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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: NOVEMBER 30, 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)
<TABLE>
<S> <C>
NEW YORK 13-5629885
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(702) 737-3700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of January 10, 2000, there were 3,500,557 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
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
November 30, 1999 and August 31, 1999......................................................1
Condensed Consolidated Income Statements for the Three Months Ended
November 30, 1999 and 1998 ...............................................................2
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended
November 30, 1999 .........................................................................3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
November 30, 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..................................................................6
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................13
PART II OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................13
Item 4. Submission of Matters to a Vote of Security Holders.........................................13
Item 6. Exhibits and Reports on Form 8-K............................................................13
SIGNATURE.............................................................................................15
</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>
NOVEMBER 30, AUGUST 31,
1999 1999
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,725 $ 1,821
Restricted cash 1,381 1,676
Notes receivable, net of allowance for cancellations and discounts of $14,368 at
November 30, 1999 and $14,340 at August 31, 1999 76,169 69,300
Interest only receivables, at fair value 2,404 2,566
Timeshare interests held for sale 27,793 29,529
Land and improvements inventory 6,240 6,649
Other investments 5,136 5,111
Property and equipment, net of accumulated depreciation of $16,810 at November 30, 1999
and $16,252 at August 31, 1999 23,345 23,560
Deferred selling costs 4,808 4,285
Prepaid debt expenses 1,795 1,757
Other assets 14,175 12,707
-------- --------
TOTAL ASSETS $164,971 $158,961
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable $110,881 $104,555
Accounts payable and accrued liabilities 17,610 18,141
Reserve for notes receivable sold with recourse 3,798 4,162
Deposits 2,303 2,287
Accrued income taxes 3,505 3,505
-------- --------
Total liabilities before subordinated debt 138,097 132,650
-------- --------
Subordinated debt 4,386 4,478
Stockholders' equity:
Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding) -- --
Common stock, $.01 par value (authorized--50,000,000 shares; 3,500,557
shares issued and outstanding at November 30, 1999 and August 31, 1999) 35 35
Additional paid-in capital 13,068 13,068
Retained earnings 9,385 8,730
-------- --------
Total stockholders' equity 22,488 21,833
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,971 $158,961
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Timeshare interest sales, net $ 11,991 $ 9,050
Land sales, net 4,019 3,491
Interest income 2,871 1,992
Financial income 272 309
Gain on sale of investments -- 513
Incidental operations 624 690
Other 920 820
----------- -----------
Total revenues 20,697 16,865
----------- -----------
COSTS AND EXPENSES
Direct cost of:
Timeshare interest sales 2,378 1,754
Land sales 556 580
Incidental operations 600 651
Marketing and sales 9,274 8,833
Depreciation 490 520
Interest expense 2,866 2,088
General and administrative 3,878 3,560
----------- -----------
Total costs and expenses 20,042 17,986
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 655 (1,121)
INCOME TAXES (BENEFIT) -- (381)
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 655 $ (740)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE
Basic:
Net income (loss) applicable to common stock $ 0.19 $ (0.21)
=========== ===========
Weighted-average number of common shares 3,500,557 3,500,557
=========== ===========
Diluted:
Net income (loss) applicable to common stock $ 0.19 $ (0.21)
=========== ===========
Weighted-average number of common shares
and common share equivalents outstanding 3,500,557 3,500,557
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE
---------------------------- ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1999 3,500,557 $ 35 $ 13,068 $ 8,730 $ 21,833
Net income for three months ended
November 30, 1999 655 655
----------- ----------- ----------- ----------- -----------
Balance at November 30, 1999 3,500,557 $ 35 $ 13,068 $ 9,385 $ 22,488
=========== =========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER
NOVEMBER 30,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 655 $ (740)
-------- --------
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Charges to allowance for cancellations (1,945) (1,098)
Provision for cancellations 1,408 1,183
Gain on sale of other investments -- (513)
Cost of sales 2,934 2,334
Depreciation 490 520
Amortization of interest only receivables 162 135
Repayments on notes receivable, net 13,260 9,402
Additions to notes receivable (19,592) (13,905)
Purchase of land and timeshare interests (789) (1,165)
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 295 (103)
Increase in other assets (1,870) (724)
Increase in deferred selling costs (523) (162)
Increase (decrease) in accounts payable and accrued liabilities (531) 1,318
Increase (decrease) in deposits 16 (610)
Decrease in accrued income taxes -- (514)
-------- --------
Total adjustments (6,685) (3,902)
-------- --------
Net cash used in operating activities (6,030) (4,642)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (275) (364)
Proceeds from sale of other investments -- 597
Additions to other investments (25) (45)
-------- --------
Net cash provided by (used in) investing activities (300) 188
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 17,613 14,323
Reduction of debt (11,287) (9,288)
Payments on subordinated debt (214) (101)
Increase in subordinated debt 122 --
-------- --------
Net cash provided by financing activities 6,234 4,934
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (96) 480
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 1,821 1,813
-------- --------
CASH AND CASH EQUIVALENTS--END OF PERIOD $ 1,725 $ 2,293
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for:
Interest, net of amounts capitalized $ 2,760 $ 1,841
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Consolidated Financial Statements for the years ended August 31, 1999 and 1998,
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, 1999, 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 November 30, 1999, the results of its operations
for the three months ended November 30, 1999 and 1998, the change in
stockholders' equity for the three months ended November 30, 1999 and the cash
flows for the three months ended November 30, 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 months ended
November 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
Effective September 9, 1999, the Company consummated a one for six reverse
stock split for all of the Company's common shares outstanding. Except as
otherwise indicated, all share and per share references have been restated to
retroactively show the effect of this reverse stock split.
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 herein individually or 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. PEC also manages timeshare properties. PEC will receive management fees
as well as fees based on sales of timeshare interests. By providing financing to
virtually all of its customers, PEC also originates consumer receivables that it
hypothecates and 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.
3. 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 non-qualified and qualified incentive stock options
to officers, key employees and directors. Options for 58,916 shares were
outstanding as of November 30, 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 context 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, including growth in revenues and net income and cash flows. Such
forward-looking statements also include, without limitation, the Company's
beliefs as to the results of its Year 2000 compliance efforts and the impact on
the Company's operations of efforts 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, 1999.
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/or 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 or mortgages. These notes
receivable are generally; payable over a period up to twelve years, bear
interest at rates ranging from 10.0% to 15.5% and require equal monthly
installments 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.
Although it did not do so in the first quarter of fiscal 2000, 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 period 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 recognized is deemed to not represent a sale and is
accounted for as a reversal of the revenue with an adjustment to
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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
three months ended November 30, 1999 and 1998. PEC has developed its assumptions
based on experience with its own portfolio, available market data and
consultation 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
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 adjusted for 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 or acquired by PEC and sold
with servicing rights retained are generally based on a stipulated percentage of
the outstanding principal balance of such notes receivable and are recognized
when earned. Interest received on notes receivable sold, less amounts paid to
investors, is reported as financial income. 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.
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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 a 5% interest rate 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. Notes receivable of $6.0
million at November 30, 1999 and August 31, 1999 were made under this
arrangement.
Land sales as of November 30, 1999 exclude $17.2 million of sales not yet
recognized under generally accepted accounting principles (GAAP) since the
requisite payment amounts have not yet been received or the respective recission
periods have not yet expired. If ultimately recognized, revenues from these
sales would be reduced by a related provision for cancellations of $2.3 million,
estimated deferred selling costs of $4.8 million and cost of sales of $2.5
million.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1999 Compared to Three Months Ended November 30,
1998
Total revenues for the Company increased 22.7% or $3.8 million to $20.7
million during the three months ended November 30, 1999 from $16.9 million
during the three months ended November 30, 1998. The increase was primarily due
to a net increase of $3.5 million in timeshare and land sales to $16.0 million
during the three months ended November 30, 1999 from $12.5 million during the
three months ended November 30, 1998 (net timeshare sales increased by $3.0
million and net land sales increased by $528,000), an increase in interest
income to $2.9 million during the three months ended November 30, 1999 from $2.0
million during the three months ended November 30, 1998, partially offset by no
gain on sale of investments during the three months ended November 30, 1999
compared to a gain of $513,000 during the three months ended November 30, 1998.
Gross sales of timeshare interests increased to $13.3 million during the
three months ended November 30, 1999 from $10.0 million during the three months
ended November 30, 1998, an increase of 32.5%. Net sales of timeshare interests
increased to $12.0 million from $9.1 million, an increase of 32.5%. The
provision for cancellations represented 9.7% of gross sales of timeshare
interests for the three months ended November 30, 1999 and 1998.
Gross sales of land increased to $4.1 million during the three months
ended November 30, 1998 from $3.7 million during the three months ended November
30, 1998, an increase of 11.8%. Net sales of land increased to $4.0 million
during the three months ended November 30, 1999 from $3.5 million during the
three months ended November 30, 1998, an increase of 15.1%. The provision for
cancellations decreased to 2.8% of gross sales of land for the three months
ended November 30, 1999 from 5.6% for the three months ended November 30, 1998,
primarily due to a decrease in cancellation experience during the first quarter
of fiscal 2000 and a downward adjustment based on the results of the customary
quarterly review of the allowance adequacy.
No gain on sale of investments was recorded for the three months ended
November 30, 1999. A gain in the amount of $513,000 on the sale of a commercial
land parcel was recorded for the three months ended November 30, 1998.
Interest income increased to $2.9 million during the three months ended
November 30, 1999 from $2.0 million for the three months ended November 30,
1998, an increase of 44.1%, primarily due to increased average notes receivable
balances for the comparative quarters.
Total costs and expenses for the Company increased to $20.0 million for
the three months ended November 30, 1999 from $18.0 million for the three months
ended November 30, 1998, an increase of 11.4%. The increase resulted primarily
from an increase in direct costs of timeshare sales to $2.4 million from $1.8
million, an
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increase of 35.6%; an increase of $441,000 in marketing and sales expense, an
increase of 5.0%; an increase of $778,000 in interest expense, an increase of
37.3%; and, an increase of $318,000 in general and administrative expenses, an
increase of 8.9%. The increase in direct costs of timeshare sales is
attributable to higher net timeshare sales during the current fiscal quarter
compared to the same quarter last year. The increase in marketing and sales
expenses is due primarily to higher gross sales; however, as noted below, 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 increase in
general and administrative expenses is due to the increase in recording and
filing fees related to the increased sales volume and an adjustment in the 1998
comparative quarter to maintenance fees paid to Homeowner Associations by PEC.
As a percentage of gross sales of timeshare interests and land, marketing
and sales expenses relating thereto decreased to 53.2% during the three months
ended November 30, 1999 from 64.4% during the three months ended November 30,
1998, and cost of sales decreased to 16.8% during the three months ended
November 30, 1999 from 17.0% during the three months ended November 30, 1998.
Subsequent to the first quarter of fiscal 1999, the Company restructured its
marketing and sales programs, which restructuring included the closing of
unprofitable sales locations, the elimination of certain marketing programs and
the layoff of related personnel. 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, the Company generally realizes lower profit margins from
sales of timeshare interests than from sales of land.
Interest expense increased to $2.9 million during the three months ended
November 30, 1999 from $2.1 million during the three months ended November 30,
1998, an increase of 37.3%. The increase is a result of higher average
outstanding balance of notes and contracts payable during the three months ended
November 30, 1999 compared to the three months ended November 30, 1998.
Pretax income of $655,000 was earned during the three months ended
November 30, 1999 compared to a pretax loss of $1.1 million during the three
months ended November 30, 1998. The improvement in the first quarter of fiscal
2000 resulted from the $3.8 million increase in revenues partially offset by the
$2.1 million increase in expenses.
No income taxes were recorded for the three months ended November 30, 1999
compared to an income tax benefit of $381,000 for the three months ended
November 30, 1998, due to the use of net operating loss carryforwards which were
previously fully reserved and currently are used to offset income on a
consolidated basis. Income taxes are recorded, and the liability is adjusted,
based on an ongoing review of related facts and circumstances.
Net income applicable to common stock amounted to $655,000 during the
three months ended November 30, 1999 compared to a net loss applicable to common
stock of $740,000 during the three months ended November 30, 1998, primarily due
to the foregoing.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company was $1.7 million at November 30,
1999 compared to $1.8 million at August 31, 1999.
PEC's cash requirements arise from the acquisition of timeshare properties
and land, payments of operating expenses, payments of income taxes to Mego
Financial, 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
advances under PEC's lines of credit in the aggregate amount of $133.8 million,
sales of receivables and cash flow from operations. At November 30, 1999, no
commitments existed for material capital expenditures.
At November 30, 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
9
<PAGE> 12
properties and land, which provide for 6 lines of credit of up to an aggregate
of $133.8 million. Such lines of credit are secured by timeshare and land
receivables and mortgages. At November 30, 1999, an aggregate of $108.4 million
was outstanding under such lines of credit, and $25.4 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 November 30, 1999, PEC's net worth was
$30.1 million. Necessary waivers of compliance with certain covenants related to
these agreements have been received. Summarized lines of credit information and
accompanying notes relating to these six lines of credit outstanding at November
30, 1999, consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
BORROWING MAXIMUM
AMOUNT AT BORROWING REVOLVING
NOVEMBER 30, 1999 AMOUNT EXPIRATION DATE (a) MATURITY DATE INTEREST RATE
- --------------------- --------------- ------------------------- ----------------------- -------------------------
<S> <C> <C> <C> <C>
$ 71,434 $ 75,000 (b) May 15, 2000 Various Prime + 2.0 - 2.25%
5,696 15,000 (c) May 31, 2000 Various Prime + 2.0%
15,898 17,000 (d) June 30, 2001 Various LIBOR + 4.0 - 4.25%
7,068 13,000 (d) * December 31, 2000 LIBOR + 4.0 - 4.25%
2,272 2,272 (e) July 31, 2000 Prime + 2.0 - 2.25%
5,990 11,500 (f) June 30, 2000 Various Prime + 2.0 - 3.00%
- --------------------- ---------------
$ 108,358 $ 133,772
===================== ===============
</TABLE>
* The lender has agreed to continue the revolver during renegotiations 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 period expiring in fiscal year 2000.
(b) Restrictions include PEC's requirement to maintain a minimum tangible net
worth of $25 million. Other restrictions, commencing with the fiscal
quarter ended November 30, 1998, include: PEC's requirements to maintain
costs and expenses for marketing and sales and general and administrative
expenses relating to net processed sales for each fiscal quarter; and
PEC's requirement to maintain a minimum net processed sales requirement
for each fiscal quarter. In addition, commencing with the fiscal quarter
ended August 31, 1999, these restrictions also include PEC's requirement
not to exceed a ratio of 4:1 of consolidated total liabilities to
consolidated tangible net worth. At November 30, 1999, $52.4 million of
loans secured by receivables was outstanding related to financings at
prime plus 2%, of which $34.9 million of loans secured by land receivables
mature May 15, 2010 and $17.5 million of loans secured by timeshare
receivables mature May 15, 2007. The outstanding borrowing amount includes
$6.4 million in acquisition and development (A&D) financing maturing July
1, 2003 for the corporate office buildings, which is an amortizing loan,
and a real estate loan with an outstanding balance of $1.2 million
maturing March 20, 2000, all bearing interest at prime plus 2.25%. The
remaining A&D loans, receivables loans and a resort lobby loan outstanding
of $11.4 million are at prime plus 2% and mature at various dates through
February 28, 2001.
In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego
Financial entered into a Forbearance Agreement under which FINOVA agreed
to make a loan in the amount of $5,662,000 to PEC with an original
maturity date of June 30, 1999, which date has been extended to December
31, 2000. Mego Financial agreed to guarantee the loan and issued warrants
to FINOVA to purchase a total of 83,333 shares of common stock of Mego
Financial at an exercise price of $6.00 per share, exercisable within a
five-year period commencing January 1, 1999. The balance outstanding under
the Forbearance Agreement, which is included in the $71,434,000 balance in
the preceding table, was $4,934,000 as of November 30, 1999.
(c) Restrictions include PEC's requirement to maintain a minimum tangible net
worth of $25 million during the life of the loan. These credit lines
include available financing for A&D and receivables. At November 30, 1999,
10
<PAGE> 13
$2.0 million was outstanding under the A&D loan, which matures on June 30,
2004, and $3.7 million was outstanding under the receivables loan, which
matures on May 31, 2004.
(d) Restrictions include PEC's requirement to maintain a minimum tangible net
worth of $17 million during the life of the loan. These credit lines
include available financings for A&D and receivables. At November 30,
1999, $1.8 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) plus 4.25%. The available
receivable financings, of which $14.1 million was outstanding at November
30, 1999, are all at 90-day LIBOR plus 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. The A&D loan is due in full by February 1, 2000.
(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 $2.0 million was outstanding at November 30, 1999 in
respect to receivables' debt, and a real estate loan of $4.0 million with
a maturity date of August 31, 2000. The maturity date for the receivables
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>
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
--------------------------
1999 1998
------- -------
<S> <C> <C>
Marketing and sales expenses attributable to recognized and
unrecognized sales $ 9,797 $ 8,996
Less: Down payments (3,016) (2,732)
------- -------
Cash shortfall $ 6,781 $ 6,264
======= =======
</TABLE>
During the three months ended November 30, 1999 and November 30, 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 November 30, 1999, PEC was contingently liable to replace
or repurchase notes receivable sold with recourse totaling $49.7 million. The
repurchase provisions provide for substitution of receivables as recourse for
$18.8 million of sold notes receivable and cash payments for repurchase relating
to $30.9 million of sold notes receivable. The undiscounted amounts of the
recourse obligations on such notes receivable were $5.0 million and $7.2 million
at November 30, 1999 and November 30, 1998, 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.
11
<PAGE> 14
The components of the Company's debt, including lines of credit consist of
the following (thousands of dollars):
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1999 1999
------------ ----------
<S> <C> <C>
Notes collateralized by receivables $ 74,886 $ 67,457
Mortgages collateralized by real estate properties 34,856 35,846
Installment contracts and other notes payable 1,139 1,252
-------- --------
Total $110,881 $104,555
======== ========
</TABLE>
FINANCIAL CONDITION
Changes in the aggregate of the allowance for cancellations, excluding
discounts, and the reserve for notes receivable sold with recourse for the three
months ended November 30, 1999 consisted of the following (thousands of
dollars):
<TABLE>
<S> <C>
Balance at beginning of period $ 18,149
Provision for cancellations 1,408
Amounts charged to allowance for cancellations and reserve for
notes receivable sold with recourse (1,746)
--------
Balance at end of period $ 17,811
========
</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>
NOVEMBER 30, AUGUST 31,
1999 1999
------------ ----------
<S> <C> <C>
Allowance for cancellations, excluding discounts $14,013 $13,987
Reserve for notes receivable sold with recourse 3,798 4,162
------- -------
Total $17,811 $18,149
======= =======
</TABLE>
November 30, 1999 Compared to August 31, 1999
Cash and cash equivalents decreased 5.3% to $1.7 million at November 30,
1999 from $1.8 million at August 31, 1999.
Notes receivable, net, increased 9.9% to $76.2 million at November 30,
1999 from $69.3 million at August 31, 1999 primarily as a result of net new
receivables added, and no sales of receivables, during the first quarter of
fiscal 2000.
Timeshare interests held for sale decreased 6.3% to $27.8 million at
November 30, 1999 from $29.5 million at August 31, 1999.
Land and improvements inventory decreased 5.9% to $6.2 million at November
30, 1999 from $29.5 million at August 31, 1999.
Notes and contracts payable increased 6.1% to $110.9 million at November
30, 1999 from $105 million at August 31, 1999. There were increased borrowings
and no receivable sales during the three months ended November 30, 1999. The
proceeds of such sales would normally be used to pay down debt.
12
<PAGE> 15
Reserve for notes receivable sold with recourse decreased 8.8% to $3.8
million at November 30, 1999 from $4.2 million at August 31, 1999 due to the
reduced balance of the sold notes receivable. Recourse to the Company on sales
of notes receivable is governed by the agreements between the purchasers and the
Company.
Stockholders' equity increased 3.0% to $22.5 million at November 30, 1999
from $21.8 million at August 31, 1999.
YEAR 2000 COMPLIANCE
The Company believes it is Year 2000 compliant. There have been no
significant problems experienced as a result of the occurrence of Year 2000
which have disrupted operations. The Company will continue to monitor its
operations for Year 2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There was no material change for the quarter ended November 30, 1999 in
the information about the Company's "Quantitative and Qualitative Disclosures
About Market Risk" as disclosed in its Annual Report on Form 10-K for the fiscal
year ended August 31, 1999.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change in the status of the litigation reported
in the Company's Annual Report on Form 10-K for the year ended August 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Shareholders ("Meeting") of the Company was held on
September 2, 1999.
(b) Not applicable because the Meeting did not involve the election of
directors.
(c) The only matter voted on at the Meeting was a proposal to approve a
one for six reverse stock split with respect to the outstanding shares of the
Company's common stock. 16,447,683 shares were voted in favor of the proposal,
293,541 shares were voted against the proposal and 11,169 shares abstained from
voting on the proposal. Such share amounts do not reflect the one for six
reverse stock split since the Meeting was held prior to the split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.193 Purchase and Sale Agreement dated October 6, 1999 between
Preferred Equities Corporation and Covington Nevada Corp
regarding the Sale of Calvada Championship Golf Course and
Calvada Executive Golf Course.
10.194 Amendment No. One to Third Amended and Restated Promissory
Note - Headquarters and FCFC Property dated November, 9,
1999 between Preferred Equities Corporation and Finova
Capital Corporation.
10.195 Amendment No. One to Promissory Note - Additional
Advances dated November 9, 1999 between Preferred Equities
Corporation and Finova Capital Corporation.
10.196 Third Amendment to Forbearance Agreement and Amendment No.
8 to Second Amended and Restated and Consolidated Loan and
Security Agreement dated November 9, 1999, by and among
Finova
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
Capital Corporation, Preferred Equities Corporation,
and Mego Financial Corp.
10.197 Fourth Amendment to Forbearance Agreement and Amendment No.
9 to Second Amended and Restated and Consolidated Loan and
Security Agreement dated December 17, 1999 by and among
Finova Capital Corporation, Preferred Equities Corporation,
and Mego Financial Corp.
10.198 Second Amendment to Deed of Trust - Hartsel Springs
Ranch dated December 17, 1999 by and among Preferred
Equities Corporation and Finova Capital Corporation.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
No reports on Form 8-K were filed during the period.
14
<PAGE> 17
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: January 13, 2000
15
<PAGE> 1
EXHIBIT 10.193
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is entered into as of this
6th day of October, 1999 by and between PREFERRED EQUITIES CORPORATION, a Nevada
corporation ("Seller"), and COVINGTON NEVADA CORP., a Nevada corporation, or
assign(s) (as defined in Section 12.14 below) ("Buyer").
RECITALS:
A. Seller owns real property located in the City of Pahrump,
County of Nye, State of Nevada, commonly known as Calvada Championship Golf
Course and Calvada Executive Golf Course ("Golf Courses" or "Clubs"), and more
particularly described in EXHIBIT A, attached hereto and incorporated herein by
this reference (the "Land"). The Land is currently improved by two (2) 18-hole
golf courses, clubhouse, maintenance building, driving range and other
improvements described in Section 1.2 of this Agreement.
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the "Property" (as defined in Article 1 below) upon the
terms, conditions and warranties set forth below.
C. Buyer currently intends to operate the Club as golf
facilities.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree as follows:
TERMS OF AGREEMENT
ARTICLE 1 - AGREEMENT TO SELL AND PURCHASE; THE PROPERTY
Upon the terms and conditions contained in this Agreement, Seller agrees
to sell and convey the Property to Buyer, and Buyer agrees to purchase the
Property from Seller, free and clear of all encumbrances except the "Permitted
Encumbrances" (as defined in Section 4.3 of this Agreement).
The property to be purchased and sold pursuant to this Agreement is
described as follows (collectively, the "Property"):
1.1. LAND. The Land is more particularly described in EXHIBIT A, attached
hereto and incorporated herein by this reference.
1.2. BUILDINGS AND OTHER IMPROVEMENTS. All existing buildings, structures
and other improvements located upon the Land, including, without limitation, a
clubhouse building, a maintenance facility, two (2) eighteen (18) hole golf
courses, including the Calvada Championship Golf Course and the Calvada
Executive Golf Course with driving range and practice areas, landscaping
improvements, manmade lakes and water retention ponds, irrigation system,
parking facilities, and all other improvements located on the Land
(collectively, the "Improvements").
<PAGE> 2
1.3. WATER RIGHTS AND MINERAL RIGHTS. All water rights, riparian rights,
appropriative rights, water allocations and water stock, including all of
Seller's rights and interests under the "Water Documents" (as defined in Section
7.21, below) and all minerals, oil, gas and other hydrocarbons located in or
beneath the Land, along with all rights to surface and subsurface entry
(collectively, the "Water and Mineral Rights"). Notwithstanding anything herein
to the contrary, Buyer will be subject to the terms of the Tri-Partite Agreement
for Utility Services between Buyer, Seller and Central Nevada Utilities Company,
which is further described on EXHIBIT C, attached (the "Tri-Partite Agreement")
and Buyer acknowledges that such Tri-Partite Agreement must be executed by all
parties and delivered to the Escrow Holder on or before the end of the Due
Diligence Period (as defined in Section 6.2). Further, it is understood that the
combined total duty of water rights available for use on the Championship Golf
Course is approximately 1,319.94 acre-feet. The combined total duty of water
rights available for the Executive Golf Course is approximately 479.74
acre-feet. These water rights were previously conveyed by Seller to Central
Nevada Utilities Company (CNUC) and are "dedicated" for use on the Golf Courses.
1.4. APPURTENANCES. All appurtenances, hereditaments, easements,
reversionary rights and all other rights, privileges and entitlements belonging
to or running with the Land, all awards for damage to the Land or taking by
eminent domain, and all zoning and land use entitlements and development rights
pertaining to the Land (collectively, the "Appurtenances"). The Land, the
Improvements, the Water and Mineral Rights, and the Appurtenances are
collectively referred to herein as the "Real Property."
1.5. TANGIBLE PERSONAL PROPERTY. All of Seller's interest in the tangible
personal property located on or used in the operation, maintenance, repair or
ownership of the Real Property, including: (a) all fixtures, furniture,
furnishings, equipment, machinery, tools, repair parts, goods, supplies,
televisions, communications equipment, kitchen utensils, linen, glassware,
china, appliances, golf carts, equipment, motor vehicles, gasoline and
lubricants, fertilizer, seed, sand, chemicals, irrigations parts and supplies;
and (b) all food and beverage items and all professional shop merchandise, goods
and inventory, and further including, without limitation, the personal property
described in EXHIBIT B attached hereto and incorporated herein by this reference
(the foregoing shall collectively be referred to herein as the "Personal
Property").
1.6. INTANGIBLE PERSONAL PROPERTY. All of Seller's right, title and
interest in the intangible property that is appurtenant to the ownership,
operation and use of the Real Property and the Personal Property, including: (a)
all governmental permits, approvals, licenses and certificates of occupancy; (b)
all architectural and engineering drawings; (c) any proprietary rights Seller
may have with respect to the name "Calvada Championship Golf Course" and
"Calvada Executive Golf Course"; (c) tradenames, trademarks, services marks and
logos; (e) all product and service warranties and guaranties; (f) all rights to
the recovery of judgments, books and records, and telephone numbers; and (g) all
of "Seller's Receivables" (as defined below), (collectively, the "Intangible
Property"). As used in this Agreement, the term "Seller's Receivables" shall
mean: (1) delinquent or uncollected membership dues, charges, payments or fees
existing as of the Closing Date (as defined in Section 3.3); or (2) unpaid
amounts with respect to tournaments, banquets and other functions held at the
Golf Course prior to the Closing Date.
-2-
<PAGE> 3
ARTICLE 2 - PURCHASE AND SALE PRICE
The total purchase and sale price for the Property shall be Two Million
Two Hundred Fifty Thousand Dollars ($2,250,000.00) ("Purchase Price").
2.1. PAYMENT OF PURCHASE PRICE.
(a) Deposit. On or before three (3) business days after the "Escrow
Opening Date" (as defined in Section 3.1 of this Agreement), Buyer shall deposit
into the "Escrow" (as defined in Section 3.1 of this Agreement) the amount of
One Hundred Thousand Dollars ($100,000.00) in cash ("Deposit"). Immediately upon
receipt of the Deposit, the "Escrow Holder" (as defined in Section 4.1 of this
Agreement) shall invest these funds in insured money market funds or other
investments approved by Buyer, and shall confirm in writing to Seller and Buyer
that Escrow Holder has invested the funds. The Deposit shall be applied to the
Purchase Price or paid in accordance with Section 2.3 of this Agreement.
(b) Balance of Purchase Price. The balance of the Purchase Price in the
amount of Two Million One Hundred Fifty Thousand Dollars ($2,150,000.00) (less
the accrued interest imputed on the Deposit, and plus or minus the costs and
prorations as provided in Sections 3.10 and 3.11 of this Agreement) shall be
deposited by Buyer in cash into the Escrow not later than twenty-four (24) hours
prior to the Closing Date. As used in this Agreement, the term "cash" shall mean
immediately available United States funds transferred by certified check or wire
transfer.
(c) Inventory Amounts. Prior to the Closing Date, Seller shall maintain
the level of inventories at the Property similar to the level it carries as a
regular course of business (the "Inventory Amount"), and shall regularly
supplement such inventories and purge such inventories of obsolete items. Items
in the Inventory Amount owned by Seller shall be included as part of the
Purchase Price.
2.2. ALLOCATION OF PURCHASE PRICE.
2.2.1. Allocation. The Purchase Price shall be allocated to the Property
by the reasonable determination of Buyer, and Buyer shall provide Seller its
allocation on or prior to the Closing. The parties acknowledge and agree that
the allocations made by Buyer may be adjusted on or prior to the Closing in
order to reflect the valuations of the various categories of Property during the
Due Diligence Period (as defined in Section 7.2 below).
2.2.2. Purchase of Personal Property. The parties acknowledge and agree
that on or prior to the Closing, Buyer may assign and transfer to third
party(ies) selected by Buyer ("Operator") Buyer's right to purchase the Personal
Property and Intangible Property. In the event of such transfer, Operator shall
purchase directly from Seller and Seller shall transfer directly to the Operator
all or a portion of the Personal Property and Intangible Property for a purchase
price equal to the agreed-upon value of such Personal Property and Intangible
Property, as set forth above.
2.3. TREATMENT OF DEPOSIT. The Deposit shall be applied to the Purchase
Price in the event that the Closing takes place at the time and in the manner
provided in this Agreement. The
-3-
<PAGE> 4
Deposit shall be paid to Seller as liquidated damages upon cancellation of the
Escrow by Seller, pursuant to Section 3.7(b) of this Agreement following a
"Buyer Default" (as defined in Section 3.7(b) of this Agreement). The Deposit
shall be immediately returned to Buyer upon cancellation of the Escrow by Buyer:
(a) pursuant to Section 3.7(a) of this Agreement following a "Seller Default"
(as defined in Section 3.7(a) of this Agreement); (b) Buyer's election not to
proceed with the Closing pursuant to Section 6.3 of this Agreement; or (c) after
any of the conditions precedent to Buyer's obligations under this Agreement are
not satisfied prior to the Closing.
ARTICLE 3 - ESCROW; CLOSING
3.1. JOINT INSTRUCTIONS; OPENING OF ESCROW. The purchase and sale of the
Property will be completed through an escrow (the "Escrow") at the office of
United Title Company (Susan Coleman) ("Escrow Holder"). This Agreement will
constitute joint escrow instructions to the Escrow Holder in connection with the
escrow. Within two (2) business days after Seller and Buyer execute this
Agreement, which is to occur on or before October 5, 1999, the parties shall
open the Escrow with the Escrow Holder by delivering a fully executed copy of
this Agreement to the Escrow Holder. Escrow shall be deemed to be opened on the
date inserted herein: October 6, 1999. The Escrow Holder, upon its receipt of an
original of this Agreement duly executed by Seller and Buyer ("Escrow Opening
Date"), shall immediately notify Seller and Buyer in writing of the Escrow
Opening Date.
3.2. ADDITIONAL INSTRUCTIONS. Seller and Buyer hereby agree to execute
such additional instructions consistent with this Agreement as may be reasonably
required by the Escrow Holder.
3.3. CLOSING DATE. The delivery of the Deed (as defined in Section 3.4) to
Buyer (such event being referred to herein as the "Closing") shall occur on a
date on or prior to ten (10) calendar days after the expiration of the "Due
Diligence Period" (as defined in Section 6.2 of this Agreement), as the same may
be extended. The date on which the Closing takes place is hereinafter referred
to as the "Closing Date."
3.4. SELLER'S DELIVERIES PRIOR TO CLOSING. At least five (5) business days
prior to the Closing Date, Seller shall deliver to Buyer or the Escrow Holder
the following documents, all of which shall be in form and substance reasonably
acceptable to Buyer:
(a) A general warranty grant deed to the Real Property, duly
executed and acknowledged by Seller and in recordable form (the "Deed");
(b) A bill of sale with respect to the Personal Property and
Intangible Personal Property duly executed by Seller (the "Bill of Sale");
(c) Two (2) original counterparts of an assignment and
assumption of contracts and warranties duly executed by Seller, pursuant to
which Seller shall assign and Buyer shall assume certain contracts and
agreements approved by Buyer (the "Assignment of Contracts");
(d) Two (2) original counterparts of an assignment of the
"Water Documents" (as defined in Section 7.21) duly executed by Seller (the
"Assignment of Water Documents") and
-4-
<PAGE> 5
including the fully executed Tri-Partite Agreement, which shall have been
delivered to the Escrow Holder as described in Section 1.3 above;
(e) An affidavit of non-foreign status under the Internal
Revenue Code duly executed by Seller;
(f) A letter from Seller describing any pending or threatened
litigation or claims affecting the Property;
(g) An assignment of all trade names, including the names set
out in Section 2.6 above;
(h) A good standing letter from the appropriate state agency
regarding the payment of all taxes; and
(i) Any other documents, certificates or instruments necessary
to close the purchase and sale transaction contemplated by this Agreement.
3.5. BUYER'S DELIVERIES PRIOR TO CLOSING. Prior to the Closing Date, Buyer
shall deliver to Seller or the Escrow Holder the following documents:
(a) Two (2) original counterparts of the Assignment of
Contracts duly executed by Buyer (or Operator);
(b) Two (2) original counterparts of the Assignment of Water
Documents duly executed by Buyer; and
(c) All other documents necessary to carry out and close the
purchase and sale transaction contemplated by this Agreement.
3.6. ACTIONS AT CLOSING. At the Closing, the Escrow Holder shall do the
following:
(a) Cause the Deed (and such other documents as are
customarily filed for record) to be recorded in the real estate records of Nye
County, State of Nevada;
(b) Deliver to Buyer the Bill of Sale, one complete original
counterpart of the Assignment of Contracts, the Assignment of Water Documents,
such other documents delivered by Seller to the Escrow Holder, and the "Title
Policy" (as defined in Section 4.3 of this Agreement) or commitment therefor;
and
(c) Deliver to Seller the Purchase Price (less any prorations
and costs to be paid by Seller pursuant to Sections 3.10 and 3.11 of this
Agreement) and one complete original counterpart of the Assignment of Contracts,
the Assignment of Water Documents, and a file-stamped conformed copy of the
Deed, showing the recording information thereon and a copy of the Bill of Sale.
-5-
<PAGE> 6
3.7. CANCELLATION OF ESCROW.
(a) If the Closing does not occur at the time and in the
manner provided in this Agreement due to the failure of Seller to comply with
any of its obligations under this Agreement ("Seller Default"), Buyer shall have
the right to cancel the Escrow by written notice to Seller and Escrow Holder.
Upon such cancellation, all title charges and costs of the Escrow shall be paid
by Seller, and Escrow Holder shall promptly return to Buyer the Deposit,
together with all interest accrued thereon.
(b)In the event that the Closing does not occur at the time
and in the manner provided in this Agreement due to the failure of Buyer to
comply with any of its obligations under this Agreement ("Buyer Default"),
Seller shall have the right to cancel the Escrow by written notice to Buyer and
the Escrow Holder. Upon such cancellation, all title charges and costs of the
Escrow shall be paid by Buyer, and the Deposit, together with all interest
thereon, shall be paid in accordance with Article 11.
(c) In the event that Closing does not occur due to Buyer's
election to terminate this Agreement pursuant to Section 6.3, the Escrow shall
automatically be cancelled, the Deposit shall be immediately returned to Buyer,
together with all interest thereon, and Buyer and Seller shall each pay one-half
(1/2) of the title charges and all costs for cancellation of the Escrow.
(d) Upon any cancellation of the Escrow, all instruments and
documents deposited with the Escrow Holder shall be returned to the parties who
deposited the same.
(e) The rights and remedies set forth in this Section 3.7
shall not be exclusive of any other rights or remedies which Buyer may have by
law or in equity in the event of breach of this Agreement, including, without
limitation, the right to specific performance.
3.8. POSSESSION. Possession and the right to possession of the Property
shall be delivered to Buyer on the Closing Date. The risk of loss or destruction
to any of the Property occurring as a result of any cause shall be upon Seller
until delivery of the Deed from Seller to Buyer. The risk of loss of and
destruction to any of the Property occurring as a result of any cause shall be
upon Buyer after Buyer takes possession of the Property.
3.9. DAMAGE AND DESTRUCTION; CONDEMNATION. If, prior to the Closing, there
is any damage to or destruction of any part of the Property, Seller shall
repair, restore or replace such damaged Property in a good and workmanlike
manner to a condition at least as good and useful as that in which it existed
prior to such damage or destruction. If Seller is unable to repair, restore or
replace such damage or destruction prior to the Closing, then at Buyer's option:
(a) the Closing shall be extended in order to permit Seller to complete such
repair, restoration or replacement prior to the Closing; (b) the Closing shall
occur on the Closing Date as the same may have been extended pursuant to clause
(a) of this Section, and Seller shall deposit into Escrow prior to the Closing
or Escrow Holder shall retain from the sale proceeds an amount equal to one
hundred ten percent (110%) of the amount reasonably estimated by Buyer and
Seller to complete the required repairs,
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restorations or replacements for application to the costs incurred by Buyer to
complete such repairs, restorations or replacements, with the balance of such
retention (together with any interest earned on the retention) being paid over
to Seller following the completion of such repairs, restorations or
replacements; or (c) this Agreement shall terminate upon written notice to
Seller and the Escrow Holder, in which case neither party shall have any further
rights or obligations under this Agreement, the Deposit shall be immediately
returned to Buyer, and Seller shall pay all title charges and all costs for
cancellation of the Escrow.
In the event the Property or any portion thereof is taken by eminent
domain or any condemnation proceedings are commenced prior to the Closing, then
Buyer may elect either: (i) to proceed with the transaction, in which case Buyer
shall receive an assignment of any condemnation award; or (ii) to terminate this
Agreement upon written notice to Seller and the Escrow Holder, in which case
neither party shall have any further rights or obligations under this Agreement,
the Deposit shall be immediately returned to Buyer, and Seller shall pay all
title charges and all costs for cancellation of the Escrow.
3.10. FEES AND CLOSING COSTS. The fees and costs incidental to the Closing
shall be paid as follows:
(a) Seller shall pay: (i) the cost of releasing any encumbrance
affecting the Property; (ii) all real estate transfer, documentary and excise
taxes payable in connection with conveying the Property to Buyer or otherwise in
connection with recording the Deed; (iii) any sales, use or equivalent tax in
connection with the transfer to Buyer (or Buyer's assignee) of the Personal
Property or in connection with Seller's operation of the Property; and (iv) the
cost of the preliminary title report, the title commitment and the Uniform
Commercial Code search report furnished pursuant to Section 4.1 of this
Agreement; (v) the cost of the premium for the "Title Policy" as defined in
Section 4.3 of this Agreement and endorsements thereto; and (vi) one-half of the
escrow fees and charges of the Escrow Holder plus any fees and charges relating
to the reconveyance of existing liens or encumbrances.
(b) Buyer shall pay: (i) the cost of recording the Deed; (ii) the
cost to update or upgrade the "Survey" (as defined in Section 4.2 of this
Agreement); (iii) the cost of a Phase I environmental site assessment report
("Phase I Report"); (iv) the cost of an engineering report for the inspection of
the improvements to the Property; and (v) one-half of the escrow fees and
charges of the Escrow Holder exclusive of any fees and charges relating to the
reconveyance of existing liens or encumbrances.
(c) Buyer and Seller shall each pay their own legal fees and other
incidental expenses related thereto incurred in connection with the transaction
contemplated by this Agreement.
3.11. PRORATIONS. Prorations between Seller and Buyer shall be made at the
Closing as follows:
(a) All taxes and assessments on the Property for all prior years
and all current year taxes and assessments that are due and payable on or before
the Closing shall have been paid
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in full by Seller or Seller's predecessor in interest on or before the Closing.
Accrued but not yet payable general real estate, personal property and ad
valorem taxes and assessments for the current year only shall be prorated on the
basis of the most recent available information, as adjusted by any known changes
relating to the period during which the Closing occurs.
(b) All charges for gas, electricity, water, telephone, sewer and
other utilities shall be prorated on the basis of the most recent available
information, as reasonably adjusted to account for known variances from usage
that would not otherwise be reflected in such information.
(c) Any income or expense items under the Contracts shall be
prorated as of the Closing Date.
(d) All prepaid membership dues or other membership charges shall be
prorated as of the Closing Date, which will result in Buyer receiving a credit
to the Purchase Price for such prorated amount.
(e) All membership dues that were billed (regardless of whether or
not they were collected) for the month during which the Closing occurs shall be
prorated as of the Closing Date, which will result in Buyer receiving a credit
to the Purchase Price for such prorated amount.
(f) Buyer shall receive a credit to the Purchase Price in the
aggregate amount of all refundable membership deposits.
(g) Buyer shall receive a credit to the Purchase Price for all
merchandise gift certificates sold before the Closing, but not redeemed as of
the Closing.
(h) Any other costs or expenses in connection with the transaction
contemplated by this Agreement shall be apportioned between the parties in the
manner customary in Nye County, Nevada.
For purposes of calculating prorations, Buyer shall be entitled to the
income from the Property and responsible for the expenses of the Property, for
the entire day upon which the Closing occurs. All such prorations shall be made
on the basis of the actual number of days of the month which shall have elapsed
as of the day of the Closing and based upon a three hundred sixty (360) day
year. The amount of such prorations shall be subject to adjustment in cash after
Closing outside of Escrow, as and when more complete and accurate information
becomes available. Seller and Buyer agree to cooperate and use their best
efforts to make such adjustments not later than sixty (60) days after the
Closing Date (which cooperation may include permitting reasonable inspections of
Seller's or Buyer's books and records). Except as set forth in this Section
3.11, all items of income and expense for the period prior to the Closing Date
will be for the account of Seller, and all items of income and expense for the
period on and after the Closing Date will be for the account of Buyer, all as
determined by the accrual method of accounting. Bills and invoices received
after the Closing which relate to expenses incurred, services performed, goods
or materials delivered, or other amounts applicable to the period prior to the
Closing shall be paid by Seller.
At least three (3) business days prior to the Closing Date, Seller shall
deliver to
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Buyer a tentative statement of prorations (the "Statement of Prorations")
setting forth a preliminary determination of all items to be prorated, pursuant
to this Section 3.11, and supported by all detail reasonably necessary to make
such determination. Prior to the Closing, Buyer and Seller shall agree on the
Statement of Prorations.
ARTICLE 4 - TITLE
4.1. TITLE COMMITMENT AND UCC SEARCH. Buyer shall arrange for United Title
Company ("Title Company") to furnish to Seller and Buyer a current preliminary
title report ("PTR") and/or title commitment for the purpose of issuing title
insurance covering the Real Property, together with copies of all documents
shown as exceptions in the PTR and/or title commitment for title insurance.
Buyer shall obtain the results of a search of the Uniform Commercial Code
financing statement indices of the Secretary of State of Nevada and the Nye
County Clerk, under the name of Seller and any tradename used by Seller in
connection with the operation of the Golf Course, together with copies of any
financing statements or fixture filings referenced in the search report.
4.2. SURVEY. Within five (5) business days after the Escrow Opening Date,
Seller shall furnish to Buyer and the Title Company the existing survey
("Survey") of the Real Property. At Seller's expense, Buyer may elect to have
the Survey updated or upgraded to an ALTA survey with certifications acceptable
to Buyer and/or as required to enable the Title Company to issue the Title
Policy. The term "Survey," as used in this Agreement, shall include any such
updates or upgrades to the Survey.
4.3. TITLE INSURANCE. At the Closing, the Title Company shall furnish to
Buyer an ALTA owner's policy of title insurance ("Title Policy"), together with
endorsements reasonably required by Buyer, or a commitment by the Title Company
to issue the Title Policy with such endorsements. The Title Policy shall be in
the amount of the Purchase Price, and shall insure title to the Real Property to
be vested in Buyer free and clear of all liens, assessments, taxes,
indebtedness, and other encumbrances except non-delinquent taxes and
assessments, the matters disclosed by the Survey, and the exceptions approved or
deemed approved by Buyer pursuant to Article 6 of this Agreement (collectively,
the "Permitted Encumbrances").
ARTICLE 5 - DELIVERY OF DOCUMENTS BY SELLER
Within three (3) business days after the Escrow Opening Date, Seller shall
deliver to Buyer the documents listed on SCHEDULE 1 (the "Due Diligence Request
List"), attached hereto, and incorporated herein. Within three (3) business days
after the Escrow Opening Date, Seller shall attach a detailed and itemized list
of all items requested and delivered pursuant to the heading "Operational
Contracts" of the Due Diligence Request List (collectively, the "Contracts") as
EXHIBIT C, which is incorporated herein by reference.
Seller shall promptly deliver to Buyer a copy of any tax bills received by
Seller after the date of this Agreement, even if received after the Closing. All
changes in the Inventory of the Personal Property shall be made only in the
normal and ordinary course of business. Not earlier
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than five (5) business days or later than two (2) business days prior to the
Closing, Seller shall certify as to the accuracy of the Inventory Amount as of
the Closing. If such Inventory shall reflect that any of the Inventory has been
removed other than in the ordinary course of business, Seller shall replace such
item of Inventory with an item of like kind, character and quality, or, at
Buyer's election, the Purchase Price shall be reduced by the fair market value
of the item of Inventory so missing. The certified inventory of the Personal
Property shall be attached to the Bill of Sale.
ARTICLE 6 - BUYER'S DUE DILIGENCE
6.1. BUYER'S INSPECTION. With prior notification to Seller and with
minimal interference to or interruption of Golf Course operations, Buyer, its
agents and representatives shall be entitled: (a) to enter onto the Property to
perform customary inspections and tests of the Property and the structural and
mechanical systems within the Improvements, (b) to examine and copy books and
records maintained by Seller or its agents relating to receipts and expenditures
pertaining to the Property; and (c) to interview the managers and employees of
Seller having management roles with respect to the operation of the Property.
After making such tests and inspections, Buyer agrees to promptly restore the
Property to the condition in which it existed prior to such tests and
inspections. Buyer shall indemnify and hold harmless Seller against any claims
related to such tests and inspections of the Property.
6.2. DUE DILIGENCE PERIOD. This Agreement and each of Buyer's obligations
under this Agreement are expressly conditioned upon Buyer's approval of the
Property and all conditions or matters related thereto (the granting or
withholding of such approval shall be in the sole and absolute discretion of
Buyer) on or before thirty (30) days after the delivery of all documents by
Seller to Buyer, including all of the items required under Schedule 1 pursuant
to Article 5 ("Due Diligence Period"). Buyer's approval of the Property shall
constitute a condition precedent to Buyer's obligations under this Agreement and
the consummation of the transactions contemplated hereby. If Buyer fails to give
written notice to Seller of Buyer's disapproval of any condition or matter
related to the Property on or before the last day of the Due Diligence Period,
then this condition precedent shall be deemed satisfied.
6.3. BUYER'S DISAPPROVAL. The following provisions shall apply if Buyer
disapproves any condition or matter related to the Property during the Due
Diligence Period.
(a) If Buyer disapproves any condition or matter related to
the Property, then Buyer shall elect either (i) to terminate this Agreement upon
written notice to Seller and the Escrow Holder, in which case neither party
shall have any further rights or obligations under this Agreement, the Deposit
shall be immediately returned to Buyer, and Buyer shall pay all title charges
and costs for cancellation of Escrow, or (ii) to give written notice to Seller
on or before the last day of the Due Diligence Period of such disapproval, which
notice shall specify the matters disapproved by Buyer.
(b) If Buyer gives notice to Seller of any disapproved matters
pursuant to Section 6.3(a)(ii) above, then Seller shall elect either (i) to cure
the disapproved items to Buyer's reasonable satisfaction prior to the Closing,
or (ii) not to cure the disapproved items. Unless Seller notifies Buyer in
writing, on or before five (5) business days following Seller's receipt of
Buyer's
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disapproval notice, of Seller's election not to cure some or all of the
disapproved items, it shall be conclusively presumed that Seller has elected to
cure the disapproved items.
(c) If Seller elects not to cure some or all of the disapproved
items pursuant to Section 6.3(b)(ii) above, then for a period of five (5)
business days after Seller's written notice to Buyer of Seller's election, Buyer
shall have the right either (i) to waive Buyer's disapproval and proceed with
the Closing, or (ii) to terminate this Agreement upon written notice to Seller
and Escrow Holder. If Buyer terminates this Agreement, neither party shall have
any further rights or obligations under this Agreement, the Deposit shall be
immediately returned to Buyer, and Buyer and Seller shall each pay one-half
(1/2) of the title charges and costs for cancellation of Escrow.
6.4. EXTENSION OF DUE DILIGENCE PERIOD. In the event: (a) the Survey to be
furnished by Seller to Buyer pursuant to Section 4.2 of this Agreement has not
been completed to the reasonable satisfaction of Buyer; (b) any of the documents
to be delivered to Buyer pursuant to Article 5 of this Agreement are not
provided to Buyer within the time periods set forth in the respective Sections
and in the form required by such Sections; (c) the issuance of a Alcohol License
satisfactory to Buyer is not completed; (d) soil test results including
representative sampling of greens, including greens number 13 and 14 have not
been obtained; or (e) Buyer is making a diligent, persistent and good faith
effort to pursue its inspection of the Property and through no fault of Buyer,
such inspection is reasonably delayed, then the Due Diligence Period shall be
extended for such period of time as designated by Buyer, not, however, to exceed
one hundred twenty (120) days. If Seller has elected to cure any matter or
condition disapproved by Buyer, the Due Diligence Period shall be extended for
the period of time necessary for Seller's cure of such disapproved matter or
condition.
6.5. TERMINATION OF DISAPPROVED CONTRACTS. On or before the Closing,
Seller shall terminate those Contracts which Buyer has disapproved pursuant to
Section 6.3 of this Agreement, other than any Contracts which would subject
Seller to a cost or penalty in excess of One Thousand Dollars ($1,000.00)
("Penalty Contracts"). Penalty Contracts shall be specifically identified on
Exhibit C. Except for Penalty Contracts, Seller acknowledges that Buyer shall
have no obligation to assume any Contracts except the approved Contracts and
that Buyer shall have no obligation to hire or otherwise engage any employee of
Seller except as otherwise approved by Buyer.
6.6. REMOVAL OF EQUIPMENT, TRASH, ETC.. As a condition of Closing, Seller
shall remove prior to Closing any equipment, trash or other items (collectively,
the "Removal Items") which Buyer may reasonably determine. Buyer shall notify
Seller of any Removal Items in writing during the Due Diligence Period.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby makes the following representations and warranties, each of
which is material to this transaction, and upon which Buyer is relying in
entering into this Agreement. Seller acknowledges that Article 8 of this
Agreement also contains covenants of Seller in addition to the representations
and warranties set forth below. Seller recognizes that Buyer is relying upon
said representations and warranties as part of Buyer's due diligence
investigation of the Property.
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7.1. CAPACITY OF SELLER. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, and is
qualified to do business in the State of Nevada. Seller has the requisite right,
power, legal capacity, and authority to enter into this Agreement and to fully
perform each and all of its obligations under this Agreement. Seller has
obtained all necessary approvals, releases or consents from third parties in
order to enter into this Agreement and consummate the transactions contemplated
by this Agreement.
7.2. SELLER NOT A "FOREIGN PERSON". Seller is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended.
7.3. MARKETABLE TITLE TO PERSONAL PROPERTY. Seller shall convey to Buyer
good and marketable title to the Personal Property and Intangible Property, free
and clear of all liens and encumbrances, except the Permitted Encumbrances. None
of the Personal Property or Intangible Property is subject to claims by third
parties pursuant to any contracts, including contracts set out on Exhibit C.
7.4. IMPROVEMENTS AND EQUIPMENT IN GOOD CONDITION. To the best of Seller's
knowledge: (a) all Improvements were constructed or installed in conformity with
applicable local, state and federal laws, regulations, permits and requirements;
(b) all Improvements were constructed or installed in a good and workmanlike
manner with materials of good quality and all Improvements are free of any
design or construction defects; (c) all Improvements and Personal Property are
in good and operable condition and will remain so through the Closing Date; and
(d) there are no present violations of applicable state, county and city
building, electrical, plumbing or heating, ventilation and air conditioning
codes, and Seller has not received any notice from any governmental agency or
any other third party of the violation of any of the foregoing.
7.5. NO CONDITIONS AFFECTING INSURABILITY. Seller has not received from
any insurance carrier of (or is otherwise not aware of) any defects or
inadequacies in the Property which would adversely affect the insurability of
the Property or the cost of such insurance.
7.6. UTILITIES; ACCESS. To the best of Seller's knowledge: (a) all water,
sewer, gas, electric, telephone, and drainage facilities and all other utilities
required by law for the present use and operation of the Property are installed
across public property or valid easements to the boundary lines of the Land, and
are connected pursuant to valid permits, and such facilities are adequate to
service the Property and are in good operating condition; and (b) there are no
conditions that will result in the termination of the present availability to
the Property of such utility services or the termination of access to the
Property. Seller has not received any notice from any governmental agency or any
other third party regarding the termination of such utility services or the
termination of access to the Property.
7.7. LICENSES AND EASEMENTS. To the best of Seller's knowledge: (i) Seller
has obtained all licenses, permits, easements and rights-of-way, including proof
of dedication, required from all governmental authorities having jurisdiction
over the Property or from private parties for the present use and operation of
the Property and to assure vehicular and pedestrian ingress to and egress from
the Property at all access points currently being used; and (ii) Seller has
obtained adequate easements benefiting the Real Property to accommodate water
run-off and drainage from
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the Real Property, including, without limitation, easements for the use of water
lines, pipes, ditches, drainage channels, or other drainage facilities which are
located outside of the Real Property and are connected to any storm drain or
other water run-off facility located within the Real Property.
7.8. CONTRACTS. Seller has delivered to Buyer true, complete and correct
copies of all Contracts. The Contracts are in full force and effect, without
default by any party thereto and without any claims made for off-set, except as
set forth on EXHIBIT D, which exhibit shall be attached hereto and incorporated
herein by this reference by Seller within three (3) business days of the Escrow
Opening Date. The Contracts constitute the entire agreement with such third
parties and have not been amended, modified, or supplemented except for such
amendments, modifications and supplements delivered to Buyer. No verbal or
written contracts or agreements (other than the Contracts) with vendors,
suppliers or any other third parties relating to the operation, management,
maintenance or use of the Property will survive the Closing. Seller has neither
entered into any contracts or agreements nor made any verbal or written
commitments to any entity relating to the Property which will survive the
Closing, imposing upon the Property any obligation to contribute property, to
pay money, or to construct, install, or maintain any improvements on or off the
Property.
7.9. COMPLIANCE WITH APPLICABLE LAWS. To the best of Seller's
knowledge: (i) the Real Property is properly zoned for its present and intended
use as a golf course and for all existing associated uses, and Seller has
received no notices from any governmental authority or any other third party
advising Seller of a violation of any zoning laws, ordinances, general or
specific plans or other governmental requirements; and (iv) the transfer of the
Property to Buyer will comply with all subdivision, zoning and land use laws,
ordinances, codes and legal requirements.
7.10. ABSENCE OF CLAIMS AND ACTIONS. Except as set forth on EXHIBIT E, to
be attached hereto by Seller and incorporated herein by this reference within
three (3) business days of the Escrow Opening Date, there are no pending or to
the best of Seller's knowledge threatened claims, actions, suit, litigation,
governmental investigations, or judicial or administrative proceedings involving
the Property or Seller's rights to the Property, or which might impede the
Closing or which would interfere with Buyer's intended use of, and benefit from,
the Property. If there are any such claims, actions, suits or judicial or
administrative proceedings (including those set forth on EXHIBIT E), Seller
agrees it will bear sole responsibility for the defense of such claims, actions,
suits or judicial or administrative proceedings, including without limitation
any awards, judgments, damages, costs of relief, payments made in settlement,
costs, expenses and attorneys' fees.
7.11. ABSENCE OF CONDEMNATION PROCEEDINGS. To the best of Seller's
knowledge, there is presently no pending or threatened eminent domain or
condemnation proceeding affecting the Property or any portion thereof.
7.12. NO UNRECORDED ENCUMBRANCES. To the best of Seller's knowledge, there
are no unrecorded liens, encumbrances, easements, options or rights of first
refusal that affect the Property.
7.13. NO HAZARDOUS MATERIALS. There has been no generation, treatment,
discharge or storage on the Land or in the Improvements or in any groundwater or
aquifer below the surface of
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the Land by Seller, or to the best of Seller's knowledge, by any prior owner or
occupant of the Property or any other person, of any hazardous or toxic
substance, material or waste in violation of any applicable federal, state or
local environmental laws, ordinances, restrictions, permits or regulations.
Seller has not received any notices or demands from any governmental agency or
other third party regarding the existence of any hazardous or toxic substance,
material or waste on the Property or in the Improvements or requiring the
removal, clean-up or remediation of any environmental condition relating to the
Property. To the best of Seller's knowledge, the Property is not subject to any
enforcement action by any governmental agency regarding the environmental
condition of the Property and the Property has not been assigned an
identification number, nor is the Property the subject of an environmental
report by the State of Nevada. Seller further represents and warrants that with
respect to any underground or above-ground storage tanks located on the Real
Property, Seller has obtained all necessary permits and licenses and renewals
thereof for such tanks. Seller has no knowledge of any leaks or discharge of
fluids from any underground or above-ground storage tanks.
7.14. LABOR MATTERS. Seller has no collective bargaining agreement
affecting the Property. To the best of Seller's knowledge, there have been no
demands for collective bargaining by any union or labor organization or other
organization of Seller's employees, and no arbitration proceedings are pending
or threatened against or affecting Seller.
7.15. MEMBERSHIPS. Seller has delivered to Buyer or made available to
Buyer at the Golf Course (or will deliver to Buyer prior to the Closing) all
membership applications and contracts and agreements between Seller and members
of the Golf Course. EXHIBIT F, attached hereto and incorporated herein by this
reference is a true, complete and correct list of all members of the Golf Course
and includes: (a) the member's name; (b) the type of memberships; (c) the
effective date of the membership; (d) the amount of the initiation deposit that
has been paid in cash (with respect to those members that elected an installment
plan for payment of the initiation deposit, this amount includes both the
initial cash down payment plus any amount paid under the "Member Note," as
defined below); (e) the outstanding principal balance of any promissory note
executed by a member with respect to the initiation deposit (the "Member Note");
and (f) any terms of the membership or any rights, privileges or obligations of
the member which are different from other memberships in that category (for
example, pre-paid dues). Seller has delivered to Buyer copies of the rules and
regulations, by-laws, and all other documents and information pertaining to the
rights and obligations of the members. No representations or statements (either
verbally or in writing) have been made by Seller to any member of the Golf
Course that: (i) memberships in the Golf Course are equity memberships; (ii)
members have a right to participate in the ownership, management or operation of
the Golf Course; (iii) members have a right to share in any profits from the
refinancing or sale of the Golf Course; (iv) memberships in the Golf Course are
perpetual or non-terminable; (v) members have a right to receive a refund or
return of their initiation fee or security deposit; or (vi) members enjoy
contractual rights other than the right to use the Golf Course in accordance
with the by-laws and the rules and regulations. Seller has not made and agrees
not to make any solicitations of members of the Golf Course, nor use or sell the
membership list in any way or form. There are no outstanding complimentary,
gratuitous or reduced rate passes, reserved tee times or other special rights,
coupons, promises, representations, statements or agreements, verbal or written,
for any golf privileges or services or rights to use the Property.
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7.16. PUBLIC IMPROVEMENT OBLIGATIONS. To the best of Seller's knowledge,
there are no pending or threatened governmental proceedings, lawsuits,
investigations, bond issuances or proposals for public improvement assessments,
pay-back agreements, road extension or improvement agreements, utility
moratoriums, use moratoriums, or improvement moratoriums affecting the Property.
7.17. USE OF GOLF COURSE. Except for the memberships listed on EXHIBIT F,
to be attached hereto by Seller within three (3) business days of the Escrow
Opening Date, Seller has made no representations, statements, promises or
agreements (either verbally or in writing) to any person or entity, including,
without limitation, home builders, prospective home buyers, owners, or occupants
of the land surrounding the Golf Course, regarding any of the following: (a) the
right to membership in the Golf Course or the intent to operate the Golf Course
as a private or semi-private country club; (b) the right to play golf on the
Golf Course or any other use of the Property, except on the same terms and
conditions as offered to the public; (c) the right to participate in the
operation or management of the Property; or (d) the manner in which the Golf
Course will be operated, managed, maintained or improved.
7.18. OPERATING STATEMENTS. All of the financial information for the
Property provided pursuant to the Due Diligence Request List (the "Operating
Statements") are complete, true and correct in all material respects, and they
accurately describe the financial condition of the Property as of the date
prepared. Since the date of the Operating Statements, there has been no material
change in the financial condition of the Property.
7.19. CORRECT AND COMPLETE DOCUMENTATION. The documents delivered to Buyer
pursuant to this Agreement are true, correct and complete. To the best of
Seller's knowledge, Seller has provided or made available to Buyer all documents
and information in Seller's possession or in the possession of Seller's agents
or consultants regarding matters which affect the operation of the Property or
the physical and environmental condition of the Property.
7.20. THIS AGREEMENT NOT IN CONFLICT. Neither this Agreement nor the
consummation of the transactions contemplated by this Agreement will result in a
breach of or constitute a default under any other agreement, commitment or
obligation to which Seller or the Property is bound.
7.21. WATER RIGHTS. Seller has delivered to Buyer true, correct and
complete copies of all documents, agreements and permits (and amendments or
modifications thereto) evidencing Seller's entitlement to a water supply
adequate for the continued operation and maintenance of the Golf Course in the
same manner as the Golf Course is being operated and maintained as of the Escrow
Opening Date (collectively, the "Water Documents"). There are no other
agreements or documents concerning the supply of water to irrigate the Golf
Course and Seller is not in default under or in breach of any of the Water
Documents. Except for the Tri-Partite Agreement, Seller has not previously
assigned or transferred any of its water rights or interests under the Water
Documents. Further, it is understood that the combined total duty of water
rights available for use on the Championship Golf Course is approximately
1,319.94 acre-feet. The combined total duty of water rights available for the
Executive Golf Course is approximately 479.74 acre-feet. These water rights were
previously conveyed by Seller to Central Nevada Utilities Company (CNUC) and are
"dedicated" for use on the Golf Courses.
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7.22. PAYMENT OF TAXES. Seller has filed all federal, state, municipal,
county and local tax returns and reports required by law and has paid all taxes,
assessments, penalties and other charges due and payable relating to the
Property or the use and operation thereof, including sales taxes. There are no
pending lawsuits, actions, claims, proceedings, disputes, examinations or audits
as to taxes or assessments of any nature relating to the Property or the use and
operation thereof.
7.23. SELLER'S FINANCIAL CONDITION. Seller has not: (a) filed any
voluntary petition in bankruptcy (liquidation or reorganization) or suffered the
filing of any involuntary petition by its creditors; (b) made a general
assignment for the benefit of creditors; (c) suffered the appointment of a
receiver or trustee to take possession of all or substantially all of Seller's
assets; (d) suffered the attachment or other judicial seizure of all or
substantially all of its assets; or (e) admitted in writing its inability to pay
its debts as they come due.
7.24. WARRANTIES SURVIVE CLOSING. The representations and warranties made
in this Agreement by Seller shall be continuing and shall be deemed remade by
Seller as of the Closing with the same force and effect as if in fact made at
that time. The representations and warranties made in Sections 7.4(d), 7.6, 7.7,
7.8, 7.13 and 7.15 shall survive for a period of one (1) year after the Closing
Date. The representations and warranties of Section 7.10 shall survive the
Closing Date with respect to all claims, actions, suits and proceedings that
either: (a) seek relief not covered totally by insurance; or (b) seek relief
based on misrepresentation or similar tort; or (c) are threatened or pending as
of the Closing Date. The covenant set forth as the last sentence of Section 7.10
shall survive indefinitely. The effect of the representations and warranties
made in this Agreement shall not be diminished or deemed to be waived by any
inspections, test or investigations made by Buyer or its agents.
ARTICLE 8 - REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement, Buyer hereby
makes the following representations and warranties, each of which is material to
this transaction, and upon all of which Seller is relying in entering into this
Agreement.
8.1. CAPACITY OF BUYER. Buyer has the requisite right, power, legal
capacity and authority to enter into this Agreement and to fully perform each
and all of its obligations under this Agreement. All of the documents to be
executed by Buyer which are to be delivered to Seller or the Escrow Holder will
be duly authorized, executed and delivered by Buyer and will be the legal, valid
and binding obligations of Buyer enforceable against Buyer in accordance with
their respective terms, and will not violate any provisions of any agreement to
which Buyer is a party or to which Buyer is subject. In addition, if Buyer
elects to close, Buyer agrees to honor all existing membership agreements and
discounts, provided it has received notice and details pursuant to the terms
hereof, Buyer acknowledges that an independent discount has been offered by
Seller in materials provided to Seller.
ARTICLE 9 - COVENANTS OF SELLER
9.1. NO NEW CONTRACTS. Seller shall not, without the prior written consent
of Buyer, enter into any Contract with respect to the Property that will survive
the Closing or will otherwise affect the use, operation or enjoyment of the
Property after Closing.
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<PAGE> 17
9.2. INSURANCE TO REMAIN IN FORCE THROUGH CLOSING. The insurance policies
covering the Property which are in existence as of the date of this Agreement,
or equivalent coverage, shall remain continuously in force through the Closing
Date.
9.3. MAINTENANCE OF PROPERTY. Prior to the Closing, Seller shall operate,
manage and maintain the Property in a manner sufficient to prevent any material
diminution of its present condition or value, and shall maintain present
services and sufficient inventory for the efficient operation and management of
the Property in the same manner and level as the Property is being operated and
managed as of the date of this Agreement.
9.4. PAYMENT OF BILLS. Seller has paid, or will pay all bills and invoices
for labor, goods, materials and services relating to the Property, utility
charges, and employee salary and all other accrued benefits and entitlements
relating to the period prior to the Closing Date.
9.5. NO ENCUMBRANCES OR TRANSFERS. No part of the Property, or any
interest in the Property, will be alienated, liened, encumbered or otherwise
transferred, except that easements may be recorded pursuant to the Tri-Partite
Agreement. If Seller is under contract to purchase the Property (or any portion
thereof) from a third party, Seller shall not amend or modify such contract to
the detriment of Buyer's interests hereunder.
9.6. CHANGES IN CONDITIONS. Seller shall promptly notify Buyer of any
material change in any condition, event or circumstance with respect to the
Property or of any event or circumstance which makes any representation or
warranty of Seller hereunder materially untrue or misleading, or any covenant of
Seller hereunder incapable or less likely of being performed.
9.7. TERMINATION OF CONTRACTS. Except for the Contracts approved by Buyer
pursuant to Article 6 hereof, Seller shall terminate prior to the Closing Date
all other contracts and agreements relating to the Property.
9.8. TERMINATION OF EMPLOYEES; OBLIGATION FOR BENEFITS. Seller shall
terminate the employment of all Golf Course employee salaries, vested and
non-vested benefits, vacation pay and seniority rights due and owing as of the
Closing Date. Seller shall have paid and remains liable for all salaries,
compensation, benefits and vacation compensation for all employees and
independent contractors up to the date of Closing.
9.9. USE OF NAME. Without the prior written consent of Buyer, Seller shall
not itself, nor shall Seller authorize or permit any affiliated entity of Seller
or any other person or entity to: (a) use the name "Calvada Championship Golf
Course" or "Calvada Executive Golf Course" in any promotional or marketing
information and materials relating to the sale of land around the Golf Course;
or (b) make any statements or representations (either verbally or in writing) as
to the right to play golf or to otherwise use the Golf Course.
9.10. ALCOHOL LICENSE. Buyer agrees to take such actions and act with due
diligence in connection with the Alcohol License and make such filings as are
necessary to obtain an Alcohol License. Seller shall reasonably cooperate with
Buyer.
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<PAGE> 18
9.11. EXPENSES. Other than Buyer's costs associated with Buyer's due
diligence and as otherwise provided for in this Agreement, Seller covenants to
pay all expenses incurred prior to Closing, even if the invoicing and/or payment
of the expenses are received or due after Closing.
9.12. WEEKLY FINANCIAL REPORTS. Seller agrees to deliver weekly financial
reports from the Escrow Opening Date until the Closing.
9.13. SURVIVAL OF COVENANTS. The liability of Seller for a breach of any
of the covenants contained in this Agreement to be performed after the Closing
shall survive the Closing and shall not be merged into any instrument of
conveyance delivered at the Closing.
ARTICLE 10 - CONDITIONS PRECEDENT TO BUYER'S DUTY
TO CLOSE THIS TRANSACTION
In addition to the conditions precedent set forth in Article 6 of this
Agreement, the following are conditions precedent to Buyer's obligations under
this Agreement.
10.1. SELLER'S PERFORMANCE OF COVENANTS. Seller's timely performance in
full of all covenants and duties to be performed by Seller under this Agreement
on or prior to the Closing.
10.2. SELLER'S REPRESENTATIONS ARE TRUE. The representations and
warranties made by Seller to Buyer in this Agreement shall be true and correct
on the Closing with the same force and effect as though those representations
and warranties had been made on the Closing Date. If requested by Buyer, Seller
shall execute and deliver to Buyer or the Escrow Holder prior to the Closing a
certificate updating the representations and warranties of Seller through
Closing and disclosing any new matters relating to the Property.
10.3. SELLER'S CURE OF DISAPPROVED CONTINGENCY ITEMS. Prior to the
Closing, Seller shall have cured to Buyer's reasonable satisfaction those
matters or conditions that were disapproved by Buyer and which Seller elected to
cure, pursuant to Section 6.3(b)(i).
10.4. ALCOHOL LICENSE. The receipt of satisfactory confirmation that
Alcohol License will be available for use on the Property at Closing.
ARTICLE 11 - LIQUIDATED DAMAGES
BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT IN THE EVENT BUYER
DEFAULTS AFTER THE EXPIRATION OF THE DUE DILIGENCE PERIOD ON ITS OBLIGATIONS
UNDER THIS AGREEMENT, SELLER WILL SUFFER DAMAGES IN AN AMOUNT WHICH WILL, DUE TO
THE SPECIAL NATURE OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT, BE
IMPRACTICAL OR EXTREMELY DIFFICULT TO ASCERTAIN. IN ADDITION, BUYER WISHES TO
HAVE A LIMITATION PLACED UPON THE POTENTIAL LIABILITY OF BUYER TO SELLER IN THE
EVENT BUYER DEFAULTS AFTER THE EXPIRATION OF THE DUE DILIGENCE PERIOD ON ITS
OBLIGATIONS UNDER THE AGREEMENT, AND BUYER WISHES TO INDUCE SELLER TO WAIVE
OTHER REMEDIES WHICH SELLER MAY HAVE IN THE EVENT OF SUCH A DEFAULT. BUYER AND
SELLER, AFTER DUE NEGOTIATION, HEREBY ACKNOWLEDGE AND AGREE THAT THE AMOUNT OF
THE DEPOSIT, AS THE SAME EXISTS FROM TIME TO TIME UNDER THIS AGREEMENT,
REPRESENTS A
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<PAGE> 19
REASONABLE ESTIMATE OF THE DAMAGES WHICH SELLER WILL SUSTAIN IN THE EVENT OF
SUCH A DEFAULT BY BUYER. BUYER AND SELLER HEREBY AGREE THAT SELLER MAY, IN THE
EVENT OF A BUYER DEFAULT, TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO BUYER
AND ESCROW HOLDER, CANCEL THE ESCROW, AND RETAIN THE DEPOSIT AS LIQUIDATED
DAMAGES. FOLLOWING TERMINATION OF THIS AGREEMENT, CANCELLATION OF THE ESCROW,
AND RETENTION OF THE DEPOSIT AS LIQUIDATED DAMAGES PURSUANT TO THIS ARTICLE 11,
ALL OF THE RIGHTS AND OBLIGATIONS OF BUYER AND SELLER UNDER THIS AGREEMENT SHALL
BE TERMINATED. SELLER HEREBY AGREES THAT ITS RETENTION OF THE DEPOSIT AS
LIQUIDATED DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SELLER UPON THE
OCCURRENCE OF A BUYER DEFAULT, AND SELLER HEREBY WAIVES AND RELINQUISHES ALL
OTHER RIGHTS AND REMEDIES SELLER MAY HAVE BY LAW OR IN EQUITY IN THE EVENT OF A
BUYER DEFAULT.
BUYER AND SELLER HEREBY ACKNOWLEDGE THAT EACH OF THEM HAS READ AND
UNDERSTANDS THE TERMS AND PROVISIONS OF THIS ARTICLE 11 AND BY THEIR INITIALS
IMMEDIATELY BELOW, BUYER AND SELLER HEREBY AGREE TO BE BOUND BY THESE TERMS AND
PROVISIONS.
/s/ CGB
- ----------------- -------------------
SELLER'S INITIALS BUYER'S INITIALS
ARTICLE 12 - MISCELLANEOUS
It is further agreed by and between the parties as follows:
12.1. RECIPROCAL INDEMNITY.
12.1.1. Seller's Indemnity of Buyer. Seller shall indemnify,
protect, defend and hold harmless Buyer and Operator and their owners, lessees,
operators, officers, directors, members, partners, employees and agents from and
against all claims, demands, lawsuits, actions, proceedings, liabilities,
damages, losses and expenses, including reasonable attorneys' fees
(collectively, "Claims") relating to: (a) the ownership, use, operation,
maintenance and improvement of the Property prior to the Closing; and (b) the
generation, treatment, discharge or storage prior to the Closing of any
hazardous wastes, substances or materials on the Property or in any groundwater
or aquifer below the Property in violation of applicable laws.
12.1.2. Buyer's Indemnity of Seller. Buyer shall indemnify,
protect, defend and hold harmless Seller and Seller's owners, officers,
directors, members, partners, employees and agents from and against all Claims
relating to: (a) the ownership, use, operation, maintenance and improvement of
the Property on or after the Closing; and (b) the generation, treatment,
discharge or storage first occurring on or after the Closing of any hazardous
wastes, substances or materials on the Property or in any groundwater or aquifer
below the Property in violation of applicable laws.
12.2. ADDRESSES FOR NOTICES. All notices, demands, requests or replies
(collectively, the "Notices") provided for or permitted by this Agreement shall
be in writing and may be delivered by any one of the following methods: (a) by
personal delivery; (b) by deposit with the United States Postal Service as
certified or registered mail, return receipt requested, postage prepaid to the
addresses stated below; (c) by prepaid telegram; (d) by prepaid deposit with an
overnight express
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<PAGE> 20
delivery service; or (e) by means of electronic facsimile transmission ("fax").
Notice deposited with the United States Postal Service in the manner described
above shall be deemed effective three (3) business days after deposit with the
Postal Service. Notice by telegram or overnight express delivery service shall
be deemed effective one (1) business day after transmission to the telegraph
company or after deposit with the express delivery service. Notice by personal
delivery shall be deemed effective at the time of personal delivery. Notice by
fax shall be deemed effective at the time the fax transmission is confirmed to
have been received by the recipient.
For purposes of Notices, the address of Seller shall be:
Preferred Equities Corporation
Attention: Jon A. Joseph
General Counsel
4310 Paradise Road
Las Vegas, Nevada 89109
Telefax: 702/369.4398
With a copy to:
Jerome Cohen
1125 NE 125th Street #206
North Miami, Florida 33161
Telefax: 305/899.1824
and the address of Buyer shall be:
Covington Nevada Corp.
Attention: Kenneth Sheer
4679 El Camino Cabos
Las Vegas, Nevada 89117
Telefax: 702/257.7694
With copy to:
Cohen, Todd, Kite & Stanford, LLC
Attention: Thomas H. Bergman, Esq.
525 Vine Street 16th Floor
Cincinnati, Ohio 45202
Telefax: 513/421.3919
12.3. OTHER DOCUMENTS. Seller and Buyer agree that they will, at any
time and from time to time after the Closing, upon the request of the other
party, execute, acknowledge and deliver all such further deeds, assignments,
transfers, advances and other documents as may be reasonably required for the
consummation of the transaction hereunder.
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<PAGE> 21
12.4. AMENDMENT. No amendment or modification of this Agreement shall be
valid unless the amendment or modification is in writing and signed by both
parties.
12.5. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties and incorporates all prior agreements and understandings. No
previous agreement or understanding, verbal or written, of the parties or any of
their agents shall be binding or enforceable, unless specifically incorporated
in this Agreement.
12.6. NO PRESUMPTION REGARDING DRAFTER. Seller and Buyer acknowledge and
agree that the terms and provisions of this Agreement have been negotiated and
discussed between Seller and Buyer, and that this Agreement reflects their
mutual agreement regarding the subject matter of this Agreement. Because of the
nature of such negotiations and discussions, it would not be appropriate to deem
either Seller or Buyer to be the drafter of this Agreement, and therefore no
presumption for or against the drafter shall be applicable in interpreting or
enforcing this Agreement.
12.7. TIME OF THE ESSENCE. Time is of the essence of this Agreement. The
parties understand that the time for performance of each obligation has been the
subject of negotiation by the parties.
12.8. ENFORCEABILITY OF ANY PROVISION. If any agreement, condition,
obligation, covenant, warranty or other provision of this Agreement shall be
determined to be unenforceable, invalid or void, such determination shall not
affect, impair, invalidate or render unenforceable any other agreement,
condition, obligation, covenant, warranty or other provision of this Agreement.
12.9. COUNTERPARTS. This Agreement and any amendment may be executed in
counterparts, and upon all counterparts being so executed, each counterpart
shall be considered as an original and all counterparts shall be considered as
one agreement.
12.10. EFFECT OF TITLES. The title of the various articles and sections of
this Agreement are solely for the purpose of convenience and shall not be relied
upon in construing any provision of this Agreement.
12.11. BROKERS' COMMISSIONS. Pursuant to IRS 645 Nevada Real Estate
License Law and Rules and Regulations, it is hereby disclosed that Americor
Realty (Kenneth Sheer), UK America Corp. (James P. Martin) and Vestar &
Associates (Ronald J. Obser) represent Buyer, and VGA Industrial Property Group
(Al Kingham) represents Seller. No other brokers are hereby recognized in this
transaction. Buyer and Seller shall be responsible for the compensation of their
respective Brokers.
12.12. ATTORNEYS' FEES. In the event of a dispute in connection with this
Agreement involving the non-performance by a party of its obligations, the
prevailing party shall be entitled to reasonable attorneys' fees and all other
expenses reasonably incurred in connection with such dispute, whether or not
litigation is commenced, in addition to all other relief to which the party is
entitled. If the successful party recovers judgment in any legal action or
proceeding, the attorneys' fees and all other expenses of litigation shall be
included in and made part of any such judgment.
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<PAGE> 22
12.13. APPLICABLE LAW. The laws of the State of Nevada shall be applied in
interpreting and enforcing this Agreement.
12.14. ASSIGNMENT BY BUYER. Buyer shall have the right to assign Buyer's
rights and to delegate Buyer's obligations under this Agreement to an affiliate
of Buyer or of Buyer's general partner or any entity principally owned or
controlled by Barry Lang, Gerald Wendel or Kenneth Sheer (collectively, the
"assignee(s)"), provided that Buyer shall not be released from any liability
under this Agreement.
12.15. 1031 EXCHANGE. Buyer may desire, at its sole and absolute
discretion, to acquire the Property as "replacement property" for purposes of a
delayed tax-deferred exchange involving like-kind and/or like-class property
which qualifies under Section 1031 of the Internal Revenue Code, as amended, and
similar state statutes ("Exchange"). Seller agrees to cooperate with Buyer, at
no added cost or expense to Seller, in effecting an Exchange, provided the same
shall not extend the Closing Date.
12.16. CONFIDENTIALITY. Buyer and Seller shall keep confidential the
existence and the terms of this Agreement, except as to their employees,
consultants, attorneys, accountants and other agents that may be involved in
conducting the due diligence related to the transactions contemplated by this
Agreement. Notwithstanding the previous sentence, upon the Closing Buyer shall
be permitted to make public announcements and disclosures regarding the terms of
the transaction.
12.17. OTHER OFFERS. Upon execution of this Agreement by Seller, Seller
shall not discuss or negotiate the sale of the Property with third parties, nor
provide financial or other information with respect to the Property to such
third parties, nor accept other offers to purchase or transfer the Property or
any part thereof.
12.18. BULK SALES. Seller agrees to pay or otherwise discharge, and Seller
shall indemnify, defend and hold harmless Buyer and Buyer's partners, owners,
officers, directors, partners, employees and agents from and against all claims
or liabilities asserted or arising by reason of any failure on the part of
Seller to comply with the provisions of the Nevada Uniform Commercial Code, and
any other statutes relating to the bulk transfer of property in connection with
the transactions contemplated by this Agreement.
12.19. RIGHTS GRANTED HEREIN. Seller acknowledges and agrees that the
rights granted to Buyer herein shall run in favor of Operator, and such rights
may be enforced by Buyer or Operator in accordance with the terms and conditions
hereof.
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
SELLER:
PREFERRED EQUITIES CORPORATION
By: [SIGNATURE ILLEGIBLE]
------------------------------------
Its: VP/CAO
-----------------------------------
BUYER:
COVINGTON NEVADA CORP.
By:
------------------------------------
Its:
-----------------------------------
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<PAGE> 24
EXHIBIT A
DESCRIPTION OF LAND
<PAGE> 25
EXHIBIT B
DESCRIPTION OF PERSONAL PROPERTY
<PAGE> 26
EXHIBIT C
LIST OF CONTRACTS
<PAGE> 27
EXHIBIT D
OFF-SET AND DEFAULTED CONTRACTS
<PAGE> 28
EXHIBIT E
PENDING CLAIMS, ACTIONS, SUITS, LITIGATIONS, GOVERNMENTAL INVESTIGATIONS
AND JUDICIAL OR ADMINISTRATIVE PROCEEDINGS
<PAGE> 1
EXHIBIT 10.194
AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED PROMISSORY NOTE
[HEADQUARTERS AND FCFC PROPERTY]
THIS AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED PROMISSORY
NOTE [Headquarters and FCFC Property] (this "Amendment") entered into as of this
9th day of November, 1999, but effective for all purposes as of September 30,
1999, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"),
and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with
reference to the following:
R E C I T A L S
Maker previously executed and delivered to Lender a Third
Amended and Restated Promissory Note dated as of September 29, 1998, in the
original principal amount of $6,583,406.43 (the "Original Note") made pursuant
to the terms of that certain Letter Agreement (Headquarter Advance) dated as of
September 29, 1998 by and between Maker and Lender.
On even date herewith, the Maker and Lender have entered into
a Third Amendment to Forbearance Agreement and Amendment No. 8 to Second Amended
and Restated and Consolidated Loan and Security Agreement (the "Eighth
Amendment"). All capitalized terms used in this Amendment that are defined in
the Eighth Amendment shall have the same meaning and definition when used
herein.
Pursuant to the Eighth Amendment and the Seventh Amendment,
the Lender and Maker have agreed to amend the Office Note and desire to enter
into this Amendment to evidence the same.
NOW, THEREFORE, in consideration of these Recitals, the
covenants contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which consideration are hereby
acknowledged, Lender and Maker agree as follows:
1. Notwithstanding anything to the contrary contained
in the Original Note, the Original Note is hereby amended 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 thereafter for each subsequent payment until the payment due
on December 1, 2000. The Maker acknowledges that commencing with the
monthly payment due on January 1, 2001 and thereafter for the balance
of the term of the Original Note the Maker will be required to once
again make monthly
<PAGE> 2
payments of principal and interest as more fully described in the
Original Note. Further, the Maker acknowledges that the principal
payments that were otherwise due and payable for the period
commencing on June 1, 1999 and continuing thereafter for the balance
of the Interest Only Period shall continue to accrue interest at the
rate set forth in the Original Note and shall be payable on the
Maturity Date, unless the Original Note is previously accelerated
pursuant to the provisions of the Loan Agreement at which time the
entire unpaid balance of the Original Note, together with accrued
and unpaid interest shall be due and payable
2. Maker hereby ratifies and confirms the Original Note, as
amended hereby, in all respects; and, as amended hereby, the terms thereof shall
remain in full force and effect. This Amendment may be attached to and shall
form a part of the Original Note for all purposes.
IN WITNESS WHEREOF, this instrument is executed as of the date
and year first above written.
PREFERRED EQUITIES CORPORATION, a Nevada corporation
By:
Name: /s/ Jon Joseph
----------------------------------------
Title: Vice President
---------------------------------------
"MAKER"
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
"LENDER"
2
<PAGE> 3
State of Nevada )
)
County of __________ )
This instrument was acknowledged before me on November 9th,
1999, by /s/ Jon A. Joseph, as Vice President, of PREFERRED EQUITIES
CORPORATION, a Nevada corporation.
------------------------------------
Notary
(My commission expires: ____________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on November ___,
1999, by ________________________, as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
------------------------------------
Notary
(My commission expires: ____________)
3
<PAGE> 1
EXHIBIT 10.195
AMENDMENT NO. 1 TO PROMISSORY NOTE
[ADDITIONAL ADVANCES]
THIS AMENDMENT NO. 1 TO PROMISSORY NOTE [ADDITIONAL ADVANCES]
(this "Amendment") entered into as of this _9th____ day of November, 1999 but
effective for all purposes as of September 30, 1999, between PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a
Delaware corporation ("Lender"), is made with reference to the following:
R E C I T A L S
Maker previously executed and delivered to Lender a Promissory
Note dated December 23, 1998, in the original principal amount of $5,662,000.00
(the "Original Note") to evidence the Loan (the "Additional Advance") made
pursuant to the terms of that certain Forbearance Agreement and Amendment No. 5
to Second Amended and Restated Loan and Security Agreement dated December 23,
1998, between Maker and Lender (the "Original Loan Agreement").
Maker and Lender previously entered into a letter agreement
dated September 7, 1999 which extended the Maturity Date of the Original Note to
October 1, 1999 (the "Additional Advance Letter "). The Original Note, as
amended by the Additional Advance Letter, is called the "Additional Advance
Note".
On even date herewith, the Maker and Lender have entered into
a Third Amendment to Forbearance Agreement and Amendment No. 8 to Second Amended
and Restated and Consolidated Loan and Security Agreement (the "Third
Amendment"). The Third Amendment provides, among other things, for the extension
of the Maturity Date for the Additional Advance Note. The Original Loan
Agreement, as amended by Additional Advance Letter; the Third Amendment and all
other amendments executed prior to the date hereof, and as the same may, in the
future, be amended and restated, is called the "Loan Agreement". Capitalized
terms used in this Amendment that are defined in the Loan Agreement shall have
the same meaning when used herein.
NOW, THEREFORE, in consideration of these Recitals, the
covenants contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which consideration are hereby
acknowledged, Lender and Maker agree as follows:
1. Notwithstanding anything to the contrary contained in the
Additional Advance Note, the Maker agrees that:
<PAGE> 2
(a) if not sooner paid, the entire unpaid principal
balance of the Additional Advance Note, together with all accrued and
unpaid interest and fees payable thereunder, shall be due and payable,
in full, to the Lender on December 31, 2000 (the "Maturity Date"); and
(b) in the event that the aggregate amount of Project
Release Fees payments actually received by the Holder prior to March
31,2000 does not equal or exceed $2,000,000.00 (the amount, if any, by
which the aggregate amount of Project Release Fees payments actually
received by the Lender prior to March 31,2000 is less than
$2,000,000.00, is called the "Release Fee Shortfall"), then Maker
shall, on March 31, 2000, pay to Holder a payment on the outstanding
principal balance of the Additional Advance Note in an amount equal to
the Release Fee Shortfall.
2. Maker hereby ratifies and confirms the Additional Advance
Note, as amended hereby, in all respects; and, as amended hereby, the terms
thereof shall remain in full force and effect. This Amendment may be attached to
and shall form a part of the Additional Advance Note for all purposes.
IN WITNESS WHEREOF, this instrument is executed as of the date
and year first above written.
PREFERRED EQUITIES CORPORATION, a Nevada corporation
By:
---------------------------------
Name: /s Jon A. Joseph
--------------------------
Title: Vice President
--------------------------
"MAKER"
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
---------------------------------
Name:
--------------------------
Title:
--------------------------
"LENDER"
2
<PAGE> 3
State of Nevada )
)
County of __________ )
This instrument was acknowledged before me on September 9th,
1999, by /s/ Jon A. Joseph, as Vice President, of PREFERRED EQUITIES
CORPORATION, a Nevada corporation.
------------------------------------
Notary
(My commission expires: ____________)
State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on September ___,
1999, by ________________________, as ______________________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
------------------------------------
Notary
(My commission expires: ____________)
3
<PAGE> 1
EXHIBIT 10.196
THIRD AMENDMENT TO FORBEARANCE AGREEMENT AND
AMENDMENT NO. 8 TO SECOND AMENDED AND RESTATED AND
CONSOLIDATED LOAN AND SECURITY AGREEMENT
This Third Amendment to Forbearance Agreement and Amendment
No. 8 to Second Amended and Restated and Consolidated Loan and Security
Agreement ("Amendment") is made and entered into this _9th day of November,
1999, but effective for all purposes as of September 30, 1999 (the "Effective
Date"), 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"), 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"); a First Amendment to Forbearance Agreement and Amendment No. 6 to
Second Amended and Restated and Consolidated Loan and Security Agreement dated
May 7, 1999 (the "Sixth Amendment"); a Second Amendment to Forebearance
Agreement and Amendment No. 7 to Second Amended and Restated and Consolidated
Loan and Security Agreement dated August 6th, 1999 (the "Seventh Amendment");
and, a September 7, 1999 letter agreement regarding the Additional Advance Note
(the "Additional Advance Letter"). The Original Loan Agreement, First Amendment,
Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth
Amendment, Seventh Amendment and Additional Advance Letter are collectively
called 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:
<PAGE> 2
1. On the Effective Date, the provisions of Article 1 of the
Loan Agreement is amended to add the following definition:
"Eighth Amendment": shall mean and collectively refer
to the Third Amendment to Forbearance Agreement and Amendment No. 8 to
Second Amended and Restated and Consolidated Loan and Security
Agreement made and entered into on November __, 1999 but effective for
all purposes as of September 30, 1999 among Borrower, Lender and
Guarantor.
2. As of the Effective Date, the Loan Agreement is amended in
the following respects with respect to the Additional Advance Note:
(a) the Maturity Date of the Additional Advance Note
is amended to December 31, 2000; and
(b) in the event that the aggregate amount of Project
Release Fees payments actually received by the Lender prior to March
31, 2000 does not equal or exceed $2,000,000.00 (the amount, if any, by
which the aggregate amount of Project Release Fees payments actually
received by the Lender prior to March 31, 2000 is less than
$2,000,000.00, is called the "Release Fee Shortfall"), then the
Borrower shall, on March 31, 2000, pay to Lender a payment on the
outstanding principal balance of the Additional Advance Note in an
amount equal to the Release Fee Shortfall.
The foregoing amendments to the Additional Advance Note shall
also be evidenced by the Borrower executing and delivering to the Lender an
allonge to Additional Advance Note in a form acceptable to the Lender (the
"Additional Advance Allonge").
3. The Office Note was amended by the Sixth 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 August 1, 1999. On the Effective Date, the Office
Note is amended to continue the Interest Only Period through the payment due on
the due on December 1, 2000. The Borrower acknowledges that commencing with the
monthly payment due on January 1,2001 and thereafter for the balance of the term
of the Office Note, the Borrower will once again be required to make monthly
payments of principal and interest as more fully described in the Office Note.
The principal payments deferred during the period commencing on June 1, 1999 and
continuing thereafter for the balance of the Interest Only Period shall continue
to accrue interest at the rate set forth in the Office Note and shall be payable
on the Maturity Date of the Office Note unless the Office Note is previously
accelerated pursuant to the provisions of the Loan Agreement at which time the
entire unpaid balance of the Office Note together with all accrued and unpaid
interest shall be due and payable. The foregoing amendments to the
2
<PAGE> 3
Office Note shall also be evidenced by the Borrower executing and delivering to
Lender an Allonge to the Office Note in a form acceptable to the Lender (the
"Office Note Allonge").
4. In partial consideration for the Lender's agreements
contained in the Loan Agreement, the Borrower agrees that the Lender may retain
all Net Proceeds (defined below) derived from the sale of the Biloxi Property,
the Headquarters Building and the FCFC Property and apply the same to the
outstanding principal of the Additional Advance Note. For purposes of this
Amendment, the term "Net Proceeds" refers to actual sales proceeds received from
the sale of (i) the Biloxi Property net of all closing and other costs incurred
and paid by Borrower in connection with such sale and repayment to the Lender of
all sums due under the Biloxi Note; and (ii) the Headquarters Building and/or
the FCFC Building net of all closing and other costs incurred and paid by
Borrower in connection with such sale and repayment to the Lender of all sums
due under the Office Note.
5. 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) Lender has received, on or before November 9,
1999, the following all in a form and content acceptable to Lender:
(i) The Additional Advance Allonge and
Office Note Allonge executed by Borrower (the foregoing
instruments are collectively called the "Allonge");
(ii) Current updates of the opinion letters
received by Lender in connection with the Loan Agreement;
(iii) The Borrower and Guarantor supplying
to Lender an updated litigation status report with respect to
the Borrower and Guarantor;
(iv) 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; and
(v) 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.
(c) Borrower shall have reimbursed Lender for all of
Lender's out-of-pocket costs and expenses including, without
limitation, attorneys', engineers'
3
<PAGE> 4
and other consultants' fees and costs, incurred in connection with the
documentation and closing of this Amendment.
(d) Borrower shall have paid to Lender the Amendment
Fee (defined below).
6. The provisions of the Fifth Amendment (as amended by the
Release Letter) requires the Borrower to pay to the Lender a Project Release Fee
in order to obtain releases of the Forebearance Collateral. The Borrower has
obtained an offer to sell the Former STP Site for approximately $140,000, which
the Buyer desires to accept. Provided the Borrower (i) sells the Former STP Site
on terms no less favorable to the Borrower than those which the Borrower has,
prior to the Effective Date, disclosed to the Lender, and (ii) concurrently with
the closing of the sale, pays to the Lender a Project Release Fee of $140,000
(net of all closing and other costs incurred and paid by Borrower in connection
with the sale), then the Lender agrees to release the Lender's liens upon the
Former STP Site. The obligations of the Lender under this Paragraph shall
automatically terminate in the event that the closing of the transactions
contemplated by this Paragraph and the payment to the Lender of the Project
Release Fee contemplated by this Paragraph, do not occur on or before December
31, 1999. The Borrower agrees to reimburse the Lender for all costs and expense
incurred by the Lender in connection with the release of the Former STP Site.
7. In consideration of, among other things, the consent of the
Lender to this Amendment and the agreement of the Lender to enter into the
Allonge, Borrower agrees to pay to Lender, upon Borrower's execution of this
Amendment, the amount of Fifteen Thousand Dollars ($15,000.00) (the "Amendment
Fee"). The Amendment Fee has been fully earned by Lender and is nonrefundable.
8. 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; and
(d) After giving effect to this Amendment (including
but not limited to the litigation update supplied pursuant to Paragraph
5(b)(iii) hereof), all
4
<PAGE> 5
representations and warranties by Borrower and Guarantor remain
true, complete, and correct, in all material respects as of the date
hereof.
9. 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 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 Additional Advance Note, and the
Office Note, as the same have been amended hereby and by the Allonge, 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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
5
<PAGE> 6
remedies conferred upon Lender by the terms of this Amendment and any other
documents executed in connection herewith.
15. 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.
16. 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.
17. 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.
18. 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.
19. Unless otherwise specifically stipulated elsewhere in the
Documents, if a matter is left in the Documents or this Amendment to the
decision, right, requirement, 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
6
<PAGE> 7
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."
20. The Recitals in this Amendment are incorporated into the
body hereof as fully set forth herein.
21. 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]
7
<PAGE> 8
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
------------------------------
Its:
------------------------
BORROWER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: Jon A. Joseph
---------------------------
Its:Vice President
-----------------------
Signed in the presence of:
- --------------------------------
GUARANTOR:
MEGO FINANCIAL CORP.,
a New York corporation
By: Jon A. Joseph
---------------------------
Its: Vice President
----------------------
Signed in the presence of:
- --------------------------------
8
<PAGE> 9
STATE OF NEVADA )
) ss.
County of Clark )
The foregoing instrument was acknowledged before me this 9th
day of November 1999 by Jon A. Joseph as Vice President 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 November, 1999, by ______________ as _______________ of MEGO FINANCIAL
CORP., a New York corporation, on behalf of the corporation.
---------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged before me on November __,
1999, by ______________________, as _______________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
---------------------------------------
Notary
My Commission Expires:
9
<PAGE> 1
EXHIBIT 10.197
FOURTH AMENDMENT TO FORBEARANCE AGREEMENT AND
AMENDMENT NO. 9 TO SECOND AMENDED AND RESTATED AND
CONSOLIDATED LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Forbearance Agreement and Amendment
No. 9 to Second Amended and Restated and Consolidated Loan and Security
Agreement ("Amendment") is made and entered into this 17th day of December, 1999
(the "Effective Date"), 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"), 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"); a First Amendment to Forbearance Agreement and Amendment No. 6 to
Second Amended and Restated and Consolidated Loan and Security Agreement dated
May 7, 1999 (the "Sixth Amendment"); a Second Amendment to Forebearance
Agreement and Amendment No. 7 to Second Amended and Restated and Consolidated
Loan and Security Agreement dated August 6, 1999 (the "Seventh Amendment"); a
September 7, 1999 letter agreement regarding the Additional Advance Note (the
"Additional Advance Letter"); a Third Amendment to Forebearance Agreement and
Amendment No. 8 to Loan and Security Agreement dated November 9, 1999 (the
"Eighth Amendment"); and, a side letter, dated December 3, 1999 between the
Borrower and Lender (the "Receivable Loan Lot Cap Letter"). The Original Loan
Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment,
Fifth Amendment, Sixth Amendment, Seventh Amendment, Additional Advance Letter,
Eighth Amendment and the Receivable Loan Lot Cap Letter are collectively called
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.
<PAGE> 2
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, the provisions of Article 1 of the
Loan Agreement is amended to add the following definition:
"Ninth Amendment": shall mean and collectively refer to the
Ninth Amendment to Forbearance Agreement and Amendment No. 9 to
Second Amended and Restated and Consolidated Loan and Security
Agreement made and entered into on December 17, 1999 among Borrower,
Lender and Guarantor.
2. The provisions of Section 2.2 of the Loan Agreement
provides that the principal amount of any and all indebtedness of Borrower to
Lender, under the Receivable Loan, which is secured by Receivables Collateral
encumbering Lots shall not exceed $35,000,000.00. The Receivable Loan Lot Cap
Letter increased the $35,000,000.00 to $36,000,000.00. As of the Effective Date,
Section 2.2 of the Loan Agreement is amended so that the references to
"$36,000,000.00" shall now refer to "$40,000,000.00". The Borrower acknowledges
that the foregoing amendment to Section 2.2 in no way modifies or increases the
Maximum Loan Amount nor the maximum amount available under the Receivables Loan.
3. Under the First Amendment and the Eighth Amendment, the
Lender has advanced to Borrower funds from the Mortgage Loan Facility that are
evidenced by the Hartsel Springs Ranch Note and secured by the Hartsel Springs
Deed of Trust. The Loan Agreement contemplates as Lots are sold, upon the
payment to Lender of a Project Release Fee of $3,600 (the "Hartsel Release
Fee"), the Lender will apply the Hartsel Release Fee to the Hartsel Spring Ranch
Note and will release the Lot from the lien of the Hartsel Springs Deed of
Trust. As of the Effective Date, it is anticipated that the Hartsel Springs
Ranch Note will be fully repaid by the payment of the Hartsel Release Fee prior
to the date that the Borrower has fully Performed and paid all of its other
Obligations. To provide the Lender with additional security for the payment and
Performance of the Obligations, the Borrower hereby agrees that notwithstanding
the payment in full of all principal and interest due to the Lender under the
Hartsel Springs Ranch Note, the Lender will retain its lien on all unsold Lots
at the Hartsel Springs Ranch that are owned by the Borrower, including the
Additional Lots (the Lots encumbered by the Hartsel Spring Deed of Trust at or
contemporaneously with the final payment of all sums due under the Hartsel
Spring Note are called the "Remaining Lots") until such time as the Borrower has
fully Performed and paid all of its Obligations under the Additional Advance
Note. As a Remaining Lot is sold, the Lender agrees to release the lot from the
lien of the Hartsel Spring Deed of Trust upon the payment of the Hartsel Release
Fee. Provided there is no Event of
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<PAGE> 3
Default or Incipient Default, the payments received pursuant to the previous
sentence will be applied to the Lender first against fees, costs and expenses
due to Lender; then against the unpaid principal balance of the Additional
Advance Note and all accrued interest thereon. However, upon the occurrence of
an Event of Default or Incipient Default, the Hartsel Release Fee shall be
applied against the Obligations in such order, as the Lender shall deem
appropriate. The Borrower agrees to execute and deliver to the Lender such
document, as the Lender may deem appropriate to evidence the agreement of the
Borrower under this subparagraph.
4. The obligations of the Lender under this Amendment are
conditioned upon the satisfaction of the following conditions:
(a) This Amendment has been fully signed by the
Borrower and Guarantor.
(b) Lender has received, on or before December 17,
1999, the following, all in a form and content acceptable to Lender:
(i) Current updates of the legal opinions
received by Lender in connection with the Loan Agreement; and
(ii) An amendment to the Hartsel Springs
Deed of Trust addressing the matters described in Paragraph 3
of this Amendment executed by the Borrower (the "New Hartsel
Amendment").
(c) The Borrower, at its sole cost and expense,
delivering to the Lender and endorsement to the Lender's existing title
policy for the Hartsel Springs Deed of Trust which (i) adds to the deed
of trust insured thereby the New Hartsel Amendment, and (ii) "dates
down" or endorses the date of the policy to the date of the recordation
of the New Hartsel Amendment.
(d) The Borrower executing and delivering to the
Lender such additional documents or instruments as required and
approved by the Lender so as to fully perfect the liens and security
interest of Lender granted under the Loan Agreement
(e) Borrower shall have reimbursed Lender for all of
Lender's out-of-pocket costs and expenses including, without
limitation, attorney's, engineers' and other consultants' fees and
costs, incurred in connection with the documentation and closing of
this Amendment.
5. 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;
3
<PAGE> 4
(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; and
(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.
6. 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 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 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.
7. 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.
8. 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, and are hereby ratified and affirmed
(including, but not limiting the generality of the foregoing, Section 14 of the
Fifth Amendment is hereby specifically ratified and affirmed and all references
therein to the term "Amendment" shall be deemed to refer to the Ninth
Amendment).
9. 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,
4
<PAGE> 5
covenants, rights or remedies set forth in any of the Documents, except as
expressly stated herein.
10. This Amendment in no way acts as a waiver of any default
of Borrower or as a release or relinquishment of any of the liens, security
interests, rights or remedies securing payment and Performance of the Borrower's
Obligations or the enforcement thereof. Such liens, security interests, rights
and remedies are hereby ratified, confirmed, preserved, renewed and extended by
Borrower in all respects. Further, Lender's execution of this Amendment shall
not constitute a waiver (either express or implied) of the requirement that any
further forbearance under or modification of the Loan Agreement or any other
Document shall require the express written approval of Lender. No such approval
(either express or implied) has been given as of the date hereof.
11. 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.
12. 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.
13. 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.
14. 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. Notwithstanding
anything to the contrary contained herein or in any other instrument executed by
the parties and notwithstanding any other action or conduct undertaken by the
parties on or before the date hereof, the
5
<PAGE> 6
agreements, covenants and provisions contained herein shall constitute the only
evidence of Lender's agreement to forbear or to modify the Loan Agreement.
Accordingly, no express or implied consent to any further forbearances or
modifications shall be inferred or implied by Lender's execution of this
Amendment. The Loan Agreement and this Amendment, together with the other Loan
Documents, constitute the entire agreement and understanding among the parties
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings relating to such subject matter. In
entering into this Ninth Amendment, Borrower acknowledges that it is relying on
no statement, representation, warranty, covenant or agreement of any kind made
by the Lender or any employee or agent of the Lender, except for the agreements
of Lender set forth herein.
15. 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.
16. 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.
17. Unless otherwise specifically stipulated elsewhere in the
Documents, if a matter is left in the Documents or this Amendment to the
decision, right, requirement, 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."
18. The Recitals in this Amendment are incorporated into the
body hereof as fully set forth herein.
19. 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
6
<PAGE> 7
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]
7
<PAGE> 8
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
---------------------------------------------
Its:
---------------------------------------
BORROWER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: /s/ Jon A Joseph
-------------------------------------------
Its: Vice President
--------------------------------------
Signed in the presence of:
- ------------------------------------------------
GUARANTOR:
MEGO FINANCIAL CORP.,
a New York corporation
By: /s/ Jon A. Joseph
---------------------------------------------
Its: Vice President
--------------------------------------
Signed in the presence of:
- ---------------------------------------------
8
<PAGE> 9
STATE OF NEVADA )
) ss.
County of )
The foregoing instrument was acknowledged before me this 17th
day of December 1999 by Jon Joseph as Vice President 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 December 1999, by ______________ as _______________ of MEGO FINANCIAL
CORP., a New York corporation, on behalf of the corporation.
-----------------------------------------
Notary Public
My Commission Expires:
- -------------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged before me on December __,
1999, by ______________________, as _______________ of FINOVA CAPITAL
CORPORATION, a Delaware corporation.
-----------------------------------------
Notary
My Commission Expires:
9
<PAGE> 1
EXHIBIT 10.198
This instrument was prepared by
and after recording return to:
Kevin J. Smith, Esq.
Gammage & Burnham
Two North Central Avenue
18th Floor
Phoenix, Arizona 85004
SECOND AMENDMENT TO DEED OF TRUST
(HARTSEL SPRINGS RANCH)
THIS SECOND AMENDMENT TO DEED OF TRUST ("Amendment") is made
as of the 17th day of December, 1999, by and among PREFERRED EQUITIES
CORPORATION, a Nevada corporation ("Trustor"), whose mailing address is 4310
Paradise Road, Las Vegas, Nevada 89109-6597, and FINOVA CAPITAL CORPORATION, a
Delaware corporation ("Beneficiary"), having an office and mailing address at
7272 East Indian School Road, Suite 410, Scottsdale, Arizona 85251 (Attention:
Vice President - Law).
R E C I T A L S
A. Reference is made to that certain Deed of Trust, Assignment
of Rents and Proceeds and Security Agreement recorded among the Official Records
of Park County, Colorado at Reception No. 485871 as amended by a First Amendment
to the same recorded among the aforestated public records at Reception No.
512026 (collectively, the "Original Deed of Trust"). Capitalized terms used in
this Amendment which are defined in the Original Deed of Trust shall have the
same meaning and definition when used in this Amendment unless such definition
is amended or modified by this Amendment.
B. The Trustor and Beneficiary desire to amend the Original
Deed of Trust in the manner hereinafter set forth.
NOW THEREFORE, the parties agree as follows:
1. The WITNESSETH clause of the Original Deed of Trust is
deleted in its entirety and replaced with the following:
"Beneficiary has loaned to Trustor certain funds pursuant to
the Loan Agreement, as defined below, which Loan (as defined in the
Loan Agreement) is
<PAGE> 2
evidenced by, among other things, the Hartsel Springs Ranch Note (as
defined below) and the Additional Advance Note (as defined below)".
2. The paragraph entitled " NOW, THEREFORE " which is found in
Article I of the Original Deed of Trust, is deleted in its entirety and
replaced with the following:
NOW, THEREFORE, in consideration for the
making of the Loan, for the purpose of securing (a) the timely
repayment of the Loan, as evidenced by that certain Promissory
Note [Additional Advance Note], dated December 23, 1998 (the
"Additional Advance Note"), in the amount of Five Million Six
Hundred Sixty-Two Thousand United States Dollars (U.S.
$5,662,000), (b) the timely repayment of that certain First
Amended and Restated Promissory Note [Winnick Building
Addition] dated November 6, 1998 (the "Winnick Building
Addition Note") in the amount of Two Million Three Hundred
Ninety-Seven Thousand Five Hundred United States Dollars (U.S.
$2,397,500), as amended, (c) the timely repayment of that
certain First Amended and Restated Promissory Note [Ida
Building Addition] dated November 6, 1998 (the "Ida Building
Addition Note") in the amount of Two Million One Hundred
Twenty-Five Thousand Two Hundred Twenty and 80/100 United
States Dollars (U.S. $2,125,220.80), as amended, (d) the
timely repayment of that certain First Amended and Restated
and Consolidated Promissory Note [Aloha Bay Phase I] dated
November 6, 1998 (the "Aloha Bay Note") in the amount of One
Million Seven Thousand One Hundred United States Dollars (U.S.
$1,007,100), as amended, (e) the timely repayment of that
certain Second Amended and Restated Promissory Note dated May
15, 1997 (the "Receivables Note") in the principal amount of
Seventy-Five Million United States Dollars (U.S.
$75,000,000.00), as amended, (f) the timely repayment of that
certain Third Amended and Restated Promissory Note
[Headquarters and FCFC Property] dated as of September 29,
1998 (the "Office Note") in the original principal amount of
Six Million Five Hundred Eighty-Three Thousand Four Hundred
Six and 43/100 United States Dollars (U.S. $6,583,406.43), as
amended, (g) the timely repayment of that certain Promissory
Note (the "Towers Note") dated as of December 13, 1995, as
amended pursuant to that Amendment No. 1 to Promissory Note
[Towers Lobby] dated as of August 16, 1996, in the original
principal amount of One Million Two Hundred Eighty-Six
Thousand One Hundred Twenty-Six and No/100 United States
Dollars (U.S. $1,286,126.00), as amended, (h) the timely
repayment of that certain Note [Hartsel Springs Ranch] dated
as of February 18, 1998 (the "Hartsel Springs Ranch Note") in
the original principal amount of Four Million United States
Dollars (U.S.$4,000,000.00), as amended, (i) the timely
repayment of that certain Promissory Note [Biloxi Property]
dated as of March 20, 1998 (the "Biloxi Note") in the original
2
<PAGE> 3
principal amount of One Million One Hundred Seventy-Three
Thousand Seven Hundred Fifty United States Dollars (U.S.
$1,173,750.00), as amended (j) the timely repayment of any and
all indebtedness evidenced by any Project Note as may be
executed by Trustor for the benefit of Beneficiary, from time
to time, as contemplated by the Loan Agreement hereinafter
described, (k) the full, timely and faithful performance of
and compliance with ("Performance") all the covenants and
conditions made by Trustor herein, in the Receivables Note, in
the Office Note, in the Towers Note, in the Ida Building
Addition Note, in the Aloha Bay Note, in the Winnick Building
Addition Note, in the Hartsel Springs Ranch Note, in the
Biloxi Note, in the Additional Advance Note, in any Project
Note, in the Second Amended and Restated and Consolidated Loan
and Security Agreement between Trustor and Beneficiary dated
effective as of May 15, 1997, as may be now or subsequently
amended (as so amended and restated, the "Loan Agreement"), in
the Documents (as defined in the Loan Agreement), and in each
and every other document executed in connection therewith,
other than the Environmental Certificates with
Representations, Covenants and Warranties which were
previously executed by the Trustor in favor of the Beneficiary
and the Environmental Certificates and Indemnity Agreements
executed in connection with Additional Advance Note
(collectively the "Environmental Certificate") and in any and
all modifications, extensions, renewals, replacements or
restatements of any of the foregoing (this Deed of Trust, the
Receivables Note, the Office Note, the Towers Note, the Ida
Building Addition Note, the Aloha Bay Note, the Winnick
Building Addition Note, the Hartsel Springs Ranch Note, the
Biloxi Note, Additional Advance Note, any Project Note, the
Loan Agreement, the Documents and the other documents
(exclusive of the Environmental Certificate), as from time to
time modified, extended, renewed, replaced or restated, are
collectively referred to as the "Loan Documents"), and also
(l) the payment of any and all other indebtedness, direct or
contingent (other than arising out of the Environmental
Certificate), that may now or hereafter become owing to
Beneficiary from Trustor or any successor-in-ownership of the
Trust Property (all of the foregoing secured obligations
collectively "Obligations" or individually "Obligation"),
Trustor hereby irrevocably grants, conveys, bargains, sells,
assigns, warrants and confirms unto Trustee, its successors
and assigns, in trust, with power of sale and right of entry
and possession, all of Trustor's right, title and interest in
and to the real estate located in Park County, Colorado, and
more fully described in Exhibit A attached hereto and by this
reference incorporated herein ("Premises") (the Premises and
other rights, titles and interests hereby granted, conveyed,
bargained, sold and assigned to Trustee and/or Beneficiary as
provided below are collectively referred to as the "Trust
Property").
3
<PAGE> 4
3. Paragraph 6.1 (i) of the Original Deed of Trust is deleted
is deleted in its entirety and replaced with the following:
"(i) The payment to Beneficiary of a Project Release
Fee in the amount of Three Thousand Six Hundred Dollars
($3,600.00) with respect to such Lot, which shall be applied
in accordance with the provisions of the Loan Agreement."
4. Except as specifically modified or amended hereby, the
Original Deed of Trust shall remain in full force and effect. All references in
the Original Deed of Trust and in this Amendment to the term "Deed of Trust"
shall be deemed to refer to the Original Deed of Trust as amended by this
Amendment. Capitalized terms used in the Deed of Trust which are not
specifically defined therein, shall have the same meaning and definition as set
forth in the Loan Agreement. This Amendment shall not constitute a waiver of any
existing default or a breach of any term or provision of the Deed of Trust.
5. This Amendment may be executed simultaneously in any number
of identical copies, any number of which having been executed by all parties
hereto shall constitute an original for all purposes.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 5
IN WITNESS WHEREOF, this Amendment is duly executed as of the
day and year first above written.
"TRUSTOR"
Witness: PREFERRED EQUITIES CORPORATION, a
Nevada corporation
- --------------------------
By: /s/ Jon Joseph
--------------------------------------
Name: Jon A. Joseph
-------------------------------
[SEAL] Title: Vice President
------------------------------
"BENEFICIARY"
Witness: FINOVA CAPITAL CORPORATION, a
Delaware corporation
- ---------------------------
By:
----------------------------------------
Name:
----------------------------------
[SEAL] Title:
---------------------------------
5
<PAGE> 6
STATE OF )
) ss.
County of )
On December 17th, 1999, personally appeared before me, a
notary public, Jon Joseph, personally known to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument as Vice President of Preferred Equities Corporation, a Nevada
corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 17th day of
December, 1999.
_____________________________________
Notary Public in and for_____________
County,______________________________
NOTARY SEAL:
STATE OF )
) ss.
County of )
On __________, 1999, personally appeared before me, a notary
public, ________________________________________, personally known to me to be
the person whose name is subscribed to the above instrument who acknowledged
that he executed the instrument as ____________________ of FINOVA Capital
Corporation, a Delaware corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
_______________, 1999.
_____________________________________
Notary Public in and for_____________
County,______________________________
NOTARY SEAL:
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 3,106
<SECURITIES> 0
<RECEIVABLES> 90,537
<ALLOWANCES> 14,368
<INVENTORY> 34,033
<CURRENT-ASSETS> 0
<PP&E> 40,155
<DEPRECIATION> 16,810
<TOTAL-ASSETS> 164,971
<CURRENT-LIABILITIES> 0
<BONDS> 110,881
0
0
<COMMON> 35
<OTHER-SE> 22,453
<TOTAL-LIABILITY-AND-EQUITY> 164,971
<SALES> 16,010
<TOTAL-REVENUES> 20,697
<CGS> 2,934
<TOTAL-COSTS> 12,808
<OTHER-EXPENSES> 7,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,866
<INCOME-PRETAX> 655
<INCOME-TAX> 0
<INCOME-CONTINUING> 655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 655
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
