<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: FEBRUARY 28, 1997
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 INCORPORATION (I.R.S. EMPLOYER
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 April 11, 1997, there were 18,733,121 shares of Common Stock, $.01
par value per share, of the Registrant outstanding.
================================================================================
<PAGE> 2
MEGO FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements...........................................................
Consolidated Statements of Financial Condition at February 28, 1997 and August
31, 1996 (Unaudited)........................................................... 1
Consolidated Statements of Operations for the Three and Six Months Ended
February 28, 1997 and February 29, 1996 (Unaudited)............................ 2
Consolidated Statements of Stockholders' Equity for the Six Months Ended
February 28, 1997 (Unaudited).................................................. 3
Consolidated Statements of Cash Flows for the Six Months Ended February 28,
1997 and February 29, 1996 (Unaudited)......................................... 4
Notes to Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 28
Item 6. Exhibits and Reports on Form 8-K............................................... 29
SIGNATURE...................................................................... 30
</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>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 19,183 $ 3,185
Restricted cash....................................................... 7,402 6,657
Notes receivable, net of allowances for cancellations, valuation
discounts, and credit losses of $14,494 at February 28, 1997 and
$16,794 at August 31, 1996.......................................... 49,166 40,485
Mortgage related securities, at fair value............................ 67,103 22,944
Excess servicing rights............................................... -- 14,268
Mortgage servicing rights............................................. 5,805 3,827
Timeshare interests held for sale..................................... 36,835 36,890
Land and improvements inventory....................................... 3,686 3,721
Other investments..................................................... 1,852 1,972
Property and equipment, net of accumulated depreciation of $14,690 at
February 28, 1997 and $13,550 at August 31, 1996.................... 24,322 20,262
Deferred selling costs................................................ 3,206 2,901
Prepaid debt expenses................................................. 3,805 1,003
Prepaid commitment fee................................................ 2,886 --
Other assets.......................................................... 11,832 7,482
-------- --------
TOTAL ASSETS................................................ $237,083 $ 165,597
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable......................................... $ 80,665 $ 84,449
Accounts payable and accrued liabilities............................ 24,338 19,662
Payable to assignors................................................ -- 2,579
Future estimated contingency for notes receivable sold with
recourse......................................................... 12,090 9,332
Deposits............................................................ 2,694 2,971
Negative goodwill................................................... 68 82
Income taxes payable................................................ 16,792 10,980
-------- --------
Total liabilities before minority interest, subordinated
debt and redeemable preferred stock....................... 136,647 130,055
-------- --------
Minority interest of consolidated subsidiary.......................... 8,267 --
-------- --------
Subordinated debt..................................................... 49,898 9,691
-------- --------
Redeemable preferred stock, Series A, 12% cumulative preferred stock,
$.01 par value, $10 redemption value, 0 shares issued and
outstanding at February 28, 1997 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 -- 18,733,121 at February 28, 1997 and
18,433,121 at August 31, 1996)................................... 187 184
Additional paid-in capital.......................................... 17,974 6,504
Retained earnings................................................... 24,110 19,163
-------- --------
Total stockholders' equity.................................. 42,271 25,851
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $237,083 $ 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)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Timeshare interest sales, net....... $ 7,573 $ 5,482 $ 15,129 $ 12,194
Land sales, net..................... 4,383 5,677 7,774 10,758
Gain on sale of notes receivable.... 10,869 4,884 20,919 11,281
Net unrealized gain on mortgage
related securities............... 3,143 -- 2,908 --
Interest income..................... 3,791 1,561 6,428 3,191
Financial income.................... 958 1,223 1,870 2,453
Amortization of negative goodwill... 7 13 14 35
Incidental operations............... 717 488 1,443 1,232
Other............................... 445 (18) 490 236
----------- ----------- ----------- -----------
Total revenues................... 31,886 19,310 56,975 41,380
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Direct cost of:
Timeshare interest sales......... 1,188 836 2,512 1,851
Land sales....................... 424 551 734 1,045
Incidental operations............ 718 416 1,408 1,120
Commissions and selling............. 8,358 7,206 16,051 14,532
Depreciation and amortization....... 610 620 1,229 1,075
Provision for credit losses......... 3,805 200 5,516 497
Interest expense.................... 3,670 1,286 6,513 2,924
General and administrative.......... 9,081 5,799 16,685 11,470
----------- ----------- ----------- -----------
Total costs and expenses......... 27,854 16,914 50,648 34,514
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST................... 4,032 2,396 6,327 6,866
----------- ----------- ----------- -----------
INCOME TAXES (BENEFIT)................ (380) 918 686 2,590
----------- ----------- ----------- -----------
MINORITY INTEREST..................... 631 -- 694 --
----------- ----------- ----------- -----------
NET INCOME............................ 3,781 1,478 4,947 4,276
----------- ----------- ----------- -----------
CUMULATIVE PREFERRED STOCK
DIVIDENDS........................... -- 60 -- 140
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON
STOCK............................... $ 3,781 $ 1,418 $ 4,947 $ 4,136
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Primary:
Net income....................... $ 0.19 $ 0.08 $ 0.25 $ 0.23
=========== =========== =========== ===========
Weighted average number of common
shares and common share
equivalents outstanding........ 19,662,582 18,087,556 19,619,912 18,087,556
=========== =========== =========== ===========
Fully Diluted:
Net income....................... $ 0.19 $ 0.07 $ 0.25 $ 0.21
=========== =========== =========== ===========
Weighted average number of common
shares and common share
equivalents outstanding........ 19,662,582 19,463,556 19,619,912 19,463,556
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
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............. 18,433,121 $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
Issuance of common stock in connection
with the exercise of common stock
warrants............................. 300,000 3 357 -- 360
Net income for the six months ended
February 28, 1997.................... -- -- -- 4,947 4,947
---------- ---- ------- ------- -------
Balance at February 28, 1997........... 18,733,121 $187 $17,974 $24,110 $42,271
========== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 4,947 $ 4,276
--------- --------
Adjustments to reconcile net income to net cash used in
operating activities:
Undistributed minority interest.............................. 694 --
Amortization of negative goodwill............................ (14) (35)
Charges to allowance for cancellation and credit losses...... (7,137) (3,792)
Provisions for cancellation and credit losses................ 10,473 5,468
Cost of sales................................................ 3,246 2,896
Depreciation and amortization expense........................ 1,229 873
Additions to excess servicing rights......................... -- (12,192)
Amortization of excess servicing rights...................... -- 1,619
Accretion of residual interest on mortgage related
securities.................................................. (1,306) --
Net unrealized gain on mortgage related securities........... (2,908) --
Additions to mortgage related securities..................... (27,317) --
Payments on mortgage related securities...................... 503 --
Amortization of mortgage related securities.................. 1,079 --
Additions to mortgage servicing rights....................... (3,086) (695)
Amortization of mortgage servicing rights.................... 1,108 164
Payments on notes receivable, net............................ 18,706 9,922
Proceeds from sale of notes receivable....................... 177,598 63,066
Purchase of land and timeshare interests..................... (3,156) (5,797)
Changes in operating assets and liabilities:
Increase in restricted cash................................ (745) (704)
Increase in notes receivable, net.......................... (200,149) (77,231)
Increase in other assets................................... (14,831) (694)
Decrease (increase) in deferred selling costs.............. (305) 977
Increase in accounts payable and accrued liabilities....... 4,676 1,629
Decrease in deposits....................................... (277) (1,599)
Increase in income taxes payable........................... 5,790 2,391
--------- --------
Total adjustments....................................... (36,129) (13,734)
--------- --------
Net cash used in operating activities................. (31,182) (9,458)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............................. (5,200) (2,169)
Proceeds from the sale of property and equipment................ 8 --
Additions to other investments.................................. (626) (860)
Decreases in other investments.................................. 746 150
--------- --------
Net cash used in investing activities................. (5,072) (2,879)
--------- --------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........................................... $ 145,452 $ 73,402
Payments on borrowings............................................. (149,236) (62,365)
Preferred stock dividends.......................................... -- (140)
Redemption of preferred stock...................................... -- (1,000)
Payments on payable to assignors................................... (2,579) --
Payments on subordinated debt...................................... (500) (500)
Interest accrued on subordinated debt.............................. 707 664
Issuance of subordinated debt...................................... 37,750 --
Proceeds from sale of Mego Mortgage Corporation common stock....... 20,658 --
--------- --------
Net cash provided by financing activities.................. 52,252 10,061
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 15,998 (2,276)
--------- --------
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD..................... 3,185 7,338
--------- --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD........................... $ 19,183 $ 5,062
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized............................ $ 5,226 $ 3,477
========= ========
Income taxes.................................................... $ 1,241 $ 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.
5
<PAGE> 8
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(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 (Mego) Form 10-K filed for the year 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 February 28, 1997 and the
results of its operations for the three and six months ended February 28, 1997
and February 29, 1996, and the cash flows for the six months ended February 28,
1997 and February 29, 1996. All intercompany accounts between Mego and its
subsidiaries have been eliminated. Certain reclassifications have been made to
conform prior periods with the current period presentation. The preparation of
financial statements in conformity with generally accepted accounting principles
(GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The results of operations for the three and six
months ended February 28, 1997, are not necessarily indicative of the results to
be expected for the full year.
2. NATURE OF OPERATIONS
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. 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 and 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. 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 the 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 have been and will be
used to repay borrowings and provide funds for future originations and
securitizations of loans. The proceeds
6
<PAGE> 9
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(unaudited)
received from the public stock offering 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 $8.3 million at February 28, 1997. See Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
discussion.
5. SUBSEQUENT EVENT
On March 10, 1997, $89.7 million of loans were repurchased, securitized and
sold by MMC, comprised of $21.9 million of Title I Loans and $67.8 million of
conventional loans. Pursuant to this securitization, asset-backed notes secured
by the 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 remaining principal
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 notes. MMC may be required to repurchase loans
that do not conform to the representations and warranties made by MMC in the
securitization agreements. As of February 28, 1997, the gain on certain whole
loan sales during the quarter has been recorded which approximates the gain on
this securitization sale.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
(SFAS 125) which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This statement
also provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. It requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value. SFAS 125
also requires that servicing assets be measured by allocating the carrying
amount between the assets sold and retained interests based on their relative
fair values at the date of transfer. Additionally, this statement requires that
the servicing assets and liabilities be subsequently measured by (a)
amortization in proportion to and over the period of estimated net servicing
income or loss and (b) assessment for asset impairment or increased obligation
based on their fair values. The statement requires the Company's existing and
future excess servicing rights be measured at fair market value and reclassified
as interest only strip receivables, carried as mortgage related securities, and
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
As required by the statement, the Company adopted the new requirements
effective January 1, 1997 and applied them prospectively. The book value of the
Company's mortgage related securities approximates fair value. The adoption of
SFAS 125 caused PEC to begin recognizing servicing rights and notes receivable
held for sale, similar to the method currently used by MMC for mortgage
servicing rights under SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of SFAS No. 65." This increases the gain on sale of notes at the
time of sale and reduces future servicing fee income on PEC generated
receivables sold after January 1, 1997. No material impact resulted from the
implementation of SFAS 125.
7
<PAGE> 10
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(unaudited)
The following table reflects the components of mortgage related securities
as required by SFAS 125, at February 28, 1997:
<TABLE>
<S> <C>
Interest only receivables (formerly excess servicing
rights).................................................. $15,438
Interest only strip securities............................. 7,300
Residual interest securities............................... 44,365
-------
Total mortgage related securities........................ $67,103
=======
</TABLE>
All mortgage related securities are classified as trading securities and
are recorded at their estimated fair value. Changes in the estimated fair values
are recorded in current operations.
The FASB issued SFAS No. 128, "Earnings per Share" (SFAS 128) in March
1997, effective for financial statements issued after December 15, 1997. The
statement provides simplified standards for the computation and presentation of
earnings per share (EPS), making EPS comparable to international standards. SFAS
128 requires dual presentation of "Basic" and "Diluted" EPS, by entities with
complex capital structures, replacing "Primary" and "Fully Diluted" EPS under
APB Opinion No. 15.
Basic EPS excludes dilution from common stock equivalents and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from common stock equivalents, similar to fully diluted EPS,
but uses only the average stock price during the period as part of the
computation.
Data utilized in calculating proforma earnings per share under the SFAS 128
statement are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 29, 28, 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic:
Net income................................ $ 3,781,000 $ 1,418,000 $ 4,947,000 $ 4,136,000
=========== =========== =========== ===========
Weighted average number of common
shares................................. 18,579,788 18,087,556 18,506,049 18,087,556
=========== =========== =========== ===========
Diluted:
Net income................................ $ 3,781,000 $ 1,418,000 $ 4,947,000 $ 4,136,000
=========== =========== =========== ===========
Weighted average number of common shares
and common share equivalents
outstanding............................... 19,662,582 18,995,013 19,619,912 19,102,457
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 11
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(unaudited)
The following tables reconcile the net income applicable to common
stockholders, basic and diluted shares, and EPS for the following periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------------------------- -----------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $3,781,000 $1,478,000
Less: Preferred stock
dividends................. -- 60,000
---------- ----------
BASIC EPS
Income applicable to common
stockholders.............. 3,781,000 18,579,788 $0.20 1,418,000 18,087,556 $0.08
===== =====
Effect of dilutive
securities:
Warrants.................. -- 806,653 -- 660,463
Stock options............. -- 276,141 -- 246,994
---------- ---------- ---------- ----------
DILUTED EPS
Income applicable to common
stockholders and assumed
conversions............... $3,781,000 19,662,582 $0.19 $1,418,000 18,995,013 $0.07
========== ========== ===== ========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------------------------- -----------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $4,947,000 $4,276,000
Less: Preferred stock
dividends................. -- 140,000
---------- ----------
BASIC EPS
Income available to common
stockholders.............. 4,947,000 18,506,049 $0.27 4,136,000 18,087,556 $0.23
===== =====
Effect of dilutive
securities:
Warrants.................. -- 841,497 -- 748,180
Stock options............. -- 272,366 -- 266,721
---------- ---------- ---------- ----------
DILUTED EPS
Income available to common
stockholders and assumed
conversions............... $4,947,000 19,619,912 $0.25 $4,136,000 19,102,457 $0.22
========== ========== ===== ========== ========== =====
</TABLE>
7. PAYMENTS TO ASSIGNORS
In January 1997, the outstanding balance of payable to assignors of $2.6
million, including accrued interest of $45,000, was paid in full. The assignors
are affiliates of certain officers and directors of the Company. See Note 3 of
Notes to Consolidated Financial Statements for further discussion. Additionally,
effective March 1, 1997, the assignors began receiving the first of 7 equal
semi-annual payments of $1,429,000 plus interest related to the repayment of the
subordinated debt. These payments are collateralized by a pledge of PEC's
outstanding stock. See Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources
-- "Company Liquidity" for additional information.
9
<PAGE> 12
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(unaudited)
8. INCOME TAX PROVISION
Based on a review of prior years' federal income tax returns, the Company
has determined that an unrecognized net operating loss carryforward (NOL) exists
for federal income tax purposes. The provision for federal income taxes has been
reduced, due to partial utilization of a portion of this NOL. The complete
analysis of the taxes is not yet complete, so the entire amount of the NOL has
not yet been determined. The reduction for fiscal 1997 has been accomplished
based on a portion of the NOL that has been identified.
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 and mortgages 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, securitizes and services consumer loans consisting
primarily of home improvement, 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 generally 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 conventional home improvement loans through its
dealer division and debt consolidation loans to its borrowers through both its
correspondent and dealer divisions. Since MMC began offering conventional loans
in May 1996, conventional loans have accounted for an increasing portion of loan
originations.
10
<PAGE> 13
The following table sets forth certain data regarding loans originated,
sold, securitized and serviced by MMC and PEC during the three months ended
February 28, 1997 and February 29, 1996 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
Loan Originations:
Principal amount of loans:
Correspondents:
Title I........................................... $ 11,346 9.2% $ 14,317 45.9%
Conventional...................................... 87,911 71.5 -- --
-------- ----- -------- -----
Total Correspondents................................... 99,257 80.7 14,317 45.9
-------- ----- -------- -----
Dealers:
Title I........................................... 10,186 8.3 8,061 25.8
Conventional...................................... 1,817 1.5 -- --
-------- ----- -------- -----
Total Dealers.......................................... 12,003 9.8 8,061 25.8
-------- ----- -------- -----
Notes receivable additions through sales of timeshare
interests and land................................... 11,742 9.5 8,823 28.3
-------- ----- -------- -----
Total.................................................. $123,002 100.0% $ 31,201 100.0%
======== ===== ======== =====
Number of Loans Originated:
Correspondents:
Title I........................................... 551 9.8% 997 39.5%
Conventional...................................... 2,884 51.0 -- --
-------- ----- -------- -----
Total Correspondents................................... 3,435 60.8 997 39.5
-------- ----- -------- -----
Dealers:
Title I........................................... 873 15.4 561 22.2
Conventional...................................... 83 1.5 -- --
-------- ----- -------- -----
Total Dealers.......................................... 956 16.9 561 22.2
-------- ----- -------- -----
Notes receivable additions through sales of timeshare
interests and land................................... 1,260 22.3 967 38.3
-------- ----- -------- -----
Total.................................................. 5,651 100.0% 2,525 100.0%
======== ===== ======== =====
Loans Serviced at end of period (including notes
securitized, sold to investors, and held for sale):
Title I................................................ $237,633 49.2% $139,138 55.0%
Conventional........................................... 130,736 27.0 -- --
Timeshare and land..................................... 114,964 23.8 113,916 45.0
-------- ----- -------- -----
Total.................................................. $483,333 100.0% $253,054 100.0%
======== ===== ======== =====
</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 $6.6 million and
$6 million at February 28, 1997 and August 31, 1996, respectively, made under
this arrangement are included in the table above. A valuation discount is
established to provide for an effective interest rate (currently 10%) on notes
receivable bearing no stated interest rate at the time of sale, and is applied
to the principal balance and amortized over the term of the note. The effective
interest rate is based upon the economic interest rate environment and similar
industry data.
Land sales as of February 28, 1997, exclude $14.3 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 $2.2 million, estimated deferred
selling costs of $3.2 million and cost of sales of $1.2 million.
11
<PAGE> 14
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 tangible 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 February 28, 1997, MMC's minimum
tangible net worth requirement was $37.1 million. Additionally, MMC is required
to maintain a minimum level of profitability of at least $500,000 per rolling 6
month period.
At February 28, 1997, and August 31, 1996, receivables aggregating $48.5
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.
On December 17, 1996, $67.3 million of loans were repurchased, securitized
and sold by MMC, comprised of $36.7 million of Title I Loans and $30.6 million
of 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 have been 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. See
Note 5 of Notes to Consolidated Financial Statements for a description of a
securitization which took place on March 10, 1997.
MMC
MMC recognizes revenue from the gain on sale of loans, unrealized gain on
mortgage related securities, 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 through January 1, 1997 which was the date of adoption of SFAS 125.
Mortgage servicing rights and excess servicing rights were amortized over the
estimated lives of the loans.
The following tables set forth the principal balance of loans sold or
securitized and related gain on sale data for the three and six months ended
February 28, 1997 and February 29, 1996 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MMC Loans Sold:
Title I Loans............................ $ 22,277 $ 21,395 $ 55,665 $ 56,421
Conventional............................. 84,655 -- 111,776 --
------- ------ ------- ------
Total................................. $106,932 $ 21,395 $167,441 $ 56,421
======= ====== ======= ======
Gain on sale of loans...................... $ 10,428 $ 4,845 $ 20,029 $ 10,810
======= ====== ======= ======
Gain on sale of loans as a percentage of
principal balance of loans sold.......... 9.8% 22.6% 12.0% 19.2%
======= ====== ======= ======
Net unrealized gain on mortgage related
securities............................... $ 3,143 $ -- $ 2,908 $ --
======= ====== ======= ======
Gain on sale of loans plus net unrealized
gain on mortgage related securities as a
percentage of principal balance of loans
sold..................................... 12.7% 22.6% 13.7% 19.2%
======= ====== ======= ======
</TABLE>
12
<PAGE> 15
The combined gain on sale and net unrealized gain on mortgage related
securities for the 3 month period ended February 28, 1997, was $15,220,000, or
14.23% of loans sold during the period, before adjustments totaling $1,649,000
relating to FHA Title I Loans originated prior to March 1, 1996. The adjustment
was approximately 1.1% of the original principal balances of such loans.
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 sells loans through
securitizations. Certain of the regular interests of the related securitizations
are sold, with the interest only and residual interest securities retained by
MMC.
As a holder of residual interest 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 of
cash flows is subject to the satisfaction of certain overcollateralization or
reserve requirements which are specific to each securitization and are used as a
means of credit enhancement.
Delinquencies -- The following table sets forth the delinquency and Title I
insurance claims experience of loans serviced by MMC at the dates indicated
(thousands of dollars):
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
Delinquency period(1)
31-60 days past due................................. 2.46% 2.17%
61-90 days past due................................. 1.06 0.85
91 days and over past due(2)........................ 3.86 4.53
91 days and over past due, net of claims filed(3)... 2.03 1.94
Outstanding claims filed with HUD(4).................. 1.83 2.59
Outstanding number of Title I insurance claims........ 394 255
Total servicing portfolio............................. $368,368 $ 214,189
Title I Loans serviced................................ 237,633 202,766
Amount of FHA insurance available(5).................. 23,342 21,205
Amount of FHA insurance available as a percentage of
Title I Loans serviced.............................. 9.82%(5) 10.46%
Losses on liquidated loans(6)......................... $ 58 $ 32
</TABLE>
- ------------------------------------------------------------------------------
(1) Represents the dollar amount of delinquent loans as a percentage of the
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 February 28,
1997, 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 the total dollar amount of total loans serviced by MMC
(including loans owned by MMC) as of the dates 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 the total
dollar amount of total loans serviced by MMC (including loans owned by MMC)
as of the dates indicated.
(5) If all claims filed with HUD had been processed as of February 28, 1997, the
amount of FHA insurance available would have been reduced to $16.9 million,
which as a percentage of Title I Loans serviced would have been 7.3%.
(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 relates to 290 Title I
insurance claims made by MMC, as servicer, since
13
<PAGE> 16
commencing operations through February 28, 1997. 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 and sales and servicing agreements
relating to MMC'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 MMC's right to service the related
loans. At February 28, 1997, the rolling three month average annual default rate
on the pool of loans sold in the March 1996 securitization transaction, which
exceeded 6.5%, the permitted limit set forth in the related pooling and
servicing agreement. Accordingly, this condition could result in the termination
of MMC'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 have no present intention to
terminate MMC'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 ($1.2
million before tax at February 28, 1997) on the date of termination.
The pooling and servicing agreements and sales and servicing agreements
also require that certain delinquency and default rates not exceed certain
thresholds. When these thresholds are exceeded, higher levels of
overcollaterialization are required which can cause a delay in cash receipts to
the residual interest holders, causing an adverse valuation adjustment to the
residual security.
Delinquencies of loans serviced by MMC have also decreased the amount of
loan servicing income recorded during the 6 months ended February 28, 1997, as
MMC's loan servicing income has been reduced by the amount of interest advanced
to the owners of these loans.
Delinquencies have increased during the six months ended February 28, 1997
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 MMC loan
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 five days
and also by written correspondence before the loan becomes 60 days delinquent.
With respect to loan payments that are less than 60 days late, routine
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
14
<PAGE> 17
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.
Interest only strip receivables, which were formerly named excess servicing
rights, are included in mortgage related securities, and are carried at fair
market value.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO THREE MONTHS ENDED FEBRUARY 29,
1996
MMC
MMC originated $111.3 million of loans during the 3 months ended February
28, 1997 compared to $22.4 million of loans during the 3 months ended February
29, 1996, an increase of 397.2%. The increase is a result of the overall growth
in MMC's business, including an increase in the number of active Correspondents
and an increase in the number of states served. At February 28, 1997, MMC had
approximately 484 active Correspondents and 467 active Dealers, compared to
approximately 212 active Correspondents and 469 active Dealers at February 29,
1996. Of the $111.3 million of loans originated in the 3 months ended February
28, 1997, $89.7 million were conventional loans. MMC did not originate
conventional loans during the three months ended February 29, 1996.
Total revenues increased 156.6% to $14.7 million for the 3 months ended
February 28, 1997 from $5.7 million for the 3 months ended February 29, 1996.
The increase was primarily the result of the increased volume of loans
originated and the gain on sale of such loans.
15
<PAGE> 18
Loan servicing income decreased 35.6% to $560,000 for the 3 months ended
February 28, 1997 from $870,000 for the 3 months ended February 29, 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 $27.2 million in delinquencies at February 28, 1997
compared to $9 million at February 29, 1996.
Interest income on loans held for sale and mortgage related securities, net
of interest expense, increased to $526,000 during the 3 months ended February
28, 1997 from a negative $3,000 during the 3 months ended February 29, 1996. The
increase was primarily the result of the increase in the average size of the
portfolio of loans held for sale and the increase in the mortgage related
securities portfolio to $64.5 million at February 28, 1997 from $0 at February
29, 1996.
The provision for credit losses increased to $3.8 million for the 3 months
ended February 28, 1997 from $200,000 for the 3 months ended February 29, 1996
as a result of the increased ratio of conventional loans to Title I Loans. The
increase in the provision was directly related to the increase in volume and mix
of loans originated in the three months ended February 28, 1997 compared to the
three months ended February 29, 1996. 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 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 risk of loss associated with
conventional loans, which are not FHA insured.
Total general and administrative expenses increased 99.2% to $5.2 million
for the 3 months ended February 28, 1997 compared to $2.6 million for the 3
months ended February 29, 1996. 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 114% to $2.5 million for the 3
months ended February 28, 1997 from $1.2 million for the 3 months ended February
29, 1996. The number of employees increased to 277 at February 28, 1997 from 147
at February 29, 1996, due to increased staff necessary to support the business
expansion and improve quality control.
Commissions and selling expenses increased 28.9% to $651,000 for the 3
months ended February 28, 1997 from $505,000 for the 3 months ended February 29,
1996 while loan originations increased by $88.9 million to $111.3 million during
the period. The sales network has now expanded to substantially all states,
adding new personnel and offices to further the loan origination growth
strategy.
Professional services increased to $195,000 for the 3 months ended February
28, 1997 from $41,000 for the 3 months ended February 29, 1996 due primarily to
increased audit and legal fees as MMC expands its operations.
FHA insurance decreased 27.2% to $75,000 for the 3 months ended February
28, 1997 from $103,000 for the 3 months ended February 29, 1996 due primarily to
a decrease in Title I Loan originations.
Other general and administrative expenses increased 78.7% to $604,000 for
the 3 months ended February 28, 1997 from $338,000 for the 3 months ended
February 29, 1996 due primarily to added expenses related to the ongoing
expansion of facilities and increased communications costs.
Income before income taxes increased to $5.4 million for the 3 months ended
February 28, 1997 from $2.6 million for the 3 months ended February 29, 1996.
As a result of the foregoing, MMC's net income increased 116.2% to $3.4
million for the 3 months ended February 28, 1997 from $1.6 million for the 3
months ended February 29, 1996.
16
<PAGE> 19
PEC
Total revenues for PEC increased 16.1% or $2.2 million to $15.8 million
during the 3 months ended February 28, 1997 compared to $13.6 million for the 3
months ended February 29, 1996 primarily due to an increase in net sales of
timeshares of $2.1 million as PEC continues to focus more on timeshare sales,
partially offset by a decrease in net land sales of $1.3 million. Additionally,
income from incidental operations, financial income, gain on sale of notes
receivable, and interest income increased during the second quarter of fiscal
1997.
Timeshare interests and land sales, net, increased to $12 million in the 3
months ended February 28, 1997 from $11.2 million in the 3 months ended February
29, 1996, or 7.1%. Gross sales of timeshare interests increased to $9.5 million
in the 3 months ended February 28, 1997 from $6.4 million in the 3 months ended
February 29, 1996, an increase of 47%. Net sales of timeshare interests
increased to $7.6 million in the 3 months ended February 28, 1997 from $5.5
million in the 3 months ended February 29, 1996, an increase of 38.1%. The
provision for cancellation represented 20.1% and 14.9% of gross sales of
timeshare interests for the 3 months ended February 28, 1997 and February 29,
1996, respectively. The increase in the provision for cancellations was
primarily due to an increase of cancellations during the current quarter. During
the first quarter of fiscal 1997, the Aloha Bay resort in Indian Shores, Florida
was completed and 81 timeshare interests in that resort were sold as of February
28, 1997.
Gross sales of land decreased to $5.1 million in the 3 months ended
February 28, 1997 from $6.6 million in the 3 months ended February 29, 1996, a
decrease of 21.8%. Net sales of land decreased to $4.4 million in the 3 months
ended February 28, 1997 from $5.7 million in the 3 months ended February 29,
1996, a decrease of 22.8%. The provision for cancellation represented 14.4% and
13.3% of gross sales of land for the 3 months ended February 28, 1997 and
February 29, 1996, respectively. The increase in the provision for cancellation
was primarily due to an increase in cancellations, resulting in a slightly
higher allowance requirement for the quarter. The decrease in land sales is the
result of PEC's emphasis shift, 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.
Gain on sale of notes receivable increased to $441,000 from $40,000 for the
3 months ended February 28, 1997 compared to February 29, 1996 due to loan sales
of $5.4 million during the second quarter of 1997 while no similar sale
transactions occurred in the second quarter of 1996. There were normal post sale
adjustments of $40,000 in the 1996 period.
PEC's interest income increased slightly to $1.7 million in the 3 months
ended February 28, 1997 from $1.5 million for the 3 months ended February 29,
1996 primarily due to a relatively flat interest rate environment combined with
a slight increase in the average balance of notes receivable outstanding during
the current quarter.
Financial income increased to $770,000 in the 3 months ended February 28,
1997 from $225,000 in the 3 months ended February 29, 1996, an increase of
242.2%. The increase is primarily due to growth in the serviced loan portfolio.
Revenues from incidental operations increased to $717,000 in the 3 months
ended February 28, 1997 from $488,000 in the 3 months ended February 29, 1996,
an increase of 46.9%, primarily due to an increase in the amount of utility fees
and an increase in golf course revenues. As a result of the foregoing, total PEC
revenues increased to $15.8 million during the 3 months ended February 28, 1997
from $13.6 million during the 3 months ended February 29, 1996, or 16.1%.
Total costs and expenses increased to $16.2 million for the 3 months ended
February 28, 1997 from $13.3 million for the 3 months ended February 29, 1996,
an increase of 21.8%. The increase resulted primarily from an increase in
commission and selling expenses to $8.4 million from $7.2 million, an increase
of 16%; an increase in general and administrative costs to $3.3 million from
$2.6 million, an increase of 26.9%; an increase in interest expense of $412,000
to $1.7 million, or 31%, due to a higher level of borrowings; and an increase in
direct costs of timeshare interest sales to $1.2 million from $837,000, an
increase of 41.9%, resulting from increased timeshare interest sales during the
current quarter. PEC's selling expenses increased primarily as a result of costs
relating to the establishment of new marketing programs during the first and
second quarters of
17
<PAGE> 20
1997, 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, and maintenance fees and owners' association costs related to a
higher level of unsold timeshare inventory.
As a percentage of gross sales of timeshare interests and land, commission
and selling expenses relating thereto increased to 57.3% in the 3 months ended
February 28, 1997 from 55.5% in the 3 months ended February 29, 1996, and cost
of sales increased to 11% in the 3 months ended February 28, 1997 from 10.7% in
the 3 months ended February 29, 1996. Sales prices of timeshare interests are
typically lower than those of land, while selling costs per sale, other than
commissions, are approximately 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 $454,000 in the 3 months ended February
28, 1997 from $347,000 in the 3 months ended February 29, 1996, an increase of
30.8%. The increase is a result of additions made to property and equipment.
Interest expense increased to $1.7 million in the 3 months ended February
28, 1997 from $1.3 million in the 3 months ended February 29, 1996, an increase
of 31%. The increase is a result of an increased outstanding balance of notes
payable from $52.7 million at February 29, 1996 to $69.7 million at February 28,
1997.
Income before income taxes decreased to a loss of $414,000 for the 3 months
ended February 28, 1997 from income of $292,000 for the three months ended
February 29, 1996. As a result of the foregoing, PEC's net loss amounted to
$273,000 for the 3 months ended February 28, 1997 compared to net income of
$193,000 for the 3 months ended February 29, 1996.
Company
Net income applicable to common stock increased $2.4 million to $3.8
million for the 3 months ended February 28, 1997 from $1.4 million for the 3
months ended February 29, 1996 due principally to an increase of $1.8 million in
MMC net income, a reduction of income tax expense of $1.3 million due to
utilization of a NOL, offset partially by a decrease of $706,000 in PEC pre-tax
income as a result of increased expenses related to the expansion of selling
operations. See prior discussion for MMC and PEC.
Total costs and expenses during the 3 months ended February 28, 1997 were
$27.9 million, an increase of 64.7% over $16.9 million in the 3 months ended
February 29, 1996. Commissions and selling expenses increased 16% to $8.4
million for the 3 months ended February 28, 1997 compared to $7.2 million the 3
months ended February 29, 1996 due primarily to the expansion of timeshare
marketing efforts by PEC. General and administrative expenses increased 56.6% to
$9.1 million for the 3 months ended February 28, 1997 compared to $5.8 million
for the period ended February 29, 1996 primarily due to the expansion of the
operating staff of MMC. Provision for credit losses increased $3.6 million due
to the increase in the ratio of conventional loan originations by MMC compared
to Title I originations. Additionally, Mego Financial incurred interest expense
on amounts payable to assignors and continues to incur interest on 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.
Based on a review of prior years' federal income tax returns, the Company
has determined that an unrecognized net operating loss carry forward (NOL)
exists for federal income tax purposes. The provision for federal income taxes
has been reduced, due to partial utilization of a portion of this NOL. The
complete analysis of the taxes is not yet complete, so the entire amount of the
NOL has not yet been determined. The reduction for fiscal 1997 has been
accomplished based on a portion of the NOL that has been identified. See Note 8
of Notes to Consolidated Financial Statements.
18
<PAGE> 21
RESULTS OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO SIX MONTHS ENDED FEBRUARY 29,
1996
MMC
MMC originated $173.7 million of loans during the 6 months ended February
28, 1997 compared to $56.1 million of loans during the 6 months ended February
29, 1996, an increase of 209.7%. The increase is a result of the overall growth
in MMC's business, including an increase in the number of active Correspondents
and an increase in the number of states served. At February 28, 1997, MMC had
approximately 484 active Correspondents and 467 active Dealers, compared to
approximately 212 active Correspondents and 469 active Dealers at February 29,
1996. Of the $173.7 million of loans originated in the 6 months ended February
28, 1997, $120.8 million were conventional loans. MMC did not originate
conventional loans during the six months ended February 29, 1996.
Total revenues increased 96.9% to $25 million for the 6 months ended
February 28, 1997 from $12.7 million for the 6 months ended February 29, 1996.
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 32% to $1.2 million for the 6 months ended
February 28, 1997 from $1.8 million for the 6 months ended February 29, 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 $27.2 million in delinquencies at February 28,
1997 compared to $9 million at February 29, 1996.
Interest income on loans held for sale and mortgage related securities, net
of interest expense, increased 552.6% to $881,000 during the 6 months ended
February 28, 1997 from $135,000 during the 6 months ended February 29, 1996. 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 to $5.5 million for the 6 months
ended February 28, 1997 from $497,000 for the 6 months ended February 29, 1996.
The increase in the provision was directly related to the increase in volume and
mix of loans originated in the six months ended February 28, 1997 compared to
the six months ended February 29, 1996 from the increased ratio of conventional
loans to Title I Loans. The provision for credit losses is based upon periodic
analysis of the portfolio, economic conditions and trends, historical credit
loss experience, borrowers' ability to repay, collateral values, and estimated
FHA insurance recoveries on loans originated and sold. As MMC increased its
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 risk of loss associated with conventional loans, which are not FHA
insured.
Total general and administrative expenses increased 81.5% to $9.6 million
for the 6 months ended February 28, 1997 compared to $5.3 million for the 6
months ended February 29, 1996. 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 91.6% to $4.3 million for the 6
months ended February 28, 1997 from $2.3 million for the 6 months ended February
29, 1996. The number of employees increased to 277 at February 28, 1997 from 147
at February 29, 1996, due to increased staff necessary to support the business
expansion and improve quality control.
Commissions and selling expenses increased 21.3% to $1.2 million for the 6
months ended February 28, 1997 from $1 million for the 6 months ended February
29, 1996 while loan originations increased by $117.6 million or 209.7% to $173.7
million at February 28, 1997. The sales network expanded to substantially all
states, adding new personnel and offices to further the loan origination growth
strategy.
Professional services increased 111.7% to $307,000 for the 6 months ended
February 28, 1997 from $145,000 for the 6 months ended February 29, 1996 due
primarily to increased audit and legal fees attributable to continued growth.
19
<PAGE> 22
FHA insurance decreased 16.8% to $278,000 for the 6 months ended February
28, 1997 from $334,000 for the 6 months ended February 29, 1996 due primarily to
a decrease in Title I Loan originations.
Other general and administrative expenses increased 102.6% to $1.4 million
for the 6 months ended February 28, 1997 from $685,000 for the 6 months ended
February 29, 1996 due primarily to increased expenses related to the ongoing
expansion of facilities and increased communications costs.
Income before income taxes increased to $9.5 million for the 6 months ended
February 28, 1997 from $6.4 million for the 6 months ended February 29, 1996.
As a result of the foregoing, MMC's net income increased 51.3% to $5.9
million for the 6 months ended February 28, 1997 from $3.9 million for the 6
months ended February 29, 1996.
PEC
Total revenues for PEC increased 6% or $1.7 million to $30.4 million during
the 6 months ended February 28, 1997 from $28.7 million for the 6 months ended
February 29, 1996 mostly due to an increase in financial income, interest
income, incidental operations and gain on sale of notes receivable.
Timeshare interests and land sales, net, decreased slightly to $22.9
million in the 6 months ended February 28, 1997 from $23 million in the 6 months
ended February 29, 1996. Gross sales of timeshare interests increased to $18.9
million in the 6 months ended February 28, 1997 from $15.1 million in the 6
months ended February 29, 1996, an increase of 25%. Net sales of timeshare
interests increased to $15.1 million in the 6 months ended February 28, 1997
from $12.2 million in the 6 months ended February 29, 1996, an increase of
24.1%. The provision for cancellation represented 20% and 19.4% of gross sales
of timeshare interests for the 6 months ended February 28, 1997 and February 29,
1996, respectively. During the first quarter of fiscal 1997, the Aloha Bay
resort in Indian Shores, Florida was completed and 81 timeshare interests in
that resort were sold as of February 28, 1997.
Gross sales of land decreased to $8.9 million in the 6 months ended
February 28, 1997 from $12.8 million in the 6 months ended February 29, 1996, a
decrease of 30.1%. Net sales of land decreased to $7.8 million in the 6 months
ended February 28, 1997 from $10.8 million in the 6 months ended February 29,
1996, a decrease of 27.7%. The provision for cancellation represented 13% and
15.9% of gross sales of land for the 6 months ended February 28, 1997 and
February 29, 1996, respectively. The decrease in the provision for cancellation
for land 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.
Gain on sale of notes receivable increased to $890,000 for the 6 months
ended February 28, 1997 from $471,000 in the 6 months ended February 29, 1996,
an increase of 89%. The increase is due to loan sales of $10.1 million for the 6
months ended February 28, 1997 compared to loan sales of $6.7 million for the 6
months ended February 29, 1996.
PEC's interest income increased slightly to $3.3 million in the 6 months
ended February 28, 1997 from $3 million for the 6 months ended February 29, 1996
primarily due to a relatively flat interest rate environment combined with a
slight increase in the average balance of notes receivable outstanding.
Financial income increased to $1.3 million in the 6 months ended February
28, 1997 from $692,000 in the 6 months ended February 29, 1996, an increase of
92.1%. The increase is primarily due to increased loan volume in the serviced
loan portfolio.
Revenues from incidental operations increased slightly to $1.4 million in
the 6 months ended February 28, 1997 from $1.2 million in the 6 months ended
February 29, 1996, an increase of 17.1%, primarily due to the increased amount
of utility fees and an increase in golf course revenues. As a result of the
foregoing, total PEC revenues increased to $30.4 million during the 6 months
ended February 28, 1997 from $28.7 million during the 6 months ended February
29, 1996.
20
<PAGE> 23
Total costs and expenses increased to $31.7 million for the 6 months ended
February 28, 1997 from $26.9 million for the 6 months ended February 29, 1996,
an increase of 17.9%. The increase resulted primarily from an increase in
commission and selling expenses to $16.1 million from $14.5 million, an increase
of 10.5%; an increase in general and administrative costs to $6.6 million from
$5.1 million, an increase of 29%; and an increase in interest expense to $3.5
million from $2.5 million, an increase of 37.7%. 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, and maintenance fees and owners' association costs
related to a higher level of unsold timeshare inventory.
As a percentage of gross sales of timeshare interests and land, commission
and selling expenses relating thereto increased to 57.6% in the 6 months ended
February 28, 1997 from 52% in the 6 months ended February 29, 1996, and cost of
sales increased to 11.7% in the 6 months ended February 28, 1997 from 10.4% in
the 6 months ended February 29, 1996. Sales prices of timeshare interests are
typically lower than those of land while selling costs per sale, other than
commissions, are approximately 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 $933,000 in the 6 months ended February
28, 1997 from $701,000 in the 6 months ended February 29, 1996, an increase of
33.1%. The increase is a result of the additions made to property and equipment.
Interest expense increased to $3.5 million in the 6 months ended February
28, 1997 from $2.5 million in the 6 months ended February 29, 1996, an increase
of 37.7%. The increase is a result of an increased outstanding balance of notes
payable from $52.7 million at February 29, 1996 to $69.7 million at February 28,
1997.
Income before income taxes decreased to a loss of $1.3 million for the 6
months ended February 28, 1997 from income of $1.8 million for the 6 months
ended February 29, 1996.
As a result of the foregoing, PEC's net loss amounted to $856,000 for the 6
months ended February 28, 1997 compared to net income of $1.2 million for the 6
months ended February 29, 1996.
Company
Net income applicable to common stock increased $811,000 to $4.9 million in
the 6 months ended February 28, 1997 from $4.1 million in the 6 months ended
February 29, 1996 due to a decrease in the federal tax provision for Mego
Financial. See prior discussion for MMC and PEC and Note 8 of Notes to
Consolidated Financial Statements.
Total costs and expenses during the 6 months ended February 28, 1997 were
$50.6 million, an increase of 46.7% over $34.5 million in the 6 months ended
February 29, 1996. Commissions and selling expenses increased 10.5% to $16.1
million for the 6 months ended February 28, 1997 from $14.5 million in the 6
months ended February 29, 1996 due primarily to the expansion of timeshare
marketing efforts by PEC. General and administrative expenses increased 45.5% to
$16.7 million for the 6 months ended February 28, 1997, compared to $11.5
million for the 6 months ending February 29, 1996 primarily due to the expansion
of the operating staff of MMC. Additionally, Mego Financial incurred interest
expense on amounts payable to assignors and continues to incur interest on
subordinated debt. Total general and administrative expenses for Mego Financial
(parent only) were primarily comprised of professional services, external
financial reporting expenses, regulatory and other public company corporate
expenses.
Based on a review of prior years' federal income tax returns, the Company
has determined that a NOL exists for federal income tax purposes. The provision
for federal income taxes has been reduced, due to partial utilization of a
portion of this NOL. The complete analysis of the taxes is not yet completed, so
the entire amount of the NOL has not yet been determined. The reduction for
fiscal 1997 has been accomplished based on a portion of the NOL that has been
identified. See Note 8 of Notes to Consolidated Financial Statements.
21
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company was $19.2 million at February 28,
1997 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 operating cash flow basis. During the 6 months
ended February 28, 1997, MMC operated on a negative operating cash flow basis
due primarily to an increase in loans originated and sold, using $28.4 million
in operations that was funded primarily from borrowings and the proceeds of its
stock and debt public offerings. 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 and an affiliate and approximately $21.5 million to reduce the
amounts outstanding under MMC's warehouse and revolving lines of credit. 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
and PEC are being used in their respective operations and by MMC to provide
capital to originate and securitize loans.
The pooling and servicing agreements and sale 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
22
<PAGE> 25
approximately $167.4 million for the 6 months ended February 28, 1997. 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
February 28, 1997, amounts on deposit in such reserve accounts totaled $5.6
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 February 28, 1997, MMC had
a $20 million warehouse line of credit (warehouse line) for the financing of
loan originations which expires in August 1997. MMC is presently negotiating a
$60 million warehouse line from 3 banking institutions to replace this existing
warehouse line. There is no assurance that the proposed warehouse line will be
obtained. At February 28, 1997, $9.3 million was outstanding under the warehouse
line and $10.7 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 February 28, 1997, MMC's minimum
tangible net worth requirement was $37.1 million and its tangible net worth was
$44.2 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
agreements with 3 financial institutions to which an aggregate of $397.3 million
in principal amount of loans had been sold at February 28, 1997, 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 which provision has been waived from time to time. 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 purchase of loans is utilized. At February 28, 1997, $1.8 billion remained
available to be sold under the commitment. These warrants were recorded as
additional paid-in capital of the Company. The financial institution has also
agreed
23
<PAGE> 26
to provide MMC a separate one-year facility of up to $11 million for the
financing of the interest only and residual certificates from securitizations.
During the 6 months ended February 28, 1997 and February 29, 1996, MMC used
net cash of $28.4 million and $6.9 million, respectively, in operating
activities. During the 6 months ended February 28, 1997 and February 29, 1996,
MMC used net cash of $1.2 million and $468,000, respectively, in investing
activities, which was substantially expended for office equipment and
furnishings and data processing equipment. During the 6 months ended February
28, 1997 MMC provided net cash of $43.9 million from financing activities,
primarily due to the issuance of subordinated debt and common stock, compared to
$7.7 million during the 6 months ended February 29, 1996.
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 February 28, 1997, 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 February 28, 1997, an aggregate of $65.8 million was outstanding
under such lines of credit, and $43.7 million was available for borrowing. At
February 28, 1997 and August 31, 1996, $65.8 million and $65.9 million,
respectively, had been borrowed under these lines. Under the terms of these
lines of credit, PEC may borrow up to a range of 75% to 85% of the balances of
the pledged timeshare and land receivables. Summarized lines of credit
information and accompanying notes relating to these five lines of credit
outstanding at February 28, 1997, consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
BORROWING
AMOUNT AT
FEBRUARY MAXIMUM
28, BORROWING REVOLVING
1997 AMOUNT EXPIRATION DATE(D) MATURITY DATE INTEREST RATE
- ----------- ---------- --------------------- ------------------- -------------
<C> <C> <S> <C> <C>
$48,648 $ 57,000 (a) April 15, 1997 September 22, 2003 Prime + 2.25%
4,382 15,000 (b) May 30, 1998 June 1, 2002 Prime + 2.0%
5,946 15,000 (c) June 27, 1998 June 27, 2005 LIBOR + 4.25%
3,404 15,000 (c) February 6, 1998 August 6, 2005 LIBOR + 4.25%
3,459 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. Thereafter this
requirement is permitted to decrease to $15 million depending on the loan
balance. A commitment letter was signed in March 1997 to increase the
credit line to $75 million, reduce the rate to prime plus 2%, and extend
the revolving expiration date to May 1, 2001 or 36 months after the first
advance, whichever is sooner.
(b) Restrictions include PEC's requirement to maintain a tangible net
worth of $25 million during the life of the loan.
(c) Restrictions include PEC's requirement to maintain a tangible net
worth of $17 million during the life of the loan.
(d) Revolving expiration date represents the expiration of the
revolving features of the lines of credit, at which time the credit lines
assume fixed maturity.
24
<PAGE> 27
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 SIX MONTHS ENDED
----------------------------- -----------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Commissions and selling expenses
attributable to recognized and
unrecognized sales....................... $ 8,371 $ 6,706 $ 16,412 $ 13,557
Less: Down payments........................ (3,227) (2,676) (6,742) (6,172)
------- ------- ------- -------
Cash shortfall............................. $ 5,144 $ 4,030 $ 9,670 $ 7,385
======= ======= ======= =======
</TABLE>
During the 3 months ended February 28, 1997, PEC sold notes receivable of
$5.4 million to a financial institution from which $4.5 million of the proceeds
were used to pay down debt . The receivables which have interest rates of 12.9%
were sold to yield a return of 9% to the purchasers, with any excess interest
payable to PEC from the obligors.
At February 28, 1997, PEC was contingently liable to replace or repurchase
notes receivable sold with recourse totaling $72.6 million. PEC sells notes
receivable subject to recourse provisions as contained in each agreement. PEC is
obligated under these agreements to replace or repurchase accounts that become
over 90 days delinquent or otherwise subject to replacement or repurchase. The
repurchase provisions provide for substitution of receivables as recourse for
$70.6 million of sold notes receivable and cash payments for repurchase relating
to $2 million of sold notes receivable. At February 28, 1997, the undiscounted
amount of the recourse obligations on such notes receivable were $11.9 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.
During the 6 months ended February 28, 1997 and February 29, 1996, PEC used
net cash of $335,000 and $3.2 million, respectively in operating activities.
During the 6 months ended February 28, 1997 and February 29, 1996, PEC provided
net cash of $924,000 and used net cash of $7.3 million, respectively, in
investing activities. During the 6 months ended February 28, 1997 and February
29, 1996, PEC used net cash of $1 million and provided net cash of $9.4 million,
respectively from financing activities.
Company -- Liquidity
At January 31, 1995, when accrual of payments to assignors 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. In January 1997, the outstanding balance of payable to assignors of
$2.6 million (including interest of $45,000) was paid in full. Additionally,
effective March 1, 1997, the assignors received the first of 7 equal semi-annual
payments of $1,429,000 plus interest related to the repayment of the
subordinated debt. These payments are collateralized by a pledge of PEC's
outstanding stock. Interest of $218,000 was paid during the first half of fiscal
1997 related to payable to assignors and interest on subordinated debt of
$500,000 was paid during the first half of fiscal 1997.
During the 6 months ended February 28, 1997 and February 29, 1996, the
Company used cash of $31.2 million and $9.5 million, respectively, in operating
activities. During the 6 months ended February 28, 1997 and February 29, 1996,
the Company used cash of $5.1 million and $2.9 million, respectively, in
investing activities. During the 6 months ended February 28, 1997 and February
29, 1996, the Company provided cash of $52.3 million and $10.1 million,
respectively, from financing activities, which was substantially from the MMC
stock and debt offerings during the 1997 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.
25
<PAGE> 28
The components of the Company's debt, including lines of credit consist of
the following (thousands of dollars):
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
Notes collateralized by receivables.................... $ 38,369 $ 41,568
Mortgages collateralized by real estate properties..... 29,793 31,078
Notes collateralized by excess servicing rights and
mortgage related securities.......................... -- 10,000
Installment contracts and other notes payable.......... 12,503 1,803
------- -------
Total............................................. $ 80,665 $ 84,449
======= =======
</TABLE>
FINANCIAL CONDITION
February 28, 1997 compared to August 31, 1996
Cash and cash equivalents increased 502.3% to $19.2 million at February 28,
1997 from $3.2 million at August 31, 1996, primarily as a result of the use of
proceeds from the MMC common stock and debt offerings to acquire short term
investments after repayment of debt.
Restricted cash deposits increased 11.2% to $7.4 million at February 28,
1997 from $6.7 million at August 31, 1996 primarily due to an increase in the
level of securitizations.
Notes receivable, net, increased 21.4% to $49.2 million at February 28,
1997 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 loans 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
26
<PAGE> 29
and credit losses for notes receivable for the three and six months ended
February 28, 1997 consist of the following (thousands of dollars):
<TABLE>
<S> <C>
Balance at November 30, 1996....................................... $27,114
Provisions for credit losses and cancellations..................... 3,805
Amounts charged to allowance for cancellations..................... (4,811)
-------
Balance at February 28, 1997............................. $26,108
=======
Balance at August 31, 1996......................................... $26,253
Provisions for credit losses and cancellations..................... 5,516
Amounts charged to allowance for cancellations..................... (5,661)
-------
Balance at February 28, 1997............................. $26,108
=======
Allowance for cancellations and credit losses excluding valuation
discount......................................................... $14,018
Future estimated contingency for notes receivable sold with
recourse and valuation discount.................................. 12,090
Total.................................................... $26,108
=======
</TABLE>
Excess servicing rights decreased to $0 at February 28, 1997 from $14.3
million at August 31, 1996 due to the implementation of SFAS 125, which requires
the reclassification of excess servicing rights as mortgage related securities
which are carried at fair market value. 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 $67.1 million at February
28, 1997 and $22.9 million at August 31, 1996. The increase is due to the
increased value of loans originated and securitized and the reclassification of
excess servicing rights. See Note 6 of Notes to Consolidated Financial
Statements.
Mortgage servicing rights increased 51.7% to $5.8 million at February 28,
1997 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 $167.4 million
during the first half of fiscal 1997 from $56.4 million during the first half of
fiscal 1996.
Property and equipment, net, increased 20% to $24.3 million at February 28,
1997 from $20.3 million at August 31, 1996 due to increased purchases of office
equipment related to facility expansion and building, water, and sewer
improvements.
Notes and contracts payable decreased 4.5% to $80.7 million at February 28,
1997 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 increased to $24.3 million at
February 28, 1997 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 29.6% to $12.1 million at February 28, 1997 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. Recourse on some of the whole loan sales made by
MMC is limited to the future excess spread MMC will receive. 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.
27
<PAGE> 30
Income taxes payable increased 52.7% to $16.8 million at February 28, 1997
from $11 million at August 31, 1996 due to taxable income for the period and
taxes on the sale of MMC stock. See Note 4 of Notes to Consolidated Financial
Statements for further discussion. Based on a review of the prior years' federal
income tax returns, the Company has determined that an unrecognized net
operating loss carry forward (NOL) exists for federal income tax purposes. The
provision for federal income taxes has been reduced, due to partial utilization
of a portion of this NOL. The complete analysis of the taxes is not yet
complete, so the entire amount of the NOL has not yet been determined. The
reduction for fiscal 1997 has been accomplished based on a portion of the NOL
that has been identified. See Note 8 of Notes to Consolidated Financial
Statements.
Stockholders' equity increased 63.6% to $42.3 million at February 28, 1997
from $25.9 million at August 31, 1996 as a result of the sale of MMC stock, the
issuance of a warrant, valued at $3 million for the purchase of 1 million shares
of Mego Financial common stock, the exercise of warrants to purchase 300,000
shares of Mego common stock for an exercise price of $360,000, and net income
applicable to common stock of $5 million during the 6 months ended February 28,
1997. In February 1997, warrants outstanding to purchase 300,000 shares of the
Company's common stock at an exercise price of $1.20 per share were exercised in
full for $360,000 and 300,000 shares of the Company's common stock was
subsequently issued in March 1997.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events, including the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including, without
limitation, the following: decline in demand for home improvement and debt
consolidation loans; decline in demand for timeshare interests; increases in the
level of delinquencies on the Company's loans and receivables; the effect of
general economic conditions generally and specifically changes in interest
rates; the effect of competition; the Company's dependence 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 (the "Court"), 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 ("Nadler") filed a purported class action
complaint against the Company, certain of the Company's officers and directors,
and the Company's independent auditors. On January 2, 1997, Nadler withdrew his
"Class Member's Motion to be Included as a Class Representative," which had been
pending. On January 9, 1997, Nadler filed a "Plaintiff's Motion for Relief from
Certain Portions of Pre-Trial Order No. 1 Entered in Related Litigation." The
Company opposed that motion. On February 13, 1997, defendants moved to dismiss
Nadler's complaint. On March 13, 1997, Nadler filed a "Motion for the Filing of
a Consolidated Complaint and a Class Certification Motion, the Holding of a
Pretrial Conference and the Suspension of Briefing on Defendants' Motions to
Dismiss." The Company opposed that motion. On March 31, 1997 the Court denied
Nadler's motion to be included as a putative class representative and denied,
without prejudice to refiling after either the filing of a consolidated
complaint or a ruling on Nadler's motion for the filing of a consolidated
complaint, Nadler's motion for relief from certain portions of Pretrial Order
No. 1, Nadler's motion to consolidate and defendants' motions to dismiss
Nadler's complaint. The Company believes that it has substantial defenses to the
Nadler complaint; however, the Company presently cannot predict the outcome of
this matter.
28
<PAGE> 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<S> <C>
10.103 Subdivision Improvement Agreement dated March 7, 1995 between Preferred
Equities Corporation and the Board of County Commissioners of the County
of Nye, State of Nevada.
10.104 Subdivision Improvement Agreement dated February 20, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.105 Subdivision Improvement Agreement dated February 20, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.106 Subdivision Improvement Agreement dated December 17, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.107 Subdivision Improvement Agreement dated December 17, 1996 between
Preferred Equities and the Board of County Commissioners of the County of
Nye, State of Nevada.
10.108 Subdivision Improvement Agreement dated December 17, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.109 Subdivision Improvement Agreement dated December 17, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.110 Subdivision Improvement Agreement dated December 17, 1996 between
Preferred Equities Corporation and the Board of County Commissioners of
the County of Nye, State of Nevada.
10.111 Commitment letter between Preferred Equities Corporation and Finova
Capital Corporation dated March 3, 1997.
10.112 Employment Agreement between Mego Financial Corp. and Irving J. Steinberg.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
No reports on Form 8-K were filed during the period.
29
<PAGE> 32
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/ HERBERT B. HIRSCH
--------------------------------------
Herbert B. Hirsch
Senior Vice President,
Chief Financial Officer and Treasurer
Date: April 14, 1997
30
<PAGE> 1
EXHIBIT 10.103
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 7th day of March, 1995, by
and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
W I T N E S S E T H :
WHEREAS, at a regular meeting of the BOARD, held on the 7th day of
March, 1995, the DEVELOPER submitted a final Subdivision Map entitled "Calvada
Valley North Unit 4" consisting of 97 lots, and relating to the following
described property located within Nye County, Nevada:
A portion of Section 17, Township 19 South, Range 53 East, Mount Diablo
Base and Meridian, Nye County, State of Nevada; and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
-1-
<PAGE> 2
1. IMPROVEMENTS
The estimated cost of roads, water system, sewer system, and amenities
is provided by Crosby, Mead, Benton and Associates (see Exhibit A). The
estimated cost of surveying is provided by Sher-Rich Enterprises (see Exhibit
B).
1.1 Roads
Developer shall improve all portions of streets and roads which appear on said
map; namely, Atoll Drive, Megan Avenue, Annie Avenue, Edleen Place, Faust
Place, Fleetwood Place, Cosmic Place and Linda Street, in conformance with
plans submitted to, and approved by, the Public Works Department.
Cost: $58,010.00
1.2 Sewer Lines and Lift Station
Developer shall construct all sewer lines to service each lot including
laterals to each lot abutting Linda Street only; also including the required
lift station in conformance with plans and specifications approved by the
Nevada Division of Health.
Cost: $176,959.10
1.3 Water System
Developer shall construct water system lines to provide service to each lot
including laterals to each lot abutting Linda Street only, in conformance with
plans and specifications approved by the Nevada Division of Health.
Cost: $203,975.00
-2-
<PAGE> 3
1.4 Amenities
Developer shall construct all amenities related to the lift station
including 56 linear feet of 6' high masonry and 12' wide chain link gate.
Cost: $2,400.00
1.5 Surveying
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $3,800.00
Total Cost of Improvements: $445,144.10
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system, amenities and surveying is secured by: A Performance Bond
numbered 137-20-20 and dated March 13, 1995 (see Exhibit C) in the amount of
$489,658.51, representing 110% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and
-3-
<PAGE> 4
County standards, specifications, or ordinances even though the plans for the
improvement in question may have been approved by the BOARD's representative.
DEVELOPER must provide the BOARD copies of all reports, tests, inspections,
etc. that are required to be provided to state agencies. Also, DEVELOPER must
provide written certification that the construction was completed in accordance
with plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indicate the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same, including laterals and "Y's" for connection of
individual service lines.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement,
failing which the BOARD may, at its option, avail itself of the security
provided for the enforcement hereof to cause such improvements to be made by an
independent contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or nonperformance of the construction of the
subdivision improvements as provided herein or any and all other conditions of
this Agreement.
-4-
<PAGE> 5
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map
of the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ Richard Carver /s/ Frederick H. Conte
- ------------------------------- -----------------------------
Richard Carver, Vice-Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer
Preferred Equities Corporation
ATTEST:
/s/ Arte Robb
- -------------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-5-
<PAGE> 6
EXHIBIT A
- -------------------------------------------------------------------------------
CROSBY MEAD BENTON & ASSOCIATES
6345 Balboa, Blvd. Suite 140
Encino, CA 91316
Tel: (818) 343-5384
- -------------------------------------------------------------------------------
FINAL
**** CONSTRUCTION COST ESTIMATE ****
Job: CVN4SW Estimate Date: 27 February 1995
CALVADA NORTH UNIT NO. 4 SEWER MAIN By: Anthony
NOTE: 'c' after Item Dollar Amount Indicates Contingency Item.
Quantity Unit Cost Item Total
*** SANITARY SEWERS ***
Mains:
10" Pipe, PVC SDR-35.......... 3800 LF 14.30 54,340.00 c
8" Pipe, PVC SDR-35.......... 3995 LF 12.70 50,736.50 c
6" Pipe, PVC................. 606 LF 12.10 7,332.60 c
----------
Mains Subtotal: 112,409.10
Manholes:
Standard Manhole............ 27 EA 1,045.00 28,215.00 c
----------
Manholes Subtotal: 28,215.00
Miscellaneous:
Wye......................... 97 EA 55.00 5,335.00
Lift Station................ LS 31,000.00 c
----------
Miscellaneous Subtotal: 36,335.00
SANITARY SEWERS Subtotal: 176,959.10
Contingencies: 17,695.91
SANITARY SEWERS Total: 194,655.01
Page 1 of 2
<PAGE> 7
EXHIBIT A
Construction Cost Estimate - CVN4SW
Quantity Unit Cost Item Total
*** AMENITIES & SPECIAL CONSTRUCTION ***
Walls & Fences:
6' Masonry Wall.................... 56 LF 35.00 1,960.00 c
12' Chain Link Gate................ 1 EA 440.00 440.00 c
---------
Walls & Fences Subtotal: 2,400.00
AMENITIES & SPECIAL CONSTRUCTION Subtotal: 2,400.00
Contingencies: 240.00
AMENITIES & SPECIAL CONSTRUCTION Total: 2,640.00
*** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs):
SANITARY SEWERS: 176,959.10
AMENITIES & SPECIAL CONSTRUCTION: 2,400.00
----------
TOTAL COST WITHOUT CONTINGENCIES: 179,359.10
*** SUMMARY (Including Contingency Costs):
TOTAL OF COSTS SUBJECT TO CONTINGENCY: 179,359.10
CONTINGENCIES @ 10%: 17,935.91
TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00
----------
TOTAL ESTIMATED CONSTRUCTION COST: 197,295.01
AVERAGE COST PER LOT (97 LOTS): 2,033.97
NOTES:
1. Since Crosby, Mead, and Benton has no control over the cost of labor,
materials, or equipment, or over the contractor's methods of determining
prices, or over competitive bidding or market conditions, our opinions of
probable project cost or construction cost provided for herein are to be made
on the basis of our experience and qualifications and represent our best
judgment as design professionals familiar with the construction industry, but
Crosby, Mead, and Benton cannot, and does not, guarantee that proposals, bids,
or the construction cost will not vary from opinions of probable cost prepared
by the firm.
Page 2 of 2
<PAGE> 8
EXHIBIT A
CROSBY MEAD BENTON & ASSOCIATES
6345 Balboa Blvd. Suite 140
Encino, CA 91316
Tel: (818) 343-5384
FINAL
**** CONSTRUCTION COST ESTIMATE ****
Job: CVN4W Estimate Date: 27 February 1995
CALVADA NORTH UNIT NO. 4 WATER EST. By: ANTHONY
NOTE: 'c' after Item Dollar Amount Indicates Contingency Item.
Quantity Unit Cost Item Total
*** WATER DISTRIBUTION ***
Mains:
8" P.V.C., C-900 DR-18......... 4,631 LF 11.50 53,256.50 c
10" P.V.C., C-900 DR-18......... 2,950 LF 15.40 45,430.00 c
12" P.V.C., C-900 DR-18......... 1,355 LF 18.70 25,338.50 c
----------
Mains Subtotal: 124,025.00
Valves:
8" Valve Assembly............... 9 EA 495.00 4,455.00 c
10" Valve Assembly............... 7 EA 660.00 4,620.00 c
12" Valve Assembly............... 2 EA 990.00 1,980.00 c
----------
Valves Subtotal: 11,055.00
Meters:
1" House Service................ 97 EA 55.00 5,335.00
1" Meter & Box.................. 97 EA 275.00 26,675.00
----------
Special Assemblies:
Fire Hydrant & Assembly......... 15 EA 2,200.00 33,000.00
1" Combo Air/Vac Relief Valve... 1 EA 1,540.00 1,540.00
2" Blowoff...................... 2 EA 550.00 1,100.00
Elbow........................... 3 EA 55.00 165.00
Reducer (10"x8")................ 1 EA 55.00 55.00
Cross........................... 2 EA 55.00 110.00
Tee............................. 9 EA 55.00 495.00
----------
Special Assemblies Subtotal: 36,465.00
Page 1 of 2
<PAGE> 9
EXHIBIT A
Construction Cost Estimate - CVN4W
Quantity Unit Cost Item Total
Miscellaneous:
Thrust Blocks................ 15 EA 28.00 420.00 c
----------
Miscellaneous Subtotal: 420.00
WATER DISTRIBUTION Subtotal: 203,975.00
Contingencies: 20,397.50
WATER DISTRIBUTION Total: 224,372.50
*** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs):
WATER DISTRIBUTION: 203,975.00
----------
TOTAL COST WITHOUT CONTINGENCIES: 203,975.00
*** SUMMARY (Including Contingency Costs):
TOTAL OF COSTS SUBJECT TO CONTINGENCY: 203,975.00
CONTINGENCIES @ 10%: 20,397.50
TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00
----------
TOTAL ESTIMATED CONSTRUCTION COST: 224,372.50
AVERAGE COST PER LOT (97 LOTS): 2,313.12
NOTES:
1. Since Crosby, Mead, and Benton has no control over the cost of labor,
materials, or equipment, or over the contractor's methods of determining
prices, or over competitive bidding or market conditions, our opinions of
probable project cost or construction cost provided for herein are to be made
on the basis of our experience and qualifications and represent our best
judgment as design professionals familiar with the construction industry, but
Crosby, Mead, and Benton cannot, and does not, guarantee that proposals, bids,
or the construction cost will not vary from opinions of probable cost prepared
by the firm.
Page 2 of 2
<PAGE> 10
EXHIBIT A
- --------------------------------------------------------------------------------
CROSBY MEAD BENTON & ASSOCIATES
6345 Balboa Blvd. Suite 140
Encino, CA 91316
Tel: (818) 343-5384
- --------------------------------------------------------------------------------
FINAL
**** CONSTRUCTION COST ESTIMATE ****
Job: CVN4ST Estimate Date: 27 February 1995
CALVADA VALLEY NORTE UNIT NO. 4 STREET By: ANTHONY
NOTE: 'c' after Item Dollar Amount Indicates Contingency Item.
*** ROADWAY/STREET IMPROVEMENTS ***
Quantity Unit Cost Item Total
-------- --------- ----------
Pavements:
26'W-6" Gravel (60R/W full improv.) 4750 LF 5.50 26,125.00 c
13'W-6" Gravel (30R/W 1/2 ST imp).. 2495 LF 4.00 9,980.00 c
26' wide 2" AC ON 6" Base (LINDA St) 1685 LF 13.00 21,905.00 c
---------
Pavements Subtotal: 58,010.00
ROADWAY/STREET IMPROVEMENTS Subtotal: 58,010.00
Contingencies: 5,801.00
ROADWAY/STREET IMPROVEMENTS Total: 63,811.00
*** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs):
ROADWAY/STREET IMPROVEMENTS: 58,010.00
---------
TOTAL COST WITHOUT CONTINGENCIES: 58,010.00
*** SUMMARY (Including Contingency Costs):
TOTAL OF COSTS SUBJECT TO CONTINGENCY: 58,010.00
CONTINGENCIES @ 10%: 5,801.00
TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00
---------
TOTAL ESTIMATED CONSTRUCTION COST: 63,811.00
Page 1 of 2
<PAGE> 11
EXHIBIT B
[SHER-RICH ENTERPRISES LETTERHEAD]
Feb. 24, 1995
Nye County Planning
Box 531
Tonopah, Nevada 89049
ATT: Ron Williams
RE: CALVADA VALLEY NORTH UNIT 4
The monuments will be of the character shown and occupy the positions indicated
by the Calvada Valley unit 4 Plat and to be installed by February 1, 1997 and a
appropriate performance bond of $40.00 per lot to be posted with the Governing
Body to assure their installation.
Thank You
/s/ RICHARD L. HAFEN
- -------------------------
Richard L. Hafen
PLS 4428
[PROFESSIONAL LAND SURVEYOR STATE OF NEVADA No. 4428 SEAL]
RICHARD L. HAFEN
2/24/95
<PAGE> 12
EXHIBIT C
[INSURANCE COMPANY OF THE WEST LETTERHEAD]
Bond No. 137-20-20
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of Nevada as Surety, are held and firmly bound
unto COUNTY OF NYE, NEVADA in the sum of FOUR HUNDRED EIGHTY NINE THOUSAND SIX
HUNDRED FIFTY EIGHT AND 51/100 Dollars ($489,658.51), for the payment whereof,
well and truly to be made, said Principal and Surety bind themselves, their
heirs, administrators, successors, and assigns, jointly and severally, firmly
by these presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated March 7, 1995, with
the COUNTY OF NYE, NEVADA to do and perform the following work, to wit OFFSITE
IMPROVEMENTS AT CALVADA VALLEY NORTH UNIT 4, LOCATED WITHIN NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 13th day of MARCH, 1995.
Witness:
BY: /s/ [SIG]
----------------------------
PREFERRED EQUITIES CORPORATION
COUNTERSIGNED THIS 13th DAY OF BY: /s/ [SIG]
MARCH 1995 ----------------------------
BY: /s/ [SIG] Principal
----------------------------- Executive Vice President
(NEVADA AGENT)
INSURANCE COMPANY OF THE WEST
/s/ NORMAN E. GRATTAN, JR.
---------------------------------
NORMAN E. GRATTAN, JR.
ATTORNEY-IN-FACT
<PAGE> 13
STATE OF NEVADA
ss
COUNTY OF CLARK
[STACY ROBINSON SEAL]
STACY ROBINSON
Notary Public - Nevada
Clark County
My appt. exp. Nov. 15, 1998
On this 13TH day of MARCH, in the year 1995, before me, the undersigned Notary
Public, in and for the State of NEVADA, personally appeared NORMAN E. GRATTAN,
JR., personally known to me (or proven to me on the basis of satisfactory
evidence) to be the person who executed the written instrument as
Attorney-in-Fact on behalf of the Corporation therein named and acknowledged to
me that the Corporation executed it.
Given under my hand and the Notary Seal this 13TH day of MARCH A.D. 1995.
My Commission expires NOVEMBER 15, 1998.
/s/ STACY ROBINSON
-----------------------
Notary Public
<PAGE> 14
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a
Corporation duly authorized and existing under the laws of the State of
CALIFORNIA and having its principal office in the City of San Diego,
California, does hereby nominate, constitute and appoint:
NORMAN E. GRATTAN, JR.
its true and lawful Attorney(s)-in-Fact, with full power and authority hereby
conferred in its name, place and stead, to execute, seal, acknowledge and
deliver any and all bonds, undertakings, recognizances or other written
obligations in the nature thereof.
This Power of Attorney is granted and is signed and sealed by facsimile under
and by the authority of the following Resolution adopted by the Board of
Directors of INSURANCE COMPANY OF THE WEST at a meeting duly called and held on
the 16th day of AUGUST, 1991, which said Resolution has not been amended or
rescinded and of which the following is a true, full, and complete copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, be, and that each or
any of them is, authorized to execute Powers of Attorney qualifying the
attorney named in the given Power of Attorney to execute on behalf of the
Company, bonds, undertakings, and all contracts of suretyship; and that a Vice
President, an Assistant Vice President, a Secretary or an Assistant Secretary
be, and that each or any of them hereby is, authorized to attest the execution
of any such Power of Attorney, and to attach thereto the seal of the Company.
FURTHER RESOLVED, that the signature of such officers and the seal of
the Company may be affixed to any such Power of Attorney or to any certificate
relating thereto by facsimile, and any such Power of Attorney or certificate
bearing such facsimile signatures or facsimile seal shall be valid and binding
upon the Company when so affixed and in the future with respect to any bond,
undertaking or contract of suretyship to which it is attached.
FURTHER RESOLVED, that the Attorney-in-Fact may be given full power to
execute for and in the name of and on behalf of the Company any and all bonds
and undertakings as the business of the Company may require, and any such bonds
or undertakings executed by any such Attorney-in-Fact shall be as binding upon
the Company as if signed by an authorized officer of the Company."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused its official seal
to be hereunto affixed and these presents to be signed by its duly authorized
officers this 7th day of September, 1994.
[INSURANCE COMPANY OF THE WEST SEAL] INSURANCE COMPANY OF THE WEST
INCORPORATED MARCH 1, 1972
CALIFORNIA
STATE OF CALIFORNIA /s/ JOHN L. HANNUM
SS: ---------------------------------
COUNTY OF SAN DIEGO John L. Hannum, Senior Vice President
On this 7th day of September, 1994 before the subscriber, a Notary
Public of the State of California, in and for the County of San Diego, duly
commissioned and qualified, came John L. Hannum, Senior Vice President of
INSURANCE COMPANY OF THE WEST, to me personally known to be the individual and
officer described in and who executed the preceding instrument, and he
acknowledged the execution of the same, and being by me duly sworn, deposeth
and saith, that he is the said officer of the Corporation aforesaid, and that
the seal affixed to the preceding instrument is the Corporate Seal of the said
Corporation, and that the said Corporate Seal and his signature as such officer
were duly affixed and subscribed to the said instrument by the authority and
direction of the said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal,
at the City of San Diego, the day and year first above written.
[NORMAN PORTER SEAL]
STATE OF CALIFORNIA /s/ NORMA PORTER
SS: ---------------------------------
COUNTY OF SAN DIEGO Notary Public
I, the undersigned, E. Harned Davis, Vice President of INSURANCE
COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of
which the foregoing is a full, true and correct copy, is in full force and
effect, and has not been revoked.
IN WITNESS WHEREOF, I have hereunto subscribed my name as Vice
President, and affixed the Corporate Seal of the Corporation, this 13TH day of
MARCH, 1995.
[INSURANCE COMPANY OF THE WEST SEAL] INSURANCE COMPANY OF THE WEST
INCORPORATED MARCH 1, 1972
CALIFORNIA
STATE OF CALIFORNIA /s/ E. HARNED DAVIS
SS: ---------------------------------
COUNTY OF SAN DIEGO E. Harned Davis
Vice President
<PAGE> 15
[STAMP]
OFFICIAL RECORDS
NYE. CO. NEV.
Preferred Equities Corp.
'95 MAR 23 A9:38
369308
NAOMA LYDON
RECORDER
FEE 21.00 DEP top
<PAGE> 1
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 20th day of February, 1996,
by and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
W I T N E S S E T H:
WHEREAS, at a regular meeting of the BOARD, held on the 20th day of
February, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Amended Plat of Calvada Valley Unit 5, Block 26, Lot 7" consisting of 6 lots,
and relating to the following described property located within Nye County,
Nevada:
Calvada Valley Unit 5, Block 26, Lot 7; being a portion of Section 28,
Township 20 South, Range 53 East, Mount Diablo Base and Meridian, Nye
County, State of Nevada; and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
-1-
<PAGE> 2
1. IMPROVEMENT
-----------
The estimated cost of surveying is provided by Crosby, Mead, Benton &
Associates
(see Exhibit A).
1.1 Surveying
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $250
Total Cost of Improvements: $250
2. SECURITY
--------
The complete performance of the surveying is secured by: A Performance
Bond numbered 147-84-97 and dated February 12, 1996 (see Exhibit B) in the
amount of $287.00, representing 115% of the estimated cost of said improvement.
3. APPROVAL OF WORK AFTER INSPECTION
---------------------------------
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even
though the plans for improvement in question may have been approved by the
BOARD's representative.
-2-
<PAGE> 3
DEVELOPER must provide the BOARD copies of all reports, tests, inspections,
etc. that are required to be provided to state agencies. Also, DEVELOPER must
provide written certification that the construction was completed in accordance
with plans and specifications.
4. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement,
failing which the BOARD may, at its option, avail itself of the security
provided for the enforcement hereof to cause such improvement to be made by an
independent contractor at the expense of the DEVELOPER or the security.
5. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or nonperformance of the construction of the
subdivision improvements as provided herein or any and all other conditions of
this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map
of the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
-3-
<PAGE> 4
6. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ------------------------------- -----------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer
Preferred Equities Corporation
ATTEST:
/s/ NICOLE L. TISUE Deputy
- -------------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4-
<PAGE> 5
EXHIBIT A
[CROSBY MEAD BENTON & ASSOCIATES LETTERHEAD]
[SEAL]
February 15, 1996
CALVADA VALLEY UNIT 5, BLOCK 10, LOT 1, QUANTITY/COST ESTIMATE
ROAD IMPROVEMENTS
Item Quantity Cost Unit Total
- ---- -------- ---- ---- -----
2" AC on 6" base 1,130 $13. L.F. $14,690
GRADING IMPROVEMENTS
Item Quantity Cost Unit Total
- ---- -------- ---- ---- -----
Excavation 21,200 $0.75 CY $15,900
TRACT MONUMENTATION
Item Quantity Cost Unit Total
- ---- -------- ---- ---- -----
Lot Monumentation 17 $50 EA $ 850
-------
Total $31,440
CALVADA VALLEY UNIT 5, BLOCK 26, LOT 7, QUANTITY/COST ESTIMATE
TRACT MONUMENTATION
Item Quantity Cost Unit Total
- ---- -------- ---- ---- -----
Lot Monumentation 5 $50 EA $ 250
-------
Total $ 250
<PAGE> 6
EXHIBIT B - PAGE 1 OF 2
[INSURANCE COMPANY OF THE WEST LETTERHEAD]
Bond No. 147-84-97
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of THIRTY SIX THOUSAND FOUR HUNDRED FORTY THREE
AND NO/100*** Dollars ($36,443.00******), for the payment whereof, well and
truly to be made, said Principal and Surety bind themselves, their heirs,
administrators, successors, and assigns, jointly and severally, firmly by these
presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated _____________, 19___,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
ONSITE IMPROVEMENTS FOR CALVADA VALLEY, UNIT 5, BLOCK 10, LOT 1 AND
CALVADA VALLEY, UNIT 5, BLOCK 26, LOT 7
NOW THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 12th day of FEBRUARY , 1996.
---------- ----------------------------
Witness:
BY: /s/ BARBARA S. PERFECT
---------------------------- PREFERRED EQUITIES CORPORATION
BY: /s/ SEDGWICK JAMES OF NV, INC. BY: [SIG ILLEGIBLE]
---------------------------- -------------------------------
COUNTERSIGNED THIS 13th DAY OF Principal
1996 Vice President/Secretary
- -------------------------
BY: [SIG ILLEGIBLE]
---------------------------- INSURANCE COMPANY OF THE WEST
(NEVADA AGENT)
SEDGWICK JAMES OF NEVADA, INC. /s/ Debbie K. Bailey
3380 W. SAHARA AVE. #100 ----------------------------------
LAS VEGAS, NV 89102 DEBBIE K. BAILEY ATTORNEY-IN-FACT
<PAGE> 7
EXHIBIT B - PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE:
I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in full force and effect, and that this certificate may be
signed by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 12TH day of FEBRUARY 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HARNED DAVIS
------------------------------
E. Harned Davis, Vice President
[OFFICIAL REQUEST STAMP
NYE CO. NEV. RECORDER]
<PAGE> 1
EXHIBIT 10.105
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 20th day of February, 1996,
by and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
WITNESSETH:
WHEREAS, at a regular meeting of the BOARD, held on the 20th day of
February, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Amended Plat of Calvada Valley Unit 5, Block 10, Lot 1" consisting of 17 lots,
and relating to the following described property located within Nye County,
Nevada:
Calvada Valley Unit 5, Block 10, Lot 1; being a portion of Section 32,
Township 20 South, Range 53 East, Mount Diablo Base and Meridian, Nye
County, State of Nevada; and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
-1- 2 of 2 Originals
<PAGE> 2
1. IMPROVEMENTS
The estimated cost of all improvements is provided by Crosby, Mead,
Benton and Associates (see Exhibit A).
1.1 Roads
Developer shall improve all portions of streets and roads which appear on said
map; namely, Zephyr Avenue, in conformance with plans submitted to, and approved
by, the Public Works Department.
Cost: $14,690
1.2 Removal of Shooting Range Berm
Cost: $15,900
1.3 Surveying
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $850
Total Cost of Improvements: $31,440
2. SECURITY
The complete performance of construction of the roads and surveying is
secured by: A Performance Bond numbered 147-84-97 and dated February 12, 1996
(see Exhibit B) in the amount of $36,156., representing 115% of the estimated
cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
-2- 2 of 2 Originals
<PAGE> 3
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even though
the plans for the improvement in question may have been approved by the BOARD's
representative. DEVELOPER must provide the BOARD copies of all reports, tests,
inspections, etc. that are required to be provided to state agencies. Also,
DEVELOPER must provide written certification that the construction was completed
in accordance with plans and specifications.
4. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
5. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or nonperformance of the construction of the
subdivision improvements as provided herein or any and all other conditions of
this Agreement.
-3- 2 of 2 Originals
<PAGE> 4
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map of
the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer
Preferred Equities Corporation
ATTEST:
/s/ NICOLE L. TISUE DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
[CROSBY MEAD BENTON & ASSOCIATES LETTERHEAD]
[ALAN C. MEAD CIVIL
REGISTERED PROFESSIONAL ENGINEER -- STATE OF NEVADA
NO. 05299]
February 15, 1996
CALVADA VALLEY UNIT 5, BLOCK 10, LOT 1, QUANTITY/COST ESTIMATE
<TABLE>
<CAPTION>
ROAD IMPROVEMENTS
Item Quantity Cost Unit Total
- ---- -------- ----- ---- -------
<S> <C> <C> <C> <C>
2" AC ON 6" base 1130 $13. L.F. $14,690
GRADING IMPROVEMENTS
Item Quantity Cost Unit Total
- ---- -------- ----- ---- -------
<S> <C> <C> <C> <C>
Excavation 21,200 $0.75 CY $15,900
TRACT MONUMENTATION
Item Quantity Cost Unit Total
- ---- -------- ----- ---- -------
<S> <C> <C> <C> <C>
Lot Monumentation 17 $50 EA $ 850
-------
Total $31,440
CALVADA VALLEY UNIT 5, BLOCK 26, LOT 7, QUANTITY/COST ESTIMATE
TRACT MONUMENTATION
Item Quantity Cost Unit Total
- ---- -------- ----- ---- -------
<S> <C> <C> <C> <C>
Lot Monumentation 5 $50 EA $ 250
-------
Total $ 250
</TABLE>
<PAGE> 6
EXHIBIT B -- PAGE 1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 147-84-97
Subdivision Bond
Faithful Performance -- Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of THIRTY SIX THOUSAND FOUR HUNDRED FORTY THREE
AND NO/100*** Dollars ($36,443.00******), for the payment whereof, well and
truly to be made, said Principal and Surety bind themselves, their heirs,
administrators, successors, and assigns, jointly and severally, firmly by these
presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated _____________, 19__,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
ONSITE IMPROVEMENTS FOR CALVADA VALLEY, UNIT 5, BLOCK 10, LOT 1 AND
CALVADA VALLEY, UNIT 5, BLOCK 26, LOT 7
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 12TH day of FEBRUARY, 1996.
Witness:
BY: Barbara S. Perfect PREFERRED EQUITIES CORPORATION
- ----------------------------------
BY: [SIG]
BY: Sedgwick James of Nevada, Inc. ----------------------------------
- ---------------------------------- Vice President/Secretary
COUNTERSIGNED THIS 13th day of
February 1996
INSURANCE COMPANY OF THE WEST
BY: Cheryl Koon
- ---------------------------------- Debbie K. Bailey
(NEVADA AGENT) ----------------------------------
DEBBIE K. BAILEY ATTORNEY-IN-FACT
SEDGWICK JAMES OF NEVADA, INC.
3380 W. SAHARA AVE. #100
LAS VEGAS, NV 89102
<PAGE> 7
EXHIBIT B - PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a
California Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named
in the given Power of Attorney to execute on behalf of the Company, fidelity
and surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of
any notary, and the signatures of any officers certifying the validity of the
Power of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[SEAL]
/s/ John L. Hannum
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Norma Porter
[NOTARY PUBLIC STAMP] ------------------------------
Notary Public
CERTIFICATE:
I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is
a true copy, is still in full force and effect, and that this certificate may
be signed by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 12TH day of FEBRUARY 1996.
INSURANCE COMPANY OF THE WEST
[SEAL] /s/ E. Harned Davis
------------------------------
E. Harned Davis, Vice President
[STAMP]
OFFICIAL RECEIPT
NYE, CO. NEV.
RECORD REQUESTED BY
PREFERRED EQUITIES CORP.
'96 APR - P4:16
0 393099
NAOMA LYDON
RECORDER
FEE 13.00 DEP PH
<PAGE> 1
EXHIBIT 10.106
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of December, 1996 by
and between Preferred Equities Corporation (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
W I T N E S S E T H :
WHEREAS, at a regular meeting of the BOARD, held on the 17th day of
December, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Calvada Meadows Unit 4," Assessor's parcel numbers 27-301-12 and 27-301-13,
consisting of 443 lots, located within the Town of Pahrump, Nye County, Nevada;
and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
1. IMPROVEMENTS
The estimated cost of roads, water system, on- and off-site sewer
system and surveying is provided by Crosby, Mead, Benton and Associates (see
Exhibit A).
1.1 ROADS
Developer shall improve all portions of streets and roads which appear on said
map in conformance with plans submitted to, and approved by, the
-1- 2 of 2 Originals
<PAGE> 2
Public Works Department.
Cost: $240,190.00
1.2 ON- AND OFF-SITE SEWER SYSTEM LINES
Developer shall construct all on- and off-site sewer lines in conformance with
plans and specifications approved by the Nevada Division of Health.
Cost: $1,065,323.00
1.3 ON-SITE WATER SYSTEM LINES
Developer shall construct water system lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $850,635.25
1.4 SURVEYING
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $17,720.00
Total Cost of Improvements: $2,173,868.25
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system and surveying is secured by: A Performance Bond numbered 149-37-90
and dated Dec 19, 1996 (see Exhibit B) in the amount of $2,499,948.49,
representing 115% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
-2- 2 of 2 Originals
<PAGE> 3
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even though
the plans for the improvement in question may have been approved by the BOARD's
representative. DEVELOPER must provide the BOARD copies of all reports, tests,
inspections, etc. that are required to be provided to state agencies. Also,
DEVELOPER must provide written certification that the construction was completed
in accordance with plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indicate the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or
-3- 2 of 2 Originals
<PAGE> 4
nonperformance of the construction of the subdivision improvements as provided
herein or any and all other conditions of this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map of
the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer,
Preferred Equities Corporation
ATTEST:
/s/ SANDRA L. MERLINO, DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
1 OF 3
Improvement Bond Estimates
for the following subdivisions:
Calvada North Unit 1, Block 37
Calvada North Unit 1, Block 57
Calvada North Unit 3, Block 24
Calvada Valley Unit 4a, Block 5
Country Place II, Unit 4, Block 17
Calvada Meadows Unit 4
Prepared by: Crosby Mead Benton & Associates
6345 Balboa Blvd., Suite 140
Encino, CA 91315
(818) 343-5384
[ SEAL OF ]
[ REGISTERED PROFESSIONAL ENGINEER ]
[ STATE OF NEVADA ]
[ No. 05299 ]
<PAGE> 6
12/16/96 EXHIBIT B
PAGE 1
CALVADA MEADOWS UNIT 4
443-1/4 ACRE LOTS
<TABLE>
<CAPTION>
STREET IMPROVEMENTS
- -------------------
<S> <C>
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
6" Gravel incl/Grading 22,585 LF 9.00 203,265.00
6" Gravel incl/Grading 1/2 Rd 5,275 LF 7.00 36,925.00
------------
TOTAL STREET IMPROVEMENTS 240,190.00
SEWER SYSTEM ONSITE
- -------------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
8" PVC 24,391 LF 15.00 365,865.00
10" PVC 270 LF 16.75 4,522.50
Manholes 74 EA 1,650.00 122,100.00
Pipe bedding 24,661 LF 2.50 61,652.50
------------
SUBTOTAL SEWER SYSTEM ONSITE 554,140.00
SEWER SYSTEM OFFSITE
- --------------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
10" PVC 300 LF 16.75 5,025.00
12" PVC 16,072 LF 19.00 305,368.00
8" PVC Sewer Force Main 6,280 LF 13.00 81,640.00
Manholes 51 EA 1,650.00 84,150.00
Sewer Lift Station 1 LS 35,000.00 35,000.00
------------
SUBTOTAL SEWER SYSTEM OFFSITE 511,183.00
TOTAL SEWER SYSTEM 1,065,323.00
</TABLE>
<PAGE> 7
12/16/96 EXHIBIT B
PAGE 2
CALVADA MEADOWS UNIT 4
443-1/4 ACRE LOTS
<TABLE>
<CAPTION>
WATER SYSTEM ONSITE
- -------------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
<S> <C> <C> <C>
8" PVC 18,207 LF 15.00 273,105.00
12" PVC 5,136 LF 18.75 96,300.00
16" PVC 5,127 LF 25.75 132,020.25
8" Water Valve 47 EA 550.00 25,850.00
12" Water Valve 12 EA 950.00 11,400.00
16" Water Valve 11 EA 1,350.00 14,850.00
8" Cross 10 EA 400.00 4,000.00
8" Tee 5 EA 305.00 1,525.00
12" Cross 2 EA 700.00 1,400.00
12" Tee 8 EA 575.00 4,600.00
16" Cross 3 EA 1,225.00 3,675.00
16" Tee 6 EA 985.00 5,910.00
Fire Hydrants 58 EA 2,000.00 116,000.00
Water wells, Pumps & Hydro tank 2 EA 80,000.00 160,000.00
------------
SUBTOTAL WATER SYSTEM ONSITE 850,635.25
TOTAL WATER SYSTEM 850,635.25
FIELD SURVEY
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
Set Monumentation 443 LOT 40.00 17,720.00
------------
TOTAL FIELD SURVEY 17,720.00
SUBTOTAL CONSTRUCTION COSTS 2,173,868.25
15% CONTINGENCY 326,080.24
------------
TOTAL CONSTRUCTION COSTS 2,499,948.49
</TABLE>
<PAGE> 8
EXHIBIT B
1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 149-37-90
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of TWO MILLION FOUR HUNDRED NINETY-NINE
THOUSAND NINE HUNDRED FORTY-EIGHT AND 49/100 Dollars ($2,499,948.49), for the
payment whereof, well and truly to be made, said Principal and Surety bind
themselves, their heirs, administrators, successors and assigns, jointly and
severally, firmly by these presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated DECEMBER 17, 1996,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
OFFSITE IMPROVEMENTS AT CALVADA MEADOWS UNIT 4
443-1/4 ACRE LOTS LOCATED WITHIN NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 19TH day of DECEMBER, 1996.
Witness:
BY: PREFERRED EQUITIES CORPORATION
------------------------------
BY: /s/ [ILLEGIBLE]
COUNTERSIGNED THIS 19TH DAY OF -------------------
DECEMBER, 1996 Principal
BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST
---------------------
(NEVADA AGENT) /s/ DEBBIE K. BAILEY
----------------------------------
Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT
- ------------------------
<PAGE> 9
EXHIBIT B
2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE
I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in force and effect, and that this certificate may be signed
by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 19TH day of DECEMBER 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HARNED DAVIS
------------------------------
E. Harned Davis, Vice President
[OFFICIAL REQUEST STAMP
NYE CO. NEV. RECORDER]
<PAGE> 1
EXHIBIT 10.107
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of December, 1996 by
and between Preferred Equities Corporation (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
WITNESSETH:
WHEREAS, at a regular meeting of the BOARD, held on the 17th day of
December, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Calvada Valley Unit 4A, Block 5, Lots 16 and 28," Assessor's parcel numbers
40-472-37 and 40-472-28, consisting of 26 lots, located within the Town of
Pahrump, Nye County, Nevada; and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
1. IMPROVEMENTS
The estimated cost of roads, water system, sewer system and surveying is
provided by Crosby, Mead, Benton and Associates (see Exhibit A).
1.1 ROADS
Developer shall improve all portions of streets and roads which appear on said
map in conformance with plans submitted to, and approved by, the
-1- 2 of 2 Originals
<PAGE> 2
Public Works Department.
Cost: $16,650.00
1.2 ON-SITE WATER SYSTEM LINES
Developer shall construct water system lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $36,390.00
1.3 SURVEYING
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $1,300.00
Total Cost of Improvements: $54,340.00
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system and surveying is secured by: A Performance Bond numbered 149-37-89
and dated Dec 19, 1996 (see Exhibit B) in the amount of $62,491.00,
representing 115% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and
-2- 2 of 2 Originals
<PAGE> 3
County standards, specifications, or ordinances even though the plans for the
improvement in question may have been approved by the BOARD's representative.
DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc.
that are required to be provided to state agencies. Also, DEVELOPER must provide
written certification that the construction was completed in accordance with
plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indicate the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or nonperformance of the construction of the
subdivision improvements as provided herein or any and all other conditions of
this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless
-3- 2 of 2 Originals
<PAGE> 4
of the status of ownership of the real property or any portion thereof made the
subject of the final Subdivision Map of the Subdivision referred to in this
Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer,
Preferred Equities Corporation
ATTEST:
/s/ SANDRA L. MERLINO, DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
1 OF 2
Improvement Bond Estimates
for the following subdivisions:
Calvada North Unit 1, Block 37
Calvada North Unit 1, Block 57
Calvada North Unit 3, Block 24
Calvada Valley Unit 4a, Block 5
Country Place II, Unit 4, Block 17
Calvada Meadows Unit 4
Prepared by: Crosby Mead Benton & Associates
6345 Balboa Blvd., Suite 140
Encino, CA 91315
(818) 343-5384
[ SEAL OF ]
[ REGISTERED PROFESSIONAL ENGINEER ]
[ STATE OF NEVADA ]
[ No. 05299 ]
<PAGE> 6
12/16/96 EXHIBIT A
PAGE 2 OF 2
CALVADA VALLEY
UNIT 4A, BLK 5, LOT 16, 28
<TABLE>
<CAPTION>
STREET IMPROVEMENTS
- -------------------
<S> <C>
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
6" Gravel Road incl/Grading 1850 LF 9.00 16,650.00
TOTAL STREET IMPROVEMENTS 16,650.00
WATER SYSTEM
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
8" PVC 1676 LF 15.00 25,140.00
8" Water Valve 4 EA 550.00 2,200.00
Fire Hydrants Assembly 4 EA 2,000.00 8,000.00
8" Tee 3 EA 350.00 1,050.00
TOTAL WATER SYSTEM 36,390.00
FIELD SURVEY
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
Survey Monuments 26 EA 50.00 1,300.00
TOTAL FIELD SURVEY 1,300.00
SUBTOTAL CONSTRUCTION COSTS 54,340.00
15% CONTINGENCY 8,151.00
TOTAL CONSTRUCTION COSTS 62,491.00
------------
</TABLE>
<PAGE> 7
EXHIBIT B
1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 149-37-89
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of SIXTY-TWO THOUSAND FOUR HUNDRED NINETY-ONE
AND NO/100 Dollars ($62,491.00), for the payment whereof, well and truly to be
made, said Principal and Surety bind themselves, their heirs, administrators,
successors and assigns, jointly and severally, firmly by these presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated DECEMBER 17, 1996,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
OFFSITE IMPROVEMENTS AT CALVADA VALLEY
UNIT 4A, BLK 5, LOT 16, 26 LOCATED WITHIN
NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 19TH day of DECEMBER, 1996.
Witness:
BY: PREFERRED EQUITIES CORPORATION
------------------------------
BY: [SIG.]
COUNTERSIGNED THIS 19TH DAY OF -------------------
DECEMBER, 1996 Principal
BY: /s/ [SIG.] INSURANCE COMPANY OF THE WEST
---------------------
(NEVADA AGENT) /s/ DEBBIE K. BAILEY
----------------------------------
Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT
- ------------------------
<PAGE> 8
EXHIBIT B - PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE
I, E. Hamed Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in force and effect, and that this certificate may be signed
by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 19TH day of DECEMBER 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HAMED DAVIS
------------------------------
E. Hamed Davis, Vice President
[OFFICIAL REQUEST STAMP
NYE CO. NEV. RECORDER]
<PAGE> 1
EXHIBIT 10.108
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of December, 1996 by
and between Preferred Equities Corporation (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
WITNESSETH:
WHEREAS, at a regular meeting of the BOARD, held on the 17th day of
December, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Calvada North Unit 3, Block 24, Lot 12," Assessor's parcel number 31-293-06,
consisting of 41 lots, located within the Town of Pahrump, Nye County, Nevada;
and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
1. IMPROVEMENTS
The estimated cost of roads, water system, sewer system and surveying
is provided by Crosby, Mead, Benton and Associates (see Exhibit A).
1.1 ROADS
Developer shall improve all portions of streets and roads which appear on said
map in conformance with plans submitted to, and approved by, the
-1- 2 of 2 Originals
<PAGE> 2
Public Works Department.
Cost: $14,850.00
1.2 SITE SEWER SYSTEM LINES
Developer shall construct all sewer lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $43,739.25
1.3 ON-SITE WATER SYSTEM LINES
Developer shall construct water system lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $72,357.50
1.4 SURVEYING
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $2,050.00
Total Cost of Improvements: $132,996.75
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system and surveying is secured by: A Performance Bond numbered 149-37-88
and dated Dec 19, 1996 (see Exhibit B) in the amount of $152,946.26,
representing 115% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
-2- 2 of 2 Originals
<PAGE> 3
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even though
the plans for the improvement in question may have been approved by the BOARD's
representative. DEVELOPER must provide the BOARD copies of all reports, tests,
inspections, etc. that are required to be provided to state agencies. Also,
DEVELOPER must provide written certification that the construction was completed
in accordance with plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indicate the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or
-3- 2 of 2 Originals
<PAGE> 4
nonperformance of the construction of the subdivision improvements as provided
herein or any and all other conditions of this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map of
the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer,
Preferred Equities Corporation
ATTEST:
/s/ SANDRA L. MERLINO, DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
1 OF 2
Improvement Bond Estimates
for the following subdivisions:
Calvada North Unit 1, Block 37
Calvada North Unit 1, Block 57
Calvada North Unit 3, Block 24
Calvada Valley Unit 4a, Block 5
Country Place II, Unit 4, Block 17
Calvada Meadows Unit 4
Prepared by: Crosby Mead Benton & Associates
6345 Balboa Blvd., Suite 140
Encino, CA 91315
(818) 343-5384
[ SEAL OF ]
[ REGISTERED PROFESSIONAL ENGINEER ]
[ STATE OF NEVADA ]
[ No. 05299 ]
<PAGE> 6
12/16/96 EXHIBIT A
PAGE 2 OF 2
CALVADA VALLEY NORTH
UNIT NO. 3, BLK 24, LOT 12
<TABLE>
<CAPTION>
STREET IMPROVEMENTS
- -------------------
<S> <C>
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
6" Gravel Road incl/Grading 1650 LF 9.00 14,850.00
TOTAL STREET IMPROVEMENTS 14,850.00
SEWER SYSTEM
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
8" PVC 603 LF 15.00 9,045.00
10" PVC 1331 LF 16.75 22,294.25
Manholes 8 EA 1,500.00 12,000.00
Conc. Enc'mt 40 LF 10.00 400.00
TOTAL SEWER SYSTEM 43,739.25
WATER SYSTEM
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
8" PVC 3251 LF 15.00 48,765.00
10" PVC 310 LF 16.75 5,192.50
8" Water Valve 6 EA 550.00 3,300.00
8" Tee 1 EA 350.00 350.00
10" Tee 2 EA 500.00 1,000.00
Road Crossing 2 EA 500.00 1,000.00
10" Water Valve 1 EA 750.00 750.00
Fire Hydrants Assembly 5 EA 2,000.00 10,000.00
Fire Hydrants Assembly (No FH) 2 EA 1,000.00 2,000.00
TOTAL WATER SYSTEM 72,357.50
FIELD SURVEY
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
Survey Monuments 41 EA 50.00 2,050.00
TOTAL FIELD SURVEY 2,050.00
SUBTOTAL CONSTRUCTION COSTS 132,996.75
15% CONTINGENCY 19,949.51
TOTAL CONSTRUCTION COSTS 152,946.26
------------
</TABLE>
<PAGE> 7
EXHIBIT B
1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 149-37-88
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of ONE HUNDRED FIFTY-TWO THOUSAND NINE HUNDRED
FORTY-SIX AND 26/100 Dollars ($152,946.26), for the payment whereof, well and
truly to be made, said Principal and Surety bind themselves, their heirs,
administrators, successors and assigns, jointly and severally, firmly by these
presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contracted dated _________________,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH
UNIT NO. 3, BLK 24, LOT 12 LOCATED WITHIN
NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 19TH day of DECEMBER, 1996.
Witness:
BY: PREFERRED EQUITIES CORPORATION
------------------------------
BY: /s/ [ILLEGIBLE]
COUNTERSIGNED THIS 19TH DAY OF -------------------
DECEMBER, 1996 Principal
BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST
---------------------
(NEVADA AGENT) /s/ DEBBIE K. BAILEY
----------------------------------
Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT
- ------------------------
<PAGE> 8
EXHIBIT B - PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE
I, E. Hamed Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in force and effect, and that this certificate may be signed
by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 19TH day of DECEMBER 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HARNED DAVIS
------------------------------
E. Harned Davis, Vice President
[OFFICIAL REQUEST STAMP
NYE CO. NEV. RECORDER]
<PAGE> 1
EXHIBIT 10.109
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of December 1996 by
and between Preferred Equities Corporation (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
WITNESSETH:
WHEREAS, at a regular meeting of the BOARD, held on the 17th day of
December, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Calvada North Unit 1, Block 57, Lot 101," Assessor's parcel number 30-161-01,
consisting of 50 lots, located within the Town of Pahrump, Nye County, Nevada;
and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
1. IMPROVEMENTS
The estimated cost of roads, water system, sewer system and surveying
is provided by Crosby, Mead, Benton and Associates (see Exhibit A).
1.1 ROADS
Developer shall improve all portions of streets and roads which appear on said
map in conformance with plans submitted to, and approved by, the
-1- 2 of 2 Originals
<PAGE> 2
Public Works Department.
Cost: $21,240.00
1.2 ON SITE SEWER SYSTEM LINES
Developer shall construct all sewer lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $41,565.00
1.3 ON-SITE WATER SYSTEM LINES
Developer shall construct water system lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $52,130.00
1.4 SURVEYING
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $2,500.00
Total Cost of Improvements: $117,435.00
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system and surveying is secured by: A Performance Bond numbered 149-37-86
and dated Dec 19, 1996 (see Exhibit B) in the amount of $135,050.25,
representing 115% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
-2- 2 of 2 Originals
<PAGE> 3
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even though
the plans for the improvement in question may have been approved by the BOARD's
representative. DEVELOPER must provide the BOARD copies of all reports, tests,
inspections, etc. that are required to be provided to state agencies. Also,
DEVELOPER must provide written certification that the construction was completed
in accordance with plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indict the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or
-3- 2 of 2 Originals
<PAGE> 4
nonperformance of the construction of the subdivision improvements as provided
herein or any and all other conditions of this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map of
the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer,
Preferred Equities Corporation
ATTEST:
/s/ SANDRA L. MERLINO, DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
1 OF 2
Improvement Bond Estimates
for the following subdivisions:
Calvada North Unit 1, Block 37
Calvada North Unit 1, Block 57
Calvada North Unit 3, Block 24
Calvada Valley Unit 4a, Block 5
Country Place II, Unit 4, Block 17
Calvada Meadows Unit 4
Prepared by: Crosby Mead Benton & Associates
6345 Balboa Blvd., Suite 140
Encino, CA 91316
(818) 343-5384
[ SEAL OF ]
[ REGISTERED PROFESSIONAL ENGINEER ]
[ STATE OF NEVADA ]
[ No. 05299 ]
<PAGE> 6
12/16/96 EXHIBIT A
PAGE 2 OF 2
CALVADA VALLEY NORTH
UNIT NO. 1, BLOCK 57, LOT 101
<TABLE>
<CAPTION>
STREET IMPROVEMENTS
- -------------------
<S> <C>
UNIT
DESCRIPTION QTY UNIT PRICE TOTAL
6" Gravel Road incl/Grading 2360 LF 9.00 21,240.00
TOTAL STREET IMPROVEMENTS 21,240.00
SEWER SYSTEM
- ------------
UNIT
DESCRIPTION QTY UNIT PRICE TOTAL
8" PVC 1971 LF 15.00 29,565.00
Manholes 8 EA 1500.00 12,000.00
TOTAL SEWER SYSTEM 41,565.00
WATER SYSTEM
- ------------
UNIT
DESCRIPTION QTY UNIT PRICE TOTAL
8" PVC 2202 LF 15.00 33,030.00
8" Water Valve 7 EA 550.00 3,850.00
Fire Hydrants Assembly 6 EA 2,000.00 12,000.00
8" Tee 3 EA 350.00 1,050.00
12" Tee 2 EA 600.00 1,200.00
Road crossing 2 EA 500.00 1,000.00
TOTAL WATER SYSTEM 52,130.00
FIELD SURVEY
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
Survey Monuments 50 EA. LOT 50.00 2,500.00
TOTAL FIELD SURVEY 2,500.00
SUBTOTAL CONSTRUCTION COSTS 117,435.00
15% CONTINGENCY 17,615.25
TOTAL CONSTRUCTION COSTS 135,050.25
------------
</TABLE>
<PAGE> 7
EXHIBIT B
1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 149-37-86
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of ONE HUNDRED THIRTY-FIVE THOUSAND FIFTY
DOLLARS AND 25/100 Dollars ($135,050.25), for the payment whereof, well and
truly to be made, said Principal and Surety bind themselves, their heirs,
administrators, successors and assigns, jointly and severally, firmly by these
presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated DECEMBER 17, 1996,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH
UNIT NO. 1, BLK 57, LOT 101 LOCATED WITHIN
NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 19TH day of DECEMBER, 1996.
Witness:
BY: PREFERRED EQUITIES CORPORATION
------------------------------
BY: /s/ [ILLEGIBLE]
COUNTERSIGNED THIS 19TH DAY OF -------------------
DECEMBER, 1996 Principal
BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST
---------------------
(NEVADA AGENT) /s/ DEBBIE K. BAILEY
----------------------------------
Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT
- ------------------------
<PAGE> 8
EXHIBIT B - PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE
I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in force and effect, and that this certificate may be signed
by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 19TH day of DECEMBER 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HARNED DAVIS
------------------------------
E. Harned Davis, Vice President
[OFFICIAL REQUEST STAMP
NYE CO. NEV. RECORDER]
<PAGE> 1
EXHIBIT 10.110
SUBDIVISION IMPROVEMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of December 1996 by
and between Preferred Equities Corporation (hereinafter referred to as
"DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF
THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party
of the second part,
WITNESSETH:
WHEREAS, at a regular meeting of the BOARD, held on the 17th day of
December, 1996, the DEVELOPER submitted a final Subdivision Map entitled
"Calvada North Unit 1, Block 37, Lot 262," Assessor's parcel number 30-551-02,
consisting of 16 lots, located within the Town of Pahrump, Nye County, Nevada;
and
WHEREAS, approval of said final Subdivision Map was conditioned upon,
and subject to, certain improvements required by the laws of the State of
Nevada, the ordinances of the County of Nye, or in order to provide for the
health, safety, welfare and morals of the citizens of Nye County; and
WHEREAS, said final Subdivision Map has been examined by Nye County and
found to be in compliance with current laws and ordinances in effect as of the
date of this Agreement, excepting that certain required improvements have not
been completed.
NOW, THEREFORE, in consideration of the approval of said final
Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to
Nye County nor its citizens, to complete the following improvements:
1. IMPROVEMENTS
The estimated cost of roads, water system, sewer system and surveying is
provided by Crosby, Mead, Benton and Associates (see Exhibit A).
1.1 ROADS
Developer shall improve all portions of streets and roads which appear on said
map in conformance with plans submitted to, and approved by, the
-1- 2 of 2 Originals
<PAGE> 2
Public Works Department.
Cost: $8,865.00
1.2 ON-SITE SEWER SYSTEM LINES
Developer shall construct all sewer lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $19,914.50
1.3 ON-SITE WATER SYSTEM LINES
Developer shall construct water system lines in conformance with plans and
specifications approved by the Nevada Division of Health.
Cost: $19,473.50
1.4 SURVEYING
Developer shall cause each lot to be properly surveyed and monumented in
accordance with Nevada Revised Statutes.
Cost: $800.00
Total Cost of Improvements: $49,053.00
2. SECURITY
The complete performance of construction of the roads, water system,
sewer system and surveying is secured by: A Performance Bond numbered 149-37-87
and dated Dec 19, 1996 (see Exhibit B) in the amount of $56,410.95, representing
115% of the estimated cost of said improvements.
3. APPROVAL OF WORK AFTER INSPECTION
Whenever an authorized representative of the BOARD inspects portions of
work as mentioned above, and finds the work performed to be in a satisfactory
condition for inclusion in the completed project, the BOARD's representative
shall issue a statement of inspection that shall approve the work.
-2- 2 of 2 Originals
<PAGE> 3
Inspection and approval of any item of work shall not forfeit the right
of the BOARD to require the corrections of workmanship quality or materials at
any time during the course of work, although previously approved by oversight.
The BOARD shall have the right to require reasonable corrections by the
Developer of any improvements contained in this Agreement that does not conform
to present State and County standards, specifications, or ordinances even though
the plans for the improvement in question may have been approved by the BOARD's
representative. DEVELOPER must provide the BOARD copies of all reports, tests,
inspections, etc. that are required to be provided to state agencies. Also,
DEVELOPER must provide written certification that the construction was completed
in accordance with plans and specifications.
4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS
Upon completion of all of the improvements required within this
Agreement, the DEVELOPER shall furnish the BOARD with a map that shall
accurately indicate the location of manholes; the location, size, and depth of
sewer mains, underground water, power, and other lines if any with street plans
and profiles for same.
5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS
All of the improvements as set forth in the above paragraphs shall be
completed no later than three (3) years from the date of this Agreement, failing
which the BOARD may, at its option, avail itself of the security provided for
the enforcement hereof to cause such improvements to be made by an independent
contractor at the expense of the DEVELOPER or the security.
6. LIABILITY OF DEVELOPER
DEVELOPER shall save and hold the BOARD harmless and free from any suit
or cause of action, claim or demand, which may be brought or made against the
DEVELOPER or its successor in interest or its purchaser by any third party
arising from the performance or
-3- 2 of 2 Originals
<PAGE> 4
nonperformance of the construction of the subdivision improvements as provided
herein or any and all other conditions of this Agreement.
DEVELOPER shall furthermore continue to be liable to the BOARD for the
performance of all terms and conditions of this Agreement regardless of the
DEVELOPER's failure to continue work under this Agreement or assignment of its
rights to do such work and regardless of the status of ownership of the real
property or any portion thereof made the subject of the final Subdivision Map of
the Subdivision referred to in this Agreement.
In the event the BOARD is required to institute legal action to compel
performance of this Agreement, or to defend any suit or claim, or liability
resulting from or arising out of this Agreement, DEVELOPER shall pay to the
BOARD all reasonable attorney's fees, costs of suit, and all other expenses of
litigation incurred by the BOARD in connection therewith.
7. SUCCESSORS OF DEVELOPER
This Agreement shall be binding upon, and inure to the benefit of all
heirs, executors, administrators, successors, assigns, or purchasers of the
respective parties to this Agreement, and all terms and conditions contained
herein shall be equally binding on said heirs, executors, administrators,
successors, assigns, or purchasers.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
COUNTY OF NYE DEVELOPER
/s/ CAMERON MCRAE /s/ FREDERICK H. CONTE
- ----------------------------- ------------------------------
Cameron McRae, Chairman Frederick H. Conte
Board of County Commissioners Executive Vice President &
Chief Operating Officer,
Preferred Equities Corporation
ATTEST:
/s/ SANDRA L. MERLINO, DEPUTY
- -----------------------------
Arte Robb, County Clerk and
Ex-Officio Clerk of the Board
-4- 2 of 2 Originals
<PAGE> 5
EXHIBIT A
1 OF 2
Improvement Bond Estimates
for the following subdivisions:
Calvada North Unit 1, Block 37
Calvada North Unit 1, Block 57
Calvada North Unit 3, Block 24
Calvada Valley Unit 4a, Block 5
Country Place II, Unit 4, Block 17
Calvada Meadows Unit 4
Prepared by: Crosby Mead Benton & Associates
6345 Balboa Blvd., Suite 140
Encino, CA 91316
(818) 343-5384
[SEAL]
<PAGE> 6
EXHIBIT A
PAGE 2 OF 2
12/16/96 PAGE 1
CALVADA VALLEY NORTH
UNIT NO. 1, BLOCK 37, LOT 262
<TABLE>
<CAPTION>
STREET IMPROVEMENTS
- -------------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
<S> <C> <C> <C>
6" Gravel Road incl/Grading 985 LF 9.00 8,865.00
TOTAL STREET IMPROVEMENTS 8,865.00
<CAPTION>
SEWER SYSTEM
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
<S> <C> <C> <C>
8" PVC 612 LF 15.00 9,180.00
12" PVC 337 LF 18.50 6,234.50
Manholes 3 EA 1500.00 4,500.00
TOTAL SEWER SYSTEM 19,914.50
<CAPTION>
WATER SYSTEM
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
<S> <C> <C> <C>
8" PVC 633 LF 15.00 9,495.00
10" PVC 342 LF 16.75 5,728.50
8" Water Valve 1 EA 550.00 550.00
10" Water Valve 1 EA 750.00 750.00
10" Tee 1 EA 450.00 450.00
Road crossing 1 EA 500.00 500.00
Fire Hydrants Assembly 1 EA 2,000.00 2,000.00
TOTAL WATER SYSTEM 19,473.50
<CAPTION>
FIELD SURVEY
- ------------
DESCRIPTION QTY UNIT UNIT PRICE TOTAL
<S> <C> <C> <C>
Survey Monuments 16 EA/LOT 50.00 800.00
TOTAL FIELD SURVEY 800.00
SUBTOTAL CONSTRUCTION COSTS 49,053.00
15% CONTINGENCY 7,357.95
TOTAL CONSTRUCTION COSTS 56,410.95
------------
</TABLE>
<PAGE> 7
EXHIBIT B
1 OF 2
[LOGO]
INSURANCE COMPANY OF THE WEST
P.O. Box 85563
San Diego, CA 92186-5563
Bond No. 149-37-87
Subdivision Bond
Faithful Performance--Public Works
SUBDIVISION BOND
KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as
Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and
existing under the laws of the State of California and authorized to transact
surety business in the State of NEVADA as Surety, are held and firmly bound unto
COUNTY OF NYE, NEVADA in the sum of FIFTY-SIX THOUSAND FOUR HUNDRED TEN DOLLARS
AND 95/100 Dollars ($56,410.95), for the payment whereof, well and truly to be
made, said Principal and Surety bind themselves, their heirs, administrators,
successors and assigns, jointly and severally, firmly by these presents.
The condition of the foregoing obligation is such that, whereas the
above bounden Principal has entered into a contract dated DECEMBER 17, 1996,
with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit:
OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH
UNIT NO. 1, BLOCK 37, LOT 262 LOCATED WITHIN
NYE COUNTY, NEVADA
NOW, THEREFORE, if the above bounden Principal shall well and truly
perform the work contracted to be performed under said contract, then this
obligation shall be void; otherwise to remain in full force and effect.
SIGNED and SEALED this 19TH day of DECEMBER, 1996.
Witness:
BY: PREFERRED EQUITIES CORPORATION
------------------------------
BY: /s/ [ILLEGIBLE]
COUNTERSIGNED THIS 19TH DAY OF -------------------
DECEMBER, 1996 Principal
BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST
---------------------
(NEVADA AGENT) /s/ DEBBIE K. BAILEY
----------------------------------
Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT
- ------------------------
<PAGE> 8
EXHIBIT B
PAGE 2 OF 2
INSURANCE COMPANY OF THE WEST
HOME OFFICE: SAN DIEGO, CALIFORNIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California
Corporation, does hereby appoint:
DEBBIE K. BAILEY
its true and lawful Attorney(s)-in-Fact, with full power and authority, to
execute, on behalf of the Company, fidelity and surety bonds, undertakings, and
other contracts of suretyship of a similar nature.
This Power of Attorney is granted and is signed and sealed by facsimile under
the authority of the following Resolution adopted by the Board of Directors on
the 22nd day of November, 1994, which said Resolution has not been amended or
rescinded and of which the following is a true copy:
"RESOLVED, that the Chairman of the Board, the President, an Executive
Vice President or a Senior Vice President of the Company, and each of them, is
hereby authorized to execute Powers of Attorney qualifying the attorney named in
the given Power of Attorney to execute on behalf of the Company, fidelity and
surety bonds, undertakings, or other contracts of suretyship of a similar
nature; and to attach thereto the seal of the Company; provided however, that
the absence of the seal shall not affect the validity of the instrument.
FURTHER RESOLVED, that the signatures of such officers and the seal of
the Company, and the signatures of any witnesses, the signatures and seal of any
notary, and the signatures of any officers certifying the validity of the Power
of Attorney, may be affixed by facsimile."
IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to
be signed by its duly authorized officers this 7th day of September 1995.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL]
/s/ JOHN L. HANNUM
-------------------------------------
John L. Hannum, Senior Vice President
STATE OF CALIFORNIA
SS.
COUNTY OF SAN DIEGO
On September 7th, 1995 before me, personally appeared John L. Hannum,
Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me
to be the individual and officer who executed the within instrument, and
acknowledged to me that he executed the same in his official capacity and that
by his signature on the instrument, the corporation, on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER
SAN DIEGO COUNTY SEAL] ----------------
Notary Public
CERTIFICATE:
I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do
hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a
true copy, is still in force and effect, and that this certificate may be signed
by facsimile under the authority of the above quoted resolution.
IN WITNESS WHEREOF, I have subscribed my name as Vice President, on
this 19TH day of DECEMBER 1996.
INSURANCE COMPANY OF THE WEST
[INSURANCE COMPANY OF THE WEST
CORPORATE SEAL] /s/ E. HARNED DAVIS
-------------------------------
E. Harned Davis, Vice President
ICW 37 Official Records Nye County Nevada
Requested by: Preferred Equities Corp.
01/02/97 3:36 PM
Naoma Lydon Recorder
Fee: $14.00 State: $ Dep: tp
<PAGE> 1
EXHIBIT 10.111
[FINOVA LETTERHEAD]
February 28, 1997
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109
Attention: Herbert Hirsch
VIA AIRBORNE EXPRESS
Re: Increase in Revolving Receivables Loan to $75 Million
Dear Mr. Hirsch:
We are pleased to advise you that FINOVA Capital Corporation ("Lender")
has agreed to increase the Revolving Receivables Line of Credit to Preferred
Equities Corporation, a Nevada corporation ("Borrower"), to $75 million (the
"Loan"), subject to the terms and conditions set forth in this letter.
1. BORROWER. Preferred Equities Corporation, a Nevada Corporation.
2. GUARANTOR. Mego Financial Corp., a New York Corporation.
3. AMOUNT AND PURPOSE. The Loan shall be in the total aggregate
amount of $75 million. The Loan shall be constituted of the following loan
facilities:
(a) $75 million aggregate revolving Receivables line of credit
(the "Receivables Line"), which represents a $25 million increase in the
existing $50 million Receivables line;
(b) $15 million aggregate revolving mortgage loan facility
(the "Mortgage Loan Facility") for the purpose of providing funds to
Borrower on a revolving basis in order to finance Borrower's acquisition
and refurbishment of time-share projects;
(c) $5 million nonrevolving mortgage loan previously made with
respect to the Aloha Bay time-share project located in Pinellas County,
Florida (the "Aloha Bay Loan"); and
(d) $7 million nonrevolving mortgage loan made with respect to
two (2) office buildings owned by Borrower and located in Las Vegas,
Nevada (the "Office Loan").
<PAGE> 2
[FINOVA LOGO]
Preferred Equities Corporation
February 28, 1997
Page 2
The maximum aggregate balance of the Loan at any time shall not exceed
$75 million (the "Maximum Loan Amount"). The maximum amount of the Loan
available to Borrower under the Receivables Line shall be reduced by the then
aggregate outstanding principal balances of the Mortgage Loan Facility, the
Aloha Bay Loan and the Office Loan. In addition, the total principal amount of
any and all indebtedness of Borrower to Lender under the Loan which is secured
by Receivables Collateral encumbering Lots shall not exceed $35 million at any
time.
4. TERMS AND CONDITIONS OF LOAN. The terms and conditions
applicable to the Loan shall be as currently set forth in that Amended and
Restated Loan and Security Agreement dated as of May 10, 1989, executed by
Borrower and Lender's predecessor-in-interest, Greyhound Real Estate Finance
Company, an Arizona corporation ("GREFCO"), as subsequently amended pursuant to
fifteen (15) amendments thereafter executed by Borrower and Lender
(collectively, the "PEC Loan Agreement"), and by that Loan and Security
Agreement dated as of March 30, 1989, executed by Borrower's
predecessor-in-interest, Vacation Spa Resorts, Inc., a Tennessee corporation,
and GREFCO, as subsequently amended pursuant to six (6) amendments executed by
Borrower and Lender (collectively, the "VSR Loan Agreement"), with the material
modifications and amendments hereinafter set forth (for the purpose of this
Commitment Letter, all references to the "Loan Agreement" shall be deemed to
refer to the applicable provision(s) of the PEC Loan Agreement and/or the VSR
Loan Agreement, and all initial capitalized terms used herein which are not
otherwise defined herein shall have the meaning ascribed thereto in the Loan
Agreement):
4.1 Interest. As of the Closing Date (hereinafter described),
the Receivables Line and the Mortgage Loan Facility shall bear interest
at a rate per annum (the "Interest Rate") equal to the "Prime Rate" of
interest publicly announced from time to time by Citibank, N.A. as its
base rate plus 2%, adjusted monthly. The initial Prime Rate shall be
Citibank's base rate in effect on the first day of the month of the
initial advance of the Loan proceeds. Thereafter, the Prime Rate will
change based upon Citibank's base rate in effect on the first day of
each subsequent month. Interest shall be calculated on the basis of a
360-day year and charged for the actual days elapsed.
The Interest Rate payable on the Aloha Bay Loan and the Office
Loan shall remain unchanged.
4.2 Borrowing Term. Borrower shall have the right to request
and receive Advances under the Receivables Line for a period of
thirty-six (36) months following the first Advance made under the
Receivables Line after the Closing Date, or thirty-nine (39) months
after date of this Commitment Letter, whichever comes first.
Borrower shall have the right to request and receive Advances
under the Mortgage Loan Facility for a period of twelve (12) months after the
Closing Date.
<PAGE> 3
[FINOVA LOGO]
Preferred Equities Corporation
February 28, 1997
Page 3
The Borrowing Terms with respect to the Aloha Bay Loan and the
Office Loan shall remain unchanged.
4.3 Borrowing Base Formula Under Receivables Line. The
Advances of the Loan which shall be available to Borrower under the
Receivables Line shall be equal to lesser of (a) eighty-five percent
(85%) of the unpaid principal balance payable under the Eligible
Receivables, or (b) ninety percent (90%) of the then present value
assigned to the unmatured installments of principal and interest payable
under the Eligible Receivables, discounted at Lender's prevailing
discount rate as described in the Loan Agreement (except that the
Lender's prevailing discount rate as described in paragraph 7.6.1(c) of
the Loan Agreement shall be amended to provide a floor of twelve percent
(12%) per annum); provided, however, that the maximum Borrowing Base
allocable to Eligible Receivables arising from the sale of Units in
Project (Reno) shall not in any event exceed $4 million. There shall no
longer be a limitation on the maximum Borrowing Base allocable to
Eligible Receivables arising from sales of Lots in projects located in
Colorado; provided, however, that in calculating the Borrowing Base, the
indebtedness secured by Eligible Receivables arising from the sale of
Lots shall be limited to $35 million. In addition, Advances of the Loan
with respect to Eligible Receivables arising from "Unsolidified Lot
Sales" shall be limited to 65% of the unpaid principal balance payable
under any Eligible Receivables arising from "Unsolidified Lot Sales";
provided that the indebtedness secured by Eligible Receivables arising
from "Unsolidified Lot Sales"; shall not exceed at any time $2.5
million. For the purpose of the Loan, "Unsolidified Lot Sales" shall be
deemed to mean an Instrument or Contract which arises out of the sale of
a Lot by Borrower to a Purchaser where such Purchaser has not personally
inspected the Lot with a representative of Borrower and the Instrument
or Contract provides a specific period after the date of purchase within
which such Purchaser may cancel the Instrument or Contract as a result
of the fact that the Purchaser had not inspected the Lot prior to the
purchase. At such time as the Purchaser makes any such required
inspection or the period for rescission of the Instrument or Contract
has expired, the 65% Advance limitation with respect to such Eligible
Receivables shall no longer apply.
4.4 Maturity Date. The principal balance of the Loan
consisting of Advances under the Receivables Line shall be payable on a
monthly basis in an amount equal to one hundred percent (100%) of all
proceeds of the Receivables Collateral collected during each month
during the Loan term. All amounts of unpaid principal representing
Advances made under the Receivables Line with respect to Receivables
Collateral secured by Units shall be paid in full not later than the
seventh (7th) anniversary of the date of the last Advance made by Lender
under the Receivables Line. All Advances of the Loan made under the
Receivables Line with respect to Lots shall be paid in full not later
than the tenth (10th) anniversary of the date of the last Advance made
under the Receivables Line.
<PAGE> 4
[FINOVA LOGO]
Preferred Equities Corporation
February 28, 1997
Page 4
Payments of the outstanding principal balance under the Mortgage Loan
Facility shall be made on a monthly basis commencing with the first full
calendar month following the final Advance made with respect to the Project
being financed by such Advance with payments of principal and interest in an
amount necessary to amortize the entirety of the Advance over a twenty-four (24)
month amortization period.
The payment provisions with respect to the Aloha Bay Loan and the
Office Loan shall continue as set forth in the promissory notes executed by
Borrower in connection with such loans.
4.5 Partial Prepayment. Advances under the Receivables Line may be
partially prepaid in increments of not less than $2 million per prepayment;
provided that Borrower gives Lender thirty (30) days prior written notice of
its intent to partially prepay the Receivables Line, which notice shall be
irrevocable; and provided, further, that any such prepayment is accompanied by
accrued interest on the amount to be prepaid, any and all other sums then due
to Lender, and a prepayment premium in an amount equal to one percent (1%) of
the amount to be prepaid; and provided, further, that in no event shall any
partial prepayment reduce the total outstanding principal balance of the Loan
below $35 million.
Advances which are represented by Borrower's promissory notes executed
in connection with the Aloha Bay Loan and the Office Loan and any Advances under
the Mortgage Loan Facility may be prepaid in accordance with the terms and
conditions of the promissory notes executed by Borrower in connection therewith.
4.6 Full Prepayment. The Loan may be prepaid in whole; provided
that Borrower gives Lender at least thirty (30) days prior written notice of
its intent to prepay the total outstanding principal balance of the Loan, which
notice shall be irrevocable; and provided, further, that any such prepayment is
accompanied by accrued interest on the Loan and any and all other sums then due
to Lender, together with a prepayment premium determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Month of Prepayment Prepayment Premium
- ------------------- ------------------
<S> <C>
Months 1-18 3% of the principal balance outstanding
Months 19-36 2% of the principal balance outstanding
Months 37-54 1% of the principal balance outstanding
Month 55 and thereafter 0% of the principal balance outstanding
</TABLE>
<PAGE> 5
[FINOVA LOGO]
Preferred Equities Corporation
February 28, 1997
Page 5
4.7 Security. All obligations of Borrower to Lender shall
continue to be secured by (a) the Receivables Collateral as described in the
Loan Agreement, (b) the First Mortgage Liens recorded with respect to the
following Projects as described in the Loan Agreement: Aloha Bay Phase I,
Headquarters, FCFC Building, Ida Building Addition, Ida Building I, Ida Building
II and Winnick Building Addition, (c) the Mego Guarantee, and (d) all other
security for the performance of Borrower's obligations under the Loan as
described in the Loan Agreement.
4.8 Loan Fees. Borrower shall pay to Lender the following
Loan Fees in connection with the Loan described herein:
(a) One percent (1%) of the increase in the
Receivables Line ($250,000.00), which shall be paid by Borrower to
Lender in an amount equal to $180,000.00 simultaneously with the first
Advance made under the Receivables Line after the Closing Date, and the
balance thereof ($70,000.00) shall be paid at such time as the
outstanding principal balance of the Loan under the Receivables Line
equals or exceeds $68 million.
(b) For each Project funded by an Advance under the
Mortgage Loan Facility, Borrower shall pay a fee equal to one-half
percent (.5%) of each Advance at the time of such Advance, together with
an incentive fee equal to $20.00 per Time-Share Interval (the "Incentive
Fee"), which Incentive Fee shall be payable at such time as such
interval is sold to a Purchaser and released from the mortgage or deed
of trust recorded with respect to such Project.
4.9 Eligible Receivables. The existing requirements for
Eligible Receivables as defined under the Loan Agreement shall continue to
apply with the following modifications:
(a) With respect to Instruments or Contracts in the
case of Receivables Collateral encumbering Units, consecutive monthly
installments of principal and interest shall have a remaining term not
exceeding ninety-six (96) months; provided, however, that Instruments or
Contracts consisting of Receivables Collateral encumbering Units with
consecutive monthly installments of principal and interest having a
remaining term exceeding 96 months, but not exceeding 120 months, shall
be includable as Eligible Receivables to the extent that such
Instruments or Contracts have an aggregate unpaid principal balance not
exceeding twenty percent (20%) of the aggregate unpaid principal
balance of the total Receivables Collateral encumbering Units then
pledged by Borrower to Lender under the Loan Agreement.
<PAGE> 6
Preferred Equities Corporation
February 28, 1997
Page 6
(b) Receivables Collateral arising out of the sale
of Lots which are not within a Project included within the definition of
"Project" under the Loan Agreement, shall not be deemed to constitute
Eligible Receivables unless such Project is first approved by Lender.
4.10 Requirements for Funding Under Mortgage Loan Facility.
In addition to all other conditions and requirements under the Loan Agreement
with respect to Advances under the Mortgage Loan Facility, each Project to be
funded under the Mortgage Loan Facility shall satisfy the following conditions
and requirements:
(a) The Borrower shall have a total equity
investment in such Project of not less than ten percent (10%) of the
total Project cost;
(b) Each Project to be funded under the Mortgage
Loan Facility shall be located in relatively close proximity to existing
Projects or in time-share markets whose historical sales are deemed
satisfactory to Lender.
(c) No Projects funded under the Mortgage Loan
Facility shall consist of Lots;
(d) Each Project to be funded under the Mortgage
Loan Facility must be approved by Lender.
4.11 Marketing Expenses. Borrower's covenant with respect to
Marketing Costs shall be modified to provide that Borrower's Marketing Costs (as
defined in the Loan Agreement) shall not exceed fifty-five percent (55%) of Net
Sales (as defined in the Loan Agreement) for any of Borrower's trailing four (4)
quarters. Any fees payable by Borrower to Hospitality Franchise Systems, Inc.
(Ramada) shall be excluded from the calculation of Marketing Costs. The covenant
with respect to Marketing Costs shall be tested on a semiannual basis at the end
of Borrower's second (2nd) fiscal quarter and again at the end of Borrower's
fourth (4th) fiscal quarter for each of Borrower's fiscal years.
4.12 Tangible Net Worth. The Tangible Net Worth
requirement under the Loan Agreement shall be modified to read as follows:
"Until full and complete performance of all of
Borrower's Obligations under the Loan, the Consolidated Tangible Net
Worth of Borrower and its Subsidiaries shall be, at all times, not less
than $20 million (the "Tangible Net Worth Base"); provided, however,
that the Tangible Net Worth Base shall be increased each fiscal quarter
by an amount equal to fifty percent (50%) of the consolidated Net Income
of Borrower and its Subsidiaries (if any), commencing with Borrower's
fiscal
<PAGE> 7
Preferred Equities Corporation
February 28, 1997
Page 7
quarter ending November 30, 1997; and provided, further, that the
Tangible Net Worth base shall not be increased to more than $25 million.
In the event that Borrower and its Subsidiaries do not realize any Net
Income for any fiscal quarter, or if there is a Net Loss for such
quarter, the Tangible Net Worth Base applicable to the next successive
quarter shall remain unchanged and shall not in any event be reduced or
decreased. For purposes of testing the Tangible Net Worth requirement,
the definition of "Consolidated Tangible Net Worth" shall mean, on any
date of determination thereof, the Consolidated Net Worth of Borrower
and its Subsidiaries, as determined in accordance with GAAP, after
deducting the value of patents, trademarks, goodwill and other
intangible assets, the value of assets treated as "questionable" by the
accounting firm shall have prepared Borrower's most recent financial
statement, and after deducting all amounts due Borrower from its
Affiliates or from Mego Financial Corp. (provided that the deduction for
any amounts owed to Borrower from Mego Mortgage shall include only
amounts which are owed in excess of $1 million). It is agreed that
deferred selling expenses determined in accordance with GAAP shall not
be classified as intangible assets. For the purposes of determining the
quarterly increases in the Tangible Net Worth Base, the Net Income of
Borrower and its Subsidiaries shall be determined in accordance with
GAAP."
5. CONDITIONS PRECEDENT TO CLOSING. The following shall be
delivered to lender or occur prior to the Closing Date, all in form, manner and
substance satisfactory to Lender, in Lender's sole discretion:
5.1 Loan Documents. Such duly executed loan documents as
lender shall require to evidence and secure the Loan (the "Loan
Documents"), which shall include a Second Amended and Restated Loan and
Security Agreement which shall operate to restate and consolidate all of
the current and applicable terms and conditions of the Loan Agreement as
modified by this Commitment Letter.
5.2 Continued Perfection of Liens. Evidence that all liens
and security interests granted to Lender have been duly perfected and
continue to be perfected as first and prior liens and security
interests, and that there are no other financing statements or liens
filed against either Borrower or the property of either Borrower, except
those which are approved by Lender.
5.3 Power and Authority. Such documents as Lender shall
require to establish the proper organization and good standing of
Borrower and Guarantor, the authority of the Borrower and Guarantor to
execute the Loan Documents, and evidence that Borrower and Guarantor
have obtained all approvals and consents which are necessary to enable
Borrower to execute the Loan Documents and consummate the Loan.
<PAGE> 8
Preferred Equities Corporation
February 28, 1997
Page 8
5.4 Insurance. Evidence that there is in effect such casualty
and hazard insurance, flood, business interruption, title, public
liability and other insurance required by Lender and written by
insurers, and in amounts and form satisfactory to Lender.
5.5 Legal Opinion. Favorable legal opinions of counsel for
Borrower, dated as of the day of Closing, covering the due
authorization, execution, delivery, validity, binding effect and
enforceability of the Loan Documents and the validity of all liens and
security interests granted thereby, compliance with usury laws, and such
other matters as Lender may require.
5.6 Material Adverse Change. Evidence that as of the date of
Closing there has been no material adverse change in the financial
condition of Borrower or Guarantor from the financial statements and
other documents most recently submitted to Lender.
5.7 Loan Costs. Payment of the applicable portion of the Loan
Fees to Lender. Any other known third-party expenses (including,
without limitation, appraisal fees, Lender's outside attorneys' fees and
costs, Lender's out-of-pocket costs, brokerage commissions,
environmental assessment fees, costs and premiums related to the
examination and insurance of title, survey fees and travel expenses)
shall also have been paid.
5.8 Other Institutional Financing. Such documents or evidence
as Lender shall require to establish that any and all indebtedness owed
by Borrower to Heller Financial and Textron Financial is currently paid
and Borrower is in good standing and in compliance with all of its
obligations to Heller Financial and Textron Financial.
5.9 Searches. Current lien, tax lien, litigation and judgment
searches on each of Borrower and Guarantor.
5.10 Title Insurance. Borrower shall have obtained and
delivered to Lender, at Borrower's expense, current date-down
endorsements to all existing ALTA extended coverage mortgagee's title
insurance policies issued in favor of Lender with respect to Aloha Bay
Phase I, Headquarters, FCFC Building, Ida Building Addition, Ida
Building I, Ida Building II and the Winnick Building Addition, which
date-down endorsements shall insure that the deeds of trust or mortgages
recorded with respect to such properties continue to be a first and
prior lien on such property, subject only to such additional exceptions
as may be approved by Lender.
5.11 Management Letters. Lender shall have received, reviewed
and approved to its satisfaction Management Letters written by Deloitte
& Touche to Guarantor and Borrower with respect to their 1996 fiscal
year, together with any responses to such Management Letters by Borrower
or Guarantor.
<PAGE> 9
Preferred Equities Corporation
February 28, 1997
Page 9
5.12 Financial Statements. Lender shall have received,
reviewed and approved to its satisfaction financial statements for
Guarantor and Borrower for the fiscal quarter ending November 30, 1996.
In addition, and as a post-closing condition, not later than May 15,
1997, Lender shall have received, reviewed and approved to its
satisfaction financial statements for Guarantor and Borrower for the
fiscal quarter ending February 28, 1997.
5.13 Litigation Update. Borrower shall have delivered to
Lender, and Lender shall have reviewed and approved to its satisfaction,
an updated report and analysis with respect to all litigation matters
involving Borrower and Guarantor.
6. FEES AND EXPENSES: Whether or not the Loan closes, Borrower shall
pay to Lender on demand all outside attorneys' fees and costs, appraisal fees,
title and recording charges, and all costs and expenses incurred by Lender in
making the Loan.
7. CHOICE OF LAW: This Commitment and the Loan Documents shall be
governed by the laws of the State of Arizona. Proper and exclusive (unless
Lender requires otherwise) jurisdiction and venue for any dispute arising out
of this Commitment or the Loan Documents shall be in Federal and State courts
sitting in Phoenix, Arizona.
8. JURY TRIAL: Given the fact that any controversy which may arise
under any of the Loan Documents or with respect to the transaction contemplated
thereby would be based upon difficult and complex issues, the parties agree
that any lawsuit arising out of such controversy will be tried in a court of
competent jurisdiction by a judge sitting without a jury.
9. ACCEPTANCE AND EXPIRATION AND TERM: This Commitment shall not
become effective unless a copy of the Commitment executed by Borrower, is
delivered to Lender on or before March 5, 1997 at its offices at 7272 East
Indian School Road, Suite 410, Scottsdale, Arizona 85251, to the attention of
Jeffrey A. Owings. If the closing (the "Closing") does not occur on or before
April 15, 1997, or the date to which the term is extended by the written
agreement of Borrower and Lender, except for Borrower's obligations pursuant to
Section 6, this Commitment shall automatically terminate.
Cordially,
FINOVA CAPITAL CORPORATION
By: /s/ RANDALL HELLER
------------------------------------
Name: Randall Heller
Title: Vice President
<PAGE> 10
Preferred Equities Corporation
February 28, 1997
Page 10
ACCEPTED AND AGREED TO THIS
3rd day of March, 1997:
PREFERRED EQUITIES
CORPORATION, a Nevada corporation
By: /s/ RICHARD L. RODRIGUEZ
-------------------------------------
Name: Richard L. Rodriguez
Title: Vice President
"BORROWER"
MEGO FINANCIAL CORP., a Nevada
corporation
By: /s/ RICHARD L. RODRIGUEZ
-------------------------------------
Name: Richard L. Rodriguez
Title: Asst. Secretary & Asst. Treasurer
"GUARANTOR"
<PAGE> 1
EXHIBIT 10.112
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") by and between MEGO FINANCIAL CORP., a New
York corporation (the "Company"), with its principal office located at 4310
Paradise Road, Las Vegas, NV 89109 and IRVING J. STEINBERG (the "Employee")
shall become effective on the Effective Date, as hereinafter defined.
BACKGROUND OF THE AGREEMENT
The Company desires to employ the Employee as an executive officer and
the Employee desires to be employed by the Company under the terms of this
Agreement.
AGREEMENT
The Company and the Employee, in consideration of the promises and the
mutual covenants herein set forth, agree as follows:
1. Term. This Agreement shall commence as of the 1st day of
August, 1996 (the "Effective Date"). The "Primary Period" of this Agreement
shall mean that time period commencing on the Effective Date, and terminating
on December 31, 1997, unless sooner terminated as provided in this Agreement.
The "Second Period" of this Agreement shall mean that time period commencing on
January 1, 1998 (unless the Agreement has been terminated prior to that date,
in which case there will be no Second Period) and terminating on December 31,
2003, unless sooner terminated as provided in this Agreement.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts such employment, to serve as an executive officer of
the Company during the Primary Period, and as an employee of the Company during
the Second Period, on the terms and conditions provided in this Agreement.
3. Duties and Performance. During the Primary Period, the
Employee shall serve as Vice President of the Company and, if requested by the
Company, as an officer of the Company's subsidiaries, and shall perform such
tax, accounting, executive and administrative services as are generally
expected of a Vice President with accounting and tax responsibilities, or as
may be assigned to him from time to time by the Chairman of the Board,
President, or the Chief Financial Officer of the Company, or by the board of
directors of the Company (the "Board"). The Employee agrees to devote his full
time, attention, energy and skill to the Company's business and good will
during the Primary Period. During the Second Period, Employee shall devote
such of his time, attention, energy and skill as shall be required to
1
<PAGE> 2
fulfill his reduced duties, set forth on Exhibit A attached hereto and made a
part hereof, or as agreed upon by the parties. During the Second Period,
Employee may accept such other employment as Employee reasonably deems will not
prevent Employee from fulfilling such reduced duties. During the Primary
Period, the Employee shall be headquartered in the offices of the Company in
Las Vegas, but shall be available to travel to other offices of the Corporation
or its subsidiaries, or elsewhere, in the performance of his duties; and during
the Second Period there shall be no restriction on the location where Employee
shall reside or perform his duties.
4. Compensation.
(a) The Company shall pay to the Employee, as
compensation for his services, a salary at the rate of $188,000 per year during
that portion of the Primary Period ending December 31, 1996, and at the rate of
$194,000 per year during the remaining portion of the Primary Period, and a
salary at the rate of $10,000 a year during the Second Period, which amounts
are hereinafter referred to as the "Base Compensation". The Base Compensation
shall be payable in equal installments, the frequency of which shall be
determined by the Company, but in no event less frequently than monthly. The
Company shall withhold and pay over to the appropriate governmental agency all
payroll taxes (including income, social security and unemployment compensation
taxes) required by the federal, state and local governments with jurisdiction
over the Company.
(b) The Base Compensation for the Second Period was
calculated on the assumption that the Employee would provide four hours of
service per month for an aggregate of forty-eight hours per year. Should the
Company fail to utilize Employee's services to that extent, or not at all, or
if Employee has other employment as contemplated in Paragraph 3, above,
Employee shall still be entitled to his Base Compensation and other benefits to
be received by Employee during the Second Period under this Agreement, unless
this Agreement has been terminated by the Company as permitted by Section Five
of this Agreement. Should the Employee perform additional hours of service
beyond four hours per month at the Company's request during the Second Period,
the Employee shall receive additional compensation for such additional hours at
the rate of $200.00 per hour for such additional services performed during
calendar year 1998, $225.00 per hour during calendar 1999, $250.00 per hour
during calendar 2000, $275.00 per hour during calendar 2001, $300.00 per hour
during calendar 2002 and $325.00 per hour during calendar 2003.
(c) The Employee shall be included in the group of
executives considered for an annual bonus under the Company's Executive
Incentive Compensation Plan for fiscal years 1996 and 1997 only.
(d) During the full term of this Agreement (including the
Second Period) the Employee shall be entitled to such health,
2
<PAGE> 3
dental, medical (Employee's medical insurance, but not that of his spouse,
shall be at the Company's expense), disability, life and other insurance and
401(k) benefits as are provided to other executives of the Company, provided
that with respect to any new benefits, or any existing benefits which are
modified to require additional or new qualifications from all affected
employees, all qualification requirements have been met. The Company will use
its best efforts to cause Employee to be included in such benefits.
(e) During the Primary Period, so long as the Employee is
performing his duties hereunder, the Employee shall receive a monthly
automobile allowance of $1,000 per month through December 1996, and $500 per
month during the remainder of the Primary Period. The Company shall continue
to pay the Employee's Country Club dues on the current basis, and the Employee
shall be reimbursed for reasonable continuing education costs.
(f) During the Primary Period, so long as the Employee is
performing his duties hereunder, the Employee shall be entitled to the accrual
of paid vacation time at the rate of one week on September 1, 1996, December 1,
1996, March 1, 1997, June 1, 1997, September 1, 1997, and December 1, 1997. It
is agreed that the Employee will not take more than two weeks of vacation
during the remaining portion of calendar 1996 and four weeks in calendar 1997,
notwithstanding any carryover unused and accrued vacation time to which the
Employee is entitled as of the date of this Agreement, for which the Employee
will be compensated in accordance with subparagraph 4(h) below.
(g) In addition to the foregoing, the Company shall
reimburse the Employee for all reasonable business expenses, including cost of
travel, meals and lodging while traveling.
(h) Provided that this Agreement has not been terminated
by the Company for Cause prior to January 1, 1998, on January 10, 1998, the
Company shall pay to the Employee as advance severance pay the sum of $100,000
plus the amount of any remaining unused accrued vacation and sick time due to
the Employee, at the Primary Period Base Salary rate in effect at that date.
Such amounts shall be in full satisfaction of any severance pay or severance
benefits due to the Employee in connection with this Agreement.
5. Termination of Employment
5.1 The Company may immediately terminate the Employee's
employment for (a) Cause (as hereinafter defined), and (b) upon the Employee's
death or total and permanent disability (as set forth below), and for no other
reason, upon giving written notice of such involuntary termination to the
Employee. "Cause" shall mean any one of the following acts of, or omissions by,
or actions of others relating to, the Employee, as set forth below:
3
<PAGE> 4
(i) The Employee's conviction of a felony,
whether or not such conviction is appealed.
(ii) Deliberate and premeditated acts by the
Employee which a reasonable person would realize would be against the best
interests of the Company;
(iii) Material breach of the terms of this
Agreement, except that if such breach is capable of being cured, such breach
shall have remained uncured ten days after written notice from the Company to
the Employee;
(iv) With respect to actions of the Employee
during the term of this Agreement, the Employee is found guilty of, or is
enjoined from, violation of any state or federal securities laws, state or
federal laws governing the business of the Company, or rules and regulations of
any state or federal agency regulating any of the business of the Company;
(v) Misappropriation of the Company's funds or
property; or
(vi) Habitual use of alcohol or drugs to a degree
that such use substantially interferes with Employee's performance of his
duties.
5.2 In the event the Employee's employment shall be
terminated for Cause prior to the expiration of the term of this Agreement, the
Employee shall be entitled only to his Base Compensation prorated to the
effective date of such termination.
5.3 This Agreement shall terminate immediately upon the
Employee's death or total and permanent disability. For the purposes of this
Agreement, total and permanent disability shall mean (i) during the Primary
Period, the Employee's inability to adequately perform his duties on behalf of
the Company, at the Company's offices in Las Vegas, Nevada, as reasonably
determined by the Board, for a period of ninety (90) consecutive days due to an
illness or injury, and (ii) during the Second Period, the Employee's inability
(as reasonably determined by the Board) to perform at least four hours of
services, which have been requested by the Company, for each of three
consecutive months. In the event of such termination, the Employee shall be
entitled to his Base Compensation prorated to the end of the month of his death
or the date of the determination of Employee's total and permanent disability
by the Board, together with the amount of any accrued and unpaid vacation and
sick time due the Employee. If this Agreement is terminated due to the
Employee's total and permanent disability, the health, dental and medical
insurance coverage for the Employee specified in Paragraph 4(d) shall continue
to be provided to the Employee until the end of the Second Period, provided
that (i) such coverage is obtainable by the Company under its plans, and (ii)
the cost of such coverage for the Employee does not exceed by more than $10,000
per annum the average cost per other employee for such coverage. The
4
<PAGE> 5
portion of any stock option granted by the Company to the Employee which has
vested pursuant to the terms of such option at the time of the termination of
this Agreement due to the Employee's death or total and permanent disability
shall remain exercisable as set forth in such option relating to such a
termination event.
6. Covenant Not to Solicit. The following provisions of
subparagraph 6(a) shall hereinafter be referred to as the "Covenant Not to
Solicit":
(a) The Employee agrees that during the term of this
Agreement, and for a period of one year after the expiration or termination of
this Agreement for Cause or Employee's total and permanent disability, the
Employee will not without authorization from the Company, in any capacity,
directly or indirectly solicit or encourage other employees or officers of the
Company to terminate their employment by the Company for any purpose
whatsoever.
(b) The Employee acknowledges and agrees that:
(i) the foregoing Covenant Not to Solicit is
reasonable for the protection of the goodwill and business of the Company
against irreparable injury.
(ii) the foregoing Covenant Not to Solicit does
not place an undue hardship on the Employee.
(c) The Employee agrees that the Company will be
irreparably damaged by a breach of the Covenant Not to Solicit and that damages
at law will be an insufficient remedy for the Company. The Employee also agrees
that the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief to enforce the provisions of the
Covenant Not to Solicit, which injunctive relief shall be in addition to any
other rights or remedies available to the Company.
7. Confidentiality. The Employee recognizes and acknowledges
that the services which he will perform for the Company and the knowledge which
he will obtain of the Company's proprietary information such as trade secrets,
processes, business practices, strategic plans and financial data through his
close relationship with the Company, are confidential, proprietary and valuable
in nature. The Employee therefore agrees that, other than in the regular and
proper course of the business of the Company, he will not divulge to others or
use for his own benefit, or the benefit of any person, firm, corporation or
other entity, other than the Company, at any time during or subsequent to this
employment, any information obtained in the course of his employment,
concerning such proprietary information, without first obtaining the Company's
written permission, unless such information has become public knowledge by a
means other than a breach of the provisions of this Agreement.
8. Modification. No change or modification of this Agree-
5
<PAGE> 6
ment shall be valid unless made in writing and signed by both of the parties
hereto.
9. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
10. Assignment Prohibited. This Agreement is personal to the
parties hereto and neither party may assign or transfer any rights or
obligations under this Agreement without the written consent of the other party.
11. Corporate Authority to Enter into Agreement. The Company
warrants and represents that all necessary approvals have been obtained to
authorize it to enter into this Agreement, and that this Agreement is valid,
binding and enforceable against the Company in accordance with its terms.
12. Other. The Company and the Employee each agree that such party
will not make oral or written disparaging statements about the other party at
any time during or after the term of this Agreement.
13. Entire Agreement. This Agreement incorporates the entire
agreement between the parties and supersedes all other prior or contemporaneous
agreements, negotiations or discussions between the Employee and the Company.
Notwithstanding the previous sentence, this Agreement does not affect any
indemnification obligation from the Company or its subsidiaries to the Employee
pursuant to their articles of incorporation, bylaws, general corporate policies
or existing written agreements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 1st day of August, 1996.
COMPANY:
MEGO FINANCIAL CORP.
BY: [SIG.]
---------------------------------
TITLE:
EMPLOYEE:
Irving J. Steinberg
------------------------------------
Irving J. Steinberg
6
<PAGE> 7
EXHIBIT A
During the Second Period, the Employee's reduced duties will be to provide tax
consulting, tax planning, financial planning, and historical review services,
as well as such other services as may be agreed upon between the Employee and
the Company.
1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> FEB-28-1997
<CASH> 26,585
<SECURITIES> 0
<RECEIVABLES> 63,660
<ALLOWANCES> 14,494
<INVENTORY> 40,521
<CURRENT-ASSETS> 0
<PP&E> 39,012
<DEPRECIATION> 14,690
<TOTAL-ASSETS> 237,083
<CURRENT-LIABILITIES> 0
<BONDS> 80,665
0
0
<COMMON> 187
<OTHER-SE> 42,084
<TOTAL-LIABILITY-AND-EQUITY> 237,083
<SALES> 22,903
<TOTAL-REVENUES> 56,975
<CGS> 3,246
<TOTAL-COSTS> 20,705
<OTHER-EXPENSES> 29,943
<LOSS-PROVISION> 5,516
<INTEREST-EXPENSE> 6,513
<INCOME-PRETAX> 6,327
<INCOME-TAX> 686
<INCOME-CONTINUING> 5,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,947<F1>
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<FN>
<F1>Excludes $694 of income associated with minority interest.
</FN>
</TABLE>
