<PAGE> 1
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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: MAY 31, 1999
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)
NEW YORK 13-5629885
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 July 13, 1999, there were 21,009,506 shares of Common Stock, $.01
par value per share, of the Registrant outstanding.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
May 31, 1999 and August 31, 1998..............................................1
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended May 31, 1999 and 1998............................................2
Condensed Consolidated Statements of Stockholders' Equity for the Nine
Months Ended May 31, 1999.....................................................3
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended May 31, 1999 and 1998...................................................4
Notes to Condensed Consolidated Financial Statements............................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................16
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................16
Item 5. Other Events...................................................................17
Item 6. Exhibits and Reports on Form 8-K...............................................17
SIGNATURE ................................................................................18
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 1,944 $ 1,813
Restricted cash 1,552 1,694
Notes receivable, net of allowance for cancellations and discounts of $13,915 at
May 31, 1999 and $12,403 at August 31, 1998 62,050 47,789
Interest only receivables, at fair value 2,788 3,367
Timeshare interests held for sale 31,798 35,798
Land and improvements inventory 7,003 7,965
Other investments 4,982 4,395
Property and equipment, net of accumulated depreciation of $15,797 at May 31,
1999 and $14,119 at August 31, 1998 23,825 23,950
Deferred selling costs 3,876 3,719
Prepaid debt expenses 1,561 1,431
Other assets 13,070 9,830
----------- -----------
TOTAL ASSETS $ 154,449 $ 141,751
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable $ 97,768 $ 81,986
Accounts payable and accrued liabilities 20,583 18,773
Reserve for notes receivable sold with recourse 4,953 6,620
Deposits 2,456 4,877
Accrued income taxes 3,685 4,468
----------- -----------
Total liabilities before subordinated debt 129,445 116,724
----------- -----------
Subordinated debt 4,335 4,348
Stockholders' equity:
Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding) -- --
Common stock, $.01 par value (authorized--50,000,000 shares; 21,009,506
shares issued and outstanding) 210 210
Additional paid-in capital 12,898 12,789
Retained earnings 7,561 7,680
----------- -----------
Total stockholders' equity 20,669 20,679
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,449 $ 141,751
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Timeshare interest sales, net $ 10,885 $ 9,579 $ 28,494 $ 26,872
Land sales, net 4,869 3,530 11,878 10,114
Gain on sale of investments -- -- 513 --
Interest income 2,672 1,931 6,616 5,248
Financial income 321 769 1,030 2,773
Incidental operations 694 821 1,970 2,242
Other 886 881 2,577 2,277
------------ ------------ ------------ ------------
Total revenues 20,327 17,511 53,078 49,526
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Direct cost of:
Timeshare interest sales 2,483 1,755 5,917 5,206
Land sales 777 421 2,039 1,234
Incidental operations 549 652 1,661 1,949
Marketing and sales 9,014 9,143 25,629 24,739
General and administrative 3,502 4,675 10,473 13,561
Interest expense 2,374 2,157 6,635 5,635
Depreciation 485 549 1,493 1,691
------------ ------------ ------------ ------------
Total costs and expenses 19,184 19,352 53,847 54,015
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,143 (1,841) (769) (4,489)
INCOME TAXES (BENEFIT) -- (1,728) (650) (1,728)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 1,143 $ (113) $ (119) $ (2,761)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
Basic:
Net income (loss) applicable to common stock $ 0.05 $ (0.01) $ (0.01) $ (0.13)
============ ============ ============ ============
Weighted-average number of common shares 21,009,506 21,009,506 21,009,506 21,009,506
============ ============ ============ ============
Diluted:
Net income (loss) applicable to common stock $ 0.05 $ (0.01) $ (0.01) $ (0.13)
============ ============ ============ ============
Weighted-average number of common shares and
common share equivalents outstanding 21,009,506 21,009,506 21,009,506 21,009,506
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED 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, 1998 21,009,506 $ 210 $ 12,789 $ 7,680 $ 20,679
Warrants issued 109 109
Net loss for the nine months ended
May 31, 1999 -- -- -- (119) (119)
---------- ---------- ---------- ---------- ----------
Balance at May 31, 1999 21,009,506 $ 210 $ 12,898 $ 7,561 $ 20,669
========== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (119) $ (2,761)
-------- --------
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of negative goodwill -- (36)
Charges to allowance for cancellations (4,662) (5,152)
Provision for cancellations 4,186 3,760
Gain on sale of notes receivable (513) --
Provision for uncollectible Owners' Association advances -- (403)
Cost of sales 7,956 6,440
Depreciation 1,493 1,691
Amortization of interest only receivables 579 341
Repayments on notes receivable 29,849 27,548
Additions to notes receivable (43,634) (40,096)
Purchase of land and timeshare interests (2,994) (14,232)
Additions to other receivables -- (4,193)
Decreases in other receivables -- 6,769
Changes in operating assets and liabilities:
Decrease in restricted cash 142 34
Increase in other assets (4,928) (4,253)
Increase in deferred selling costs (157) (73)
Increase in accounts payable and accrued liabilities 1,810 2,561
Increase (decrease) in deposits (2,421) 1,564
Decrease in accrued income taxes (783) (1,527)
-------- --------
Total adjustments (14,077) (19,257)
-------- --------
Net cash used in operating activities (14,196) (22,018)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,368) (1,826)
Proceeds from the sale of property and equipment -- 359
Proceeds from the sale of other investments 747 --
Additions to other investments (821) (2,015)
-------- --------
Net cash used in investing activities (1,442) (3,482)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 40,906 35,745
Reduction of debt (25,124) (18,057)
Payments on subordinated debt (466) (639)
Increase in subordinated debt 453 492
-------- --------
Net cash provided by financing activities 15,769 17,541
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 131 (7,959)
CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD 1,813 10,376
-------- --------
CASH AND CASH EQUIVALENTS-- END OF PERIOD $ 1,944 $ 2,417
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized $ 6,342 $ 5,656
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Issuance of warrants related to debt $ 109 $ --
Reduction of additional paid-in capital due to spin-off of previously affiliated company -- (21,735)
Reduction of retained earnings due to spin-off of previously affiliated company -- (21,441)
Adjustments of receivable from previously affiliated company -- (6,153)
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1999 AND 1998
(unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Consolidated Financial Statements contained in the Form 10-K of Mego Financial
Corp. (Mego Financial) filed with the Securities and Exchange Commission for the
year ended August 31, 1998, the accompanying unaudited Condensed Consolidated
Financial Statements contain all of the information necessary to present fairly
the financial position of Mego Financial and Subsidiaries at May 31, 1999, the
results of its operations for the three and nine months ended May 31, 1999 and
1998, the change in stockholders' equity for the nine months ended May 31, 1999
and the cash flows for the nine months ended May 31, 1999 and 1998. All
intercompany accounts between the parent and its subsidiaries have been
eliminated.
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. In the
opinion of management, all material adjustments necessary for the fair
presentation of these statements have been included herein which are normal and
recurring in nature. The results of operations for the three and nine months
ended May 31, 1999 are not necessarily indicative of the results to be expected
for the full year.
2. NATURE OF OPERATIONS
Mego Financial is a premier developer and operator of timeshare
properties and a provider of consumer financing to purchasers of timeshare
intervals and land parcels through its wholly-owned subsidiary, Preferred
Equities Corporation (PEC) established in 1970. PEC is engaged in originating,
selling, servicing and financing consumer receivables generated through
timeshare and land sales. Mego Financial and its subsidiaries are also herein
collectively referred to as the Company as the context requires. Mego Financial
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.
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 generally services. In
February 1988, Mego Financial acquired PEC, pursuant to an assignment by the
Assignors (Comay Corp., Growth Realty Inc., RER 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 in Nevada and its interest in certain related notes receivable
to the trustees.
RECENT EVENTS
In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego
Financial entered into a Forbearance Agreement dated as of December 24, 1998.
Under the agreement, FINOVA agreed to make a loan in the amount of $5,662,000 to
PEC with a maturity date of June 30, 1999, since extended to September 1, 1999.
At that time, the Company agreed to guarantee the loan and, if all of the
$5,662,000 was advanced to PEC, to issue to FINOVA warrants to purchase a total
of 500,000 shares of common stock of Mego Financial at an exercise price of
$1.00 per share, exercisable within a five-year period commencing January 1,
1999. On December 24, 1998, FINOVA advanced to PEC a first tranche of
$3,000,000, less fees, secured by a pledge of stock of Central Nevada Utilities
Company, a wholly-owned subsidiary of PEC. In accordance with the agreement,
Mego Financial granted to FINOVA a warrant to purchase 150,000 shares of common
stock of Mego Financial.
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<PAGE> 8
Of the second tranche of $2,662,000, FINOVA advanced $1,000,000 to PEC
on May 7, 1999. In accordance with the agreement, Mego Financial granted to
FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial.
The following table sets forth information regarding the advances from
FINOVA to PEC under the Forbearance Agreement for the nine months ended May 31,
1999:
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES OF MEGO
FINANCIAL CORP.
COMMON STOCK
AVAILABLE FOR
FINOVA PURCHASE UNDER
LOAN WARRANTS GRANTED
---------- ------------------
<S> <C> <C>
First Tranche
- -------------
December 24, 1998 $3,000,000 150,000
Second Tranche
- --------------
May 7, 1999 1,000,000 131,480
---------- ----------
Balances as of May 31, 1999 $4,000,000 281,480
========== ==========
</TABLE>
Subsequent to May 31, 1999, FINOVA advanced an additional $1,000,000 of
the second tranche. In accordance with the agreement, Mego Financial granted to
FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial.
The remaining $662,000 of the second tranche is available for borrowing until
September 1, 1999. If the remaining amount is advanced in full under the
agreement, FINOVA would be entitled to receive a five-year warrant to purchase
an additional 87,040 shares of Mego Financial common stock at an exercise price
of $1.00 per share, which would make the total of warrants covering 500,000
shares of Mego Financial common stock.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 established
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. There are no additional items
that would be reported as Comprehensive Income that are not included in the
Company's Statements of Operations for any of the three and nine months ended
May 31, 1999 and 1998.
In June 1997, FASB issued SFAS No. 131, "Disclosures and Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 established standards
of reporting by publicly-held business enterprises and disclosure of information
about operating segments in annual financial statements and, to a lesser extent,
in interim financial reports issued to shareholders. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, and, will thus be adopted for
the fiscal year ending August 31, 1999 and subsequent interim financial
statement periods. As SFAS 131 deals with financial statement disclosure, the
Company does not anticipate the adoption of this new standard will have a
material impact on its financial position, results of operations or cash flows.
4. STOCKHOLDERS' EQUITY
Mego Financial's stock option plan (Stock Option Plan), which was
amended and restated as of September 16, 1998 upon the approval of Mego
Financial's shareholders, provides for grants of non-qualified and qualified
incentive options to officers, key employees and directors. On September 23,
1998, an additional 111,000 incentive and non-incentive stock options were
granted under the Stock Option Plan by the Stock Option Committee to employees
at $1.00 per share being the fair value. In addition, the exercise prices of
304,500 of options issued on September 2, 1997 were revised from $3.125 per
share to $1.00 per share. Options for 363,500 shares were outstanding as of July
13, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations section contains certain forward-looking
statements and information relating to Mego Financial Corp. (Mego Financial)
(Mego Financial and its subsidiaries are referred to herein collectively as the
Company as the text requires) that are based on the beliefs of management as
well as assumptions made by and information currently available to management.
Such forward-looking statements include, without limitation, the Company's
expectation and estimates as to the Company's business operations, including the
introduction of new timeshare and land sales programs and future financial
performance, such as growth in revenues and net income and cash flows. Such
forward-looking statements also include, without limitation, the Company's
expectations and beliefs as to the projected costs and anticipated timetable to
address Year 2000 compliance issues, the adequacy of its plans to address such
issues and the impact on the Company's operations in the event that certain or
all of its plans or the plans of its lenders and other third parties in respect
of such compliance issues prove to be inadequate. In addition, included herein
the words "anticipates," "believes," "estimates," "expects," "plans," "intends"
and similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company's management with respect to future events and are
subject to certain risks, uncertainties and assumptions. In addition, the
Company specifically advises readers that the factors listed under the caption
"Liquidity and Capital Resources" could cause actual results to differ
materially from those expressed in any forward-looking statement. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements, including the notes thereto,
contained elsewhere herein and in the Company's Form 10-K for the fiscal year
ended August 31, 1998.
GENERAL
The business of the Company is primarily the marketing, financing and
sale of timeshare interests, retail lots and land parcels, servicing the related
receivables and operating and managing timeshare properties. The Company,
through its subsidiary, Preferred Equities Corporation (PEC), provides financing
to 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 sale contracts. These notes receivable are generally
payable over a period ranging from two to twelve years, bear interest at rates
ranging from 12.5% to 15.5% and generally require equal monthly payments of
principal and interest.
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
periodically 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 six to ten months of 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 cancellations. 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
quarter the revenue is
7
<PAGE> 10
recognized is not deemed to represent a sale and is accounted for as a reversal
of the revenue with an adjustment to cost of sales. Cancellation of a note
receivable subsequent to the quarter the revenue was recognized is charged to
the allowance for cancellations.
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 retains certain participations in cash flows
from the sold notes receivable and generally retains the associated servicing
rights. PEC generally sells its notes receivable at par value.
The present values of expected net cash flows from the sale of notes
receivable are recorded at the time of sale as interest only receivables.
Interest only receivables are amortized as a charge to income, as payments are
received on the retained interest differential over the estimated life of the
underlying notes receivable. Interest only receivables are recorded at the lower
of unamortized cost or estimated fair value. The expected cash flows used to
determine the interest only receivables asset have been reduced for potential
losses under recourse provisions of the sales agreements. Reserve for notes
receivable sold with recourse represents PEC's estimate of the fair value of its
future credit losses to be incurred over the lives of the notes receivable in
connection with the recourse provisions of the sales agreements and is shown
separately as a liability in the Company's Condensed Consolidated Balance
Sheets.
In discounting cash flows related to notes receivable sales, PEC defers
servicing income at an annual rate of 1% and discounts cash flows on its sales
at the rate it believes a purchaser would require as a rate of return. Earned
servicing income is included under the caption of financial income. The cash
flows were discounted to present value using a discount rate of 15% for the nine
months ended May 31, 1999 and 1998. PEC has developed its assumptions based on
experience with its own portfolio, available market data and ongoing
consultations with its financial advisors.
In determining expected cash flows, management considers economic
conditions at the date of sale. In subsequent periods, these estimates may be
revised as necessary using the original discount rate, and any losses arising
from prepayment and loss experience will be recognized as realized.
Provision for cancellations relating to notes receivable is recorded as
expense in amounts sufficient to maintain the allowance at a level considered
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes receivable. PEC records
a provision for cancellations at the time revenue is recognized, based on
historical experience and current economic factors. The related allowance for
cancellations represents PEC's estimate of the amount of the future credit
losses to be incurred over the lives of the notes receivable. The allowance for
cancellations is reduced by actual cancellations experienced, including
cancellations related to previously sold notes receivable which were reacquired
pursuant to the recourse obligations discussed herein. Such allowance is also
reduced to establish the separate liability for reserve for notes receivable
sold with recourse. PEC's judgment in determining the adequacy of this allowance
is based upon a periodic review of its portfolio of notes receivable. These
reviews take into consideration changes in the nature and level of the
portfolio, historical cancellation experience, current economic conditions which
may affect the purchasers' ability to pay, changes in collateral values,
estimated value of inventory that may be reacquired and overall portfolio
quality. Changes in the allowance as a result of such reviews are included in
the provision for cancellations.
Fees for servicing notes receivable originated by PEC and sold with
servicing rights retained are generally based on a stipulated percentage of the
outstanding principal balance of such notes receivable and are recognized when
earned. Interest received on notes receivable sold, less amounts paid to
investors, is reported as financial income. Interest only receivables are
amortized systematically to reduce notes receivable servicing income to an
amount representing normal servicing income and the present value discount. Late
charges and other miscellaneous income are recognized when collected. Costs to
service notes receivable are recorded to expense as incurred. Interest income
represents the interest received on loans held in PEC's portfolio, the accretion
of the discount on the interest only receivables and interest on cash funds.
8
<PAGE> 11
Total costs and expenses consist primarily of marketing and sales
expenses, general and administrative expenses, direct costs of sales of
timeshare interests and land, depreciation and amortization and interest
expense. Marketing and sales costs directly attributable to unrecognized sales
are accounted for as deferred selling costs until such time as the sale is
recognized.
PEC has entered into financing arrangements with certain purchasers of
timeshare interests and land whereby 5% interest per annum is charged on those
sales where the aggregate down payment is at least 50% of the purchase price and
the balance is payable in 36 or fewer monthly payments. (PEC discontinued,
effective during the quarter ended August 31, 1998, a 0% interest arrangement).
Notes receivable of $6.1 million and $7.3 million at May 31, 1999 and August 31,
1998, respectively, were outstanding under this arrangement.
Land sales as of May 31, 1999 exclude $13.9 million of sales not yet
recognized under generally accepted accounting principles (GAAP) since the
requisite payment amounts have not yet been received. If ultimately recognized,
revenues from these sales would be reduced by a related provision for
cancellations of $1.9 million, deferred selling costs of $3.9 million and cost
of sales of $2.0 million.
RESULTS OF OPERATIONS
Three Months Ended May 31, 1999 Compared to Three Months Ended May 31, 1998
PEC
Total revenues for PEC increased 16.2%, or $2.8 million, to $20.3
million during the three months ended May 31, 1999 from $17.5 million during the
three months ended May 31, 1998. The increase was primarily due to a 13.6%
increase in timeshare interest sales, net (hereinafter, "net" refers to gross
sales, less current cancellations and a provision for possible future
cancellations), of $1.3 million, a 37.9% increase in land sales, net, of $1.3
million and an increase in interest income of $766,000, partially offset by a
decrease of $448,000 in financial income.
Gross sales of timeshare interests increased to $12.5 million during the
three months ended May 31, 1999 from $10.4 million during the three months ended
May 31, 1998, an increase of 19.3%. The provision for cancellations represented
12.7% and 8.3%, respectively, of gross sales of timeshare interests for the
three months ended May 31, 1999 and 1998. The percentage increase in the
provision for cancellations for timeshare interests was primarily due to a
downward adjustment recorded in the quarter ended May 31, 1998 based on a review
of the reserve adequacy at that time.
Gross sales of land increased to $5.2 million during the three months
ended May 31, 1999 from $3.8 million during the three months ended May 31, 1998,
an increase of 35.2%. The provision for cancellations decreased to 6.4% of gross
sales of land for the three months ended May 31, 1999 from 8.2% for the three
months ended May 31, 1998 primarily due to lower cancellation experience of land
receivables during the third quarter of fiscal 1999 compared to the third
quarter of fiscal 1998.
Interest income increased to $2.7 million during the three months ended
May 31, 1999 from $1.9 million during the three months ended May 31, 1998, an
increase of 40.2%. The increase was primarily due to increased average notes
receivable balances for the current period.
Financial income decreased to $321,000 during the three months ended May
31, 1999 from $769,000 during the three months ended May 31, 1998, a decrease of
58.3%. The decrease was primarily a result of the termination by agreement of
loan servicing for a company previously affiliated with Mego Financial.
Total costs and expenses for PEC were $18.8 million for the three months
ended May 31, 1999 and 1998.
As a percentage of gross sales of timeshare interests and land,
marketing and sales expenses relating thereto decreased to 51.0% during the
three months ended May 31, 1999 from 64.0% during the three months ended May 31,
1998, due primarily to cost-control measures discussed elsewhere herein. Cost of
sales as a percentage of gross sales increased to 18.5% during the three months
ended May 31, 1999 from 15.2% during the three months ended
9
<PAGE> 12
May 31, 1998. The increase was primarily due to sales of higher cost timeshare
intervals in Orlando and higher cost lots in Hartsel, resulting in higher cost
of sales during the third quarter of fiscal 1999 compared to the third quarter
of fiscal 1998. Sales prices of timeshare interests are typically lower than
those of land, while marketing and sales 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.
Interest expense of PEC increased to $2.2 million during the three
months ended May 31, 1999 from $2.0 million during the three months ended May
31, 1998, an increase of 13.7%. The increase is a result of a higher average
outstanding balance of notes and contracts payable during the three months ended
May 31, 1999 compared to the three months ended May 31, 1998 and is related to
the fact that there were no sales of receivables during the current fiscal year.
Pretax income of $1.5 million was recorded by PEC during the three
months ended May 31, 1999 compared to pretax loss of $1.3 million during the
three months ended May 31, 1998. The change in the pretax income is primarily
due to the $1.1 million decrease in general and administrative expenses,
together with the increase of $2.6 million in net timeshare and land sales
during the comparative three month periods, with a related lower percentage of
marketing and sales expense as a percentage of sales.
As a result of the foregoing, PEC reported net income of $1.5 million
during the three months ended May 31, 1999 compared to a net loss of $1.3
million during the three months ended May 31, 1998.
COMPANY (consolidated)
Pretax income was $1.1 million during the three months ended May 31,
1999 compared to a pretax loss of $1.8 million during the three months ended May
31, 1998. The change in pretax income is primarily attributable to the 25.1%
decrease in general and administrative expenses, the increase in net timeshare
and land sales, with a related lower percentage of marketing and sales expenses,
as a percentage of sales which were partially offset by the decrease in
financial income. Total costs and expenses during the three months ended May 31,
1999 were $19.2 million, a decrease of .9% from $19.4 million during the three
months ended May 31, 1998.
There was no income tax benefit recorded for the three months ended May
31, 1999 compared to an income tax benefit of $1.7 million for the three months
ended May 31, 1998. For the three months ended May 31, 1999, there was no tax
provision based on a review of the current facts and circumstances related to
the Company's income tax liability reserves.
Net income applicable to common stock was $1.1 million during the three
months ended May 31, 1999 compared to a net loss applicable to common stock of
$113,000 during the three months ended May 31, 1998, due to the increase in the
PEC pretax consolidated income, with no income tax benefit recorded during the
three months ended May 31, 1999 compared to a income tax benefit of $1.7 million
recognized during the three months ended May 31, 1998.
Nine Months Ended May 31, 1999 Compared to Nine Months Ended May 31, 1998
PEC
Total revenues for PEC increased 7.3%, or $3.6 million, to $53.0 million
during the nine months ended May 31, 1999 from $49.4 million during the nine
months ended May 31, 1998. The increase was primarily due to a 6.0% increase in
net timeshare sales of $1.6 million and a 17.4% increase in net land sales of
$1.8 million and a 28.7% increase in interest income of $1.5 million, offset by
a 62.9% decrease in financial income of $1.7 million.
Gross sales of timeshare interests were $31.9 million during the nine
months ended May 31, 1999 compared to $29.7 million during the nine months ended
May 31, 1998, an increase of 7.2%. The provision for cancellations represented
10.6% and 9.6%, respectively, of gross sales of timeshare interests for the nine
months ended May 31, 1999 and 1998. The percentage increase in the provision for
cancellations for timeshare interests
10
<PAGE> 13
was primarily due to a downward adjustment recorded in the quarter ended May 31,
1998 based on a review of the reserve adequacy at that time.
Gross sales of land increased to $12.7 million during the nine months
ended May 31, 1999 from $11.0 million during the nine months ended May 31, 1998,
an increase of 15.1%. The provision for cancellations decreased to 6.3% of gross
sales of land for the nine months ended May 31, 1999 from 8.2% for the nine
months ended May 31, 1998, primarily due to lower cancellation experience of
land receivables during the first nine months of fiscal 1999 compared to the
first nine months of fiscal 1998.
Interest income increased to $6.6 million during the nine months ended
May 31, 1999 from $5.1 million during the nine months ended May 31, 1998, an
increase of 28.7% primarily due to increased average notes receivable balances
for the current period.
Financial income decreased to $1.0 million during the nine months ended
May 31, 1999 from $2.8 million during the nine months ended May 31, 1998, a
decrease of 62.9%. The decrease was primarily a result of the termination by
agreement of loan servicing for a company previously affiliated with Mego
Financial.
Total costs and expenses for PEC increased to $52.7 million for the nine
months ended May 31, 1999 from $52.3 million for the nine months ended May 31,
1998, an increase of .6%. The increase resulted primarily from an increase in
direct costs of land sales to $2.0 million from $1.2 million, an increase of
65.2%; an increase in marketing and sales expense to $25.6 million from $24.8
million, an increase of 3.6%; and, an increase in interest expense to $6.2
million from $5.1 million, an increase of 20.2%, partially offset by a decrease
of $2.6 million, or 21.3%, in general and administrative expenses. The increase
in direct costs of land is attributable to increased sales of higher cost lots
sold during the current fiscal period compared to the same period in fiscal
1998. The increase in marketing and sales expenses is due primarily to the
higher gross sales; however, as noted herein, the increase in dollars was
accompanied by a related lower percentage of marketing and sales expenses. The
increase in interest expense is due to the increase in the average outstanding
balance of notes and contracts payable. The decrease in general and
administrative expenses is due to the reduction in salaries and benefits.
As a percentage of gross sales of timeshare interests and land,
marketing and sales expenses relating thereto decreased to 57.5% during the nine
months ended May 31, 1999 from 60.7% during the nine months ended May 31, 1998,
and cost of sales increased to 17.9% during the nine months ended May 31, 1999
from 15.8% during the nine months ended May 31, 1998. 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. Subsequent to
November 30, 1998, the Company restructured its marketing and sales programs,
which restructuring has included the closing of unprofitable sales locations,
the elimination of certain marketing programs and the layoff of related
personnel. Therefore, the results of operations for the three months ended May
31, 1999 are more indicative of the Company's expectations than the nine months
ended May 31, 1999.
Interest expense of PEC increased to $6.2 million during the nine months
ended May 31, 1999 from $5.1 million during the nine months ended May 31, 1998,
an increase of 20.2%. The increase is a result of a higher average outstanding
balance of notes and contracts payable during the nine months ended May 31, 1999
compared to the nine months ended May 31, 1998 and is related to the fact that
there were no sale of receivables during the current fiscal year.
Pretax income of $350,000 was recorded by PEC during the nine months
ended May 31, 1999 compared to a pretax loss of $2.9 million during the nine
months ended May 31, 1998. The increase in the pretax income was primarily due
to the $2.6 million decrease in general and administrative expenses, together
with an increase of $1.6 million and $1.8 million, respectively, in net
timeshare and land sales with a related lower percentage of marketing and sales
expenses as a percentage of sales, and an increase of $1.5 million in interest
income partially offset by a $1.7 million decrease in financial income and an
increase of $1.0 million in interest expense.
As a result of the foregoing, PEC reported net income of $350,000 during
the nine months ended May 31, 1999 compared to a net loss of $2.9 million during
the nine months ended May 31, 1998.
11
<PAGE> 14
COMPANY (consolidated)
Loss before income taxes decreased $3.7 million to a loss of $769,000
during the nine months ended May 31, 1999 compared to a loss of $4.5 million
during the nine months ended May 31, 1998, due primarily to a decrease in
general and administrative expenses of $3.1 million, an increase of $1.6 million
and a $1.8 million, respectively, in timeshare and land sales, with a related
lower percentage of marketing and sales expenses as a percentage of sales and an
increase of $1.4 million in interest income, partially offset by an increase of
$1.0 million in interest expense.
Total costs and expenses during the nine months ended May 31, 1999 were
$53.8 million, a decrease of .3% compared to $54.0 million during the nine
months ended May 31, 1998. General and administrative expenses decreased 22.8%
for the nine months ended May 31, 1999 compared to the nine months ended May 31,
1998 due primarily to PEC's efforts to lower expenses. 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. Mego Financial (parent
only) continues to incur interest on subordinated debt.
An income tax benefit of $650,000 was recorded for the nine months ended
May 31, 1999 compared to an income tax benefit of $1.7 million for the nine
months ended May 31, 1998. The change in accrued income taxes for the nine
months ended May 31, 1999 and 1998 was based on a review of the current facts
and circumstances relating to the Company's income tax liability reserves.
Net loss applicable to common stock was $119,000 during the nine months
ended May 31, 1999 compared to a net loss applicable to common stock of $2.8
million during the nine months ended May 31, 1998, due to a $2.6 million
increase in the PEC pretax consolidated income, with an income tax benefit of
$650,000 recognized during the nine months ended May 31, 1999 compared to an
income tax benefit of $1.7 million recognized during the nine months ended May
31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company were $1.9 million at May 31,
1999 compared to $1.8 million at August 31, 1998.
In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego
Financial entered into a Forbearance Agreement dated as of December 24, 1998.
Under the agreement, FINOVA agreed to make a loan in the amount of $5,662,000 to
PEC with a maturity date of June 30, 1999, since extended to September 1, 1999.
At that time, the Company agreed to guarantee the loan and, if all of the
$5,662,000 was advanced to PEC, to issue to FINOVA warrants to purchase a total
of 500,000 shares of common stock of Mego Financial at an exercise price of
$1.00 per share, exercisable within a five-year period commencing January 1,
1999. On December 24, 1998, FINOVA advanced to PEC a first tranche of
$3,000,000, less fees, secured by a pledge of stock of Central Utilities
Company, a wholly-owned subsidiary of PEC. In accordance with the agreement,
Mego Financial granted to FINOVA a warrant to purchase 150,000 shares of common
stock of Mego Financial.
Of the second tranche of $2,662,000, FINOVA advanced $1,000,000 to PEC
on May 7, 1999. In accordance with the agreement, Mego Financial granted to
FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial.
Subsequent to May 31, 1999, FINOVA advanced an additional $1,000,000 of
the second tranche. In accordance with the agreement, Mego Financial granted to
FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial.
The remaining $662,000 of the second tranche is available for borrowing until
September 1, 1999. If advanced in full, FINOVA under the agreement would be
entitled to receive a five-year warrant to purchase an additional 87,040 shares
of Mego Financial common stock at an exercise price of $1.00 per share, which
would make the total of warrants covering 500,000 shares of Mego Financial
common stock.
12
<PAGE> 15
The Company experienced certain cash flow pressures and took the
following steps, beginning in December 1998, to alleviate this situation. In
addition to the short-term funding from FINOVA discussed above, subsequent to
November 30, 1998, the Company reduced its work force by 180 employees,
resulting in an estimated savings of $4.85 million of salaries and related
benefits on an annualized basis. In addition, activities in certain unprofitable
sales office locations were curtailed. PEC is also actively pursuing the sale of
certain non-core properties. PEC has been profitable since the month of February
1999 and has available substantial open credit lines as discussed below. These
actions have improved the Company's cash flow and results of operations;
however, there can be no assurance that these efforts will be successful in
sustaining the improvement in the Company's cash flow.
PEC
PEC's cash requirements arise from the acquisition of timeshare
properties and land, payments of operating expenses, payments of principal and
interest on debt obligations and payments of marketing and sales expenses in
connection with sales of timeshare interests and land. Marketing and sales
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 and hypothecations of
receivables, PEC's lines of credit in the aggregate amount of $137.5 million and
cash flows from operations. At May 31, 1999, no commitments existed for material
capital expenditures.
At May 31, 1999, PEC had arrangements with 5 institutional lenders under
6 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 6 lines of credit of up to an aggregate of $137.5
million. Such lines of credit are secured by timeshare and land receivables and
mortgages. At May 31, 1999, an aggregate of $94.3 million was outstanding under
such lines of credit, and $43.2 million was available for borrowing. Under the
terms of these lines of credit, PEC may borrow 70% to 90% of the balances of the
pledged timeshare and land receivables. PEC is required to comply with certain
covenants under these agreements, which, among other things, require PEC to meet
certain minimum tangible net worth requirements. The most stringent of such
requirements provides that PEC maintain a minimum tangible net worth of $25
million. At May 31, 1999, PEC's net worth was $27.8 million. Necessary waivers
of compliance with certain covenants related to these and other agreements have
been received. Summarized lines of credit information and accompanying notes
relating to these six lines of credit outstanding at May 31, 1999 consist of the
following (thousands of dollars):
<TABLE>
<CAPTION>
BORROWING MAXIMUM
AMOUNT AT BORROWING REVOLVING
MAY 31, 1999 AMOUNT EXPIRATION DATE (a) MATURITY DATE INTEREST RATE
- ----------------- ------------- -------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
$ 59,263 $ 75,000 (b) May 15, 2000 Various Prime + 2.0 - 2.25%
3,700 15,000 (c) May 31, 2000 Various Prime + 2.0%
14,327 15,000 (d) July 1, 1999 * Various LIBOR + 4.0 - 4.25%
6,692 15,000 (d) July 1, 1999 * December 31, 2000 LIBOR + 4.0 - 4.25%
4,128 10,000 (e) August 1, 2000 August 1, 2003 Prime + 2.0 - 2.25%
6,173 11,500 (f) June 30, 2000 Various Prime + 2.0 - 3.00%
- -------------------------------------------------------------------------------------------------
</TABLE>
* The lender has agreed to continue the revolver during negotiations for
renewal-see Note (a).
(a) Revolving expiration dates represent the expiration of the revolving
features of the lines of credit, at which time the credit lines become
loans with fixed maturities. As is customary, the Company is negotiating
for extension of the revolving periods expiring in calendar 1999 and for
extension of the other loan amounts maturing in 1999.
(b) Restrictions include PEC's requirement to maintain a minimum tangible
net worth of $20.0 million with such amount increasing each fiscal
quarter after August 31, 1997 by an amount equal to 50% of PEC's
consolidated net income for each quarter up to a maximum requirement of
$25 million. At May 31, 1999, $39.3 million of loans secured by
receivables were outstanding related to financings at prime +2%, of
which $28.5 million of loans secured by land receivables mature May 15,
2010 and $10.8 million of loans secured by timeshare receivables mature
May 15, 2007. The outstanding borrowing amount includes
13
<PAGE> 16
$128,000 in acquisition and development (A&D) financing maturing
September 1, 1999 and $6.4 million maturing July 1, 2003 for the
financing of corporate office buildings, both of which are amortizing
loans, and real estate loan with an outstanding balance of $1.2 million
maturing March 20, 2000, all bearing interest at prime +2.25%. The
remaining A&D loans, receivables loans, and a resort lobby loan
outstanding of $12.3 million are at prime +2% and mature at various
dates through February 20, 2001.
(c) Restrictions include PEC's requirement to maintain a minimum tangible
net worth of $25.0 million during the life of the loan. These credit
lines include available financing for A&D and receivables. At May 31,
1999, $1.0 million was outstanding under the A&D loan which matures on
June 30, 2004, and $2.7 million maturing May 31, 2004 was outstanding
under the receivables loan. Management has obtained a verbal commitment
from the lender to extend this revolving line of credit for a period of
18 months on substantially the same terms.
(d) Restrictions include PEC's requirement to maintain a minimum tangible
net worth of $17.0 million during the life of the loan. These credit
lines include available financings for A&D and receivables. At May 31,
1999, $1.9 million was outstanding under the A&D loans which have
maturity dates of December 31, 2000 and June 30, 2001, and bear interest
at the 90-day London Interbank Offering Rate (LIBOR) +4.25%. The
available receivable financings, of which $12.4 million was outstanding
at May 31, 1999, are all at 90-day LIBOR +4% and have maturity dates of
June 5, 2005 and August 5, 2005.
(e) Restrictions include PEC's requirement to maintain a minimum tangible
net worth of $25 million. This credit line is for the purpose of
financing receivables and costs of remodeling.
(f) Restrictions include PEC's requirement to maintain a minimum tangible
net worth of $15 million. This credit line is for the purpose of
financing receivables, of which $2.2 million was outstanding at May 31,
1999 in respect to the receivable debt, and a real estate loan of $4.0
million with a maturity date of August 31, 1999. The maturity date for
the receivable debt is May 31, 2004.
A schedule of the cash shortfall arising from recognized and
unrecognized sales for the periods indicated is set forth below (thousands of
dollars):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MAY 31, ENDED MAY 31,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Marketing and sales expenses
attributable to recognized and
unrecognized sales $ 11,479 $ 9,085 $ 25,788 $ 24,811
Less: Down payments (3,488) (3,004) (8,890) (9,267)
-------- -------- -------- --------
Cash shortfall $ 7,991 $ 6,081 $ 16,898 $ 15,544
======== ======== ======== ========
</TABLE>
During the nine months ended May 31, 1999 and 1998, PEC did not sell any
notes receivable.
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 are otherwise subject
to replacement or repurchase in either cash or receivables generally at the
option of the purchaser. At May 31, 1999, PEC was contingently liable to replace
or repurchase notes receivable sold with recourse totaling $58.2 million. The
repurchase provisions provide for substitution of receivables as recourse for
$21.3 million of sold notes receivable and cash payments for repurchase related
to $36.9 million of sold notes receivable. At May 31, 1999 and 1998, the
undiscounted amounts of the recourse obligations on such notes receivable were
$6.0 million and $6.1 million, respectively. PEC continually 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, changes in collateral values, estimated
value of inventory that may be reacquired and overall portfolio quality.
14
<PAGE> 17
The components of the Company's debt, including lines of credit, consist
of the following (thousands of dollars):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1999 1998
------- ----------
<S> <C> <C>
Notes collateralized by receivables $59,932 $42,793
Mortgages collateralized by real estate properties 36,477 37,393
Installment contracts and other notes payable 1,359 1,800
------- -------
Total $97,768 $81,986
======= =======
</TABLE>
FINANCIAL CONDITION
May 31, 1999 Compared to August 31, 1998
Cash and cash equivalents increased 7.2% to $1.9 million at May 31, 1999
from $1.8 million at August 31, 1998.
Notes receivable, net, increased 30.0% to $62.1 million at May 31, 1999
from $47.8 million at August 31, 1998, primarily as a result of net new
receivables added during the nine months ended May 31, 1999.
Changes in the aggregate of the allowance for cancellations, excluding
discounts, and the reserve for notes receivable sold with recourse for the nine
months ended May 31, 1999 consisted of the following (thousands of dollars):
<TABLE>
<S> <C>
Balance at beginning of period $ 18,488
Provision for cancellations 4,186
Amounts charged to allowance for cancellations and
reserve for notes receivable sold with recourse (4,173)
--------
Balance at end of period $ 18,501
========
</TABLE>
The allowance for cancellations and the reserve for notes receivable
sold with recourse consisted of the following at these dates (thousands of
dollars):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1999 1998
------- ----------
<S> <C> <C>
Allowance for cancellations, excluding discounts $13,548 $11,868
Reserve for notes receivable sold with recourse 4,953 6,620
------- -------
Total $18,501 $18,488
======= =======
</TABLE>
Statement of Financial Accounting Standards No. 125 (SFAS 125) requires
the reclassification of excess servicing rights as interest only receivables
which are carried at fair value. Interest only receivables decreased 17.2% to
$2.8 million at May 31, 1999 from $3.4 million at August 31, 1998 due to
amortization and the fact that there were no sale of receivables during the
current fiscal year.
Notes and contracts payable increased 19.3% to $97.8 million at May 31,
1999 from $82.0 million at August 31, 1998. There were increased borrowings and
no receivable sales, the proceeds of which are usually used to pay down debt,
during the nine months ended May 31, 1999.
Reserve for notes receivable sold with recourse decreased 25.2% to $5.0
million at May 31, 1999 from $6.6 million at August 31, 1998 primarily due to
the reduced balance of the sold notes receivable. Recourse to PEC on sales of
notes receivable is governed by the agreements between the purchasers and PEC.
15
<PAGE> 18
Accrued income taxes decreased 17.5% to $3.7 million at May 31, 1999
from $4.5 million at August 31, 1998, due primarily to the fiscal 1999 tax
benefit. The change in certain income tax liability reserves was a result of a
review of the current facts and circumstances.
YEAR 2000 COMPLIANCE
The Company is now Year 2000 compliant. To our knowledge, there has been
no material change with respect to vendors and lenders from that set forth in
the Company's 1998 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There was no material change for the three and nine months ended May 31,
1999 in the information about the Company's "Quantitative and Qualitative
Disclosures About Market Risk" as disclosed in the Form 10-K for the fiscal year
ended August 31, 1998.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as hereinafter set forth, and as set forth in the Company's
Quarterly Report on Form 10-Q for the quarters ended February 28, 1999 and
November 30, 1998, there have been no material changes in the status of the
litigation reported in the Company's Annual Report on Form 10-K for the year
ended August 31, 1998.
As previously reported in the Company's 1998 Form 10-K, on August 27,
1998, an action was filed by Robert and Jocelyn Henry, husband and wife
individually and on behalf of all others similarly situated. On December 17,
1998, counsel for the plaintiffs filed an amended class action complaint which
was served on PEC on December 21, 1998. The Company filed a Motion to Dismiss
Plaintiffs' Amended Complaint on January 20, 1999. The Court entered an Order on
May 6, 1999 granting Defendants' motion and dismissing Plaintiffs' Amended
Complaint without prejudice based upon Plaintiffs' failure to exhaust their
administrative remedies by pursuing their allegations regarding the provision of
sewer and water services before the Public Utilities Commission of Nevada. On
May 18, 1999, the Plaintiffs filed a Motion for Reconsideration of the Court's
Order Dismissing the Amended Complaint and the Company filed an opposition to
the Motion on May 27, 1999. The Motion was denied and Plaintiffs have appealed
the issue to the Nevada Supreme Court. A settlement conference is scheduled for
August, 1999.
On February 23, 1998, an action was filed by Robert J. Feeney, as a
purported class action against Mego Mortgage Corporation, a former subsidiary of
the Company (MMC), and Jeffrey S. Moore, the former President and Chief
Executive Officer of MMC. On April 8, 1999, the court conditionally dismissed
the Amended Complaint and ordered plaintiffs to move the Court for leave to file
a second amended complaint. On May 10, 1999, Plaintiff filed a Motion for Leave
to Serve and File Second Amended Class Action Complaint. In response, Defendants
filed a Response to Plaintiffs' Motion for Leave to File Second Amended
Complaint which preserved Defendants' right to challenge whether this case may
properly be certified as a class action and challenged issues raised in
Plaintiffs' Second Amended Class Action Complaint.
On May 10, 1999, an action was filed in the Supreme Court of the State
of New York, County of New York, No. 99-109707, by Mo Yossin, as a purported
class action against the Company and certain of its officers and directors. The
Complaint alleged that the defendants are breaching or have breached their
fiduciary duty by acting to put their interests ahead of the interests of the
Company's public shareholders, specifically by failing and refusing to attempt
to maximize stockholder value and failing to seek a purchaser of the Company
and/or any and all of its various assets or divisions at the best price
obtainable. The Complaint seeks preliminary and permanent injunctive and
declaratory relief preventing Defendants from depriving Plaintiff of his right
to realize the full and fair value of his stock and unspecified monetary
damages.
The Company believes that it has substantial defenses to all of the
complaints that have been filed against it described above. However, the Company
presently cannot predict the outcome of these matters. The Company
16
<PAGE> 19
does not believe that any judgment obtained will have a material adverse effect
on the Company's or PEC's business or financial condition.
In the general course of business the Company, at various times, has
been named in other lawsuits. The Company believes that it has meritorious
defenses to these lawsuits and that resolution of these matters will not have a
material adverse affect on the business or financial condition of the Company.
ITEM 5. OTHER EVENTS
On October 6, 1998, the Company announced that it retained Friedman,
Billings, Ramsey & Co., Inc. to review strategic alternatives for the Company,
including potential offers, mergers and financing transactions, as appropriate.
This effort is continuing.
The Company received a notice from The Nasdaq Stock Market, Inc. that
its common stock would be delisted from the Nasdaq National Market as a result
of the failure to maintain a minimum closing bid price of $1.00 unless the
closing bid price of the common stock equaled or exceeded $1.00 for a period of
ten consecutive trading days prior to April 30, 1999. The minimum closing bid
price of the common stock did not satisfy such requirement prior to that date.
On June 10, 1999, the Company attended an oral hearing before the Nasdaq Listing
Qualifications Committee ("Committee") at which the Company requested an
exception to the minimum price listing requirement of the Nasdaq National
Market. The Company has not received a response from the Committee regarding its
request for an exception.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.164 Amendment No.2 to Interval Receivables Loan and Security
Agreement dated as of March 28, 1999 between Heller Financial,
Inc. and Preferred Equities Corporation.
10.165 Sales Agreement dated as of March 8, 1999 between Great Escape
Marketing, Inc. and Preferred Equities Corporation relating to
6950 Villa de Costa Dr. Orlando, Florida.
10.166 Sales Agreement dated as of March 10, 1999 between D&D
Marketing, Inc. and Preferred Equities Corp and Brigantine
Preferred Properties.
10.167 Forbearance and Modification Agreement dated as of May 7, 1999
by and between Preferred Equities Corporation and Heller
Financial, Inc.
10.168 Management Agreement dated May 20, 1999 by and between Hotel
Maison Pierre Lafitte, LTD. Owners Association, Inc. and
Preferred Equities Corporation.
10.169 Fifth Amendment to Assignment and Assumption Agreement dated
May 28, 1999 by and between RER Corp, COMAY Corp., Growth
Realty Inc. and H&H Financial, Inc. and Mego Financial Corp.
10.170 Amendment No. 2 to Severance Agreement, and Consulting
Agreement dated June 18, 1999 between Don A. Mayerson and Mego
Financial Corp.
10.171 First Amendment to Forbearance Agreement and Amendment No. 6
to Second Amended and Restated and Consolidated Loan and
Security Agreement dated May 7, 1999 by and among Finova
Capital Corporation, Preferred Equities Corporation and Mego
Financial Corp.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
17
<PAGE> 20
No reports on Form 8-K were filed during the current period.
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/ Charles G. Baltuskonis
------------------------------------
Charles G. Baltuskonis
Vice President and Chief Accounting
Officer
Date: July 13, 1999
----------------------
18
<PAGE> 1
EXHIBIT 10.164
AMENDMENT NO. 2 TO
INTERVAL RECIVABLES LOAN AND SECURITY AGREEMENT
THIS AMENDMENT No. 2 to the Interval Receivables Loan and Security
Agreement dated March 28, 1996 (as amended, the "Agreement") is made as of March
1, 1999 by and between Heller Financial, Inc., a Delaware corporation ("Lender")
whose address is 500 West Monroe Street Chicago, Illinois 60661 and Preferred
Equities Corporation, a Nevada corporation ("Borrower") whose address is 4310
Paradise Road, Las Vegas Nevada 89109.
WHEREAS, the parties entered into the Agreement providing for an
interval receivables loan commitment in the total amount of Fifteen Million
dollars and No/100 ($15,000,000.00); and
WHEREAS, the parties desire to amend the Agreement on the terms and
conditions as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. The Recitals set forth above are true and correct and incorporated
herein by reference.
2. The referenced definitions of Appendix - Defined Terms of the
Agreement are hereby amended as follows:
a. The definition of "Revolving Period" is deleted in its entirety and
replaced with the following:
"REVOLVING PERIOD. The period commencing on the earlier of (i) the date
of the first Advance or (ii) nine (9) months from the date of the
Agreement, and ending on April 30, 1999."
3. All definitions used in this Amendment, if not otherwise defined,
shall have the meaning assigned to such terms in the Agreement, as amended
herein.
4. Ratification by Borrower. Borrower hereby ratifies and confirms the
Loan Documents amended pursuant hereto, and agrees that as modified pursuant
hereto, the Note, and the other Loan Documents are, and continue to be, in full
force and effect and are enforceable in accordance with their respective terms.
Borrower hereby incorporates by reference all covenants, warranties and
representations contained in the Loan Documents and reaffirms such covenants,
warranties and representations as of the date hereof.
1
<PAGE> 2
5. Ratification and Reaffirmation by Guarantor. Guarantor hereby (a)
reaffirms that it is legally and validly indebted to the Lender pursuant to and
in accordance with the Guaranty, (b) acknowledges and consents to the Guaranty
and Loan Documents in accordance with the terms hereof (c) acknowledges and
affirms that the Guaranty remains in full force and effect. Any references in
the Guaranty to the Loan shall mean the Loan as amended and affected pursuant
hereto.
6. Release. The Borrower and Guarantor, by execution of this Agreement,
hereby declare that as of this date each has no claim, set-off, counterclaim,
defense, or other cause of action against Lender including, but not limited to,
a defense of usury, any claim or cause of action at common law, in equity,
statutory or otherwise, in contract or in tort, for fraud, malfeasance,
misrepresentation, financial loss, usury, deceptive trade practice, or any other
loss, damage or liability of any kind. arising out of or in any way connected
with the Agreement. Further, to the extent that any such set-off, counterclaim,
defense, or other cause of action may exist or might hereafter arise based on
facts known or unknown which exist as of this date, such set-off, counterclaim,
defense and other cause of action is hereby expressly and knowingly waived and
released by Borrower and Guarantor.
7. Except as modified by this Amendment, all other terms and conditions
of the Agreement and other Loan Documents shall remain in full force and effect.
In witness whereof, the parties have executed this Amendment
on the date first written above.
BORROWER: LENDER:
PREFERRED EQUITIES CORPORATION HELLER FINANCIAL, INC.
By: _________________________ By:___________________________
Name: ______________________ Name:________________________
Its: _________________________ Its: _________________________
APPROVED BY GUARANTOR:
MEGO FINANCIAL CORP.
By: _____________________________
Name: ___________________________
Its: ______________________________
2
<PAGE> 3
STATE OF NEVADA )
) SS.
COUNTY OF CLARK )
I hereby certify that on this ____ day of March 1999, before me, an
officer duly authorized in the State aforesaid and in the County aforesaid to
take acknowledgments, personally appeared _____________, as ______________ of
Preferred Equities Corporation, to me known to be the person who executed the
attached Amendment No. 2 to Interval Receivables Loan and Security Agreement, in
the State and County aforesaid, on behalf of the corporation, and acknowledged
before me that he/she executed the same.
Notary: __________________________________
Print Name: _______________________________
Notary Public, State of Nevada
My Commission Expires:
Commission Number:
STATE OF ILLINOIS )
) S.S.
COUNTYOF COOK )
I hereby certify that on this ___ day of March, 1999, before me, an
officer duly authorized in the State aforesaid and in the County aforesaid to
take acknowledgments, personally appeared _________, as __________________ of
Heller Financial, Inc., to me known to be the person who executed the attached
Amendment to Interval Receivables Loan and Security Agreement, in the State and
County aforesaid, on behalf of the corporation, and acknowledged before me that
she executed the same.
Notary : ________________________________
Print Name : _____________________________
Notary Public, State of Illinois
My Commission Expires:
3
<PAGE> 1
EXHIBIT 10.165
PREFERRED EQUITIES CORPORATION
EXCLUSIVE SALES AGREEMENT
THIS EXCLUSIVE SALES AGREEMENT ("Agreement") is entered into as of March 8,
1999, by and between Preferred Equities Corporation., a Nevada corporation,
having its principal address at 4310 Paradise Road, Las Vegas, Nevada 89109
("PEC") and Great Escape Marketing, Inc., a Florida corporation having its
principal address at 5942 34th Street West, #107, Bradenton, Florida 34201
("Sales Entity").
RECITAL OF FACTS
PEC desires to retain Sales Entity pursuant to the terms and conditions of this
Agreement to engage in Sales of Timeshare at PEC's Sales office located at 6950
Villa de Costa Drive, Orlando, Florida 32821 ("Sales Office").
Sales Entity desires to be so retained.
For good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS - All capitalized terms used within this Agreement, including all
Exhibits attached hereto and made a part hereof, unless otherwise defined within
this Agreement or any Exhibit attached hereto, shall have the respective
meanings ascribed in the Appendix of Defined Terms attached hereto and made a
part hereof.
2. ENGAGEMENT - In consideration of PEC and Sales Entity entering into this
Agreement and Sales Entity representing that it and all employees engaged by
Sales Entity hold all necessary licenses, PEC hereby engages Sales Entity to
conduct Sales of Timeshare at Sales Office. Sales Entity represents and agrees
that as of the date of and throughout the term of this Agreement, Sales Entity
and all employees of Sales Entity meeting the definition of a broker,
broker-salesperson or transaction broker under The 1998 Florida Statutes Chapter
475, are and will be licensed real estate agents and/or agents for Sales of
Timeshare licensed by the State of Florida and all lesser municipal bodies or
agencies as may be required and Sales Entity and its employees are and will
remain in good standing with all applicable State and all lesser municipal
bodies licensing requirements. Sales Entity further represents and agrees that
it will comply with all applicable laws, policies, rules, regulations and
procedures established by any federal, State or local regulatory agency.
3. BEST EFFORTS - During the term of employment, Sales Entity agrees to: (a)
devote its best efforts to Sales of Timeshare at Sales Office; (b) fully perform
all duties as directed by PEC from time to time; and (c) faithfully and
diligently endeavor to promote the best interests of PEC.
1.
<PAGE> 2
4. COMPENSATION - PEC shall pay to Sales Entity Sales Commissions at a rate and
at times shown on the Sales Commission Schedule, attached hereto, made a part
hereof and marked Exhibit "A". Sales Commissions shall be calculated on Net
Processed Volume for Contracts meeting Conforming Sales Criteria as shown on
Exhibit "B", attached hereto and made a part hereof. Conforming Sales Criteria
may be modified upon the giving of written notice to Sales Entity by PEC.
Rejection of any such change or modification by Sales Entity shall constitute a
termination of this Agreement pursuant to Paragraph 11.B of this Agreement.
5. EARNED COMMISSIONS - Sales Commissions become Earned Commissions at such time
as (a) all rights of rescission, including but not limited to all State
rescission periods and post-Contract inspection rights, if any, have expired and
(b) not less than fifty percent (50%) of a Contract balance has been paid to PEC
or the total down payment and six (6) contractual payments have been received by
PEC. Advances Against Commissions are subject to Recovery until such time as
Sales Commissions become Earned Commissions.
6. REPAYMENT OF ADVANCES AGAINST COMMISSION - In the event that there is a
default of any kind in a Contract, as determined in the sole discretion of PEC,
prior to the Sales Commission on such defaulted Contract becoming an Earned
Commission, Sales Entity shall repay PEC any Advances Against Commissions paid
by PEC to Sales Entity with respect to such defaulted Contract and PEC may
reduce the Reserve Account for the amount, if any, credited thereto on such
defaulted Contract. PEC shall, without waiving any other right to repayment,
have the right of Recovery for repayment of Advances Against Commissions paid by
PEC to Sales Entity with respect to such defaulted Contracts.
7. RESERVE ACCOUNT - A Reserve Account will be established by PEC to which will
be credited the amounts set forth in Paragraph 3. under "Payment of Sales
Commissions" on Exhibit "A", attached hereto. A Minimum Balance set forth in
Exhibit "A" attached hereto shall be attained and maintained throughout the term
of this Agreement in the Reserve Account. PEC may commingle Reserve Account
funds with its other funds. PEC retains the right to adjust the Minimum Balance,
in its sole discretion, according to Sales Entity's production levels. Within
one (1) year following the Termination Date, PEC shall conduct a final
accounting of Sales Entity's Sales activities to determine any and/or all Earned
Commissions less defaulted, canceled and/or non-processed Contracts and shall
pay the net amount, if any, remaining in the Reserve Account to Sales Entity.
8. PREMISES - PEC agrees to provide and maintain the Sales Office, including the
Sales room, and existing office equipment, audio visual equipment, telephones,
computers, facsimiles, copier, typewriter, office supplies, office furniture,
waiting room furniture, signage, as they exist on the date of this Agreement.
Sales related documents, approved advertising, presentation books and
promotional pieces will be made available to Sales Entity as reasonably
requested. The use of telephones and facsimile shall be limited to communication
between Sales Entity and PEC, and Sales Entity shall be solely responsible for
the payment of any additional charges incurred.
One (1) model condominium will be provided by PEC.
9. SALES AND MARKETING - It is understood that Sales Entity will be making use
of suites from time to time at PEC's property in Orlando, Florida to house some
of Sales Entity's prospective purchasers. Sales Entity shall pay to PEC a
refundable rental deposit of $5,600.00 upon the execution of this Agreement in
exchange for a block of twenty (20) suites per night at PEC's resort located in
Orlando, Florida. Sales Entity shall make reservations with respect
2.
<PAGE> 3
thereto through PEC's reservation system for PEC owners. Sales Entity shall
notify PEC not less than fourteen (14) days prior to the arrival date of any
cancellations. Any canceled reservations for said suites shall become
immediately available for PEC's use. PEC shall provide an invoice to Sales
Entity on Monday of each week for Rent due through the previous Sunday, which
shall be paid no later than 5:00 p.m. Eastern Time on the following Wednesday.
Provided all suites have been reserved and confirmed in accordance with the
terms herein, and provided that Sales Entity has paid for all such suites, the
refundable rental deposit will be returned to Sales Entity upon termination of
this Agreement.
Sales Entity shall provide, maintain and bear all costs associated with Sales
Entity's marketing programs, as approved by PEC, including but not limited to
premiums, gifts and charges incurred, other than for items specifically to be
provided by PEC pursuant to Paragraph 8. of this Agreement. Sales Entity shall
not solicit or sell Timeshares to any persons, appointments for whom have been
arranged by PEC with PEC Sales personnel.
10. ADMINISTRATION - PEC shall verify, process and service any and all Contracts
in accordance with its corporate policies. All customer payments including down
payment and fees shall be payable to PEC or its designee and any such payments
received by Sales Entity or any officer or employee of Sales Entity, shall be
immediately remitted to PEC. Sales Entity may assist in collecting payment of
dishonored checks and similar instruments with the prior approval of PEC. Sales
Entity may also assist in the process of completing incomplete sales materials,
documents and Contracts, with the prior approval of PEC.
11. TERMINATION -
A. This Agreement shall expire on February 28, 2001, ("Termination
Date"), or on such earlier date as called for under this Agreement if terminated
by either party hereto. Payment of Advances Against Commissions will cease as of
the Termination Date and any pending Advances Against Commissions, including
Earned Commissions not yet paid, will be held back to cover all Recoveries. When
all Sales Commissions payable on the Contracts on which Sales Entity is eligible
to receive Sales Commissions have either been withheld as a Recovery or become
Earned Commissions, the remaining balance of any Earned Commissions not yet
withheld as a Recovery shall be paid to Sales Entity. Sales Entity shall be
responsible for repayment to PEC for all Recoveries that exceed previously paid
Earned Commissions.
B. This Agreement may be terminated by either party at any time and for
any or no reason by giving thirty (30) days written notice to the other party in
which case the Termination Date shall be upon the expiration of the thirty (30)
days following the giving of such written notice.
C. In the event of a breach by Sales Entity of the representations or
agreements contained in Paragraph 2. hereof, or the failure of Sales Entity to
properly remit funds to PEC in accordance with Paragraph 10. hereof, PEC may
terminate the Agreement immediately by written notice to Sales Entity.
12. CONFIDENTIALITY - Sales Entity agrees not to disclose, either during or
subsequent to the term of this Agreement, any confidential information and trade
secrets of PEC, including any and all customer lists, marketing plans or
strategies. It is further understood and agreed that Sales Entity's use of the
names and/or addresses and/or telephone numbers of PEC's customers
3.
<PAGE> 4
and/or other customer prospects, whether supplied by PEC or secured by Sales
Entity during Sales Entity's engagement with PEC, for any purpose other than the
furtherance of PEC's business is a breach of this Agreement. Sales Entity
further agrees not to directly or indirectly attempt to persuade any salesperson
to leave PEC's employ.
13. INDEMNIFICATION - Sales Entity hereby covenants and agrees to indemnify and
hold PEC, its affiliates and all directors, officers and employees thereof (the
"Indemnities") harmless from any and all lawsuits, claims, demands and
liabilities resulting in judgment against the Indemnities in favor of any
prospective purchasers of Timeshare solicited or procured By Sales Entity, where
such claim, demand, liability or judgment arises, or is claimed to arise out of,
by reason of, or in connection with any violation by Sales Entity and/or any or
all employees engaged by Sales Entity, of any applicable law, ordinance, rule,
regulation, or order of competent public authority, and/or obligations assumed
by Sales Entity under this Agreement, including the obligations to abide by the
Code of Ethics, regulations and operating rules and procedures promulgated from
time to time by PEC, its affiliates or subsidiaries, or as the result of Sales
Entity's negligence and/or willful misconduct. Sales Entity also agrees to
indemnify and hold the Indemnities harmless from all reasonable attorney fees,
costs and expenses incurred by an Indemnity in defending against any such
lawsuits, claims, demands and liabilities.
PEC shall indemnify and hold Sales Entity harmless from all reasonable attorney
fees, costs and expenses incurred by Sales Entity that Sales Entity might incur
in defense of Sales Entity for suit(s) brought by third parties against Sales
Entity based on the willful misconduct of PEC.
14. PROHIBITED ACTS - With respect to the Sales contemplated by this Agreement,
Sales Entity will not publish or cause to be published by any means, any
advertising, radio or television commercials, brochures, flyers or other written
materials or sales scripts without prior written approval of PEC. Sales Entity
will not use any contracts, documents, form letters or any other collateral
material of any type that has not been approved in writing or provided to Sales
Entity by PEC.
15. INDEPENDENT CONTRACTOR - Sales Entity and PEC agree that Sales Entity's
relationship to PEC under the terms of this Agreement is that of independent
contractor and that Sales Entity is in no way to be construed as a servant,
partner, trustee, employee, joint venturer or co-venturer of PEC or any other
signatory to this Agreement.
16. GENERAL PROVISIONS -
A. This Agreement shall be interpreted in accordance with the
laws of the State of Florida.
B. Sales Entity agrees at all times to conform its and its
employees' conduct to PEC's Code of Ethics, a copy of which
Sales Entity acknowledges having received.
C. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any
such provision, or prevent that party thereafter from
enforcing each and every other provision of this Agreement.
4.
<PAGE> 5
D. The provisions of this Agreement are severable, and if any one
or more provisions are determined to be judicially
unenforceable, in whole or in part, the remaining provisions
shall nevertheless be binding and enforceable.
E. The headings set forth in this Agreement are for convenience
only and shall not be used in interpreting this Agreement.
F. The rights and obligations under this Agreement shall inure to
the benefit of and shall be binding upon the parties'
respective heirs, successors and permitted assigns. Sales
Entity may not assign its respective benefits or duties under
this Agreement.
G. Reference to either gender shall apply to both genders.
17. NOTICE - All notices required hereunder shall be given by prepaid,
registered or certified air mail, return receipt requested:
If to PEC or its affiliates: 4310 Paradise Road
Las Vegas, Nevada 89109
Attention: Gregg A. McMurtrie
Copy to: Jon A. Joseph
If to Sales Entity: 5942 34th Street West, #107
Bradenton, Florida 34201
Attention: Walt Cymansky
18. ENTIRE AGREEMENT - This Agreement, the Appendix of Defined Terms and
Exhibits "A" and "B", constitutes the entire Agreement between PEC and Sales
Entity relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations and Agreements, whether written or
oral. No PEC representative, other than the signatory to this Agreement or his
successor in interest as Executive Vice President and Chief Operating Officer,
has any authority to agree to anything contrary to the terms and conditions set
forth in this Agreement. Any amendment or modification of this Agreement must be
in writing. No oral waiver, amendment or modification will be effective under
any circumstances.
THIS AGREEMENT IS ENTERED INTO AS OF THE DATE FIRST APPEARING HEREIN.
GREAT ESCAPE PREFERRED EQUITIES
MARKETING, INC. CORPORATION
By: /s/ WALT CYMANSKY By: /s/ GREGG A. MCMURTRIE
----------------------- ---------------------------
Walt Cymansky Gregg A. McMurtrie
Director of Operations Executive Vice President and
Chief Operating Officer
5.
<PAGE> 6
APPENDIX OF DEFINED TERMS
Advance(s) Against Commission(s) - means all payments of Sales Commissions paid
by PEC in accordance with the Sales Commission Schedule attached hereto and
marked Exhibit "A".
Agreement- means this Exclusive Sales Agreement entered into by and between PEC
and Sales Entity.
Code of Ethics - means Preferred Equities Corporation Code of Ethics used by
PEC.
Conforming Sales Criteria - means the criteria shown on Exhibit "B", attached
hereto.
Contract(s) - means a PEC approved Sales agreement for Sale of Timeshare at
PEC's Timeshare resort located in Orlando, Florida, entered into by and between
Sales Entity on behalf of PEC and a customer, evidencing the Sale of Timeshare,
that meets all Conforming Sales Criteria and includes all documents required by
Paragraph A of Exhibit "B", attached hereto.
Earned Commission - defined in Paragraph 5. of this Agreement.
Net Processed Volume - means the sum of Sales prices on processed Contracts
entered into by Sales Entity on behalf of PEC meeting the Conforming Sales
Criteria, less any authorized discounts and/or authorized waivers of interest or
other fees to be charged to a customer(s) pursuant to the terms and conditions
of a Contract.
Recovery(ies) -means deduction by PEC of any amounts due pursuant to Paragraph
6. of this Agreement from the next payable Advance Against Commission due to
Sales Entity.
Rent - means $40.00 per unit per night at PEC's Timeshare resort located in
Orlando, Florida.
Reserve Account - means a non-segregated account maintained by PEC in which the
percent of Net Processed Volume set forth in Exhibit "A", attached hereto, shall
be held to cover the cost of Contract cancellations following Termination Date.
Sale(s) - means sales of PEC's Timeshare products at the Sales Office as
evidenced by a Contract.
Sales Commission(s) - means commissions paid on Sales in accordance with Exhibit
"A" attached hereto. Sales Commissions are determined on Net Processed Volume
for Contracts meeting Conforming Sales Criteria, are subject to Recovery, and
are not earned until such time as a Sale Commission becomes an Earned
Commission.
Sales Commission Schedule - means the schedule of Sales Commissions shown on
Exhibit "A" attached hereto.
State - means the state of Florida.
Timeshare(s) - means Preferred Equities Corporation's and its subsidiaries'
timeshare products registered in Florida.
6.
<PAGE> 7
EXHIBIT "A"
SALES COMMISSION SCHEDULE
A. Sales Commission Rate
Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC,
Sales Entity, subject to Recovery, will receive a Sales Commission of
forty-eight percent (48%) of the Net Processed Volume of each Contract.
B. Payment of Sales Commissions
Sales Commissions will be paid in accordance with the following schedule:
1. Thirty percent (30%) of Net Processed Volume of a Contract will be
paid to Sales Entity as an Advance Against Commission on the Friday
following the week in which the rescission period for a Contract has
passed and PEC has processed the Contract;
2. Fifteen percent (15%) of Net Processed Volume of a Contract will be
paid to Sales Entity as an Advance Against Commission on the 15th day
of the month following receipt and posting of the first Contract
payment;
3. On the 15th day of the month following receipt and posting of the
second Contract payment, three percent (3%) of the Net Processed Volume
of a Contract will be deposited in a Reserve Account until such time as
a minimum balance of such Reserve Account, initially set at $90,000.00
("Minimum Balance") is attained and maintained. At all times that the
Reserve Account contains the Minimum Balance, the three percent (3%) of
the Net Processed Volume will be paid to Sales Entity after the receipt
and posting by PEC of the second Contract payment.
C. All Sales Commissions will be paid to Sales Entity via wire transfer to
Nations Bank N.A. Florida, account number 003661096900, routing number
063100277, at Sales Entity's expense to be deducted from Advances Against
Commissions.
D. All Sales Commissions paid or payable to Sales Entity are subject to
Recovery until such time as Sales Commissions become Earned Commissions.
7.
<PAGE> 8
EXHIBIT "B"
CONFORMING SALES CRITERIA
A. Documents Required.
The following documents for each Contract must be completed by Sales
Entity:
1. Contract;
2. Notice of Nonrepresentation (Agency Disclosure);
3. Receipt for Public Offering Statement;
4. Purchaser's Understanding & Acknowledgement form;
5. Credit Application for Membership;
6. Floor Plan;
7. W-9 for US citizens; W-8 for foreign citizens;
8. HUD Documents, including Good Faith Estimate, Servicing
Disclosure Statement, Settlement Statement;
9. Verification Sheet;
10. Mortgage, if applicable;
11. Note, if applicable;
12. RBC Card Application, if applicable; and
13. RCI Application, if applicable.
The documents that are necessary to complete a Contract evidencing a Sale vary
from time to time; therefore, it is the responsibility of Sales Entity to
understand and complete the appropriate paperwork required in and by the State
of Florida.
8.
<PAGE> 9
B. Contract Term.
10 Years on financed balances over $10,000
8 Years (any balance)
7 Years (any balance)
5 Years (any balance)
3 Years (any balance)
1 Year (Associate Program)
C. Payments and Interest Rates.
<TABLE>
<S> <C> <C>
7, 8 and 10 year terms 10% Down Payment 15.5% Interest
15% Down Payment 14.5% Interest
20% Down Payment 14.0% Interest
25% Down Payment 13.5% Interest
5 year terms 10% Down Payment 14.5% Interest
15% Down Payment 14.0% Interest
20% Down Payment 13.5% Interest
25% Down Payment 13.0% Interest
3 year terms 50% Down Payment 5.0% Interest
</TABLE>
The minimum acceptable monthly payment on any Contract is $60.00 per month.
9.
<PAGE> 10
D. Discounts.
1. Up to a five percent (5%) discount is allowed on new sales
only (not upgrades) for existing timeshare owners with RCI or
II affiliation; Camp Coast to Coast members; Ramada Business
Card holders; Cendant affiliated frequent traveler programs;
AARP members and AAA members. A memo outlining specifically
how a new Contract qualifies, with proof attached, is required
to obtain this discount. Sales Commissions will be held until
the memo is accepted by Sales Management.
2. There is NO discount for an all cash payment; however, an
owner who pays off a credit balance in full prior to the first
due date will not be charged interest.
E. Rescission Rights.
The rescission period is defined by Florida statute. Deviation from the
State-mandated rescission period cannot be waived.
F. Payment of Certain Fees.
The payment of maintenance fees, document preparation fees and/or RCI
dues cannot be waived.
10.
<PAGE> 1
EXHIBIT 10.166
PREFERRED EQUITIES CORPORATION
EXCLUSIVE SALES AGREEMENT
THIS EXCLUSIVE SALES AGREEMENT ("Agreement") is entered into as of March 10,
1999, by and between Preferred Equities Corporation and its wholly owned
subsidiary, Brigantine Preferred Properties, Inc., Nevada corporations having
their principal address at 4310 Paradise Road, Las Vegas, Nevada 89109
(collectively referred to as "PEC") and D&D Marketing, Inc., a New Jersey
corporation having its principal address at 1500 Ocean Avenue, Brigantine, New
Jersey 03203 ("Sales Entity").
RECITAL OF FACTS
PEC desires to retain Sales Entity pursuant to the terms and conditions of this
Agreement to engage in Sales of Timeshare at PEC's Sales office located at The
Brigantine Inn, 1500 Ocean Avenue, Brigantine, New Jersey 03203 ("Sales
Office"). Sales Entity desires to be so retained.
For good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS - All capitalized terms used within this Agreement, including all
Exhibits attached hereto and made a part hereof, unless otherwise defined within
this Agreement or any Exhibit attached hereto, shall have the respective
meanings ascribed in the Appendix of Defined Terms attached hereto and made a
part hereof.
2. ENGAGEMENT - In consideration of PEC and Sales Entity entering into this
Agreement and Sales Entity representing that it and all employees engaged by
Sales Entity hold all necessary licenses, PEC hereby engages Sales Entity to
conduct Sales of Timeshare at Sales Office. Sales Entity represents and agrees
that as of the date of and throughout the term of this Agreement, Sales Entity
and all employees of Sales Entity meeting the definition of a broker,
broker-salesperson or salesperson pursuant to New Jersey Permanent Statute Title
45, are and will be licensed pursuant to the requirements stated therein and all
lesser municipal bodies or agencies as may be required and Sales Entity and its
employees are and will remain in good standing with all applicable State and all
lesser municipal bodies licensing requirements. Sales Entity further represents
and agrees that it will comply with all applicable laws, policies, rules,
regulations and procedures established by any federal, State or local regulatory
agency.
3. BEST EFFORTS - During the term of employment, Sales Entity agrees to: (a)
devote its best efforts to Sales of Timeshare at Sales Office; (b) fully perform
all duties as directed by PEC from time to time; and (c) faithfully and
diligently endeavor to promote the best interests of PEC.
4. COMPENSATION - PEC shall pay to Sales Entity Sales Commissions at a rate and
at times shown on the Sales Commission Schedule, attached hereto, made a part
hereof and marked Exhibit "A". Sales Commissions shall be calculated on Net
Processed Volume for Contracts meeting Conforming Sales Criteria as shown on
Exhibit "B", attached hereto and made a part
1.
<PAGE> 2
hereof. Conforming Sales Criteria may be modified upon the giving of written
notice to Sales Entity by PEC. Rejection of any such change or modification by
Sales Entity shall constitute a termination of this Agreement pursuant to
Paragraph 11.B. of this Agreement.
5. EARNED COMMISSIONS - Sales Commissions become Earned Commissions at such time
as (a) all rights of rescission, including but not limited to all State
rescission periods and post-Contract inspection rights, if any, have expired and
(b) not less than fifty percent (50%) of a Contract balance has been paid to PEC
or the total down payment and six (6) contractual payments have been received by
PEC. Advances Against Commissions are subject to Recovery until such time as
Sales Commissions become Earned Commissions.
6. REPAYMENT OF ADVANCES AGAINST COMMISSION - In the event that there is a
default of any kind in a Contract, as determined in the sole discretion of PEC,
prior to the Sales Commission on such defaulted Contract becoming an Earned
Commission, Sales Entity shall repay PEC any Advances Against Commissions paid
by PEC to Sales Entity with respect to such defaulted Contract and PEC may
reduce the Reserve Account for the amount, if any, credited thereto on such
defaulted Contract. PEC shall, without waiving any other right to repayment,
have the right of Recovery for repayment of Advances Against Commissions paid by
PEC to Sales Entity with respect to such defaulted Contracts.
7. RESERVE ACCOUNT - A Reserve Account will be established by PEC to which will
be credited the amounts set forth in Paragraph A.3. under "Payment of Sales
Commissions" on Exhibit "A", attached hereto. A Minimum Balance set forth in
Exhibit "A" attached hereto shall be attained and maintained throughout the term
of this Agreement in the Reserve Account. PEC may commingle Reserve Account
funds with its other funds. PEC retains the right to adjust the Minimum Balance,
in its sole discretion, according to Sales Entity's production levels. Within
one (1) year following the Termination Date, PEC shall conduct a final
accounting of Sales Entity's Sales activities to determine any and/or all Earned
Commissions less defaulted, canceled and/or non-processed Contracts and shall
pay the net amount, if any, remaining in the Reserve Account to Sales Entity.
8. PREMISES - PEC agrees to provide and maintain the Sales Office, including the
Sales room, and existing office equipment, audio visual equipment, telephones,
computers, facsimiles, copier, typewriter, office supplies, office furniture,
waiting room furniture, signage, as they exist on the date of this Agreement.
Sales related documents, approved advertising, presentation books and
promotional pieces will be made available to Sales Entity as reasonably
requested. The use of telephones and facsimile shall be limited to communication
between Sales Entity and PEC, and Sales Entity shall be responsible for the
payment of any additional charges incurred.
9. SALES AND MARKETING - It is understood that Sales Entity will be making use
of suites from time to time at PEC's property at the Brigantine Inn located in
Brigantine, New Jersey, to house some of Sales Entity's prospective purchasers.
All of Sales Entity's prospective purchasers so housed shall pay Rent to the
front desk at the time of check-in. Sales Entity shall pay to PEC the difference
between monies collected by such prospective purchasers at the front desk and
Rent upon PEC's demand. All reservations are subject to availability. Sales
Entity shall provide, maintain and bear all costs associated with Sales Entity's
marketing programs, as approved by PEC, including but not limited to premiums,
gifts and charges incurred, other than for those items specifically to be
provided by PEC pursuant to Paragraph 8. of this Agreement.
2.
<PAGE> 3
With respect to persons appointments for which have been arranged by PEC at the
Brigantine Inn ("PEC Guest"), PEC shall provide the premiums at its cost.
10. ADMINISTRATION - PEC shall verify, process and service any and all Contracts
in accordance with its corporate policies. All customer payments including down
payment and fees shall be payable to PEC or its designee and any such payments
received by Sales Entity or any officer or employee of Sales Entity, shall be
immediately remitted to PEC. Sales Entity may assist in collecting payment of
dishonored checks and similar instruments with the prior approval of PEC. Sales
Entity may also assist in the process of completing incomplete sales materials,
documents and Contracts, with the prior approval of PEC.
11. TERMINATION -
A. This Agreement shall expire on February 28, 2001, ("Termination
Date"), or on such earlier date as called for under this Agreement if terminated
by either party hereto. Payment of Advances Against Commissions will cease as of
the Termination Date and any pending Advances Against Commissions, including
Earned Commissions not yet paid, will be held back to cover all Recoveries. When
all Sales Commissions payable on the Contracts on which Sales Entity is eligible
to receive Sales Commissions have either been withheld as a Recovery or become
Earned Commissions, the remaining balance of any Earned Commissions not yet
withheld as a Recovery shall be paid to Sales Entity. Sales Entity shall be
responsible for repayment to PEC for all Recoveries that exceed previously paid
Earned Commissions.
B. This Agreement may be terminated by either party at any time and for
any or no reason by giving thirty (30) days written notice to the other party in
which case the Termination Date shall be upon the expiration of the thirty (30)
days following the giving of such written notice.
C. In the event of a breach by Sales Entity of the representations or
agreements contained in Paragraph 2. hereof, or the failure of Sales Entity to
properly remit funds to PEC in accordance with Paragraph 10. hereof, PEC may
terminate the Agreement immediately by written notice to Sales Entity.
12. CONFIDENTIALITY - Sales Entity agrees not to disclose, either during or
subsequent to the term of this Agreement, any confidential information and trade
secrets of PEC, including any and all customer lists, marketing plans or
strategies. It is further understood and agreed that Sales Entity's use of the
names and/or addresses and/or telephone numbers of PEC's customers and/or other
customer prospects, whether supplied by PEC or secured by Sales Entity during
Sales Entity's engagement with PEC, for any purpose other than the furtherance
of PEC's business is a breach of this Agreement. Sales Entity further agrees not
to directly or indirectly attempt to persuade any salesperson to leave PEC's
employ.
13. INDEMNIFICATION - Sales Entity hereby covenants and agrees to indemnify and
hold PEC, its affiliates and all directors, officers and employees thereof (the
"Indemnities") harmless from any and all lawsuits, claims, demands and
liabilities resulting in judgment against the Indemnities in favor of any
prospective purchasers of Timeshare solicited or procured By Sales Entity, where
such claim, demand, liability or judgment arises, or is claimed to arise out of,
by reason of, or in connection with any violation by Sales Entity and/or any or
all employees engaged by Sales Entity, of any applicable law, ordinance, rule,
regulation, or order of competent
3.
<PAGE> 4
public authority, and/or obligations assumed by Sales Entity under this
Agreement, including the obligations to abide by the Code of Ethics, regulations
and operating rules and procedures promulgated from time to time by PEC, its
affiliates or subsidiaries, or as the result of Sales Entity's negligence and/or
willful misconduct. Sales Entity also agrees to indemnify and hold the
Indemnities harmless from all reasonable attorney fees, costs and expenses
incurred by an Indemnity in defending against any such lawsuits, claims, demands
and liabilities.
PEC shall indemnify and hold Sales Entity harmless from all reasonable attorney
fees, costs and expenses incurred by Sales Entity that Sales Entity might incur
in defense of Sales Entity for suit(s) brought by third parties against Sales
Entity based on the willful misconduct of PEC.
14. PROHIBITED ACTS - Sales Entity will not publish or cause to be published by
any means, any advertising, radio or television commercials, brochures, flyers
or other written materials or sales scripts without prior written approval of
PEC. Sales Entity will not use any contracts, documents, form letters or any
other collateral material of any type that has not been approved in writing or
provided to Sales Entity by PEC.
15. INDEPENDENT CONTRACTOR - Sales Entity and PEC agree that Sales Entity's
relationship to PEC under the terms of this Agreement is that of independent
contractor and that Sales Entity is in no way to be construed as a servant,
partner, trustee, employee, joint venturer or co-venturer of PEC or any other
signatory to this Agreement.
16. GENERAL PROVISIONS -
A. This Agreement shall be interpreted in accordance with the
laws of the State of New Jersey.
B. Sales Entity recognizes and understands that PEC may change,
in its absolute and sole discretion, the Sales Commission
rates and/or Recovery criteria at any time, attached hereto as
Exhibit "A", and/or the Conforming Sales Criteria, attached
hereto as Exhibit "B" by giving written notice thereof. If
within five (5) business days Sales Entity accepts such change
it shall become effective immediately. If Sales Entity does
not accept such change, the written notice of same shall
constitute notice of termination pursuant to Paragraph 11.B.
of this Agreement.
C. Sales Entity agrees at all times to conform its and its
employees' conduct to Preferred Equities Corporation's Code of
Ethics, a copy of which Sales Entity acknowledges having
received.
D. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any
such provision, or prevent that party thereafter from
enforcing each and every other provision of this Agreement.
E. The provisions of this Agreement are severable, and if any one
or more provisions are determined to be judicially
unenforceable, in whole or in part, the remaining provisions
shall nevertheless be binding and enforceable.
F. The headings set forth in this Agreement are for convenience
only and shall not be used in interpreting this Agreement.
4.
<PAGE> 5
G. The rights and obligations under this Agreement shall inure to
the benefit of and shall be binding upon the parties'
respective heirs, successors and permitted assigns. Sales
Entity may not assign its respective benefits or duties under
this Agreement.
H. Reference to either gender shall apply to both genders.
17. NOTICE - All notices required hereunder shall be given by prepaid,
registered or certified air mail, return receipt requested:
If to PEC or its affiliates: 4310 Paradise Road
Las Vegas, Nevada 89109
Attention: Gregg A. McMurtrie
Copy to: Jon A. Joseph
If to Sales Entity: 1500 Ocean Avenue
Brigantine, New Jersey 03203
Attention: Debra Blair
18. ENTIRE AGREEMENT - This Agreement, the Appendix of Defined Terms and
Exhibits "A" and "B", constitutes the entire Agreement between PEC and Sales
Entity relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations and Agreements, whether written or
oral. No Preferred Equities Corporation representative other than the signatory
to this Agreement or his successor in interest as Executive Vice President and
Chief Operating Officer, has any authority to agree to anything contrary to the
terms and conditions set forth in this Agreement. No Brigantine Preferred
Properties, Inc. representative,
5.
<PAGE> 6
other than the signatory to this Agreement or his successor in interest as
President, has any authority to agree to anything contrary to the terms and
conditions set forth in this Agreement. Any amendment or modification of this
Agreement must be in writing. No oral waiver, amendment or modification will be
effective under any circumstances.
THIS AGREEMENT IS ENTERED INTO AS OF THE DATE FIRST APPEARING HEREIN.
D&D MARKETING, INC. PREFERRED EQUITIES
CORPORATION
By: /s/ DEBRA BLAIR By: /s/ GREGG A. MCMURTRIE
----------------------- ----------------------------
Debra Blair Gregg A. McMurtrie
Director of Operations Executive Vice President and
Chief Operating Officer
BRIGANTINE PREFERRED
PROPERTIES, INC.
By: /s/ GREGG A. MCMURTRIE
----------------------------
Gregg A. McMurtrie
President
6.
<PAGE> 7
APPENDIX OF DEFINED TERMS
Advance(s) Against Commission(s) - means all payments of Sales Commissions paid
by PEC in accordance with the Sales Commission Schedule attached hereto and
marked Exhibit "A".
Agreement- means this Exclusive Sales Agreement entered into by and between PEC
and Sales Entity.
Code of Ethics - means Preferred Equities Corporation, the parent company of
Brigantine Preferred Properties, Inc., Code of Ethics.
Conforming Sales Criteria - means the criteria shown on Exhibit "B", attached
hereto.
Contract(s) - means a PEC approved Sales agreement for Sale of Timeshare at
PEC's Timeshare resort located in Brigantine, New Jersey, entered into by and
between Sales Entity on behalf of PEC and a customer, evidencing the Sale of
Timeshare, that meets all Conforming Sales Criteria and includes all documents
required by Paragraph A of Exhibit "B", attached hereto.
Earned Commission - defined in Paragraph 5. of this Agreement.
Net Processed Volume - means the sum of Sales prices on processed Contracts
entered into by Sales Entity on behalf of PEC meeting the Conforming Sales
Criteria, less any authorized discounts and/or authorized waivers of interest or
other fees to be charged to a customer(s) pursuant to the terms and conditions
of a Contract.
Recovery(ies) -means deduction by PEC of any amounts due pursuant to Paragraph
6. of this Agreement from the next payable Advance Against Commission due to
Sales Entity.
Rent - means $40.00 per unit per night at Brigantine Inn, located in Brigantine,
New Jersey.
Reserve Account - means a non-segregated account maintained by PEC in which the
percent of Net Processed Volume set forth in Exhibit "A", attached hereto, shall
be held to cover the cost of Contract cancellations following Termination Date.
Sale(s) - means sales of PEC's Timeshare products at the Sales Office as
evidenced by a Contract.
Sales Commission(s) - means commissions paid on Sales in accordance with Exhibit
"A" attached hereto. Sales Commissions are determined on Net Processed Volume
for Contracts meeting Conforming Sales Criteria, are subject to Recovery, and
are not earned until such time as a Sale Commission becomes an Earned
Commission.
Sales Commission Schedule - means the schedule of Sales Commissions shown on
Exhibit "A" attached hereto.
State - means the state of Florida.
Timeshare(s) - means Preferred Equities Corporation's and its subsidiaries'
timeshare products registered in New Jersey.
7.
<PAGE> 8
EXHIBIT "A"
SALES COMMISSION SCHEDULE
A. Sales Commission Rate for Sales Other Than to PEC Guests
Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC
other than to a PEC Guest, Sales Entity, subject to Recovery, will receive a
Sales Commission of forty-five percent (45%) of the Net Processed Volume of each
Contract.
Payment of Sales Commissions for Sales other than to a PEC Guest will
be paid in accordance with the following schedule.
1. Thirty percent (30%) of Net Processed Volume of a Contract will
be paid to Sales Entity as an Advance Against Commission on the
Friday following the week in which the rescission period for a
Contract has passed and PEC has processed the Contract;
2. Twelve percent (12%) of Net Processed Volume of a Contract will
be paid to Sales Entity as an Advance Against Commission on the
15th day of the month following receipt and posting of the first
Contract payment;
3. On the 15th day of the month following receipt and posting of
the second Contract payment, three percent (3%) of the Net
Processed Volume of a Contract will be deposited in a Reserve
Account until such time as a minimum balance of such Reserve
Account, initially set at $20,000.00 ("Minimum Balance") is
attained and maintained. At all times that the Reserve Account
contains the Minimum Balance, the three percent (3%) of the Net
Processed Volume will be paid to Sales Entity after the receipt
and posting by PEC of the second Contract payment.
B. Sales Commission Rate for Sales to PEC Guests
Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC to a
PEC Guest, Sales Entity, subject to Recovery, will receive a Sales Commission of
twelve percent (12%) of the Net Processed Volume of each Contract.
Payment of Sales Commissions for Sales to a PEC Guest will be paid in
accordance with the following schedule.
Twelve percent (12%) shall be paid to Sales Entity as an Advance
Against Commission on the Friday following the week in which the
rescission period for a Contract has passed and PEC has processed
the Contract.
8.
<PAGE> 9
C. All Sales Commissions will be paid to Sales Entity via wire transfer to
Commerce Bank; account number 47 5977 5, routing number 031201360 at Sales
Entity's expense to be deducted from Advances Against Commissions.
D. All Sales Commissions paid or payable to Sales Entity are subject to Recovery
until such time as Sales Commissions become Earned Commissions.
9.
<PAGE> 10
EXHIBIT "B"
CONFORMING SALES CRITERIA
A. Documents Required.
The following documents for each Contract must be completed by Sales
Entity:
1. Purchase Agreement;
2. Escrow Agreement;
3. New Jersey Disclosure Statement;
4. Receipt for Documents or Public Offering Statement;
5. Purchaser's Understanding & Acknowledgement form;
6. Credit Application for Membership;
7. Proxy;
8. Floor Plan;
9. W-9 for US citizens; W-8 for foreign citizens;
10. HUD Documents, including Good Faith Estimate, Servicing
Disclosure Statement, Settlement Statement;
11. Verification Sheet;
12. Applicable Deeds;
13. Unit Week Deed;
14. Mortgage, if applicable;
15. Promissory Note, if applicable;
16. RBC Card Application, if applicable; and
17. RCI Application, if applicable.
The documents that are necessary to complete a Contract evidencing a Sale vary
from time to time; therefore, it is the responsibility of Sales Entity to
understand and complete the appropriate paperwork required in and by the State
of New Jersey.
10.
<PAGE> 11
B. Contract Term.
10 Years on financed balances over $10,000
8 Years (any balance)
7 Years (any balance)
5 Years (any balance)
3 Years (any balance)
1 Year (Associate Program)
C. Payments and Interest Rates.
<TABLE>
<S> <C> <C>
7, 8 and 10 year terms 10% Down Payment 15.5% Interest
15% Down Payment 14.5% Interest
20% Down Payment 14.0% Interest
25% Down Payment 13.5% Interest
5 year terms 10% Down Payment 14.5% Interest
15% Down Payment 14.0% Interest
20% Down Payment 13.5% Interest
25% Down Payment 13.0% Interest
3 year terms 50% Down Payment 5.0% Interest
</TABLE>
The minimum acceptable monthly payment on any Contract is $60.00 per month.
11.
<PAGE> 12
D. Discounts.
1. Up to a five percent (5%) discount is allowed on new sales
only (not upgrades) for existing timeshare owners with RCI,
II, RVS and/or PEC affiliation; Camp Coast to Coast members;
Ramada Business Card holders; Cendant affiliated frequent
traveler programs; AARP members and AAA members. A memo
outlining specifically how a new Contract qualifies, with
proof attached, is required to obtain this discount. Sales
Commissions will be held until the memo is accepted by Sales
Management.
2. There is NO discount for an all cash payment; however, an
owner who pays off a credit balance in full prior to the first
due date will not be charged interest.
E. Rescission Rights.
The rescission period is defined by New Jersey statute. Deviation from
the State-mandated rescission period cannot be waived.
F. Payment of Certain Fees.
The payment of maintenance fees, document preparation fees and/or RCI
dues cannot be waived.
12.
<PAGE> 1
EXHIBIT 10.167
FORBEARANCE AND
MODIFICATION AGREEMENT
THIS FORBEARANCE AND MODIFICATON AGREEMENT (this "Agreement")
is entered into as of the 7th day of May, 1999 by and between Preferred Equities
Corporation, a Nevada corporation ("Borrower") and Heller Financial, Inc., a
Delaware corporation (the "Lender").
R E C I T A L S
A. The Borrower and Lender are parties to that certain
Acquisition and Renovation Loan Agreement (the "Colorado Acquisition Loan") made
in connection with a Routt County, Colorado timeshare resort (the "Colorado
Resort") and that certain Interval Receivables Loan and Security Agreement (the
"Colorado Receivables Loan") made in connection with the Colorado Resort, both
dated as of August 6, 1996 (together, as each have been or may be amended from
time to time, the "Colorado Loan Agreements");
B. The Borrower and Lender are also parties to that certain
Acquisition and Renovation Loan Agreement dated March 29, 1996 (the "Florida
Acquisition Loan") made in connection with a Tango Bay, Florida timeshare resort
(the "Florida Resort") and that certain Interval Receivables Loan and Security
Agreement dated March 28, 1996 (the "Florida Receivables Loan") made in
connection with the Florida Resort (together, as each have been or may be
amended from time to time, the "Florida Loan Agreements"). The Florida Loan
Agreements and the Colorado Loan Agreements are referred to herein as the "Loan
Agreements";
C. Borrower failed to make payments due for the months of
September, 1998, December, 1998 and March, 1999 under Section 4.1 of the
Colorado Acquisition Loan and Section 4.1 of the Florida Acquisition Loan. Such
failure to comply with said provisions would constitute,absent the agreement to
forbear set forth in this Agreement, an Event of Default under those agreements
and Events of Default under the Florida Receivables Loan and Colorado
Receivables Loan, thus entitling Lender to exercise its rights and remedies as
provided in the Loan Agreements and all documents and agreements executed in
connection with the foregoing (collectively, the "Loan Documents");
D. Borrower has requested Lender to forbear from declaring
Events of Default as set forth above and enforcing its rights and remedies under
the Loan Documents until July 31, 1999 for the purpose of affording the Borrower
an opportunity to formulate a comprehensive proposal for the restructuring of
Borrower's Obligations under the Loan Agreements; and
<PAGE> 2
E. Lender is willing to forbear from declaring such Events of
Default and from enforcing its rights and remedies that would arise therefrom
for a limited period of time, provided that Borrower performs and meets the
conditions of the forbearance set forth herein.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged the parties hereto
agree as follows:
SECTION 1. Definitions.
1.1 Capitalized terms used and not otherwise defined
herein are used with the meanings set forth in the Loan
Agreements.
1.2 The following terms used in this Agreement shall
have the meaning set forth below:
1.2.2 "Creditor Action" shall have the meaning set
forth in Section 6 hereof.
1.2.3 "Existing Defaults" shall mean the potential
Events of Default set forth in Recital C hereof.
1.2.4 "Forbearance Default" shall mean (a) the
occurrence of any Default or Event of Default under the Loan
Documents other than the Existing Defaults, (b) the failure of
the Borrower to comply with any term, condition, or covenant
set forth in this Agreement within the time frame set forth,
(c) if any representation made by Borrower under or in
connection with this Agreement shall prove to be materially
false as of the date when made, (d) a material adverse change
in the financial condition of Borrower, (e) the occurrence of
a Creditor Action, or (f) the filing of any petition
(voluntary or involuntary) under the insolvency or bankruptcy
laws of the United States or any state.
1.2.5 "Termination Date" shall mean the earlier to
occur of (a) 5:00 p.m. Chicago Time on July 31, 1999, (b)
immediately upon the occurrence of a Creditor Action, or (c)
the date and time, which is twenty-four (24) hours subsequent
to the receipt by Borrower of a notice from Lender that a
Forbearance Default (other than a Creditor Action) has
occurred.
2
<PAGE> 3
SECTION 2. Agreement to Forbear.
2.1 The Recitals set forth above are fully
incorporated herein by this reference. Provided that no
Forbearance Default occurs, the Lender hereby agrees to
refrain through the Termination Date from exercising any of
its rights under the Loan Agreements, or any of the Loan
Documents that may exist by virtue of the Existing Defaults.
2.2 Nothing in this Agreement shall be construed to
be a waiver of or acquiescence in any Existing Default, and
all such Existing Defaults shall continue in existence,
subject only to the Lender's agreement, as set forth herein,
not to enforce its remedies for a limited period of time.
Except as expressly set forth in Section 4 below, the
execution and delivery of this Forbearance Agreement shall not
(i) constitute an extension, modification, or waiver of any
aspect of the Loan Agreements or the Loan Documents; (ii)
extend the terms of the Loan Agreements or the due date of any
of Borrower's Obligations; (iii) give rise to any obligation
on the part of Lender to extend, modify, or waive any aspect
of the Loan Agreements or Loan Documents; or (iv) give rise to
any defenses or counterclaims to Lender's right to compel
payment of Borrower's Obligations, or otherwise enforce the
Loan Agreements and the Loan Documents. Except as expressly
limited herein, Lender hereby expressly reserves all of its
rights and remedies under the Loan Documents and under
applicable law with respect to such Existing Defaults,
including, without limitation, the Lender's right to charge
interest on Borrower's Obligations at the Default Rate. From
and after the Termination Date, the Lender shall be entitled
to enforce the Loan Documents according to the original terms
of the Loan Documents.
SECTION 3. Representations and Warranties.
In consideration of the Lender's promise to forbear
herein contained, the Borrower hereby represents and warrants
to the Lender as of the date hereof:
3.1 In connection with the execution of this
Agreement, Borrower has made full disclosure to Lender of all
material aspects of its financial condition and business
operations.
3
<PAGE> 4
3.2 The execution, delivery and performance by the
Borrower of this Agreement is within its corporate power and
has been duly authorized by all necessary corporate action,
and this Agreement constitutes a valid and binding agreement
of Borrower, subject only to the effect of any applicable
bankruptcy, insolvency, reorganization, or other similar laws
or equitable principles relating to or affecting the
enforcement of creditors' rights generally.
3.3 All Loan Documents, including without limitation
the Loan Agreements and the Exclusive Financing Agreement
dated August 6, 1996 with respect to the Colorado Resort and
the Exclusive Financing Agreement dated March 29, 1996 with
respect to the Florida Resort, constitute valid and binding
legal obligations of Borrower and are enforceable against
Borrower and the assets thereof in accordance with the terms
thereof. This Agreement shall not be deemed or be construed to
be a satisfaction, reinstatement, novation, or release of the
Loan Agreements or of any of the other Loan Documents, or a
waiver by Lender of any of the rights of Lender under the Loan
Agreements or any of the other Loan Documents, or any of them,
or at law or in equity. Borrower has no defenses, setoffs,
claims, counterclaims or causes of action of any kind or
nature whatever with respect to the Loan Documents or the
obligations thereunder to Lender, or with respect to any other
documents or instruments now or heretofore evidencing,
securing, or in any other way relating to the Obligations or
the Loan Documents, or with respect to the administration or
funding of any of Borrowers Obligations to Lender.
SECTION 4. Other Agreements.
In consideration of the Lender's promise to forbear
herein contained, the Borrower hereby covenants and agrees
with the Lender the following:
4.1 Borrower shall provide full and complete access
to Lender in order that Lender may conduct audits, as
necessary in Lender's sole discretion, of Borrower's books and
records with regard to cash flow and projections;
4.2 The definition of "Revolving Period" set forth in
the Appendix to the Colorado Receivables Loan is hereby
amended to state as follows:
4
<PAGE> 5
"The period commencing on the date of the first
Advance and ending on July 31, 1999."
4.3 The definition of "Revolving Period" set forth in
the Appendix to the Florida Receivables Loan is hereby amended
to state as follows:
"The period commencing on the date of the first
Advance and ending on July 31, 1999."
4.4 Section 1.5(a) Voluntary Prepayments of the
Colorado Receivables Loan is amended by replacing the second
sentence of that Section, which states "Notwithstanding the
foregoing, in the event of a prepayment of the Loan in whole
or in part, upon a bulk sale by Borrower of Financed Notes
Receivable, no Prepayment Premium shall be payable and
Borrower shall, in lieu thereof, pay to Lender an exit fee of
one percent (1%) of the amount of prepayment," with the
following sentence:
"Notwithstanding the foregoing, in the event of a
prepayment of the Loan in whole or in part, upon a
bulk sale by Borrower of Financed Notes Receivable,
no Prepayment Premium shall be payable and Borrower
shall, in lieu thereof, pay to Lender an exit fee of
one percent (1%) of the amount of prepayment;
provided, however, that the purchase price for any
such bulk sale(s) are individually no more than 30%
of the outstanding Receivables Loan balance and, in
the aggregate for any twelve month period, does not
result in a reduction of the Receivables Loan balance
of greater than 50%, as calculated from the time of
the first bulk sale within the said 12 month period."
4.5 Section 1.5(a) Voluntary Prepayments of the Florida
Receivables Loan is amended by replacing the second sentence
of that Section, which states "Notwithstanding the foregoing,
in the event of a prepayment of the Loan in whole or in part,
upon a bulk sale by Borrower of Financed Notes Receivable, no
Prepayment Premium shall be payable and Borrower shall, in
lieu thereof, pay to Lender an exit fee of one percent (1%) of
the amount of prepayment," with the following sentence:
5
<PAGE> 6
"Notwithstanding the foregoing, in the event of a
prepayment of the Loan in whole or in part, upon a
bulk sale by Borrower of Financed Notes Receivable,
no Prepayment Premium shall be payable and Borrower
shall, in lieu thereof, pay to Lender an exit fee of
one percent (1%) of the amount of prepayment;
provided, however, that the purchase price for any
such bulk sale(s) are, individually no more than 30%
of the outstanding Receivables Loan balance and, in
the aggregate for any twelve month period, does not
result in a reduction of the Receivables Loan balance
of greater than 50%, as calculated from the time of
the first bulk sale within the said 12 month period."
4.6 Borrower shall remit to Lender all payments, fees
or other sums received as prepayments or upon modification to
Financed Notes Receivable under the Colorado Receivables
Agreement or the Florida Receivables Agreement;
4.7 Borrower shall complete all steps necessary for
sales registration of the Colorado Resort for the states of
Nevada and Texas prior to the Termination Date.
4.8 Borrower shall throughout the term of this
Agreement continue to make a full and complete disclosure of
all material aspects of its financial condition and business
operations and continue to comply with the Loan Documents in
all respects excepts as expressly set forth herein.
4.9 Borrower shall cure all Existing Defaults prior
to the Termination Date. If any Existing Defaults remain
uncured as of the day after the Termination Date, then such
Existing Defaults shall immediately and without any notice or
demand, become Events of Default under the Loan Documents,
entitling Lender to take all rights and remedies available
under the Loan Documents or applicable law.
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SECTION 5. Release.
In further consideration of the execution of this
Agreement by Lender, the Borrower and each Guarantor hereby
releases Lender and its affiliates, officers, employees,
directors, agents and attorneys (collectively the "Releasees")
from any and all claims, disputes, causes of action, and
liabilities that Borrower or any Guarantor may have against
any of the Releasees which arise from or relate to any action
or inactions which any of the Releasees have taken prior to
the date hereof with respect to the Loan Agreements and the
other Loan Documents.
SECTION 6. Creditor Action.
Lender's obligation to forbear hereunder are
conditioned upon all other creditors of Borrower (including
but not limited to trade creditors and subordinated creditors)
refraining from taking any action whatsoever (including
acceleration of indebtedness) during the term of this
Agreement. In the event that any such creditor takes such
action (including acceleration of indebtedness) (a "Creditor
Action") all of Lender's obligations hereunder shall terminate
without notice.
SECTION 7. Miscellaneous.
7.1 Section Headings.
Section headings in this Agreement are included
herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
7.2 Applicable Law.
This Agreement and the rights and obligations of the
parties hereto and all other aspects hereof shall be deemed to
be made under, shall be governed by, and shall be construed
and enforced in accordance, the internal laws (as opposed to
the conflict of laws provision) and decisions of the State of
Illinois.
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7.3 Counterparts.
This Agreement may be executed in any number of
counterparts, and by different parties hereto and separate
counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts
together shall constitute but one in the same instrument.
7.4 Continued Effectiveness.
Notwithstanding anything contained herein, the terms
of this Agreement are not intended to and do not serve to
affect a novation as to the Loan Agreements or any of the
other Loan Documents. The parties hereto expressly do not
intend to extinguish the Loan Agreements or any of the Loan
Documents. Instead it is the expressed intention of the
parties hereto to reaffirm the Indebtedness created under the
Loan Agreements and Loan Documents.
7.5 Notices.
Any Notice to any party hereto shall be given in the
manner and to the party at the address of such party in
accordance with the provisions of Subsection 6.1 of the Loan
Agreements.
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IN WITNESS WHEREOF, the parties hereto have caused this Forbearance
Agreement to be executed as of the date set forth above, by the respective
officers thereunto duly authorized.
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: /s/ [SIGNATURE]
---------------------------
Title: Vice President
---------------------------
HELLER FINANCIAL, INC.,
a Delaware corporation
By:
---------------------------
Title:
---------------------------
GUARANTOR:
MEGO FINANCIAL CORP.,
a New York corporation
By: /s/ [SIGNATURE]
---------------------------
Title: Vice President
---------------------------
9
<PAGE> 1
EXHIBIT 10.168
HOTEL MAISON PIERRE LAFITTE, LTD. OWNERS ASSOCIATION, INC.
MANAGEMENT AGREEMENT
THIS AGREEMENT ("Agreement"), is entered into as of the ____ day of
May, 1999 by and between HOTEL MAISON PIERRE LAFITTE LTD. OWNERS ASSOCIATION,
INC., a Louisiana nonprofit corporation (the "Association") and PREFERRED
EQUITIES CORPORATION, a Nevada corporation ("Manager"). For valuable
consideration, the parties hereto agree as follows.
RECITALS
A. The Hotel Maison Pierre Lafitte, Ltd. - A Condominium (the
"Property") has been created pursuant to that certain Condominium Declaration
And Timeshare Program for Hotel Maison Pierre Lafitte Hotel (the "Declaration"),
recorded on June 20, 1996 in Book NA 96-29442, Instrument Number 124103 in the
real property records of Orleans Parish, Louisiana.
B. Pursuant to the provisions of the Declaration, the Association is
responsible for maintenance, control, operation, management and general care of
the Property. The Association is authorized to retain a professional management
organization and to delegate to such organization certain of the Association's
powers and responsibilities.
C. The Board of the Association ("Board") desires to engage Manager to
manage and operate the Property, and Manager desires to accept such engagement,
all on the terms and conditions set forth below.
TERMS AND CONDITIONS
1. ENGAGEMENT. Association hereby engages Manager subject to Manager's
right to terminate during the Transition Period (as hereinafter defined),
commencing on the date of this Agreement as the exclusive managing agent of the
Property contemplated by the Declaration to manage the Property and Association
under the name "Ramada Vacation Suites" (the cost of all signage including
installation, using the name Ramada Vacation Suites, shall be paid for by the
Association), and Manager hereby accepts said appointment and undertakes to
perform all of the services and responsibilities set forth herein in such
capacity and to comply with all the provisions of this Agreement.
2. DEFINITIONS. In addition to other definitions provided for herein,
the terms used herein shall have the same meaning as the meanings attributed
thereto in the Declaration. As used herein, the term "Transition Period" shall
mean the ninety (90) days following the date of this Agreement (or such other
time as may be necessary for Manager to obtain any and all federal, state and/or
local licenses or permits required of the Manager to perform the obligations
stated herein). In the event Manager determines for any or no reason that it
cannot fulfill its duties as Manager as stated herein, Manager shall have the
right to terminate the Agreement, at its sole option, by delivering a written
notice of termination to Association on or before the end of the Transition
Period.
3. TERM.
3.1 INITIAL TERM. Unless terminated earlier pursuant to ss.
3.2 below, the term of this Agreement shall expire at the end of three (3) years
from the date of this Agreement or upon the resignation of the Manager,
whichever occurs first.
3.2 TERMINATION. This Agreement may be terminated by the Board
at any time during the term as a result of a breach or default by Manager;
provided that Manager shall not be in breach or default under this Agreement
unless Manager has been given written notice of said breach or
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default by the Board and has not cured said breach or default within sixty (60)
days of said notice. In the event that Manager shall dispute a termination by
the Association pursuant to the provisions of this ss. 3.2, the dispute shall be
addressed pursuant to Section 14. of this Agreement. In the event Manager loses
or terminates its right to use the Ramada Vacation Suites name, the Board may
terminate this Agreement upon giving Manager ninety (90) days written notice of
its intent to terminate.
3.3 RESIGNATION. Manager may resign only upon condition that
Manager shall have given at least ninety (90) days, or such lesser time as may
be agreed by the Association, prior written notice to the Association. On or
before the effective date of Manager's resignation, Manager shall turn over all
books and records relating to the management and operation of the Property to
the Association or successor managing agent.
3.4 RENOVATIONS. Notwithstanding the foregoing, in the event
renovations ("the Renovations") to the Property as agreed by and among Manager
and the Association are not completed, at Association's sole cost and expense,
to the reasonable satisfaction of Manager, on or before six (6) months from the
date of this Agreement, Manager may resign upon the giving of thirty (30) days
written notice. A schedule, defining the Renovations and signed by both parties,
shall be attached hereto as an Addendum, prior to the termination of the
Transition Period.
4. DUTIES AND OBLIGATIONS OF MANAGER.
4.1 GENERAL. Manager shall at all times, in a manner
consistent with the provisions of the Declaration and the Bylaws of Hotel Maison
Pierre Lafitte, Ltd. Owners' Association, Inc. ("Bylaws") and subject to the
terms and conditions set forth herein, provide or cause to be provided all
services and personnel required to administer the affairs of the Association.
Manager, to the extent necessary to perform its duties and obligations
hereunder, shall have all the powers that the Association has pursuant to the
Declaration and Bylaws. Subject to the provisions of ss. 4.5 below, Manager may
delegate its authority and responsibilities to one or more subagents for such
periods and upon such terms as Manager deems appropriate.
4.2 ADMINISTRATIVE SERVICES. Manager shall, in addition to the
duties in ss. 4.1, provide the following services of an administrative nature.
(A) ASSOCIATION MEETINGS. Manager shall organize the
meetings of the Board and of the Association, including the preparation and
delivery of notices of meetings, in accordance with the provisions of the
Bylaws. Manager shall prepare the agenda for all meetings, assist in the conduct
of the meetings and oversee the election of directors. Manager shall circulate
minutes of any such meeting as prepared by the secretary of the Association; or,
as prepared by a person designated as secretary for a particular meeting(s) by
Manager. All meetings, except the Association's annual meeting, may be conducted
by telephone.
(B) ASSOCIATION RECORDS. Manager shall keep all
records of the affairs of the Association, including but not limited to, minutes
of meetings, correspondence, Bylaws, Rules and Regulations, the Declaration and
any modification of any of the foregoing, from the date of expiration of the
Transition Period throughout the term of this Agreement.
(C) RULES AND REGULATIONS. Manager shall, from time
to time as necessary, recommend to the Association that it amend, modify or
supplement the Rules and Regulations.
(D) ROSTER OF OWNERS. Manager shall annually compile
a complete and accurate roster of owners of Units ("Owners") setting forth the
name of each Owner. Manager shall also maintain a record of the mailing address
of each Owner as provided in the Bylaws.
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(E) EXCHANGE SERVICES. The Manager shall have no
authority with respect to the administration of any external exchange programs
operated by independent corporations, other than to communicate with
representatives of such exchange programs regarding the reservations processed
at the Property by or for such exchange programs.
4.3 FISCAL SERVICES. Manager shall, in addition to the duties
in ss. 4.1, subject to the supervision of the Association, provide the following
services of a fiscal nature:
(A) BUDGETS. Manager shall, prior to the beginning of
each calendar year, prepare and submit to the Board for approval, a budget
meeting the requirements of the Declaration. Each budget approved by the Board
is called the "Budget." Manager shall distribute or cause to be distributed a
copy of the approved Budget to all Owners.
(B) SPECIAL ASSESSMENTS. Manager shall determine
whether or not a Special Assessment may be required from time to time and shall
submit a recommendation to the Board that a Special Assessment be levied.
(C) COLLECTION OF ASSESSMENTS. Manager shall collect
the Assessments on behalf of the Association and enforce payment of Assessments
as follows:
(i) Manager shall cause to be prepared and
mailed to all Owners periodic statements setting forth the amount of all
Assessments then due from each Owner;
(ii) Manager shall cause to be prepared and
mailed to any delinquent Owner a notice of delinquency and shall use its best
efforts lawfully to collect delinquent Assessments as provided in the
Declaration. The Board on behalf of the Association hereby assigns to Manager,
subject to Manager agreeing to accept such assignment at its sole option and
paying any amount in default at the sole option of Manager, any lien placed by
the Association against an Owner's interest for non-payment of dues or fees owed
by the Association. The Manager shall have the right, but not the duty, to pay
said lien out of its own funds and to foreclose the lien or accept a deed in
lieu thereof and thereby acquire ownership of said defaulting owner(s) interest
in the Unit.
(D) BANK ACCOUNTS. Manager shall establish and
maintain the bank accounts provided for in the Declaration or Bylaws and shall
deposit funds collected from Owners and all other amounts collected by Manager
in connection with the performance of its duties hereunder in the accounts
designated for such purpose as set forth in the Declaration or Bylaws. The Board
shall authorize one or more of Manager's officers to have full signatory
authority on said bank accounts. In addition, the Manager shall keep accurate
books and records reflecting the amount of such accounts.
(E) DISBURSEMENTS. Manager shall disburse from the
bank accounts of the Association any and all amounts required for the payment of
all Association expenses incurred consistent with the applicable Budget and as
otherwise permitted by the Declaration or Bylaws.
(F) FINANCIAL STATEMENTS. Manager shall, after the
end of each calendar year, prepare and distribute the Annual Report to each
Owner in accordance with the Declaration or Bylaws. Manager shall provide
quarterly reports to the Board.
(G) BOOKS AND RECORDS. Manager shall keep and
maintain or cause to be kept and maintained full and adequate books and records
reflecting the results of operation of the Property in accordance with the
accounting principles utilized by the Association in the preparation of its
federal income tax returns. The books of account and other records relating to
the operation of the
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<PAGE> 4
Property shall be available to the Association and the Members at all reasonable
times for examination and inspection as and to the extent provided in the
Bylaws.
(H) INTERNAL EXCHANGE. Manager shall enter the
Property into Manager's Internal Exchange network. Each Owner exchanged into one
of Manager's resort properties that constitute the Internal Exchange shall be
subject to all Internal Exchange rules, regulations and fees as set forth in
Manager's Timeshare Exchange Disclosure.
4.4 PHYSICAL SERVICES. Manager shall, in addition to the
duties in ss. 4.1, provide the following services of a physical nature:
(A) INSPECTIONS. Manager shall make regular
inspections of the Property and render reports and make recommendations
concerning the Property to the Board.
(B) ASSOCIATION INSURANCE. Manager shall use its best
efforts to procure and keep in force all insurance and/or bonds required. In the
event said insurance and/or bonds are not ascertainable, Manager shall notify
the Board at once. Manager shall administer all such insurance and claims under
such insurance policies. Such insurance shall include, but shall not be limited
to:
(i) A policy of insurance showing the
Association as the named insured, and Manager as an additional insured,
evidencing that the Association is insured under the laws of the State of
Louisiana in accordance with the provisions of the applicable statutes;
(ii) A policy or policies of insurance
showing the Association as the named insured, evidencing that the Association is
insured against loss from embezzlement, misappropriation and misapplication of
funds by the Association's employees retained by Manager, in an amount
satisfactory to the Louisiana Division of Real Estate and to the equivalent
agency of any other state in which Hotel Maison Pierre Lafitte, Ltd., a
Louisiana corporation (the "Developer") registers the Property for sale. Manager
shall use its best efforts to insure that all such policies provide that the
same shall not be canceled except upon thirty (30) days prior written notice to
the Association.
(C) REPAIR AND MAINTENANCE OF PROPERTY AND
FURNISHINGS. Manager shall cause the Property and the Common Furnishings to be
repaired and maintained, in accordance with the provisions of the Declaration.
(D) CHECK IN AND CHECK OUT. Manager shall cause
on-site personnel to be available at all required times in order to check Owners
and/or their Occupants in or out. Manager shall engage George Friedman to manage
the Property as Property Manager and operate the front desk and other aspects of
the Property as designated by the Property Manager either directly or by
delegation to other employees of Manager or the Association.
(E) RESERVATIONS. Manager shall establish and operate
a reservation system. The reservation system shall include the books and records
required to reflect reservations made, Units actually used and such other
information as shall be necessary to efficiently coordinate Property operations.
4.5 LIMITATION ON POWERS OF MANAGER. Notwithstanding the
powers of the Manager as set forth in ss.ss. 4.1-4.4 above, Manager shall nOT:
(A) Enter into a contract with a third person or
entity whereby such person or entity will furnish goods or services to the
Property for a term longer than one (1) year unless authorized by a majority of
non-Developer Owners except:
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<PAGE> 5
(i) A contract with a public utility company
if the rates charged for the materials or services are regulated by the State of
Louisiana or an agency thereof; provided, however, that the term of the contract
shall not exceed the shortest term for which the supplier will contract at the
regulated rate.
(ii) Prepaid or partially prepaid
casualty or liability insurance policies not to exceed three (3) years duration
provided that the policy permits short-rate cancellation by the insured.
(iii) One or more agreements providing for
the implementation of exchange programs at the Property; or
(B) Enter into a contract or lease for a period not
exceeding five (5) years without the Board's written consent, except:
(i) Leases of furnishings;
(ii) Leases of the exclusive easement
areas or portion thereof;
(iii) Leases for laundry room fixtures,
equipment and service;
(iv) Agreements for cable television
service or satellite dish equipment and service; and
(v) Agreements for burglar alarm
equipment and service.
Subject to the Board's written consent, Manager may engage a contractor or
lessor in which the Developer or the Manager has a direct or indirect interest
of 10% or more.
(C) Enter into any contract in the name of the
Association for goods or services not contemplated by the Budget or for amounts
in excess of those specified in the Budget, unless the Board shall consent
thereto in writing. This amount approved by the Board cannot be an amount which
would require approval of such assessment by the Majority of Owners.
4.6 LIMITED LIABILITY. Manager shall not be responsible for
the acts, omissions to act or conduct of any of the Owners, other Property
occupants and/or exchange users, or for the breach of any of the obligations of
any of the Owners, occupants and/or exchange users. The Association agrees to
indemnify and hold harmless Manager for all acts of Manager in its performance
of the duties hereunder other than from liability arising as a result of
Manager's gross negligence or unlawful misconduct.
5. COMPENSATION OF MANAGER.
5.1 MONTHLY COMPENSATION. For Manager's full and faithful
performance of the duties and obligations provided for herein, Manager shall,
during the term hereof, be entitled to a monthly compensation (the "Management
Fee") in an amount equal to one-twelfth of fifteen percent (15%) of the total
Budget plus three percent (3%) of all Net Processed Volume on sales of Property
Units derived from any sales source whatsoever. Net Processed Volume means the
sum of sales prices on processed agreements for sales of Units, calculated
monthly by Developer and delivered to Manager on or before the tenth (10th) day
of the following month, along with any funds owed Manager. Manager may audit any
said report(s) at any time. In the event of termination or resignation of this
Agreement, during or after the Transition Period, pursuant to the provisions
stated herein, unless agreed to by
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<PAGE> 6
Manager, the Property and Association will immediately discontinue use of the
Ramada Vacation Suites name. All Manager compensation stated herein is exclusive
of any other Manager compensation.
5.2 ADVANCES AND REIMBURSEMENTS. In addition to the Management
Fee, Manager shall be paid or reimbursed from the bank accounts of the
Association an amount equal to all out-of-pocket expenses incurred by Manager in
connection with this Agreement and/or the performance of the duties or
obligations provided for herein. Manager shall not be required to perform any
act or duty hereunder involving an expenditure of money unless there shall be
sufficient funds therefor in the bank accounts of the Association. If at any
time the funds in the bank accounts of the Association are not sufficient to pay
the obligations, expenses and all charges incident to this Agreement,
Association shall make available such funds. Manager, although not obligated to
do so, may advance such sums as it deems necessary, and in such event, Manager
shall be entitled to reimburse itself from Association funds for the amount of
such advances, together with interest at the rate of fifteen percent (15%) per
annum, or such lesser rate as allowed under the usury laws of Louisiana,
commencing from the date of the advance by Manager.
5.3 PAYMENT OF MANAGEMENT FEE. Manager is hereby authorized to
pay itself the Management Fee of fifteen percent (15%) of the total Budget out
of the Association bank account(s), or other available Association funds. The
three percent (3%) of Net Processed Volume will be paid to Manager on a monthly
basis by Developer. Any shortfall of any funds owed Manager shall be paid by
Developer upon demand.
5.4 DISCOUNTS. All discounts, rebates or commissions or like
items shall inure to the benefit of the Association. Rentals of timeshare weeks
owned by Manager may be rented for the benefit of the Manager.
5.5 EMPLOYEES. Each employee, independent contractor or other
person performing services for the Association in connection with this Agreement
(the "Association Employee") shall, even though retained by Manager, be the
employee, agent or independent contractor of the Association and not of Manager.
The salary and other related expenses (including, without limitation, payroll
taxes and the cost of employee benefits) or other compensations for any
Association employee shall be an expense of the Association even though paid by
Manager, and Manager shall be entitled to reimbursement from funds of the
Association on a monthly basis for such expenditures, which reimbursement shall
be in addition to and separate from the amount paid to Manager pursuant to 5.1
above. Any such sums advanced by Manager and not repaid within thirty (30) days
of such advances, shall earn interest at fifteen percent (15%) per annum, or
such lesser rate as allowed by the laws of the State of Louisiana, from the date
of any such advance.
5.6 SINGLE CONTRACTS. Manager may enter into single contracts
for operation and maintenance services covering the Property and other projects
managed by the Manager.
6. NOTICES. Any notice, request, demand, instruction or other document
to be given hereunder to any party shall be in writing and shall either be
delivered in the manner and to the person at the appropriate address set forth
below:
If to Association: Attention: George M. Friedman, President
108 University Place
New Orleans, Louisiana 70112
Facsimile: (504) 527-5802
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With a copy to: Hotel Maison Pierre Lafitte, Ltd.
Attention: George M. Friedman, President
613 Esplanade Avenue
New Orleans, Louisiana 70116
Facsimile: (504) 527-5802
and to Victor A. McElroy at the
address shown below
If to Manager: Preferred Equities Corporation
Attention: Victor A. McElroy,
Director: Resort Operations
1500 East Tropicana Avenue
Las Vegas, Nevada 89119
Facsimile: (702) 736-2006
With a copy to: Preferred Equities Corporation
Attention: Kristen L. Demman,
Asst. General Counsel
4310 Paradise Road
Las Vegas, Nevada 89109
Facsimile: (702) 369-3194
Any notices required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been given 48 hours after the deposit of
same in any United States mail post office box in the state to which the notice
is addressed or 72 hours after deposit in any such post office box other than in
the state to which the notice is addressed. Any notices sent shall be delivered
by hand, sent by recognized overnight courier (such as Federal Express), sent by
facsimile transmission, or mailed by certified or registered mail, return
receipt requested, in a postage prepaid envelope, and addressed as set forth
above. The addresses and addressees for the purpose of this paragraph may be
changed by giving notice of such change in the manner herein provided for giving
notice. Unless and until such notice is received, the last address and addressee
stated by notice, or as provided herein if no notice or change has been sent or
received, shall be deemed to continue in effect for all purposes hereunder.
7. WAIVER. The waiver or failure to enforce any provision of this
Agreement shall not operate as a waiver of any future breach of such provision
or of any other provisions hereof.
8. MERGER. All understandings and agreements heretofore had between
the parties respecting the employment contemplated by this Agreement are merged
in this Agreement, which fully and completely expresses the agreement of the
parties. There are no agreements except as specifically set forth in this
Agreement or to be set forth in the instruments or other documents delivered or
to be delivered hereunder.
9. AMENDMENTS. No change in or addition to, or waiver or termination
of, this Agreement or any part thereof shall be valid unless in writing and
signed by or on behalf of each of the parties hereto.
10. PARAGRAPH HEADINGS. The paragraph headings herein contained are for
the purposes of identification only and shall not be considered in construing
this Agreement.
11. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties and each of their respective successors and assigns. In no event
shall the obligations or duties of Manager be assigned, except as provided in
ss. 4.1, without the prior written consent of the Association.
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<PAGE> 8
12. SEVERABILITY - Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality shall not affect the validity of the remainder of
the within Agreement.
13. GOVERNING LAW - This Agreement shall be governed and interpreted by
the laws of the State of Nevada.
14. DISPUTE RESOLUTION/ARBITRATION - In the event of any controversy,
claim or dispute between the parties hereto arising out of or relating to this
Agreement or the breach thereof ("Disputed Matter"), the parties to this
Agreement hereby waive their right to litigation proceedings in a court of law
and agree that any such Disputed Matter shall be settled first by mediation and,
if unsuccessful, by binding arbitration, the fee for which shall be advanced by
the party requesting mediation or arbitration. The cost of the proceeding shall
ultimately be borne as determined by the mediator or arbitrator The site of any
such mediation or arbitration proceeding shall be Clark County, Nevada. In the
event any Disputed Matter cannot be resolved by mediation or binding
arbitration, or in the event the parties' waiver of litigation proceedings is
considered invalid for any reason, venue for any litigation proceeding shall be
Clark County, Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
HOTEL MAISON PIERRE LAFITTE, LTD.
OWNERS ASSOCIATION
By:
-----------------------------
GEORGE M. FRIEDMAN
President
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:
-----------------------------
GREGG A. MC MURTRIE
Executive Vice President
In consideration of this Agreement, George M. Friedman hereby
personally guarantees the performance of all Association duties and the payment
of any and all fees owed by the Association and Developer to Manager under this
Agreement or as may be otherwise agreed to between Manager and Developer or
Association.
By:
---------------------------------
GEORGE M. FRIEDMAN, Individually
8
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EXHIBIT 10.169
FIFTH AMENDMENT
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
This Fifth Amendment (the "Amendment") to Assignment and Assumption Agreement,
by and between RER CORP, COMAY CORP., GROWTH REALTY INC. and H&A FINANCIAL,
INC. (the "Assignors"), and MEGO FINANCIAL CORP., formerly named MEGO CORP.,
(the "Assignee")
WITNESSETH:
WHEREAS, the Assignors are parties to the Assignment Agreement dated
October 25, 1987, with the Assignee, and the Assignment and Assumption
Agreement, dated February 1, 1988, between the Assignors and the Assignee, which
two agreements were amended by the Amendment to Assignment and Assumption
Agreement dated July 29, 1988, and by the Second Amendment to Amendment to
Assignment and Assumption Agreement dated as of August 10, 1997 and the Fourth
Amendment to Amendment to Assignment and Assumption Agreement dated as of
February 26, 1999, between the Assignors and the Assignee (collectively, the
described agreements as so amended are hereinafter referred to as the
"Assignment"); and
WHEREAS, the Assignment fixed the date of January 31, 1995 as the date
on which the accrual of amounts due to the Assignors under the Assignment would
terminate, except for interest on any of such amounts which remained unpaid; and
WHEREAS, the amount due the Assignors, as of January 31, 1995 was
$13,328,742.25, plus interest from January 28, 1993 in the amount of $9,322.57,
(collectively, and with interest from January 31, 1995 to March 2, 1995 the
"Amount Due"); and
WHEREAS, $10,000,000 of the Amount Due was agreed to be considered
subordinated debt (the "Subordinated Debt"), against which payments were made
as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii)
$4,250,000 was deemed paid by credit against the exercise price of certain
warrants as is set forth in the Third Amendment, and (iii) $35,714.28 was paid
on September 1, 1998, leaving a remaining balance of the Subordinated Debt of
$4,285,714.29; and
WHEREAS, the balance of the Subordinated Debt continues to be secured
by a pledge of all of the issued and outstanding common stock of Preferred
Equities Corporation (and any distributions in respect thereto) pursuant to a
Pledge and Security Agreement dated as of February 1, 1988 (the "Pledge
Agreement") between the Assignee and the Assignors; and
WHEREAS, interest on the Subordinated Debt has been paid through March
1, 1999; and
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WHEREAS, under the terms of the Assignment, a payment in the amount of
$1,428,571.43, which originally was due on March 1, 1999, is presently due on
June 1, 1999; and
WHEREAS, the Assignee has requested that the Assignors agree to
further defer the principal payment of $1,428.571.43, originally due on March
1, 1999, to September 1, 1999;
NOW THEREFORE, in consideration of the mutual covenants herein
contained it is hereby agreed as follows:
1. The statements in the foregoing preamble are true and correct.
2. That the principal payment originally due on March 1, 1999 on
the Subordinated Debt in the amount of $1,428.571.43, and previously deferred
until June 1, 1999, is hereby further deferred until September 1, 1999.
3. The Assignee and Assignors agree that all amounts due to
Assignors pursuant to the Assignment as amended by this Agreement shall
continue to be secured as set forth in the Pledge Agreement, and that the
Pledge Agreement remains in full force and effect.
4. The Assignee and Assignors agree that this Amendment is an
amendment to the Assignment and not a novation, and that, except as modified
hereby, all terms and conditions of the Assignment remain in full force and
effect, and, except as modified herein, all unpaid payments of principal and
interest on the Subordinated Debt shall continue to be due and payable as set
forth in the Assignment.
5. It is agreed that this Amendment may be signed in
counterparts, and all such counterparts in the aggregate shall constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of May 28, 1999.
MEGO FINANCIAL CORP.
By: /s/ JEROME J. COHEN
-------------------------------
Jerome J. Cohen, President
RER CORP.
By: /s/ [SIGNATURE]
-------------------------------
Title: President
2
<PAGE> 3
COMAY CORP.
By: /s/ [SIGNATURE]
-------------------------------
Title: President
GROWTH REALTY INC.
By: /s/ [SIGNATURE]
-------------------------------
Title: President
H&H FINANCIAL, INC.
By: /s/ [SIGNATURE]
-------------------------------
Title:
3
<PAGE> 1
EXHIBIT 10.170
AMENDMENT NO. 2 TO SEVERANCE AGREEMENT
AND CONSULTING AGREEMENT
It is hereby agreed as of this 18th day of June, 1999, by and between
MEGO FINANCIAL CORP. (the "Company") and DON A. MAYERSON (the "Employee") as
follows:
WHEREAS, the Employee was a senior officer of the Corporation from January, 1988
to December 31, 1998, holding the offices of Executive Vice President, General
Counsel and Secretary during most of that period; and
WHEREAS, the parties hereto previously entered into an agreement dated as of
September 2, 1997 (the "Agreement") which, among other things provided for a
lump sum payment of $250,000 (the "Payment") in the event the Employee's
employment by the Company was terminated for any reason; and
WHEREAS, the parties hereto have previously entered into an indemnification
agreement dated as of September 23, 1998 (the"Indemnification Agreement"); and
WHEREAS, the Employee retired on December 31, 1998 and is no longer employed by
the Company; and
WHEREAS, pursuant to Amendment No. 1 to Severance Agreement, and Consulting
Agreement dated as of December 24, 1998 (the "Amendment No.1") the Company and
the Employee agreed to modify the payment terms of the Payment so as to defer
the payment of a portion thereof, and provided for the possible future services
of Employee as a consultant to the Company; and
WHEREAS, in accordance with the terms of Amendment No. 1 the Company has paid
monthly payments through the date hereof aggregating $60,000, leaving a balance
due on the Payment of $190,000 as of the date hereof, and which amount is
presently scheduled for payment on June 30, 1999; and
WHEREAS, the Company has requested that the Employee agree to further modify the
payment terms of the Payment, to which the Employee is agreeable provided that
the exercise period of the Stock Options held by the Employee, which were
previously granted by the Company, be extended for an additional one year period
ending on December 31, 2000, as more particularly hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth
and for other good and valuable consideration, it is agreed as follows:
1. The above recitals are true and correct.
2. Paragraph 2 of the Agreement is hereby amended and restated to read in
full as follows:
"In the event the employment of the Employee in his present capacity
with the Company is terminated for any reason, including but not
limited to the Employee's death, disability, or retirement, the Company
shall pay to the Employee (or his personal representative if the
Employee is deceased) the sum of Two Hundred Fifty Thousand Dollars
($250,000), in full satisfaction of any severance obligations of the
Company, which amount shall be paid as follows:
a. The sum of Ten Thousand Dollars ($10,000) on the first payday
of each month to executive officers of the Company for the
months of January through September, 1999.
b. The balance of One Hundred Sixty Thousand Dollars ($160,000) on
September 30, 1999.
c. In the event the Company executes an agreement involving a
"Change of Control" as hereinafter defined, any unpaid balance
of the Payment shall be immediately paid by the Company to the
Employee at the closing of the transaction, if prior to
September 30, 1999. This sub-paragraph shall not extend the
final payment date of the Payment beyond September 30, 1999.
<PAGE> 2
d. The Payment shall be deemed to be in the nature of a
non-qualified pension.
3. As an inducement to the Employee to defer the full payment of the
Payment as set forth above, the Company agrees that it will execute an
amendment of the Stock Options for the purchase of Common Stock of the
Company, presently held by the Employee, extending the exercise period
of such Options until December 31, 2000.
4. Except as modified above, all other terms and conditions of the
Agreement and Amendment No. 1 shall remain in full force and effect.
The indemnification Agreement shall also remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the date
first above written.
MEGO FINANCIAL CORP. (COMPANY)
By
-----------------------------
Jerome J. Cohen, President
DON A. MAYERSON (EMPLOYEE)
- ----------------------------
<PAGE> 1
EXHIBIT 10.171
FIRST AMENDMENT TO FORBEARANCE AGREEMENT AND
AMENDMENT NO. 6 TO SECOND AMENDED AND RESTATED AND
CONSOLIDATED LOAN AND SECURITY AGREEMENT
This First Amendment to Forbearance Agreement and Amendment
No. 6 to Second Amended and Restated and Consolidated Loan and Security
Agreement ("Amendment") dated as of May 7, 1999 (the "Effective Date") is
entered into by and among FINOVA CAPITAL CORPORATION, a Delaware corporation
("FINOVA" or "Lender"), PREFERRED EQUITIES CORPORATION, a Nevada corporation
("Borrower") and MEGO FINANCIAL CORP., a New York corporation ("Guarantor") and
has reference to the following facts:
A. Lender and Borrower entered into a Second Amended and
Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997
(the "Original Loan Agreement") that evidences a loan from Lender to Borrower.
The Original Loan Agreement was amended by the Hartsel Springs Side Letter dated
February 18, 1998 (the "First Amendment"), by the Letter Agreement [Biloxi
Property] dated March 20, 1998 (the "Second Amendment"), by the Letter Agreement
[Headquarters Readvance] dated September 29, 1998 (the "Third Amendment") and by
the Amendment No. 4 to Second Amended and Restated and Consolidated Loan and
Security Agreement dated November 6, 1998 (the "Fourth Amendment"), by that
certain Forbearance Agreement and Amendment No. 5 to Second Amended and Restated
and Consolidated Loan and Security Agreement dated December 23, 1998, as the
same was amended by a Letter Agreement dated February 8, 1999 (the "Fifth
Amendment"). The Original Loan Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment are
collectively the "Loan Agreement." Capitalized terms used in this Amendment
which are defined in the Loan Agreement shall have the same meaning and
definition when used herein.
B. Borrower has requested the Lender to make certain
modifications to the Loan Agreement and the Loan, which the Lender is willing to
do, upon and subject to the terms and conditions set forth in this Amendment.
Now, therefore, in consideration of the foregoing and for the
good and valuable consideration provided herein, Lender, Borrower and Guarantor
agree as follows:
1. On the Effective Date (hereinafter defined) the Loan
Agreement is hereby further modified as follows:
1.1 The provisions of Article 1 of the Loan
Agreement is amended to add the following definitions:
<PAGE> 2
"Fifth Amendment": shall mean and collectively refer
to the Forbearance Agreement and Amendment No. 5 to Second Amended and
Restated and Consolidated Loan and Security Agreement dated December
23, 1998 among Borrower, Lender and Guarantor, and that certain letter
agreement dated February 8, 1999 among Borrower and Lender.
"Sixth Amendment": shall mean and refer to the First
Amendment to Forbearance Agreement and Amendment No. 6 to Second
Amended and Restated and Consolidated Loan and Security Agreement dated
May 7, 1999, by and among Borrower, Lender and Guarantor.
2. As of the Effective Date, the Biloxi Note is hereby amended
in the following respects:
2.1 The provisions of the Biloxi Note granted the
Borrower the right to extend the Maturity Date of the Biloxi Note (the
"Biloxi Maturity Date") provided certain conditions set forth in the
Biloxi Note (the "Biloxi Conditions") were satisfied on or before the
original March 20, 1999 Maturity Date of the Biloxi Note (the "Original
Maturity Date "). Notwithstanding the fact that all of the Biloxi
Conditions have not been fully satisfied, the Lender hereby agrees to
extend the Biloxi Maturity Date to provide that the entire remaining
balance of the Biloxi Note, together with all accrued and unpaid
interest and all other sums due and owing thereon, shall be due and
payable in full on March 20, 2000 (the "New Biloxi Maturity Date").
From and after the Effective Date, references in the Documents and the
in the Biloxi Note to the term Maturity Date of the Biloxi Note shall
now refer to the New Biloxi Maturity Date.
2.2 Among the Biloxi Conditions is the obligation of
the Borrower to pay the Lender a renewal fee in an amount equal to two
and one-half percent of the outstanding and unpaid principal balance of
the Biloxi Note as of the Original Maturity Date (the "Biloxi Renewal
Fee"). In consideration for the agreements of the Lender set forth in
Section 2.1 hereof, the Borrower agrees that the Lender has fully
earned the entire amount of the Biloxi Renewal Fee and that such fee is
presently due and payable to the Lender. Notwithstanding the foregoing
or contrary provisions of the Biloxi Note, the parties agree that
Biloxi Renewal Fee shall be paid as follows: (i) an amount equal to one
percent of the outstanding and unpaid principal balance of the Biloxi
Note shall be paid to the Lender concurrently with the execution of
this Amendment, and (ii) the balance of the Biloxi Renewal Fee (the
"Deferred Fee") being due and payable to the Lender on the earlier of
(1) the New Biloxi Maturity Date or (2) the date on which the Borrower
has paid in full to the Lender the entire outstanding unpaid principal
balance of the Biloxi Note, together with all accrued and unpaid
interest (the "Payoff Date"). However, in the event that the Payoff
Date occurs, for reasons other than an acceleration of the Loan arising
as a result of an Event of Default, prior to New Biloxi Maturity Date,
the Deferred Fee will be
2
<PAGE> 3
adjusted to be an amount equal to the product obtained by multiplying
the number of calendar months occurring between the Original Maturity
Date and the Payoff Date by a fraction the numerator being the original
amount of the Deferred Fee, the denominator being 12.
3. The Office Note was amended by the Fifth Amendment so as to
require the payment of interest only for the period (the "Interest Only Period")
commencing with the payment due on January 1, 1999 and continuing for each
subsequent payment due until June 1, 1999. On the Effective Date the Office Note
is amended to continue the Interest Only Period through the payment due on
August 1, 1999. Commencing on September 1, 1999 and on the first day of each
month thereafter, the Office Note shall be paid in installments of principal and
interest as more fully set forth in the Office Note. The principal payments
deferred during the Interest Only Period and the principals payments which were
due on June 1, 1999, July 1, 1999 and August 1, 1999, shall continue to accrue
interest at the rate set forth in the Office Note and shall be payable on the
Maturity Date (as that term is defined in the Office Note) unless the balance of
the Office Note is previously accelerated pursuant to the provisions of the Loan
Agreement.
4. (a) As of the Effective Date, the Maturity Date of the
Additional Advance Note is amended to September 1, 1999.
(b) Under the Fifth Amendment, the Lender has made
available Tranche B Loan to Borrower on the terms and conditions more
particularly described therein. Notwithstanding anything to the
contrary contained in the Loan Agreement, as of the Effective Date, the
Lender agrees that, subject to (i) the continued satisfaction of the
General Conditions; (ii) the satisfaction of the Conditions Subsequent;
and (iii) satisfaction of the provisions of this Amendment, the Lender
will continue to make the Tranche B available to the Borrower for
Advances, until September 1, 1999.
5. (a) The provisions of Section 11.5 of the Fifth Amendment
contemplated that the Loan Agreement would be further amended in order
to incorporate within its terms financial covenants acceptable to
Lender and consistent with the Business Plan. The Lender has elected
not to execute its foregoing right. As a result the financial covenants
set forth in the Loan Agreement will remain in effect.
(b) The financial covenants contained in Section
8.23(d) of the Loan Agreement required, as of February 28, 1999, that
Borrower's total aggregate SGA Expenses not exceed seventy percent
(70%) of Net Sales. The actual percentage as of February 28, 1999 was
seventy-one and one-half percent (71.5%). The Lender agrees that the
foregoing shall not constitute an Event of Default or the basis for not
making an Advance.
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<PAGE> 4
(c) The financial covenants contained in Section
8.23(e) of the Loan Agreement required, as of February 28, 1999, the
Borrower to have an aggregate volume of Net Sales of not less than
Sixteen Million Four Hundred Eighty-four Thousand Seven Hundred
Sixty-one Dollars ($16,484,761). The Borrower's actual Net Sales
volume, as of February 28, 1999 was Fifteen Million Three Hundred
Ninety Thousand Dollars ($15,390,000). The Lender agrees that the
foregoing shall not constitute an Event of Default or the basis for not
making an Advance.
(d) The waivers of the Lender set forth in
subparagraphs (b) and (c) this Section are limited solely to the
matters and circumstances set forth in the subparagraphs. Nothing in
this Section should be construed as a waiver by the Lender of the
Borrower's compliance with all other provisions of the Documents (as
amended hereby) and to require the Borrower to observe the financial
covenants for all other testing periods other than those specifically
addressed in the foregoing subparagraphs.
6. As of the Effective Date, Section 6 of the Fifth
Amendment is deleted in its entirety and replaced with the following:
"6. Partial Releases--Project Release Fees. The
Project Release Fees with respect to each of Fountains, Project
(Terraces-Phase I), Project (Terraces-Phase 2), Winnick, White Sands,
Project (Reno), Brigantine Inn, Brigantine Villa Calvada RV Park and
Calvada Land, shall computed and paid in accordance with the terms of
the February 8, 1999 letter by and between Borrower and Lender (a copy
of which is attached hereto as Exhibit A) (the "Release Letter") and
applied in the manner set forth in Section 5 of the Fifth Amendment.
With respect to CNUC, in the event that the Borrower, prior to
satisfaction of the Forbearance Collateral Release Conditions, desires
FINOVA to release its lien on the stock of CNUC granted pursuant to the
Stock Pledge Agreement together with the assignment of Sales
Distributions (hereinafter defined) granted to FINOVA pursuant to the
Fifth Amendment and reaffirmed in the Sixth Amendment, then FINOVA
agrees, provided there is no Event of Default or Incipient Default and
each of the Conditions Subsequent have been satisfied, to release the
same upon receipt of a Project Release Fee equal to sum of (a) the
greater of (i) $3,000,000, or (ii) the unpaid principal balance of the
Tranche A Loan, together with interest on such payment at the rate set
forth in the Additional Advance Note (the greater of the foregoing
amounts being called the "Base CNUC Release"), and (b) to the extent
that the net proceeds of the CNUC Sale (hereinafter defined) exceed the
Base CNUC Release (such amount being called the "Excess CNUC Sales
Proceeds"), an amount equal to the lesser of (1) the unpaid principal
balance of the Tranche B Loan, together with interest on such payment
at the rate set forth in the Additional Advance Note, or (2) the amount
of the Excess CNUC Sales Proceeds that are Sales Distributions
(hereinafter defined). With respect to the Colorado Water Rights, in
the event that the Borrower, prior to the satisfaction of the
Forbearance Collateral Release Conditions, desires FINOVA to release
its lien on the same, then FINOVA agrees, provided there is no Event of
4
<PAGE> 5
Default or Incipient Default and each of the Conditions Subsequent have
been satisfied, to release the same upon receipt of a Project Release
Fee which is not less than eighty percent (80%) of the "asking price"
on the Business Plan for the same, minus reasonable closing costs
incurred in connection with the sale of the Colorado Water Rights.
7. Lender's obligations under this Amendment are subject to
the satisfaction of the following conditions hereinafter set forth below:
(a) This Amendment shall have been fully signed by
Borrower and Guarantor.
(b) Borrower shall have paid to Lender the portion of
the Biloxi Renewal Fee due as of the date of this Amendment.
(c) Lender has received, on or before June 18, 1999,
the following all in a form and content acceptable to Lender:
(i) Current updates of the opinion letters
received by Lender in connection with the Loan Agreement.
(ii) Such resolutions and authorizations and
such other documents as Lender may require relating to the
existence and good standing of Borrower and Guarantor, and the
authority of any person executing this Amendment and other
documents on behalf of Borrower and Guarantor.
(iii) Such other documents or instruments as
required by Lender so as to fully perfect the liens and
security interest of Lender granted under the Loan Agreement.
(d) Borrower shall have reimbursed Lender for all of
Lender's out-of-pocket costs and expenses including, without
limitation, attorneys', engineers' and other consultants' fees and
costs, incurred in connection with the documentation and closing of
this Amendment.
8. Under the Fifth Amendment, the Borrower was obligated to
complete certain Conditions Subsequent on or before dates that are more
particularly described therein. The Borrower and Lender desire to amend the
Conditions Subsequent so as to provide as follows:
8.1 On or before June 18, 1999, Borrower shall, at
its sole cost and expense, have obtained and delivered to Lender title
insurance policies to the benefit of Lender for each of the following
properties: (i) Calvada Meadows Unit 2 RV Park, (ii) Calvada Unit 2 Raw
Land, (iii) Former STP Site, (iv) the unsold Units within
5
<PAGE> 6
Fountains, (v) the unsold Units within Project (Terraces - Phase 1),
(vi) the unsold Units within Project (Terraces - Phase 2), (vii) the
unsold Units within Winnick, (viii) the unsold Lots and other land
within Calvada RV Park, and (ix) the unsold Lots and other land within
Calvada Land (the "Nevada Properties"). On or before July 15, 1999,
Borrower shall, at its sole cost and expense, have obtained and
delivered to Lender title insurance policies to the benefit of the
Lender for the unsold Units within Brigantine Inn and the unsold Units
within Brigantine Villas (the "New Jersey Properties") (the Nevada
Properties and the New Jersey Properties are collectively called the
"Properties"). The foregoing title insurance policies shall be written
by insurers and in an amount and form satisfactory to Lender, and shall
insure that the lien of the Lender's first deed of trust or mortgage
lien (established by the deeds of trust and mortgages which were
executed by the Borrower and approved by the Lender prior to the
execution of this Amendment) on each of the Properties, subject, in
each instance, to such exceptions to title as are acceptable to Lender.
8.2 The provisions of the Fifth Amendment
contemplated that the Lender would be granted a mortgage or deed of
trust encumbering the Colorado Water Rights. The parties now agree that
in lieu of a mortgage or deed of trust, the Lender will be granted a
Collateral Assignment of the Colorado Water Rights in form and content
similar to the Notice of Assignment of Excess Proceeds Collateral
executed in connection with Excess Proceeds Collateral. The foregoing
condition shall be satisfied by Borrower on or before June 18, 1999.
8.3 The provisions of Section 4.3(d) of the Fifth
Amendment provided as a Condition Subsequent that:
"Borrower and Guarantor shall have caused CNUC to have
assigned to Lender as additional security for the payment and
Performance of the Obligations, all proceeds (net of
reasonable closing costs) received from the sale of any assets
of CNUC and shall have caused CNUC to have executed and
recorded against the real property owned by CNUC a Notice of
Assignment of Proceeds, all in form and substance satisfactory
to Lender. In the alternative, Borrower and Guarantor shall
have caused CNUC to have granted to Lender a first priority
lien on and security interest in all of the assets of CNUC as
security for the payment and Performance of the Obligations,
pursuant to documents and instruments acceptable to Lender. In
connection therewith, Borrower and Guarantor shall have caused
CNUC to deliver to Lender mortgages, deeds of trust, security
agreements, financing statements, environmental certificates,
(subject to the provisions of Section 4.4 hereof) surveys and
opinions of counsel, acceptable to Lender with regard to such
security interest. The aforementioned assignment and security
granted to Lender by CNUC shall be absolute, continuing and
applicable to all existing and future Advances and shall
secure the
6
<PAGE> 7
repayment of the Loan (including without limitation the
Additional Advances) and the Performance of all Obligations
throughout the term of the Loan. Borrower covenants and agrees
that if any assets of CNUC are sold, such assets shall be sold
solely under terms which require the payment to CNUC of the
entire purchase price in cash."
8.3.1 Since the execution of the Fifth
Amendment, Borrower has advised Lender that Nevada Law
prohibits CNUC from assigning to Lender the net proceeds
received from the sale of assets of CNUC and/or granting a
security interest in all the assets of CNUC security for the
payment and Performance of the Obligations. As a result of the
foregoing, the Borrower and Guarantor have been unable to
fulfill their obligations to the Lender to cause CNUC to
deliver to Lender the documents required by Section 4.3(d) of
the Fifth Amendment. Notwithstanding the foregoing, the
Borrower and Guarantor covenant and agree that
(a) to the extent permitted by
Nevada law it will vote its stock in CNUC in a manner
which, if any assets of CNUC are to be sold, the
Borrower will consent to such sale only if such sale
is (i) on terms which require the payment to CNUC of
the entire purchase price in cash and (ii) the
purchase price for the assets being sold is not less
than the amount that is set forth in the Business
Plan for such assets (such sale being called a "CNUC
Sale");
(b) to the extent proceeds from a
CNUC Sale are, under Nevada law, permitted to be
distributed to the shareholders of CNUC (the "Sale
Distributions"), Borrower will vote its stock in a
manner which permit such distributions; and
(c) all Sale Distributions from CNUC
shall be paid over to Lender to be applied in the
manner set forth in Section 5 of the Fifth Amendment.
In furtherance of the foregoing, the Borrower and Guarantor
agree to use best efforts to obtain any and all consents that
are or may be required under Nevada law to accomplish the
foregoing.
8.3.2 Pursuant to Section 4.2(b) of the
Fifth Amendment, Borrower has pledged to Lender as additional
security for the payment and Performance of the Obligations,
one hundred percent (100%) of the issued and outstanding stock
of CNUC. Borrower reaffirms the security interest granted to
Lender and acknowledges that such security interest includes,
but is not limited to, the right to receive Sale
Distributions.
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<PAGE> 8
9. As described in the Release Letter, the Borrower is
required to provide to the Lender monthly reports on the sales of Units, along
with a computation and payment of all Release Fees due with respect to the same.
As of the Effective Date, the Borrower has failed to supply such reports and
Release Fees. The Borrower acknowledges that its failure to perform its
obligations under the Release Letter is an Event of Default. Notwithstanding the
foregoing, the Lender agrees not to exercise its rights under the Documents with
respect to such Event of Default provided the Borrower complies with the
following provisions of this Section 9. On or before June 18,1999, the Borrower
shall supply to the Lender the reports required by the Release Letter for the
period commencing on the date of the Fifth Amendment and ending on May 31, 1999.
Based on such reports and other information available to the Lender, the Lender
will, based on the Release Letter, determine the Release Fees due and owing to
the Lender for the periods covered by the reports and will provide the Borrower
with written notice of the same. The Borrower shall pay the Release Fees
determined by Lender within five (5) days after its receipt of the Lender's
statement of the same. While the Lender has elected to not, at this time, call
an Event of Default, the Borrower agrees that Lender will have no obligation,
after the Effective Date, to make any further Advances from Tranche B until such
as time as the Borrower has fulfilled its obligations under this Section 9. From
and after the Effective Date, the Borrower will be required to perform and
observe all of its obligations under the Release Letter as and when required
therein. The waiver of Lender set forth in this Section is limited to the nature
and circumstances set forth in this Section and is predicated upon Borrower
fulfilling its obligations under this Section and when required hereby.
10. Borrower and Guarantor each represents and warrants that:
(a) All financial information and other documents it
has provided to Lender in connection with this Amendment are true,
complete and correct as of the date provided and the date hereof;
(b) There exists no Event of Default or Incipient
Default, after giving effect to the then applicable provisions of this
Amendment and other than the Existing Events of Default;
(c) After giving effect to this Amendment, there has
been no material adverse change in any real property or in the business
or financial condition of Borrower and Guarantor since the date of the
last financial statements submitted to Lender;
(d) After giving effect to this Amendment,, all
representations and warranties by Borrower and Guarantor remain true,
complete, and correct, in all material respects as of the date hereof;
and
(e) Attached hereto as Schedule 10(e), is a true and
complete summary of status of all litigation matters affecting the
Borrower and Guarantor, and
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<PAGE> 9
such litigation matters, if decided adversely to the Borrower or
Guarantor, will not have any material adverse affect on the current
financial condition (including, without limitation, compliance with
financial covenants) of the Borrower and Guarantor as reflected on the
most recent financial statements delivered by Borrower and Guarantor to
Lender prior to the date hereof.
11. Guarantor acknowledges and agrees that (i) the Guarantee
shall remain in full force and effect, (ii) the obligations of the Guarantor
under the Guarantee are joint and several with those of each other Obligor (as
that term is defined in the Guarantee), (iii) Guarantor's liability under the
Guarantee shall continue undiminished by and shall include the obligations of
the Borrower under this Amendment, the Biloxi Note and Office Note as amended
hereby and any other documents and instruments executed by Borrower in
connection with this Amendment and each of the other Documents, as amended
through the date hereof and (iv) all terms, conditions and provisions set forth
in this Amendment, the Biloxi Note and Office Note as amended hereby and any
other documents and instruments executed by Borrower in connection with this
Amendment and each of the other Documents, as amended through the date hereof,
are hereby ratified, approved and confirmed.
12. Borrower and Guarantor acknowledge and agree that they
have no defenses, counterclaims, setoffs, recoupments or other adverse claims or
causes of action in tort, contract or of any other kind existing against Lender
or with respect to the Documents, including without limitation, claims regarding
the amount, validity, perfection, priority and enforceability of the Documents.
13. The Documents shall be deemed amended by the provisions of
this Amendment, as and when applicable and any conflict or inconsistency between
this Amendment and the Documents shall be resolved in favor of this Amendment.
Except as so amended, all other consistent terms and conditions of the Documents
will remain in full force and effect.
14. Except as may be expressly provided herein, Borrower's and
Guarantor's respective obligations under the Documents shall remain in full
force and effect and shall not be waived, modified, superseded or otherwise
affected by this Amendment. This Amendment is not a novation, nor is it be
construed as a release, waiver, extension of forbearance or modification of any
of the terms, conditions, representations, warranties, covenants, rights or
remedies set forth in any of the Documents, except as expressly stated herein.
15. Borrower and Guarantor acknowledge that Lender has
performed, and is not in default of, its obligations under the Documents; that
there are no offsets, defenses or counterclaims in tort, contract or otherwise,
with respect to any of Borrower's or Guarantor's or other party's obligations
under the Documents; and that Lender has not directed Borrower to pay or not pay
any of Borrower's payables.
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<PAGE> 10
16. Borrower and Guarantor will execute and deliver such
further instruments and do such things as in the judgment of Lender are
necessary or desirable to effect the intent of this Amendment and to secure to
Lender the benefits of all rights and remedies conferred upon Lender by the
terms of this Amendment and any other documents executed in connection herewith.
17. If any provision of this Amendment is held to be
unenforceable under present or future laws effective while this Amendment is in
effect (all of which invalidating laws are waived to the fullest extent
possible), the enforceability of the remaining provisions of this Amendment
shall not be affected thereby. In lieu of each such unenforceable provision,
there shall be added automatically as part of this Amendment a provision that is
legal, valid and enforceable and is similar in terms to such unenforceable
provisions as may be possible.
18. Any further discussions by and among Borrower, Guarantor
and Lender, if any, and all such discussions in the past, together with any
other actions or inactions taken by and among Borrower, Guarantor and Lender,
shall not cause a modification of the Documents, establish a custom or waive
(unless Lender made such express waiver in writing), limit or condition the
rights and remedies of Lender under the Documents, all of which rights and
remedies are expressly reserved. All of the provisions of the Documents,
including, without limitation, the time of the essence provision, are hereby
reiterated and if ever waived are hereby reinstated (unless Lender made such
express waiver in writing), except as expressly provided herein.
19. This Amendment shall not be binding upon Lender until
accepted by Borrower and Guarantor as provided for below. This Amendment may be
executed in counterpart, and any number of which have been executed by all
parties shall be deemed to constitute one original. Lender, its attorneys and
agents, may also integrate into a single Amendment signature pages from separate
counterpart Amendments. The telecopied signature of a person shall be deemed an
original signature, may be relied upon by others and shall be binding upon the
signer for all purposes provided however that Borrower, Guarantor or any person
otherwise consenting hereto by telecopied signature shall confirm its telecopied
signature by signing and returning to Lender a copy of this Amendment with an
original signature.
20. Borrower's and Guarantor's representatives are experienced
and knowledgeable business people and have been represented by independent legal
counsel who are experienced in all matters relevant to this Amendment,
including, but not limited to, bankruptcy and insolvency law. The parties hereto
have accepted and agreed to this Amendment after being fully aware and advised
of the effect and significance of all of its terms, conditions, and provisions.
21. Unless otherwise specifically stipulated elsewhere in the
Documents, if a matter is left in the Documents or this Amendment to the
decision, right, requirement,
10
<PAGE> 11
request, determination, judgment, opinion, approval, consent, waiver,
satisfaction, acceptance, agreement, option or discretion of Lender, its
employees, Lender's counsel or any agent for or contractor of Lender, such
action shall be deemed to be exercisable by Lender or such other person in its
sole and absolute discretion and according to standards established in its sole
and absolute discretion. Without limiting the generality of the foregoing,
"option" and "discretion" shall be implied by use of the words "if" or "may."
22. The Recitals in this Amendment are incorporated into the
body hereof as fully set forth herein.
23. THIS AMENDMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL
BE PERFORMED IN THE STATE OF ARIZONA. THE PROVISIONS OF THIS AMENDMENT AND ALL
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ARIZONA AND TO
THE EXTENT THEY PREEMPT SUCH LAWS, THE LAWS OF THE UNITED STATES. EACH OF
BORROWER, GUARANTOR AND LENDER: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
PROCESS, JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA
COUNTY, AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR
OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO ANY DOCUMENT OR THE SUBJECT
MATTER THEREOF, OR, IF LENDER SHALL INITIATE SUCH ACTION, IN THE COURT IN WHICH
SUCH ACTION IS INITIATED PROVIDED THAT SUCH COURT HAS JURISDICTION, AND THE
CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B)
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR
PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN ANY
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH OF BORROWER, GUARANTOR AND LENDER HEREBY WAIVE THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
[SIGNATURE PAGE FOLLOWS]
11
<PAGE> 12
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
------------------------------------
Its:
----------------------------------
BORROWER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By:
------------------------------------
Its:
----------------------------------
Signed in the presence of:
GUARANTOR:
MEGO FINANCIAL CORP.,
a New York corporation
By:
------------------------------------
Its:
----------------------------------
Signed in the presence of:
- ---------------------------------------
12
<PAGE> 13
STATE OF NEVADA )
) ss.
County of _________________________ )
The foregoing instrument was acknowledged before me this ____
day of June ___, 1999 by ______________ as _______________ of PREFERRED EQUITIES
CORPORATION, a Nevada corporation, on behalf of the corporation.
----------------------------------
Notary Public
My Commission Expires:
- ----------------------
STATE OF NEVADA )
) ss.
County of _________________________ )
The foregoing instrument was acknowledged before me this ____
day of June ___, 1999 by ______________ as _______________ of MEGO FINANCIAL
CORP., a New York corporation, on behalf of the corporation.
----------------------------------
Notary Public
My Commission Expires:
- ----------------------
<PAGE> 14
July 9, 1999
Mr. Jon Joseph
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, Nevada 89109-6597
Re: Forbearance Agreement and Amendment No. 5 to Second
Amended and Restated Consolidated Loan and Security
Agreement (the "Agreement") dated as of December 23,
1998, by and between Preferred Equities Corporation
("PEC") and FINOVA Capital Corporation ("FINOVA")
Dear Mr. Joseph:
The purpose of this letter is to confirm certain
understandings and additional agreements that PEC and FINOVA have reached
concerning the Agreement. Terms used in this letter which are defined in the
Agreement shall have the same meaning and definition when used in this Letter.
Notwithstanding contrary provisions that may be contained in
the Agreement, FINOVA and PEC have agreed to the following:
1. The deadline to satisfy the Conditions Subsequent
associated with only the Brigantine Inn, Brigantine Villas and CNUC projects
shall be extended to February 12, 1999.
2. Provided there is No Event of Default or Incipient Default,
the Advance of the Tranche B Loan may occur at any time prior to March 31, 1999.
FINOVA's obligation to make any Advance of the Tranche B Loan remains subject to
the continued satisfaction of any of the General Conditions and to the
satisfaction of the Conditions Subsequent. There is no change in the dates by
which such conditions must be satisfied.
3. The Excess Proceeds Collateral or, where applicable, the
Project Release Fee (collectively, the "Release Fee") for the following
described properties shall be in the amount set forth opposite the name of the
properties:
<PAGE> 15
Mr. Jon Joseph
July 9, 1999
Page 2
<TABLE>
<S> <C>
Fountains $1,574 per Unit
Project (Terraces 1) 1,078 per Unit
Project (Terraces 2) 1,078 per Unit
Project (Towers) 1,039 per Unit
Project (Villas) 1,251 per Unit
Winnick 963 per Unit
White Sands 484 per Unit
Project (Reno) 851 per Unit
Brigantine Inn 955 per Unit
Brigantine Villas 893 per Unit
Calvada RV Park 300 per Unit
Calvada Land 2,815 per Lot
</TABLE>
With respect to only the aforementioned properties, FINOVA
consents to the Borrower's sale of these properties for an amount less than
eighty percent (80%) of the "Asking Price" as set forth in the Business Plan.
Further, with respect to the Calvada Land, references to "Unit" shall be deemed
to include the "Lots" located in this Project. With respect to any deed of trust
or mortgage encumbering the above properties on behalf of FINOVA, each time
share interval therein shall be deemed a "Unit" even if not a "Unit" as defined
in the Loan Documents.
4. It is recognized that after the Release Fee for a
particular Unit has been paid and the Unit released from the lien of the
Documents, ownership of the Unit may revert back to the Borrower (which for
purposes of this Paragraph shall be deemed to include any of its Affiliates that
own a particular project) as a result of either (i) a default by the Purchaser
under the Purchaser Notes which result in a termination of such Purchaser's
rights with respect to such Unit (a "Foreclosure"), or (ii) the Borrower and the
Purchaser in effect trading Units, whereby the Purchaser will reconvey the
previously released Unit to the Borrower in return for a simultaneous conveyance
by the Borrower of a similar or additional Unit (a "Trade"). In the event of the
Foreclosure, the Unit will not once again be subject to the lien of the
Documents and the Borrower will not be required to pay to FINOVA a Release Fee
for the Unit when it is resold. However, it will be the responsibility of the
Borrower, if requested by FINOVA, to provide evidence, acceptable to FINOVA,
showing that it has previously paid the Release Fee for the Unit.
As to a Trade, two possible situations exist. The first is a
Trade of the same number of Units (the "Even Trade"). The second is a Trade
whereby the Purchaser will convey to the Borrower a number of Units which is
less than the number of Units being conveyed by the Borrower to the Purchaser
(the number of Units conveyed to a Purchaser in excess of the number of Units
being reconveyed to the Borrower are called the "Additional Units").
<PAGE> 16
Mr. Jon Joseph
July 9, 1999
Page 3
In Even Trade transactions occurring within the same project,
no payment of a Release Fee to FINOVA shall be required for the Even Trade.
However, for an Even Trade of Units located in two different projects, a payment
will be due to FINOVA in an amount equal to the positive difference, if any,
between the Release Fees due for Units traded to a Purchaser in the other
project, and the Release Fee for the Units that are being reconveyed to the
Borrower. A Release Fee will be due and payable for all Additional Units.
Subject to compliance with the foregoing, in the event of a
Trade, FINOVA will release from the lien of the Documents all Units conveyed to
the Purchaser.
All Units reacquired by a Borrower as a result of a Trade will
automatically become subject to the lien of the Documents without the need to
execute any further documents or to take any further action. On or before the
tenth (10th) day of each calendar month, Borrower will submit to FINOVA a report
(in a form reasonably acceptable to FINOVA) setting forth the Units which,
during the preceding calendar month, were reacquired by Borrower as a result of
either a Trade or a Foreclosure. Concurrently with the report, Borrower will
execute and deliver to FINOVA such recordable documents as are reasonably
necessary to confirm that all Units acquired by Trade during the period covered
by the Report are once again subject to the lien of the Documents.
5. The Borrower has provided to FINOVA a February 2,1999 memo
(a copy of which is attached) outlining a proposed agreement with The Preferred
RV Resorts Owners Association (the "Association") concerning the Calvada RV
Park. In the event that the Borrower is able to enter into an agreement with the
Association consistent with the terms outlined in the memo, FINOVA will not
require the payment of a Release Fee for any of the Units in the Calvada RV Park
that are conveyed to the Association in accordance with the agreement. FINOVA
reserves the right to approve the agreement with the Association which approval
shall not be unreasonably withheld provided that the same is consistent with the
terms outlined in the memo.
Should the foregoing accurately reflect our agreements on the
matters set forth herein, please acknowledge your agreement to the same by
signing the enclosed copy of this letter and returning the same to the
undersigned. It is agreed that in the event of a conflict or inconsistency
between the provisions of this Letter and the Agreement, this Letter shall, as
to the matters specifically addressed herein, govern and control. It is
acknowledged and agreed that a default by the Borrower under this Letter shall
be an Event of Default.
<PAGE> 17
Mr. Jon Joseph
July 9, 1999
Page 4
FINOVA Capital Corporation,
a Delaware corporation
By: ________________________________
Its: _______________________________
The foregoing has been seen and agreed to this ___ day of February, 1999.
Preferred Equities Corporation
By: ________________________________
Its: _______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 3,496
<SECURITIES> 0
<RECEIVABLES> 75,965
<ALLOWANCES> 13,915
<INVENTORY> 38,801
<CURRENT-ASSETS> 0
<PP&E> 39,622
<DEPRECIATION> 15,797
<TOTAL-ASSETS> 154,449
<CURRENT-LIABILITIES> 0
<BONDS> 97,768
0
0
<COMMON> 210
<OTHER-SE> 20,459
<TOTAL-LIABILITY-AND-EQUITY> 154,449
<SALES> 15,754
<TOTAL-REVENUES> 20,327
<CGS> 3,260
<TOTAL-COSTS> 9,563
<OTHER-EXPENSES> 6,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,374
<INCOME-PRETAX> 1,143
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,143
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
