Lender has agreed
to further modify the Loan in accordance with the terms of and subject to the
conditions contained in this Fifteenth Amendment in order to fund additional
Tower Advances, as defined in the Thirteenth Amendment, in an amount in excess
of that which is set forth in the Thirteenth Amendment.
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Fifteenth Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which consideration is
hereby acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent
described in Paragraph 4 of this Fifteenth Amendment are met to the
satisfaction of Lender, which satisfaction will be evidenced by Lender's
execution of this Fifteenth Amendment unless otherwise provided herein, the
Loan Agreement is hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by
adding to Article I the following definitions:
- 2 -
<PAGE> 3
"Fifteenth Amendment": shall mean this Amendment
No. 15 to Amended and Restated Loan and Security Agreement.
1.2 The definition of the following terms in
Article I of the Loan Agreement, including, to the extent applicable,
the First Amendment, Second Amendment, Third Amendment, Fourth
Amendment, Fifth Amendment, Sixth Amendment, Seventh Amendment, Eighth
Amendment, Ninth Amendment, Tenth Amendment, Eleventh Amendment,
Twelfth Amendment, Thirteenth Amendment, and Fourteenth Amendment are
hereby amended and restated in their entirety to read as follows:
"Aloha Bay Phase I Mortgage": shall mean the Aloha
Bay Phase I Mortgage, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications,
whether now or hereafter existing.
"Documents": shall mean the Note, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh
Amendment, the Eighth Amendment, the Ninth Amendment, the Tenth
Amendment, the Eleventh Amendment, the Twelfth Amendment, the
Thirteenth Amendment, the Fourteenth Amendment, the Fifteenth
Amendment, the Office Note, the Suites Phase II Note, the Ida Building
One Note, the Ida Building Two Note, the Aloha Bay Phase I Note, the
Winnick Building Addition Note, the Ida Building Addition Note, the
Towers Note, the Guarantee, the Deed of Trust, the Headquarters Deed
of Trust, the Ida Building One Deed of Trust, the Ida Building Two
Deed of Trust, the Aloha Bay Phase I Mortgage, the Winnick Building
Addition Deed of Trust, the Ida Building Addition Deed of Trust, the
FCFC Deed of Trust, the Assignments, the Contracts, the Instruments,
the Agency Agreement, the Oversight Agreement, this Agreement, and all
other documents and instruments executed in connection with the Loan,
together with any and all renewals, extensions, amendments,
restatements or replacements thereof, whether now or hereafter
existing.
"FCFC Deed of Trust": shall mean the FCFC Deed of
Trust, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications, whether now
or hereafter existing.
"Headquarters Deed of Trust": shall mean the
Headquarters Deed of Trust, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing.
"Ida Building Addition Deed of Trust": shall mean
the Ida Building Addition Deed of Trust, together with any and all
renewals, extensions, amendments,
- 3 -
<PAGE> 4
replacements, restatements, supplements or modifications, whether
now or hereafter existing.
"Ida Building One Deed of Trust": shall mean the Ida
Building One Deed of Trust, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing.
"Ida Building Two Deed of Trust": shall mean the Ida
Building Two Deed of Trust, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing.
"Maximum Loan Amount": shall mean Fifty Seven
Million United States Dollars (U.S. $57,000,000.00), including the
outstanding principal balance of the (i) 2.5 Million Loan Advance;
(ii) FCFC Advance; (iii) Receivables Over-Advances; (iv) Aloha Bay
Phase I Acquisition Advance; (v) Aloha Bay Phase I Renovation
Advances, and (vi) each of the Advances made under the Mortgage Loan
Facility.
"Note": shall mean the Note, as modified by that
Amendment No. 1 to Amended and Restated Promissory Note dated April
16, 1990, as further modified by the Amendment No. 2 to Amended and
Restated Promissory Note dated May 31, 1991, as further modified by
the Amendment No. 3 to Amended and Restated Promissory Note dated
January 13, 1992, as further modified by an Amendment No. 4 to Amended
and Restated Promissory Note dated August 31, 1994, and as further
amended by an Amendment No. 5 to Amended and Restated Promissory Note
described in Paragraph 4 of the Fifteenth Amendment.
"Towers Note": shall mean the Towers Note, as
modified and amended pursuant to the Amendment No. 1 to Promissory
Note (Towers Lobby) described in Paragraph 4 of the Fifteenth
Amendment.
"Winnick Building Addition Deed of Trust": shall
mean the Winnick Building Addition Deed of Trust, together with any
and all renewals, extensions, amendments, replacements, restatements,
supplements or modifications, whether now or hereafter existing.
1.3 Paragraph 2.1 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
"2.1 Upon Borrower's request, subject to
the conditions precedent stated in Article V hereof and the
provisions of Paragraph 4 of the
- 4 -
<PAGE> 5
Tenth Amendment, Lender hereby agrees that the Loan will be
disbursed to Borrower, from time to time, in periodic
advances, but in no event after the Borrowing Term has
expired, in amounts not to exceed those (except as may result
from Receivables Over-Advances as provided for in Paragraph 4
of the Tenth Amendment) determined by subtracting (i) the
excess of the unpaid principal balance outstanding under the
Loan at the time of each Advance over the aggregate
outstanding principal balance of the 2.5 Million Loan Advance,
of the FCFC Advance, of the Receivables Over-Advances, of the
Aloha Bay Phase I Acquisition Advance, of the Aloha Bay Phase
I Renovation Advances, and of each of the Advances made under
the Mortgage Loan Facility from (ii) the Borrowing Base,
determined as of the date thereof after giving effect to all
Eligible Receivables then assigned to (and not reassigned by)
Lender; provided, however, that the outstanding principal
amount of the Loan together with the outstanding principal
amount of any and all indebtedness of VSR to Lender shall not
exceed at any time the Maximum Loan Amount, and; provided,
further, that the combined principal amount of any and all
indebtedness of VSR and/or Borrower to Lender which is secured
by Receivables Collateral encumbering Units shall not exceed
$30,000,000 or be less than $5,000,000 at any time, and the
combined principal amount of any and all indebtedness of VSR
and/or Borrower to Lender which is secured by Receivables
Collateral encumbering Lots shall not exceed $30,000,000 at
any time."
2. TOWERS ADVANCES.
2.1 Under the provisions of the Thirteenth
Amendment, Lender agreed to make Towers Advances in an amount not to
exceed the lesser of (a) $700,000 or (b) 90% of the bona fide
out-of-pocket costs and expenses incurred by Borrower through the date
of such Advance in connection with the Towers Lobby Expansion, all as
more fully set forth in the Thirteenth Amendment. Borrower has
requested that Lender make Tower Advances in excess of the limitation
on the amount set forth in the Thirteenth Amendment. The parties
therefore agree that Tower Advances shall not exceed, in the
aggregate, the lesser of (a) $1,286,126 or (b) 90% of the bona fide
out-of-pocket costs and expenses incurred by Borrower through the date
of such Advance in connection with the Tower Lobby Expansion, all as
more fully set forth in the Thirteenth Amendment. The parties hereby
acknowledge and agree that the total cumulative amount of Towers
Advances, as of the date of this Fifteenth Amendment, equals $700,000.
2.2 Further, pursuant to the Thirteenth
Amendment, the principal balance of the Towers Note was to be repaid
through the Towers Note Principal Reduction Fee. In consideration of
Lender's agreement to increase the maximum
- 5 -
<PAGE> 6
amount of the Towers Advances, the parties hereby agree that from and
after the date hereof, the Towers Note Principal Reduction Fee shall
equal $350.00.
3. GENERAL CONDITION PRECEDENT TO MORTGAGE THE LOAN
FACILITY. In addition to all other conditions precedent to Lender's obligation
to make an advance of the Mortgage Loan Facility, Borrower shall pay to Lender
the applicable Mortgage Loan Commitment Fee with respect to such Advance.
4. CONDITIONS PRECEDENT. The modifications described in
Paragraph 1 of this Fifteenth Amendment will not become effective until
Borrower has delivered to Lender each of the following documents and items, all
of which are to be properly completed, executed and otherwise satisfactory in
form and substance to Lender, in its sole discretion:
4.1 Borrower shall have delivered to Lender the
following executed documents, all in form satisfactory to Lender:
(a) This Fifteenth Amendment;
(b) The Amendment No. 5 to Amended and
Restated to Promissory Note;
(c) The Amendment No. 1 to Promissory
Note (Towers Lobby);
(d) The Fourth Modification of Deed of
Trust, Assignment of Rents and Security Agreement;
(e) The Fourth Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Headquarters];
(f) The Third Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Ida Building One];
(g) The Second Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Ida Building Two];
(h) The Second Modification of Mortgage,
Assignment of Rents and Proceeds and Security Agreement [Aloha
Bay Phase I];
(i) The First Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Winnick Building Addition];
- 6 -
<PAGE> 7
(j) The First Amendment of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Ida Building Addition];
(k) The First Amendment of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[FCFC Property];
(l) An opinion from Borrower's and
Guarantor's counsel, which counsel must be acceptable to
Lender, with respect to such matters as Lender shall
reasonably require;
(m) From the Guarantor of the Loan, a
"Consent of Guarantor";
(n) A corporate resolution of Borrower;
(o) A corporate resolution of Guarantor;
(p) Such other documents or instruments
required by Lender to fully perfect the liens and security
interests of Lender described or contemplated herein;
(q) Such other items as Lender may
require.
4.2 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Commonwealth Land Title Insurance Company with
respect to the Headquarters Deed of Trust assuring that the
Headquarters Deed of Trust continues to be a first and prior lien on
the property which is the subject matter thereof subject only to such
additional exceptions as may be approved by Lender, notwithstanding
the effect of the recordation of the Fourth Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement
[Headquarters].
4.3 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Chicago Title Insurance Company with respect to the
Ida Building One Deed of Trust assuring that the Ida Building One Deed
of Trust continues to be a first and prior lien on the property which
is the subject matter thereof subject only to such additional
exceptions as may be approved by Lender, notwithstanding the effect of
the recordation of the Third Modification of Deed of Trust, Assignment
of Rents and Proceeds and Security Agreement [Ida Building One].
- 7 -
<PAGE> 8
4.4 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Chicago Title Insurance Company with respect to the
Ida Building Two Deed of Trust assuring that the Ida Building Two Deed
of Trust continues to be a first and prior lien on the property which
is the subject matter thereof subject only to such additional
exceptions as may be approved by Lender, notwithstanding the effect of
the recordation of the Second Modification of Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement [Ida Building
Two].
4.5 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Commonwealth Land Title Insurance Company with
respect to the Aloha Bay Phase I Mortgage assuring that the Aloha Bay
Phase I Mortgage continues to be a first and prior lien on the
property which is the subject matter thereof subject only to such
additional exceptions as may be approved by Lender, notwithstanding
the effect of the recordation of the Second Modification of Mortgage,
Assignment of Rents and Proceeds and Security Agreement [Aloha Bay
Phase I].
4.6 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Chicago Title Insurance Company with respect to the
Winnick Building Addition Deed of Trust assuring that the Winnick
Building Addition Deed of Trust continues to be a first and prior lien
on the property which is the subject matter thereof subject only to
such additional exceptions as may be approved by Lender,
notwithstanding the effect of the recordation of the First
Modification of Deed of Trust, Assignment of Rents and Proceeds and
Security Agreement [Winnick Building Addition].
4.7 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by Chicago Title Insurance Company with respect to the
Ida Building Addition Deed of Trust assuring that the Ida Building
Addition Deed of Trust continues to be a first and prior lien on the
property which is the subject matter thereof subject only to such
additional exceptions as may be approved by Lender, notwithstanding
the effect of the recordation of the First Modification of Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement [Ida
Building Addition].
4.8 Borrower shall have obtained and delivered to
Lender, at Borrower's expense, a date-down endorsement to the existing
ALTA extended coverage mortgagee's title insurance policy issued in
favor of Lender by
- 8 -
<PAGE> 9
Commonwealth Land Title Insurance Company with respect to the FCFC
Deed of Trust assuring that the FCFC Deed of Trust continues to be a
first and prior lien on the property which is the subject matter
thereof subject only to such additional exceptions as may be approved
by Lender, notwithstanding the effect of the recordation of the First
Modification of Deed of Trust, Assignment of Rents and Proceeds and
Security Agreement [FCFC].
4.9 There shall have occurred no material adverse
change in any real property or in the business or financial condition
of the Borrower and Guarantor since the date of the last financial
statement submitted to Lender.
4.10 Unless waived in writing by Lender, Lender
shall have reviewed and approved a current UCC, tax lien, judgment and
litigation search on Borrower and Guarantor.
4.11 Borrower shall have paid, or shall have
assumed the obligation or otherwise provided for the payment of all
closing costs, title company charges, recording fees and taxes,
appraisal fees and expenses, survey fees, travel expenses,
architect/engineer inspection fees and expenses, fees and expenses of
Lender's counsel, and all other costs and expenses incurred by Lender
in connection with the preparation and closing of this Fifteenth
Amendment.
4.12 Lender shall be satisfied that Borrower is in
compliance with all terms, covenants and conditions of the Loan
Agreement and that there exists no Event of Default or event that with
the passage of time or the giving of notice or both would constitute
an Event of Default under the Loan Agreement.
5. COMMISSIONS. Lender shall not be obligated to pay
any loan commission and/or brokerage fee in connection with the Advances of the
Loan made pursuant to this Fifteenth Amendment. Borrower shall pay any and all
such commissions and fees, if any, and hereby agrees to indemnify, defend and
hold harmless Lender from any claim for any such commissions or fees. Lender
represents and warrants to Borrower that Lender has no knowledge of broker
involvement in the transactions contemplated by this Fifteenth Amendment.
6. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the indebtedness in accordance with the terms of the Documents.
Borrower further acknowledges and represents that no event has occurred and no
condition presently exists that would constitute a default or event of default
by Borrower under the Loan Agreement or any of the other Documents, with or
without notice or lapse of time.
- 9 -
<PAGE> 10
7. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid, enforceable and collectable obligations of Borrower,
and that Borrower presently has no existing claims, defenses (personal or
otherwise) or rights of setoff whatsoever with respect to the Obligations of
Borrower under the Loan Agreement or any of the other Documents. Borrower
furthermore agrees that it has 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 or GREFCO.
8. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by Exhibit "A" attached hereto, or waived by Lender in writing,
Borrower hereby reaffirms to Lender each of the representations, warranties,
covenants and agreements of Borrower as set forth in each of the Documents with
the same force and effect as if each were separately stated herein and made as
of the date hereof.
9. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth
Amendment, Eleventh Amendment, Twelfth Amendment, Thirteenth Amendment,
Fourteenth Amendment and of each of the other Documents shall continue in full
force and effect and shall remain unaffected and unchanged except as
specifically amended hereby. In the event of any conflict between the terms
and conditions of this Fifteenth Amendment and any of the other Documents, the
provisions of this Fifteenth Amendment shall control.
10. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Fifteenth Amendment.
11. EFFECTIVENESS OF AMENDMENT. This Fifteenth Amendment
shall not be effective until the same is executed and accepted by Lender in the
State of Arizona.
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, this instrument is executed as of the day
and year first above written.
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By:______________________________ By:_____________________________________
Donald R. Middleton Title:__________________________________
Vice President
- 11 -
<PAGE> 12
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
Donald R. Middleton as Vice President of PREFERRED EQUITIES CORPORATION, a
Nevada corporation.
________________________________________
Notary
(My commission expires:________________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
________________________ as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
_______________________________________
Notary
(My commission expires:________________)
- 12 -
<PAGE> 13
EXHIBIT "A"
REAFFIRMATION OF WARRANTIES
LITIGATION
Attached hereto as Schedule 1 is a list of all litigation
matters involving Preferred Equities Corporation which supplements and updates
information previously delivered to Lender pursuant to Section 8.3 of the Loan
Agreement.
FINANCIAL CONDITION
Reference is made to the audited financial statements of
Preferred Equities Corporation for the year ended August 31, 1995 and to the
unaudited financial statements of Preferred Equities Corporation for the
nine-month period ended May 31, 1996, copies of which have previously been
delivered to Lender, for information concerning the current financial condition
and results of operations of Preferred Equities Corporation as of those dates.
Such statements update and supplement all prior financial statements furnished
to Lender.
<PAGE> 14
AMENDMENT NO. 7 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 7 TO LOAN AND SECURITY AGREEMENT (the
"Seventh Amendment") is entered into as of this 16th day of August, 1996 by and
between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") and
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower").
RECITALS
A. Greyhound Real Estate Finance Company, an Arizona
corporation ("GREFCO") and Vacation Spa Resorts, Inc., a Tennessee corporation
("VSR") entered into a Loan and Security Agreement dated as of March 30, 1989
(the "Original Loan Agreement") that evidenced a loan from GREFCO to VSR (the
"Original Loan") that is secured by, among other things, Receivables
Collateral.
B. The Original Loan and Original Loan Agreement were
amended by an Amendment Number One to Loan and Security Agreement and
Promissory Note dated June 14, 1989 (the "First Amendment"), an Amendment No. 2
to Loan and Security Agreement dated April 16, 1990 (the "Second Amendment"),
an Amendment No. 3 to Loan and Security Agreement dated May 31, 1991 (the
"Third Amendment"), an Amendment No. 4 to Loan and Security Agreement dated
February 23, 1993 (the "Fourth Amendment"), an Amendment No. 5 to Loan and
Security Agreement dated October 15, 1993 (the "Fifth Amendment") and an
Amendment No. 6 to Loan and Security Agreement dated August 31, 1994 (the
"Sixth Amendment"). The Original Loan Agreement, First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment
and this Seventh Amendment and all other documents evidencing or executed in
connection with the Loan are referred to hereinafter as the "Documents." The
Original Loan Agreement, as amended by the First Amendment, Second Amendment,
Third Amendment, Fourth Amendment, Fifth Amendment, and Sixth Amendment is
referred to hereinafter as the "Loan Agreement." The Loan contemplated by the
Loan Agreement, as amended by this Seventh Amendment, is referred to
hereinafter as the "Loan." All capitalized terms in this Seventh Amendment
will have the meanings assigned to such terms in the Loan Agreement unless
those terms are otherwise defined herein.
C. GREFCO was a wholly-owned subsidiary of Greyhound
Financial Corporation ("GFC"). Pursuant to a plan of liquidation, GREFCO has
been liquidated into GFC. Further pursuant to such plan of liquidation, GREFCO
has assigned the Note and all of GREFCO's rights under the Loan Agreement and
other
<PAGE> 15
Documents to GFC. Effective as of February 1, 1995, GFC changed its name to
FINOVA Capital Corporation.
D. Pursuant to that Agreement and Plan of Merger dated
as of July 24, 1992 by and between Borrower and VSR, and those Articles of
Merger of Vacation Spa Resorts, Inc. with and into Preferred Equities
Corporation dated as of March 10, 1993, VSR was, effective March 11, 1993,
merged into Borrower. As a result of such Merger, Borrower has succeeded to
all rights and privileges of VSR and has become responsible and liable for all
liabilities and obligations of VSR.
E. Pursuant to that certain Assumption Agreement (With
Consent and Agreement of Guarantor) dated June 28, 1993 between Lender and
Borrower, Borrower acknowledged and agreed that it was irrevocably and
unconditionally liable for the repayment of Loan and for the payment,
performance and observance of all of the Obligations, covenants,
representations and warranties of VSR as set forth in the Documents as if
Borrower was an original party to the Documents.
F. Borrower has requested and Lender has agreed to
further modify the Loan in accordance with the terms of, and subject to the
conditions contained in, this Seventh Amendment in order to increase the
Maximum Loan Amount.
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Seventh Amendment and for other good and valuable
consideration, the receipt and sufficiency of which consideration is hereby
acknowledged, Lender and Borrower agree as follows:
1. LOAN AGREEMENT. Provided the conditions precedent
described in Paragraph 2 of this Seventh Amendment are met to the satisfaction
of Lender, which satisfaction will be evidenced by Lender's execution of this
Seventh Amendment unless otherwise provided herein, the Loan Agreement is
hereby further modified as follows:
1.1 The Loan Agreement is hereby amended by adding to
Article I the following definitions:
"Note": shall mean the Note as modified by
the Amendment No. 1 of the Loan and Security Agreement and
Promissory Note dated June 14, 1989, as further modified by
Amendment No. 2 to Promissory Note dated April 16, 1990, as
further modified by an Amendment No. 3 to Promissory Note
dated May 31, 1991, as further modified by an Amendment No. 4
to Promissory Note dated August 31, 1994, and as further
amended by an Amendment No. 5 to Promissory Note described in
Paragraph 2 of the Seventh Amendment.
-2-
<PAGE> 16
"Seventh Amendment": shall mean this
Amendment No. 7 to Loan and Security Agreement.
1.2 The definitions of the following terms in
Article I of the Loan Agreement, including, to the extent applicable,
the First Amendment, Second Amendment, Third Amendment, Fourth
Amendment, Fifth Amendment, and Sixth Amendment are hereby deleted or
amended and restated in their entirety to read as follows:
"Maximum Loan Amount": shall mean Fifty Seven
Million United States Dollars (U.S. $57,000,000.00).
2. CONDITIONS TO MODIFICATION. The modifications
described in Paragraph 1 of this Seventh Amendment will not be effective until
Borrower has delivered to Lender each of the following documents and items, all
of which are to be properly completed, executed and otherwise satisfactory in
form and substance to Lender, in its sole discretion:
(a) This Seventh Amendment;
(b) From the Trustee (Reno), a Joinder of Trustee
in the form attached;
(c) An "Amendment No. 5 to Promissory Note" in a
form acceptable to Lender;
(d) From the Guarantor of the Loan, a "Consent of
Guarantor" in a form acceptable to Lender;
(e) A corporate resolution of the Borrower;
(f) A corporate resolution of Mego;
(g) Such documents as Lender shall request to
evidence the valid existence and good standing of Borrower and
Guarantor;
(h) An opinion from Borrower's and Guarantor's
counsel, in form and substance satisfactory to Lender, as to such
matters as Lender may reasonably require; and
(i) Such other items as Lender may reasonably
require.
3. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges
that the indebtedness evidenced by the Documents is just and owing and agrees
to pay the
-3-
<PAGE> 17
indebtedness in accordance with the terms of the Documents. Borrower further
acknowledges and represents 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 Documents, with or without notice
or lapse of time.
4. VALIDITY OF DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Loan Agreement and the other
Documents represent valid, enforceable and collectable obligations of Borrower,
and that Borrower presently has no existing claims, defenses (personal or
otherwise) or rights of setoff whatsoever with respect to the Obligations of
Borrower under the Loan Agreement or any of the other Documents. Borrower
furthermore agrees that it has 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 or GREFCO.
5. REAFFIRMATION OF WARRANTIES. Except to the extent,
if any, that the information in Exhibit 8.3(a) to the Loan Agreement has been
supplemented by Exhibit "A" attached hereto, Borrower hereby reaffirms to
Lender each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Documents with the same force and effect
as if each were separately stated herein and made as of the date hereof.
6. RATIFICATION OF TERMS AND CONDITIONS. All terms,
conditions and provisions of the Loan Agreement, including the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, and Sixth
Amendment and of each of the other Documents shall continue in full force and
effect and shall remain unaffected and unchanged except as specifically amended
thereby or hereby. In the event of any conflict between the terms and
conditions of this Seventh Amendment and any of the other Documents, the
provisions of this Seventh Amendment shall control.
7. OTHER WRITINGS. Lender and Borrower will execute
such other writings as may be necessary to confirm or carry out the intentions
of Lender and Borrower evidenced by this Seventh Amendment.
8. EFFECTIVENESS OF AMENDMENT. This Seventh Amendment
shall not be effective until the same is executed and accepted by Lender in the
State of Arizona.
-4-
<PAGE> 18
IN WITNESS WHEREOF, this instrument is executed as of the day and year
first above written.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:____________________________________
Donald R. Middleton
Vice President
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:____________________________________
Its:___________________________________
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
Donald R. Middleton as Vice President of PREFERRED EQUITIES CORPORATION, a
Nevada corporation.
________________________________________
Notary
(My commission expires:_______________)
-5-
<PAGE> 19
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
________________________ as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
_______________________________________
Notary
(My commission expires:_______________)
-6-
<PAGE> 20
JOINDER OF TRUSTEE
To: FINOVA CAPITAL CORPORATION
The undersigned is the Trustee under that Amended, Restated
and Consolidated Trust Agreement - Reno Spa Resort Club, dated March 19, 1990,
between Bank of America Nevada, as Trustee, and Preferred Equities Corporation,
a Nevada corporation, the successor-in-interest to Vacation Spa Resorts, Inc.,
a Tennessee corporation, as Trustor and Beneficiary (the "Trust (Reno)"). All
initial capitalized terms not otherwise specifically defined herein shall have
the meaning set forth in that Loan and Security Agreement dated March 30, 1989,
and all amendments thereto, by and between FINOVA Capital Corporation
(previously known as Greyhound Financial Corporation and the
successor-in-interest to Greyhound Real Estate Finance Company) and Preferred
Equities Corporation (as successor-in-interest to Vacation Spa Resorts, Inc.).
The undersigned is executing this Joinder for the limited purpose of:
(a) Evidencing its agreement that it will not transfer
its interest in the Trust (Reno) other than in accordance with the provisions
of the Trust (Reno);
(b) Disclaiming an interest in any property, property
rights or entitlements that do not constitute Trust Assets (as defined in the
Trust (Reno)), except to the extent that any beneficiary under the Trust (Reno)
may have an interest in such property, property rights or entitlements; and
(c) Evidencing its acknowledgment of the assignment
and/or encumbrance of the Borrower's beneficial interest in the Trust (Reno) as
contemplated by the Loan Agreement (as amended by the Seventh Amendment);
provided, however, that nothing contained herein or in the Loan Agreement (as
amended by the Seventh Amendment) is intended or shall be construed to impose
any personal obligation or liability on the part of the undersigned for payment
of any of the obligations or the performance of any duty or responsibility of
Borrower under the Loan Agreement.
BANK OF AMERICA NEVADA, a Nevada
banking corporation, as Trustee
under the Amended, Restated and
Consolidated Trust Agreement - Reno
Spa Resort Club, dated March 19, 1990
By:____________________________________
Title:_________________________________
<PAGE> 21
EXHIBIT "A"
REAFFIRMATION OF WARRANTIES
LITIGATION
Attached hereto as Schedule 1 is a list of all litigation
matters involving Preferred Equities Corporation which supplements and updates
information previously delivered to Lender pursuant to Section 8.3 of the Loan
Agreement.
FINANCIAL CONDITION
Reference is made to the audited financial statements of
Preferred Equities Corporation for the year ended August 31, 1995 and to the
unaudited financial statements of Preferred Equities Corporation for the
nine-month period ended May 31, 1996, copies of which have previously been
delivered to Lender, for information concerning the current financial condition
and results of operations of Preferred Equities Corporation as of those dates.
Such statements update and supplement all prior financial statements furnished
to Lender.
<PAGE> 22
AMENDMENT NO. 5 TO
AMENDED AND RESTATED PROMISSORY NOTE
THIS AMENDMENT NO. 5 TO AMENDED AND RESTATED PROMISSORY NOTE
(this "Amendment") entered into as of this 16th day of August, 1996, between
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA
CAPITAL CORPORATION, a Delaware corporation, successor-in-interest to Greyhound
Real Estate Finance Company, an Arizona corporation ("Lender"), is made with
reference to the following:
R E C I T A L S
Maker previously executed and delivered to Lender an Amended
and Restated Promissory Note dated as of May 10, 1989, in the original
principal amount of $14,000,000.00 (the "Note") to evidence the Loan (the
"Modified Loan") made pursuant to the terms of that Amended and Restated Loan
and Security Agreement of even date therewith between Maker and Lender (the
"Restated Loan Agreement").
The Restated Loan Agreement was amended by an Amendment No.
One to Amended and Restated Loan and Security Agreement between Lender and
Maker dated June 14, 1989 (the "First Amendment"), by an Amendment No. 2 to
Amended and Restated Loan and Security Agreement dated April 16, 1990 (the
"Second Amendment"), by an Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated May 31, 1991 (the "Third Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated January 13,
1992 (the "Fourth Amendment"), by an Amendment No. 5 to Amended and Restated
Loan and Security Agreement dated February 23, 1993 (the "Fifth Amendment"), by
an Amendment No. 6 to Amended and Restated Loan and Security Agreement dated
June 28, 1993 (the "Sixth Amendment"), by an Amendment No. 7 to Amended and
Restated Loan and Security Agreement dated January 24, 1994 (the "Seventh
Amendment"), by an Amendment No. 8 to Amended and Restated Loan and Security
Agreement dated April 15, 1994 (the "Eighth Amendment"), by an Amendment No. 9
to Amended and Restated Loan and Security Agreement dated as of August 31, 1994
(the "Ninth Amendment"), by an Amendment No. 10 to Amended and Restated Loan
and Security Agreement dated as of January 26, 1995 (the "Tenth Amendment"), by
an Amendment No. 11 to Amended and Restated Loan and Security Agreement dated
as of September 22, 1995 (the "Eleventh Amendment"), by an Amendment No. 12 to
Amended and Restated Loan and Security Agreement dated as of September 29, 1995
(the "Twelfth Amendment"), by an Amendment No. 13 to Amended and Restated Loan
and Security Agreement dated as of December 13, 1995 (the "Thirteenth
Amendment"), and by an Amendment No. 14 to Amended and
<PAGE> 23
Restated Loan and Security Agreement dated as of June 5, 1996 (the "Fourteenth
Amendment"). The Restated Loan Agreement, as amended by the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth
Amendment, Eleventh Amendment, Twelfth Amendment, Thirteenth Amendment and
Fourteenth Amendment, is hereinafter collectively referred to as the "Loan
Agreement."
The Modified Loan, as amended by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
Seventh Amendment, Eighth Amendment, Ninth Amendment, Tenth Amendment, Eleventh
Amendment, Twelfth Amendment, Thirteenth Amendment and Fourteenth Amendment, is
hereinafter collectively referred to as the "Loan."
The Note was amended by an Amendment No. 1 to Amended and
Restated Promissory Note executed by Maker and Lender dated April 16, 1990 (the
"First Note Amendment"), by an Amendment No. 2 to Amended and Restated
Promissory Note executed by Maker and Lender dated May 31, 1991 (the "Second
Note Amendment"), by an Amendment No. 3 to Amended and Restated Promissory Note
dated January 13, 1992 (the "Third Note Amendment"), and by an Amendment No. 4
to Amended and Restated Promissory Note dated August 31, 1994 (the "Fourth Note
Amendment"). The Note, as amended by the First Note Amendment, the Second Note
Amendment, the Third Note Amendment and the Fourth Note Amendment, is
hereinafter referred to as the "Amended Note."
Greyhound Real Estate Finance Company ("GREFCO") was a
wholly-owned subsidiary of Greyhound Financial Corporation ("GFC"). Pursuant
to a Plan of Liquidation, GREFCO was liquidated into GFC. Further, pursuant to
such Plan of Liquidation, GREFCO has assigned the Amended Note and all of
GREFCO's rights under the Loan Agreement to GFC. Effective as of February 1,
1995, GFC changed its name to FINOVA Capital Corporation. Lender is the owner
and holder of the Amended Note.
Maker and Lender have, as of even date herewith, entered into
an Amendment No. 15 to Amended and Restated Loan and Security Agreement which,
among other things, amends the Loan Agreement to permit the maximum principal
amount of the Loan to be increased to as much as U.S. $57,000,000.00, subject
to the terms and conditions provided therein, and Maker and Lender wish to make
conforming changes to the Amended Note.
NOW, THEREFORE, in consideration of these Recitals, the
covenants contained in this Amendment, and for other good and valuable
consideration, the
-2-
<PAGE> 24
receipt and sufficiency of which consideration are hereby acknowledged, Lender
and Maker agree as follows:
1. The Amended Note is hereby amended to be in the
amount of "U.S. $57,000,000.00."
2. The first paragraph of the Amended Note is hereby
amended in its entirety to read as follows:
"FOR VALUE RECEIVED, the undersigned, PREFERRED
EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay
to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or
order, at New York, New York, or such other placeas the holder of this
Note ("Holder") may from time to time designate in writing, in lawful
money of the United States of America, the principal sum of FIFTY
SEVEN MILLION UNITED STATES DOLLARS ($57,000,000.00), or so much
thereof as has been disbursed and not repaid, together with interest
on the unpaid principal balance from time to time outstanding from the
date hereof until paid, as more fully provided below."
3. Maker hereby ratifies and confirms the Amended Note,
as amended hereby, in all respects; and, as amended hereby, the terms thereof
shall remain in full force and effect. This Amendment may be attached to and
shall form a part of the Amended Note for all purposes.
IN WITNESS WHEREOF, this instrument is executed as of the date
and year first above written.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By_____________________________________
Donald R. Middleton, Vice President
"MAKER"
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By_____________________________________
-3-
<PAGE> 25
Its____________________________________
"LENDER"
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
Donald R. Middleton as Vice President of PREFERRED EQUITIES CORPORATION, a
Nevada corporation.
_______________________________________
Notary
(My commission expires:_______________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
________________________ as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
_______________________________________
Notary
(My commission expires:_______________)
-4-
<PAGE> 26
AMENDMENT NO. 5 TO
PROMISSORY NOTE
THIS AMENDMENT NO. 5 TO PROMISSORY NOTE ("Amendment") entered
into as the 16th day of August, 1996, between PREFERRED EQUITIES CORPORATION, a
Nevada corporation, successor-in-interest to Vacation Spa Resorts, Inc., a
Tennessee corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a Delaware
corporation, successor-in-interest to Greyhound Real Estate Finance Company, an
Arizona corporation ("Lender"), is made with reference to the following:
R E C I T A L S
Maker previously executed and delivered to Lender a Promissory
Note dated as of March 30, 1989, in the principal amount of Nine Million and
No/100 United States Dollars (U.S. $9,000,000.00) (the "Original Note"), to
evidence the loan (the "Original Loan") made pursuant to the terms of that Loan
and Security Agreement of even date therewith between Maker and Lender (the
"Original Loan Agreement").
The Original Loan Agreement and Original Note were amended by
an Amendment No. 1 to Loan and Security Agreement and Promissory Note between
Lender and Maker dated June 14, 1989 (the "First Amendment"); by an Amendment
No. 2 to Loan and Security Agreement dated April 16, 1990 (the "Second Loan
Agreement Amendment") and by an Amendment No. 2 to Promissory Note dated April
16, 1990 (the "Second Note Amendment"); by an Amendment No. 3 to Loan and
Security Agreement dated May 31, 1991 (the "Third Loan Agreement Amendment")
and an Amendment No. 3 to Promissory Note dated May 31, 1991 (the "Third Note
Amendment"); by an Amendment No. 4 to Loan and Security Agreement dated
February 23, 1993 (the "Fourth Loan Agreement Amendment"); by an Amendment No.
5 to Loan and Security Agreement dated October 15, 1993 (the "Fifth Loan
Agreement Amendment"); by an Amendment No. 6 to Loan and Security Agreement
dated August 31, 1994 (the "Sixth Loan Agreement") and an Amendment No. 4 to
Promissory Note dated August 31, 1994 (the "Fourth Note Amendment"). The
Original Loan Agreement, as amended by the First Amendment, the Second Loan
Agreement Amendment, the Third Loan Agreement Amendment, the Fourth Loan
Agreement Amendment, the Fifth Loan Agreement Amendment and the Sixth Loan
Agreement Amendment is hereinafter referred to as the "Loan Agreement."
The Original Loan, as amended by the First Amendment, the
Second Loan Agreement Amendment, the Third Loan Agreement Amendment, the Fourth
<PAGE> 27
Loan Agreement Amendment, the Fifth Loan Agreement Amendment and the Sixth Loan
Agreement Amendment, is hereinafter referred to as the "Loan."
The Original Note, as amended by the First Amendment, the
Second Note Amendment, the Third Note Amendment and the Fourth Note Amendment,
is hereinafter referred to as the "Note."
Greyhound Real Estate Finance Company ("GREFCO") was a
wholly-owned subsidiary of Greyhound Financial Corporation ("GFC"). Pursuant
to a plan of liquidation, GREFCO was liquidated into GFC. Further, pursuant to
such plan of liquidation, GREFCO has assigned the Note and all of GREFCO's
rights under the Loan Agreement and the Loan to GFC. Effective as of February
1, 1995, GFC changed its name to FINOVA Capital Corporation. Lender is the
owner and holder of the Note.
Pursuant to that Agreement and Plan of Merger dated as of July
24, 1992, by and between Maker and Vacation Spa Resorts, Inc., a Tennessee
corporation ("VSR"), and those Articles of Merger of Vacation Spa Resorts, Inc.
with and into Preferred Equities Corporation dated as of March 10, 1993, VSR
was, effective March 11, 1993, merged into Maker. As a result of such merger,
Maker has succeeded to all rights and privileges of VSR and has become
responsible and liable for all liabilities and obligations of VSR. Pursuant to
that certain Assumption Agreement (with Consent and Agreement of Guarantor)
dated June 28, 1993 between Maker and Lender, Maker acknowledged and agreed
that it was irrevocably and unconditionally liable for the repayment of the
Loan and for the payment, performance and observance of all of the obligations,
covenants, representations and warranties of VSR as set forth in the Loan
Agreement and the Note as if Maker was an original party to the Loan Agreement
and the Note.
Maker and Lender have, as of even date herewith, entered into
an Amendment No. 7 to Loan and Security Agreement which, among other things,
amends the Loan Agreement to permit the maximum principal amount of the Loan to
be increased to as much as Fifty Seven Million United States Dollars (U.S.
$57,000,000.00), and Maker and Lender wish to make conforming changes to the
Note.
NOW, THEREFORE, in consideration of these Recitals, the
covenants contained in this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which consideration are hereby
acknowledged, Lender and Maker agree as follows:
1. The Note is hereby amended to be in the amount of "U.S.
$57,000,000.00."
-2-
<PAGE> 28
2. The first paragraph of the Note is hereby amended in
its entirety to read as follows:
"FOR VALUE RECEIVED, the undersigned, PREFERRED
EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay
to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or
order, at New York, New York, or such other place as the holder of
this Note ("Holder") may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of
FIFTY SEVEN MILLION UNITED STATES DOLLARS (U.S. $57,000,000.00), or so
much thereof as has been disbursed and not repaid, together with
interest on the unpaid principal balance from time to time outstanding
from the date hereof until paid, as more fully provided below."
3. Maker hereby ratifies and confirms the Note, as
amended hereby, in all respects; and, as amended hereby, the terms thereof
shall remain in full force and effect. This Amendment may be attached to and
shall form a part of the Note for all purposes.
IN WITNESS WHEREOF, this instrument is executed as of the date
and year first above written.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
_______________________________________
Donald R. Middleton
Vice President
"MAKER"
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By_____________________________________
Its____________________________________
"LENDER"
-3-
<PAGE> 29
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
Donald R. Middleton as Vice President of PREFERRED EQUITIES CORPORATION, a
Nevada corporation.
_______________________________________
Notary
(My commission expires:_______________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
________________________ as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
_______________________________________
Notary
(My commission expires:_______________)
-4-
<PAGE> 30
AMENDMENT NO. 1 TO PROMISSORY NOTE
[TOWERS LOBBY]
THIS AMENDMENT NO. 1 TO PROMISSORY NOTE [TOWERS LOBBY] (this
"Amendment") entered into as of this 16th day of August, 1996, between
PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with reference
to the following:
R E C I T A L S
Maker previously executed and delivered to Lender a Promissory
Note dated December 13, 1995, in the original principal amount of $700,000.00
(the "Towers Note") to evidence the Loan (the "Towers Loan") made pursuant to
the terms of that Amendment No. 13 to Amended and Restated Loan and Security
Agreement dated December 13, 1995 between Maker and Lender (said Amended and
Restated Loan and Security Agreement, as so amended and as thereafter amended,
the "Loan Agreement").
Maker and Lender have, as of even date herewith, entered into
an Amendment No. 15 to Amended and Restated Loan and Security Agreement which,
among other things, amends the Loan Agreement to permit the maximum principal
amount of the Towers Loan to be increased to as much as U.S. $1,286,126.00.
NOW, THEREFORE, in consideration of these Recitals, the
covenants contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which consideration are hereby
acknowledged, Lender and Maker agree as follows:
1. The Towers Note is hereby amended to be in the amount
of "U.S. $1,286,126.00."
2. The first paragraph of the Towers Note is hereby
amended in its entirety to read as follows:
"FOR VALUE RECEIVED, the undersigned, PREFERRED
EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay
to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or
order, at such place as the holder of this Note ("Holder") may from
time to time designate in writing, in lawful money of the United
States of America, the principal sum of up to ONE MILLION TWO HUNDRED
EIGHTY-SIX THOUSAND, ONE HUNDRED TWENTY-SIX UNITED STATES DOLLARS
(U.S. $1,286,126.00), or so much thereof as has been
<PAGE> 31
disbursed and not repaid, together with interest on the unpaid principal
balance from time to time outstanding from the date hereof until paid, as more
fully provided below."
3. Maker hereby ratifies and confirms the Towers Note,
as amended hereby, in all respects; and, as amended hereby, the terms thereof
shall remain in full force and effect. This Amendment may be attached to and
shall form a part of the Towers Note for all purposes.
IN WITNESS WHEREOF, this instrument is executed as of the date
and year first above written.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
_______________________________________
Donald R. Middleton
Vice President
"MAKER"
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By_____________________________________
Its____________________________________
"LENDER"
-2-
<PAGE> 32
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
Donald R. Middleton as Vice President of PREFERRED EQUITIES CORPORATION, a
Nevada corporation.
_______________________________________
Notary
(My commission expires:_______________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on August 16, 1996 by
________________________ as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
_______________________________________
Notary
(My commission expires:_______________)
-3-
<PAGE> 1
EXHIBIT 10.97
REQUEST FOR RECEIVABLE PURCHASE
July _____, 1996
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Financial Services Division
Preferred Equities Corporation, a Nevada corporation (the "Seller"),
hereby requests, pursuant to Section 2.02(a) of the Purchase and Servicing
Agreement, dated as of June 1, 1994 (the "Purchase Agreement"), between the
Seller and NBD Bank, N.A., which has been succeeded by NBD Bank, a Michigan
banking corporation (the "Purchaser"), that the Purchaser purchase those
Receivables described on Schedule A hereto (the "Proposed Pool") on July 30,
1996 (the "Payment Date"). Capitalized terms used but not defined herein shall
have the respective meanings assigned to them in the Purchase Agreement.
In support of this request, the Seller hereby represents and warrants
to the Purchaser that:
1. Except as specified in paragraph 9 below, the representations
and warranties contained in Section 2.03 and 6.01 of the Purchase Agreement and
in paragraph 5 of the Guaranty Agreement are true and correct on and as of the
date hereof, and will be true and correct on the date such purchase is made
(both before and after the Payment Date), as if such representations and
warranties were made on and as of such dates.
2. No Event of Transfer, and no event or condition which might
become such an Event of Transfer with notice or with lapse of time, or both,
exists or shall have occurred and be continuing on the Payment Date (whether
before or after the consummation of the transactions contemplated hereby are
consummated).
3. The aggregate Principal Balance of such Receivables included
in the Proposed Pool on July 9, 1996 (the "Cutoff Date") is $7,499,221.80
comprised of $3,737,418.51 for the Timeshare Receivables (comprised of
$392,988.98 in respect of Agreements for Deed and $3,344,429.53 in respect of
Deed of Trust Agreements) and $3,761,803.29 for the Land Receivables, as more
specifically detailed in Schedule A hereto.
<PAGE> 2
4. As of the Cutoff Date, each Receivable included in the
Proposed Pool has a remaining term to maturity of not greater than 117 months
in the case of Timeshare Receivables and 117 months in the case of Land
Receivables; and no such Receivable has a Principal Balance as of the Cutoff
Date that is less than $2,500.00 or more than $15,154.90 in the case of
Timeshare Receivables; or less than $2,500.00 or more than $52,257.10 in the
case of Land Receivables included in the Proposed Pool (Section 2.03(i)).
5. As of the Cutoff Date, with respect to the Proposed Pool, the
aggregate original purchase price agreed to be paid by the Obligors is not less
than $5,204,199.45 in the case of the Timeshare Receivables and not less than
$5,342,311.50 in the case of the Land Receivables included in the Proposed Pool
(Section 2.03(i)).
6. As of the Cutoff Date, the actual weighted average remaining
life of the Receivables included in the Proposed Pool, determined on the basis
of scheduled maturity dates, is 89 months in the case of the Timeshare
Receivables, 107 months in the case of the Land Receivables and 98 months for
all Receivables (Section 2.03(ii)).
7. As of the Cutoff Date, the weighted average APR of the
Receivables included in the Proposed Pool is not less than 12.92% in the case
of the Timeshare Receivables, 11.98% in the case of the Land Receivables, and
12.45% for all Receivables (Section 2.03(iii)).
8. The Timeshare Receivables identified in Schedule A hereto, if
any, identified under the headings Grand Flamingo Towers and Grand Flamingo
Villas, are all of the Timeshare Receivables included in the Proposed Pool
which arise from sales of Financed Property in the Grand Flamingo Towers and
Grand Flamingo Villas and which constitute Agreements for Deed (Section
2.03(iv)(b)).
9. Exceptions, if any, to the representations and warranties of
the Seller contained in Section 2.03(iv)(a), (c), (e), (h) and (j) and Section
2.03(xiv) are: none.
10. For purposes of Section 5.03 of the Purchase Agreement, the
per annum yield for the Proposed Pool shall be _______ percent (___%) per
annum.
PREFERRED EQUITIES CORPORATION
By: ____________________________________
Its: ___________________________________
<PAGE> 3
As contemplated by the definition of Original Pool Balance, the Seller
represents and warrants that the Original Pool Balance for such Receivables
included in the Proposed Pool shall be $7,499,221.80 comprised of $3,737,418.51
for the Timeshare Receivables included in such Pool (comprised of $392,988.98
in respect of Agreements for Deed and $3,344,429.53 in respect of Deed of Trust
Agreements) and $3,761,803.29 for the Land Receivables included in such Pool,
representing the aggregate Principal Balance of such Receivables as of the
close of business on the Cutoff Date for such Pool, which Original Pool Balance
shall be the purchase price to be paid by the Purchaser for such Pool.
Acceptance of the proceeds of such purchase by the Seller shall be deemed to be
a further representation and warranty that the representations and warranties
made herein are true and correct at the time such proceeds are disbursed.
PREFERRED EQUITIES CORPORATION
By: ____________________________________
Its: ___________________________________
<PAGE> 1
EXHIBIT 10.98
MEGO FINANCIAL CORP.
4310 PARADISE ROAD
LAS VEGAS, NEVADA 89109
August 16, 1996
Legg Mason Special Investment Trust, Inc.
Legg Mason Tower
111 South Calvert Street
Baltimore, Maryland 21203-1476
Re: Series A, 12% Cumulative Preferred Stock
Dear Sirs:
Legg Mason Special Investment Trust, Inc. (the "Holder") is the holder
of 200,000 shares (the "Preferred Shares") of Series A, 12% Cumulative
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of
Mego Financial Corp., a New York corporation (the "Company").
Pursuant to the terms of the Series A Preferred Stock, the Company is
required to redeem all the Preferred Shares on August 31, 1996 (the "Redemption
Date") at an aggregate redemption price (the "Redemption Price") of $2,000,000,
in cash. The Company and the Holder desire to set forth their agreement
regarding the issuance by the Company to the Holder of shares of common stock,
par value $.01 per share ("Common Stock"), of the Company in payment of the
Redemption Price. In consideration of the mutual covenants and agreements
contained herein, the Company and the Holder hereby agree as follows:
1. Payment of Redemption Price. The Holder agrees that the
Redemption Price may be paid by the Company by the issuance to the Holder of
the number of shares (such shares being referred to herein as the "Common
Shares") of Common Stock having a Fair Market Value (as defined below) equal to
the Redemption Price, provided that no fractional shares or scrip representing
fractional shares shall be issued. In lieu of issuing any fractional share,
the Company shall pay to the Holder cash in an amount equal to the Fair Market
Value of such fractional share. For purposes hereof, the term "Fair Market
Value" shall mean the average of the daily closing sale prices of the Common
Stock, as reported on the Nasdaq National Market, during the ten (10) trading
days ending on the trading day immediately preceding the Redemption Date. The
Company shall deliver to the Holder, following the Redemption Date, a
certificate or certificates evidencing the Common Shares
<PAGE> 2
registered in the name of the Holder, promptly after surrender by the Holder to
the Company of the certificate(s) evidencing the Preferred Shares.
2. Representations of the Holder. The Holder hereby represents
and warrants to the Company as follows:
(a) The Holder is in receipt of and has carefully read and
understands the following items (collectively, the "Offering Material"):
i) The Company's Annual Report on Form 10-K for the year
ended August 31, 1995;
ii) The Company's Annual Report to Shareholders for the
year ended August 31, 1995;
iii) The Company's Quarterly Reports on Form 10-Q for the
quarters ended November 30, 1995, February 29, 1996 and May 31, 1996;
iv) The Company's Proxy Statement used in connection with
the solicitation of proxies for its Annual Meeting of Shareholders held on June
11, 1996;
v) The Company's audited financial statements as of and
for the nine month period ended May 31, 1996; and
vi) Such other information as it has requested in order
to evaluate an investment in the Company.
(b) The Holder acknowledges that it has had the opportunity to
obtain additional information beyond the Offering Material in order to verify
the information contained in the Offering Material and to evaluate the risks of
an investment in the Common Shares.
(c) The Holder understands (i) that the Common Shares have not been
registered for sale under the Securities Act of 1933, as amended (the "Act"),
or any applicable state securities or blue sky laws ("Other Securities Laws")
and that the Common Shares are being offered and issued to the Holder pursuant
to one or more exemptions from the registration requirements of such securities
laws; (ii) that in order to satisfy such requirements the Holder must be
acquiring the Common Shares for its own account for investment and not with a
view to distribution thereof except in accordance with the Act and Other
Securities Laws and that the representations and warranties contained in this
Section 2 are given with the intention that the Company may rely thereon for
purposes of claiming such exemption; and (iii) that the Common Shares cannot be
sold or otherwise transferred unless subsequently registered under the Act and
Other Securities Laws or unless an exemption from such registration is
available.
2
<PAGE> 3
(d) The Holder agrees that the Common Shares will not be sold or
otherwise transferred unless (i) a registration statement with respect thereto
has become effective under the Act; or (ii) there is presented to the Company
an opinion of counsel reasonably satisfactory to the Company that registration
under the Act and Other Securities Laws is not required; or (iii) pursuant to
the provisions of Rule 144 or Rule 144A promulgated under the Act (and in the
case of (i) and (iii), there is presented to the Company an opinion of counsel
reasonably satisfactory to the Company that the sale or transfer will not
subject the Company to any liability under Other Securities Laws). The Holder
consents that any transfer agent of the Company may be instructed not to
transfer any Common Shares, unless it receives satisfactory evidence of
compliance with the foregoing provisions, and that there may be endorsed upon
any certificate representing the Common Shares a legend calling attention to
the foregoing restrictions on transferability of the Common Shares
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION
OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT."
(e) The Holder acknowledges that it is a sophisticated investor
familiar with the type of risks inherent in the acquisition of securities such
as the Common Shares and that, by reason of the knowledge and experience of its
representatives and agents in financial and business matters in general, and
investments of this type in particular, it is capable of evaluating the merits
and risks of an investment by it in the Common Shares.
(f) The Holder's financial condition is such that it is under no
present need in order to satisfy any existing or contemplated understanding or
indebtedness to dispose of any portion of the Common Shares which it is
acquiring hereunder. The Holder is able to bear the economic risk of an
investment in the Common Shares, including, without limiting the generality of
the foregoing, the risk of losing part or all of its investment in the Common
Shares and its probable inability to sell or transfer the Common Shares for an
indefinite period of time.
(g) The Holder is acquiring the Common Shares for its own account
for investment and the Common Shares are not being acquired with a view to, or
for resale in connection with, any distribution within the meaning of the Act.
3
<PAGE> 4
(h) The Holder understands that, because the Common Shares have
not been registered under the Act or any Other Securities Laws, the Common
Shares therefore must be held indefinitely unless the Common Shares are
subsequently registered under the Act and any Other Securities Laws or until an
exemption from such registration thereunder is available.
(i) The Holder is aware that any sales which may be made in
reliance upon Rule 144 promulgated under the Act, may be made only if the
Company is in compliance with the reporting and other requirements under Rule
144, and then only in limited amounts, after the required holding periods, and
otherwise in accordance with the terms and conditions of Rule 144.
(j) The Holder acknowledges that it is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated under the Act.
(k) The Holder understands that it has no rights whatsoever to
request, and that the Company is under no obligation whatsoever to furnish, a
registration of the Common Shares under the Act or any Other Securities Laws,
except pursuant to Section 3 and Section 4 of this letter agreement.
(l) The Holder acknowledges that the Company has relied on the
representations contained herein and that the statutory basis for exemption
from the requirements of Section 5 of the Act may not be present if,
notwithstanding such representations, the Holder were acquiring the Common
Shares for resale or distribution upon the occurrence or non-occurrence of some
predetermined event.
3. Registration Rights-Coordinated. The following provisions
shall apply during the period beginning on April 15, 1997 and continue until
the second anniversary of the Redemption Date:
(a) The Company shall give notice to the Holder of the proposed
filing of any Registration Statement (other than a Registration Statement on
Form S-4 or Form S-8 or successor forms thereto) under the Act for an offering
of any securities of the Company, not less than thirty (30) days prior to the
filing of such Registration Statement; and
(b) Upon the request of the Holder, the Company shall include in
any such Registration Statement such information as may be required to permit a
public offering of the Common Shares specified in such request; and
(c) The Company shall (i) bear the costs, expenses and fees
incurred in connection with such registration, excluding any broker fees,
selling commissions, and out-of-pockets costs and expenses of the Holder; (ii)
use its best efforts to keep any such registration statement effective for a
period of six months (and up to an additional three months if requested by the
Holder); (iii) supply prospectuses and other documents as the
4
<PAGE> 5
Holder may reasonably request; (iv) use its best efforts to register and
qualify the Common Shares for sale in such states as the Holder designates; (v)
do any and all other acts and things that may be necessary or desirable to
enable the Holder to consummate the public sale or other disposition of the
Common Shares; and (vi) enter into cross-indemnification arrangements with the
Holder with respect to matters arising from such Registration Statement and
public offering, except that the maximum amount that may be recovered from the
Holder shall be limited to the amount of proceeds received by the Holder from
the sale of the Common Shares.
Notwithstanding the foregoing, in the event that there is an
underwritten offering of the Company's securities offered pursuant to said
Registration Statement pursuant to this Section 3, the underwriter shall have
the right to refuse to permit any Common Shares, or to limit the amount of
Common Shares, to be sold by the Holder to such underwriter as such underwriter
may determine in its discretion, and the Holder shall refrain from selling such
remainder of its Common Shares covered by such Registration Statement for the
period of 45 days following the effective date of such Registration Statement
or such other reasonable period requested by such underwriter.
4. Registration Rights - Demand. The following provisions shall
apply during the period beginning on April 15, 1997 and continue until the
second anniversary of the Redemption Date:
(a) Subject to Sections 4(b), (d) and (e), if the Holder shall
give notice to the Company to the effect that the Holder desires to register
under the Act the Common Shares under such circumstances that a public
distribution (within the meaning of the Act) of any such securities will be
involved, then the Company, on one and only one occasion, will promptly, but in
no event later than 45 days after receipt of such notice, file a Registration
Statement pursuant to the Act, to the end that the Common Shares may be
publicly distributed under the Act as promptly as practicable thereafter and
the Company will use its best efforts to cause such Registration Statement to
become and remain effective (including taking such steps as may be reasonably
required to obtain the removal of any stop order); provided, that the Holder
shall furnish to the Company all appropriate information in connection
therewith as the Company may reasonably request in writing;
(b) In the event the Company receives from the Holder a request
that the Company file a Registration Statement on Form S-3 with respect to the
Common Shares and if Form S-3 (or its successor if such Form has been
superseded) is then available for such offering by the Holder, then the Company
shall, promptly, but in no event later than thirty (30) days after receipt of
such notice, file such Registration Statement and use its best efforts to
effect such registration as would permit the sale of the securities as
specified in the request. Registrations effected pursuant to this Section 4(b)
shall not be counted as demands for registration pursuant to Section 4(a).
5
<PAGE> 6
(c) The Company shall (i) bear the costs, expenses and fees
incurred in connection with such Registration Statement, excluding any broker
fees, selling commissions, and out-of-pocket costs and expenses of the Holder;
(ii) in the case of a registration statement on Form S-2 or Form S- 3, use its
best efforts to keep any such registration statement effective until all the
Common Shares covered thereby have been sold or otherwise disposed of; (iii) in
the case of a registration statement other than on Form S-2 or Form S-3, use
its best efforts to keep any such registration statement effective for a period
of six months (and up to an additional three months if requested by the
Holder); (iv) supply prospectuses and other documents as the Holder may
reasonably request; (v) use its best efforts to register and qualify the Common
Shares for sale in such states as the Holder designates; (vi) do any and all
other acts and things that may be necessary or desirable to enable the Holder
to consummate the public sale or other disposition of the Common Shares; and
(vii) enter into cross-indemnification arrangements with the Holder with
respect to matters arising from such Registration Statement and public
offering, except that the maximum amount that may be recovered from the Holder
shall be limited to the amount of proceeds received by the Holder from the sale
of the Common Shares.
(d) The provisions of this Section 4 shall not apply if prior to
or at such time as the Holder shall give notice to the Company pursuant to
Section 4(a) or make a request to the Company pursuant to Section 4(b), the
Company shall have notified the Holder in writing that the Common Shares are
covered by an effective Registration Statement and that the Company will cause
such Registration Statement to remain effective until all the Common Shares
covered thereby have been sold or otherwise disposed of. The Holder shall
furnish to the Company within a reasonable period all appropriate information
and indemnification (if appropriate) in connection with any such Registration
Statement as the Company may request in writing.
(e) The provisions of this Section 4 shall not apply if the Holder
or its assignee shall have exercised its rights pursuant to Section 3.04 of the
Common Stock Purchase Warrant (the "Warrant"), issued as of September 1, 1993
by the Company to the Holder, as amended by the letter agreement dated the date
hereof, to purchase 300,000 shares of Common Stock, to require the Company to
file a Registration Statement covering the shares of Common Stock issuable upon
exercise of the Warrant and the Holder shall not have requested that the
Company include the Common Shares in such Registration Statement.
5. Governing Law. This letter agreement shall be governed by and
construed under the laws of the State of New York.
6. Execution in Counterparts. This letter agreement may be
executed simultaneously in multiple counterparts, each of which shall be deemed
an original, but all of which taken together shall constitute one and the same
document.
7. Binding Effect. This letter agreement shall be binding upon
and inure to the benefit of the Company and the Holder and their respective
successors and permitted
6
<PAGE> 7
assigns, provided, that the Holder may not assign its rights hereunder without
the prior written consent of the Company.
* * *
7
<PAGE> 8
If you are in agreement with the foregoing, kindly execute the
enclosed copy of this letter in the space provided below and return it to the
undersigned, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
MEGO FINANCIAL CORP.
By: ____________________________________
Jerome J. Cohen
President
ACCEPTED AND AGREED
AS OF THE DATE HEREOF:
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
By: _______________________________
Name:
Title:
8
<PAGE> 1
EXHIBIT 10.99
MEGO FINANCIAL CORP.
4310 PARADISE ROAD
LAS VEGAS, NEVADA 89109
August 16, 1996
Legg Mason Special Investment Trust, Inc.
Legg Mason Tower
111 South Calvert Street
Baltimore, Maryland 21203-1476
Re: Common Stock Purchase Warrant
Dear Sirs:
Reference is made to the Common Stock Purchase Warrant (the "Warrant")
issued as of September 1, 1993 by Mego Financial Corp., a New York corporation
(the "Company"), to Legg Mason Special Investment Trust, Inc. (the "Holder"),
to purchase 300,000 shares (the "Warrant Shares") of common stock, par value
$.01 per share ("Common Stock"), of the Company. Capitalized terms used and
not defined herein shall have the meanings ascribed thereto in the Warrant.
The Company and the Holder desire to set forth certain modifications
to the terms of the Warrant. In consideration of the mutual covenants and
agreements contained herein, the Company and the Holder hereby agree as
follows:
1. Extension of Warrant Expiration Date. The Company agrees that
the Expiration Date of the Warrant is hereby extended from August 31, 1996
until August 31, 1997. Accordingly, all references in the Warrant to the
"Expiration Date" shall mean August 31, 1997.
2. Agreement not to Exercise Registration Rights. (a) The
Holder agrees that, prior to April 15, 1997, it shall not exercise its rights
pursuant to Section 3.03 of the Warrant to request or require the Company to
include the Warrant Shares in any Registration Statement, without the written
consent of the Company.
(b) The Holder further agrees that, prior to April 15, 1997, it
shall not exercise its rights pursuant to Section 3.04 of the Warrant to
require the Company to file any Registration Statement covering the Warrant
Shares.
<PAGE> 2
Legg Mason Special Investment Trust, Inc.
Page - 2 -
3. Limitation on Demand Registration Rights. The Holder agrees
that the provisions of Section 3.04 of the Warrant shall not apply if the
Holder or its assignee shall have exercised its rights pursuant to Section 4 of
the separate letter agreement, dated the date hereof, between the Company and
the Holder regarding the redemption of the Company's Series A, 12% Cumulative
Preferred Stock, to require the Company to file a Registration Statement
covering the shares of Common Stock issued to the Holder under such letter
agreement and the Holder shall not have requested that the Company include the
Warrant Shares in such Registration Statement.
4. Governing Law. This letter agreement shall be governed by and
construed under the laws of the State of New York.
5. Execution in Counterparts. This letter agreement may be
executed simultaneously in multiple counterparts, each of which shall be deemed
an original, but all of which taken together shall constitute one and the same
document.
6. Binding Effect. This letter agreement shall be binding upon
and inure to the benefit of the Company and Holder and their respective
successors and permitted assigns.
7. Warrant Remains in Effect. Except as expressly modified
hereby, the Warrant remains in full force and effect.
* * *
<PAGE> 3
Legg Mason Special Investment Trust, Inc.
Page - 3 -
If you are in agreement with the foregoing, kindly execute the
enclosed copy of this letter in the space provided below and return it to the
undersigned, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
MEGO FINANCIAL CORP.
By: ____________________________________
Jerome J. Cohen
President
ACCEPTED AND AGREED
AS OF THE DATE HEREOF:
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
By: _______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant, Mego Financial Corp.
<TABLE>
<CAPTION>
JURISDICTION OF PERCENT
NAME OF SUBSIDIARY INCORPORATION OWNED PARENT
- ------------------ --------------- --------- --------
<S> <C> <C> <C>
Preferred Equities Corporation Nevada 100% Mego
Mego Mortgage Corporation Delaware 100% Mego
Brigantine Preferred Properties, Inc. ("Properties") Nevada 100% PEC
The Brig, Inc. New Jersey 99% Properties
Brigantine Inn Marketing, Inc. New Jersey 100% Properties
Brigantine Inn Management, Inc. New Jersey 100% Properties
Central Nevada Utilities Company Nevada 100% PEC
Central Nevada Realty Company Nevada 100% PEC
Southern Colorado Properties, Inc. Colorado 100% PEC
Colorado Land and Grazing Corp. Colorado 100% PEC
Calvada Springs Corporation Nevada 100% PEC
Preferred Vacation Resorts, Inc. Nevada 100% PEC
First National Equity Corp. Nevada 100% PEC
Calvada Homes, Inc. Nevada 100% PEC
Preferred Equities Insurance Agency, Inc. Nevada 100% PEC
Preferred Colorado Land Co. Colorado 80% PEC
Steamboat Suites, Inc. Colorado 100% PEC
RVS Marketing, Inc. Texas 100% PEC
Overlook Food and Beverage Company Colorado 100% PEC
Calvada Properties Corporation Nevada 100% PEC
Calvada Subdivisions, Inc. Nevada 100% PEC
First Corporation of Nevada Nevada 100% PEC
Preferred Management Corp. Nevada 100% PEC
Resort Properties Advertising, Inc. Nevada 100% PEC
Sunburst Development, Inc. Nevada 100% PEC
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000736035
<NAME> MEGO FINANCIAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,842
<SECURITIES> 0
<RECEIVABLES> 57,279
<ALLOWANCES> 16,794
<INVENTORY> 40,611
<CURRENT-ASSETS> 0
<PP&E> 33,812
<DEPRECIATION> 13,550
<TOTAL-ASSETS> 165,597
<CURRENT-LIABILITIES> 0
<BONDS> 84,449
0
0
<COMMON> 184
<OTHER-SE> 25,667
<TOTAL-LIABILITY-AND-EQUITY> 165,597
<SALES> 45,746
<TOTAL-REVENUES> 84,714
<CGS> 5,842
<TOTAL-COSTS> 38,450
<OTHER-EXPENSES> 38,246
<LOSS-PROVISION> 1,510
<INTEREST-EXPENSE> 8,597
<INCOME-PRETAX> 8,018
<INCOME-TAX> 3,167
<INCOME-CONTINUING> 4,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,851
<EPS-PRIMARY> 0.24<F1>
<EPS-DILUTED> 0.24<F1>
<FN>
<F1>CUMULATIVE PREFERRED STOCK DIVIDEND - $240
</FN>
</TABLE>
