<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1996
- --------------------------------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to __________________
Commission file number: 1-8645
- --------------------------------------------------------------------------------
MEGO FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter
<TABLE>
<S> <C>
New York 13-5629885
----------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
4310 Paradise Road, Las Vegas, Nevada 89109
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
(702) 737 3700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of January 6, 1997, there were 18,433,121 shares of Common Stock, $.01 par
value per share, of the Registrant outstanding.
<PAGE> 2
MEGO FINANCIAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition
November 30, 1996 and August 31, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the Three
Months Ended November 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Stockholders' Equity for
the Three Months Ended November 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three
Months Ended November 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
November 30, August 31,
ASSETS 1996 1996
------------ ----------
<S> <C> <C>
Cash and cash equivalents $37,221 $3,185
Restricted cash 4,072 6,657
Notes receivable, net of allowances for cancellations, valuation discounts,
and credit losses of $15,024 and $16,794 at November 30, and August 31, 1996,
respectively 43,907 40,485
Mortgage related securities, at fair value 23,049 22,944
Excess servicing rights 25,103 14,268
Mortgage servicing rights 4,789 3,827
Timeshare interests held for sale 35,875 36,890
Land and improvements inventory 3,623 3,721
Other investments 2,049 1,972
Property and equipment, net of accumulated depreciation of
$14,123 and $13,550 at November 30, and August 31, 1996, respectively 23,438 20,262
Deferred selling costs 3,191 2,901
Prepaid debt expenses 3,765 1,003
Prepaid commitment fee 3,045 -
Other assets 8,959 7,482
-------- --------
TOTAL ASSETS $222,086 $165,597
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable $ 73,090 $84,449
Accounts payable and accrued liabilities 18,043 19,662
Payable to assignors 2,579 2,579
Future estimated contingency for notes receivable sold with recourse 12,551 9,332
Deposits 3,021 2,971
Negative goodwill 75 82
Income taxes payable 17,415 10,980
-------- --------
Total liabilities before minority interest, subordinated debt and
redeemable preferred stock 126,774 130,055
-------- --------
Minority interest of consolidated subsidiary 7,636 -
-------- --------
Subordinated debt 49,546 9,691
-------- --------
Redeemable preferred stock, Series A, 12% cumulative preferred stock, $.01
par value, $10 redemption value 0 shares issued and outstanding at
November 30, and August 31, 1996 - -
-------- --------
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 at November 30, and August 31, 1996) 184 184
Additional paid-in capital 17,617 6,504
Retained earnings 20,329 19,163
-------- --------
Total stockholders' equity 38,130 25,851
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $222,086 $165,597
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share amounts)
For the three months ended November 30,
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
REVENUES
Timeshare interest sales, net $ 7,556 $ 6,712
Land sales, net 3,391 5,081
Gain on sale of notes receivable 10,050 6,397
Net unrealized loss on mortgage related securities (235) -
Interest income 2,637 1,630
Financial income 912 1,230
Incidental operations 726 744
Other 52 276
------- -------
Total revenues 25,089 22,070
------- -------
COSTS AND EXPENSES
Direct cost of:
Timeshare interest sales 1,324 1,015
Land sales 310 494
Incidental operations 690 704
Commissions and selling 7,693 7,326
Depreciation and amortization 619 455
Provision for credit losses 1,711 297
Interest expense 2,843 1,638
General and administrative 7,604 5,671
------- -------
Total costs and expenses 22,794 17,600
------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2,295 4,470
INCOME TAXES 1,066 1,672
MINORITY INTEREST 63 -
------- -------
NET INCOME 1,166 2,798
CUMULATIVE PREFERRED STOCK DIVIDENDS - 80
------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 1,166 $ 2,718
======= =======
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 5
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(thousands of dollars, except per share amounts)
For the three months ended November 30,
(unaudited)
<TABLE>
1996 1995
----------- ------------
<S> <C> <C>
EARNINGS PER COMMON SHARE:
Primary:
Net income $ 0.06 $ 0.15
=========== ===========
Weighted average number of common shares and
common share equivalents outstanding 19,585,940 18,087,556
=========== ===========
Fully Diluted:
Net income $ 0.06 $ 0.14
=========== ===========
Weighted average number of common shares and
common share equivalents outstanding 19,724,579 19,463,556
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------
$.01 par value Additional
---------------------- paid-in Retained
Shares Amount capital earnings Total
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1996 18,443,121 $184 $ 6,504 $19,163 $25,851
Gain on sale of stock of subsidiary, net
of taxes of $4,972 - - 8,113 - 8,113
Issuance of warrants in connection
with commitment received - - 3,000 - 3,000
Net income for the three months ended
November 30, 1996 - - - 1,166 1,166
---------- ---- ------- ------- -------
Balance at November 30, 1996 18,443,121 $184 $17,617 $20,329 $38,130
========== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
For the three months ended November 30,
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,166 $ 2,798
-------- --------
Adjustments to reconcile net income to net cash used in operating activities:
Undistributed minority interest 63 -
Amortization of negative goodwill (7) (22)
Charges to allowance for cancellation and credit losses (2,305) (1,730)
Provisions for cancellation and credit losses 4,031 3,433
Cost of sales 1,634 1,509
Depreciation and amortization expense 619 455
Additions to excess servicing rights (11,634) (6,938)
Amortization of excess servicing rights 799 601
Accretion of residual interest on mortgage related securities (551) -
Net unrealized loss on mortgage related securities 235 -
Repayments on mortgage related securities 211 -
Additions to mortgage servicing rights (1,209) (447)
Amortization of mortgage servicing rights 247 11
Repayments on notes receivable, net 9,678 3,394
Proceeds from sale of notes receivable 65,189 41,894
Purchase of land and timeshare interests (521) (4,527)
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 2,585 (862)
Increase in notes receivable, net (76,796) (44,882)
Increase in other assets (2,082) (3,096)
Decrease (increase) in deferred selling costs (290) 476
Increase (decrease) in accounts payable and accrued liabilities (1,619) 114
Increase (decrease) in deposits 50 (280)
Increase in income taxes payable 1,463 1,526
-------- --------
Total adjustments (10,210) (9,371)
-------- --------
Net cash used in operating activities (9,044) (6,573)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,747) (935)
Additions to other investments (77) (412)
Decreases in other investments - 75
-------- --------
Net cash used in investing activities (3,824) (1,272)
-------- --------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(thousands of dollars)
For the three months ended November 30,
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 66,351 45,010
Repayment of borrowings (77,710) (39,885)
Preferred stock dividends - (80)
Redemption of preferred stock - (1,000)
Payments on subordinated debt (145) (174)
Issuance of subordinated debt 37,750 -
Proceeds from sale of Mego Mortgage Corporation common stock 20,658 -
------- -------
Net cash provided by financing activities 46,904 3,871
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,036 (3,974)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 3,185 7,338
------- ------
CASH AND CASH EQUIVALENTS END OF PERIOD $37,221 $ 3,364
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized $ 2,582 $ 1,353
======= =======
Income taxes $ 1,060 $ 25
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Issuance of 1,000,000 common stock warrants in connection with
commitment received $ 3,000 $ -
======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 9
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
1. FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Consolidated Financial Statements for the years ended August 31, 1996 and 1995,
contained in Mego Financial Corp.'s Form 10-K filed for the period ended August
31, 1996, the accompanying unaudited Consolidated Financial Statements contain
all of the information necessary to present fairly the financial position of
Mego Financial Corp. and Subsidiaries at November 30, 1996 and the results of
its operations and cash flows for the three months ended November 30, 1996 and
1995. The results of operations for the three months ended November 30, 1996
are not necessarily indicative of the results to be expected for the full year.
All significant intercompany accounts between Mego and its subsidiaries have
been eliminated.
2. 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, other
consumer loans, and timeshare and land sales. Mego Financial Corp. and its
subsidiaries are herein collectively referred to as the Company.
3. PREFERRED EQUITIES CORPORATION
PEC markets and finances timeshare interests and land in select resort
areas. By providing financing to virtually all of its customers, PEC also
originates consumer receivables that it sells and services. 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 (Comay
Corp., GRI, RRE Corp., and H&H Financial, Inc.) of their contract right to
purchase PEC. 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.
4. MEGO MORTGAGE CORPORATION
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, debt consolidation, and home equity loans through
its network of loan correspondents and dealers. Mego's ownership in MMC
declined from 100% at August 31, 1996 to 81.3% in November 1996, when MMC issued
2,300,000 shares of its common stock in an underwritten public offering at
$10.00 per share. Mego continues to have voting control on all matters submitted
to stockholders 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 an underwritten public offering. The proceeds from the offerings received by
MMC were used to repay borrowings and provide funds for future originations and
securitizations of loans. The proceeds received from the public stock offerings
in excess of the book value of Mego's investment in MMC ($13.1 million, less
income taxes of $5 million), has been recorded as additional paid-in capital of
Mego. The undistributed minority interest of MMC reflected on the Company's
Consolidated Statements of Financial Condition was $7.6 million at November 30,
1996. See Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion.
5. SUBSEQUENT EVENT
On December 17, 1996, $67.3 million of loans were repurchased,
securitized and sold by MMC, comprised of $36.7 million in Title I Loans and
$30.6 million in conventional loans. Pursuant to this securitization,
pass-through certificates evidencing interests in the pools of loans were sold
in a public offering. MMC continues to service the sold loans and is entitled
to receive from payments with respect to interest on the sold loans, a
servicing fee equal to 1.00% per annum on the balance of each loan. MMC
received certificates and contractual rights which will be recorded as mortgage
related securities on the Consolidated 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.
7
<PAGE> 10
ITEM 2. 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, is primarily the generation of consumer
receivables by marketing timeshare interests, retail lots and land parcels,
generating home improvement and equity loans, and servicing the related notes
receivable and loans.
The Company, through its subsidiary, PEC, provides financing to the
purchasers of its timeshare interests and land. 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. MMC originates, purchases,
sells and services consumer loans consisting primarily of home improvement
loans, home equity, and debt consolidation loans, generally secured by liens on
improved property through its network of correspondents and dealers. The
conventional loans are purchased or originated by MMC in amounts up to a maximum
of $75,000 with fixed rates and up to 25 year maturities, and are secured by a
lien on the respective primary residence. The Title I Loans are purchased or
originated by MMC in amounts up to a maximum of $25,000 with maturities up to 20
years. During the first quarter of fiscal 1997, MMC began offering non-FHA
insured loans through its dealer division and debt consolidation loans to its
borrowers through both its correspondent and dealer divisions.
The following table sets forth certain data regarding loans
originated, securitized, and serviced by MMC and PEC during the three months
ended November 30, 1996 and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
------------------------------------------------------
1996 1995
--------------------------- ------------------------
<S> <C> <C> <C> <C>
Loan Originations
-----------------
Principal amount of loans:
Correspondents:
Title I $ 19,165 25.4% $ 21,882 49.5%
Conventional 30,851 40.9 - -
-------- ----- -------- -----
Total Correspondents 50,016 66.3 21,882 49.5
-------- ----- -------- -----
Dealers:
Title I 12,239 16.2 11,833 26.7
Conventional 207 0.3 - -
-------- ----- -------- -----
Total Dealers 12,446 16.5 11,833 16.7
-------- ----- -------- -----
Notes receivable additions through sales of
timeshare interests and land 12,996 17.2 10,523 23.8
-------- ----- -------- -----
Total $ 75,458 100.0% $ 44,238 100.0%
======== ===== ======== =====
Number of Loans Originated:
--------------------------
Correspondents:
Title I 942 21.6% 1,440 42.4%
Conventional 1,076 24.6 - -
-------- ----- -------- -----
Total Correspondents 2,018 46.2 1,440 42.4
-------- ----- -------- -----
Dealers:
Title I 1,034 23.7 778 22.9
Conventional 10 0.2 - -
-------- ----- -------- -----
Total Dealers 1,044 23.9 778 22.9
-------- ----- -------- -----
Notes receivable additions through sales of timeshare
interests and land 1,308 29.9 1,177 34.7
-------- ----- -------- -----
Total 4,370 100.0% 3,395 100.0%
======== ===== ======== =====
Loans Serviced at end of period (including notes
securitized, sold to investors, and held for sale):
---------------------------------------------------
Title I $225,896 58.5% $123,279 51.9%
Conventional 41,590 10.7 - -
Timeshare and land 118,862 30.8 114,383 48.1
-------- ----- -------- -----
Total $386,348 100.0% $237,662 100.0%
======== ===== ======== =====
</TABLE>
The Company has entered into financing arrangements with certain
purchasers of timeshare interests and land 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
$6.4 million and $6 million at November 30, and August 31, 1996, respectively,
made under this arrangement are included in the table above. A valuation
discount is established to provide for an
8
<PAGE> 11
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 following tables set forth the principal balance of loans sold or
securitized and related gain on sale data for the three months ended November
30, 1996 and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
MMC Loans Sold:
Title I Loans $ 33,388 $ 35,026
Conventional 27,121 -
------------ ------------
Total $ 60,509 $ 35,026
============ ============
Gain on sale of loans $ 9,601 $ 5,965
============ ============
Net unrealized loss on mortgage related securities $ (235) $ -
Gain on sale of loans and unrealized gain on
mortgage related securities $ 9,366 $ 5,965
Gain on sale of loans as a percentage of principal
balance of loans sold 15.9% 17.0%
</TABLE>
Land sales as of November 30, 1996, exclude $16.1 million in sales not
yet recognized under GAAP due to pending receipt of the requisite payment
amounts. If ultimately recognized, revenues from these sales will be reduced by
a related estimated provision for cancellations of $2.9 million, estimated
deferred selling costs of $3.2 million and cost of sales of $1.3 million.
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 million and MMC to maintain a minimum
tangible net worth requirement of $12.5 million plus any issuance of capital
stock or other capital instruments since August 31, 1995 plus 50% of MMC's
cumulative net income since May 1, 1996. At November 30, 1996, MMC's minimum
tangible net worth requirement was $36.7 million. Additionally, MMC is
required to maintain a minimum level of profitability of at least $500,000 per
rolling 6 month period.
At November 30, and August 31, 1996, receivables aggregating $51.4
million and $54.2 million, 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.
During the first quarter of 1997, no notes receivable were securitized.
In December 1996, $67.3 million of loans were repurchased and securitized. See
Note 5 of Notes to Consolidated Financial Statements for further discussion.
MMC
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
debt 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 and excess servicing rights. Mortgage servicing rights and
excess servicing rights are amortized over the estimated lives of the future net
servicing fee income.
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 sold 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.
As the holder of the residual securities, the Company 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 and FHA insurance fees, (iv) servicing fees and
(v) estimated loan pool losses. The Company'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.
9
<PAGE> 12
Delinquencies--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>
NOVEMBER 30, AUGUST 31,
1996 1996
------------ ------------
<S> <C> <C>
Delinquency period(1)
31-60 days past due 2.59% 2.17%
61-90 days past due 0.88 0.85
91 days and over past due(2) 4.25 4.53
91 days and over past due, net of claims filed(3) 1.72 1.94
Outstanding claims filed with HUD(4) 2.53 2.59
Outstanding number of Title I insurance claims 320 255
Total servicing portfolio $ 267,486 $ 214,189
Title I Loans serviced
225,896 202,766
Amount of FHA insurance available(5)
23,167 21,205
Amount of FHA insurance available as a percentage
of Title I Loans serviced
10.26%(5) 10.46%
Losses on liquidated loans(6) $ 20 $ 32
</TABLE>
- ------------------
(1) 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 dates indicated.
(2) During the year ended August 31, 1996 and the quarter ended November
30, 1996, the processing and payment of claims filed with HUD was
delayed.
(3) 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.
(4) 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.
(5) If all claims with HUD had been processed as of November 30, 1996, the
amount of FHA insurance available would have been reduced to $17.1
million, which as a percentage Title I Loans serviced would have been
7.6%.
(6) On Title I Loans, 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 154 of the 474 Title I insurance claims made by MMC since
commencing operations through November 30, 1996. Losses on Title I
Loans liquidated 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.
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 November 30, 1996, the delinquency 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. 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,
related to that pool of loans, 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 a material adverse effect on the valuation of the
Company's mortgage servicing rights and the results of operations in the amount
of such mortgage servicing rights ($1.8 million before tax and $1.1 million
after tax at November 30, 1996) on the date of termination.
The pooling and servicing agreements also require that certain
delinquency and default rate thresholds be maintained. When these thresholds
are exceeded, higher levels of overcollateralization are required which can
cause a delay in cash
10
<PAGE> 13
receipts to the residual interest holders, causing an adverse valuation
adjustment to the residual interest security. At November 30, 1996, such an
adjustment was made for $235,000 on mortgage related securities related to the
March 1996 securitization.
Delinquencies have also decreased the amount of servicing fee revenue
recorded during the period, as MMC's loan servicing revenue has been reduced by
the amount of interest advanced to the owners of these loans. Loan servicing
income decreased for the 3 months ended November 30, 1996 partially due to the
advance of interest on delinquent loans.
Delinquencies have increased during the three months ended November
30, 1996 from the August 31, 1996 levels. Since MMC began originating loans in
1994, an increasing level of delinquencies appear as expected on loans less
than two years old. After this initial period, the level of delinquencies is
not anticipated to increase. Management has transferred its entire collection
function to Atlanta, Georgia to improve efficiency and coordination of
collection efforts and to ensure consistent collection strategies with
borrowers. MMC's loan collection functions are organized into two areas of
operations: routine collections and management of nonperforming loans.
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. 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 the loan payment has not been made within five days of the due
date. Borrowers usually will be contacted by telephone at least once every 5
days and also by written correspondence before the loan become 60 days
delinquent. With respect to loan payments that are less than 60 days late,
routine collection 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.
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. 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 collection
of severely delinquent loan payments (over 60 days late), filing Title I
insurance claims or initiating legal action for foreclosure and recovery.
Collection and Title I insurance claim personnel are responsible for collecting
delinquent loan payments and seeking to mitigate losses by providing various
alternatives for further actions, including modifications, managing Title I
insurance claims, and 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. A foreclosure coordinator will review all previous
collection activity for conventional loans, evaluate the lien and equity
position and obtain any additional information as necessary. 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 for loss exposure.
PEC
PEC recognizes revenue primarily from sales of timeshare interests and
land sales in resort areas, 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.
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.
11
<PAGE> 14
RESULTS OF OPERATIONS
Three Months Ended November 30, 1996 compared to Three Months Ended November
30, 1995
MMC
MMC originated $62.5 million of loans during the 3 months ended
November 30, 1996 compared to $33.7 million of loans during the 3 months ended
November 30, 1995, an increase of 85.3%. 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
November 30, 1996, MMC had approximately 402 active Correspondents and 459
active Dealers, compared to approximately 289 active Correspondents and 467
active Dealers at November 30, 1995. Of the $62.5 million of loans originated
in the 3 months ended November 30, 1996, $31.1 million were conventional loans.
MMC did not originate conventional loans in the 3 months ended November 30,
1995.
Total revenues increased 48.1% to $10.4 million for the 3 months ended
November 30, 1996 from $7 million for the 3 months ended November 30, 1995.
The increase was primarily the result of the increased volume of loans
originated and the gain on sale of such loans.
Loan servicing income decreased 28.4% for the 3 months ended November
30, 1996 from $891,000 for the 3 months ended November 30, 1995 to $638,000 for
the 3 months ended November 30, 1996. The decrease was primarily the result of
increased amortization of excess servicing rights and mortgage servicing
rights, and interest advances and reduced servicing fees related to $20.7
million in delinquencies at November 30, 1996 compared to $5.2 million at
November 30, 1995.
Interest income on loans held for sale and mortgage related
securities, net of interest expense, increased 157.3% to $355,000 during the 3
months ended November 30, 1996 from $138,000 during the 3 months ended November
30, 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.
The provision for credit losses increased 476.1% to $1.7 million for
the 3 months ended November 30, 1996 from $297,000 for the 3 months ended
November 30, 1995. The increase in the provision was directly related to the
increase in volume and mix of loans originated in the 3 months ended November
30, 1996 compared to the 3 months ended November 30, 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 increased its mix of conventional loan originations
as compared to Title I Loan originations, the provision for credit losses as a
percentage of loans originated increased due to the greater credit risk
associated with conventional loans.
Total general and administrative expenses increased 64.5% to $4.4
million for the 3 months ended November 30, 1996 compared to $2.7 million the 3
months ended November 30, 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 as a
result of the expansion of MMC's business and costs related to the opening of
additional offices.
Payroll and benefits expense increased 67.5% to $1.8 million for the
3 months ended November 30, 1996 from $1.1 million for the 3 months ended
November 30, 1995. The number of employees increased to 206 at November
30, 1996 from 130 at November 30, 1995, due to increased staff necessary to
support the business expansion and improve quality control.
Commissions and selling expenses increased 13.9% to $583,000 for the 3
months ended November 30, 1996 from $512,000 for the 3 months ended November
30, 1995 while loan originations increased by $28.7 million to $62.5 million at
November 30, 1996. The sales network expanded to substantially all states,
adding new personnel and offices to further the loan origination growth
strategy.
Professional services decreased 51.7% to $112,000 for the 3 months
ended November 30, 1996 from $232,000 for the 3 months ended November 30, 1995
due primarily to decreased audit and legal fees. The level of professional
service fees in fiscal 1997 is not anticipated to be as high as in fiscal
1996.
FHA insurance decreased 12.1% to $203,000 for the 3 months ended
November 30, 1996 from $231,000 for the 3 months ended November 30, 1995 due
primarily to a decrease of $2.3 million in Title I Loan originations.
12
<PAGE> 15
Other general and administrative expenses increased 246.1% to $1.2
million for the 3 months ended November 30, 1996 from $349,000 for the 3 months
ended November 30, 1995, due primarily to increased expenses related to the
ongoing expansion of facilities and increased communications costs and
adjustments related to prior securitizations.
Income before income taxes increased to $4 million for the 3 months
ended November 30, 1996 from $3.8 million for the 3 months ended November 30,
1995.
As a result of the foregoing, MMC's net income increased 7.5% to $2.5
million for the 3 months ended November 30, 1996 from $2.3 million for the 3
months ended November 30, 1995.
PEC
Total revenues for PEC decreased 2% or $300,000 during the 3 months
ended November 30, 1996 compared to the 3 months ended November 30, 1995
primarily due to a decrease in land sales in the 3 months ended November 30,
1996 compared to the 3 months ended November 30, 1995 which was partially offset
by an increase in sales of timeshares as PEC focuses more on timeshare sales.
Timeshare interests and land sales, net, decreased to $10.9 million in
the 3 months ended November 30, 1996 from $11.8 million in the 3 months ended
November 30, 1995, a decrease of 7.2%. Gross sales of timeshare interests
increased to $9.4 million in the 3 months ended November 30, 1996 from $8.7
million in the 3 months ended November 30, 1995, an increase of 8.7%. Net sales
of timeshare interests increased to $7.6 million in the 3 months ended November
30, 1996 from $6.7 million in the 3 months ended November 30, 1995, an increase
of 12.6%. The provision for cancellation represented 20% and 22.8% of gross
sales of timeshare interests for the 3 months ended November 30, 1996 and 1995,
respectively. During the first quarter of fiscal 1997, the Aloha Bay resort in
Indian Shores, Florida was completed and 44 timeshare interests in that resort
were sold.
Gross sales of land decreased to $3.8 million in the 3 months ended
November 30, 1996 from $6.2 million in the 3 months ended November 30, 1995, a
decrease of 38.7%. Net sales of land decreased to $3.4 million in the 3 months
ended November 30, 1996 from $5.1 million in the 3 months ended November 30,
1995; a decrease of 33.3%. The provision for cancellation represented 11.2% and
18.5% of gross sales of land for the 3 months ended November 30, 1996 and 1995,
respectively. The decrease in the provision for cancellation was primarily due
to a decrease in cancellations, resulting in a lower allowance requirement. The
decrease in land sales is the result of PEC shifting its emphasis as part of its
strategic plan from sales of land, to sales of timeshare interests due
primarily to its diminishing inventory of land available for sale.
PEC's interest income increased slightly to $1.6 million in the 3
months ended November 30, 1996 from $1.5 million for the 3 months ended November
30, 1995, primarily due to a relatively flat interest rate environment combined
with a slight increase in the average balance of notes receivable outstanding.
Financial income decreased to $274,000 the 3 months ended November 30,
1996 from $339,000 in the 3 months ended November 30, 1995, a decrease of 19.2%.
The decrease is primarily due to fluctuations in delinquencies in the serviced
loan portfolio.
Revenues from incidental operations decreased to $726,000 in the 3
months ended November 30, 1996 from $744,000 in the 3 months ended November 30,
1995, a decrease of 2.4%, primarily due to a decrease in utility fees partially
offset by an increase in golf course revenues. As a result of the foregoing,
total PEC revenues decreased to $14.6 million during the 3 months ended November
30, 1996 from $14.9 million during the 3 months ended November 30, 1995.
Total costs and expenses increased to $15.5 million for the 3 months
ended November 30, 1996 from $13.6 million for the 3 months ended November 30,
1995, an increase of 14.1%. The increase resulted primarily from an increase in
commission and selling expenses to $7.7 million from $7.3 million, an increase
of 5%; an increase in general and administrative costs to $3.3 million from $2.5
million, an increase of 31.4%, and an increase in direct costs of timeshare
interest sales to $1.3 million from $1 million, an increase of 30.4%. 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, 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, and
owners' association costs related to unsold timeshare inventory. 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 58% in the 3
months ended November 30, 1996 from 49.1% in the 3 months ended November 30,
1995, and cost of sales increased to 12.3% in the 3 months ended November 30,
1996 from 10.1% in the 3 months ended November 30, 1995.
13
<PAGE> 16
Sales prices of timeshare interests are typically lower than those of land
while selling costs per sale are generally the same in amount for timeshare
interests and land; accordingly, PEC generally realizes lower profit margins
from sales of timeshare interests than from sales of land.
Depreciation expense increased to $479,000 in the 3 months ended
November 30, 1996 from $354,000 in the 3 months ended November 30, 1995, an
increase of 35.3%. The increase is a result of the additions made to property
and equipment.
Interest expense increased to $1.7 million in the 3 months ended
November 30, 1996 from $1.2 million in the 3 months ended November 30, 1995, an
increase of 45.1%. The increase is a result of an increased outstanding
balance of notes payable. However, during the first quarter of fiscal 1997,
notes payable were paid down by $12.5 million from August 31, 1996.
As a result of the foregoing, PEC's income before income taxes
decreased to a loss of $883,000 in the 3 months ended November 30, 1996 from
income of $1.3 million in the 3 months ended November 30, 1995, a decrease of
166.4%.
COMPANY
Net income applicable to common stock decreased $1.5 million to $1.2
million in the 3 months ended November 30, 1996 from $2.7 million in the 3
months ended November 30, 1995, due principally to a decrease of $1.5 million
in PEC net income, as a result of increased expenses related to expansion of
selling operations offset by an increase of $172,000 in MMC net income. See
prior discussion for MMC and PEC.
Total costs and expenses during the 3 months ended November 30, 1996
were $22.8 million, an increase of 29.5% over $17.6 million in the 3 months
ended November 30, 1995. Commissions and selling expenses and general and
administrative expenses increased 17.7% for the 3 months ended November 30,
1996 compared to 1995 due primarily to the expansion of timeshare marketing
efforts in PEC. Additionally, Mego Financial incurs interest expense payable
to assignors and subordinated debt. Total general and administrative expenses
for Mego Financial (parent only) were primarily comprised of professional
services, external financial reporting expenses, and regulatory and other
public company corporate expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company was $37.2 million at
November 30, 1996 compared to $3.2 million at August 31, 1996. The increase
was primarily due to proceeds received from the common stock and debt offerings
of MMC. 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 -- 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 3 months ended
November 30, 1996, MMC operated on a negative cash flow basis using $7.2 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.
In November 1996, MMC issued 2,300,000 shares of its common stock in
an underwritten 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 81.3%. The Company continues to have voting control on all matters
submitted to stockholders 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 an underwritten public offering. MMC used approximately $13.9
million of the aggregate net proceeds received from the offerings to repay
amounts due to Mego Financial Corp. and an affiliate and approximately $21.5
million reducing the amounts outstanding under MMC's warehouse and revolving
lines of credit. The warehouse line of credit currently bears interest at 1%
over the prime rate and will expire in August 1997. The revolving line of
credit has been repaid. Additionally, MMC repaid $3 million under a repurchase
agreement. Funds of $2.7 million received by Mego Financial Corp. and PEC are
being used in their respective operations and
14
<PAGE> 17
by MMC to provide capital to originate and securitize loans. Pending such use,
approximately $18 million of the remaining funds have been invested in high
quality, short term interest-bearing investment and deposit accounts.
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 insuring 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 interests, 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. Substantially all of the loans originated by MMC are sold.
Net cash used in MMC's operating activities was funded primarily from the
reinvestment of proceeds from the sale of loans in the secondary market totaling
approximately $60.5 million for the 3 months ended November 30, 1996. 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 November 30, 1996, amounts on deposit in such reserve accounts totaled $2
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 November 30, 1996, MMC
had a $20 million warehouse line of credit (Warehouse Line) for the financing of
loan originations which expires in August 1997. At November 30, 1996, $0
million was outstanding under the Warehouse Line and $20 million was available
due to the repayment of the outstanding balance from the proceeds of the MMC
common stock and debt offerings. 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 any issuance of capital stock or other capital instruments since
August 31, 1995, 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 6 month
period. At November 30, 1996, MMC's minimum tangible net worth requirement was
$36.7 million. 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.
MMC also sells loans through whole loan sales. MMC has entered into 3
agreements with financial institutions to which an aggregate of $290.3 million
in principal amount of loans had been sold at November 30, 1996, for an amount
equal to their remaining principal balances and accrued interest. Pursuant to
the agreements, the purchasers are entitled to receive interest at various
rates. 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 purchasers. MMC is required to maintain reserve accounts
ranging from 1% to 2% 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 November 1996, MMC entered into an agreement with a 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 of $3 million
(0.15% of the commitment amount) as of the commitment date, was charged to MMC
and is being amortized as the commitment for the
15
<PAGE> 18
purchase of loans is utilized. These warrants were recorded as additional
paid-in capital of the Company. At November 30, 1996, $1.9 billion remained
available to be sold under the commitment. The financial institution has also
agreed to provide MMC a separate one-year facility of up to $11 million for the
financing of the interest only and residual certificates from future
securitizations.
During the 3 months ended November 30, 1996 and November 30, 1995, MMC
used cash of $7.2 million and $962,000, respectively, in operating activities.
During the 3 months ending November 30, 1996 and 1995, MMC used cash of
$968,000 and $350,000, respectively, in investing activities, which was
substantially expended for office equipment and furnishings and data processing
equipment. During the 3 months ended November 30, 1996 and 1995, MMC provided
cash of $34.3 million and $1.2 million, respectively, in financing activities.
PEC--Liquidity
PEC's cash requirements arise from the acquisition of timeshare
properties and land, payments of operating expenses, payments of taxes to the
parent, 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.
At November 30, 1996, PEC had arrangements with 4 institutional
lenders in 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 and mortgages. At November 30, 1996, an aggregate of $67.7 million
was outstanding under such lines of credit, and $41.8 million was available for
borrowing. At November 30, and August 31, 1996, $67.7 million and $65.9
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 November 30, 1996, consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
BORROWING
AMOUNT AT MAXIMUM
NOVEMBER 30, BORROWING REVOLVING MATURITY INTEREST
1996 AMOUNT EXPIRATION DATE(d) DATE RATE
------------ --------- --------------------- ------------------ -------------
<S> <C> <C> <C> <C>
$ 51,061 $ 57,000 (a) December 31, 1996 September 22, 2003 Prime + 2.25%
5,730 15,000 (b) May 30, 1998 June 1, 2002 Prime + 2.0%
4,971 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%
2,995 7,500 (b) April 30, 1998 May 31, 2002 Prime + 2.0%
</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. The revolving expiration
date was extended to February 28, 1997, pending execution of an
amendment increasing the line of credit to $75 million.
(b) Restrictions include PEC's requirement to maintain a tangible net
worth of $25 million during the life of the loan. Amendments to
these lines of credit were executed to reduce the interest rates
from prime plus 2.5% to prime plus 2.0% and to extend the maturity
and revolving expiration dates, as reflected in the above table.
The line of credit with an outstanding borrowing amount of $2,995
was amended in November 1996, while the remaining borrowing was
amended in December 1996.
(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.
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<PAGE> 19
Set forth below is a schedule of the cash shortfall arising from
recognized and unrecognized sales for PEC for the periods indicated (thousands
of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commissions and selling expenses
attributable to recognized and
unrecognized sales $ 8,041 $ 6,851
Less: Down payments (3,515) (3,496)
------------ ------------
Cash shortfall $ 4,526 $ 3,355
============ ============
</TABLE>
During the 3 months ended November 30, 1996 and 1995, PEC sold notes
receivable of $4.7 million to a financial institution and $6.7 million,
respectively, to 2 financial institutions from which $3.8 million and $3.6
million of the proceeds were used to pay down debt for the 3 months ended
November 30, 1996 and 1995, respectively. The receivables which have interest
rates depending on the transaction, of 13% and 12.3% in the 3 months ended
November 30, 1996 and 1995, respectively, were sold to yield returns of 9% and
8.8% in the 3 months ended November 30, 1996 and 1995, respectively, to the
purchasers, with any excess interest received from the obligors being payable to
PEC.
At November 30, 1996, PEC was contingently liable to replace or
repurchase notes receivable sold with recourse totaling $71.1 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 $68.8 million of sold notes receivable and cash
payments for repurchase relating to $2.3 million of sold notes receivable. At
November 30, 1996, the undiscounted amount of the $10.1 million in recourse
obligations on such notes receivable were $11.3 million. 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.
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 to
them. 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. At
November 30, 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.
Interest of $172,000 was paid during the first quarter of fiscal 1997 to the
Assignors and the outstanding balance of $2.6 million was paid in January 1997.
Interest on Subordinated Debt of $500,000 was paid during the first quarter of
fiscal 1997. Payments to Assignors were secured by a pledge of all of PEC's
outstanding stock.
During the 3 months ended November 30, 1996 and November 30, 1995, the
Company used cash of $9 million and $6.6 million, respectively, in operating
activities. During the three months ending November 30, 1996 and 1995, the
Company used cash of $3.8 million and $1.3 million, respectively, in investing
activities. During the 3 months ended November 30, 1996 and 1995, the Company
provided cash of $46.9 million and $3.9 million, respectively, in financing
activities, which was substantially from the MMC stock and debt offerings
during the 1996 time period.
The Company believes that its capital requirements will be met from
the recent stock and debt offering proceeds, cash balances, internally
generated cash, existing lines of credit, sales and securitizations of loans,
and the modification, replacement or addition to its credit lines.
17
<PAGE> 20
The Company's debt including lines of credit consists of the following
(thousands of dollars):
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1996 1996
------------ ------------
<S> <C> <C>
Notes collateralized by receivables $ 41,059 $ 41,568
Mortgages collateralized by real estate properties 29,115 31,078
Notes collateralized by excess servicing rights and mortgage
related securities - 10,000
Installment contracts and other notes payable 2,916 1,803
--------- ---------
Total $ 73,090 $ 84,449
========= =========
</TABLE>
FINANCIAL CONDITION
November 30, 1996 compared to August 31, 1996
Cash and cash equivalents increased 1,068.6% to $37.2 at November 30,
1996 from $3.2 million at August 31, 1996, primarily as a result of the
proceeds from the MMC common stock and debt offerings used to acquire short term
investments after repayment of debt.
Restricted cash deposits decreased 38.8% to $4.1 million at November
30, 1996 from $6.7 million at August 31, 1996, primarily due to a reduction in
the level required from an agreement with a financial institution, of $1.4
million at November 30, 1996.
Notes receivable, net, increased 8.5% to $43.9 million at November 30,
1996 from $40.5 million at August 31, 1996, primarily as a result of MMC loan
originations increasing and the timing of loan sales.
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>
THREE MONTHS ENDED
NOVEMBER 30,
1996
------------------
<S> <C>
Balance at August 31, 1996 $ 26,253
Provisions for credit losses and cancellations 1,711
Amounts charged to allowance for cancellations (850)
---------------
Balance at November 30, 1996 $ 27,114
===============
Allowance for cancellation credit losses excluding valuation discount $ 14,563
Future estimated contingency for notes receivable sold with
recourse and valuation discount 12,551
---------------
Total $ 27,114
===============
</TABLE>
Excess servicing rights increased 75.9% to $25.1 million at November
30, 1996 from $14.3 million at August 31, 1996. The increase is due to the
increased volume of loan originations since August 31, 1996. 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 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 $23 million at November 30, 1996 and $22.9
million at August 31, 1996. MMC had no securitization transactions during the 3
months ended November 30, 1996.
18
<PAGE> 21
Activity in excess servicing rights consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
1996
------------------
<S> <C>
Balance at August 31, 1996 $14,268
Plus: Additions 11,634
Less: Amortization (799)
-------
Balance at November 30, 1996 $25,103
=======
</TABLE>
As of November 30, and August 31, 1996, respectively, excess servicing
rights consisted of excess cash flows on serviced loans totaling $198.7 million
and $140.8 million, yielding weighted average interest rates of 12.8% and 12.6%,
net of normal servicing and pass-through fees and weighted average pass-through
yields to the investor of 8.3% and 8.6%, respectively. These loans were sold
under recourse provisions.
Mortgage servicing rights increased 25.1% to $4.8 million at November
30, 1996 from $3.8 million at August 31, 1996 as a result of additional sales of
loans and the resulting increase in sales of loans serviced to $65.2 million
during the first quarter of fiscal 1997 from $41.7 million during the first
quarter of fiscal 1996.
Property and equipment, net, increased 15.7% to $23.4 million at
November 30, 1996 from $20.3 million at August 31, 1996 due to increased
purchases of office equipment related to facility expansion.
Notes and contracts payable decreased 13.5% to $73.1 million at
November 30, 1996 from $84.4 million at August 31, 1996 due to the paydown of
debt from the proceeds from the MMC stock and debt offerings.
Accounts payable and accrued liabilities decreased to $18 million at
November 30, 1996 from $19.7 million at August 31, 1996, primarily as a result
of the timing of accruals and payments.
Future estimated contingency for notes receivable sold with recourse
increased 34.5% to $12.6 million at November 30, 1996 from $9.3 million at
August 31, 1996. 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 limited to sales made by PEC and is governed by the
agreements between the purchasers and the Company. Mego Financial is a
guarantor of PEC's recourse obligations. 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, other than for
customary representations and warranties, under those securitization agreements.
Estimated credit losses on loans sold through securitizations are considered in
MMC's valuation of its residual interest securities.
Income taxes payable increased 58.6% to $17.4 million at November 30,
1996 from $11 million at August 31, 1996 due to taxable income for the period
and taxes on the sale of MMC stock. See Note 2 of Notes to Consolidated
Financial Statements for further discussion.
Stockholders' equity increased 47.5% to $38.1 million at November 30,
1996 from $25.9 million at August 31, 1996 as a result of the sale of MMC
stock, the issuance of 1 million warrants, valued at $3 million, and net income
applicable to common stock of $1.2 million during the 3 months ended November
30, 1996.
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
19
<PAGE> 22
on the 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.
20
<PAGE> 23
PART II
ITEM 1. LEGAL PROCEEDINGS
On November 22, 1996, D. Anthony Pullella filed an action in the Superior
Court, Chancery Division, Atlantic County, New Jersey (Case No. ATL-C-175-96)
against Brigantine Preferred Properties, Inc., the Brig, Inc., subsidiaries of
PEC. The complaint requests an order requiring the sale to the Plaintiff of the
restaurant and bar facility in the Brigantine Inn Resort Club, pursuant to
alleged obligations in a lease and management agreement, and also asks for
unspecified compensatory and punitive damages. The Company believes that the
defendants have valid defenses to the complaint and does not believe that the
matter will have a material adverse effect on the business or financial
condition of the Company.
On December 26, 1996, in the matter of "In re Mego Financial Corp. Securities
Litigation," Master File No. CV-9-95-01082-LDG (RLH), in the United States
District Court for the District of Nevada, which matter was described in the
Company's Form 10-K for the fiscal year ended August 31, 1996, (the "1996
10-K"), Michael Nadler filed a purported class action complaint against the
Company, certain of the Company's officers and directors, and the Company's
independent auditors. As previously reported, Mr. Nadler had filed a motion in
the above described matter requesting that he be added as a class representative
and that his attorney be added as additional counsel for the class. That motion
was opposed by the Company and certain other defendants, and neither motion has
been heard or decided by the court. The new complaint claims that the defendants
violated the federal securities laws and common law and contained allegations
similar to those contained in the Dunleavy and Peyser complaints which were
consolidated into the above captioned matter, and which were described in the
1996 10-K. The Company believes that it has substantial defenses to the new
complaint; however, the Company presently cannot predict the outcome of this
matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.100 Third Amendment to General Loan and Security Agreement dated
November 29, 1996 between Steamboat Suites, Inc. as Debtor and
Textron Financial Corporation as Lender and the related Restated
and Amended Receivables Promissory Note dated November 30, 1996
effective October 6, 1994.
10.101 Fifth Amendment to Loan and Security Agreement dated November
29, 1996 by and among Preferred Equities Corporation and
Colorado Land and Grazing Corp. as Borrower; Mego Financial
Corp. as Guarantor; and Dorfinco Corporation as Lender and the
related Fourth Amendment to Promissory Note dated November 29,
1996.
10.102 Acquisition and Renovation Loan Agreement dated August 6, 1996
between Heller Financial, Inc. as Lender and Preferred Equities
Corporation as Borrower; and Interval Receivables Loan and
Security Agreement dated August 6, 1996 by and among Heller
Financial, Inc. as Lender and Preferred Equities Corporation as
Borrower and Mego Financial Corp. as Guarantor, and the three
related Promissory Notes.
27.1 Financial Data Schedule (For SEC Use Only).
No reports on Form 8-K were filed during the period.
21
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGO FINANCIAL CORP.
By: /s/ David A. Cleveland
-------------------------------------------
David A. Cleveland
Vice President and Chief Accounting Officer
Date: January 13, 1997
----------------
22
<PAGE> 1
EXHIBIT 10.100
[TFC TEXTRON LETTERHEAD]
September 23, 1996
Steamboat Suites, Inc.
4310 Paradise Road
Las Vegas, Nevada 89109
RE: AMENDMENT TO LOAN AND SECURITY AGREEMENT
Gentlemen:
Reference is made to that certain Inventory Loan in the original principal
amount of Five Million Dollars ($5,000,000.00) (the "Inventory Loan") from
Textron Financial Corporation (the "Lender") to Steamboat Suites, Inc. (the
"Borrower"), pursuant to that certain General Loan and Security Agreement dated
October 5, 1994, as amended on February 27, 1995 and November 30, 1995 (the
"Loan Agreement").
Each capitalized term used herein, but not otherwise defined herein, shall
have the meaning ascribed to such term in the Loan Agreement. Each of the
documents executed and delivered in connection with the Loan is collectively
referred to herein as the "Loan Documents".
The Borrower has requested the Lender, and Lender has agreed, to amend the
Loan Agreement as hereinafter provided in this letter agreement. Accordingly,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby agreed as follows:
1. Section 2.1(b) of the Loan Agreement, which presently provides Borrower
may not re-borrower previously paid Inventory Advances and Section 1.1 Inventory
Termination Date in which no Inventory Advance were to be made after certain
events including May 1, 1996 are hereby amended to provide that a one-time
Inventory Advance in the principal amount of $1,000,000.00 may be made by Lender
to Borrower in accordance with the terms and conditions of the Loan Agreement,
such Advance to occur not later than September 30, 1996. Upon the issuance of
such Advance, the principal balance outstanding under the Inventory Loan shall
be $3,008,713.82. The Inventory Deed of Trust and other
<PAGE> 2
Collateral maintain a Fair Market Value sufficient to continue to secure and
repay the Inventory Loan.
2. Each of the other Loan Documents is hereby amended so that (i) all
references in such Loan Document to the "Agreement" shall mean the Loan
Agreement, as amended to date and (ii) all references in such Loan document, to
that Loan Document or to any of the other Loan Documents shall mean that Loan
Document or such other Loan Documents as amended to date.
3. Borrower shall pay to Lender the reasonable fees, expenses and
disbursements of Lender preparing or reviewing this letter agreement or
otherwise representing Lender in connection with any matters relating to the
Loan Agreement or this letter agreement.
4. Borrower hereby ratifies and affirms in all respects each and every
representation, warranty, covenant, condition, term and agreement set forth in
the Loan Agreement, except as the Loan Agreement has been expressly amended by
this letter agreement. Borrower hereby confirms that the Loan Agreement and each
of the other Loan Documents are in full force and effect as of the date hereof.
5 The effective date of this letter agreement is September 23, 1996.
6. This letter agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
without the production of any other counterpart and all of which taken together
shall constitute but one and the same instrument.
Kindly acknowledge your agreement with and acceptance of the terms and
conditions of this letter agreement by signing in the appropriate space below.
Very truly yours,
TEXTRON FINANCIAL CORPORATION
By: ___________________________________
Its: ___________________________________
EACH OF THE UNDERSIGNED HEREBY AGREES WITH
AND ACCEPTS THE TERMS AND CONDITIONS OF THE
LETTER AGREEMENT DATED AS OF SEPTEMBER 23,
1996:
SIGNATURES CONTINUED ON NEXT PAGE
2
<PAGE> 3
Witness: STEAMBOAT SUITES, INC.
By: ___________________________________
_______________________________ Its: ___________________________________
GUARANTORS:
PREFERRED EQUITIES CORPORATION
By: ___________________________________
_______________________________ Its: ___________________________________
MEGO FINANCIAL CORP.
By: ___________________________________
_______________________________ Its: ___________________________________
3
<PAGE> 4
[TFC TEXTRON LETTERHEAD]
November 11, 1996
Steamboat Suites, Inc. and
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attention: Herb Hirsch and Don A. Mayerson
RE: MODIFICATION OF LOAN
Gentlemen:
This letter will serve as a commitment ("Commitment") from Textron Financial
Corporation ("TFC") to amend the terms and conditions of its existing loans (as
it may be amended, the "Loan") to Steamboat Suites Inc. ("Borrower"), a Colorado
corporation wholly owned by Preferred Equities Corporation ("Preferred"), a
Nevada corporation, which Loans are evidenced and secured by that certain (i)
Receivables Promissory Note, dated as of October 6, 1994 and amended on November
30, 1995 in the original principal amount of $15,000,000 from the Borrower to
TFC, (ii) Inventory Promissory Note dated as of October 6, 1994 in the original
principal amount of $5,000,000 from Borrower, (iii) General Loan and Security
Agreement between Borrower and TFC, dated as of October 6, 1994 (the "Loan
Agreement"), and (iv) certain other documents, instruments and agreements
including but not limited to certain amendment documents made as of November 23,
1994, January 20, 1995 and February 25, 1995 and November 30, 1995 and
amendement letters extending the Revolving Credit Period and providing for a one
time Inventory Advance (collectively, (i), (ii), (iii) and (iv) are referred to
as the "Security Documents"), upon the following terms and conditions:
I. LOAN TERM. The Receivables Commitment Period shall be extended for 18
months following the Amendment Closing Date (as defined below) and
Final Maturity Date and Term shall be extended for a 66 month period
following the Amendment Closing Date.
II. BORROWING BASE. The Receivables Borrowing Base shall be amended to
provide (i) 70% advance rate on Eligible Notes Receivable under which
no monthly payment has been made; (ii) 80% advance rate on Eligible
Note Receivable under which at least one (1) monthly payment has been
made; and (iii) 85% advance rate on Eligible Notes Receivable under
which at least six (6) monthly payments have been made. The maximum
principal loan amount shall
<PAGE> 5
Steamboat Suites, Inc. and
Preferred Equities Corporation
November 11, 1996
Page 2
remain at $15,000,000 and shall not be limited by loans made by TFC or
Dorfinco Corporation to Preferred Equities Corporation and Colorado
Land Grazing Corporation (PEC Loan").
III. INTEREST RATE. The Interest Rate on the unpaid balance of the Loan
shall be reduced from Prime plus 2.5% to Prime plus 2.0%.
IV. ELIGIBLE NOTE RECEIVABLE. The definition of Eligile Note Receivable
shall be modified to (a) allow up to 100% of the Pledged Notes
Receivables to have a term of 120 months or less payable in equal
monthly installments and (b) allow Pledged Notes Receivable with
interest rates of 0% when cash down payments with 50% or more has been
made and the remaining term is 24 months or less, payable in equal
monthly principal installments in the maximum amount of 20% of the
aggregate principal balance of all Pledged Notes Receivable.
V. COMMITMENT FEE. A Commitment Fee in an amount equal to 1% of the
difference between $22,500,000 available under the Loan and the PEC
Loan on a combined basis and the combined outstanding balance of the
Loan and the PEC Loan (approximately $75,000) shall be earned upon
Borrower's acceptance of this Commitment ("Commitment Fee"). The
Commitment Fee shall be payable on the Amendment Closing Date.
VI. AMENDMENT CLOSING DATE. The Amendment shall close on such date as
would be mutually satisfactory to the Borrower and TFC but in no event
later than the Expiration Date (defined below) of this commitment
issued by TFC.
VII. OTHER AMENDMENT REQUIREMENTS. Borrower shall deliver a legal opinion,
loan amendment documents and such other documents or information as
TFC shall request in connection with this amendment and the Loan
including, but not limited to acknowledgment of Guarantor. The Loans
shall be current and in good standing.
VIII. EXPENSE. Borrower shall pay all costs associated with this Commitment
and the amendment of the Loans, including without limitation, attorney
fees, title, recording, search fees and all travel and out-of-pocket
expenses of TFC. With respect to attorneys fees, if requested by
Borrower, TFC shall use in-house counsel in performing the legal work
in closing the Amendment, with delegation of such tasks as in-house
counsel shall elect to outside local counsel of its choice. Borrower
shall pay a fixed legal fee in the amount of $2,500 ("Fixed Fee") for
all in-house counsel fees of TFC and TFC shall assume liability for
all legal fees in excess of the Fixed Fee, subject to the condition
that no unforeseen or unusual issues arise that materially affect the
assumption upon which the Fixed Fee was based. If such assumptions are
not met or Borrower does not request TFC's use in-house counsel then
Borrower shall assume liability for all of TFC's outside legal fees.
IX. DURATION OF COMMITMENT. This commitment, if accepted by Borrower,
shall expire sixty (60) days from the Acceptance Date hereof
("Expiration Date"). In the event that
2
<PAGE> 6
the Amendment does not close before the Expiration Date of the
Commitment or any extension thereof, consented to by TFC in writing,
TFC would have no further obligation thereunder and the Commitment Fee
shall be due and payable.
X. ACCEPTANCE OF COMMITMENT. This Commitment will expire unless
Borrower's written acceptance below is received by TFC on or before
November 20, 1996.
Kindly acknowledge your acceptance of the terms and provisions of this
commitment, issued in duplicate, by having one copy hereof signed and returned
to TFC on or before November 20, 1996.
Very truly yours,
TEXTRON FINANCIAL CORPORATION
By:
---------------------------------
Richard H. Mitterling
Vice President
Recreational Receivable Division
ACCEPTED:
STEAMBOAT SUITES, INC.
By:
--------------------------------
Title:
--------------------------------
Acceptance Date:
- --------------------------------------
PREFERRED EQUITIES CORPORATION
By:
--------------------------------
Title:
--------------------------------
Acceptance Date:
- --------------------------------------
3
<PAGE> 7
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> 8
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."
5
<PAGE> 9
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:
"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,
6
<PAGE> 10
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.
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.
7
<PAGE> 11
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.
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;
8
<PAGE> 12
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 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
9
<PAGE> 13
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 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
10
<PAGE> 14
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.
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
11
<PAGE> 15
12
<PAGE> 16
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:
13
<PAGE> 17
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:
14
<PAGE> 18
THIRD AMENDMENT TO GENERAL LOAN AND SECURITY AGREEMENT
THIS Third Amendment to General Loan and Security Agreement (the
"Amendment"), made as of 29th day of November, 1996, 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, ("First Amendment")
and a Second Amendment to General Loan and Security Agreement dated as of
November 30, 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 modify the Interest Rate,
the Receivables Borrowing Base and certain eligibility requirements for Eligible
Notes Receivable and to extend the Receivables Commitment Period and Receivables
Maturity Date as well as other certain 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. 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
<PAGE> 19
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.
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:
"Third GLSA Amendment Effective Date - means November 29, 1996."
"Third GLSA Amendment means that certain amendment of this Agreement
dated as of November 29, 1996.
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 120 months from the date thereof,"
3. The parties hereto mutually agree that the definition of "NOTE
RECEIVABLE PORTFOLIO AVERAGE RATE OF INTEREST" under Section 1.1 of the
Agreement shall be modified to Subsection (A) in its entirety, and in lieu
thereof the following provision is inserted:
"(A) the aggregate unpaid principal balance of such 0% interest rate
Pledged Notes Receivable shall not exceed 20% of the aggregate principal
balance of all Eligible Notes Receivable outstanding at the time of such
determination; to the extent that such 20% threshold shall be exceeded,
the 0% interest rate Pledged Notes Receivable contributing in whole or in
part to such excess shall be included in the determination of the Note
Receivable Portfolio Average Rate of Interest."
4. The parties hereto mutually agree that the definition of
"Interest Rate" is hereby amended by inserting the following provision after the
first sentence of the definition:
"... With respect to each calendar month, commencing the Third GLSA
Amendment Effective Date, Interest Rate means per annum rate of interest
equal to the rates of: (i) 8.75% or (ii) the sum of (A) 2.0% plus (B) the
Prime Rate then shall be in effect for such month."
5. The parties hereto mutually agree that the definition of
"Receivables Maturity Date " is hereby deleted in its entirety and is lieu
thereof, the following provision is inserted:
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<PAGE> 20
"RECEIVABLES MATURITY DATE" means June 1, 2002.
6. The parties hereto mutually agree that the definition of
"Receivable Termination Date is hereby modified by deleting subsection (d) and
inserting the following provision:
"...(d) May 30, 1998"
7. The parties hereto mutually agree that the definition of
"Receivables 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 the principal amount of the Inventory Loan
outstanding at such time; or
(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 (1)
scheduled monthly installment payment shall have been made plus (iii) 85%
of the aggregate of the unpaid principal balances of all Eligible Notes
Receivable in respect of which at least six (6) scheduled monthly
installments payments shall have been made."
8. The parties mutually agree that the reference in Exhibit B to the
First Amendment Form of Request for Receivables Advise shall be deleted in its
entirety and the following provision shall be inserted: "Re: General Loan and
Security Agreement (as amended from time to time the "GSLA") between Textron
Financial Corporation ("Lender") and Steamboat Suites Inc. ("Debtor") dated as
of October 5, 1994 - $15,000,000 loan facility (the "Loan").
9. The parties hereto mutually agree that the first Whereas
paragraph of Exhibit C - Assignment of Note Receivable and Pledged Note
Receivable Deeds of Trust shall be deleted in its entirety and the following
provision shall be inserted:
"Whereas, the Debtor and Lender have entered into a General Loan and
Security Agreement dated as of October 5, 1994 and a First Amendment to General
Loan and Security Agreement dated February 27, 1995 and a Second Amendment to
General Loan and Security Agreement dated November 30, 1995 and a Third
Amendment to General Loan and Security Agreement dated November 29, 1996
(collectively the "Agreement" as may be further amended from time to time)
pursuant to which the Lender has agreed to lend upon the terms and conditions
set forth in the Agreement up to $15,000,000 (The "Loan") to the Debtor to be
evidenced by the Notes (as such term is defined in the Agreement) and secured by
a Lien granted by the Debtor to the Lender on certain Pledge Note Receivable and
Pledged Notes Receivable Deeds of Trust related thereto as well as other
Collateral of the Debtor (as such terms are defined in the Agreement;"
17
<PAGE> 21
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 Receivable, Pledged Notes Receivable 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 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, under 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.
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.
18
<PAGE> 22
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 December 5, 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 fully executed original or
executed counterpart originals of this Amendment.
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 Third GLSA Amendment Effective 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.
g. Lender shall have received a certificate or certificates in form
and substance satisfactory to it, dated as of the Amendment Effective 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.
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<PAGE> 23
h. Debtor shall deliver to Lender, and Lender shall have approved,
by no later than December 5, 1996:
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 November 30, 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 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
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 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
20
<PAGE> 24
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 Effective Date and
signed by the president or other authorized officer of the Guarantor, certifying
that the conditions specified in this Amendment 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
21
<PAGE> 25
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.
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.
22
<PAGE> 26
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
23
<PAGE> 27
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:
24
<PAGE> 28
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 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:
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:
25
<PAGE> 29
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).
26
<PAGE> 30
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
27
<PAGE> 31
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.
28
<PAGE> 32
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]
29
<PAGE> 33
REAFFIRMATION OF SUBORDINATION AGREEMENT
1. This Reaffirmation of Subordination Agreement ("Reaffirmation") by the
undersigned (the "Undersigned") is effective as of November 29, 1996. In order
to induce Textron Financial Corporation, a Delaware corporation ("TFC") to
continue to extend and amend loans to Steamboat Suites, Inc. ("Debtor "), a
Colorado corporation (collectively the "Loan"), as evidenced by that certain
General Loan and Security Agreement dated as of October 5, 1994 (as amended from
time to time, the "LSA"), the Undersigned executed and delivered to TFC a
certain Subordination Agreement of even date therewith.
2. Debtor and TFC now intend to modify the Loan, as evidenced by that
certain Third Amendment to General Loan and Security Agreement dated as of the
date hereof (the "Modification").
3. In order to induce TFC to execute the Modification the Undersigned
hereby agrees as follows:
a. All capitalized terms used in this Reaffirmation and not
otherwise defined herein shall have the meanings given to such terms
in the LSA and/or the Subordination Agreement;
b. The Undersigned consents to the Modification and agrees
that the Subordination Agreement shall remain in full force and
effect as if the LSA referred to therein were the LSA as amended by
the Modification;
c. The Undersigned acknowledges and agrees that all references
to the term "Debtor" contained in the Subordination Agreement shall
continue to be deemed to refer to Debtor and all references to the
"Subordinated Debt" shall include any present and future
indebtedness from Debtor to the Undersigned resulting from loans or
other accommodations to Debtor from the Undersigned (except for any
amounts payable by Debtor to the Undersigned from time to time under
income tax sharing arrangements between Debtor and the Undersigned);
d. Without limiting the generality of the foregoing, the
Undersigned does hereby specifically agree that all Subordinated
Debt owed by Debtor now or in the future to the Undersigned, and all
security therefor, shall be and hereby is subordinated to the Senior
Debt of Debtor to TFC as referred to in the Subordination Agreement
and as evidenced by the Notes referenced to in Section 1.1 of the
LSA. Said subordination shall be upon the same terms and conditions
set forth in the Subordination Agreement, which terms and conditions
are incorporated herein by reference thereto; and
<PAGE> 34
e. The Undersigned's agreements, covenants, representations
and warranties contained in the Subordination Agreement remain
unmodified as of the date hereof, and are hereby ratified, approved
and confirmed.
IN WITNESS WHEREOF, the Undersigned has executed this instrument as of the
____________ day of November, 1996.
MEGO FINANCIAL CORP.
a New York Corporation
By:
--------------------------------------------
Its:
--------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 Corp., a New York Corporation, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the names of the corporations by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------------------------
Notary Public
MY COMMISSION EXPIRES:
31
<PAGE> 1
EXHIBIT 10.101
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Fifth Amendment"),
made as of 29th day of November, 1996, by and among 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 CORP., 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 dated September 30,
1995 and by a Fourth Amendment to Promissory Note of even date
herewith(collectively, "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 and by a Fourth
Amendment to Loan and Security Agreement dated September 30, 1995 (the Loan and
Security Agreement, as so amended, being hereinafter referred to as the "Loan
Agreement"); 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 amend
the definition of Borrowing Base, to extend the Term and the Revolving Credit
Period and to reduce the Interest Rate 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. The date of this Fifth Amendment is referred to as the "Fifth Amendment
Date."
2. The parties mutually agree that Paragraph 1.1(e) of the Loan Agreement
is hereby deleted in its entirety and in lieu thereof, the following provision
is inserted:
"1.1 (e) BORROWING BASE. An amount equal to, at any time the lesser of (a)
$7,500,000; or (b) the sum of (i) 75% of the aggregate of the unpaid
principal balances of Eligible Notes Receivable in respect of which at
least one (1) scheduled monthly installment payment shall have been made;
(ii) 80% of the aggregate of the unpaid principal balances of Eligible
Notes Receivable in respect of which at least six (6) scheduled monthly
installments shall have been made; and (iii) 85% of the aggregate of the
unpaid principal balance of Eligible Notes Receivable in respect of which
at least twelve (12) scheduled monthly payments shall have been made."
3. 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. May 31, 2002."
4. The parties mutually agree that Paragraph 1.1(aa) of the Loan Agreement
is hereby amended by adding the following provision:
"1.1(aa) INTEREST RATE. . . . Commencing as of the Fifth Amendment Date,
the Interest Rate shall be a variable rate equal to the sum of the prime
rate established by The Chase Manhattan Bank, N.A. adjusted monthly as of
the first day of each month, plus two percent (2.0%) per annum, as more
particularly described in the Note."
5. 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:
2
<PAGE> 3
"1.1 (ss) REVOLVING CREDIT PERIOD. The period from the Closing Date
to April 30, 1998."
6. 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 May 31, 2002. The Term includes both the Revolving
Credit Period and the period during which no Advances are
permitted."
7. 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 April
30, 1998."
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 Fifth 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
3
<PAGE> 4
whether such enforceability is considered in a proceeding in equity or at law);
and, as applicable with respect to the Guarantor, this Fifth 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 Fifth 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 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 Fifth 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 Fifth
Amendment Commitment Letter (as defined below).
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 November 20, 1996 and
accepted by Preferred on November 20, 1996 ("Fifth 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
4
<PAGE> 5
preparation of this Fifth Amendment and related documentation in accordance with
the provisions of Paragraph VII of the Fifth 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 Fifth 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 Fifth 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 Agreement and in this Fifth 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 Fifth 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 Fifth Amendment closing date
and signed by the president or other authorized officer of the Borrower,
certifying that the conditions specified in this Fifth 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 Fifth Amendment 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 since September 30, 1995, 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
5
<PAGE> 6
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 Fifth Amendment, the Note Amendment and all other documents,
certificates and instruments to be executed and delivered in connection
with the Fifth 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
Fifth Amendment, the Note Amendment 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
Guarantor certifying the adoption by the Board of Directors thereof of a
resolution authorizing specified officers of the Guarantor to enter and
execute this Fifth Amendment and all other documents, certificates and
instruments to be executed and delivered in connection with the Fifth
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
Fifth 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 Fifth 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.
6
<PAGE> 7
k. Borrower shall have paid all fees and expenses required to be
paid prior to or at the closing pursuant to this Fifth Amendment.
IV. GUARANTOR'S OBLIGATIONS
1. The Guarantor:
a. has reviewed the Fifth Amendment Commitment Letter and this Fifth
Amendment with counsel of its choice, and accepts and consents to the terms of
this Fifth 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 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 Fifth Amendment
closing date, and to all Obligations, including Obligations arising pursuant to
this Fifth Amendment;
f. is fully aware of the financial and other conditions of the
Borrower and the SPR Subdivision, and is executing and delivering this Fifth
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 Fifth
Amendment, and
7
<PAGE> 8
that, but for the Guaranty, and the Guarantor's agreements as set forth herein,
Lender would decline to enter into this Fifth Amendment; and
i. shall deliver to Lender a certificate or certificates in form and
substance satisfactory to it, dated as of the Fifth Amendment Closing Date and
signed by the president or other authorized officer of the Guarantor, certifying
that the conditions specified in this Fifth Amendment have been fulfilled, and
"bringing down" the representations and warranties contained in the Guaranty.
V. MISCELLANEOUS
a. This Fifth 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 Fifth Amendment without the prior written consent of
Lender. Guarantor is a party to this Fifth Amendment solely for the purposes of
affirming its obligations in accordance with Article IV hereof.
b. This Fifth 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 Fifth Amendment shall become effective upon
Lender's receipt of one or more counterparts hereof timely executed by Borrower,
the Guarantor and Lender. This Fifth 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 Fifth Amendment as a
matter of convenience of reference only; such headings are not part of this
Fifth Amendment and shall not be used in the interpretation of this Fifth
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 FIFTH 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
8
<PAGE> 9
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 FIFTH 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 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 Fifth 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:
9
<PAGE> 10
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
10
<PAGE> 11
CORPORATE ACKNOWLEDGMENT
STATE 0F ____________:
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:
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 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:
11
<PAGE> 12
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 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:
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 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:
12
<PAGE> 13
FOURTH AMENDMENT TO PROMISSORY NOTE
THIS FOURTH AMENDMENT TO PROMISSORY NOTE ("Fourth Amendment"), made as
November 29, 1996, by and among 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 and by a Third Amendment to Promissory
Note dated September 30, 1995 (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 dated
September 30, 1995 (the "Fourth Amendment") and by a Fifth Amendment to Loan and
Security Agreement of even date herewith (the "Fifth Amendment") (collectively,
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 and amend the Interest Rate as
well as other certain provisions; and
13
<PAGE> 14
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:
1. The foregoing recitals are hereby incorporated herein by
reference thereto.
2. The parties mutually agree that Paragraph 2 of the Note is hereby
amended to reflect a change in the Basic Interest Rate effective as of the Fifth
Amendment Date (as defined in the Loan Agreement) from the rate of two and
one-half percent (2.5%) above the Prime Rate to the rate of two percent (2.0%)
above the Prime Rate.
3. 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 May 1, 2002,
all interest accrued at the Basic Interest Rate shall be
due and payable monthly in arrears."
4. 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 May 31, 2002, (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."
5. The parties hereto mutually agree that paragraph 8 of the
Note is hereby amended to delete the words "Closing Date" and insert the
words "Fifth Amendment Date."
6. 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.
7. Simultaneously with the execution hereof, Lender shall make a notation
on the original Note indicating the existence of this Fourth Amendment.
8. The execution of this Fourth Amendment shall serve as additional
evidence of the obligation of Borrower (as that term was modified by the Third
Amendment to
14
<PAGE> 15
include CLGC) or so much thereof as may then be outstanding, 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.
9. 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
Fourth Amendment.
10. This Fourth 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.
11. Capitalized terms used herein which are not otherwise defined shall
have the meaning ascribed in the Note and/or the Loan Agreement.
12. Wherever possible, the terms of this Fourth Amendment 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: ________________________________
Title: ___________________ Title: _____________________________
COLORADO LAND AND GRAZING CORP.
__________________________ By: ________________________________
Title: ___________________ Title: _____________________________
DORFINCO CORPORATION
__________________________ By: ________________________________
Title: ___________________ Title: _____________________________
15
<PAGE> 16
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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:
16
<PAGE> 17
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 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:
17
<PAGE> 18
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 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:
18
<PAGE> 19
REAFFIRMATION OF SUBORDINATION AGREEMENT
1. This Reaffirmation of Subordination Agreement ("Reaffirmation") by the
undersigned (the "Undersigned") is effective as of November 29, 1996. In order
to induce Dorfinco Corporation, a Delaware corporation ("Dorfinco") to extend a
loan to Preferred Equities Corporation ("PEC"), a Nevada corporation and
Colorado Land and Grazing Corp. ("CLGC") (the "Loan"), evidenced by that certain
Loan and Security Agreement dated as of July 31, 1991 (as amended from time to
time, the "Loan Agreement"), the Undersigned executed and delivered to Dorfinco
a certain Subordination Agreement of even date therewith.
2. PEC, CLGC and Dorfinco now intend to modify the Loan, as evidenced by
that certain Fifth Amendment to Loan and Security Agreement dated as of the date
hereof (the "Modification").
3. In order to induce Dorfinco to execute the Modification the Undersigned
hereby agrees as follows:
a. All capitalized terms used in this Reaffirmation and not
otherwise defined herein shall have the meanings given to such terms
in the Loan Agreement;
b. The Undersigned consent to the Modification and agrees that
the Subordination Agreement shall remain in full force and effect as
if the Loan Agreement referred to therein were the Loan Agreement as
amended by the Modification; and
c. The Undersigned acknowledges and agrees that all references
to the term "Debtor" contained in the Subordination Agreement shall
continue to be deemed to refer to PEC and CLGC, and all references
to the "PEC Indebtedness" shall include any present and future
indebtedness from either PEC or CLGC to the Undersigned. All terms
and provisions contained in the Subordination Agreement shall be
equally applicable to any obligations of PEC and/or CLGC to the
Undersigned.
d. Without limiting the generality of the foregoing, the
Undersigned does hereby specifically agree that all sums owed by
CLGC now or in the future to the Undersigned, and all security
therefor, shall be and hereby is subordinated to the Indebtedness of
PEC and CLGC to Dorfinco as referred to in Section 1.1(y) of the
Loan Agreement. Said subordination shall be upon the same terms and
conditions set forth in the Subordination Agreement, which terms and
conditions are incorporated herein by reference thereto.
e. Except as disclosed on Exhibit A, the Undersigned's
agreements, covenants, representations and warranties contained in
the
19
<PAGE> 20
Subordination Agreement remain unmodified as of the date hereof, and
are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Undersigned have hereunto executed this instrument
as of the ____ day of November, 1996.
MEGO FINANCIAL CORP.
a New York corporation
By: _______________________________________
Its: _______________________________________
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 _______________ a
________________Corporation, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the names of the
corporations by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
Notary Public
MY COMMISSION EXPIRES:
20
<PAGE> 21
EXHIBIT "A"
THE INDEBTEDNESS TO THE UNDERSIGNED FROM PREFERRED
EQUITIES CORPORATION AS OF __________, 1996 WAS $____________.
THE INDEBTEDNESS TO THE UNDERSIGNED FROM COLORADO LAND
AND GRAZING CORP. AS OF ______________ , 1996 WAS $______________.
21
<PAGE> 22
REAFFIRMATION OF SUBORDINATION AGREEMENT
1. This Reaffirmation of Subordination Agreement ("Reaffirmation") by the
undersigned (the "Undersigned") is effective as of November 29, 1996. In order
to induce Dorfinco Corporation, a Delaware corporation ("Dorfinco") to extend a
loan to Preferred Equities Corporation ("PEC"), a Nevada corporation and
Colorado Land and Grazing Corp. ("CLGC") (the "Loan"), evidenced by that certain
Loan and Security Agreement dated as of July 31, 1991 (as amended from time to
time, the "Loan Agreement"), the Undersigned executed and delivered to Dorfinco
a certain Subordination Agreement of even date therewith.
2. PEC, CLGC and Dorfinco now intend to modify the Loan, as evidenced by
that certain Fifth Amendment to Loan and Security Agreement dated as of the date
hereof (the "Modification").
3. In order to induce Dorfinco to execute the Modification the Undersigned
hereby agrees as follows:
a. All capitalized terms used in this Reaffirmation and not
otherwise defined herein shall have the meanings given to such terms
in the Loan Agreement;
b. The Undersigned consent to the Modification and agrees that
the Subordination Agreement shall remain in full force and effect as
if the Loan Agreement referred to therein were the Loan Agreement as
amended by the Modification; and
c. The Undersigned acknowledges and agrees that all references
to the term "Debtor" contained in the Subordination Agreement shall
continue to be deemed to refer to PEC and CLGC, and all references
to the "PEC Indebtedness" shall include any present and future
indebtedness from either PEC or CLGC to the Undersigned. All terms
and provisions contained in the Subordination Agreement shall be
equally applicable to any obligations of PEC and/or CLGC to the
Undersigned.
d. Without limiting the generality of the foregoing, the
Undersigned does hereby specifically agree that all sums owed by
CLGC now or in the future to the Undersigned, and all security
therefor, shall be and hereby is subordinated to the Indebtedness of
PEC and CLGC to Dorfinco as referred to in Section 1.1(y) of the
Loan Agreement. Said subordination shall be upon the same terms and
conditions set forth in the Subordination Agreement, which terms and
conditions are incorporated herein by reference thereto.
22
<PAGE> 23
e. Except as disclosed on Exhibit A, the Undersigned's
agreements, covenants, representations and warranties contained in
the Subordination Agreement remain unmodified as of the date hereof,
and are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Undersigned have hereunto executed this instrument
as of the ____ day of November, 1996.
SOUTHERN COLORADO PROPERTIES, INC.
a Colorado corporation
By: _____________________________________
Its: _____________________________________
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 _______________ a _________________
Corporation, being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the names of the corporations by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
Notary Public
MY COMMISSION EXPIRES:
23
<PAGE> 24
EXHIBIT "A"
THE INDEBTEDNESS TO THE UNDERSIGNED FROM PREFERRED EQUITIES
CORPORATION AS OF __________, 1996 WAS $___________.
THE INDEBTEDNESS TO THE UNDERSIGNED FROM COLORADO LAND
AND GRAZING CORP. AS OF ___________, 1996 WAS $ __________.
24
<PAGE> 25
REAFFIRMATION OF SUBORDINATION AGREEMENT
1. This Reaffirmation of Subordination Agreement ("Reaffirmation") by the
undersigned (the "Undersigned") is effective as of November 29, 1996. In order
to induce Dorfinco Corporation, a Delaware corporation ("Dorfinco") to extend a
loan to Preferred Equities Corporation ("PEC"), a Nevada corporation and
Colorado Land and Grazing Corp. ("CLGC") (the "Loan"), evidenced by that certain
Loan and Security Agreement dated as of July 31, 1991 (as amended from time to
time, the "Loan Agreement"), the Undersigned executed and delivered to Dorfinco
a certain Subordination Agreement of even date therewith.
2. PEC, CLGC and Dorfinco now intend to modify the Loan, as evidenced by
that certain Fifth Amendment to Loan and Security Agreement dated as of the date
hereof (the "Modification").
3. In order to induce Dorfinco to execute the Modification the Undersigned
hereby agrees as follows:
a. All capitalized terms used in this Reaffirmation and not
otherwise defined herein shall have the meanings given to such terms
in the Loan Agreement;
b. The Undersigned consent to the Modification and agrees that
the Subordination Agreement shall remain in full force and effect as
if the Loan Agreement referred to therein were the Loan Agreement as
amended by the Modification; and
c. The Undersigned acknowledges and agrees that all references
to the term "Debtor" contained in the Subordination Agreement shall
continue to be deemed to refer to PEC and CLGC, and all references
to the "PEC Indebtedness" shall include any present and future
indebtedness from either PEC or CLGC to the Undersigned. All terms
and provisions contained in the Subordination Agreement shall be
equally applicable to any obligations of PEC and/or CLGC to the
Undersigned.
d. Without limiting the generality of the foregoing, the
Undersigned does hereby specifically agree that all sums owed by
CLGC now or in the future to the Undersigned, and all security
therefor, shall be and hereby is subordinated to the Indebtedness of
PEC and CLGC to Dorfinco as referred to in Section 1.1(y) of the
Loan Agreement. Said subordination shall be upon the same terms and
conditions set forth in the Subordination Agreement, which terms and
conditions are incorporated herein by reference thereto.
e. Except as disclosed on Exhibit A, The Undersigned's
agreements, covenants, representations and warranties contained in
the
25
<PAGE> 26
Subordination Agreement remain unmodified as of the date hereof, and
are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Undersigned have hereunto executed this instrument
as of the ____ day of November, 1996.
CALVADA SPRINGS CORPORATION,
a Nevada corporation
By: _____________________________________
Its: _____________________________________
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 _______________ a _________________
Corporation, being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the names of the corporations by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
Notary Public
MY COMMISSION EXPIRES:
26
<PAGE> 27
EXHIBIT "A"
THE INDEBTEDNESS TO THE UNDERSIGNED FROM PREFERRED
EQUITIES CORPORATION AS OF ___________, 1996 WAS $____________.
THE INDEBTEDNESS TO THE UNDERSIGNED FROM COLORADO LAND
AND GRAZING CORP. AS OF __________, 1996 WAS $______________.
27
<PAGE> 28
REAFFIRMATION OF SUBORDINATION AGREEMENT
1. This Reaffirmation of Subordination Agreement ("Reaffirmation") by the
undersigned (the "Undersigned") is effective as of November 29, 1996. In order
to induce Dorfinco Corporation, a Delaware corporation ("Dorfinco") to extend a
loan to Preferred Equities Corporation ("PEC"), a Nevada corporation and
Colorado Land and Grazing Corp. ("CLGC") (the "Loan"), evidenced by that certain
Loan and Security Agreement dated as of July 31, 1991 (as amended from time to
time, the "Loan Agreement"), the Undersigned executed and delivered to Dorfinco
a certain Subordination Agreement of even date therewith.
2. PEC, CLGC and Dorfinco now intend to modify the Loan, as evidenced by
that certain Fifth Amendment to Loan and Security Agreement dated as of the date
hereof (the "Modification").
3. In order to induce Dorfinco to execute the Modification the Undersigned
hereby agrees as follows:
a. All capitalized terms used in this Reaffirmation and not
otherwise defined herein shall have the meanings given to such terms
in the Loan Agreement;
b. The Undersigned consent to the Modification and agrees that
the Subordination Agreement shall remain in full force and effect as
if the Loan Agreement referred to therein were the Loan Agreement as
amended by the Modification; and
c. The Undersigned acknowledges and agrees that all references
to the term "Debtor" contained in the Subordination Agreement shall
continue to be deemed to refer to PEC and CLGC, and all references
to the "PEC Indebtedness" shall include any present and future
indebtedness from either PEC or CLGC to the Undersigned. All terms
and provisions contained in the Subordination Agreement shall be
equally applicable to any obligations of PEC and/or CLGC to the
Undersigned.
d. Without limiting the generality of the foregoing, the
Undersigned does hereby specifically agree that all sums owed by
CLGC now or in the future to the Undersigned, and all security
therefor, shall be and hereby is subordinated to the Indebtedness of
PEC and CLGC to Dorfinco as referred to in Section 1.1(y) of the
Loan Agreement. Said subordination shall be upon the same terms and
conditions set forth in the Subordination Agreement, which terms and
conditions are incorporated herein by reference thereto.
e. Except as disclosed on Exhibit "A", the Undersigned's
agreements, covenants, representations and warranties contained in
the
28
<PAGE> 29
Subordination Agreement remain unmodified as of the date hereof, and
are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Undersigned have hereunto executed this instrument
as of the ____ day of November, 1996.
COLORADO LAND AND GRAZING CORP.
a Colorado corporation
By: _____________________________________
Its: _____________________________________
CORPORATE ACKNOWLEDGMENT
STATE OF ____________________________ )
) SS:
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 _______________ a _________________
Corporation, being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the names of the corporations by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
Notary Public
MY COMMISSION EXPIRES:
29
<PAGE> 30
EXHIBIT "A"
THE INDEBTEDNESS TO THE UNDERSIGNED FROM PREFERRED
EQUITIES CORPORATION AS OF ____________, 1996 WAS $_________________.
30
<PAGE> 1
EXHIBIT 10.102
ACQUISITION AND RENOVATION
LOAN AGREEMENT
BETWEEN HELLER FINANCIAL, INC., AS LENDER
AND PREFERRED EQUITIES CORPORATION, AS BORROWER
_________ , 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 - DEFINITIONS......................................................................................... 1
1.1 Acquisition Loan.............................................................................. 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
1.10 Architectural Contract........................................................................ 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........................................................................ 7
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...................................................................... 9
1.36 Interval Unit................................................................................. 9
1.37 Lender........................................................................................ 9
1.38 Loan.......................................................................................... 10
1.39 Loan Agreement................................................................................ 10
1.40 Loan Instruments.............................................................................. 10
1.41 Mortgage...................................................................................... 10
1.43 Permitted Exceptions.......................................................................... 10
1.44 Plans......................................................................................... 10
1.45 Property...................................................................................... 10
1.46 Renovation Loan............................................................................... 11
1.47 Renovation Note............................................................................... 11
1.48 Resort Property............................................................................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
1.49 Survey........................................................................................ 11
1.50 Title Company................................................................................. 11
1.51 Title Insurance............................................................................... 11
ARTICLE 2 - ADVANCES OF THE LOAN................................................................................ 11
2.1 Agreement of Lender........................................................................... 11
2.2 Interest on the Loan.......................................................................... 12
2.3 Advances...................................................................................... 12
2.4 Conditions Precedent to Advances.............................................................. 13
2.5 Final Advance................................................................................. 14
2.6 Changes in Plans and Specifications, Approved Budget or Approved Construction
Schedule...................................................................................... 14
2.7 No Waiver..................................................................................... 15
2.8 Conditions Precedent for the Benefit of Lender................................................ 15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BORROWER.......................................................... 16
3.1 Borrower Existence............................................................................ 16
3.2 Guarantor..................................................................................... 16
3.3 Financial Statements.......................................................................... 16
3.4 Suits, Actions, Etc........................................................................... 16
3.5 Valid and Binding Obligation.................................................................. 17
3.6 Title to the Property......................................................................... 17
3.7 Disclosure.................................................................................... 17
3.8 System Compliance............................................................................. 17
3.9 Submittals.................................................................................... 17
3.10 Utility Availability.......................................................................... 17
3.11 Governmental Requirements..................................................................... 18
3.12 Property Access............................................................................... 18
3.13 Flood Hazards/Wetlands........................................................................ 18
3.14 Contracts with Affiliates..................................................................... 18
3.15 Inducement to Lender.......................................................................... 18
ARTICLE 4 - COVENANTS AND AGREEMENTS OF BORROWER................................................................ 19
4.1 Mandatory Principal Payments.................................................................. 19
4.2 Compliance With Governmental Requirements..................................................... 19
4.3 Renovation of the Improvements................................................................ 20
4.4 Correction of Defects......................................................................... 20
4.5 Storage of Materials.......................................................................... 20
4.6 Inspection of the Property.................................................................... 20
4.7 Notices by Governmental Authority, Casualty, Condemnation..................................... 20
4.8 Application of Advances....................................................................... 22
4.9 Borrower's Deposit............................................................................ 22
4.10 Direct Disbursement and Application by Lender................................................ 22
4.11 Costs and Expenses........................................................................... 22
4.12 Additional Documents......................................................................... 23
4.13 Inspection of Books and Records.............................................................. 23
4.14 No Liability of Lender....................................................................... 23
4.15 No Conditional Sale Contracts, Etc........................................................... 23
4.16 Defense of Actions........................................................................... 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
4.17 Prohibition on Transfer of Property or Assignment of Borrower's Interest..................... 24
4.18 Payment of Charges........................................................................... 24
4.19 Restrictions and Annexation.................................................................. 25
4.20 Current Financial Reports.................................................................... 25
4.21 Tax Receipts................................................................................. 25
4.22 Notice of Litigation, Claims, and Financial Change........................................... 25
4.23 No Occupancy Contrary to All Risk Policy..................................................... 26
4.24 Hold Harmless................................................................................ 26
4.25 Cross Default................................................................................ 26
4.26 Modifications to Resort Documents............................................................ 26
4.27 Subordinated Obligations..................................................................... 27
ARTICLE 5 - RIGHTS AND REMEDIES OF LENDER....................................................................... 27
5.1 Rights of Lender............................................................................. 27
5.2 Acceleration and Other Remedies.............................................................. 28
5.3 Cessation of Advances........................................................................ 28
5.4 Funds of Lender.............................................................................. 28
5.5 No Waiver or Exhaustion...................................................................... 28
5.6 Marshalling Waiver........................................................................... 28
ARTICLE 6 - GENERIC TERMS AND CONDITIONS........................................................................ 29
6.1 Notices...................................................................................... 29
6.2 Entire Agreement and Modifications........................................................... 29
6.3 Severability................................................................................. 30
6.4 Election of Remedies......................................................................... 30
6.5 Form and Substance........................................................................... 30
6.6 Limitation on Interest....................................................................... 30
6.7 No Third Party Beneficiary................................................................... 31
6.8 Borrower in Control.......................................................................... 31
6.9 Number and Gender............................................................................ 31
6.10 Captions..................................................................................... 31
6.11 Applicable Law............................................................................... 31
6.12 Venue........................................................................................ 31
6.13 Jury Trial Waiver............................................................................ 32
6.14 Attorney's Fees.............................................................................. 32
6.15 Escrow....................................................................................... 32
6.16 Commitment Fee............................................................................... 33
6.17 Counterparts and Facsimile Signatures........................................................ 33
</TABLE>
iii
<PAGE> 5
EXHIBIT:
A Application for Advance
B Approved Budget
C Approved Construction Schedule
D Approved Timeshare Document Filing Schedule
E Permitted Exceptions
F Property Description
G Litigation Disclosure
H Approved Transaction
I Subordinated Obligations
iv
<PAGE> 6
ACQUISITION AND RENOVATION LOAN AGREEMENT
THIS ACQUISITION AND RENOVATION LOAN AGREEMENT, dated
_________________, 1996, is made by and between HELLER FINANCIAL, INC., a
Delaware corporation ("Lender"), whose address is 15th Floor - Sales Finance
Division, 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 renovation 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 Loan. The term "Acquisition Loan" shall mean
the lesser of Two Million Nine Hundred Twenty-Five Thousand and No/100ths
Dollars ($2,925,000.00) or 90% of Borrower's cost to acquire the Property
pursuant to that certain Purchase and Sale Agreement dated as of December 29,
1995 between Borrower, as purchaser, and Overlook Lodge Limited Liability
Company, a Colorado limited liability company, as seller ("Sale Agreement").
1.2 Acquisition Note. The term "Acquisition Note" shall mean
the Promissory Note from Borrower to Lender evidencing the Acquisition Loan, all
as evidenced by this Agreement, which is in the original principal amount of Two
Million Nine Hundred Twenty-Five Thousand and No/100ths Dollars ($2,925,000.00)
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 Loan 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 renovation 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 renovation of the Improvements and all other expenses
incident to the Loan, the Property, and the renovation 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 and remodelling of the
existing 117 hotel rooms into a combined total of 56 one and two bedroom and
studio condominium units at Overlook Lodge in Steamboat Springs, Colorado to be
used for timeshare purposes. The term Approved Budget shall also include any
decreases or increases as permitted hereunder in accordance with Section 2.6.
1.7 Approved Construction Schedule. The term "Approved
Construction Schedule" shall mean the schedule and order of renovation of the
Improvements set forth in EXHIBIT "C" and any modifications thereto
<PAGE> 7
permitted in accordance with Section 2.6.
1.8 Approved Timeshare Document Filing Schedule. The term
"Approved Timeshare Document Filing Schedule" shall mean the schedule attached
as EXHIBIT "D" for filing and approval of the Application for Registration and
Certification as a Subdivision Developer of a Timeshare Program by the Colorado
Real Estate Commission and comparable filings as required by each state in which
sales activities for the Resort Property are conducted for the sale of Interval
Units and the operation of the Resort Property.
1.9 Architect. The term "Architect" shall mean Eric Smith
Associates, P.C.
1.10 Architectural Contract. The term "Architectural Contract"
shall mean all written agreements between Borrower and Architect for
architectural services pertaining to the renovation of the Improvements.
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 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 2.6 for budget increases or changes to the Plans.
1.14 Completion. The term "Completion" shall mean the
substantial completion of the renovation of the Improvements in accordance with
the Approved Budget, the Approved Construction Schedule, the Construction
Contract, 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 renovation of the
Improvements, and (ii) 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 renovation of
the Improvements, including, without limitation, contracts between Borrower and
Contractor.
1.16 Contractor. The term "Contractor" shall mean the general
contractor, if any, to be retained by Borrower for the renovation of the
Improvements. At least thirty (30) days prior to commencement of renovation of
the Improvements, Borrower shall submit to Lender for approval the Plans. In
addition, if the work is to be performed by a third party general contractor
Borrower shall execute and deliver an Assignment of Construction Contract in
such 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 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,
2
<PAGE> 8
<PAGE> 9
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
governing the Resort Property and any supplements, amendment, or modifications
thereto to be created and recorded in the public records of Routt County,
Colorado.
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).
(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 renovation has begun, the cessation of the
renovation 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 renovation 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
3
<PAGE> 10
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 (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 Mechanics Lien under Title 38, Article 22 of the
Colorado Revised Statutes, as amended, unless discharged as provided in Section
4.18.
(l) Any default by Borrower under the documents 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.
4
<PAGE> 11
(n) Failure of the Borrower to maintain the minimum Net
Worth.
(o) Failure of Borrower to commence sales within twelve
(12) months after execution of this Agreement.
(p) Failure of Borrower to draw the first Advance under
the Interval Receivables Loan on or before the date that is thirteen (13) months
after execution of this Agreement.
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 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 Colorado, the County of
Routt, 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 56
one and two bedroom and studio units to be sold as Interval Units and the common
areas described in the Plans. References in this Loan Agreement to construction
of Improvements means renovation or refurbishment of the Improvements.
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.
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1.31 Inspecting Architects/Engineers. The term "Inspecting
Architects/Engineers" shall mean Eric Smith and Associates, P.C. 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 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;
(b) 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;
(c) Workers' Compensation Insurance for contractors for
statutory limits; and
(d) 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 certain other loan documents.
1.35 Interval Release Payment. The term "Interval Release
Payment" shall mean mandatory payments of Two Thousand Seven Hundred Twenty-Nine
and No/100ths Dollars ($2,729.00) per Interval Unit to be applied as follows:
(i) $1,347.00 to be applied toward the principal balance outstanding from time
to time under the Acquisition Note, and (ii) $1,382.00 to be applied toward the
principal balance outstanding from time to time under the Renovation Note. 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
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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 Loans, not to
exceed, in the aggregate, the advance of (a) the lesser of (i) Two Million Nine
Hundred Twenty-Five Thousand ($2,925,000.00), or (ii) 90% of the costs of
acquisition of the Property plus (b) 100% of the costs of labor, materials, and
services supplied for the renovation of the Improvements and all other expenses
incident thereto, as to each item only to the extent specified in the Approved
Budget which amount for renovation shall not exceed a total of Three Million
Dollars and No/100 ($3,000,000.00) over the term of the Loan.
1.39 Loan Agreement. The term "Loan Agreement" shall mean this
Acquisition and Renovation Loan Agreement.
1.40 Loan Instruments. The term "Loan Instruments" 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 to Lender 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 Deed of
Trust, Assignment of Rents and Leases, Security Agreement and Financing
Statement from Borrower for the benefit of 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 "E" hereto.
1.44 Plans. The term "Plans" shall mean the final working
drawings and specifications for the renovation of the Improvements, which have
been prepared by the Architect and approved by Lender and as may be modified
pursuant to Section 2.6.
1.45 Property. The term "Property" shall mean the land
described in EXHIBIT "F" attached hereto and incorporated herein by reference,
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 Loan. The term "Renovation Loan" 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 renovation and
refurbishment of the Improvements.
1.47 Renovation Note. The term "Renovation Note" shall mean
the Renovation Promissory Note of even date herewith from Borrower to Lender
evidencing the Renovation Loan in the original principal amount of Three Million
Dollars and No/100 ($3,000,000.00).
1.48 Resort Property. The term "Resort Property" shall mean a
timeshare project to be developed by Borrower on the Property.
1.49 Survey. The term "Survey" shall mean a current survey of
the Property meeting the
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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 Eagle
County Title Corporation as agent for Chicago Title Insurance Company, the
underwriter.
1.51 Title Insurance. The term "Title Insurance" shall mean a
title insurance policy in the amount of Five Million Nine Hundred Twenty-Five
Thousand and No/100ths Dollars ($5,925,000.00) 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 Agreement of Lender. Concurrently with the recording of
the Mortgage, Lender shall advance the amount of the Acquisition Loan to
Borrower. Subject to the conditions hereof, and provided that there exists no
Default and no Event of Default, Lender will make Advances to Borrower in the
aggregate maximum amount of the Renovation Loan in accordance with this Loan
Agreement. Lender shall be obligated to make such Advances only in the maximum
amount of the Renovation Loan. 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
Loan shall be drawn by Borrower within eighteen (18) months of the date hereof.
Further, unless an Event of Default shall exist and be continuing, Lender shall
grant partial releases as provided in the Mortgage.
2.2 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.
2.3 Advances. Advances pursuant to the Renovation Loan 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
renovation of the Improvements, as specified in the Approved Budget, or for the
payment of other costs and expenses incident to the Loan. Borrower shall not
submit Applications for an Advance more than two times per month, 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 renovation
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
renovation of the Improvements. Each Advance shall be issued by Lender within
ten (10) days after 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.
2.4 Conditions Precedent to Advances. As a condition
precedent to each Advance hereunder,
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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;
(d) There shall then exist no Default or Event of
Default;
(e) 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.
(f) 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, (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 renovation of any of the
Improvements covered by the Application for Advance;
(g) 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;
(h) General ledger detail reports with respect to such
Application for Advance; and
(i) Copies of all building and other construction or
development permits and approvals issued through the date of such Advance.
(j) 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.
(k) Prior to the first Advance, Borrower shall have
procured and delivered to Lender and Lender shall have approved (i) certificates
or other evidence of the Insurance Policies; (ii) Phase I environmental and
asbestos inspection reports issued by independent consultants satisfactory to
Lender, (iii) the Survey, and (iv) the Plans.
2.5 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;
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(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, the federal Americans with
Disabilities Act, and applicable provisions of Colorado law.
(f) The Title Insurance shall be endorsed and extended to
the date of the final Advance with no additional exception objectionable to
Lender.
2.6 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 or 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 after 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 after
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.
2.7 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.
2.8 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.
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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 Colorado 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
"G" 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, 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 renovation 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 renovation of the
Improvements (specifically including the named systems).
3.9 Submittals. The Loan Instruments and all Financial
Statements, Plans, budgets, schedules,
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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 its
employees.
3.10 Utility Availability. All utility and municipal services
required for the renovation, 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 renovated, 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 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 renovate and
operate the Property as a time-share project.
3.12 Property Access. The Property has adequate legal and
physical access through fully improved private or dedicated roads.
3.13 Flood Hazards/Wetlands. The Property is in flood zone
"__" as defined in the Flood Disaster Protection Act of 1973, as amended, and
the Property is not located within, nor does any part of the Property
constitute, 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 "H", 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 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 repre sentations, 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.
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ARTICLE 4 - COVENANTS AND AGREEMENTS OF
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 fifteenth
(15th) 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
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 renovation 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 Renovation of the Improvements. Borrower shall commence
renovation of the Improvements on or before the Commencement Date and the
renovation of the Improvements shall be prosecuted with diligence and
continuity, in a good and workerlike 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 1.21(f) of
this Loan Agreement and shall complete renovation 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 renovation 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 renovation 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 repre sentatives, to enter upon the Property and any location
where materials intended to be utilized in the renovation of the Improvements
are stored, for the purpose of inspection of the Property and such materials at
all reasonable times.
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
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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 Resort Property affected by such casualty loss;
and (v) Lender's Inspecting Architects/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 workerlike 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 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 2.6 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
2.6 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
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<PAGE> 21
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 renovation 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
renovation of the Improvements and to preserve the Property, and 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 renovation 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 renovation 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 renovation 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 services supplied for the renovation 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
renovation 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 renovation 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 and 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.
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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.
Notwithstanding the limitations set forth in this Section 4.17
Borrower shall be permitted to lease a portion of the Improvements to third
parties for operation of a restaurant, bar or other commercial activities. The
terms of said lease shall be subject to the prior written consent of the Lender.
Failure of Lender to object to the terms of said Lease or leases within twenty
(20) days of receipt shall be deemed written consent of such lease.
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 renovation 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
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"
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to evidence the payment of all taxes levied on the Property and all operations
thereof 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 All 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 renovation of the Improvements permitting occupancy of the
Improvements or any element thereof, 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 or any
element thereof 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 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 after receipt of such request from Borrower.
4.27 Subordinated Obligations. Borrower hereby represents and
warrants to Lender that those matters described on EXHIBIT "I" 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
June 30, 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 and salaries and other compensation due officers and directors
incurred in the ordinary course of business provided that no bonuses or salary
increases shall be permitted while an Event of Default continues), 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 or Guarantor or (ii)
any officer,
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<PAGE> 24
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 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 renovation 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 renovation 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 renovation 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 the
renovation 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 renovation 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 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
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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
Notices to Lender: HELLER FINANCIAL, INC.
Sales Finance Division
Attn: Portfolio Manager,
R.E. Loan No. 96-111
500 West Monroe St., 15th Floor
Chicago, Illinois 60661
Telecopy: (312) 441-7924
With a copy to: HELLER FINANCIAL, INC.
Sales Finance Division
Attn: Group General Counsel
R.E. Loan No. 96-111
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 consti tute a
waiver or release thereof or of any other right or remedy, and the same shall be
nonexclusive.
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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 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 Colorado shall be applicable to the creation, perfection and
enforcement of the lien 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
20
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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 OF 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 renovation 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 renovation 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 Eagle
County Title Corporation, is approved as the Escrow Agent. Eagle County Title
Corporation shall deliver an insured agent letter in form and substance
acceptable to Lender, issued by Chicago Title Insurance Company in connection
with the escrow services to be provided by Title Company.
6.16 Commitment Fee. Borrower has agreed to pay Lender a
commitment fee in the amount of One Hundred Forty-Five Thousand Dollars and
No/100 ($145,000.00) 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 Twenty- Five Thousand Dollars and No/100 ($125,000.00) representing the
balance of the commitment fee for the Loan and the Interval Receivables Loan.
6.17 Counterparts and Facsimile Signatures. This Agreement may
be signed in multiple counterparts which taken together shall constitute the
entire agreement between the parties. Facsimile signatures of a party shall,
upon transmission and delivery thereof to the other party, be effective as to
the signing party.
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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: _________________________
APPROVED BY:
GUARANTOR:
MEGO FINANCIAL CORP., a New York
corporation
By: __________________________
Its: _________________________
22
<PAGE> 29
INTERVAL RECEIVABLES LOAN AND SECURITY AGREEMENT
BY AND AMONG
HELLER FINANCIAL, INC., AS LENDER
PREFERRED EQUITIES CORPORATION, AS BORROWER AND
MEGO FINANCIAL CORP., AS GUARANTOR
____________, 1996
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 - THE LOAN ........................................................................................... 1
1.1 Loan.............................................................................................. 1
1.2 Term.............................................................................................. 2
1.3 Interest Rate..................................................................................... 2
1.4 Payments.......................................................................................... 2
1.5 Prepayments....................................................................................... 2
1.6 Commitment Fee.................................................................................... 3
SECTION 2 - COLLATERAL.......................................................................................... 4
2.1 Grant of Security Interest........................................................................ 4
2.2 Upgraded Notes Receivable......................................................................... 4
2.3 Security Agreement................................................................................ 5
SECTION 3 - CONDITIONS PRECEDENT TO ADVANCES.................................................................... 5
3.1 Closing Deliveries................................................................................ 5
3.2 Deliveries Prior to Each Advance.................................................................. 6
3.3 Security Interests................................................................................ 6
3.4 Representations and Warranties.................................................................... 6
3.5 No Default........................................................................................ 6
3.6 Performance of Agreements......................................................................... 6
3.7 Governmental Approvals........................................................................ 6
SECTION 4 - GENERAL REPRESENTATIONS AND WARRANTIES.............................................................. 6
4.1 Existence......................................................................................... 6
4.2 Authorization and Enforceability.................................................................. 7
4.3 Financial Statements and Business Condition....................................................... 7
4.4 Taxes............................................................................................. 7
4.5 Litigation and Proceedings........................................................................ 8
4.6 Licenses and Permits.............................................................................. 8
4.7 Full Disclosure................................................................................... 8
4.8 Employee Benefit Plans............................................................................ 8
4.9 Representations as to the Resort.................................................................. 8
4.11 Collateral....................................................................................... 9
SECTION 5 - AFFIRMATIVE COVENANTS............................................................................... 10
5.1 Payment and Performance of Indebtedness........................................................... 10
5.2 Maintenance of Insurance.......................................................................... 10
5.3 Condemnation...................................................................................... 11
5.4 Inspections and Audits............................................................................ 12
5.5 Reporting Requirements............................................................................ 12
5.6 Records........................................................................................... 14
5.7 Management........................................................................................ 14
5.8 Net Worth......................................................................................... 14
5.9 Maintenance....................................................................................... 14
</TABLE>
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<TABLE>
<S> <C> <C>
5.10 Proceeds......................................................................................... 14
5.11 Release and Bonding of Liens..................................................................... 14
5.12 Claims........................................................................................... 15
5.13 Use of Lender Name............................................................................... 15
5.14 Other Documents.................................................................................. 15
5.15 Subordinated Obligations......................................................................... 15
5.16 Loan Servicing................................................................................... 16
5.17 Custodian........................................................................................ 16
5.18 Timeshare Interval Exchange Network.............................................................. 16
SECTION 6 - NEGATIVE COVENANTS.................................................................................. 17
6.1 Consolidation and Merger.......................................................................... 17
6.2 Restrictions on Transfers......................................................................... 17
6.3 Timeshare Regimen................................................................................. 18
6.4 Collateral........................................................................................ 18
6.5 No Sales Outside of Certain States................................................................ 18
6.6 Contracts......................................................................................... 18
6.7 Restricted Transfer and Encumbrance of Units and Intervals....................................... 18
SECTION 7 - EVENTS OF DEFAULT................................................................................... 19
7.1 Payments.......................................................................................... 19
7.2 Failure to Permit Inspections..................................................................... 19
7.3 Covenant Defaults................................................................................. 19
7.4 Warranties or Representations..................................................................... 19
7.5 Bankruptcy........................................................................................ 19
7.6 Attachment, Judgment, Tax Liens................................................................... 20
7.7 Default by Borrower in Other Agreements........................................................... 20
7.8 Suspension of Sales............................................................................... 20
SECTION 8 - REMEDIES............................................................................................ 20
8.1 Remedies Upon Default............................................................................. 20
8.2 Application of Collateral; Termination of Agreements.............................................. 21
8.3 Waivers........................................................................................... 21
8.4 Cumulative Rights................................................................................. 22
SECTION 9 - CERTAIN RIGHTS OF LENDER............................................................................ 22
9.1 Protection of Collateral.......................................................................... 22
9.2 Performance by Lender............................................................................. 22
9.3 Fees and Expenses................................................................................. 22
9.4 Assignment of Lender's Interest................................................................... 23
9.5 Notice to Purchaser............................................................................... 23
9.6 Collection of Notes............................................................................... 23
9.7 Power of Attorney................................................................................. 23
9.8 Indemnification of Lender......................................................................... 24
9.9 Attorneys' Fees............................................................................... 24
SECTION 10 - MISCELLANEOUS...................................................................................... 25
10.1 Notice........................................................................................... 25
10.2 Survival......................................................................................... 26
</TABLE>
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<TABLE>
<S> <C> <C>
10.3 Governing Law.................................................................................... 26
10.4 Invalid Provisions............................................................................... 26
10.5 Counterparts; Effectiveness...................................................................... 26
10.6 Lender Not Fiduciary............................................................................. 26
10.7 Entire Agreement................................................................................. 26
10.8 Venue............................................................................................ 27
10.9 Jury Trial Waiver................................................................................ 27
10.10 Consent to Advertising and Publicity............................................................ 28
10.11 Headings........................................................................................ 28
10.12 Broker's Fees................................................................................... 28
APPENDIX .......................................................................................................A-1
</TABLE>
LIST OF EXHIBITS
Schedule 3.1 Closing Checklist
Schedule 3.2 Deliveries for Advance
Exhibit 3.3 Form of Opinion of Counsel
Schedule 4.5 Litigation
Schedule 5.15 Subordinated Indebtedness
Exhibit A Permitted Exceptions
Exhibit B Legal Description
Exhibit C Request for Advance
Exhibit D Amenities
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INTERVAL RECEIVABLES LOAN AND SECURITY AGREEMENT
THIS INTERVAL RECEIVABLES LOAN AND SECURITY AGREEMENT (this
"RECEIVABLES LOAN AGREEMENT" OR THIS "AGREEMENT") dated ________________, 1996,
is made by and between PREFERRED EQUITIES CORPORATION, a Nevada corporation
("BORROWER" ), whose address is 4310 Paradise Road, Las Vegas, Nevada 89109, and
HELLER FINANCIAL, INC., a Delaware corporation ("LENDER"), whose address is 500
West Monroe Street, 15th Floor, Sales Finance Division, Chicago, Illinois 60661.
RECITALS
A. Borrower desires Lender to extend a secured credit facility to
Borrower in accordance with the terms of this Receivables Loan Agreement.
B. Borrower's obligations under the Loan Documents will be secured
inter alia by, a security interest in certain Notes Receivable.
C. Mego Financial Corp., a New York corporation ("Guarantor") shall
guaranty all of the obligations of Borrower to Lender under the Loan Documents.
D. All capitalized terms used herein shall have the meanings ascribed
thereto in the appendix of defined terms (the "Appendix") attached hereto and
made a part hereof by this reference.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, provisions and covenants herein contained, Borrower and Lender agree
as follows:
SECTION 1
THE LOAN
1.1 LOAN.
(A) AVAILABILITY. During the Revolving Period, Lender shall
make Advances to Borrower not in excess of Availability provided that Borrower
satisfies all conditions set forth in Section 3 hereof. Advances shall be (A) in
minimum amounts of $100,000 each, and (B) made no more frequently than three (3)
times each month nor more than one (1) time each week. Except in connection with
a prepayment of amounts mandated under Section 1.5(b)(i) below, any amounts
repaid during the Revolving Period may be reborrowed during the Revolving
Period.
(B) EXCESS AVAILABILITY. Lender shall make Advances of Excess
Availability to Borrower not more often than once per month and within fifteen
(15) days after Borrower's delivery to Lender of written request therefor
accompanied by Monthly Reports evidencing such Excess Availability to Lender's
satisfaction.
1.2 TERM. The Loan shall be for a term commencing on the date hereof
and expiring at the end of the term of the Financed Notes Receivable remaining
after the Revolving Period, but in no event later than the Maturity Date.
1.3 INTEREST RATE. The outstanding principal balance of the Loan
together with all other Indebtedness shall bear interest at the Interest Rate;
provided, however, that during the occurrence of an Event of Default the Loan
will bear interest at the Default Rate.
1.4 PAYMENTS.
(A) MONTHLY PAYMENTS. All funds collected by the Lockbox Agent
from the Financed Notes Receivable shall be paid to Lender at least weekly
pursuant to the Lockbox Agreement, and applied in the following
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order: first to the payment of costs or expenses incurred by Lender in
collecting any amounts due in connection with the Loan; second, to the payment
of accrued and unpaid interest; and thereafter to the reduction of the principal
balance of the Loan. If the funds received by Lender from the Lockbox Agent with
respect to any month are insufficient to pay interest in full, Borrower shall
pay the difference to Lender within five (5) days of written notice from Lender.
Payments received by Borrower directly from any Purchaser shall be delivered to
the Lockbox Agent within two (2) Business Days.
(B) FINAL PAYMENT. The Indebtedness shall be payable in full
on the Maturity Date.
1.5 PREPAYMENTS.
(A) VOLUNTARY PREPAYMENTS. Prepayments of the Loan shall not
(except as set forth in the penultimate sentence of this paragraph) be permitted
during the Revolving Period, but may be made in whole, but not in part, upon
five (5) days prior written notice to Lender at any time after the end of the
Revolving Period upon payment of the applicable Prepayment Premium (whether such
prepayment results from voluntary payments by Borrower, acceleration, or
otherwise); provided, however, that payments or prepayments of Financed Notes
Receivable made by Purchasers shall not violate this Section 1.5(a), and no
Prepayment Premium shall be payable as a result of any such payment.
Notwithstanding the foregoing, in the event of a prepayment of the Loan in whole
or in part, upon a bulk sale by Borrower of Financed Notes Receivable, no
Prepayment Premium shall be payable and Borrower shall, in lieu thereof, pay to
Lender an exit fee of one percent (1%) of the amount of prepayment. Thereafter,
Lender shall return such Notes Receivable to Borrower and, within five (5) days
of Lender's receipt from Borrower of a completed allonge and assignment relating
to such Notes Receivable and the Mortgage securing the same, in forms acceptable
to Lender, Lender shall execute such instruments and return them to Borrower
along with the Notes Receivable.
(B) MANDATORY PREPAYMENTS.
(I) EXCESS OUTSTANDING. If at any time the
outstanding principal balance of the Loan exceeds the Maximum Exposure, Borrower
shall, within five (5) Business Days after notice, either (A) prepay the Loan in
an amount necessary to reduce the principal balance of the Loan, or (B) deliver
to Lender such additional or replacement Eligible Notes Receivable, in either
event such that the remaining outstanding principal balance of the Loan is equal
to or less than the Maximum Exposure.
(II) INELIGIBLE FINANCED NOTE RECEIVABLE. If at any
time after the expiration of the Revolving Period a Financed Note Receivable
ceases to be an Eligible Note Receivable, Borrower shall, within five (5)
Business Days after notice, either (A) prepay the Loan in an amount equal to or
in excess of the applicable percentage of the balance due under such Financed
Note Receivable, or (B) deliver to Lender one (1) or more Eligible Notes
Receivable having an outstanding aggregate principal balance equal to, or
greater than, the outstanding principal balance of such Financed Note
Receivable. Thereafter, Lender shall return such ineligible Note Receivable to
Borrower and, within five (5) days of Lender's receipt from Borrower of a
completed allonge and assignment relating to such Note Receivable and the
Mortgage securing the same, in forms acceptable to Lender, Lender shall execute
such instruments and return them to Borrower along with the ineligible Note
Receivable.
(III) NO PREPAYMENT PREMIUM. No Prepayment Premium
shall be due in connection with any mandatory prepayment made in accordance with
Sections 1.5(b)(i) or (ii) above.
1.6 COMMITMENT FEE. The portion of the Commitment Fee previously paid
by Borrower shall be deemed to have been earned as of the date of such payment.
The unpaid portion of the Commitment Fee, if any, shall be deemed fully earned
as of the date hereof, and Borrower shall pay such portion to Lender by no later
than the date hereof.
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<PAGE> 35
SECTION 2
COLLATERAL
2.1 GRANT OF SECURITY INTEREST. To secure the payment and performance
of the Indebtedness, Borrower does hereby unconditionally and irrevocably
assign, pledge and grant to Lender a first priority continuing security interest
and lien in and to the right, title and interest of Borrower in the following
property of Borrower, whether now owned or existing or hereafter acquired
regardless of where located (collectively, the "COLLATERAL"):
(A) The Financed Notes Receivable;
(B) The Mortgages and Purchase Documents with respect to such
Financed Notes Receivable;
(C) All deposits, accounts, accounts receivable, general
intangibles and other receivables arising under or in connection with the
Pledged Documents, together with all payments, privileges and benefits arising
out of the enforcement thereof, and all funds held in any deposit accounts
related to any of the Financed Notes Receivable;
(D) All policies of title insurance related to the Mortgages;
(E) All documents, instruments, pledged assets and chattel
paper relating to the Pledged Documents and the other properties and rights
described as Collateral herein;
(F) All cash and other monies and property of Borrower in the
possession or under the control of Lender;
(G) All books, records, ledger cards, files, correspondence,
computer tapes, disks and software relating to the Pledged Documents or any
other Collateral described herein;
(H) All management, marketing, servicing, maintenance or other
similar contracts for the Resort; and
(I) All proceeds, extensions, amendments, additions,
improvements, betterments, renewals, substitutions and replacements of the
foregoing.
2.2 UPGRADED NOTES RECEIVABLE. Notwithstanding anything to the contrary
set forth in this Agreement, Borrower may supplement or replace Financed Notes
Receivable with Upgraded Notes Receivable without Lender's prior consent so long
as no Event of Default exists and is continuing. In such event, Borrower shall
give Lender five (5) days notice of its intent to supplement Financed Notes
Receivable with Upgraded Notes Receivable and upon proper delivery and
endorsement of the Upgraded Notes Receivables together with executed Assignment
of Mortgages in connection therewith and the deliveries set forth on SCHEDULE
3.2 attached hereto, upon completion of Lender's customary review and compliance
with funding procedures, Lender shall, within five (5) days of Lender's receipt
from Borrower of a completed allonge and assignment relating to such Financed
Note Receivable and the Mortgage securing the same, in forms acceptable to
Lender, execute such instruments and return them to Borrower along with the
Financed Note Receivable being replaced.
2.3 SECURITY AGREEMENT. This Agreement shall be deemed a security
agreement as defined in the Code, and the remedies for any violation of the
covenants, terms and conditions of the agreements herein contained shall be
cumulative and be as prescribed (a) herein, or (b) by general law, or (c) as to
such part of the Collateral which is also reflected in any filed financing
statement, by the specific provisions of the Code now or hereafter enacted, all
at Lender's sole election.
SECTION 3
3
<PAGE> 36
CONDITIONS PRECEDENT TO ADVANCES
The obligation of Lender to make any and all Advances is subject to
satisfaction of all of the conditions set forth below.
3.1 CLOSING DELIVERIES. Lender shall have received, in form and
substance satisfactory to Lender, all documents, instruments and information
identified on the Closing Checklist delivered by Lender to Borrower, a copy of
which indicating the status of items as of the date hereof is attached hereto as
SCHEDULE 3.1. Borrower acknowledges that the Closing Checklist is subject to
modification based upon Lender's customary review of documents (including,
without limitation, Compliance Documents and Purchase Documents) to be delivered
by Borrower subsequent to the date hereof and agrees that Lender's obligation to
make Advances is subject to its receipt of all additional satisfactory
documentation as Lender may reasonably request based upon its review of
documentation on the Closing Checklist to be provided by Borrower after the date
hereof; provided that any additional documentation requested by Lender shall be
referenced, contemplated or reasonably related to those documents set forth on
the Closing Checklist. In addition to the foregoing, as an additional condition
precedent to the initial Advance hereunder, Borrower shall cause the delivery of
a legal opinion, issued by counsel acceptable to Lender, substantially in the
form attached hereto as EXHIBIT 3.3.
3.2 DELIVERIES PRIOR TO EACH ADVANCE. Prior to each Advance, Lender
shall have received all documents, instruments and information identified on
SCHEDULE 3.2. Requests for Advance shall be made at least five (5) Business Days
prior to the requested date of disbursement and shall be in the form of EXHIBIT
C hereto.
3.3 SECURITY INTERESTS. Lender shall have received satisfactory
evidence that all security interests and liens granted to Lender pursuant to
this Agreement or the other Loan Documents have been duly perfected and
constitute first priority liens on the Collateral.
3.4 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of the date of funding of the Advance except
for any representation or warranty limited by its terms to a specific date and
taking into account any amendments to the Schedules or Exhibits as a result of
any disclosures made by Borrower to Lender after the date hereof and approved by
Lender.
3.5 NO DEFAULT. No Event of Default shall have occurred.
3.6 PERFORMANCE OF AGREEMENTS. Borrower shall have performed in all
material respects all agreements (including, without limitation, those relating
to the Acquisition and Renovation Loan), paid all fees, costs and expenses and
satisfied all conditions which any Loan Document provides shall be paid or
performed by it as of such date.
3.7 GOVERNMENTAL APPROVALS. Borrower shall have obtained all approvals,
licenses, permits and consents for Borrower's operation of that portion of the
Resort then open and sale of Intervals financed with Financed Notes Receivable
pledged as Collateral for the Loan.
SECTION 4
GENERAL REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows, which
representations and warranties shall remain true throughout the term of the
Loan:
4.1 EXISTENCE. Borrower is a corporation duly formed, validly existing
and in good standing under the laws of the State of Nevada with its principal
place of business at 4310 Paradise Road, Las Vegas, Nevada 89109. Borrower is in
good standing under the laws of the State of Nevada and is authorized to
transact business in the State of
4
<PAGE> 37
Colorado. In the event Borrower moves its principal place of business, Borrower
shall provide Lender with at least thirty (30) days prior notice and thereafter
shall prior to such relocation provide Lender at Borrower's expense with such
modified Loan Documents or additions thereto as may be required by Lender to
continue Lender's perfected interests hereunder.
4.2 AUTHORIZATION AND ENFORCEABILITY.
(A) EXECUTION. The Loan Documents have been duly authorized,
executed and delivered and constitute the duly authorized, valid and legally
binding obligations of Borrower, enforceable against Borrower and the other
parties signatory thereto (other than Lender) in accordance with their
respective terms, subject only to such limitations as may be imposed by
bankruptcy and insolvency laws and general equitable principles.
(B) OTHER AGREEMENTS. The execution, delivery and compliance
with the terms and provisions of the Loan Documents will not (i) to the best of
Borrower's knowledge, violate any provisions of law or any applicable
regulation, order or other decree of any court or governmental entity, or (ii)
conflict or be inconsistent with, or result in any default under, any material
contract, agreement or commitment to which Borrower is bound.
4.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. Borrower's and
Guarantor's financial statements provided to Lender fairly present the
respective financial conditions and (if applicable) results of operations of
Borrower and Guarantor as of the date or dates thereof and for the periods
covered thereby. All such financial statements, other than those prepared on
behalf of a natural person, if any, were prepared in accordance with GAAP except
that quarterly statements are subject to year-end adjustments and may not
contain footnotes. Except for any such changes heretofore expressly disclosed in
writing to Lender, there has been no material adverse change in the respective
financial conditions of Borrower or Guarantor from the financial conditions
shown in their respective financial statements. Borrower is able to pay all of
its debts as they become due, and Borrower shall maintain such solvent financial
condition, giving effect to all obligations, absolute and contingent, of
Borrower. Borrower's obligations under this Agreement and under the Loan
Documents will not render Borrower unable to pay its debts as they become due.
The present fair market value of Borrower's assets is greater than the amount
required to pay its total liabilities.
4.4 TAXES. Except for ad valorem taxes for 1996, all ad valorem taxes
and other taxes and assessments against the Resort and the Collateral have been
paid and Borrower knows of no basis for any additional taxes or assessments
against the Resort or the Collateral. Borrower has filed all required tax
returns and has paid all taxes shown to be due and payable on such returns,
including interest and penalties, and all other taxes which are payable by it,
to the extent the same have become due and payable. Borrower shall collect and
pay any applicable sales or rental tax respecting the sale or rental of any
Intervals.
4.5 LITIGATION AND PROCEEDINGS. Except as set forth on SCHEDULE 4.5,
there are no actions, suits, proceedings, orders or injunctions pending or, to
the best of Borrower's knowledge, threatened against or affecting Borrower or
Guarantor, at law or in equity, or before or by any governmental authority,
which could have a material adverse effect on Borrower or Guarantor or relate to
the Loan or the Resort. Borrower has received no notice from any court or
governmental authority alleging that Borrower has violated the Timeshare Act,
any of the rules or regulations thereunder, or any other applicable laws.
4.6 LICENSES AND PERMITS. Borrower possesses all requisite franchises,
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
business as now being conducted.
4.7 FULL DISCLOSURE. No information, exhibit or written report
furnished by or on behalf of Borrower to Lender in connection with the Loan
contains any material misstatement of fact or omits any material fact necessary
to make the statement contained therein not misleading. Borrower knows of no
legal or contractual restriction which will prevent it from offering or selling
Intervals to Purchasers in any state where it is selling Intervals.
5
<PAGE> 38
4.8 EMPLOYEE BENEFIT PLANS. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act, the Internal Revenue Code and all other applicable laws and the
regulations and interpretations thereof with respect to all employee benefit
plans adopted by Borrower for the benefit of its employees. No material
liability has been incurred by Borrower which remains unsatisfied for any
funding obligation, taxes or penalties with respect to any such employee benefit
plans.
4.9 REPRESENTATIONS AS TO THE RESORT.
(A) TITLE; PRIOR LIENS. Borrower has good and marketable title
to the Resort (excluding sold Intervals). Borrower is not in default under any
of the documents evidencing or securing any indebtedness which is secured,
wholly or in part, by the Resort, and no event has occurred which with the
giving of notice, the passage of time or both, would constitute a default under
any of the documents evidencing or securing any such indebtedness. There are no
liens or encumbrances against the Resort other than the Permitted Exceptions.
(B) ACCESS. The Resort has direct legal and physical access to
a publicly dedicated road and all roadways, if any, inside the Resort are or
will be as of the first Advance common areas under the Declaration.
(C) UTILITIES. Electric, gas, sewer, water facilities and
other necessary utilities are lawfully available in sufficient capacity to
service the Resort and any easements necessary to the furnishing of such utility
service have been obtained and duly recorded.
(D) AMENITIES. All amenities described or to be described in
the Public Offering Statement and the Public Reports for the Resort are or will
be completed prior to the first Advance, or a bond insuring their completion has
been posted. Such amenities include those listed in EXHIBIT D attached hereto.
Each Purchaser of an Interval has access to and the use of all of the amenities
and public utilities of the Resort as and to the extent provided in the
Declaration and the Public Reports.
(E) CONSTRUCTION. All costs arising from the construction or
renovation of any Improvements and the purchase of any equipment, inventory, or
furnishings located in or on the Units for which Financed Notes Receivable are
given have been paid.
4.10 ZONING AND BUILDING LAWS. Renovation of each wing of the building
in which Units are being sold will have been completed and will comply in all
material respects with all building codes, health codes, zoning laws,
environmental laws and all other laws and regulations relating thereto. All
inspections and certificates required to be made or issued as a precondition to
the use of occupancy of such Units have been made or issued by the appropriate
authorities, and the use and occupancy of each of such Units for its intended
purposes is lawful under all applicable laws, rules and regulations.
4.11 COLLATERAL.
(A) TITLE. Borrower has good and marketable title to the
Collateral, free and clear of any lien, security interest, charge or encumbrance
except for (I) the security interest created by this Agreement or otherwise
created in favor of Lender, and (II) the Permitted Exceptions. No financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed in favor of Lender. Borrower shall defend Lender against and save it
harmless from all claims of any Persons other than Lender with respect to the
Collateral, and this indemnity shall include all reasonable attorneys' fees and
legal expenses.
(B) NO MODIFICATION. There have been no modifications or
amendments to the Pledged Documents. Borrower shall not grant extensions of time
for the payment of, compromise for less than the full face value, release in
whole or in part any Purchaser liable for the payment of, or allow any credit
whatsoever except for the amount of cash to be paid upon, any Collateral or any
instrument or document representing the Collateral.
(C) BINDING OBLIGATIONS. On the date of the assignment and
delivery to Lender, each Financed
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Note Receivable and Upgraded Note Receivable constitutes an Eligible Note
Receivable and Borrower is not aware of any facts or information which would
cause such Financed Note Receivable to be ineligible hereunder.
SECTION 5
AFFIRMATIVE COVENANTS
So long as any portion of the Indebtedness remains unpaid,
Borrower covenants as follows:
5.1 PAYMENT AND PERFORMANCE OF INDEBTEDNESS. Borrower shall pay and
promptly perform all of the obligations hereunder and under the Loan Documents.
5.2 MAINTENANCE OF INSURANCE.
(A) POLICIES. The Resort shall at all times and for so long as
any Indebtedness remains outstanding be kept insured with such general liability
coverage and such other coverages acceptable to Lender, by carrier(s), in
amounts and in form at all times satisfactory to Lender, which carrier(s),
amounts and form shall not be changed without the prior written consent of
Lender. All required insurance may be maintained by the owners' association as
required by the Declaration provided that in the event such owners' association
fails to maintain any insurance required under this Section 5.2(a), then
Borrower shall be required to obtain and maintain such insurance.
(B) PROOFS OF CLAIM. In case of loss or damage or other
casualty, Borrower shall give immediate written notice thereof to the insurance
carrier(s) and to Lender. Lender is authorized and empowered, and Borrower
hereby irrevocably appoints Lender as its attorney-in-fact (such appointment is
coupled with an interest), at Lender's option, to make or file proofs of loss or
damage and to settle and adjust any claim under insurance policies which insure
against such risks, or to direct Borrower, in writing, to agree with the
insurance carrier(s) on the amount to be paid in regard to such loss.
(C) LOSS OR CASUALTY. Provided no Event of Default then exists
and Borrower certifies as to same, the net insurance proceeds shall be made
available for the restoration or repair of the Resort if (I) in Lender's
reasonable judgment: (A) restoration or repair and the continued operation of
the Resort is economically feasible; (B) the value of Lender's security is not
reduced; and (C) the casualty loss does not exceed the net insurance proceeds
available for restoration or Borrower or the Association (as defined in the
Declaration) provides a deposit in the amount of such excess or other evidence
satisfactory to Lender the Borrower or the Association has the funds available
to pay any excess costs of restoration; (D) the loss does not occur in the six
(6) month period preceding the Maturity Date and (E) Lender's independent
consultant certifies that the restoration of the Property can be completed at
least ninety (90) days prior to the Maturity Date. Borrower shall pay or cause
to be paid 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 shall be applied to the Loan in
such order and manner as Lender may elect, whether or not due and payable, with
any excess paid to Borrower.
Anything to the contrary herein notwithstanding, for so long
as any part of the Resort is subject to the Declaration, any and all insurance
proceeds arising from any damage or destruction to the Resort and any and all
awards and payments with respect to condemnation or conveyances in lieu thereof
received by Lender shall be delivered
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and paid out by Lender to the insurance trustee under the Declaration, to be
distributed and used in accordance with the provisions of the Declaration.
5.3 CONDEMNATION. The proceeds of any award, payment or claim for
damages, direct or consequential, in connection with any condemnation or other
taking of any Unit or Interval which is the subject of a Financed Note
Receivable or part thereof, 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. Lender may, in its sole
discretion, elect to make such proceeds available for repair or restoration of
the Resort in the same manner and upon the same conditions as set forth above
for net insurance proceeds or apply the net proceeds of any such condemnation
award (after deduction of Lender's reasonable costs and expenses, if any, in
collecting the same) in reduction of the Indebtedness in such order and manner
as Lender may elect, whether due or not. Anything to the contrary herein
notwithstanding, for so long as any part of the Resort is subject to the
Declaration, any and all insurance proceeds arising from any damage or
destruction to the Resort 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,
to be distributed and used in accordance with the provisions of the Declaration.
5.4 INSPECTIONS AND AUDITS. Borrower shall, at such reasonable times
during normal business hours and as often as may be reasonably requested, permit
any agents or representatives of Lender to inspect the Resort and any of
Borrower's assets (including financial and accounting books and records), to
examine and make copies of and abstracts from the records and books of account
of Borrower or, to the extent permitted by law, the timeshare unit owner's
association or servicer under the Servicing Agreement and to discuss its
affairs, finances and accounts with any of its officers, employees or
independent public accountants. Borrower acknowledges that Lender intends to
conduct such audits and inspections on at least an annual basis. Borrower shall
make available to Lender all credit information in Borrower's possession or
under Borrower's control with respect to Purchasers as Lender may request.
Property inspections shall be at Lender's expense, but all audits and credit
investigations shall be at Borrower's expense; provided, however, that except
with respect to any audits conducted after an Event of Default hereunder,
Borrower shall not be required to pay in excess of $3,000 in any calendar year
for audits performed during such year.
5.5 REPORTING REQUIREMENTS. So long as the Indebtedness remains unpaid,
Borrower shall furnish the following to Lender:
(A) MONTHLY REPORTS. To the extent not provided to Lender pursuant to
the requirements of the Lockbox Agreement, within fifteen (15) days after the
end of each calendar month, reports showing through the end of the preceding
month, (I) the following information with respect to each Financed Note
Receivable: (A) the opening and closing balances, (B) all payments received
allocated to interest, principal, late charges, taxes or the like, (C) the rate
of interest, (D) an itemization of delinquencies, extensions, refinances,
prepayments, upgrades, payoffs, cancellations and other adjustments, (E) the
remaining term, and (F) the nature and status of any claims asserted or legal
action pending with respect thereto; and (II) the weighted average interest rate
and the average remaining term of all Financed Notes Receivable.
(B) SALES AND INVENTORY REPORTS. Within fifteen (15) days after the end
of each quarter, a quarterly report showing all sales and cancellations of sales
of Intervals, in form and content satisfactory to Lender; and within thirty (30)
days after the end of each fiscal year, an annual sales and inventory report for
the Resort detailing the sales of all Intervals during such Fiscal Year and the
available inventory of Units and Intervals, certified by Borrower to be true,
correct and complete and otherwise in the form approved by Lender.
(C) QUARTERLY FINANCIAL REPORTS. Within sixty (60) days after the end
of each fiscal quarterly period, unaudited financial statements of Borrower and
Guarantor certified by the chief financial officer of the subject thereof.
(D) YEAR-END FINANCIAL REPORTS. As soon as available and in any event
within one hundred and twenty (120) days after the end of each fiscal year: (I)
the balance sheet of Borrower and Guarantor as of the end of such year and the
related statements of income and cash flow for such fiscal year; (II) a schedule
of all outstanding indebtedness
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of Borrower and Guarantor describing in reasonable detail each such debt or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt or loan; and (III) with respect to the financial
statements of Borrower and Guarantor, copies of reports from a firm of
independent certified public accountants selected by Borrower, which report
shall be unqualified as to going concern and scope of audit and shall state that
such financial statements present fairly the financial position of Borrower and
Guarantor as of the dates indicated and the results of its operations and cash
flow for the periods indicated in conformity with GAAP.
(E) AUDIT REPORTS. Promptly upon receipt thereof, one (1) copy
of each other report submitted to Borrower by independent public accountants in
connection with any annual, interim or special audit made by them of the books
of Borrower;
(F) OTHER REPORTS. Such other reports, statements, notices or
written communications relating to the Borrower, Guarantor or the Resort as
Lender may require, in its reasonably discretion.
(G) SEC REPORTS. Promptly upon their becoming available one
(1) copy of each financial statement, report, notice or proxy statement sent by
Borrower or Guarantor to security holders generally, and of each regular or
periodic report and any registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof filed by
Borrower with, or received by Borrower in connection therewith from, any
securities exchange or the Securities and Exchange Commission or any successor
agency.
5.6 RECORDS. Borrower shall keep adequate records and books of account
reflecting all financial transactions of Borrower, including sales of Intervals.
5.7 MANAGEMENT. The manager and the management contracts for the
Resort shall at all times be satisfactory to Lender. Lender hereby approves
Borrower as the manager of the Resort. For so long as Borrower controls the
owners' association for the Resort, unless required by law, Borrower shall not
change the Resort manager or amend, modify or waive any provision of or
terminate the management contract for the Resort without the prior written
consent of Lender, which consent shall not be unreasonably withheld. Lender
shall approve or reject any such request in writing within thirty (30) days of
receipt of written request from Borrower. Any failure of Lender to disapprove a
request received from Borrower in accordance with the preceding sentence within
the aforesaid thirty (30) day period shall be deemed to be Lender's approval of
Borrower's request.
5.8 NET WORTH. Borrower agrees to maintain a minimum net worth,
determined in accordance with GAAP, of SEVENTEEN MILLION and NO/100 DOLLARS
($17,000,000.00) at all times Indebtedness is outstanding or Lender is obligated
to make Advances without taking into consideration any sums due Borrower from
Guarantor.
5.9 MAINTENANCE. Borrower shall maintain the Resort in good repair,
working order and condition and shall make or cause to be made all necessary
replacements to the Resort.
5.10 PROCEEDS. Immediately upon Borrower's receipt of proceeds from the
sale of any of the Collateral, Borrower shall deliver such proceeds to Lender in
their original form and, pending delivery to Lender, Borrower will hold such
proceeds as agent for Lender and in trust for Lender.
5.11 RELEASE AND BONDING OF LIENS. In the event any lien attaches to
any Collateral relating to any payment obligation(s) of Borrower, individually
or in the aggregate in excess of $50,000.00, Borrower shall, within fifteen (15)
days after such attachment, either (A) cause such lien to be released of record
or (B) provide Lender with a bond in accordance with the applicable laws of the
state in which the Resort is located, issued by a corporate surety acceptable to
Lender, in an amount acceptable to Lender and in form acceptable to Lender or
(C) provide Lender with such other security as Lender may reasonably require.
Notwithstanding anything to the contrary contained herein, Borrower (A) may
contest the validity or amount of any claim, (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 any 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
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shall otherwise comply with the requirements of this paragraph, and provided
further, Borrower shall pay any amount adjudged by a court of competent
jurisdiction (including appellate courts) to be due, with all cost, interest and
penalties thereon, before such judgment becomes a lien on the Collateral.
5.12 CLAIMS. Borrower shall promptly notify Lender of any claim, action
or proceeding affecting the Collateral, or any part thereof, or any of the
security interests granted hereunder, and, at the request of Lender, appear in
and defend, at Borrower's expense with counsel selected by Borrower subject to
Lender's approval, any such claim, action or proceeding.
5.13 USE OF LENDER NAME. Borrower will not, and will not permit any
Affiliate to, without the prior written consent of Lender, use the name of
Lender or the name of any affiliates of Lender in connection with any of their
respective businesses or activities, except in connection with internal business
matters, administration of the Loan and as required in dealings with
governmental agencies.
5.14 OTHER DOCUMENTS. Borrower will maintain accurate and complete
files relating to the Financed Notes Receivable and other Collateral to the
satisfaction of Lender, and such files will contain copies of each Financed Note
Receivable together with the purchase agreements, truth-in-lending statements,
all relevant credit memoranda, if any, and all collection information and
correspondence relating to such Financed Notes Receivable.
5.15 SUBORDINATED OBLIGATIONS. Set forth on SCHEDULE 5.15 is a
description of all Borrower's debts, liabilities and obligations to Affiliates
as of the date shown thereon, except for salaries and similar compensation to
employees of Borrower and its Affiliates. During 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
and excluding salaries and similar compensation payable to employees of Borrower
and its Affiliates in the ordinary course of business), which payments shall be
and are hereby made subordinate to the payment of principal of, and interest on,
the Note, 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 Collateral.
5.16 LOAN SERVICING. Lender hereby acknowledges that Borrower shall be
the Servicer. The Servicing Agreement shall be satisfactory to Lender in its
sole discretion. Borrower may not amend or terminate the Servicing Agreement
without Lender's prior approval, and Borrower agrees not to take any action that
would be inconsistent in any way with the terms of the Servicing Agreement. The
Servicing Agreement shall be cancelable by Lender upon the occurrence of any
default under the Loan Documents. If the Servicer is Borrower or an Affiliate,
no servicing fees shall be paid if a default under any Loan Document has
occurred and is continuing. All servicing fees, and the costs and expenses of
the servicing agent, shall be paid by Borrower.
5.17 CUSTODIAN. Lender shall have the right at any time to utilize
Custodian to maintain custody of the Collateral. Borrower agrees not to
interfere with Custodian's performance of its duties under the Custodial
Agreement or to take any action that would be inconsistent in any way with the
terms of the Custodial Agreement. All custodial fees, and the costs and expenses
of the Custodian, shall be paid by Borrower.
5.18 TIMESHARE INTERVAL EXCHANGE NETWORK. Borrower shall at all times
from and after the initial Advance, be a member and participant, pursuant to a
validly executed and enforceable agreement in writing, in Resort Condominium
International ("RCI") or Interval International ("II") and the Resort shall, at
the time of the initial Advance either be designated a Gold Crown Resort by RCI
or have a comparable designation from II. Borrower shall pay or cause to be paid
all fees and other amounts due and owing under such agreement and not otherwise
be in default thereunder.
5.19 COMPLIANCE WITH LAWS. The Borrower, and each of the Units in which
Intervals are being sold, shall comply with, conform to and obey each and every
judgment, law, statute, rule and governmental regulation applicable to it and
each indenture, order, instrument, agreement or document to which it is a party
or by which it is bound, the non-compliance with or violation of which could
have a material adverse effect upon the Resort or any portion thereof,
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including, without limitation, each of the Units.
5.20 ENVIRONMENTAL LAWS. The Borrower shall conduct its business, and
the Resort shall be operated in compliance with all environmental laws
applicable to it, including, without limitation, those relating to the
generation, handling, use, storage and disposal of hazardous substance and
hazardous waste. The Borrower shall take prompt and appropriate action to
respond to any non-compliance with environmental laws and shall regularly report
to Lender, any such non-compliance. Without limiting the generality of the
foregoing, Borrower shall immediately after receipt of any notice of any
violation of any environmental law which affects the Resort, or any portion of
the Resort, give immediate written notice to Lender of such occurrence.
SECTION 6
NEGATIVE COVENANTS
So long as any portion of the Indebtedness remains unpaid or Lender is
committed to lend hereunder, unless Lender otherwise consents in writing,
Borrower hereby covenants and agrees with Lender as follows:
6.1 CONSOLIDATION AND MERGER. Borrower will not consolidate with or
merge into any other Person or permit any other Person to consolidate with or
merge into it.
6.2 RESTRICTIONS ON TRANSFERS. Borrower shall not, without obtaining
the prior written consent of Lender, which may be granted or withheld in
Lender's sole discretion, (A) transfer, sell, pledge, convey, assign or encumber
all or any portion of the Resort or the Collateral or contract to do any of the
foregoing (including options to purchase and so called "installment sales
contracts"), except for Permitted Exceptions, sales of Intervals to Purchasers
in arms-length transactions, transfers of personal property no longer necessary
for the operation of the Resort and transfers of personal property promptly
replaced with the acquisition of personal property of equivalent value; or (B)
permit any sale, assignment, encumbrance, dilution or other disposition of any
ownership interests in Borrower (including any right to receive profits, losses
or cash flow related to the Resort) that would cause Guarantor to either (I) own
less than less than a fifty-one percent (51%) interest in Borrower, or (II)
cease to have a controlling interest in Borrower; provided, however, subject to
the restrictions set forth in the Exclusive Financing Agreement between Borrower
and Lender of even date herewith, this Section shall not prohibit the sale or
hypothecation of Note Receivables generated from Intervals released by Lender as
Collateral for the Loan in accordance with this Agreement or released pursuant
to the Acquisition and Renovation Loan Agreement. 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 Note to be immediately due and payable, and Lender
may invoke any remedies permitted by the Loan Documents. Intestate transfers or
transfers by devise shall not constitute a transfer for the purposes of the
foregoing provisions.
Notwithstanding the limitations set forth in this Section 6.2
Borrower shall be permitted to lease a portion of the Resort to third parties
for operation of a restaurant, bar or other commercial activities. The terms of
said lease shall be subject to the prior written consent of the Lender. Failure
of Lender to object to the terms of said Lease or leases within twenty (20) days
of receipt shall be deemed written consent of such lease.
6.3 TIMESHARE REGIMEN. Without Lender's prior written consent (which
shall be granted or not within thirty (30) days of receipt of Borrower's written
request therefore), Borrower shall not amend, modify or terminate the
Declaration or the covenants, conditions, easements or restrictions against the
Resort (or any portion thereof), except that if any amendment or modification is
required either (A) to cause additional Units and Intervals to be annexed into
the timeshare regimen of the Resort, or (B) by law, Borrower shall implement the
same and give prompt written notice thereof to Lender. Lender's failure to
expressly deny its consent to a request duly made by Borrower pursuant to this
Section within the aforesaid thirty (30) day period shall be deemed to be
Lender's consent to Borrower's request.
6.4 COLLATERAL. Borrower shall not take any action (nor permit or
consent to the taking of any action) which might reasonably be anticipated to
impair the value of the Collateral or any of the rights of Lender in the
Collateral.
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6.5 NO SALES OUTSIDE OF CERTAIN STATES. Borrower may register the
property in, market and sell Intervals in the states of Florida, Nevada,
California, Colorado, Illinois and Texas. Prior to taking any such actions,
Borrower shall deliver to Lender the applicable Compliance Documents.
6.6 CONTRACTS. Borrower shall not materially amend, modify or assign to
any other party any management, marketing or servicing contract for the Resort.
6.7 RESTRICTED TRANSFER AND ENCUMBRANCE OF UNITS AND INTERVALS. Except
for the sale of a Unit or Interval to a Purchaser and the related Mortgage for
such Interval, and the encumbrance of such Unit or Interval as security for the
Loan or the Acquisition and Renovation Loan, Borrower shall not otherwise
assign, convey, transfer or cause to be encumbered any interest in any Unit or
Interval. All easements, declarations of covenants, conditions and restrictions
and private and public dedications affecting such unsold Units and Intervals
shall be submitted by Borrower to Lender for its approval (which shall be
granted or not within thirty (30) days of receipt of Borrower's written request
therefor) and such approval must be obtained prior to the execution or granting
of any of the foregoing by Borrower. Lender's failure to expressly deny its
consent to a request duly made by Borrower pursuant to this Section within the
aforesaid thirty (30) day period shall be deemed to be Lender's consent to
Borrower's request. The sale or pledge of a Note Receivables is not deemed to be
a transfer or encumbrance of an interest in a Unit or any Interval. Nothing
herein shall be construed to release Borrower from its obligations under the
Exclusive Financing Agreement.
SECTION 7
EVENTS OF DEFAULT
An "Event of Default" shall exist if any of the following shall occur:
7.1 PAYMENTS. Borrower shall fail to make any payment of the
Indebtedness within five (5) days of the date such payment is due.
7.2 FAILURE TO PERMIT INSPECTIONS. Borrower shall fail to strictly
comply with the provisions of Section 5.4 of this Agreement.
7.3 COVENANT DEFAULTS. Borrower shall fail to perform or observe any
covenant, agreement or obligation contained in this Agreement or in any of the
Loan Documents or in any documents executed and delivered in connection with the
Acquisition and Renovation Loan (other than any covenant or agreement obligating
Borrower to pay the Indebtedness), and such failure shall continue for thirty
(30) days after Lender delivers written notice thereof to Borrower, provided,
however, if the failure is incapable of cure within such thirty (30) day period
and Borrower shall be diligently pursuing a cure, such thirty (30) day cure
period shall be extended by an additional period not to exceed ninety (90) days.
7.4 WARRANTIES OR REPRESENTATIONS. Any representation or other
statement made by or on behalf of Borrower in this Agreement, in any of the Loan
Documents or in any documents executed and delivered in connection with the
Acquisition and Renovation Loan, or in any instrument furnished in compliance
with or in reference to the Loan Documents, shall be false, misleading or
incorrect in any material respect as of the date made.
7.5 BANKRUPTCY. A petition under any Chapter of Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
Guarantor (and in the case of an involuntary petition in bankruptcy, such
petition is not discharged within sixty (60) days of its filing), or a
custodian, receiver or trustee for any of the Resort then owned by Borrower is
appointed, or Borrower, or Guarantor makes an assignment for the benefit of
creditors, or either of them are adjudged insolvent by any state or federal
court of competent jurisdiction, or either of them admit their insolvency or
inability to pay their debts as they become due.
7.6 ATTACHMENT, JUDGMENT, TAX LIENS. The issuance, filing or levy
against Borrower or Guarantor of one or more attachments, injunctions,
executions, tax liens or judgments for the payment of money cumulatively in
excess
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of $50,000, which is not discharged in full or stayed within thirty (30)
days after issuance or filing.
7.7 DEFAULT BY BORROWER IN OTHER AGREEMENTS. Any default by Borrower in
the payment of indebtedness for borrowed money (individually or in the aggregate
in excess of $50,000.00) after the expiration of any applicable grace or cure
period, other than a default under the Acquisition and Renovation Loan as to
which there shall be no minimum dollar amount; any other default under such
indebtedness which accelerates or permits the acceleration of the maturity of
such indebtedness; or any default which permits the holders of such indebtedness
to elect a majority of the Board of Directors of Borrower.
7.8 SUSPENSION OF SALES. The issuance of any stay order, cease and
desist order or similar judicial or nonjudicial sanction that materially
adversely limits or otherwise materially adversely affects any Interval sales
activities, and, with respect to any such sanction only, such sanction is not
dismissed, terminated or rescinded within sixty (60) days after issuance.
SECTION 8
REMEDIES
8.1 REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
Lender may take any one or more of the following actions, all without notice to
Borrower:
(A) ACCELERATION. Declare the unpaid balance of the
Indebtedness, or any part thereof, immediately due and payable, whereupon the
same shall be due and payable.
(B) TERMINATION OF OBLIGATION TO ADVANCE. Terminate any
commitment of Lender to lend under this Agreement in its entirety, or any
portion of any such commitment, to the extent Lender shall deem appropriate.
(C) JUDGMENT. Reduce Lender's claim to judgment, foreclose or
otherwise enforce Lender's security interest in all or any part of the
Collateral by any available judicial procedure.
(D) SALE OF COLLATERAL. Exercise all the rights and remedies
of a secured party on default under the Code (whether or not the Code applies to
the affected Collateral) including (I) require Borrower to, and Borrower hereby
agrees that it will, at its expense and upon request of Lender forthwith,
assemble all or part of the Collateral (other than Collateral held by the
Custodian pursuant to the Custodial Agreement) as directed by Lender and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties; (II) enter upon any premises of Borrower and take
possession of the Collateral; and (III) sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any of the Lender's offices
or elsewhere, at such time or times, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Lender may deem
commercially reasonable. Borrower agrees that, to the extent notice of sale
shall be required by law, ten (10) days notice of the time and place of any sale
shall constitute reasonable notification. At any sale of the Collateral, if
permitted by law, Lender may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Lender. Borrower shall remain liable for any
deficiency. Lender shall not be required to proceed against any Collateral but
may proceed against Borrower directly. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted.
(E) RECEIVER. Apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part thereof, and Borrower
hereby consents to any such appointment.
(F) EXERCISE OF OTHER RIGHTS. Exercise any and all other
rights or remedies afforded by any applicable laws or by the Loan Documents as
Lender shall deem appropriate, at law, in equity or otherwise, including the
right to bring suit or other proceeding, either for specific performance of any
covenant or condition contained in the
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Loan Documents or in aid of the exercise of any right or remedy granted to
Lender in the Loan Documents.
8.2 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the
occurrence of an Event of Default, Lender may apply against the Indebtedness any
and all Collateral in its possession, any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to Borrower held
by Lender hereunder or under any other financing agreement or otherwise, whether
accrued or not.
8.3 WAIVERS. No waiver by Lender of any Event of Default shall be
deemed to be a waiver of any other or subsequent Event of Default. No delay or
omission by Lender in exercising any right or remedy under the Loan Documents
shall impair such right or remedy or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such right
or remedy preclude other or further exercise thereof, or the exercise of any
other right or remedy under the Loan Documents or otherwise. Further, Borrower
and Guarantor severally waive notice of the occurrence of any Event of Default,
presentment and demand for payment, protest, and notice of protest, notice of
intention to accelerate, acceleration and nonpayment, and agree that their
liability shall not be affected by any renewal or extension in the time of
payment of the Indebtedness, or by any release or change in any security for the
payment or performance of the Indebtedness, regardless of the number of such
renewals, extensions, releases or changes. Borrower also hereby waives the right
to assert any statute of limitations as a bar to the enforcement of the lien
created by any of the Loan Documents or to any action brought to enforce the
Note or any other obligation secured by the Loan Documents.
8.4 CUMULATIVE RIGHTS. All rights and remedies available to Lender
under the Loan Documents shall be cumulative and in addition to all other rights
and remedies granted to Lender at law or in equity, whether or not the
Indebtedness is due and payable and whether or not Lender shall have instituted
any suit for collection or other action in connection with the Loan Documents.
SECTION 9
CERTAIN RIGHTS OF LENDER
9.1 PROTECTION OF COLLATERAL. Lender may at any time and from time to
time take such actions as Lender deems necessary or appropriate to protect
Lender's liens and security interests in and to preserve the Collateral.
Borrower agrees to cooperate fully with all of Lender's efforts to preserve the
Collateral and Lender's liens and security interests therein.
9.2 PERFORMANCE BY LENDER. If Borrower fails to perform any agreement
contained herein, Lender may after five (5) days notice to Borrower (except if
Lender must take emergency steps to protect the Collateral), but shall not be
obligated to, cause the performance of, such agreement, and the expenses of
Lender incurred in connection therewith shall be payable by Borrower pursuant to
Section 9.3 below.
9.3 FEES AND EXPENSES. Borrower agrees to promptly pay all reasonable
Costs and all such Costs shall be included as additional Indebtedness bearing
interest at the then applicable Interest Rate under the Note including the
Default Rate if applicable until paid.
9.4 ASSIGNMENT OF LENDER'S INTEREST. Lender shall have the right to
assign all or any portion of its rights in this Agreement to any subsequent
holder or holders of the Indebtedness. Lender shall give Borrower written notice
of any assignment of its entire rights in this Agreement, but shall have no
obligation to notify Borrower of any partial assignment of its rights under this
Agreement or the sale of any participation interest(s) in the Loan.
9.5 NOTICE TO PURCHASER. Borrower authorizes both Lender and the
Custodian (but neither Lender nor the Custodian shall be obligated) to
communicate at any time and from time to time, whether prior to or after a sale
of an Interval, with any Purchaser or any other Person primarily or secondarily
liable under a Financed Note Receivable with regard to the lien of Lender
thereon and any other matter relating thereto.
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9.6 COLLECTION OF NOTES. Borrower shall direct and authorize each party
liable for the payment of the Financed Notes Receivable to pay each installment
thereon to the Lockbox Agent pursuant to the Lockbox Agreement, until otherwise
instructed by Lender. Following the occurrence of an Event of Default, Lender
shall have the right to (A) require that all payments due under the Financed
Notes Receivable be paid directly to Lender, and to receive, collect, hold and
apply the same in accordance with the provisions of this Agreement, and (B) take
such remedial action available to it for the enforcement of any defaulted
Financed Note Receivable including the foreclosure of any Mortgage securing the
payment thereof. Borrower hereby further irrevocably authorizes, directs and
empowers Lender to collect and receive all checks and drafts evidencing such
payments and to endorse such checks or drafts in the name of Borrower and upon
such endorsements, to collect and receive the money therefor.
Upon payment and satisfaction in full of all Indebtedness, Lender will, at
Borrower's request and sole expense, give written notice as necessary to
redirect payment of the Financed Notes Receivable as requested by Borrower.
9.7 POWER OF ATTORNEY. With respect to the Collateral, Borrower does
hereby irrevocably constitute and appoint Lender as Borrower's true and lawful
agent and attorney-in-fact, with full power of substitution, for Borrower and in
Borrower's name, place and stead, or otherwise, to (A) endorse any checks or
drafts payable to Borrower in the name of Borrower and in favor of Lender as
provided in Section 9.6 above; (B) during the continuance of any Event of
Default, to demand and receive from time to time any and all property, rights,
titles, interests and liens hereby sold, assigned and transferred, or intended
so to be, and to give receipts for same; and (C) upon the occurrence and during
the continuance of any Event of Default hereunder, (I) to institute and
prosecute in the name of Borrower or otherwise, but for the benefit of Lender,
any and all proceedings at law, in equity, or otherwise, that Lender may deem
proper in order to collect, assert or enforce any claim, right or title, of any
kind, in and to the property, rights, titles, interests and liens hereby sold,
assigned or transferred, or intended so to be, and to defend and compromise any
and all actions, suits or proceedings in respect of any of the said property,
rights, titles, interests and liens, and (II) generally to do all and any such
acts and things in relation to the Collateral as Lender shall in good faith deem
advisable. Borrower hereby declares that the appointment made and the powers
granted pursuant to this Section are coupled with an interest and are and shall
be irrevocable by Borrower in any manner, or for any reason, unless and until
all obligations of Borrower to Lender hereunder have been satisfied in
accordance with the provisions of this Agreement.
9.8 INDEMNIFICATION OF LENDER. Except as set forth in Section 9.9
below, Borrower shall indemnify Lender and hold Lender harmless from and against
any and all liabilities, indebtedness, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses, and disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
Lender, in any way relating to or arising out of (A) this Agreement and the Loan
Documents and/or (B) any of the transactions contemplated therein or thereby
(including those in any way relating to or arising out of the violation by
Borrower of any federal or state laws including the Interstate Land Sales Act or
the Timeshare Act), unless caused by Lender's gross negligence or intentional
misconduct. Upon receiving knowledge of any suit, claim or demand asserted by a
third party that Lender believes is covered by this indemnity, and subject to
the condition that no Event of Default under this Agreement shall then exist,
Lender shall give Borrower notice of the matter and an opportunity to defend it,
at Borrower's sole cost and expense, with legal counsel satisfactory to Lender.
Notwithstanding any defense by Borrower of any such suit, claim or demand,
Lender shall have the right to participate in any material decision affecting
the conduct or settlement of any dispute or proceeding for which indemnification
may be claimed.
9.9 ATTORNEYS' FEES. In any action hereunder between Borrower and
Lender the prevailing party shall be entitled to reasonable attorneys' fees and
costs for pretrial, trial and appellate proceedings.
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SECTION 10
MISCELLANEOUS
10.1 NOTICE. 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 such telecopy is obtained and retained by the
sending party and 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.
Notices to Borrower: PREFERRED EQUITIES CORPORATION
Attn: Frederick H. Conte
4310 Paradise Road
Las Vegas, Nevada 89109
Telecopy: (702) 369-8775
With a Copy to: PREFERRED EQUITIES CORPORATION
Attn: Jon Joseph
4310 Paradise Road
Las Vegas, Nevada 89109
Telecopy: (702) 369-8775
Notices to Lender: HELLER FINANCIAL, INC.
Sales Finance Division
Attn: Portfolio Manager,
Loan No. 96-111
500 West Monroe St. 15th Fl.
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. 96-111
500 West Monroe St. 15th Fl.
Chicago, Illinois 60661
Telecopy: (312) 441-7872
10.2 SURVIVAL. All representations, warranties, covenants and
agreements made by Borrower herein, in the other Loan Documents or in any other
agreement, document, instrument or certificate delivered by or on behalf of
Borrower under or pursuant to the Loan Documents shall be considered to have
been relied upon by Lender and shall survive the delivery to Lender of such Loan
Documents and the extension of the Indebtedness (and each part thereof),
regardless of any investigation made by or on behalf of Lender.
10.3 GOVERNING LAW. This Agreement and the other Loan Documents (except
as may be expressly provided therein to the contrary) shall be governed by and
construed in accordance with the laws of the State of Illinois and applicable
laws of the United States.
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10.4 INVALID PROVISIONS. If any provision of this Agreement or any of
the other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect.
10.5 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Lender's receipt of one or more
counterparts hereof signed by Borrower and Lender.
10.6 LENDER NOT FIDUCIARY. The relationship between Borrower and Lender
is solely that of debtor and creditor, and Lender has no fiduciary or other
special relationship with Borrower, and no term or provision of any of the Loan
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
10.7 ENTIRE AGREEMENT. This Agreement, including the Exhibits and other
Loan Documents and agreements referred to herein embody the entire agreement
between the parties hereto, supersedes all prior agreements and understandings
between the parties whether written or oral relating to the subject matter
hereof and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no oral agreements among
Lender, Borrower, or Guarantor or between any two or more of them relating to
this Agreement. This Agreement may be modified or changed only in a writing
executed by both Lender and Borrower.
10.8 VENUE. BORROWER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS 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 CT CORPORATION
SYSTEM, WHOSE ADDRESS IS BORROWER, C/O CT 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 TRANSMITTED TO BORROWER WITHIN THREE (3) BUSINESS
DAYS THEREAFTER IN ACCORDANCE WITH SECTION 10.1 HEREOF EXCEPT IN THE CASE OF
SERVICE OF PROCESS FOR ACTIONS WHEREIN 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 DOCUMENTS IN ACCORDANCE WITH THIS PARAGRAPH.
10.9 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 AGREEMENT AND THE OTHER LOAN DOCUMENTS
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
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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 AGREEMENT AND THE OTHER LOAN DOCUMENTS 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 AGREEMENT AND THE OTHER
LOAN DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
10.10 CONSENT TO ADVERTISING AND PUBLICITY. Borrower hereby consents
that Lender may issue and disseminate to the public information describing the
credit accommodation entered into pursuant to this Agreement.
10.11 HEADINGS. Section headings have been inserted in the Agreement as
a matter of convenience of reference only; such section headings are not a part
of the Agreement and shall not be used in the interpretation of this Agreement.
10.12 BROKER'S FEES. Lender and Borrower represent and warrant to each
other that there are no brokers, finders' or other similar fees or commitments
due with respect to the transactions described in the Agreement. Each party
shall defend, save and hold the other party harmless from all claims of any
Persons for any breach by the indemnifying party of the foregoing representation
and warranty, which indemnity shall include reasonable attorneys' fees and legal
expenses and costs.
The parties hereto have executed this Agreement or have caused the same
to be executed by their duly authorized representatives as of the date first
above written.
BORROWER:
PREFERRED EQUITIES CORPORATION
By: _____________________________
Name: ___________________________
Its: ____________________________
APPROVED BY GUARANTOR:
MEGO FINANCIAL CORP.
By:_______________________________
Name:_____________________________
Its:______________________________
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LENDER:
HELLER FINANCIAL, INC.
By: ____________________________
Name: __________________________
Its: ___________________________
STATE OF NEVADA )
) SS.
COUNTY OF _________________)
I hereby certify that on this _________ day of , 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 Interval Receivables Loan and Security
Agreement dated __________, 1996, 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:________________________
STATE OF NEVADA )
) SS.
COUNTY OF _________________)
I hereby certify that on this _________ day of , 1996, before me, an
officer duly authorized in the State aforesaid and in the County aforesaid to
take acknowledgements, personally appeared _______________________, as
__________________________ of Mego Financial Corp. to me known to be the person
who executed the attached Interval Receivables Loan and Security Agreement dated
__________, 1996, 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:________________________
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<PAGE> 52
STATE OF )
) SS.
COUNTY OF _________________)
I hereby certify that on this _________ day of __________, 1996, before
me, an officer duly authorized in the State aforesaid and in the County
aforesaid to take acknowledgements, personally appeared _______________________,
as __________________________ of Heller Financial, Inc., to me known to be the
person who executed the attached Interval Receivables Loan and Security
Agreement dated __________, 1996, 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
My Commission Expires:____________________
Commission Number:________________________
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<PAGE> 53
APPENDIX
DEFINED TERMS
The following terms used in this Agreement shall have the following
meanings:
ACQUISITION AND RENOVATION LOAN. A loan by Lender to Borrower in the
original principal amount of $2,925,000.00 and made by Lender to finance a
portion of the purchase price of the Resort (the "Acquisition Loan") and a loan
by Lender to Borrower in the aggregate principal amount of up to but not
exceeding $3,000,000.00, and made by Lender to finance the upgrade,
refurbishment, furnishing and renovation of the Resort and the Units (the
"Renovation Loan") for a total loan amount of $5,925,000.00. Both of said loans
are secured by a single deed of trust on the Resort. The Acquisition and
Renovation Loan is evidenced by, inter alia, an Acquisition and Renovation Loan
Agreement, Acquisition Promissory Note, Renovation Promissory Note, Deed of
Trust and Guaranty of even date herewith.
ADVANCE. Proceeds of the Loan advanced from time to time by Lender to
Borrower in accordance with this Agreement.
AFFILIATE. Any individual, trust, estate, partnership, limited
liability company, corporation or any other incorporated or unincorporated
organization (each, a "Person") that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Borrower or Guarantor; any officer, director of Borrower or Guarantor; or any
relative of any of the foregoing. The term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
AVAILABILITY. At all times during the Revolving Period, the lesser of:
(a) $15,000,000.00 minus the sum of (i) Advances then outstanding, plus
(ii) the then outstanding principal balance of the Acquisition Loan, plus (iii)
the then outstanding principal balance of the Renovation Loan; or
(b) the sum of (i) an amount equal to 75% of the remaining principal
balance of Eligible Notes Receivable to be assigned to Lender in connection with
any then current Advance upon which the Purchaser thereunder has not theretofore
made the first three (3) monthly payments, plus (ii) an amount equal to 80% of
the principal balance of those Eligible Notes Receivable to be assigned to
Lender in connection with any then current Advance upon which the Purchaser
thereunder has theretofore made the first three (3) monthly payments in a timely
manner.
After expiration of the Revolving Period, Availability shall be zero
(0).
BUSINESS DAY. Any day which is not a Saturday or Sunday or a legal
holiday under the laws of the State of Illinois, State of Colorado, State of
Nevada or the United States.
CODE. The Uniform Commercial Code as adopted and in force in the State
of Illinois as the same may be amended from time to time.
COLLATERAL. Has the meaning assigned in Section 2.1.
COMPLIANCE DOCUMENTS. With respect to sales of Intervals in any state
or jurisdiction: (i) an opinion letter in substance satisfactory to Lender from
an attorney licensed in such state or jurisdiction addressing the compliance of
Borrower's offering materials, sales and financing documents and sales practices
with the applicable law of such state or jurisdiction, (ii) evidence
satisfactory to Lender that the governmental authority of such state or
jurisdiction having jurisdiction over sales of timeshare intervals has issued
all required approvals of Borrower's offering materials, sales
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and financing documents and sales practices, and (iii) copies of Borrower's
offering materials, sales and financing documents as approved by such state.
COMMITMENT FEE. A loan commitment fee with respect to the Loan and the
Acquisition and Renovation Loan in the amount of $145,000.00, $20,000.00 of
which has heretofore been paid to Lender and the balance of which is payable in
accordance with Section 1.6. in the aggregate, which shall be deemed to have
been earned and which has been paid to Lender on the date hereof.
COSTS. All reasonable expenditures and expenses which may be paid or
incurred by or on behalf of Lender in connection with the documentation,
modification, workout, collection or enforcement of the Loan or any of the Loan
Documents. Notwithstanding the foregoing, Costs payable on the date of the
initial Advance shall be limited to (i) the fees and costs of Lender's attorneys
(including Lender's inside counsel and including those for appellate and
bankruptcy proceedings) in connection with the documentation of the Loan and the
due diligence review of Borrower's deliveries; and (ii) all applicable title,
filing and recording fees and other closing costs. During the term of the Loan,
Costs payable by Borrower shall include: payments to remove or protect against
liens; attorneys' fees (including fees of Lender's inside counsel); receivers'
fees; engineers' fees; accountants' fees; independent consultants' fees
(including environmental consultants); fees of the Custodian and the servicing
agent; all costs and expenses incurred in connection with any of the foregoing;
outlays for documentary and expert evidence; stenographers' charges; stamp
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 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 the true condition of the title to, or the value of, the
Collateral.
CUSTODIAL AGREEMENT. An agency and custodial agreement, among Borrower,
Lender and Custodian, substantially on Lender's form, subject to Borrower's
reasonable review and approval, not to be unreasonably withheld, providing for
the maintenance of the Pledged Documents.
CUSTODIAN. Harris Trust and Savings Bank, Comerica Bank-Texas or such
other Person designated by Lender and approved by Borrower to maintain physical
possession of the Pledged Documents.
DECLARATION. The Declaration of Covenants, Conditions and Restrictions
of the Resort recorded in the Public Records of Routt County, Colorado.
DEFAULT RATE. A per annum rate of interest equal to the Interest Rate
plus four percent (4%).
ELIGIBLE NOTE RECEIVABLE. Each Note Receivable satisfying all of the
following criteria:
(A) Payments due under the Note Receivable shall be self-amortizing and
payable in monthly installments; and the weighted average term of the Financed
Notes Receivable does not exceed 87 months;
(B) Purchaser has made a cash down payment of at least ten percent
(10%) of the actual purchase price of the Interval and no part of such payment
has been made or loaned to Purchaser by Borrower or an Affiliate;
(C) No installment is more than thirty (30) days past due on a
contractual basis at the time of assignment to Lender, nor becomes more than
sixty (60) days past due on a contractual basis thereafter;
(D) The weighted average interest rate of all Financed Notes Receivable
is no less than eleven percent (11%) per annum;
(E) The Unit with respect to the Interval purchased has been completed,
developed and furnished in accordance with the purchase contract;
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(F) All amenities for the Resort have been or will be completed and are
or will be available for use by all Purchasers in accordance with the
Declaration;
(G) The purchaser is not an Affiliate of, related to or employed by
Borrower or Guarantor;
(H) The Note Receivable is free and clear of adverse claims, liens and
encumbrances and subject to no claims of rescission, invalidity,
unenforceability, illegality, defense, offset or counterclaim;
(I) The Note Receivable arises from a bona fide sale by Borrower of a
fee simple interest in the Interval, evidenced by Purchase Documents and the
Note Receivable is secured by a first priority Mortgage given by Purchaser to
Borrower on the purchased Interval;
(J) The outstanding principal balance of all Notes Receivable made by
any one Purchaser shall not exceed $27,000.00;
(K) The Mortgage securing the Note Receivable is insured under a
mortgagee title insurance policy acceptable to Lender subject only to the
Permitted Exceptions and those exceptions to title as Lender approves;
(L) Payments are to be in legal tender of the United States;
(M) The Note Receivable and the Purchase Documents are valid, genuine
and enforceable against the obligor thereunder (subject only to the limitations
imposed by any applicable bankruptcy or insolvency laws and general equitable
principles), and such obligor has not assigned his or her interest thereunder
without Lender's prior written consent which shall not be unreasonably withheld;
(N) At least 90% of the outstanding principal balance of all Financed
Notes Receivable arises from purchasers who are U.S. or Canadian residents; and
(O) Payments have been made by the obligor thereunder and not by
Borrower or any Affiliate of Borrower on the obligor's behalf;
(P) All Interval owners have uninterrupted access to an appropriate
Unit and all amenities and common areas;
(Q) The Purchaser has no right to rescind the purchase of the Interval;
(R) All documents relating to the Note Receivable have been executed by
all parties thereto and delivered to the Custodian; and
(S) The terms of such Note Receivable and all related instruments
comply with all applicable federal and state laws and regulations.
EVENT OF DEFAULT. Has the meaning set forth in Section 7 of this
Agreement.
EXCESS AVAILABILITY. At all times during the Revolving Period, the
amount by which the Maximum Exposure exceeds Advances then outstanding. After
expiration of the Revolving Period, Excess Availability shall be zero ($0).
FINANCED NOTE RECEIVABLE. Any Eligible Note Receivable as to which an
Advance has been made and which has been assigned and delivered to Lender as
security for the Loan.
GAAP. Generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the
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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 comparable in all material
respects to those applied in a preceding period, with any exceptions thereto
noted.
GUARANTOR. Mego Financial Corp.
GUARANTY. A guaranty agreement, on Lender's form, executed by Guarantor
guarantying all of the obligations of Borrower to Lender under the Loan
Documents.
HAZARDOUS MATERIALS. Any hazardous, dangerous or toxic substance or
material within the meaning of any federal, state or local law, regulation or
ordinance.
INDEBTEDNESS. All payment obligations of Borrower to Lender under the
Loan Documents.
INTEREST RATE. A floating rate per annum equal to the Base Rate plus
four percent (4%) (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 Interest 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.
INTERVAL. An undivided fee simple ownership interest as tenants in
common with all other Purchasers as provided in the Declaration with a right to
use a Unit of such type for one week annually, together with all appurtenant
rights and interests as more particularly described in the Timeshare Documents.
LOAN. The FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) credit
facility described in this Agreement.
LOAN YEAR. Each successive twelve (12) month period commencing with the
expiration of the Revolving Period.
LOAN DOCUMENTS. Collectively, this Agreement, the Note, and any and all
other agreements, documents, instruments and certificates delivered or
contemplated to be delivered in connection with this Agreement, as such may be
amended, renewed, extended, restated or supplemented from time to time.
LOCKBOX AGENT. Such banking institution selected by Borrower and
approved by Lender to act as the depositary of payments on the Financed Notes
Receivable under the Lockbox Agreement.
LOCKBOX AGREEMENT. An agreement among Borrower, Lender and Lockbox
Agent providing for the receipt by Lockbox Agent of payments on the Financed
Notes Receivable and disbursement of such payments to Lender.
MANDATORY PREPAYMENT. Any prepayment required by Section 1.5(b) of this
Agreement.
MATURITY DATE. August 6, 2006.
MAXIMUM EXPOSURE. The amount by which (a) the lesser of (i)
$15,000,000.00, or (ii) the sum of (A) 75% of the outstanding principal balance
of all Financed Notes Receivable upon which the Purchaser thereunder has not
theretofore made the first three (3) monthly payments, plus (B) 80% of the
outstanding principal balance of all Financed Notes Receivable upon which the
Purchaser thereunder has theretofore made the first three (3) monthly payments
in a timely manner; exceeds (b) the aggregate outstanding principal balances of
the Acquisition and
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Renovation Loan.
MONTHLY REPORTS. The monthly reports required pursuant to Section
5.5(a) of this Agreement.
MORTGAGE. Any mortgage or deed of trust to the public trustee of Routt
County, Colorado executed and delivered by a Purchaser, encumbering all of the
right, title and interest of each such Purchaser in and to its purchased
Interval as security for such Purchaser's obligations under any Financed Note
Receivable.
NOTE. The promissory note evidencing the Loan executed and delivered by
Borrower to Lender concurrently herewith.
NOTE RECEIVABLE. A promissory note executed by a Purchaser in favor of
Borrower in connection with Purchaser's acquisition of an Interval.
PERMITTED EXCEPTIONS. The exceptions to title listed on EXHIBIT A.
PERSON. Natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
PLEDGED DOCUMENTS. The Financed Notes Receivable, the Mortgages and the
Purchase Documents related to such Financed Notes Receivable.
PREPAYMENT PREMIUM. The percentage set forth below multiplied by the
amount prepaid, payable in connection with a voluntary prepayment of the Loan in
accordance with the provisions of Section 1.5(a) of this Agreement:
LOAN YEAR PERCENTAGE
--------- ----------
First Loan Year after Revolving Period three percent (3%)
Second Loan Year after Revolving Period two percent (2%)
Third Loan Year after Revolving Period one percent (1%)
Fourth Loan Year after Revolving Period zero percent (0%)
PUBLIC OFFERING STATEMENT. The disclosure document filed with and
approved by the governmental authorities having jurisdiction over the sale of
Intervals at the Resort in accordance with the Timeshare Act.
PUBLIC REPORTS. Any public reports now or hereafter filed with and
approved by any jurisdiction having control over the sale of Intervals for the
Resort.
PURCHASE DOCUMENTS. Any purchase agreement and related sale and escrow
documents executed and delivered by a Purchaser to Borrower with respect to the
purchase of an Interval.
PURCHASER. Any Person who purchases one or more Intervals.
RESORT. That certain timeshare vacation resort located in Routt County,
Colorado, on the land more particularly described in EXHIBIT B, including all
related common areas, parking areas and other amenities, to be established by
the Declaration.
REVOLVING PERIOD. The period commencing on the earlier of (i) the date
of the first Advance or (ii) thirteen
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(13) months from the date hereof, and ending on the last day of the eighteenth
(18th) month thereafter.
SERVICING AGREEMENT. A servicing agreement between Lender, and Borrower
as servicer ("Servicer"), substantially on Lender's form, subject to Borrower's
review and approval, not to be unreasonably withheld, providing for the
servicing of the Financed Notes Receivable.
TIMESHARE ACT. Colorado Common Interest Ownership Act, (Section
38-33.3-101 et seq.) and Section 38-33-110 and 111 of the Colorado Revised
Statutes.
TIMESHARE DOCUMENTS. Any and all documents evidencing or relating to
the sale of Intervals by Borrower.
UNIT. One individual unit within the Resort, together with all
furniture, fixtures and furnishings therein, and together with any and all
interest in common elements appurtenant thereto, as will be provided in the
Declaration.
UPGRADED NOTE RECEIVABLE. An Eligible Note Receivable made by the maker
of an existing Financed Note Receivable which is assigned to Lender in
replacement of or as a supplement to such Financed Note Receivable and which
satisfies the criteria established in Section 2.2 of this Agreement. All
Upgraded Notes Receivable shall also be considered to be Financed Notes
Receivable, and shall be subject to the security interest granted to Lender
pursuant to Section 2.1 of this Agreement. In the event Borrower wishes to
assign an Upgraded Note Receivable to Lender, reductions in principal on the
then existing Financed Note Receivable shall be included in calculating the
requirement of a ten percent (10%) cash down payment on the Upgraded Note
Receivable as an Eligible Note Receivable.
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Loan No. 96-111
ACQUISITION PROMISSORY NOTE
$2,925,000.00 ___________, 1996
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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 Two Million
Nine Hundred Twenty-Five Thousand Dollars and No/100 ($2,925,000.00), 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 Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Financing Statement of even date herewith (the
"Mortgage") encumbering, among other things, the property commonly described as
__________ Steamboat Springs, located in Routt County, Colorado (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 Renovation Promissory Note (the
"Renovation Note"), the Mortgage, the Acquisition and Renovation 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 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 __________, 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 Three Hundred Forty-Seven and No/100
Dollars ($1,347.00) of each such Interval Release Payment shall be applied 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.]
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The outstanding principal balance of the Note together with all
accrued interest shall be due and payable on or before __________, 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
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 such 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 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
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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
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
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 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
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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 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, 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
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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.
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:
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Loan No. 96-111
RENOVATION PROMISSORY NOTE
$3,000,000.00 ________, 1996
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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 Three Million
and No/100 Dollars ($3,000,000.00), 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 Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Financing Statement of even date herewith (the
"Mortgage") encumbering, among other things, the property commonly described as
Steamboat Springs, located in Routt County, Colorado (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 Renovation 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.
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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 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 eighteen (18) months of the term of this Note.
3. Payment.
Commencing on ______________ , 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 One Thousand Three Hundred Eighty-Two and
No/100 Dollars ($1,382.00) of each Interval Release Payment shall be applied 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 __________, 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
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 that Holder determines.
2
<PAGE> 68
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 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
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
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
3
<PAGE> 69
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 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
4
<PAGE> 70
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, 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
5
<PAGE> 71
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
By: __________________________
Name:______________
Its:_______________
6
<PAGE> 72
Loan No. 96-111
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.
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.
1
<PAGE> 73
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 August 6, 2006 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.
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 $2,925,000.00 (the "ACQUISITION NOTE"); and (iii) that other certain
promissory note of even date herewith between Holder and Maker in the maximum
principal amount of $3,000,000.00 (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 sums due
under the Receivables Loan Documents, whether or not legal proceedings are
thereafter instituted by Holder; (ii) to represent Holder in any bankruptcy,
2
<PAGE> 74
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 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.
3
<PAGE> 75
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.
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
4
<PAGE> 76
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 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
By:________________________________
Print Name:________________________
As Its:____________________________
5
<PAGE> 77
STATE OF NEVADA )
) SS.
COUNTY OF _________________)
I hereby certify that on this _________ day of ______________, 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
__________, 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:________________________
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 41,293
<SECURITIES> 0
<RECEIVABLES> 58,931
<ALLOWANCES> 15,024
<INVENTORY> 39,498
<CURRENT-ASSETS> 0
<PP&E> 37,561
<DEPRECIATION> 14,123
<TOTAL-ASSETS> 222,086
<CURRENT-LIABILITIES> 0
<BONDS> 73,090
0
0
<COMMON> 184
<OTHER-SE> 37,946
<TOTAL-LIABILITY-AND-EQUITY> 222,086
<SALES> 10,947
<TOTAL-REVENUES> 25,089
<CGS> 1,634
<TOTAL-COSTS> 10,017
<OTHER-EXPENSES> 12,777
<LOSS-PROVISION> 1,711
<INTEREST-EXPENSE> 2,843
<INCOME-PRETAX> 2,295
<INCOME-TAX> 1,066
<INCOME-CONTINUING> 1,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,166<F1>
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F1>EXCLUDES $63 OF INCOME ASSOCIATED WITH MINORITY INTEREST
</FN>
</TABLE>
