-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FQJWOd42lTcrMe7isUFTYPwn5qRJSNPx6WdDUKuNW2wSGilH+zKneB+IItdIJqYU FgpQmz8o7D1OFHcAOy89sA== 0000950150-99-000481.txt : 19990415 0000950150-99-000481.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950150-99-000481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEGO FINANCIAL CORP CENTRAL INDEX KEY: 0000736035 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 135629885 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08645 FILM NUMBER: 99593432 BUSINESS ADDRESS: STREET 1: 4310 PARADISE RD CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027373700 MAIL ADDRESS: STREET 1: 4310 PARADISE RD CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: MEGO CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: February 28, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _____________________ Commission file number: 1-8645 MEGO FINANCIAL CORP. (Exact name of registrant as specified in its charter) New York 13-5629885 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 4310 Paradise Road, Las Vegas, Nevada 89109 (Address of principal executive offices) (Zip Code) (702) 737-3700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of April 12, 1999, there were 21,009,506 shares of Common Stock, $.01 par value per share, of the Registrant outstanding. ================================================================================ 2 MEGO FINANCIAL CORP. AND SUBSIDIARIES INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited) Condensed Consolidated Balance Sheets at February 28, 1999 and August 31, 1998................... 1 Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 28, 1999 and 1998.................................................................... 2 Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended February 28, 1999............................................................................. 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 1999 and 1998.................................................................... 4 Notes to Condensed Consolidated Financial Statements............................................. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................ 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 16 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................................................ 17 Item 5. Other Events..................................................................................... 17 Item 6. Exhibits and Reports on Form 8-K................................................................. 17 SIGNATURE ................................................................................................. 20
i 3 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)
FEBRUARY 28, AUGUST 31, ASSETS 1999 1998 ------------ ----------- Cash and cash equivalents $ 1,575 $ 1,813 Restricted cash 1,773 1,694 Notes receivable, net of allowance for cancellations and discounts of $12,917 at February 28, 1999 and $12,403 at August 31, 1998 55,393 47,789 Interest only receivables, at fair value 3,047 3,367 Timeshare interests held for sale 34,091 35,798 Land and improvements inventory 7,314 7,965 Other investments 4,262 4,395 Property and equipment, net of accumulated depreciation of $15,245 at February 28, 1999 and $14,119 at August 31, 1998 23,840 23,950 Deferred selling costs 4,029 3,719 Prepaid debt expenses 1,544 1,431 Other assets 12,504 10,155 --------- --------- TOTAL ASSETS $ 149,372 $ 142,076 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable $ 92,671 $ 81,986 Accounts payable and accrued liabilities 19,780 19,098 Reserve for notes receivable sold with recourse 5,432 6,620 Deposits 3,951 4,877 Accrued income taxes 3,685 4,468 --------- --------- Total liabilities before subordinated debt 125,519 117,049 --------- --------- Subordinated debt 4,403 4,348 Stockholders' equity: Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding) -- -- Common stock, $.01 par value (authorized--50,000,000 shares); 21,009,506 shares issued and outstanding 210 210 Additional paid-in capital 12,822 12,789 Retained earnings 6,418 7,680 --------- --------- Total stockholders' equity 19,450 20,679 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 149,372 $ 142,076 ========= =========
See notes to consolidated financial statements. 1 4 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (thousands of dollars, except per share amounts) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ REVENUES Timeshare interest sales, net $ 8,559 $ 8,458 $ 17,609 $ 17,293 Land sales, net 3,518 3,558 7,009 6,584 Gain on sale of investments -- -- 513 -- Interest income 1,952 1,693 3,944 3,317 Financial income 400 986 709 2,004 Incidental operations 586 660 1,276 1,421 Other 871 573 1,691 1,396 ------------ ------------ ------------ ------------ Total revenues 15,886 15,928 32,751 32,015 ------------ ------------ ------------ ------------ COSTS AND EXPENSES Direct cost of: Timeshare interest sales 1,680 1,604 3,434 3,451 Land sales 682 414 1,262 813 Incidental operations 461 597 1,112 1,297 Marketing and sales 7,782 7,806 16,615 15,596 General and administrative 3,411 4,465 6,971 8,886 Interest expense 2,173 1,762 4,261 3,478 Depreciation 488 563 1,008 1,142 ------------ ------------ ------------ ------------ Total costs and expenses 16,677 17,211 34,663 34,663 ------------ ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (791) (1,283) (1,912) (2,648) INCOME TAXES (BENEFIT) (269) -- (650) -- ------------ ------------ ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCK $ (522) $ (1,283) $ (1,262) $ (2,648) ============ ============ ============ ============ LOSS PER COMMON SHARE Basic: Net loss applicable to common stock $ (0.02) $ (0.06) $ (0.06) $ (0.13) ============ ============ ============ ============ Weighted-average number of common shares 21,009,506 21,009,506 21,009,506 21,009,506 ============ ============ ============ ============ Diluted: Net loss applicable to common stock $ (0.02) $ (0.06) $ (0.06) $ (0.13) ============ ============ ============ ============ Weighted-average number of common shares and common share equivalents outstanding 21,009,506 21,009,506 21,009,506 21,009,506 ============ ============ ============ ============
See notes to consolidated financial statements. 2 5 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (thousands of dollars, except per share amounts) (unaudited)
COMMON STOCK $.01 PAR VALUE ADDITIONAL ----------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- ---------- ---------- ---------- ---------- Balance at August 31, 1998 21,009,506 $ 210 $ 12,789 $ 7,680 $ 20,679 Warrants issued 33 33 Net loss for the six months ended February 28, 1999 -- -- -- (1,262) (1,262) ---------- ---------- ---------- ---------- ---------- Balance at February 28, 1999 21,009,506 $ 210 $ 12,822 $ 6,418 $ 19,450 ========== ========== ========== ========== ==========
See notes to consolidated financial statements. 3 6 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars) (unaudited)
SIX MONTHS ENDED FEBRUARY 28, --------------------- 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,262) $ (2,648) -------- -------- Adjustments to reconcile net loss to net cash used in operating activities: Amortization of negative goodwill -- (20) Charges to allowance for cancellations (3,280) (3,288) Provision for cancellations 2,276 2,309 Gain on sale of other investments (513) -- Provision for uncollectible Owners' Association advances -- (403) Cost of sales 4,697 4,264 Depreciation 1,008 1,142 Amortization of interest only receivables 320 187 Repayments on notes receivable 20,485 18,503 Additions to notes receivable (27,085) (25,872) Purchase of land and timeshare interests (2,339) (5,794) Additions to other receivables -- (3,485) Decreases in other receivables -- 6,545 Changes in operating assets and liabilities: Increase in restricted cash (79) (214) Increase in other assets (3,617) (4,337) Increase in deferred selling costs (310) (130) Increase (decrease) in accounts payable and accrued liabilities 682 (211) Increase (decrease) in deposits (926) 833 Decrease in accrued income taxes (783) -- -------- -------- Total adjustments (9,464) (9,971) -------- -------- Net cash used in operating activities (10,726) (12,619) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (898) (1,544) Proceeds from the sale of property and equipment -- 360 Proceeds from the sale of other investments 597 -- Additions to other investments (101) (6,529) Payments on other investments 150 -- -------- -------- Net cash used in investing activities (252) (7,713) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 27,022 24,956 Reduction of debt (16,337) (11,926) Payments on subordinated debt (252) (424) Increase in subordinated debt 307 324 -------- -------- Net cash provided by financing activities 10,740 12,930 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (238) (7,402) CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD 1,813 10,376 -------- -------- CASH AND CASH EQUIVALENTS-- END OF PERIOD $ 1,575 $ 2,974 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest, net of amounts capitalized $ 4,167 $ 3,496 ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES Issuance of warrants related to debt $ 33 $ -- Reduction of additional paid-in capital due to Spin-off of Mego Mortgage Corporation -- (21,735) Reduction of retained earnings due to Spin-off of Mego Mortgage Corporation -- (21,441) Adjustment of receivable from Mego Mortgage Corporation -- (5,283)
See notes to consolidated financial statements. 4 7 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998 (unaudited) 1. FINANCIAL STATEMENTS In the opinion of management, when read in conjunction with the audited Consolidated Financial Statements, contained in the Form 10-K of Mego Financial Corp. (Mego Financial) filed with the Securities and Exchange Commission for the year ended August 31, 1998, the accompanying unaudited Condensed Consolidated Financial Statements contain all of the information necessary to present fairly the financial position of Mego Financial and Subsidiaries at February 28, 1999, the results of its operations for the three and six months ended February 28, 1999 and 1998, the change in stockholders' equity for the six months ended February 28, 1999 and the cash flows for the six months ended February 28, 1999 and 1998. All intercompany accounts between the parent and its subsidiaries have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all material adjustments necessary for the fair presentation of these statements have been included herein which are normal and recurring in nature. The results of operations for the three and six months ended February 28, 1999 are not necessarily indicative of the results to be expected for the full year. 2. NATURE OF OPERATIONS Mego Financial is a premier developer of timeshare properties and a provider of consumer financing to purchase timeshare intervals and land parcels through its wholly-owned subsidiary, Preferred Equities Corporation (PEC), established in 1970. PEC is engaged primarily in originating, selling, servicing and financing consumer receivables generated through timeshare and land sales. Mego Financial and its subsidiaries are herein collectively referred to as the Company as the context requires. Mego Financial was incorporated under the laws of the state of New York in 1954 under the name Mego Corp. and, in 1992, changed its name to Mego Financial Corp. PEC markets and finances timeshare interests and land in select resort areas. By providing financing to virtually all of its customers, PEC also originates consumer receivables that it sells and generally services. In February 1988, Mego Financial acquired PEC, pursuant to an assignment by the Assignors (Comay Corp., Growth Realty Inc., RER Corp., and H&H Financial, Inc.) of their contract right to purchase PEC. To facilitate its sales of timeshare interests, the Company has entered into several trust agreements. The trustees administer the collection of the related notes receivable. The Company has assigned title to certain of its resort properties in Nevada and its interest in certain related notes receivable to the trustees. RECENT EVENTS On October 6, 1998, the Company announced that it has retained Friedman, Billings, Ramsey & Co., Inc. to review strategic alternatives available to the Company, including potential offers, mergers and financing transactions. This effort is continuing. On December 24, 1998, Finova Capital Corporation (FINOVA) agreed to make a loan in the amount of $5,662,000 to PEC, guaranteed by the Company, with a maturity date of June 30, 1999. On that date, FINOVA advanced $3,000,000, less fees, secured by a pledge of the stock of Central Nevada Utilities Company, a wholly-owned subsidiary of PEC. In consideration of FINOVA making the advance, Mego Financial granted to FINOVA a warrant to purchase 150,000 shares of common stock of the Company at an exercise price of $1.00 per share, exercisable within a five-year period commencing 5 8 January 1, 1999. The remaining advance of up to $2,662,000 is available through May 31, 1999. As of April 12, 1999, no further amounts have been drawn on this remaining advance. When, and if, further amounts are drawn, additional collateral will be pledged. As a condition for further advances, a warrant to purchase up to an additional 350,000 shares of common stock of the Company at an exercise price of $1.00 per share will be issued to Finova, pro rata to the advances. 3. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. There are no additional items that would be reported as Comprehensive Income that are not included in the Company's Statements of Operations for any of the three and six months ended February 28, 1999 and 1998. In June 1997, FASB issued SFAS No. 131, "Disclosures and Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards of reporting by publicly-held business enterprises and disclosure of information about operating segments in annual financial statements and, to a lesser extent, in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997, and, will thus be adopted for year ending August 31, 1999 and subsequent interim financial statement periods. As SFAS 131 deals with financial statement disclosure, the Company does not anticipate the adoption of this new standard will have a material impact on its financial position, results of operations or cash flows. 4. STOCKHOLDERS' EQUITY Mego Financial's stock option plan (Stock Option Plan), which was amended and restated as of September 16, 1998 upon the approval of Mego Financial's shareholders, provides for non-qualified and qualified incentive options to officers, key employees and directors. On September 23, 1998, an additional 111,000 incentive and non-incentive stock options were granted under the Stock Option Plan by the Stock Option Committee to employees at $1.00 per share being the fair value. In addition, the exercise prices of 304,500 of options issued on September 2, 1997 were revised from $3.125 per share to $1.00 per share. Options for 363,500 shares were outstanding as of April 12, 1999. 6 9 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 it 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 expectations and beliefs as to the projected costs and anticipated timetable to address Year 2000 compliance issues, the adequacy of its plans to address such issues and the impact on the Company's operations in the event that certain or all of its plans or the plans of its lenders and other third parties in respect of such compliance issues prove to be inadequate. In addition, included herein the words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company's management with respect to future events and are subject to certain risks, uncertainties and assumptions. In addition, the Company specifically advises readers that the factors listed under the caption "Liquidity and Capital Resources" could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, contained elsewhere herein and in the Company's Form 10-K for the fiscal year ended August 31, 1998. GENERAL The business of the Company is primarily the marketing, financing and sale of timeshare interests, retail lots and land parcels, and servicing the related notes receivable. The Company, through its subsidiary Preferred Equities Corporation (PEC), provides financing to purchasers of its timeshare interests and land. This financing is generally evidenced by notes secured by deeds of trust and mortgages as well as non-recourse installment sale contracts. These notes receivable are generally payable over a period ranging from two to twelve years, bear interest at rates ranging from 12.5% to 15.5% and generally require equal monthly payments of principal and interest. PEC PEC recognizes revenue primarily from sales of timeshare interests and land sales in resort areas, gain on sale of receivables and interest income. PEC periodically sells its consumer receivables while generally retaining the servicing rights. Revenue from sales of timeshare interests and land is recognized after the requisite rescission period has expired and at such time as the purchaser has paid at least 10% of the sales price for sales of timeshare interests and 20% of the sales price for land sales. Land sales typically meet these requirements within six to ten months of closing, and sales of timeshare interests typically meet these requirements at the time of sale. The sales price, less a provision for cancellation, is recorded as revenue and the allocated cost related to such net revenue of the timeshare interest or land parcel is recorded as expense in the year that revenue is recognized. When revenue related to land sales is recognized, the portion of the sales price attributable to uncompleted required improvements, if any, is deferred. Notes receivable with payment delinquencies of 90 days or more have been considered in determining the allowance for cancellations. Cancellations occur when the note receivable is determined to be uncollectible and the related collateral, if any, has been recovered. Cancellation of a note receivable in the quarter the revenue is recognized is deemed to not represent a sale and is accounted for as a reversal of the revenue with an adjustment to cost of sales. Cancellation of a note receivable subsequent to the quarter the revenue was recognized is charged to the allowance for cancellations. 7 10 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 six months ended February 28, 1999 and 1998. PEC has developed its assumptions based on experience with its own portfolio, available market data and ongoing 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 reduced by actual cancellations experienced, including cancellations related to previously sold notes receivable which were reacquired pursuant to the recourse obligations discussed herein. Such allowance is also reduced to establish the separate liability for reserve for notes receivable sold with recourse. PEC's judgment in determining the adequacy of this allowance is based upon a periodic review of its portfolio of notes receivable. These reviews take into consideration changes in the nature and level of the portfolio, 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. 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. 8 11 PEC has entered into financing arrangements with certain purchasers of timeshare interests and land whereby 5% interest per annum is charged on those sales where the aggregate down payment is at least 50% of the purchase price and the balance is payable in 36 or fewer monthly payments (PEC discontinued, effective during the quarter ended August 31, 1998, a 0% arrangement). Notes receivable of $6.3 million and $7.3 million at February 28, 1999 and August 31, 1998, respectively, were made under these (5% and 0%) arrangements. Land sales as of February 28, 1999 exclude $14.4 million of sales not yet recognized under generally accepted accounting principles (GAAP) since the requisite payment amounts have not yet been received. If ultimately recognized, revenues from these sales would be reduced by a related provision for cancellations of $2.0 million, deferred selling costs of $4.1 million and cost of sales of $2.0 million. RESULTS OF OPERATIONS Three Months Ended February 28, 1999 Compared to Three Months Ended February 28, 1998 PEC Gross sales of timeshare interests increased to $9.4 million during the three months ended February 28, 1999 from $9.3 million during the three months ended February 28, 1998, an increase of .9%. Net sales of timeshare interests increased to $8.6 million from $8.5 million, an increase of 1.2%. The provision for cancellations represented 8.8% and 9.1%, respectively, of gross sales of timeshare interests for the three months ended February 28, 1999 and 1998. The percentage decrease in the provision for cancellations for timeshare interests and land was primarily due to lower cancellation experience during the second quarter of fiscal 1999 compared to the second quarter of fiscal 1998 and to an analysis of the required allowances, including the reserve for notes receivable sold with recourse, as of February 28, 1999. PEC's Preferred Client Services group, which was instituted to work with the portfolio and develop better relationships with customers, has served to reduce otherwise potential cancellations. There continues to be a greater focus on working with the purchasers and their individual problems rather than merely demanding repayment of debt. Gross sales of land decreased to $3.8 million during the three months ended February 28, 1999 from $3.9 million during the three months ended February 28, 1998, a decrease of 1.8%. Net sales of land decreased to $3.5 million during the three months ended February 28, 1999 from $3.6 million during the three months ended February 28, 1998, a decrease of 1.1%. The provision for cancellations decreased to 7.0% of gross sales of land for the three months ended February 28, 1999 from 7.6% for the three months ended February 28, 1998, primarily due to lower cancellation experience during the second quarter of fiscal 1999 compared to the second quarter of fiscal 1998 and to an analysis of the required allowances, including the reserve for notes receivable sold with recourse, as of February 28, 1999. No gain on sale of receivables was recorded for the three months ended February 28, 1999 and 1998 as there were no receivable sales. PEC periodically sells receivables to reduce the outstanding balances under its lines of credit. Interest income increased 16.4% to $2.0 million for the three months ended February 28, 1999 from $1.7 million for the three months ended February 28, 1998, primarily due to the increased average notes receivable balances for the current period. Financial income decreased to $400,000 during the three months ended February 28, 1999 from $986,000 during the three months ended February 28, 1998, a decrease of 59.4%. The decrease was primarily a result of the termination by agreement of loan servicing for a company previously affiliated with Mego Financial. Other income increased 55.8%, or $312,000, to $871,000 for the three months ended February 28, 1999 from $559,000 for the three months ended February 28, 1998, primarily due to the loss on a disposal of a sales office during the second quarter of fiscal 1998. 9 12 As a result of the foregoing, total PEC revenues were $15.9 million during the three months ended February 28, 1999 and 1998. Total costs and expenses for PEC decreased to $16.3 million for the three months ended February 28, 1999 from $16.9 million for the three months ended February 28, 1998. The decrease resulted primarily from a decrease in general and administrative expenses to $3.2 million from $4.3 million, a decrease of 25.4%. The decrease in general and administrative expenses is due to the reductions in salaries and benefits, professional services and property taxes. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses relating thereto decreased to 59.1% during the three months ended February 28, 1999 from 59.3% during the three months ended February 28, 1998, and cost of sales increased to 17.9% during the three months ended February 28, 1999 from 15.3% during the three months ended February 28, 1998. For the month of February 1999, such marketing and sales percentage decreased to 52.7% and the Company believes that this trend should continue. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Subsequent to November 30, 1998, the Company has restructured its marketing and sales programs, which restructuring has included the closing of unprofitable sales locations, the elimination of certain marketing programs and the layoff of related personnel. Interest expense of PEC increased to $2.0 million during the three months ended February 28, 1999 from $1.6 million during the three months ended February 28, 1998, an increase of 24.0%. The increase is a result of an increase in the average outstanding balance of notes and contracts payable during the three months ended February 28, 1999 compared to the three months ended February 28, 1998. A pre-tax loss of $427,000 was recorded by PEC during the three months ended February 28, 1999 compared to a pre-tax loss of $991,000 during the three months ended February 28, 1998. The decrease in the pre-tax loss is primarily due to the $1.1 million decrease in general and administrative expenses, which was partially offset by the $586,000 decrease in financial income, during the three months ended February 28, 1999. No income tax provision or benefit for PEC was recorded for the three months ended February 28, 1999 and 1998, since, as part of an arrangement between PEC and the Company, regarding payment of taxes, PEC generally does not recognize a tax benefit for periods in which it records a loss. As a result of the foregoing, PEC reported a net loss of $427,000 during the three months ended February 28, 1999 compared to a net loss of $991,000 during the three months ended February 28, 1998. COMPANY (consolidated) Loss before income taxes decreased $492,000 to a loss of $791,000 during the three months ended February 28, 1999 compared to a loss of $1.3 million during the three months ended February 28, 1998. The reduction in the loss is primarily attributable to the decrease in general and administrative expenses, which was partially offset by the decrease in financial income. On a consolidated basis, the decrease in the pre-tax loss is largely due to the increases in interest income and other income, and the decrease in general and administrative expenses, which were offset by the decrease in financial income. Total costs and expenses during the three months ended February 28, 1999 were $16.7 million, a decrease of 3.1% from $17.2 million during the three months ended February 28, 1998. General and administrative expenses decreased 23.6% for the three months ended February 28, 1999 compared to the three months ended February 28, 1998. The income tax benefit for the three months ended February 28, 1999 was $269,000 compared to no income tax benefit for the three months ended February 28, 1998. For the three months ended February 28, 1998, there was no provision or benefit as the facts and circumstances related to the Company's income tax liability reserves were under extensive review and analysis, which was subsequently completed during fiscal 1998. 10 13 Net loss applicable to common stock was $522,000 during the three months ended February 28, 1999 compared to net loss applicable to common stock of $1.3 million during the three months ended February 28, 1998, due to the reduction in the PEC pre-tax consolidated loss and an income tax benefit of $269,000 recognized during the three months ended February 28, 1999, compared to no income tax benefit recognized during the three months ended February 28, 1998. See prior discussion for PEC. Six Months Ended February 28, 1999 Compared to Six Months Ended February 28, 1998 PEC Total revenues for PEC increased 2.4%, or $771,000, to $32.7 million during the six months ended February 28, 1999 from $31.9 million during the six months ended February 28, 1998. The increase was primarily due to an increase in timeshare sales, net, to $17.6 million during the six months ended February 28, 1999 from $17.3 million during the six months ended February 28, 1998, an increase in land sales, net, to $7.0 million during the six months ended February 28, 1999 from $6.6 million during the six months ended February 28, 1998, an increase in interest income to $3.9 million during the six months ended February 28, 1999 from $3.2 million during the six months ended February 28, 1998, and an increase in other income to $1.7 million during the six months ended February 28, 1999 from $1.4 million during the six months ended February 28, 1998, partially offset by a decrease in financial income to $700,000 during the six months ended February 28, 1999 from $2.0 million during the six months ended February 28, 1998. Gross sales of timeshare interests were $19.4 million during the six months ended February 28, 1999 compared to $19.3 million during the six months ended February 28, 1998, an increase of .7%. Net sales of timeshare interests increased to $17.6 million from $17.3 million, an increase of 1.8%. The provision for cancellations represented 9.3% and 10.3%, respectively, of gross sales of timeshare interests for the six months ended February 28, 1999 and 1998. The percentage decrease in the provision for cancellations for timeshare interests was primarily due to lower cancellation experience during the first half of fiscal 1999 compared to the first half of fiscal 1998 and to an analysis of the required allowances, including the reserve for notes receivable sold with recourse as of February 28, 1999. Gross sales of land increased to $7.5 million during the six months ended February 28, 1999 from $7.2 million during the six months ended February 28, 1998, an increase of 4.2%. Net sales of land increased to $7.0 million during the six months ended February 28, 1999 from $6.6 million during the six months ended February 28, 1998, an increase of 6.5%. The provision for cancellations decreased to 6.3% of gross sales of land for the six months ended February 28, 1999 from 8.2% for the six months ended February 28, 1998, primarily due to lower cancellation experience during the first half of fiscal 1999 compared to the first half of fiscal 1998 and to an analysis of the required allowances, including the reserve for notes receivable sold with recourse as of February 28, 1999. No gain on sale of receivables was recorded for the six months ended February 28, 1999 and 1998, as there were no receivable sales. PEC periodically sells receivables to reduce the outstanding balances under its lines of credit. A gain on sale of investments of $513,000 was recorded for the six months ended February 28, 1999. In October 1998, PEC sold a vacant parcel of land containing approximately 40 acres, in Pahrump, Nevada, for $597,000. Interest income increased 21.8% to $3.9 million for the six months ended February 28, 1999 from $3.2 million for the six months ended February 28, 1998 primarily due to increased average notes receivable balances for the current period. Financial income decreased to $709,000 during the six months ended February 28, 1999 from $2.0 million during the six months ended February 28, 1998, a decrease of 64.6%. The decrease was primarily a result of the termination by agreement of loan servicing for a company previously affiliated with Mego Financial. 11 14 Other income increased 20.0% to $1.7 million for the six months ended February 28, 1999 from $1.4 million for the six months ended February 28, 1998, primarily due to the loss on a disposal of a sales office during the second quarter of fiscal 1998. As a result of the foregoing, total PEC revenues increased to $32.7 million during the six months ended February 28, 1999 from $31.9 million during the six months ended February 28, 1998. Total costs and expenses for PEC increased to $33.8 million for the six months ended February 28, 1999 from $33.5 million for the six months ended February 28, 1998, an increase of .9%. The increase resulted primarily from an increase in direct costs of land sales to $1.3 million from $813,000, an increase of 55.2%; an increase in marketing and sales expenses to $16.6 million from $15.6 million, an increase of 6.5%; and an increase in interest expense to $4.0 million from $3.1 million, an increase of 24.2%; partially offset by a decrease of $1.6 million in general and administrative expenses. The increase in direct costs of land is attributable to increased sales of higher cost lots sold during the current fiscal period compared to the same period last fiscal year. The increase in marketing and sales expenses is due primarily to the expansion of timeshare marketing efforts by PEC and higher gross sales. The increase in interest expense is due to the increase in the average outstanding balance of notes and contracts payable. The decrease in general and administrative expenses is due to the reduction in salaries and benefits; professional services and property taxes. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses relating thereto increased to 61.8% during the six months ended February 28, 1999 from 59.0% during the six months ended February 28, 1998, and cost of sales increased to 17.5% during the six months ended February 28, 1999 from 16.1% during the six months ended February 28, 1998. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Interest expense of PEC increased to $4.0 million during the six months ended February 28, 1999 from $3.2 million during the six months ended February 28, 1998, an increase of 24.2%. The increase is a result of an increase in the average outstanding balance of notes and contracts payable during the six months ended February 28, 1999 compared to the six months ended February 28, 1998. A pre-tax loss of $1.1 million was recorded by PEC during the six months ended February 28, 1999 compared to a pre-tax loss of $1.6 million during the six months ended February 28, 1998. The decrease in the pre-tax loss is largely due to the $1.9 million decrease in general and administrative expenses, partially offset by the $1.3 decrease in financial income. No income tax provision or benefit for PEC was recorded for the six months ended February 28, 1999 and 1998. As part of an arrangement between PEC and the Company, regarding payment of taxes, PEC generally does not recognize a tax benefit for periods in which it records a loss. As a result of the foregoing, PEC reported a net loss of $1.1 million during the six months ended February 28, 1999 compared to a net loss of $1.6 million during the six months ended February 28, 1998. COMPANY (consolidated) Loss before income taxes decreased $736,000 to a loss of $1.9 million during the six months ended February 28, 1999 compared to a loss of $2.6 million during the six months ended February 28, 1998, due primarily to a decrease in general and administrative expenses of $1.9 million. Total costs and expenses were $34.7 million during the six months ended February 28, 1999 and 1998. General and administrative expenses decreased 21.6% for the six months ended February 28, 1999 compared to the six months ended February 28, 1998 due primarily to PEC's efforts to lower expenses. Mego Financial (parent only) continues to incur interest on subordinated debt. Total general and administrative expenses for Mego Financial (parent only) were primarily comprised of professional services, external financial reporting expenses and regulatory and other public company corporate expenses. 12 15 An income tax benefit of $650,000 was recorded for the six months ended February 28, 1999 and was based on the statutory rate. For the six months ended February 28, 1998, there was no provision as the facts and circumstances related to the Company's income tax liability reserves were under extensive review and analysis, which was subsequently completed during the third quarter of fiscal 1998. Net loss applicable to common stock was $1.3 million during the six months ended February 28, 1999 compared to net loss applicable to common stock of $2.6 million during the six months ended February 28, 1998, due to the reduction in the PEC pre-tax consolidated loss and an income tax benefit of $650,000 recognized during the six months ended February 28, 1999 compared to no income tax benefit recognized during the six months ended February 28, 1998. See prior discussion for PEC. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company was $1.6 million at February 28, 1999 compared to $1.8 million at August 31, 1998. On December 24, 1998, FINOVA agreed to make a loan in the amount of $5.7 million to PEC, guaranteed by the Company, with a maturity date of June 30, 1999. On that date, FINOVA advanced $3.0 million, less fees, secured by a pledge of the stock of Central Nevada Utilities Company, a wholly-owned subsidiary of PEC. In consideration of FINOVA making the advance, the Company granted FINOVA a warrant to purchase 150,000 shares of common stock of the Company at an exercise price of $1.00 per share, exercisable within a five-year period commencing January 1, 1999. The remaining advance of up to $2.7 million is available through May 31, 1999. As of April 12, 1999, no further amounts have been drawn on this remaining advance. When, and if, further amounts are drawn, additional collateral will be pledged. As a condition for further advances, a warrant to purchase up to an additional 350,000 shares of common stock of the Company at an exercise price of $1.00 per share will be issued to Finova, pro rata to the advances. The Company has experienced certain cash flow pressures and has taken the following steps, beginning in December 1998, to alleviate this situation. In addition to the short-term funding from FINOVA discussed above, subsequent to November 30, 1998, the Company reduced its work force by 180 employees, resulting in an estimated savings of $4.85 million of salaries and related benefits on an annualized basis. Also, activities in certain unprofitable sales office locations were curtailed and PEC is actively pursuing the sale of certain non-producing properties which are not deemed to be part of the core business. PEC turned profitable in the month of February 1999 and, as noted, has available the additional FINOVA credit line to May 31, 1999. Therefore, these actions have improved the Company's cash flow and should continue to return it to profitability; however, there can be no assurance that these continuing efforts will be successful in maintaining a continued profitability trend. PEC PEC's cash requirements arise from the acquisition of timeshare properties and land, payments of operating expenses, payments of principal and interest on debt obligations and payments of marketing and sales expenses in connection with sales of timeshare interests and land. Marketing and sales expenses payable by PEC in connection with sales of timeshare interests and land typically exceed the down payments received at the time of sale, as a result of which PEC generates a cash shortfall. This cash shortfall and PEC's other cash requirements are funded primarily through sales and hypothecations of receivables, PEC's lines of credit in the aggregate amount of $137.5 million and cash flows from operations. At February 28, 1999, no commitments existed for material capital expenditures. At February 28, 1999, PEC had arrangements with 5 institutional lenders under 6 agreements for the financing of receivables in connection with sales of timeshare interests and land and the acquisition of timeshare properties and land, which provide for 6 lines of credit of up to an aggregate of $137.5 million. Such lines of credit are secured by timeshare and land receivables and mortgages. At February 28, 1999, an aggregate of $88.1 million was outstanding under such lines of credit, and $49.4 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 February 28, 1999, PEC's net worth was $26.2 million. Necessary waivers of compliance with certain covenants related to these and 13 16 other agreements have been received. Summarized lines of credit information and accompanying notes relating to these six lines of credit outstanding at February 28, 1999, consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT BORROWING REVOLVING FEBRUARY 28, 1999 AMOUNT EXPIRATION DATE (f) MATURITY DATE INTEREST RATE - ------------------ ------------- ------------------- -------------- -------------------- $ 54,665 $ 75,000(a) May 15, 2000 Various Prime + 2.0 - 2.25% 3,488 15,000(b) April 30, 1999 Various Prime + 2.0% 12,745 15,000(c) April 30, 1999 Various LIBOR + 4.0 - 4.25% 6,619 15,000(c) May 1, 1999 Various LIBOR + 4.0 - 4.25% 4,253 10,000(d) August 1, 2000 August 1, 2003 Prime + 2.0 - 2.25% 6,378 7,500(e) April 30, 1999 Various Prime + 2.0 - 3.00%
- --------------------------- (a) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $20.0 million with such amount increasing each fiscal quarter after August 31, 1997 by an amount equal to 50% of PEC's consolidated net income for each quarter up to a maximum requirement of $25 million. New restrictions, commencing with the fiscal quarter ended November 30, 1998, include: PEC's requirement 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. At February 28, 1999, $35.8 million of loans secured by receivables were outstanding related to financings at prime +2%, of which $26.5 million of loans secured by land receivables mature May 15, 2010 and $9.3 million of loans secured by timeshare receivables mature May 15, 2007. The outstanding borrowing amount includes $.5 million in acquisition and development (A&D) financing maturing May 20, 1999 and $6.4 million maturing July 1, 2003 for the financing of corporate office buildings, both of which are amortizing loans, and a real estate loan with an outstanding balance of $1.2 million maturing March 20, 2000, all bearing interest at prime +2.25%. The remaining A&D loans, receivables loans, and a resort lobby loan outstanding of $10.8 million are at prime +2% and mature at various dates through February 20, 2001. (b) 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 February 28, 1999, $1.1 million was outstanding under the A&D loan which matures in September 1999, and $2.4 million maturing June 1, 2002 was outstanding under the receivables loan. Management has obtained a verbal commitment from the lender to extend this revolving line of credit for a period of 18 months on substantially the same terms. (c) 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 February 28, 1999, $3.4 million was outstanding under the A&D loans which have maturity dates of December 31, 2000 and June 30, 2001, and bears interest at the 90-day London Interbank Offering Rate (LIBOR) +4.25%. The available receivable financings, of which $9.3 million was outstanding at February 28, 1999, are at 90 day LIBOR +4% and have maturity dates of June 5, 2005 and August 5, 2005. (d) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25 million. This credit line is for the purpose of financing receivables and costs of remodeling. (e) 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 $2.4 million was outstanding at February 28, 1999 in respect to the receivable debt, and a real estate loan of $4.0 million with a maturity date of August 31, 1999. The maturity date for the receivable debt is May 31, 2002. Management has obtained a verbal commitment from the lender to extend this revolving line of credit for a period of 18 months on substantially the same terms. (f) 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. The Company is presently negotiating for extension of the revolving periods expiring in 1999. 14 17 A schedule of the cash shortfall arising from recognized and unrecognized sales for the periods indicated is set forth below (thousands of dollars):
THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ---------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Marketing and selling expenses attributable to recognized and unrecognized sales $ 7,931 $ 7,811 $ 16,927 $ 15,726 Less: Down payments (4,654) (3,147) (9,679) (6,263) ------------ ------------ ------------ ------------ Cash Shortfall $ 3,277 $ 4,664 $ 7,248 $ 9,463 ============ ============ ============ ============
During the six month periods ended February 28, 1999 and 1998, PEC did not sell any notes receivable. PEC sells notes receivable subject to recourse provisions as contained in each agreement. PEC is obligated under these agreements to replace or repurchase accounts that become over 90 days delinquent or are otherwise subject to replacement or repurchase in either cash or receivables generally at the option of the purchaser. At February 28, 1999, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $63.5 million. The repurchase provisions provide for substitution of receivables as recourse for $47.9 million of sold notes receivable and cash payments for repurchase relating to $15.6 million of sold notes receivable. At February 28, 1999 and 1998, the undiscounted amounts of the recourse obligations on such notes receivable were $6.5 million and $7.1 million, respectively. PEC periodically reviews the adequacy of this liability. These reviews take into consideration changes in the nature and level of the portfolio, current and future economic conditions which may affect the obligors' ability to pay, changes in collateral values, estimated value of inventory that may be reacquired and overall portfolio quality. The components of the Company's debt, including lines of credit consist of the following (thousands of dollars):
FEBRUARY 28, AUGUST 31, 1999 1998 ---------------- ---------------- Notes collateralized by receivables $ 52,991 $ 42,793 Mortgages collateralized by real estate properties 38,165 37,393 Installment contracts and other notes payable 1,515 1,800 ---------------- ---------------- Total $ 92,671 $ 81,986 ================ ================
FINANCIAL CONDITION February 28, 1999 Compared to August 31, 1998 Cash and cash equivalents decreased 13.1% to $1.6 million at February 28, 1999 from $1.8 million at August 31, 1998. Notes receivable, net, increased 15.9% to $55.4 million at February 28, 1999 from $47.8 million at August 31, 1998 primarily as a result of new receivables exceeding reductions while no receivable sales occurred during the six months ended February 28, 1999. Changes in the aggregate of the allowance for cancellations, excluding discounts, and the reserve for notes receivable sold with recourse for the six months ended February 28, 1999, consist of the following (thousands of dollars): Balance at beginning of period $ 18,488 Provision for cancellations 2,276 Amounts charged to allowance for cancellations and reserve for notes receivable sold with recourse (2,955) ---------- Balance at end of period $ 17,809 =========
15 18 The allowance for cancellations and the reserve for notes receivable sold with recourse consisted of the following at these dates (thousands of dollars):
FEBRUARY 28, AUGUST 31, 1999 1998 ------------- ------------- Allowance for cancellations, excluding discounts $ 12,377 $ 11,868 Reserve for notes receivable sold with recourse 5,432 6,620 ------------- ------------- Total $ 17,809 $ 18,488 ============= =============
Statement of Financial Accounting Standards No. 125 (SFAS 125) requires the reclassification of excess servicing rights as interest only receivables which are carried at fair value. Interest only receivables decreased 9.5% to $3.0 million at February 28, 1999 from $3.4 million at August 31, 1998 due to normal amortization and no receivable sales this fiscal year. Notes and contracts payable increased 13.0% to $92.7 million at February 28, 1999 from $82.0 million at August 31, 1998. There were increased borrowings and no receivable sales, the proceeds of which are usually used to pay down debt, during the six months ended February 28, 1999. Reserve for notes receivable sold with recourse decreased 18.0% to $5.4 million at February 28, 1999 from $6.6 million at August 31, 1998 due to the reduced balance of the sold notes receivable. Recourse to PEC on sales of notes receivable is governed by the agreements between the purchasers and PEC. Accrued income taxes decreased 17.5% to $3.7 million at February 28, 1999 from $4.5 million at August 31, 1998 due primarily to the fiscal 1999 tax benefit. The changes in certain income tax liability reserves are a result of facts and circumstances determined in an extensive review and analysis of the Company's federal income tax liability completed during fiscal 1998 and reevaluated on an ongoing basis. Stockholders' equity decreased 6.0% to $19.5 million at February 28, 1999 from $20.7 million at August 31, 1998. YEAR 2000 COMPLIANCE The status of the Year 2000 compliance issue is substantially the same as reported in the Company's 1998 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There was no material change for the three and six months ended February 28, 1999 in the information about the Company's "Quantitative and Qualitative Disclosures About Market Risk" as disclosed in it's Form 10-K for the fiscal year ended August 31, 1998. 16 19 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as hereinafter set forth, and as set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998, there have been no material changes in the status of the litigation reported in the Company's Annual Report on Form 10-K for the year ended August 31, 1998. On February 23, 1998, an action was filed in the United States District Court for the Northern District of Georgia, Civil Action No. 1:98CV0593-CAM by Robert J. Feeney, plaintiff, as a purported class action against Mego Mortgage Corporation, a former subsidiary of the Company (MMC), and Jeffrey S. Moore, the former President and Chief Executive Officer of MMC. The complaint alleged, among other things, that the defendants violated the federal securities laws in connection with the preparation and issuance of certain of MMC's financial statements. The named plaintiff sought to represent a class consisting of purchasers of the common stock of MMC between April 11, 1997 and December 18, 1997, and sought such other relief as the Court deemed proper. An amended complaint was filed in such matter on or about June 29, 1998, which amended complaint, among other things, added Mego Financial as a defendant, added John Cole, Trent Hildebrand, Burt W. Price and Frank J. Murphy as plaintiffs and alleged an expansion of the purported class to certain purchasers of MMC's common stock from April 11, 1997 through May 20, 198. On April 9, 1999, the court granted the defendants' motions to dismiss the complaint with leave to refile within 30 days. In the general course of business the Company, at various times, has been named in other lawsuits. The Company believes that it has meritorious defenses to these lawsuits and that resolution of these matters will not have a material adverse affect on the business or financial condition of the Company. ITEM 5. OTHER EVENTS The Company has received a notice from The Nasdaq Stock Market, Inc. that its common stock will be delisted from the Nasdaq National Market as a result of the failure to maintain a minimum closing bid price of $1.00 unless the closing bid price of the common stock equals or exceeds $1.00 for a period of ten consecutive trading days prior to April 30, 1999. The Company has determined that it will request an oral hearing before the Nasdaq Listing Qualifications Committee which request will stay any adverse action by Nasdaq until after such hearing. The purpose of the hearing is to attempt to obtain an exception to the minimum price listing requirement of the Nasdaq National Market. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.152 First Amended and Restated and Consolidated Promissory Note dated as of November 5, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to Aloha Bay Phase I. 10.153 Third Amended and Restated Promissory Note dated as of September 29, 1998 by and between FINOVA Capital Corporation and Preferred Equities Corporation relating to the Headquarters and FCFC Property. 10.154 Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated as of November 6, 1998 between Finova Capital Corporation and Preferred Equities Corporation. 10.155 Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated as of November 6, 1998 between Finova Capital Corporation and Preferred Equities Corporation. 10.156 Amended and Restated Guarantee and Subordination Agreement dated as of September 29, 1998 between Greyhound Real Estate Finance Company and Mego Financial Corporation relating to the Headquarters Re-advance. 10.157 First Amended and Restated Promissory Note dated as of November 6, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to the IDA Building Addition. 10.158 Letter Agreement dated as of September 29, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to the Headquarters Re-advance. 10.159 Additional Advance Note dated as of November 6, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to Aloha Bay Phase II. 10.160 Request for Advance and Disbursement Instructions dated as of November 11, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation. 10.161 First Amended and Restated Promissory Note dated as of November 6, 1998 between FINOVA Capital Corp. and Preferred Equities Corporation relating to the Winnick Building Addition. 10.162 Fourth Amendment to Assignment and Assumption Agreement dated as of February 26, 1999 by and between RER Corp, COMAY Corp., Growth Realty Inc. and H & H Financial, Inc. and Mego Financial Corporation.
17 20 10.163 Amended and Restated Stock Option Plan dated September 16, 1998 for Mego Financial Corporation. 27.1 Financial Data Schedule (for SEC use only).
No reports on Form 8-K were filed during the period. 18 21 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: April 14, 1999 19 EX-10.152 2 FIRST AMENDED & RESTATED 7 CONSOLIDATED PROM. NOTE 1 10.152 FIRST AMENDED AND RESTATED AND CONSOLIDATED PROMISSORY NOTE [ALOHA BAY PHASE I] U.S. $1,007,100 November ___, 1998 Phoenix, Arizona FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the holder of this Note ("Holder") may from time to time designate in writing, in lawful money of the United States of America, the principal sum of ONE MILLION SEVEN THOUSAND ONE HUNDRED AND NO/100 DOLLARS (U.S. $1,007,100.00), or so much thereof as has been disbursed and not repaid, together with interest on the unpaid principal balance from time to time outstanding from the date hereof until paid, as more fully provided for below. Interest due under this Note shall (a) accrue daily on the basis of the actual number of days in the computation period, (b) be calculated on the basis of a year consisting of three hundred sixty (360) days, and (c) be payable monthly in arrears on the later of (i) ten (10) days after Lender mails an invoice or statement therefor to Maker or (ii) the due date set forth in said invoice or statement. Interest shall accrue initially at an annual interest rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on the date of the initial advance of the loan evidenced by this Note ("Initial Prime") plus two and one quarter percent (2.25%) per annum, subject to adjustment on each Interest Rate Change Date (as hereinafter defined), but in no event to exceed the maximum contract rate permitted under the Applicable Usury Law (as hereinafter defined). The interest rate shall change on each Interest Rate Change Date by adding to or subtracting from the Initial Interest Rate, as the case may be, the - ------------ THIS AMENDED AND RESTATED AND CONSOLIDATED PROMISSORY NOTE AMENDS, RESTATES AND CONSOLIDATES THE PROMISSORY NOTE FROM PREFERRED EQUITIES CORPORATION TO FINOVA CAPITAL CORPORATION DATED AS OF SEPTEMBER 22, 1995 IN THE PRINCIPAL AMOUNT OF THREE MILLION SIX HUNDRED THOUSAND DOLLARS ($3,600,000.00), TOGETHER WITH THE ADDITIONAL ADVANCE NOTE FROM PREFERRED EQUITIES CORPORATION TO FINOVA CAPITAL CORPORATION DATED AS OF NOVEMBER 5, 1998 IN THE PRINCIPAL AMOUNT OF SIX HUNDRED THOUSAND DOLLARS ($600,000.00). NO ADDITIONAL PRINCIPAL HAS BEEN ADDED TO THE AFOREMENTIONED PROMISSORY NOTE AND ADDITIONAL ADVANCE NOTE AND ALL DOCUMENTARY STAMP TAXES AND INTANGIBLE TAXES WERE PAID UPON THE RECORDING OF THE MORTGAGE, ASSIGNMENT OF RENTS AND PROCEEDS AND SECURITY AGREEMENT RECORDED IN OFFICIAL RECORDS BOOK 9117, PAGE 280 OF THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, AND ON THE FOURTH MODIFICATION OF MORTGAGE, ASSIGNMENT OF RENTS AND PROCEEDS AND SECURITY AGREEMENT OF EVEN DATE HEREWITH. 2 change, if any, between Initial Prime and Prime in effect on the applicable Interest Rate Change Date. As used in this Note, the following capitalized terms have the meaning set forth opposite them below: "Prime" shall mean the rate of interest publicly announced, from time to time, by Citibank, N.A., New York, New York ("Citibank"), as the corporate base rate of interest charged by Citibank to its most creditworthy commercial borrowers notwithstanding the fact that some borrowers of Citibank may borrow from Citibank at rates of less than such announced Prime rate; and "Interest Rate Change Date" means (a) the first business day of Citibank, N.A., in New York, New York, during the calendar month following the date of the initial advance of the loan evidenced by this Note and (b) the first business day of Citibank, N.A., during each successive month thereafter. The principal sum of this Note shall be repaid in the manner set forth in the Loan Agreement (as defined below), the applicable provisions of which are incorporated herein by reference as if fully set forth herein. Payments of principal and/or interest shall, at the option of Holder, earn interest after they are due at a rate ("Overdue Rate") equal to (a) two percent (2%) per annum above the rate otherwise payable hereunder or (b) the maximum contract rate permitted under the Applicable Usury Law, whichever of (a) or (b) is lesser. Furthermore, in the event of the occurrence of an Event of Default (as the term "Event of Default" is defined in the Loan Agreement) the unpaid principal balance of this Note shall, at the option of Holder, accrue interest at the Overdue Rate. This Note is executed pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 herewith between Maker and Lender (such Second Amended and Restated and Consolidated Loan and Security Agreement, as amended, the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, the applicable provisions of which are incorporated herein by reference. All payments made under this Note shall be applied first against amounts due hereunder or under the Loan Agreement, other than principal and interest; second, against interest then due under this Note; and third, against the principal of this Note. In the event any installment of principal and/or interest required to be made in connection with the indebtedness evidenced hereby is not paid when due and, 2 3 except in the case of the final installment, for which no grace period is allowed, such default continues for five (5) days after notice thereof to Maker or an Event of Default occurs, Holder may, at its option, without notice or demand, declare immediately due and payable the entire unpaid principal balance hereof, all accrued and unpaid interest thereon, and all other charges owing in connection with the loan evidenced hereby. The contracted for rate of interest of the loan contemplated hereby, without limitation, shall consist of the following: (i) the interest rate, calculated and applied to the principal balance of this Note in accordance with the provisions of this Note; (ii) Overdue Rate, calculated and applied to the amounts due under this Note in accordance with the provisions hereof; (iii) any commitment fees, incentive fees, loan fees or readvance fees payable under the Loan Agreement; and (iv) all Additional Sums (as hereinafter defined), if any. Maker agrees to pay an effective contracted for rate of interest which is the sum of the above-referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Maker (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement, the other Documents or any other documents or instruments in any way pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Maker as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. This Note is not prepayable in whole or in part other than as a result of the application to the unpaid principal balance hereof of Aloha Bay Phase I Release Fees arising from the release of Units from the Security Interests. In the event that Holder institutes legal proceedings to enforce this Note and Holder is the prevailing party in such proceeding, Maker agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs and expenses of such proceedings, including, without limitation, attorneys' fees. Holder shall not by any act or omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein; a waiver on one occasion shall not be construed as continuing or as a bar to or waiver of such right or remedy on any other occasion. All remedies conferred upon Holder by this Note or any other instrument or agreement connected herewith or 3 4 related hereto shall be cumulative and none is exclusive and such remedies may be exercised concurrently or consecutively at Holder's option. Every person or entity at any time liable for the payment of the indebtedness evidenced hereby waives: presentment for payment, protest and demand; notice of protest, demand, dishonor and nonpayment of this Note; and trial by jury in any litigation arising out of, relating to or connected with this Note or any instrument given as security herefor. Every such person or entity further consents that Holder may renew or extend the time of payment of any part or the whole of the indebtedness at any time and from time to time at the request of any other person or entity liable therefor. Any such renewals or extensions may be made without notice to any person or entity liable for the payment of the indebtedness evidenced hereby. This Note is given and accepted as evidence of indebtedness only and not in payment or satisfaction of any indebtedness or obligation. Time is of the essence with respect to all of Maker's obligations and agreements under this Note. This Note and all of the provisions, conditions, promises and covenants hereof shall be binding in accordance with the terms hereof upon Maker, its successors and assigns, provided nothing herein shall be deemed consent to any assignment restricted or prohibited by the terms of the Loan Agreement. If more than one person or other entity has executed this Note as Maker, the obligations of such persons and entities shall be joint and several. This Note has been executed and delivered in Phoenix, Arizona, and the obligations of Maker hereunder shall be performed in Phoenix, Arizona. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND, TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES. Maker (a) hereby irrevocably submits itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court for Arizona, for the purposes of suit, action or other proceedings arising out of or relating to this Note or the subject matter hereof brought by Holder and (b) without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Maker is not personally subject to the jurisdiction of the above-named courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such other 4 5 usury law which is applicable if the law chosen by the parties is not. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or (c) all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstance the amount of interest contracted for, shared or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law: (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. 5 6 In the event of any conflict or inconsistency between the provisions of this Note and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall control. This First Amended and Restated and Consolidated Promissory Note is an amendment, restatement, and consolidation of that certain Promissory Note dated September 22, 1995, by Maker to the order of Lender in the original principal amount of Three Million Six Hundred Thousand Dollars ($3,600,000.00) and that certain Additional Advance Note dated November 5, 1998 in the original principal amount of Six Hundred Thousand Dollars ($600,000.00). This Note shall not constitute a waiver of any existing default or breach of a covenant, if any, and shall have no retroactive effect; provided, however, that any and all written waivers given heretofore are hereby extended to the date hereof. [SIGNATURE ON FOLLOWING PAGE] 6 7 PREFERRED EQUITIES CORPORATION, a Nevada corporation "Maker" By: ____________________________________ Name: ______________________________ Title: _____________________________ Address: 4310 Paradise Road Las Vegas, Nevada 89109 Attn.: President 7 EX-10.153 3 THIRD AMENDED & RESTATED PROM. NOTE 1 10.153 THIRD AMENDED AND RESTATED PROMISSORY NOTE [HEADQUARTERS AND FCFC PROPERTY] U.S. $6,583,406.43 As of September 29, 1998 Phoenix, Arizona FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the holder of this Third Amended and Restated Promissory Note ("Holder") may from time to time designate in writing, in lawful money of the United States of America, the principal sum of SIX MILLION FIVE HUNDRED EIGHTY THREE THOUSAND FOUR HUNDRED SIX AND 43/100 UNITED STATES DOLLARS (U.S. $6,583,406.43), or so much thereof as has been disbursed and not repaid, together with interest on the unpaid principal balance from time to time outstanding from the date hereof until paid, as more fully provided for below. Interest due under this Third Amended and Restated Promissory Note (the "Note") shall (a) accrue daily on the basis of the actual number of days in the computation period and (b) be calculated on the basis of a year consisting of 360 days. Interest shall accrue initially at an annual interest rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on the first business day of the month of this Note ("Initial Prime") plus 2-1/4% per annum, subject to adjustment on each Interest Rate Change Date (as hereinafter defined), but in no event to exceed the maximum contract rate permitted under the Applicable Usury Law (as hereinafter defined). The interest rate shall change on each Interest Rate Change Date by adding to or subtracting from the Initial Interest Rate, as the case may be, the change, if any, between Initial Prime and Prime in effect on the applicable Interest Rate Change Date. As used in this Note, the following capitalized terms have the meaning set forth opposite them below: "Prime" shall mean the rate of interest publicly announced, from time to time, by Citibank, N.A., New York, New York ("Citibank"), as the corporate base rate of interest charged by Citibank to its most creditworthy commercial borrowers notwithstanding the fact that some borrowers of Citibank may borrow from Citibank at rates of less than such announced Prime rate; and 2 "Interest Rate Change Date" means (a) the first business day of Citibank, N.A., in New York, New York, during the calendar month following the date of this Note and (b) the first business day of Citibank, N.A., during each successive month thereafter. This Note shall be repaid in immediately available funds in eighty-four (84) monthly installments of principal and interest calculated in the manner set forth below. The first monthly installment shall be due and payable on November 1, 1998 and subsequent monthly installments shall be due and payable on the first business day of each and every month thereafter. The first eighty-three (83) installments shall be in an amount equal to interest (in arrears) and a monthly principal payment which shall equal the principal payment obtained when the beginning principal balance of this Note is amortized over an eighty-four (84) month principal amortization schedule using the Initial Interest Rate. Any remaining principal and all other sums due and owing pursuant hereto plus accrued and unpaid interest shall be due and payable on October 1, 2005 (the "Maturity Date"). In addition, on October 1, 1998, a payment of principal and interest shall be made in the amount required to be made on that date pursuant to that Second Amended and Restated Promissory Note referenced in the last paragraph of this Note. Payments of principal and/or interest shall, at the option of Holder, earn interest after they are due at a rate ("Overdue Rate") equal to (a) 2% per annum above the rate otherwise payable hereunder or (b) the maximum contract rate permitted under the Applicable Usury Law, whichever of (a) or (b) is lesser. Furthermore, in the event of the occurrence of an Event of Default (as the term "Event of Default" is defined in the Loan Agreement) the unpaid principal balance of this Note shall, at the option of Holder, accrue interest at the Overdue Rate. This Note is executed pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 herewith between Maker and Lender (such Second Amended and Restated and Consolidated Loan and Security Agreement, as amended, the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, the applicable provisions of which are incorporated herein by reference. All payments made under this Note shall be applied first against amounts due hereunder or under the Loan Agreement, other than principal and interest; second, against interest then due under this Note; and third, against the principal of this Note. In the event any installment of principal and/or interest required to be made in connection with the indebtedness evidenced hereby is not paid when due and, 2 3 except in the case of the final installment, for which no grace period is allowed, such default continues for five days after notice thereof to Maker or an Event of Default occurs, Holder may, at its option, without notice or demand, declare immediately due and payable the entire unpaid principal balance hereof, all accrued and unpaid interest thereon, and all other charges owing in connection with the loan evidenced hereby. The contracted for rate of interest of the loan contemplated hereby, without limitation, shall consist of the following: (i) the interest rate, calculated and applied to the principal balance of this Note in accordance with the provisions of this Note; (ii) Overdue Rate, calculated and applied to the amounts due under this Note in accordance with the provisions hereof; (iii) any loan or commitment fees; and (iv) all Additional Sums (as hereinafter defined), if any. Maker agrees to pay an effective contracted for rate of interest which is the sum of the above referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Maker (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement, the other Documents or any other documents or instruments in any way pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Maker as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. This Note is prepayable in whole but not in part at any time without premium or penalty upon not less than thirty (30) days prior written notice to Holder of such prepayment, which notice shall be irrevocable and shall state the prepayment date. In the event that Holder institutes legal proceedings to enforce this Note and Holder is the prevailing party in such proceedings, Maker agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs and expenses of such proceedings, including, without limitation, attorneys' fees. Holder shall not by any act or omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein; a waiver on one occasion shall not be construed as continuing or as a bar to or waiver of such right or remedy on any other occasion. All remedies conferred upon Holder by this Note or any other instrument or agreement connected herewith or 3 4 related hereto shall be cumulative and none is exclusive and such remedies may be exercised concurrently or consecutively at Holder's option. Every person or entity at any time liable for the payment of the indebtedness evidenced hereby waives: presentment for payment, protest and demand; notice of protest, demand, dishonor and nonpayment of this Note; and trial by jury in any litigation arising out of, relating to or connected with this Note or any instrument given as security herefor. Every such person or entity further consents that Holder may renew or extend the time of payment of any part or the whole of the indebtedness at any time and from time to time at the request of any other person or entity liable therefor. Any such renewals or extensions may be made without notice to any person or entity liable for the payment of the indebtedness evidenced hereby. This Note is given and accepted as evidence of indebtedness only and not in payment or satisfaction of any indebtedness or obligation. Time is of the essence with respect to all of Maker's obligations and agreements under this Note. This Note and all of the provisions, conditions, promises and covenants hereof shall be binding in accordance with the terms hereof upon Maker, its successors and assigns, provided nothing herein shall be deemed consent to any assignment restricted or prohibited by the terms of the Loan Agreement. If more than one person or other entity has executed this Note as Maker, the obligations of such persons and entities shall be joint and several. This Note has been executed and delivered in Phoenix, Arizona, and the obligations of Maker hereunder shall be performed in Phoenix, Arizona. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND, TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES. Maker (a) hereby irrevocably submits itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court for Arizona, for the purposes of suit, action or other proceedings arising out of or relating to this Note or the subject matter hereof brought by Holder and (b) without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Maker is not personally subject to the jurisdiction of the above-named courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such 4 5 other usury law which is applicable if the law chosen by the parties is not. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or (c) all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstance the amount of interest contracted for, shared or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law: (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. 5 6 In the event of any conflict or inconsistency between the provisions of this Note and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall control. This Note is an amendment and restatement of that certain Second Amended and Restated Promissory Note, dated as of June 5, 1996, by Maker to the order of Lender. This Note shall not constitute a waiver of any existing default or breach of a covenant, if any, and shall have no retroactive effect; provided, however, that any and all written waivers given heretofore are hereby extended to the date hereof. PREFERRED EQUITIES CORPORATION, a Nevada corporation "Maker" By: ____________________________________ Name: ______________________________ Its: _______________________________ Federal Taxpayer Identification Number: 88-0106662 Address: 4310 Paradise Road Las Vegas, Nevada 89109 Attention: President 6 EX-10.154 4 AMENDMENT NO.4 1 10.154 AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT THIS AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT (the "Amendment") is entered into as of the _____th day of November, 1998, by and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower"). R E C I T A L S a. Lender and Borrower entered into a Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 (the "Loan Agreement") that evidences a loan from Lender to Borrower. b. The 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") and by the Letter Agreement [Headquarters Readvance] dated September 29, 1998 (the "Third Amendment"). c. Borrower has requested and Lender has agreed (i) to make a single Advance to Borrower in the amount of One Million One Hundred Thousand Dollars ($1,100,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Winnick Building Addition Note, (ii) to make a single Advance to Borrower in the amount of Eight Hundred Thousand Dollars ($800,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Ida Building Addition Note, (iii) to make a single Advance to Borrower in the amount of Six Hundred Thousand Dollars ($600,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Aloha Bay Note, and (iv) to modify certain eligibility criteria and other covenants, all on the terms and subject to the conditions contained in this Amendment, which conditions shall include the pledging by Borrower to Lender of certain real property which is identified below as the Calvada Sports Complex. 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 is hereby acknowledged, Lender and Borrower agree as follows: 1. LOAN AGREEMENT. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning set forth in the Loan Agreement. Provided the conditions precedent described in Paragraph 5 of this Amendment are met to the 2 satisfaction of Lender, which satisfaction will be evidenced by Lender's execution of this Amendment, the Loan Agreement is hereby further modified as follows: 1.1 The Loan Agreement is hereby amended by adding to Article I the following definitions: "Calvada Sports Complex": shall mean that approximately twenty two (22) acre parcel of real property located in Nye, County, Nevada and more fully described on the attached Exhibit 1. "First Amendment": shall have the meaning set forth in the Fourth Amendment. "Fourth Amendment": shall mean the Amendment No. 4 to Amended and Restated and Consolidated Loan and Security Agreement. "Second Amendment": shall have the meaning set forth in the Fourth Amendment. "Third Amendment": shall have the meaning set forth in the Fourth Amendment. 1.2 The definition of the following terms in Article I of the Loan Agreement, including, to the extent applicable, the First Amendment, Second Amendment and Third Amendment are hereby amended and restated in their entirety to read as follows: "Aloha Bay Maturity Date": shall mean the date which occurs twenty-four (24) months following the date that Lender makes the Advance under the Fourth Amendment. "Aloha Bay Note": shall mean that certain First Amended and Restated and Consolidated Promissory Note [Aloha Bay Phase I] of Borrower dated as of November 6, 1998 in the original principal amount of One Million Seven Thousand One Hundred Dollars ($1,007,100) evidencing the Advances of the Loan made by Lender to Borrower with respect to Aloha Bay, together with any modifications, amendments, restatements or supplements from time to time made thereto, whether now or hereafter existing. "Aloha Bay Release Fees": shall mean Two Thousand Six Hundred Twenty Five Dollars ($2,625) per Unit. 2 3 "Borrowing Base": shall mean, as of the date of any determination thereof, an amount equal to the lesser of (a) ninety percent (90%) of the unpaid principal balance payable under the Eligible Receivables, or (b) ninety percent (90%) of the then present value assigned to the unmatured installments of principal and interest payable under the Eligible Receivables, discounted at Lender's prevailing discount rate calculated as set forth in PARAGRAPH 7.6(i)(C); provided, however, that the maximum Borrowing Base allocable to Eligible Receivables arising from the sale of Units in Project (Reno) shall not in any event exceed Four Million Dollars ($4,000,000); and provided, further, that the maximum Borrowing Base allocable to Eligible Receivables arising from the sale of Lots shall not in any event exceed Thirty Five Million Dollars ($35,000,000) in the aggregate; and provided, further, that the maximum Borrowing Base allocable to Eligible Receivables arising from Unsolidified Lot Sales shall be equal to sixty five percent (65%) of the unpaid principal balance of all Eligible Receivables consisting of Receivables Collateral constituting Unsolidified Lot Sales, not to exceed at any time, however, the lesser of (i) an amount equal to ten percent (10%) of the total unpaid principal balance of all Eligible Receivables consisting of Receivables Collateral which are not constituted of Unsolidified Lot Sales, or (ii) Three Million Five Hundred Thousand Dollars ($3,500,000). "Ida Building Addition Maturity Date": shall mean the date which occurs twenty four (24) months following the date that Lender makes the Advance under the Fourth Amendment. "Ida Building Addition Note": shall mean that certain First Amended and Restated Promissory Note [Ida Building Addition] of Borrower dated November 6, 1998, executed and delivered to Lender in the amount of Two Million One Hundred Twenty-Five Thousand Two Hundred Twenty and 80/100 Dollars ($2,125,220.80), evidencing Advances of the Loan made under the Mortgage Loan Facility with respect to the Ida Building Addition, together with any modifications, amendments, restatements or supplements from time to time made thereto, whether now or hereafter existing. "Ida Building Addition Release Fee": shall mean Three Thousand Three Hundred Dollars ($3,300) per Unit. "Winnick Building Addition Maturity Date": shall mean the date which occurs twenty-four (24) months following the date that Lender makes the Advance under the Fourth Amendment. "Winnick Building Addition Note": shall mean that certain First Amended and Restated Promissory Note [Winnick Building Addition] of Borrower dated as of November 6, 1998, executed and delivered to Lender in the amount of 3 4 Two Million Three Hundred Ninety-Seven Thousand Five Hundred Dollars ($2,397,500), evidencing the Advances of the Loan made under the Mortgage Loan Facility made with respect to the Winnick Building Addition, together with any modifications, amendments, restatements or supplements from time to time made thereto, whether now or hereafter existing. "Winnick Building Addition Release Fees": shall mean Three Thousand Six Hundred Dollars ($3,600) per Unit. 1.3 The definition of Documents shall be amended to include each of the Notes, now existing and hereafter created, and each now existing and hereafter created Mortgage securing the repayment of each of the Notes. 1.4 The provisions of Section 3.9 of the Loan Agreement, dealing with the payment of the incentive fee with respect to the Aloha Bay Note, shall be amended to provide that at such time as Borrower has repaid the Aloha Bay Note in full the incentive fee with respect to Aloha Bay shall be payable in increments of Two Thousand Six Hundred Twenty Five Dollars ($2,625) per Unit until Borrower has paid to Lender a total incentive fee as to Aloha Bay of Thirty Two Thousand Six Hundred Forty Dollars ($32,640). The provisions of Section 3.9 of the Loan Agreement shall be further modified to provide that the definition of the Aloha Bay Release Fee shall be as set forth in Article I of the Loan Agreement as amended by this Amendment. 1.5 The provisions of Section 3.14 of the Loan Agreement, dealing with the payment of the incentive fee with respect to the Ida Building Addition Note, shall be amended to provide that at such time as Borrower has repaid the Ida Building Addition Note in full the incentive fee with respect to Ida Building Addition shall be payable in increments of Three Thousand Three Hundred Dollars ($3,300) per Unit until Borrower has paid to Lender a total incentive fee as to Ida Building Addition of Twenty Four Thousand Four Hundred Eighty Dollars ($24,480). The provisions of Section 3.14 of the Loan Agreement shall be further modified to provide that the definition of the Ida Building Addition Release Fee shall be as set forth in Article I of the Loan Agreement as amended by this Amendment. 1.6 The provisions of Section 3.15 of the Loan Agreement, dealing with the payment of the incentive fee with respect to the Winnick Building Addition Note shall be amended to provide that at such time as Borrower has repaid the Winnick Building Addition Note in full the incentive fee with respect to Winnick Building Addition shall be payable in increments of Three Thousand Six Hundred Dollars ($3,600) per Unit until Borrower has paid to Lender a total incentive fee as to Winnick Building Addition of Twenty Two Thousand Four Hundred Forty Dollars ($22,440). The provisions of Section 3.15 of the Loan Agreement shall be further 4 5 modified to provide that the definition of the Winnick Building Addition Release Fee shall be as set forth in Article I of the Loan Agreement as amended by this Amendment. 1.7 Exhibit "I-C" of the Loan Agreement, entitled "Conditions of Eligible Receivables" shall be amended by adding a subparagraph (m) reading as follows: "(m) As an alternative to the eligibility criteria set forth in subparagraphs (c) and (d) above, Borrower has received from the Purchaser, with respect to any Unit which is the subject of the Eligible Receivable, aggregate cash payments, consisting of the down payment and all principal payments, of not less than fifty percent (50%) of the total sales price, no part of which has been advanced or loaned to such Purchaser by Borrower, directly or indirectly; the Instrument or Contract provides for consecutive monthly installments of principal and interest in United States funds having a remaining term not exceeding thirty-six (36) months; and the Instrument or Contract provides for the accrual of interest on the unpaid balance at a rate of not less than five percent (5%) per annum; provided, however, that in no event shall the unpaid principal balance of Eligible Receivables against which an Advance is made pursuant to this paragraph exceed Three Million Dollars ($3,000,000)." 1.8 The provisions of paragraph 2.1 of the Loan Agreement shall be amended and restated in their entirety as follows: "The Loan. Subject to the terms and conditions of this Agreement, Lender hereby agrees to make a Loan to Borrower in the amounts and for the purposes hereinafter described. The Loan shall be constituted of the Receivables Loan, the Mortgage Loan Facility, a One Million Seven Thousand One Hundred Dollars ($1,007,100) nonrevolving mortgage loan made with respect to Aloha Bay (the "Aloha Bay Loan"), a Six Million Five Hundred Eighty Three Thousand Four Hundred Six and 43/100 Dollar ($6,583,406.43) nonrevolving mortgage loan previously made with respect to the Headquarters Building and the FCFC Property (the "Office Loan") and a One Million One Hundred Seventy Three Thousand Seven Hundred Fifty Thousand Dollar ($1,173,750.00) nonrevolving mortgage loan previously made with respect to the Biloxi Property." 1.9 The provisions of Section 7.15 of the Loan Agreement shall be amended by deleting from the text thereof the number $2,900.00 in each place where such number appears and substituting in lieu thereof the number "$2,625.00". 5 6 1.10 The provisions of Section 7.16 of the Loan Agreement shall be amended by deleting from the text thereof the number $1,650.00 in each place where such number appears and substituting in lieu thereof the number "$3,300.00". 1.11 The provisions of Section 7.17 of the Loan Agreement shall be amended by deleting from the text thereof the number $2,500.00 in each place where such number appears and substituting in lieu thereof the number "$3,600.00". 1.12 Sections 8.23(b) and 8.23(d) of the Loan Agreement shall be amended and restated in their entirety and a new Section 8.23(e) shall be added, as follows: (b) Consolidated Debt to Consolidated Tangible Net Worth. Commencing with the fiscal quarter ending August 31, 1999, the ratio of consolidated total liabilities of Borrower and its Subsidiaries to the Consolidated Tangible Net Worth of Borrower and its Subsidiaries shall not, at any time, be greater than 4:1. (d) Sales, General and Administrative Expenses to Net Sales. On the final day of each fiscal quarter of Borrower, commencing with the fiscal quarter ending November 30, 1998 the sum of (i) the total of Borrower's costs and expenses for commissions and selling relating to retail lot sales and time-share sales (exclusive of any fees payable by Borrower to Hospitality Franchise Systems, Inc.) and (ii) the total of Borrower's general and administrative expenses, (the costs and expenses described in clauses (i) and (ii) hereinafter the "SGA Expenses") shall not exceed the amount obtained when the total of Borrower's processed sales of retail lots and time-share interests for the same period (each net of cancellations of such sales) ("Net Sales") is multiplied by the percentage set forth below; provided, however, that a breach of this covenant shall not be an Event of Default, but in the event that there are two (2) consecutive occurrences of a breach of this covenant or in the event a breach of this covenant continues without cure for a period in excess of sixty (60) days after the end of any test quarter, Lender shall have no further obligation to make any Advances hereunder, including, without limitation, any Receivables Advances or any Advances under the Mortgage Loan Facility until such breach is cured. Until August 31, 1999, the foregoing covenant shall be tested quarterly based upon Borrower's total cumulative SGA Expenses and total cumulative Net Sales from September 1, 1998 through the end of the relevant quarter. Commencing on November 30, 1999, the foregoing covenant shall be tested quarterly based upon Borrower's total aggregate SGA Expenses and Net Sales for the immediately preceding four (4) fiscal quarters. 6 7
Test Date Percentage --------- ---------- November 30, 1998 65% February 28, 1999 70% May 31, 1999 67% August 31, 1999 and thereafter 65%
Notwithstanding the contrary provisions set forth in the introductory portions of Section 8.23, the compliance of Borrower with the financial covenants set forth in this Section 8.23(d) shall be confirmed by Borrower's delivery to Lender of a certification in a form acceptable to Lender which certification shall be signed by a duly-authorized officer of Borrower and shall be delivered to Lender within sixty (60) days after the expiration of the first, second and third fiscal quarters of Borrower and within one hundred twenty (120) days after the expiration of each fourth quarter. (e) Sales Volume. On the final day of each fiscal quarter of Borrower, commencing with the fiscal quarter ending November 30, 1998 and ending with the fiscal quarter ending August 31, 1999, Borrower's Net Sales as defined above shall equal or exceed the amounts set forth below; provided, however, that a breach of this covenant shall not be an Event of Default, but in the event that there are two (2) consecutive occurrences of a breach of this covenant or in the event a breach of this covenant continues without cure for a period in excess of sixty (60) days after the end of any test quarter, Lender shall have no further obligation to make any Advances hereunder, including, without limitation, any Receivables Advances or any Advances under the Mortgage Loan Facility until such breach is cured. The foregoing covenant shall be tested quarterly based upon Borrower's total cumulative Net Sales from September 1, 1998 through the end of the relevant quarter.
Volume Test Date Amount of Sales --------- --------------- November 30, 1998 $17,507,168 February 28, 1999 $16,484,761 May 31, 1999 $21,565,217 August 31, 1999 $25,459,567
Notwithstanding the contrary provisions set forth in the introductory portions of Section 8.23, the compliance of Borrower with the financial covenants set forth in this Section 8.23(e) shall be confirmed by Borrower's delivery to Lender of a certification in a form acceptable to Lender which certification shall be signed by a duly-authorized officer of Borrower and shall be delivered to Lender within sixty (60) days after the expiration of the first, second and third fiscal quarters of Borrower and within one hundred twenty (120) days after the expiration of the fourth quarter. 7 8 2. READVANCES. 2.1 Subject to the satisfaction of the terms and conditions set forth in this Amendment, Lender agrees to (i) to make a single Advance (the "Winnick Building Addition Readvance") to Borrower in the amount of One Million One Hundred Thousand Dollars ($1,100,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Winnick Building Addition Note, (ii) to make a single Advance (the "Ida Building Addition Readvance") to Borrower in the amount of Eight Hundred Thousand Dollars ($800,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Ida Building Addition Note, and (iii) to make a single Advance (the "Aloha Bay Readvance") to Borrower in the amount of Six Hundred Thousand Dollars ($600,000) which shall constitute a readvance of a portion of the principal amount that has been repaid under the Aloha Bay Note. 2.2 The Aloha Bay Readvance, together with the present outstanding principal balance of the Aloha Bay Note, shall be evidenced by a First Amended and Restated Promissory Note [Aloha Bay] in the amount of One Million Seven Thousand One Hundred Dollars ($1,007,100) constituting the sum (i) of the Aloha Bay Readvance (i.e., $600,000) and (ii) the unpaid balance of the Aloha Bay Note as of the date hereof (i.e., $407,100). Borrower represents and warrants to Lender that the unpaid principal balance of the Aloha Bay Note as of the date hereof is Four Hundred Seven Thousand One Hundred Dollars ($407,100). The Aloha Bay Readvance shall be secured pursuant to, among other things, the Aloha Bay Mortgage in the same priority as previous advances under the Aloha Bay Note, as well as the Loan Agreement, and as more fully set forth in Section 3 below. 2.3 The Ida Building Addition Readvance, together with the present outstanding principal balance of the Ida Building Addition Note, shall be evidenced by a First Amended and Restated Promissory Note [Ida Building Addition] in the amount of Two Million One Hundred Twenty-Five Thousand Two Hundred Twenty and 80/100 Dollars ($2,125,220.80) constituting the sum of (i) the Ida Building Addition Readvance (i.e. $800,000) and (ii) the unpaid principal balance of the Ida Building Addition Note as of the date hereof (i.e. $1,325,220.80). Borrower represents and warrants to Lender that the unpaid principal balance of the Ida Building Addition Note as of the date hereof is One Million Three Hundred Twenty-Five Thousand Two Hundred Twenty and 80/100 Dollars ($1,325,220.80). The Ida Building Addition Readvance shall be secured pursuant to, among other things, the Ida Building Addition Deed of Trust in the same priority as previous advances under the Ida Building Addition Note, as well as the Loan Agreement, and as more fully set forth in Section 3 below. 8 9 2.4 The Winnick Building Addition Readvance, together with the present outstanding principal balance of the Winnick Building Addition Note, shall be evidenced by a First Amended and Restated Promissory Note [Winnick Building Addition] in the amount of Two Million Three Hundred Ninety-Seven Thousand Five Hundred Dollars ($2,397,500) constituting the sum of (i) the Winnick Building Addition Readvance (i.e., $1,100,000) and (ii) the unpaid principal balance of the Winnick Building Addition Note as of the date hereof (i.e., $1,297,500). Borrower represents and warrants to Lender that the unpaid principal balance of the Winnick Building Addition Note as of the date hereof is One Million Two Hundred Ninety-Seven Thousand Five Hundred Dollars ($1,297,500). The Winnick Building Addition Readvance shall be secured pursuant to, among other things, the Winnick Building Addition Deed of Trust in the same priority as previous advances under the Winnick Building Addition Note, as well as the Loan Agreement, and as more fully set forth in Section 3 below. 3. SECURITY. Without limitation, as provided in paragraphs 3.1(a) and (b) of the Loan Agreement and the Mortgages securing the Notes now existing or hereafter arising, the payment and Performance of Borrower's Obligations under or as evidenced by this Amendment and by the Aloha Bay Note, Ida Building Addition Note and Winnick Building Addition Note (as the foregoing notes have been redefined by this Amendment) shall be and shall continue to be secured by the liens and Security Interests granted to Lender pursuant to the Loan Agreement, as amended and supplemented by this Amendment, and pursuant to such Mortgages, subject however to the release provisions set forth in the Loan Documents. 4. MARKETING AND DEBT COVENANT. Lender waives compliance by Borrower with the covenant contained in Section 8.23(b) for the period of time commencing January 1, 1998 through the date of this Amendment and compliance by Borrower with the covenant contained in Section 8.23(d) for the period of time commencing January 1, 1998 through August 31, 1998. However the foregoing waiver shall not constitute a waiver by Lender of any other Events of Default or any acts or events which with notice, passage of time or both would constitute Events of Default under the Documents. 5. CONDITIONS PRECEDENT. Lender's obligations under this Amendment are subject to the satisfaction of the following conditions precedent: 5.1 Borrower shall have delivered to Lender the following executed documents, all in form satisfactory to Lender: (a) This Amendment; and (b) Appropriate amendments to each of the Aloha Bay Note, Ida Building Addition Note, Winnick Building Addition Note, Aloha Bay 9 10 Mortgage, Ida Building Addition Deed of Trust and Winnick Building Addition Deed of Trust to further effectuate the agreement set forth in this Amendment. 5.2 Lender shall have obtained an irrevocable commitment from its title insurer to issue to Lender title insurance endorsements acceptable to Lender with respect to each of the Aloha Bay Mortgage, the Ida Building Addition Deed of Trust and the Winnick Building Addition Deed of Trust to account for the making of the Aloha Bay Readvance, the Ida Building Addition Readvance, and the Winnick Building Addition Readvance, all at the sole cost and expense of Borrower. 5.3 Borrower has obtained and delivered to Lender an irrevocable commitment from Lender's title insurer with respect to the Biloxi Deed of Trust to account for the making of the Headquarters Readvance as more fully described in the Third Amendment, all at the sole cost and expense of Borrower. 5.4 Lender shall have received an approved updated credit reference on Borrower from each of Heller Financial, Inc., Textron Financial Corp., Marine Midland Bank and First Chicago Bank. 5.5 Lender shall have received and approved the current accounts payable aging schedule of Borrower. 5.6 Borrower shall have satisfied the following conditions contained in Exhibit 5.2.2 of the Loan Agreement: 1(b) through (i), 3, 4, 5, 6, 7, 8, 9, 10, 11 and 16. With respect to this Amendment only, (i) all references in the foregoing conditions to the term "Project" shall mean the Calvada Sports Complex; (ii) the reference to Project Incentive Fee shall be deleted; (iii) the reference to Project Note shall mean the Aloha Bay Note, the Ida Building Addition Note and the Winnick Building Addition Note (as the foregoing notes have been herein redefined), in the aggregate; and (iv) the zoning evidence as contemplated in condition 16 shall support the present use of the Calvada Sports Complex. 5.7 Borrower has paid the Lender the Readvance Fee as defined below. 5.8 There shall have occurred no material adverse change in any real property or in the business or financial condition of the Borrower and Guarantor since the date of the last financial statement submitted to Lender. 6. INCORPORATION OF OTHER PROVISIONS OF LOAN AGREEMENT. For all purposes under the Loan Agreement, the Aloha Bay Readvance, the Ida Building Addition Readvance and the Winnick Building Addition Readvance shall each be deemed a 10 11 "transaction made pursuant to this Agreement," as contemplated in Section 8.1 of the Loan Agreement, except that for purposes of the representations, covenants and warranties under Article VIII thereof, the current status of all litigation matters affecting the Borrower and Guarantor is as set forth on the attached Exhibit 2 and the current financial condition (including, without limitation, compliance with financial covenants) of the Borrower and Guarantor is reflected on the most recent financial statements delivered by Borrower and Guarantor to Lender prior to the date hereof. 7. READVANCE FEE. In consideration of Lender's covenants, agreements and promises under this Amendment, Borrower shall pay to Lender at the time of the Advance made pursuant to this Amendment a fee in the amount of Twelve Thousand Five Hundred Dollars ($12,500.00) (the "Readvance Fee") which may be withheld from the proceeds of the Advance made pursuant to this Amendment. Lender acknowledges the receipt of One Thousand Seven Hundred Eighty-Six Dollars ($1,786) of the Readvance Fee. 8. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof. 9. COUNTERPARTS. This Amendment may be executed in one or more counterparts, and any number of which having been signed by all the parties hereto shall be taken as one original. 10. NO NOVATION. Except as 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 to be construed as a release, waiver or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in the Documents, except as expressly stated herein. To the extent practicable, any provisions of this Amendment which conflict with any provisions of the Documents shall be construed to supplement such provisions of the Documents, provided that, in the event of irreconcilable conflict, the provisions of this Amendment, construed as narrowly as practicable, shall control. 11. COMMISSIONS. Lender shall not be obligated to pay any loan commission and/or brokerage fee in connection with the Advances of the Loan made pursuant to this Amendment. Borrower shall pay any and all such commissions and fees, if any, and hereby agrees to indemnify, defend and hold harmless Lender from any claim for any such commissions or fees. Lender represents and warrants to Borrower that Lender has no knowledge of broker involvement in the transactions contemplated by this Amendment. 12. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges that the indebtedness evidenced by the Documents is just and owing and agrees to pay the indebtedness in accordance with the terms of the Documents. Borrower further 11 12 acknowledges and represents that no event has occurred and no condition presently exists that would constitute a default or event of default by Borrower under the Loan Agreement, as amended, or any of the other Documents, with or without notice or lapse of time, other than as to those matters waived pursuant to Paragraph 4 hereof. 13. VALIDITY OF DOCUMENTS. Borrower hereby ratifies, reaffirms, acknowledges and agrees that the Loan Agreement, as amended, and the other Documents represent valid, enforceable and collectable obligations of Borrower, and that Borrower presently has no existing claims, defenses (personal or otherwise) or rights of setoff whatsoever with respect to the Obligations of Borrower under the Loan Agreement or any of the other Documents. Borrower furthermore agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. 14. OTHER WRITINGS. Lender and Borrower will execute such other writings as may be necessary to confirm or carry out the intentions of Lender and Borrower evidenced by this Amendment. 15. EFFECTIVENESS OF AMENDMENT. This Amendment shall not be effective until the same is executed and accepted by Lender in the State of Arizona. IN WITNESS WHEREOF, this instrument is executed as of the day and year first above written. PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION, a Nevada corporation a Delaware corporation By: _____________________________ By: ____________________________ Title ___________________________ Title: _________________________ 12 13 State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on ___________, 1998 by ______________ as ______________________ of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ___________________________________ Notary (My commission expires:) ___________ State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on ___________, 1998 by ________________________ as ______________________ of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. ___________________________________ Notary (My commission expires:) ___________ 13 EX-10.155 5 AMENDMENT NO.4 TO SECOND AMENDED & RESTATED LOAN 1 10.155 CONSENT OF GUARANTOR (AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT) The undersigned, MEGO FINANCIAL CORP., a New York corporation (formerly named Mego Corp.) ("Guarantor"), hereby acknowledges that Guarantor executed and delivered to GREYHOUND REAL ESTATE FINANCE COMPANY, an Arizona corporation ("GREFCO"), an Amended and Restated Guarantee and Subordination Agreement dated as of May 10, 1989 (the "Guarantee"), guaranteeing performance of the obligations of PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower"), to Lender (as hereinafter defined) under the Loan Agreement, the Note and other Documents (as the terms "Loan Agreement," "Note" and "Documents" are defined in the Guarantee). All terms used herein with initial capital letters, to the extent not otherwise defined in the Guarantee or this Consent, shall have the meanings given such terms in the Amended and Restated Loan Agreement (as defined below), as amended. GREFCO has assigned the Note and all of GREFCO's rights and obligations under the Loan Agreement and the other Documents to FINOVA CAPITAL CORPORATION, a Delaware corporation (formerly known as Greyhound Financial Corporation) ("Lender"), pursuant to a plan of liquidation between GREFCO and Lender. With Guarantor's ratification, consent and approval, Borrower and Lender amended and restated the Loan Agreement pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated May 15, 1997 (the "Amended and Restated Loan Agreement"). Guarantor hereby acknowledges that, pursuant to the terms of that Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Fourth Amendment") of even date herewith, Lender proposes to (i) to make a single Advance to Borrower in the amount of One Million One Hundred Thousand Dollars ($1,100,000) (the "Winnick Addition Readvance") which shall constitute a readvance of a portion of the principal amount that has been repaid under the Winnick Building Addition Note, (ii) to make a single Advance to Borrower in the amount of Eight Hundred Thousand Dollars ($800,000) (the "Ida Addition Readvance") which shall constitute a readvance of a portion of the principal amount that has been repaid under the Ida Building Addition Note, (iii) to make a single Advance to Borrower in the amount of Six Hundred Thousand Dollars ($600,000) (the "Aloha Bay Readvance") which shall constitute a readvance of a 2 portion of the principal amount that has been repaid under the Aloha Bay Note, and (iv) to modify certain eligibility criteria and other covenants contained in the Amended and Restated Loan Agreement, which conditions include the pledging by Borrower to Lender of certain real property which is identified as the Calvada Sports Complex in the Fourth Amendment. Guarantor further acknowledges that (i) the Winnick Addition Readvance, the Ida Addition Readvance and the Aloha Bay Readvance will be evidenced by amended and restated notes (individually, the "Winnick Addition Readvance Note," the "Ida Addition Readvance Note" and the "Aloha Bay Readvance Note", respectively, and, collectively, the "Readvance Notes") to be executed and delivered to Lender by Borrower simultaneously with execution of the Fourth Amendment; (ii) the Winnick Addition Readvance and the Winnick Addition Readvance Note are secured, in part, by the Winnick Building Addition Deed of Trust, (iii) the Ida Addition Readvance and the Ida Addition Readvance Note are secured, in part, by the Ida Building Addition Deed of Trust, (iv) the Aloha Bay Readvance and the Aloha Bay Readvance Note are secured, in part, by the Aloha Bay Mortgage, and (v) pursuant to the terms and conditions of the Fourth Amendment, Lender and Borrower are modifying and amending the Winnick Building Addition Deed of Trust, the Ida Building Addition Deed of Trust and the Aloha Bay Mortgage (such modifications being hereinafter referred to as the "Readvance Deed of Trust/Mortgage Modifications"). Guarantor consents to the Fourth Amendment, the Winnick Addition Readvance, Ida Addition Readvance and Aloha Bay Readvance, the Readvance Notes and the Readvance Deed of Trust/Mortgage Modifications 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 the Fourth Amendment, the Winnick Addition Readvance, Ida Addition Readvance and Aloha Bay Readvance, the Readvance Notes and the Readvance Deed of Trust/Mortgage Modifications, and (iv) all terms, conditions and provisions set forth in the Fourth Amendment, the Readvance Notes, the Readvance Deed of Trust/Mortgage Modifications and all other Documents executed in connection therewith, are hereby ratified, approved and confirmed. Guarantor reaffirms as if made on the date hereof all of Guarantor's representations and warranties contained in the Guarantee except as otherwise set forth in the Amended and Restated Loan Agreement, in the Fourth Amendment or on EXHIBIT 1 attached hereto. Guarantor acknowledges that as of the date hereof, it has (a) no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages 2 3 from Lender or GREFCO or as a basis to reduce or eliminate all or any part of its liability under the Guarantee, and (b) no other claim against Lender or GREFCO with respect to any portion of the transaction described in the Documents. IN WITNESS WHEREOF, Guarantor has hereunto executed this instrument as of the _____ day of November, 1998. MEGO FINANCIAL CORP., a New York corporation By _________________________________ Its ________________________________ STATE OF _____________ ) ) ss. COUNTY OF ____________ ) BEFORE ME, the undersigned authority, a Notary Public in and for the County and State aforesaid, on this day personally appeared ____________________________________________________________________, known to me to be the __________________________ of MEGO FINANCIAL CORP., a New York corporation, who acknowledged to me that the same was the free act and deed of such corporation and that s/he being authorized by proper authority to do so, executed the same on behalf of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of _____________, 1998. ____________________________________ Notary Public My Commission Expires: _____________________________ 3 4 EXHIBIT 1 TO CONSENT OF GUARANTOR EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES REAFFIRMED BY GUARANTOR PURSUANT TO THIS CONSENT [IF NONE, INSERT "NONE"] NONE EX-10.156 6 AMENDED AND RESTATED GUARANTEE 1 10.156 CONSENT OF GUARANTOR (HEADQUARTERS READVANCE) The undersigned, MEGO FINANCIAL CORP., a New York corporation (formerly named Mego Corp.) ("Guarantor"), hereby acknowledges that Guarantor executed and delivered to GREYHOUND REAL ESTATE FINANCE COMPANY, an Arizona corporation ("GREFCO"), an Amended and Restated Guarantee and Subordination Agreement dated as of May 10, 1989 (the "Guarantee"), guaranteeing performance of the obligations of PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower"), to Lender (as hereinafter defined) under the Loan Agreement, the Note and other Documents (as the terms "Loan Agreement," "Note" and "Documents" are defined in the Guarantee). GREFCO has assigned the Note and all of GREFCO's rights and obligations under the Loan Agreement and the other Documents to FINOVA CAPITAL CORPORATION, a Delaware corporation (formerly known as Greyhound Financial Corporation) ("Lender"), pursuant to a plan of liquidation between GREFCO and Lender. With Guarantor's ratification, consent and approval, Borrower and Lender amended and restated the Loan Agreement pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated May 15, 1997 (the "Amended and Restated Loan Agreement"). Guarantor hereby acknowledges that, pursuant to the terms of the Amended and Restated Loan Agreement, Lender proposes to advance to Borrower an additional principal sum of up to One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Headquarters Readvance"). Guarantor further acknowledges that the Headquarters Readvance is evidenced by that certain Third Amended and Restated Promissory Note in the principal amount of Six Million Five Hundred Eighty-Three Thousand Four Hundred Six and 43/100 Dollars ($6,583,406.43) dated September 29, 1998, executed by Borrower and payable to the order of Lender (as from time to time modified, extended, renewed, replaced or restated, the "Third Amended Headquarters Note"), that the Headquarters Readvance is secured, in part, by certain real property located in Clark County Nevada pursuant to that certain Third Modification of Deed of Trust, Assignment of Rents and Proceeds and Security Agreement [FCFC Property] dated September 29, 1998 (the "Third FCFC Deed of Trust Modification") and pursuant to that certain Sixth Modification of Deed of Trust, Assignment of Rents and Proceeds and Security Agreement [Headquarters] dated September 29, 1998 (the "Sixth Headquarters Deed of Trust Modification"), which 2 amend in certain respects certain existing deeds of trust in favor of Lender and that a side letter is being executed in connection with the Headquarters Readvance (the "Headquarters Readvance Side Letter"). Guarantor consents to the Third Amended Headquarters Note, the Third FCFC Deed of Trust Modification, the Sixth Headquarters Deed of Trust Modification and the Headquarters Readvance Side Letter and agrees that (i) the Guarantee shall remain in full force and effect, (ii) that 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 the Third Amended Headquarters Note, the Third FCFC Deed of Trust Modification, the Sixth Headquarters Deed of Trust Modification and the Headquarters Readvance Side Letter and (iv) all terms, conditions and provisions set forth in the Third Amended Headquarters Note, the Third FCFC Deed of Trust Modification, the Sixth Headquarters Deed of Trust Modification and the Headquarters Readvance Side Letter and all other Documents executed therewith, are hereby ratified, approved and confirmed. Guarantor reaffirms as if made on the date hereof all of Guarantor's representations and warranties contained in the Guarantee except as otherwise set forth in the Amended and Restated Loan Agreement, in the Headquarters Readvance Side Letter or on EXHIBIT 1 attached hereto. Guarantor acknowledges that as of the date hereof, it has (a) no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender or GREFCO or as a basis to reduce or eliminate all or any part of its liability under the Guarantee, and (b) no other claim against Lender or GREFCO with respect to any portion of the transaction described in the Documents. IN WITNESS WHEREOF, Guarantor has hereunto executed this instrument as of the 29th day of September, 1998. MEGO FINANCIAL CORP., a New York corporation By _________________________________ Its ________________________________ 2 3 STATE OF _____________ ) ) ss. COUNTY OF ____________ ) BEFORE ME, the undersigned authority, a Notary Public in and for the County and State aforesaid, on this day personally appeared ____________________________________________________________________, known to me to be the __________________________ of MEGO FINANCIAL CORP., a New York corporation, who acknowledged to me that the same was the free act and deed of such corporation and that s/he being authorized by proper authority to do so, executed the same on behalf of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of _____________, 1998. ____________________________________ Notary Public My Commission Expires: ___________________________ 3 4 EXHIBIT 1 TO CONSENT OF GUARANTOR EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES REAFFIRMED BY GUARANTOR PURSUANT TO THIS CONSENT [IF NONE, INSERT "NONE"] NONE EX-10.157 7 FIRST AMENDED AND RESTATED PROMISSORY NOTE 1 10.157 FIRST AMENDED AND RESTATED PROMISSORY NOTE [IDA BUILDING ADDITION] U.S. $2,125,220.80 November, ___, 1998 Phoenix, Arizona FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the holder of this Note ("Holder") may from time to time designate in writing, in lawful money of the United States of America, the principal sum of up to TWO MILLION ONE HUNDRED TWENTY-FIVE THOUSAND TWO HUNDRED TWENTY AND 80/100 DOLLARS (U.S. $2,125,220.80), or so much thereof as has been disbursed and not repaid, together with interest on the unpaid principal balance from time to time outstanding from the date hereof until paid, as more fully provided for below. Interest due under this Note shall (a) accrue daily on the basis of the actual number of days in the computation period, (b) be calculated on the basis of a year consisting of 360 days, and (c) be payable monthly in arrears on the later of (i) ten (10) days after Lender mails an invoice or statement therefor to Maker or (ii) the due date set forth in said invoice or statement. Interest shall accrue initially at an annual interest rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on the date of the initial advance of the loan evidenced by this Note ("Initial Prime") plus two percent (2%) per annum, subject to adjustment on each Interest Rate Change Date (as hereinafter defined), but in no event to exceed the maximum contract rate permitted under the Applicable Usury Law (as hereinafter defined). The interest rate shall change on each Interest Rate Change Date by adding to or subtracting from the Initial Interest Rate, as the case may be, the change, if any, between Initial Prime and Prime in effect on the applicable Interest Rate Change Date. As used in this Note, the following capitalized terms have the meaning set forth opposite them below: "Prime" shall mean the rate of interest publicly announced, from time to time, by Citibank, N.A., New York, New York ("Citibank"), as the corporate base rate of interest charged by Citibank to its most creditworthy commercial borrowers notwithstanding the fact that some borrowers of Citibank may borrow from Citibank at rates of less than such announced Prime rate; and "Interest Rate Change Date" means (a) the first business day of Citibank, N.A., in New York, New York, during the calendar month following the date of the initial advance of the loan evidenced by this Note and (b) the first business day of Citibank, N.A., during each successive month thereafter. 2 The principal sum of this Note shall be repaid in the manner set forth in the Loan Agreement (as defined below), the applicable provisions of which are incorporated herein by reference as if fully set forth herein. Payments of principal and/or interest shall, at the option of Holder, earn interest after they are due at a rate ("Overdue Rate") equal to (a) two percent (2%) per annum above the rate otherwise payable hereunder or (b) the maximum contract rate permitted under the Applicable Usury Law, whichever of (a) or (b) is lesser. Furthermore, in the event of the occurrence of an Event of Default (as the term "Event of Default" is defined in the Loan Agreement) the unpaid principal balance of this Note shall, at the option of Holder, accrue interest at the Overdue Rate. This Note is executed pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 herewith between Maker and Lender (such Second Amended and Restated and Consolidated Loan and Security Agreement, as amended, the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, the applicable provisions of which are incorporated herein by reference. All payments made under this Note shall be applied first against amounts due hereunder or under the Loan Agreement, other than principal and interest; second, against interest then due under this Note; and third, against the principal of this Note. In the event any installment of principal and/or interest required to be made in connection with the indebtedness evidenced hereby is not paid when due and, except in the case of the final installment, for which no grace period is allowed, such default continues for five (5) days after notice thereof to Maker or an Event of Default occurs, Holder may, at its option, without notice or demand, declare immediately due and payable the entire unpaid principal balance hereof, all accrued and unpaid interest thereon, and all other charges owing in connection with the loan evidenced hereby. The contracted for rate of interest of the loan contemplated hereby, without limitation, shall consist of the following: (i) the interest rate, calculated and applied to the principal balance of this Note in accordance with the provisions of this Note; (ii) Overdue Rate, calculated and applied to the amounts due under this Note in accordance with the provisions hereof; (iii) Mortgage Loan Fees, if any (as defined in the Loan Agreement) and any other loan or readvance fees payable pursuant to the Loan Agreement; and (iv) all Additional Sums (as hereinafter defined), if any. Maker agrees to pay an effective contracted for rate of interest which is the sum of the above referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Maker (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement, the other Documents or any other documents or instruments in any way 2 3 pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Maker as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. Notwithstanding any contrary provisions contained in the Loan Agreement, this Note is not prepayable in whole or in part during the first twelve (12) months following the date hereof. Thereafter, this Note is prepayable as provided in the Loan Agreement. In the event that Holder institutes legal proceedings to enforce this Note and Holder is the prevailing party in such proceeding, Maker agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs and expenses of such proceedings, including, without limitation, attorneys' fees. Holder shall not by any act or omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein; a waiver on one occasion shall not be construed as continuing or as a bar to or waiver of such right or remedy on any other occasion. All remedies conferred upon Holder by this Note or any other instrument or agreement connected herewith or related hereto shall be cumulative and none is exclusive and such remedies may be exercised concurrently or consecutively at Holder's option. Every person or entity at any time liable for the payment of the indebtedness evidenced hereby waives: presentment for payment, protest and demand; notice of protest, demand, dishonor and nonpayment of this Note; and trial by jury in any litigation arising out of, relating to or connected with this Note or any instrument given as security herefor. Every such person or entity further consents that Holder may renew or extend the time of payment of any part or the whole of the indebtedness at any time and from time to time at the request of any other person or entity liable therefor. Any such renewals or extensions may be made without notice to any person or entity liable for the payment of the indebtedness evidenced hereby. This Note is given and accepted as evidence of indebtedness only and not in payment or satisfaction of any indebtedness or obligation. Time is of the essence with respect to all of Maker's obligations and agreements under this Note. This Note and all of the provisions, conditions, promises and covenants hereof shall be binding in accordance with the terms hereof upon Maker, its successors and assigns, 3 4 provided nothing herein shall be deemed consent to any assignment restricted or prohibited by the terms of the Loan Agreement. If more than one person or other entity has executed this Note as Maker, the obligations of such persons and entities shall be joint and several. This Note has been executed and delivered in Phoenix, Arizona, and the obligations of Maker hereunder shall be performed in Phoenix, Arizona. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND, TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES. Maker (a) hereby irrevocably submits itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court for Arizona, for the purposes of suit, action or other proceedings arising out of or relating to this Note or the subject matter hereof brought by Holder and (b) without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Maker is not personally subject to the jurisdiction of the above-named courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such other usury law which is applicable if the law chosen by the parties is not. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or (c) all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstance the amount of interest contracted for, shared or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law: (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; 4 5 and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. In the event of any conflict or inconsistency between the provisions of this Note and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall control. This Note is an amendment and restatement of that certain Promissory Note [Ida Addition], dated as of December 13, 1995, by Maker to the order of Lender as amended by that certain Amendment No. 1 to Promissory Note [Ida Addition] dated May 15, 1997. This Note shall not constitute a waiver of any existing default or breach of a covenant, if any, and shall have no retroactive effect; provided, however, that any and all written waivers given heretofore are hereby extended to the date hereof. PREFERRED EQUITIES CORPORATION, a Nevada corporation "Maker" By: ____________________________________ Title __________________________________ Federal Taxpayer Identification Number: 88-0106662 Address: 4310 Paradise Road Las Vegas, Nevada 89109 Attention: President 5 EX-10.158 8 LETTER AGREEMENT- DATED 9/29/1998 1 10.158 LETTER AGREEMENT [HEADQUARTERS READVANCE] September 29, 1998 Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 89109-6597 Re: Headquarters Building and FCFC Property Ladies and Gentlemen: Reference is made to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 (as amended and supplemented to date, the "Loan Agreement"), by and between FINOVA Capital Corporation, a Delaware corporation ("Lender") and Preferred Equities Corporation, a Nevada corporation ("Borrower"). Unless otherwise defined herein, all capitalized terms used herein shall have the same meanings as set forth in the Loan Agreement. This Letter Agreement is being executed in connection with the Headquarters Readvance described below. This Letter Agreement will confirm certain agreements between Borrower and Lender concerning the Headquarters Readvance, and shall constitute an amendment and supplement to the Loan Agreement and to the other Documents as applicable. 1. Headquarters Readvance. Upon the terms and subject to the conditions set forth in this Letter Agreement, Lender shall make a single-Advance (the "Headquarters Readvance") to Borrower in the amount of One Million Five Hundred Thousand United States Dollars (U.S. $1,500,000) which shall constitute a readvance of a portion of the principal payments that have been made under the Office Note. The Headquarters Readvance together with the present outstanding principal balance of the Office Note shall be evidenced by a Third Amended and Restated Promissory Note [Headquarters and FCFC Property] in the amount of Six Million Five Hundred Eighty Three Thousand Four Hundred Six and 43/100 United States Dollars (U.S. $6,583,406.43) constituting the sum of (i) the Headquarters Readvance (i.e., $1,500,000.00) and (ii) the unpaid principal balance of the Office Note as the date hereof (i.e., $5,083,406.43). Borrower represents and warrants to Lender that the unpaid principal balance of the Office Note as of the date hereof is 6 2 $5,083,406.43. The Headquarters Readvance shall be secured pursuant to, among other things, the Headquarters Deed of Trust and the FCFC Deed of Trust in the same priority as previous advances under the Office Note, as well as the Loan Agreement, and as more fully set forth in SECTION 3 below. 2. Amendments to Loan Agreement. In order to account for the making of the Headquarters Readvance, the Loan Agreement shall be amended as follows: 2.1 The defined term Office Note shall be amended and restated in its entirety to read as follows: "'Office Note': shall mean the Third Amended and Restated Promissory Note [Headquarters and FCFC Property] dated as of September 29, 1998, executed and delivered to Lender in the original principal amount of $6,583,406.43, evidencing the Advances made with respect to the FCFC Property and the Headquarters Building, together with any modifications, amendments, restatements or supplements from time to time made thereto, whether now or hereafter existing." 2.2 The defined term Office Note Maturity Date shall be amended and restated in its entirety to read as follows: "'Office Note Maturity Date': shall mean October 1, 2005." 2.3 The provisions of paragraph 2.1 of the Loan Agreement shall be amended and restated in its entirety to read as follows: "The Loan. Subject to the terms and conditions of this Agreement, Lender hereby agrees to make a Loan to Borrower in the amounts and for the purposes hereinafter described. The Loan shall be constituted of the Receivables Loan, the Mortgage Loan Facility, a $3,600,000.00 nonrevolving mortgage loan previously made with respect to Aloha Bay (the "Aloha Bay Loan"), a $6,583,406.43 nonrevolving mortgage loan previously made with respect to the Headquarters Building and the FCFC Property (the "Office Loan") and a $1,173,750.00 nonrevolving mortgage loan previously made with respect to the Biloxi Property." 3. Security. Without limitation, as provided in paragraphs 3.1(a) and (b) of the Loan Agreement and the Mortgages now existing or hereafter arising, the payment and Performance of Borrower's Obligations under or as evidenced by this Letter Agreement and the Office Note (as the term Office Note has been redefined by this Letter Agreement) shall be and shall continue to be secured by the liens and Security Interests granted to Lender 3 pursuant to the Loan Agreement, as amended and supplemented by this Letter Agreement, and pursuant to such Mortgages. 4. Conditions Precedent. Lender's obligation to make the Headquarters Readvance is subject to the following conditions precedent, all of which must be satisfied at or prior to the funding of the Headquarters Readvance. 4.1 Borrower shall have executed and delivered to Lender a fully-executed counterpart of this Letter Agreement. 4.2 Borrower shall have paid the Headquarters Readvance Loan Fee. 4.3 Lender shall have obtained an irrevocable commitment from United Title of Nevada to issue to Lender title insurance endorsements acceptable to Lender with respect to the Headquarters Deed of Trust and the FCFC Deed of Trust in connection with the Headquarters Readvance, all at the sole cost and expense of Borrower. 4.4 Lender has received a satisfactory opinion from counsel to Borrower and Guarantor. 4.5 Guarantor has executed a Consent of Guarantor, in a form acceptable to Lender, as to the transaction contemplated by this Letter Agreement. 5. Incorporation of Other Provisions of Loan Agreement. For all purposes under the Loan Agreement, the Headquarters Readvance shall be deemed a "transaction made pursuant to this Agreement," as contemplated in Section 8.1 of the Loan Agreement, except that for purposes of the representations, covenants and warranties under Article VIII thereof, the current status of all litigation matters affecting the Borrower and Guarantor is as set forth on the attached EXHIBIT 1 and the current financial condition (including, without limitation, compliance with financial covenants) of the Borrower and Guarantor is reflected on the most recent financial statements delivered by Borrower and Guarantor to Lender prior to the date hereof. 6. Headquarters Readvance Loan Fee. In consideration of Lender's covenants, agreements and promises under this Letter Agreement, Borrower shall pay to Lender at the time of the Headquarters Readvance a loan fee in the amount of Twenty Two Thousand Five Hundred Dollars ($22,500) (the "Headquarters Readvance Loan Fee") which may be withheld from the proceeds of the Headquarters Readvance. Lender acknowledges 4 the receipt of Three Thousand Two Hundred Fourteen Dollars ($3,214) of the Headquarters Readvance Loan Fee. 7. Definition of "Documents". The definition of "Documents", as set forth in the Loan Agreement, shall be amended to include this Letter Agreement. Each reference in the Loan Agreement to "this Agreement" shall be deemed to refer to the Loan Agreement as amended and supplemented hereby, and each reference in any other Document to "the Loan Agreement" shall be deemed to refer to the Loan Agreement as amended and supplemented hereby. 8. Entire Agreement. This Letter Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof; and the Documents, as amended hereby, supersede all prior written or oral understandings and agreements between the parties in connection with its subject matter. 9. Counterparts. This Letter Agreement may be executed in one or more counterparts, and any number of which having been signed by all the parties hereto shall be taken as one original. 10. No Novation. Except as 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 Letter Agreement. This Letter Agreement is not a novation, nor is it to be construed as a release, waiver or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in the Documents, except as expressly stated herein. To the extent practicable, any provisions of this Letter Agreement which conflict with any provisions of the Documents shall be construed to supplement such provisions of the Documents, provided that, in the event of irreconcilable conflict, the provisions of this Letter Agreement, construed as narrowly as practicable, shall control. Borrower acknowledges that as of the date hereof, it has (a) no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender as a basis to reduce or eliminate all or any part of its liability under the Documents, and (b) no other claim against Lender with respect to any portion of the transaction described in the Documents. [SIGNATURE PAGE FOLLOWS] 5 In the event the foregoing represents an accurate statement of the agreements that have been reached please sign and return this letter to the undersigned. FINOVA Capital Corporation, a Delaware corporation By: ____________________________________ Name: ______________________________ Its: _______________________________ Accepted as of September ____, 1998: Preferred Equities Corporation, a Nevada corporation By: _____________________________________ Name: _______________________________ Its: ________________________________ 6 EXHIBIT 1 LITIGATION MATTERS EX-10.159 9 ADDITIONAL ADVANCED NOTE 1 10.159 ADDITIONAL ADVANCE NOTE [ALOHA BAY PHASE I] U.S. $600,000.00 November ___, 1998 Phoenix, Arizona FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the holder of this Note ("Holder") may from time to time designate in writing, in lawful money of the United States of America, the principal sum of SIX HUNDRED THOUSAND AND NO/100 DOLLARS (U.S. $600,000.00), or so much thereof as has been disbursed and not repaid, together with interest on the unpaid principal balance from time to time outstanding from the date hereof until paid, as more fully provided for below. Interest due under this Note shall (a) accrue daily on the basis of the actual number of days in the computation period, (b) be calculated on the basis of a year consisting of three hundred sixty (360) days, and (c) be payable monthly in arrears on the later of (i) ten (10) days after Lender mails an invoice or statement therefor to Maker or (ii) the due date set forth in said invoice or statement. Interest shall accrue initially at an annual interest rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on the date of the initial advance of the loan evidenced by this Note ("Initial Prime") plus two and one quarter percent (2.25%) per annum, subject to adjustment on each Interest Rate Change Date (as hereinafter defined), but in no event to exceed the maximum contract rate permitted under the Applicable Usury Law (as hereinafter defined). The interest rate shall change on each Interest Rate Change Date by adding to or subtracting from the Initial Interest Rate, as the case may be, the change, if any, between Initial Prime and Prime in effect on the applicable Interest Rate Change Date. As used in this Note, the following capitalized terms have the meaning set forth opposite them below: "Prime" shall mean the rate of interest publicly announced, from time to time, by Citibank, N.A., New York, New York ("Citibank"), as the corporate base rate of interest charged by Citibank to its most creditworthy commercial borrowers notwithstanding the fact that some borrowers of Citibank may borrow from Citibank at rates of less than such announced Prime rate; and "Interest Rate Change Date" means (a) the first business day of Citibank, N.A., in New York, New York, during the calendar month following the 2 date of the initial advance of the loan evidenced by this Note and (b) the first business day of Citibank, N.A., during each successive month thereafter. The principal sum of this Note shall be repaid in the manner set forth in the Loan Agreement (as defined below), the applicable provisions of which are incorporated herein by reference as if fully set forth herein. Payments of principal and/or interest shall, at the option of Holder, earn interest after they are due at a rate ("Overdue Rate") equal to (a) two percent (2%) per annum above the rate otherwise payable hereunder or (b) the maximum contract rate permitted under the Applicable Usury Law, whichever of (a) or (b) is lesser. Furthermore, in the event of the occurrence of an Event of Default (as the term "Event of Default" is defined in the Loan Agreement) the unpaid principal balance of this Note shall, at the option of Holder, accrue interest at the Overdue Rate. This Note is executed pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 herewith between Maker and Lender (such Second Amended and Restated and Consolidated Loan and Security Agreement, as amended, the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, the applicable provisions of which are incorporated herein by reference. All payments made under this Note shall be applied first against amounts due hereunder or under the Loan Agreement, other than principal and interest; second, against interest then due under this Note; and third, against the principal of this Note. In the event any installment of principal and/or interest required to be made in connection with the indebtedness evidenced hereby is not paid when due and, except in the case of the final installment, for which no grace period is allowed, such default continues for five (5) days after notice thereof to Maker or an Event of Default occurs, Holder may, at its option, without notice or demand, declare immediately due and payable the entire unpaid principal balance hereof, all accrued and unpaid interest thereon, and all other charges owing in connection with the loan evidenced hereby. The contracted for rate of interest of the loan contemplated hereby, without limitation, shall consist of the following: (i) the interest rate, calculated and applied to the principal balance of this Note in accordance with the provisions of this Note; (ii) Overdue Rate, calculated and applied to the amounts due under this Note in accordance with the provisions hereof; (iii) any commitment fees, incentive fees, loan fees or readvance fees payable under the Loan Agreement; and (iv) all Additional Sums 2 3 (as hereinafter defined), if any. Maker agrees to pay an effective contracted for rate of interest which is the sum of the above-referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Maker (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement, the other Documents or any other documents or instruments in any way pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Maker as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. This Note is not prepayable in whole or in part other than as a result of the application to the unpaid principal balance hereof of Aloha Bay Phase I Release Fees arising from the release of Units from the Security Interests. In the event that Holder institutes legal proceedings to enforce this Note and Holder is the prevailing party in such proceeding, Maker agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs and expenses of such proceedings, including, without limitation, attorneys' fees. Holder shall not by any act or omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein; a waiver on one occasion shall not be construed as continuing or as a bar to or waiver of such right or remedy on any other occasion. All remedies conferred upon Holder by this Note or any other instrument or agreement connected herewith or related hereto shall be cumulative and none is exclusive and such remedies may be exercised concurrently or consecutively at Holder's option. Every person or entity at any time liable for the payment of the indebtedness evidenced hereby waives: presentment for payment, protest and demand; notice of protest, demand, dishonor and nonpayment of this Note; and trial by jury in any litigation arising out of, relating to or connected with this Note or any instrument given as security herefor. Every such person or entity further consents that Holder may renew or extend the time of payment of any part or the whole of the indebtedness at any time and from time to time at the request of any other person or entity liable therefor. Any such renewals or extensions may be made without notice to any person or entity liable for the payment of the indebtedness evidenced hereby. 3 4 This Note is given and accepted as evidence of indebtedness only and not in payment or satisfaction of any indebtedness or obligation. Time is of the essence with respect to all of Maker's obligations and agreements under this Note. This Note and all of the provisions, conditions, promises and covenants hereof shall be binding in accordance with the terms hereof upon Maker, its successors and assigns, provided nothing herein shall be deemed consent to any assignment restricted or prohibited by the terms of the Loan Agreement. If more than one person or other entity has executed this Note as Maker, the obligations of such persons and entities shall be joint and several. This Note has been executed and delivered in Phoenix, Arizona, and the obligations of Maker hereunder shall be performed in Phoenix, Arizona. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND, TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES. Maker (a) hereby irrevocably submits itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court for Arizona, for the purposes of suit, action or other proceedings arising out of or relating to this Note or the subject matter hereof brought by Holder and (b) without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Maker is not personally subject to the jurisdiction of the above-named courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such other usury law which is applicable if the law chosen by the parties is not. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or (c) all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstance the amount of interest contracted for, shared or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the 4 5 provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law: (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. In the event of any conflict or inconsistency between the provisions of this Note and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall control. [SIGNATURE ON FOLLOWING PAGE] 5 6 PREFERRED EQUITIES CORPORATION, a Nevada corporation "Maker" By: ____________________________________ Name: ______________________________ Title: ___________________________ Address: 4310 Paradise Road Las Vegas, Nevada 89109 Attn.: President 6 EX-10.160 10 REQUEST FOR ADVANCE & DISBURSEMENT INSTRUCTIONS 1 10.160 REQUEST FOR ADVANCE AND DISBURSEMENT INSTRUCTIONS The undersigned, as ________________________________ of PREFERRED EQUITIES CORPORATION, a Nevada corporation, hereby instructs FINOVA CAPITAL CORPORATION ("FINOVA") to advance One Million Five Hundred Thousand Dollars ($1,500,000.00) in immediate available funds, which funds shall be distributed as follows: 1. Preferred Equities Corporation $1,480,714.00 Bank: Bank of America, NT & SA ABA Routing No.: 122400724 Credit: Preferred Equities Corporation Account No.: 140000169 2. FINOVA Capital Corporation $ 19,286.00 (Loan Fee - $19,286.00) Total Funds Disbursed: $1,500,000.00
The undersigned acknowledges and agrees that, even though all or a portion of the disbursements described above are to be directed to entities other than the undersigned, receipt of such disbursements by such payees shall constitute receipt of the proceeds by the undersigned. Dated: September 29, 1998 PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ____________________________ Name: Title: 7 2 REQUEST FOR ADVANCE AND DISBURSEMENT INSTRUCTIONS The undersigned, as ___________________________________ of PREFERRED EQUITIES CORPORATION, a Nevada corporation, hereby instructs FINOVA CAPITAL CORPORATION ("FINOVA") to advance Two Million Five Hundred Thousand Dollars ($2,500,000.00) in immediate available funds, which funds shall be distributed as follows: 1. Preferred Equities Corporation $1,725,950.00 Bank: Bank of America, NT & SA ABA Routing No.: 122400724 Credit: Preferred Equities Corporation Account No.: 140000169 2. Holland & Knight $ 10,311.00 Bank: First Union National Bank of Florida Jacksonville, Florida ABA Routing No.: 063000021 Credit: Preferred Equities Corporation/FINOVA Capital Corporation Trust Account No.: 2142275721038 3. FINOVA Capital Corporation $ 763,739.00 Readvance Fee $ 12,500.00 (Less Deposit) ( 1,786.00) Environmental Database Updates $ 650.00 Wire Transfer Fee $ 25.00 Search Costs $ 2,350.00 10/29/98 Advance $ 750,000.00 ------------ $ 763,739.00 Total Funds Disbursed: $2,500,000.00
The undersigned acknowledges and agrees that, even though all or a portion of the disbursements described above are to be directed to entities other than the undersigned, receipt of such disbursements by such payees shall constitute receipt of the proceeds by the undersigned. Dated: November ___, 1998 PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ____________________________________ Name: ______________________________ Title: _____________________________ 8 EX-10.161 11 FIRST AMENDED & RESTATED PROMISSORY NOTE 1 10.161 FIRST AMENDED AND RESTATED PROMISSORY NOTE [WINNICK BUILDING ADDITION] U.S. $2,397,500 November, ___, 1998 Phoenix, Arizona FOR VALUE RECEIVED, the undersigned PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), promises to pay to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), or order, at such place as the holder of this Note ("Holder") may from time to time designate in writing, in lawful money of the United States of America, the principal sum of up to TWO MILLION THREE HUNDRED NINETY-SEVEN THOUSAND FIVE HUNDRED DOLLARS (U.S. $2,397,500.00), or so much thereof as has been disbursed and not repaid, together with interest on the unpaid principal balance from time to time outstanding from the date hereof until paid, as more fully provided for below. Interest due under this Note shall (a) accrue daily on the basis of the actual number of days in the computation period, (b) be calculated on the basis of a year consisting of 360 days, and (c) be payable monthly in arrears on the later of (i) ten (10) days after Lender mails an invoice or statement therefor to Maker or (ii) the due date set forth in said invoice or statement. Interest shall accrue initially at an annual interest rate ("Initial Interest Rate") equal to Prime (as hereinafter defined) in effect on the date of the initial advance of the loan evidenced by this Note ("Initial Prime") plus two percent (2%) per annum, subject to adjustment on each Interest Rate Change Date (as hereinafter defined), but in no event to exceed the maximum contract rate permitted under the Applicable Usury Law (as hereinafter defined). The interest rate shall change on each Interest Rate Change Date by adding to or subtracting from the Initial Interest Rate, as the case may be, the change, if any, between Initial Prime and Prime in effect on the applicable Interest Rate Change Date. As used in this Note, the following capitalized terms have the meaning set forth opposite them below: "Prime" shall mean the rate of interest publicly announced, from time to time, by Citibank, N.A., New York, New York ("Citibank"), as the corporate base rate of interest charged by Citibank to its most creditworthy commercial borrowers notwithstanding the fact that some borrowers of Citibank may borrow from Citibank at rates of less than such announced Prime rate; and "Interest Rate Change Date" means (a) the first business day of Citibank, N.A., in New York, New York, during the calendar month following the date of the initial advance of the loan evidenced by this Note and (b) the first business day of Citibank, N.A., during each successive month thereafter. 2 The principal sum of this Note shall be repaid in the manner set forth in the Loan Agreement (as defined below), the applicable provisions of which are incorporated herein by reference as if fully set forth herein. Payments of principal and/or interest shall, at the option of Holder, earn interest after they are due at a rate ("Overdue Rate") equal to (a) two percent (2%) per annum above the rate otherwise payable hereunder or (b) the maximum contract rate permitted under the Applicable Usury Law, whichever of (a) or (b) is lesser. Furthermore, in the event of the occurrence of an Event of Default (as the term "Event of Default" is defined in the Loan Agreement) the unpaid principal balance of this Note shall, at the option of Holder, accrue interest at the Overdue Rate. This Note is executed pursuant to that certain Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 herewith between Maker and Lender (such Second Amended and Restated and Consolidated Loan and Security Agreement, as amended, the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, the applicable provisions of which are incorporated herein by reference. All payments made under this Note shall be applied first against amounts due hereunder or under the Loan Agreement, other than principal and interest; second, against interest then due under this Note; and third, against the principal of this Note. In the event any installment of principal and/or interest required to be made in connection with the indebtedness evidenced hereby is not paid when due and, except in the case of the final installment, for which no grace period is allowed, such default continues for five (5) days after notice thereof to Maker or an Event of Default occurs, Holder may, at its option, without notice or demand, declare immediately due and payable the entire unpaid principal balance hereof, all accrued and unpaid interest thereon, and all other charges owing in connection with the loan evidenced hereby. The contracted for rate of interest of the loan contemplated hereby, without limitation, shall consist of the following: (i) the interest rate, calculated and applied to the principal balance of this Note in accordance with the provisions of this Note; (ii) Overdue Rate, calculated and applied to the amounts due under this Note in accordance with the provisions hereof; (iii) Mortgage Loan Fees, if any (as defined in the Loan Agreement) and any other loan or readvance fees payable pursuant to the Loan Agreement; and (iv) all Additional Sums (as hereinafter defined), if any. Maker agrees to pay an effective contracted for rate of interest which is the sum of the above referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Maker (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement, the other Documents or any other documents or instruments in any way 2 3 pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Maker as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. Notwithstanding any contrary provisions contained in the Loan Agreement, this Note is not prepayable in whole or in part, during the first twelve (12) months following the date hereof. Thereafter, this Note is prepayable as provided in the Loan Agreement. In the event that Holder institutes legal proceedings to enforce this Note and Holder is the prevailing party in such proceeding, Maker agrees to pay Holder, in addition to any indebtedness due and unpaid, all costs and expenses of such proceedings, including, without limitation, attorneys' fees. Holder shall not by any act or omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by an authorized officer of Holder and then only to the extent specifically set forth therein; a waiver on one occasion shall not be construed as continuing or as a bar to or waiver of such right or remedy on any other occasion. All remedies conferred upon Holder by this Note or any other instrument or agreement connected herewith or related hereto shall be cumulative and none is exclusive and such remedies may be exercised concurrently or consecutively at Holder's option. Every person or entity at any time liable for the payment of the indebtedness evidenced hereby waives: presentment for payment, protest and demand; notice of protest, demand, dishonor and nonpayment of this Note; and trial by jury in any litigation arising out of, relating to or connected with this Note or any instrument given as security herefor. Every such person or entity further consents that Holder may renew or extend the time of payment of any part or the whole of the indebtedness at any time and from time to time at the request of any other person or entity liable therefor. Any such renewals or extensions may be made without notice to any person or entity liable for the payment of the indebtedness evidenced hereby. This Note is given and accepted as evidence of indebtedness only and not in payment or satisfaction of any indebtedness or obligation. Time is of the essence with respect to all of Maker's obligations and agreements under this Note. This Note and all of the provisions, conditions, promises and covenants hereof shall be binding in accordance with the terms hereof upon Maker, its successors and assigns, 3 4 provided nothing herein shall be deemed consent to any assignment restricted or prohibited by the terms of the Loan Agreement. If more than one person or other entity has executed this Note as Maker, the obligations of such persons and entities shall be joint and several. This Note has been executed and delivered in Phoenix, Arizona, and the obligations of Maker hereunder shall be performed in Phoenix, Arizona. THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ARIZONA AND, TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED STATES. Maker (a) hereby irrevocably submits itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County, and to the process, jurisdiction and venue of the United States District Court for Arizona, for the purposes of suit, action or other proceedings arising out of or relating to this Note or the subject matter hereof brought by Holder and (b) without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Maker is not personally subject to the jurisdiction of the above-named courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such other usury law which is applicable if the law chosen by the parties is not. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this Note is accelerated in whole or in part, or (c) all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstance the amount of interest contracted for, shared or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law: (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; 4 5 and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. In the event of any conflict or inconsistency between the provisions of this Note and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall control. This Note is an amendment and restatement of that certain Promissory Note [Winnick Addition], dated as of December 13, 1995, by Maker to the order of Lender, as amended by that certain Amendment No. 1 to Promissory Note [Winnick Addition] dated May 15, 1997 . This Note shall not constitute a waiver of any existing default or breach of a covenant, if any, and shall have no retroactive effect; provided, however, that any and all written waivers given heretofore are hereby extended to the date hereof. PREFERRED EQUITIES CORPORATION, a Nevada corporation "Maker" By: ____________________________________ Title Federal Taxpayer Identification Number: 88-0106662 Address: 4310 Paradise Road Las Vegas, Nevada 89109 Attention: President 5 EX-10.162 12 FOURTH AMENDMENT TO ASSIGNMENT 7 ASSUMPTION 1 Exhibit 10.162 FOURTH AMENDMENT TO ASSIGNMENT AND ASSUMPTION AGREEMENT This Fourth Amendment (the "Amendment") to Assignment and Assumption Agreement, by and between RER CORP, COMAY CORP., GROWTH REALTY INC. and H&H FINANCIAL, INC. (the "Assignors"), and MEGO FINANCIAL CORP., formerly named MEGO CORP., (the "Assignee") WITNESSETH: WHEREAS, the Assignors are parties to the Assignment Agreement dated October 25, 1987, with the Assignee, and the Assignment and Assumption Agreement, dated February 1, 1988, between the Assignors and the Assignee, which two agreements were amended by the Amendment to Assignment and Assumption Agreement dated July 29, 1988, and by the Second Amendment to Assignment and Assumption Agreement dated as of March 2, 1995 and the Third Amendment to Assignment Assumption Agreement dated as of August 20, 1997 (the "Third Amendment") between the Assignors and the Assignee (collectively, the described agreements as so amended are hereinafter referred to as the "Assignment"); and WHEREAS, the Assignment fixed the date of January 31, 1995 as the date on which the accrual of amounts due to the Assignors under the Assignment would terminate, except for interest on any of such amounts which remained unpaid; and WHEREAS, the amount due the Assignors, as of January 31, 1995 was $13,328,742.25, plus interest from January 28, 1995 in the amount of $9,322.57, (collectively, and with interest from January 31, 1995 to March 2, 1995 (the "Amount Due"); and WHEREAS, $10,000,000 of the Amount Due was agreed to be considered subordinated debt (the "Subordinated Debt"), against which payments were made as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii) $4,250,000 was deemed paid by credit against the exercise price of certain warrants as is set forth in the Third Amendment, and (iii) $35,714.28 was paid on September 1, 1998, leaving a remaining balance of the Subordinated debt of $4,285,714.29; and WHEREAS, the balance of the Subordinated Debt continues to be secured by a pledge of the stock of Preferred Equities Corporation (and any distributions in respect thereto) pursuant to a Pledge and Security Agreement dated as of February 1, 1998 (the "Pledge Agreement") between the Assignee and the Assignors; and WHEREAS, interest on the Subordinated Debt has been paid through September 1, 1998; and 1 2 WHEREAS, under the terms of the Assignment a payment in the amount of $1,428,571.43, plus accrued interest at the Agreed Rate of 10% per annum, is due on March 1, 1999; and WHEREAS, the Assignee has requested that the Assignor defer the principal portion of the amount due on March 1, 1999 to June 1, 1999, which is acceptable to the Assignors; NOW, THEREFORE, in consideration of the mutual covenants herein contained it is hereby agreed as follows: 1. The statements in the foregoing preamble are true and correct. 2. That the principal payment due on March 1, 1999 on the Subordinated Debt in the amount of $1,428,571.43 is hereby deferred until June 1, 1999, provided that the interest due on the Subordinated Debt from September 1, 1998 until March 1, 1999 at the Agreed Rate of 10% per annum is paid on March 1, 1999 by the Assignee to the Assignors. 3. The Assignee and Assignors agree that all amounts due to Assignors pursuant to the Assignment as amended by this Amendment shall continue to be secured as set forth in the Pledge Agreement, and that the Pledge Agreement remains in full force and effect. 4. The Assignee and Assignors agree that this Amendment is an amendment to the Assignment and not a novation, and that, except as modified hereby, all terms and conditions of the Assignment remain in full force and effect. 5. It is agreed that this Amendment may be signed in counterparts, and all such counterparts in the aggregate shall constitute one agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of February 26, 1999. MEGO FINANCIAL CORP. By: ------------------------------------- Jerome J. Cohen, President RER CORP. By: ------------------------------------- Title: 2 3 COMAY CORP By:__________________________________ Title: GROWTH REALTY INC. By:___________________________________ Title: H&H FINANCIAL, INC. By:___________________________________ Title: 3 EX-10.163 13 4TH AMENDMENT TO ASSIGNMENT & ASSUMPTION AGREEMENT 1 Exhibit 10.163 MEGO FINANCIAL CORP. STOCK OPTION PLAN, AS AMENDED AND RESTATED 1. PURPOSE This Stock Option Plan, (the "Plan") for Mego Financial Corp., a New York corporation (the "Company") and its subsidiaries, is intended to provide incentive to persons holding the position of managerial employee, vice president or other senior executive (collectively "Key Employees") of the Company or any of its subsidiaries as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), and members of the Board of Directors of the Company or the board of directors of any of its subsidiaries, by providing those persons with opportunities to purchase shares of the Company's Common Stock under (a) incentive stock options ("Incentive Stock Options") as such term is defined under Section 422 of the Code, and (b) other stock options ("Non-Incentive Stock Options"). 2. DEFINITIONS As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "Board" shall mean the Company's board of directors. (b) "Cause" shall mean the Termination of Employment of an Optionee due to the Optionee's willful misconduct or gross negligence. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Committee" shall mean the Stock Option Committee established pursuant to Section 3(a) below. (e) "Common Stock" shall mean the common stock of the Company. (f) "Director" shall mean a member of the Board of the Company or the board of directors of any of its subsidiaries. (g) "Fair Market Value" of a share of Common Stock on any day shall be the closing sale quotation as reported for such day on the National Association of Securities Dealers' automated quotation system, or, if no such quotation is reported for such day, the average of the high bid and low ask price of Common Stock as reported for such day. If no quotation is made for the applicable day, the Fair Market Value of a share of Common Stock on such day shall be determined in the manner set forth in the preceding sentence using quotations for the next preceding day for which there were quotations, provided that such quotations shall have been made within the 10 "trading" days preceding the applicable day. Notwithstanding the foregoing, 2 if no such information is available or it otherwise deemed necessary or appropriate by the Committee, the Fair Market Value of a share of Common Stock on any day shall be determined in good faith by the Committee taking into account all relevant material facts and circumstances. In no event shall the Fair Market Value of any share of Common Stock be less than its par value, nor shall the Fair Market Value take into account any restrictions on the Common stock issuable on exercise of an Option other than restrictions which will never lapse. (h) "Incentive Stock Options" means one or more Options to purchase Common Stock which, at the time such Options are granted under this Plan or any other such plan of the Company, qualify as incentive stock options under Section 422 of the Code and which are designated as such in the option agreement (the "Option Agreement") evidencing such Option. (i) "Key Employees" shall mean individuals employed by the Company or any of its subsidiaries, who hold the position of managerial employee, vice president or other senior executive. (j) "Non-Incentive Stock Options" means one or more Options to purchase Common Stock which do not constitute Incentive Stock Options and which are designated as such in the Option Agreement evidencing such Option. (k) "Option" shall mean any option issued under this Plan. (l) "Optionee" shall mean any person to whom an Option is granted under this Plan. (m) "Plan" shall mean this Amended and Restated Stock Option Plan established by the Company. (n) "Ten Percent Shareholder" shall mean an Optionee who, at the time an Option is granted, owns directly or indirectly (within the meaning of Section 425(d) of the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or a subsidiary thereof. (o) "Termination of Employment" shall mean the later of (i) the Optionee's termination of employment with the Company and all of its subsidiaries, and if applicable (ii) the Optionee's ceasing to serve as a Director. The Committee may in its discretion determine whether any leave of absence constitutes a Termination of Employment for purposes of this Plan and the impact, if any, of any such leave of absence on Options made under this Plan. The Committee shall have the right to determine whether the Optionee's Termination of Employment is a dismissal for Cause and the date of the Termination of Employment in such case, which date the Committee may retroactively deem to be the date of the action that is cause for dismissal. Such determinations of the Committee shall be final, binding and conclusive. 2 3 3. GENERAL ADMINISTRATION (a) This Plan shall be administered by the Stock Option Committee (the "Committee") of the Board consisting of not fewer than two members. (b) The Committee shall have the authority (i) to exercise all of the powers granted to it under this Plan, (ii) to construe, interpret and implement this Plan and any Option Agreements executed pursuant to Section 7 below, (iii) to prescribe amend and rescind rules and regulations relating to this Plan, including rules governing the Committee's own operations, (iv) to make all determinations necessary or advisable in administering this Plan, (v) to correct any defect, supply any omission and reconcile any inconsistency in this Plan, (vi) to cause the Plan and Incentive Stock Options granted hereunder to continue to qualify as such under Code Section 422, and (vii) to amend this Plan to reflect changes in applicable law; provided, however, no amendment of the Plan requiring shareholder approval under any federal or state law or regulation (including without limitation Rule 16b-3 of the Securities Exchange Act or the regulations of the Internal Revenue Service) may be made without such approval. (c) Actions by the Committee shall be taken by the affirmative vote of a majority of the Committee members. Any action may be taken by an instrument signed by all of the Committee members, and action so taken shall be fully as effective as if such action had been taken by a vote at a Committee meeting. (d) The determination of the Committee on all matters relating to this Plan or any Option Agreement shall be final, binding and conclusive. (e) No Committee member shall be liable for any action or determination made in good faith with respect to this Plan, including any Option. 4. GRANTING OF OPTIONS Options may be granted under this Plan at any time prior to November 17, 2003. 5. Eligibility (a) Options may be granted to such Key Employees and/or Directors as the Committee shall in its sole discretion select. The Committee may from time to time in its sole discretion determine that any Key Employee and/or Director shall be eligible to receive Options. (b) At the time of the grant of each Option, the Committee shall determine whether such Option is to be designated an Incentive Stock Option or a Non-Incentive Stock Option. Incentive Stock Options may not be granted to any person who is not an employee of the Company or its subsidiaries. The length of the exercise period of Incentive Stock Options shall be governed by Section 7(d)(2) below; the exercise period of all other Options will be governed by Section 7(d)(3) below. 3 4 6. COMMON STOCK (a) The stock subject to the Options shall be Common Stock. (b) The total number of shares of Common Stock with respect to which Options may be granted shall not exceed 1,025,000. Common Stock issued pursuant to this Plan may be authorized and unissued Common Stock or authorized and issued Common Stock held in the Company's treasury or acquired by the Company for purposes of the Plan. The Committee may direct that any certificate evidencing Common Stock pursuant to this Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares. Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate number of Options granted to any one Optionee may not exceed 300,000, subject to adjustment as provided in subsection 6(c) hereof. (c) If there is any change in the number of outstanding shares of Common Stock by reason of a stock dividend or distribution, stock split-up, reverse stock split, recapitalization, combination or exchange of shares, or by reason of any merger, consolidation, spinoff or other corporate reorganization in which the Company is the surviving corporation, the number of shares of Common Stock available for issuance both in the aggregate and with respect to each outstanding Option, and the purchase price per share under each outstanding Option, shall be equitably adjusted by the Committee, whose determination shall be final, binding and conclusive, it being understood that no fractional share will be issued, and provided that no such adjustment shall be made with respect to Incentive Stock Options or Non-Incentive Stock Options if the same would cause the Plan not to comply with Code Section 422, with Rule 16b-3 of the Securities Exchange Act or which would be considered the adoption of a new plan requiring shareholder approval. In the event of any merger, consolidation or combination of the Company with or into another corporation (other than a merger, consolidation or combination in which the Company is the surviving corporation and which does not result in any reclassification or other change in the number of outstanding shares of Common Stock, each Optionee shall have the right thereafter and during the term of each such Option to receive upon exercise (subject to the provisions of the Option Agreement) of such Option, for each share of Common Stock as to which the Option shall be exercised, the kind and amount of shares of the surviving or new corporation, cash, securities, evidence of indebtedness, other property or any combination thereof which would have been received upon such merger, consolidation or combination by the holder of one share of Common Stock immediately prior to such merger, consolidation or combination; provided, that if any such right would cause any outstanding Incentive Stock Option not to qualify as such, the holder of such Incentive Stock Option may elect, prior to such merger, consolidation or combination, to exercise his Option prior to such transaction notwithstanding any restrictions on vesting or exercisability provided in his Option Agreement. (d) If any outstanding Option for any reason expires or is terminated without having been exercised in full, the Common Stock allocable to the unexercised portion of such Option shall (unless this Plan shall have been terminated), subject to Section 4 hereof, become available for subsequent grants of Options. 4 5 7. TERMS AND CONDITIONS OF OPTIONS Each Option granted shall be evidenced by an Option Agreement in such form as the Committee may from time to time approve. By accepting an Option, an Optionee thereby agrees that the Option shall be subject to the provisions of the applicable Option Agreement. Options shall comply with and be subject to the following terms and conditions: (a) OPTION PRICE. Each Option shall state the Option Price, which for Options that are Incentive Stock Options shall be not less than 100% of the Fair Market Value of the shares of Common Stock on the date of grant of the Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the Option Price shall not be less than 110% of such Fair Market Value. The Option Price for Options that are not Incentive Stock Options shall not be less than 80% of the Fair Market Value of the shares of Common Stock on the date of grant of the Option. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (b) VALUE OF COMMON STOCK. Options may be granted to any Key Employee and/or Director for Common Stock of any value, provided that so long as the Code shall so provide, the aggregate Fair Market Value (determined at the time the Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all the plans of the Company and its subsidiaries) shall not exceed $100,000. (c) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full at the time of exercise in cash or in such other form as shall be permitted by the Committee, which forms may include without limitation: (i) Common Stock of the Company held by the Optionee; (ii) by permitting the Company to withhold shares of Common Stock issuable on exercise of such Option; or (iii) by a combination of the foregoing. The shares delivered or withheld are to be valued at Fair Market Value as of the date of exercise of the Option. If an Optionee is subject to the Securities Exchange Act, Section 16(b), then any election to use such shares in payment or partial payment of the Option Price shall not be effective unless made in compliance with Rule 16b-3 of the Securities Exchange Act. (d) TERM AND EXERCISE OF OPTIONS. (1) Unless the applicable Option Agreement otherwise provides, each Option shall become vested and exercisable in whole or in part and cumulatively according to the following schedule: 5 6
PERCENTAGE ANNIVERSARY OF DATE OF GRANT EXERCISABLE ---------------------------------------------------------------------- ----------- Before the 1st Anniversary............................................ 0% On or after the 1st Anniversary and prior to the 2nd Anniversary...... 20% On or after the 2nd Anniversary and prior to the 3rd Anniversary...... 40% On or after the 3rd Anniversary and prior to the 4th Anniversary...... 60% On or after the 4th Anniversary....................................... 100%
Notwithstanding the foregoing, except as provided for in subparagraph (g)(2)(i) of this Section 7, in no event shall any Option be exercisable until after six months from the date of grant. (2) Incentive Stock Options shall be exercisable over the exercise period specified by the Committee in the Option Agreement, but in no event shall such period exceed 10 years from the date of the grant of each such Incentive Stock Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the exercise period shall not exceed five years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Section 7(e) below. An Incentive Stock Option may be exercised, as to any or all full shares of Common Stock as to which the Incentive Stock Option has become exercisable, by giving written notice of such exercise to the Company; provided that the exercise of an Incentive Stock Option must represent at least the lesser of (i) 20% of the Incentive Stock Options or (ii) the full portion of the Incentive Stock Options that are then vested and exercisable. (3) Options which may have been designated by the Committee as Non-Incentive Stock Options shall be exercisable over a period of ten years. Notwithstanding the foregoing, the Option period shall be subject to earlier termination as provided in Section 7(e) below. (e) TERMINATION OF EMPLOYMENT; DEATH. (1) In the event of an Optionee's Termination of Employment for any reason other than for Cause, any outstanding Option shall be exercisable on the following terms and conditions: (i) exercise may be made only to the extent that the Optionee was entitled to exercise the Option on the effective date of Termination of Employment; and (ii) exercise must occur prior to the earlier of the 91st day after employment terminates and the expiration date of the Option. Any such exercise of an Option following an Optionee's death or adjudication of mental incapacity shall be made only by the Optionee's executor or administrator or other duly appointed representative, as the case may be, reasonably acceptable to the Committee, unless the 6 7 Optionee's will specifically disposes of such Option, in which case such exercise shall be made only by the recipient of such specific disposition. To the extent that an Optionee's legal representative or the recipient of a specific disposition under the Optionee's will shall be entitled to exercise any Option pursuant to the preceding sentence, such representative or recipient shall be bound by the provisions of this Plan and the applicable Option Agreement which would have applied to the Optionee. (2) Except to the extent otherwise provided in the applicable Option Agreement, any portion of an Option not theretofore exercised shall terminate upon the Optionee's Termination of Employment for Cause. (3) The Committee may, in the applicable Option Agreement or in a subsequent modification or amendment thereto, waive or modify the application of any of the foregoing provisions of this Section 7, even though such wavier or modification may cause the Options granted under such Option Agreement to fail to qualify as Incentive Stock Options. (f) NONTRANSFERABILITY OF OPTIONS. Options shall not be transferable other than by will or by the laws of descent and distribution, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee or, in the event of incapacity, by the Optionee's legal representative. (g) CHANGE IN CONTROL. (1) "Change in Control" shall be deemed to have occurred upon the happening of any of the following events: (i) any "person", including a "group", as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act and the rules promulgated thereunder, becomes the beneficial owner, directly or indirectly, whether by purchase or acquisition or agreement to act in concur or otherwise of 50% or more of the outstanding Common Stock; (ii) a cash tender or exchange offer for 50% or more of the outstanding Common Stock is commenced; (iii) the Company's shareholders approve an agreement to merge, consolidate, liquidate, or sell all of substantially all of the Company's assets; or (iv) two or more directors are elected to the Board without having previously been nominated and approved by the members of the Board incumbent on the day immediately preceding such election. (2) Upon the happening of a Change in Control: i. notwithstanding paragraph (d)(1) of this Section 7 or any other provision of this Plan, any Option then outstanding prior to the date of the Change in Control shall become fully vested and immediately exercisable; and ii. to the extent permitted by law, the Committee may, in its discretion and subject to the provisions of Section 16(b) below, amend any Option Agreement in such manner as it deems appropriate; provided, however, that no such amendment shall impair 7 8 any rights or increase any obligations of any Optionee under such Option Agreement without the consent of the Optionee. (3) Whenever deemed appropriate by the Committee, any action referred to in paragraph(2)(ii) of this Section 7(g) may be made conditional upon the consummation of the applicable Change in Control transaction. (4) Without the consent of the Optionee, no such amendment shall be effective with respect to such Optionee's Incentive Stock Options if such changes would cause the Option not to qualify as an Incentive Stock Option for any reason other than exceeding the $100,000 annual limitation as described in Subsection 7(b) hereof. (h) RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an Option shall have no rights as a shareholder with respect to any Common Stock covered by his Option until the date of the issuance of a stock certificate to him for such shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such stock certificate is issues, except as provided in Section 6(c) above. (i) OTHER PROVISIONS. The Option Agreements authorized under this Plan shall contain such other provisions, including (i) the imposition of restrictions upon the exercise of an Option or upon the disposition of Common Stock issued upon exercise of the Option and (ii) the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option (if so designated), as the Committee shall deem advisable, including provisions with respect to compliance with federal and applicable state securities laws. 8. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES (a) No later than the date of exercise of any Option, or in the circumstances provided for in Section 8(b) below, the Optionee will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option. The Optionee may make such payment in whole or in part by surrendering Common Stock to the Company, or by permitting the Company to withhold shares of Common Stock issuable on exercise of such Option. The shares surrendered or withheld are to be valued at Fair Market Value as of the date such withholding tax is to be determined. If an Optionee is subject to Section 16(b) of the Securities Exchange Act, then any election to use such shares to satisfy such withholding shall not be effective unless made in compliance with Rule 16b-3 of the Securities Exchange Act. (b) Exercise of an Incentive Stock Option shall constitute an agreement by the Optionee to notify the Company if any shares acquired in such exercise are disposed of by the Optionee within two years after the date the Option was granted or within one year after such shares were issued to the Optionee and to make arrangements to satisfy any withholding tax obligation of the Company arising from such disposition as provided for in Section 8(a) above. 8 9 9. TERM OF PLAN Options may be granted from time to time within a period of ten (10) years from the date on which this Plan was originally adopted by the Board, provided that no Options granted shall become exercisable unless and until this Plan shall have been approved by the Company's shareholders. 10. RESTRICTIONS (a) If the Committee shall at any time determine that any Consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of any Option, the issuance or purchase of Common Stock or other rights thereunder, or the taking of any other action thereunder (each such action being hereinafter referred to as a "Plan Action"), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained to the Committee's full satisfaction. (b) The term "Consent" as used herein with respect to any Plan Action means (i) any and all listings, registrations or qualifications in respect thereof upon any inter-dealer quotation system of a registered national securities association or any national securities exchange or under any federal, state or local law, rule or regulation, (ii) any and all written agreements and representations by the Optionee with respect to the disposition or Common Stock, or with respect to any other matter, which the Committee shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification, or to obtain an exemption from the requirement that any such listing, qualification or registration be made, and (iii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies. (c) In furtherance of the foregoing, at the time of any exercise of an Option, the Committee may, if it shall determine it necessary or desirable for any reason, require the Optionee as a condition to the exercise thereof, to deliver to the Committee a written representation of the Optionee's present intention to purchase the Common Stock for investment and not for distribution. If such representation is required to be delivered, an appropriate legend may be placed upon each certificate delivered to the Optionee upon his exercise of part or all of an Option and a stop transfer order may be placed with the transfer agent. Each such Option shall also be subject to the requirement that, if at any time the Committee determines, in its discretion, that either (i) the listing, registration or qualification of Common Stock subject to an Option upon any securities exchange or under any state, federal or foreign law, or (ii) the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issue or purchase of Common Stock thereunder, the option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. The Committee shall not have the power to require or oblige the Company to register any Common Stock subject to an Option and any requirement imposed by the Committee relating to the 9 10 registration of Common Stock shall not bind the Company to cause the registration of such Common Stock. 11. SAVINGS CLAUSE Notwithstanding any other provisions hereof, this Plan is intended to qualify as a plan pursuant to which Incentive Stock Options may be issued under Section 422 of the Code. If this Plan or any provision of this plan shall be held to be invalid or to fail to meet the requirements of Section 422 of the Code or the regulations promulgated thereunder, such invalidity or failure shall not affect the remaining parts of this Plan, but rather it shall be construed and enforced as if this Plan or the affected provision thereof, as the case may be, complied in all respects with the requirements of Section 422 of the Code. 12. NATURE OF PAYMENTS (a) All Options granted shall be in consideration of services performed for the Company by the Optionee. (b) All Options granted shall constitute a special incentive payment to the Optionee and shall not be taken into account in computing the amount of salary or compensation of the Optionee for the purpose of determining any benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company or under any agreement between the Company and the Optionee, unless such plan or agreement specifically otherwise provides. 13. NON-UNIFORM DETERMINATIONS The Committee's determinations under this Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations which may, inter alia, reflect the specific terms of individual employment agreements, and to enter into non-uniform and selective Option Agreements or amendments thereto, as to (a) the persons to receive Options and (b) the terms and conditions of Options. 14. OTHER PAYMENTS OR OPTIONS Nothing contained in this Plan shall be deemed in any way to limit or restrict the Company from making any Option to purchase Common Stock or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect. 15. SECTION HEADINGS The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of said sections. 10 11 16. AMENDMENT AND TERMINATION (a) The Board may from time to time suspend, discontinue, revise or amend this Plan in any respect whatsoever, provided, however, that any amendment to the Plan shall be subject to the approval of the Company's shareholders if such shareholder approval is required by any federal or state law or regulation (including, without limitation, Rule 16b-3) or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or granted. In addition, no such amendment shall impair any rights or increase any obligations of an Optionee under any outstanding Option without the consent of the Optionee (or, upon the Optionee's death or adjudication of mental incapacity, the person having the right to exercise the Option.) (b) The Committee may cancel any outstanding Option and issue a new Option in substitution therefor. The Committee also may amend any outstanding Option Agreement, including any amendment which would: (i i) accelerate the time or times at which the Option becomes unrestricted or may be exercised; (ii ii) waive or amend any goals, restrictions or conditions set forth in the Option Agreement; or (iii iii) waive or amend the operations of Section 7(e) above with respect to the termination of the Option upon Termination of Employment provided that no such action which would cause any Incentive Stock Option not to qualify as such under the provisions of the Code, or which would be treated as the grant of a new Option under the Code, shall be taken without the consent of the Optionee. However, any such cancellation or amendment that impairs the rights or increases the obligations of an Optionee under an outstanding Option shall be made only with the consent of the Optionee (or, upon the Optionee's death, the person having the right to exercise the Option). The foregoing Stock Option Plan was originally adopted by the Board of Directors of the Company on November 17, 1993. This amended and restated Stock Option Plan shall be effective as of September 2, 1997, the date on which the Board first adopted this amended and restated Stock Option Plan, subject to the approval of the Company's shareholders. 11 EX-27.1 14 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS AUG-31-1998 SEP-01-1998 FEB-28-1999 3,348 0 68,310 12,917 41,405 0 39,085 15,245 149,350 0 92,671 0 0 210 19,218 149,350 24,618 32,751 4,696 22,423 12,240 0 4,261 (1,912) (650) (1,262) 0 0 0 (1,262) (.06) (.06)
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