-----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, RdgkaPwkg7F1xvfL2ma1sbPv3/QSODUK1IStokWZFWIsq1nbNQiwmtPofTmNWj7p Zxc2ZRcAQgZpTm31FkW5vA== 0000950150-01-000028.txt : 20010123 0000950150-01-000028.hdr.sgml : 20010123 ACCESSION NUMBER: 0000950150-01-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010112 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: 1507956 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 a67971e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED 11-30-2000 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: NOVEMBER 30, 2000 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 January 12, 2001, there were 3,500,557 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 November 30, 2000 and August 31, 2000..........................................1 Condensed Consolidated Income Statements for the Three Months Ended November 30, 2000 and 1999 ...................................................2 Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended November 30, 2000 .......................................................3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2000 and 1999 ....................................................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.....................14 PART II OTHER INFORMATION Item 1. Legal Proceedings..............................................................14 Item 4. Submission of Matters to a Vote of Security Holders............................14 Item 6. Exhibits and Reports on Form 8-K...............................................15 SIGNATURE ................................................................................16
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)
NOVEMBER 30, AUGUST 31, ASSETS 2000 2000 ------------ ---------- Cash and cash equivalents $ 337 $ 1,069 Restricted cash 1,066 1,255 Notes receivable, net of allowance for cancellations and discounts of $13,262 at November 30, 2000 and $13,234 at August 31, 2000 84,090 83,156 Interest only receivables, at fair value 2,812 2,701 Timeshare interests held for sale 20,992 23,307 Land and improvements inventory 3,593 4,113 Other investments 4,487 4,492 Property and equipment, net of accumulated depreciation of $15,807 at November 30, 2000 and $17,632 at August 31, 2000 16,988 23,167 Deferred selling costs 5,238 5,231 Prepaid debt expenses 2,103 2,060 Other assets 18,082 18,041 --------- --------- TOTAL ASSETS $ 159,788 $ 168,592 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable $ 97,903 $ 109,131 Accounts payable and accrued liabilities 20,478 19,544 Reserve for notes receivable sold with recourse 4,265 4,033 Deposits 3,029 2,841 Accrued income taxes 2,595 2,975 --------- --------- Total liabilities before subordinated debt 128,270 138,524 --------- --------- Subordinated debt 4,286 4,286 Stockholders' equity: Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding) -- -- Common stock, $.01 par value (authorized--50,000,000 shares; 3,500,557 shares issued and outstanding at November 30, 2000 and August 31, 2000) 35 35 Additional paid-in capital 13,068 13,068 Retained earnings 14,602 12,679 Accumulated other comprehensive loss (473) -- --------- --------- Total stockholders' equity 27,232 25,782 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 159,788 $ 168,592 ========= =========
See notes to condensed consolidated financial statements. 1 4 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (thousands of dollars, except per share amounts) (unaudited)
THREE MONTHS ENDED NOVEMBER 30, ---------------------------- 2000 1999 ----------- ----------- REVENUES Timeshare interest sales, net $ 14,018 $ 11,991 Land sales, net 4,742 4,019 Gain on sale of notes receivable 292 -- Gain on sale of investments and other assets 1,608 -- Interest income 3,209 2,871 Financial income 479 272 Incidental operations 490 624 Other 1,042 920 ----------- ----------- Total revenues 25,880 20,697 ----------- ----------- COSTS AND EXPENSES Direct cost of: Timeshare interest sales 3,157 2,378 Land sales 769 556 Interest expense 3,044 2,866 Marketing and sales 11,464 9,274 General and administrative 4,914 3,878 Incidental operations 354 600 Depreciation 392 490 ----------- ----------- Total costs and expenses 24,094 20,042 ----------- ----------- INCOME BEFORE INCOME TAXES 1,786 655 INCOME TAXES (BENEFIT) (137) -- ----------- ----------- NET INCOME APPLICABLE TO COMMON STOCK $ 1,923 $ 655 =========== =========== INCOME PER COMMON SHARE Basic: Net income applicable to common stock $ 0.55 $ 0.19 =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 =========== =========== Diluted: Net income applicable to common stock $ 0.55 $ 0.19 =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 =========== ===========
See notes to condensed 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 ACCUMULATED $.01 PAR VALUE ADDITIONAL OTHER ----------------------- PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS LOSS TOTAL --------- --------- ----------- ---------- ------------- --------- Balances at August 31, 2000 3,500,557 $ 35 $ 13,068 $ 12,679 $ 25,782 Net income for the three months ended November 30, 2000 1,923 1,923 Cumulative effect of change in accounting principle as of September 1, 2000 for unrealized loss on interest rate swaps, net of related income tax of $87 $ (168) (168) Unrealized loss on interest rate swaps, for the three months ended November 30, 2000, net of related income tax of $156 (305) (305) --------- --------- --------- --------- --------- --------- Total comprehensive income 1,450 --------- Balances at November 30, 2000 3,500,557 $ 35 $ 13,068 $ 14,602 $ (473) $ 27,232 ========= ========= ========= ========= ========= =========
See notes to condensed consolidated financial statements. 3 6 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars, except per share amounts)
THREE MONTHS ENDED NOVEMBER 30, ---------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,923 $ 655 -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Charges to allowance for cancellations (1,705) (1,945) Provision for cancellations 1,946 1,408 Gain on sale of notes receivable (292) -- Gain on sale of other investments and other assets (1,608) -- Cost of sales 3,926 2,934 Depreciation 392 490 Additions to interest only receivables (276) -- Amortization of interest only receivables 165 162 Repayments on notes receivable, net 10,484 13,260 Additions to notes receivable (21,024) (19,592) Proceeds from sale of notes receivable 9,889 -- Purchase of land and timeshare interests (1,091) (789) Changes in operating assets and liabilities: Decrease in restricted cash 189 295 Increase in other assets (84) (1,870) Increase in deferred selling costs (7) (523) Increase (decrease) in accounts payable and accrued liabilities 461 (531) Increase in deposits 188 16 Decrease in accrued income taxes (380) -- -------- -------- Total adjustments 1,173 (6,685) -------- -------- Net cash provided by (used in) operating activities 3,096 (6,030) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (458) (275) Proceeds from the sale of property and equipment 7,853 -- Additions to other investments -- (25) Proceeds from the sale of other investments 5 -- -------- -------- Net cash provided by (used in) investing activities 7,400 (300) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 12,746 17,613 Reduction of debt (23,974) (11,287) Payments on subordinated debt -- (214) Increase in subordinated debt -- 122 -------- -------- Net cash provided by (used in) financing activities (11,228) 6,234 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (732) (96) CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 1,069 1,821 -------- -------- CASH AND CASH EQUIVALENTS--END OF PERIOD $ 337 $ 1,725 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest, net of amounts capitalized $ 3,145 $ 2,760 ======== ========
See notes to condensed consolidated financial statements. 4 7 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 (unaudited) 1. FINANCIAL STATEMENTS In the opinion of management, when read in conjunction with the audited Consolidated Financial Statements for the years ended August 31, 2000 and 1999, 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, 2000, the accompanying unaudited Condensed Consolidated Financial Statements contain all of the information necessary to present fairly the financial position of Mego Financial and Subsidiaries at November 30, 2000, the results of its operations for the three months ended November 30, 2000 and 1999, the change in stockholders' equity for the three months ended November 30, 2000 and the cash flows for the three months ended November 30, 2000 and 1999. All intercompany accounts between the parent and its subsidiaries have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all material adjustments necessary for the fair presentation of these statements have been included herein which are normal and recurring in nature. The results of operations for the three months ended November 30, 2000 are not necessarily indicative of the results to be expected for the full year. 2. NATURE OF OPERATIONS Mego Financial is a premier developer and operator of timeshare properties and a provider of consumer financing to purchasers of timeshare intervals and land parcels through its wholly-owned subsidiary, Preferred Equities Corporation (PEC), established in 1970. PEC is engaged in originating, selling, servicing and financing consumer receivables generated through timeshare interest 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 hypothecates and services. In February 1988, Mego Financial acquired PEC, pursuant to an assignment by the Assignors (Comay Corp., Growth Realty Inc., RER Corp., and H&H Financial, Inc.) of their contract right to purchase PEC. To facilitate its sales of timeshare interests, the Company has entered into several trust agreements. The trustees administer the collection of the related notes receivable. The Company has assigned title to certain of its resort properties in Nevada and its interest in certain related notes receivable to the trustees. 3. INTEREST RATE SWAP AND CUMULATIVE EFFECT ON CHANGE IN ACCOUNTING PRINCIPLE Effective September 1, 2000, the Company adopted the requirements of Financial Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative Instruments and Hedging Activities", which was amended by SFAS No. 137. In August 2000, the Company entered into a $25 million, 5-year, interest rate swap transaction with a financial institution to hedge potential exposure to its variable rate notes payable portfolio. The interest rate swap is considered and was documented as a highly effective cash flow hedge. Beginning September 1, 2000, the unrealized gain or loss mark to market, net of related income tax effect, is recorded into a separate Stockholders' Equity caption titled "Accumulated Other Comprehensive Income (Loss)". The cumulative effect of change in accounting principle as of September 1, 2000, net of related income tax, was an other comprehensive loss of $168,000. 5 8 4. STOCKHOLDERS' EQUITY Mego Financial's stock option plan (Stock Option Plan), provides for grants of non-qualified and qualified incentive stock options to officers, key employees and directors. Options for 51,652 shares of Mego Financial common stock were outstanding as of November 30, 2000. 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 its subsidiaries are referred to herein collectively as the Company as the context requires) that are based on the beliefs of management as well as assumptions made by and information currently available to management. Such forward-looking statements include, without limitation, the Company's expectations 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. 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, 2000. GENERAL The business of the Company is primarily the marketing, financing, and sale of timeshare interests, retail lots and land parcels, servicing the related receivables, and operating and/or managing timeshare properties. The Company, through its subsidiary Preferred Equities Corporation (PEC), provides financing to purchasers of its timeshare interests and land. This financing is generally evidenced by notes secured by deeds of trust or mortgages. These notes receivable are generally payable over a period up to twelve years, bear interest at rates ranging from 12.5% to 15.5% and require equal monthly installments of principal and interest. PEC PEC recognizes revenue primarily from sales of timeshare interests and land sales in resort areas, gain on sale of receivables and interest income. PEC periodically sells its consumer receivables while generally retaining the servicing rights. Revenue from sales of timeshare interests and land is recognized after the requisite rescission period has expired and at such time as the purchaser has paid at least 10% of the sales price for sales of timeshare interests and 20% of the sales price for land sales. Land sales typically meet these requirements within six to ten months of closing, and sales of timeshare interests typically meet these requirements at the time of sale. The sales price, less a provision for cancellation, is recorded as revenue and the allocated cost related to such net revenue of the timeshare interest or land parcel is recorded as expense in the period that revenue is recognized. When revenue related to land sales is recognized, the portion of the sales price attributable to uncompleted required improvements, if any, is deferred. Notes receivable with payment delinquencies of 90 days or more have been considered in determining the allowance for cancellations. Cancellations occur when the note receivable is determined to be uncollectible and the related collateral, if any, has been recovered. Cancellation of a note receivable in the quarter the revenue is recognized is deemed to not represent a sale and is accounted for as a reversal of the revenue with an adjustment to 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 three months ended November 30, 2000 and 1999. PEC has developed its assumptions based on experience with its own portfolio, available market data and consultation with its financial advisors. In determining expected cash flows, management considers economic conditions at the date of sale. In subsequent periods, these estimates may be revised as necessary using the original discount rate, and any losses arising from prepayment and loss experience will be recognized as realized. Provision for cancellations relating to notes receivable is recorded as expense in amounts sufficient to maintain the allowance at a level considered adequate to provide for anticipated losses resulting from customers' failure to fulfill their obligations under the terms of their notes receivable. PEC records provision for cancellations at the time revenue is recognized, based on historical experience and current economic factors. The related allowance for cancellations represents PEC's estimate of the amount of the future credit losses to be incurred over the lives of the notes receivable. The allowance for cancellations is adjusted for actual cancellations experienced, including cancellations related to previously sold notes receivable which were reacquired pursuant to the recourse obligations discussed herein. Such allowance is also reduced to establish the separate liability for reserve for notes receivable sold with recourse. PEC's judgment in determining the adequacy of this allowance is based upon a periodic review of its portfolio of notes receivable. These reviews take into consideration changes in the nature and level of the portfolio, historical cancellation experience, current economic conditions which may affect the purchasers' ability to pay, changes in collateral values, estimated value of inventory that may be reacquired and overall portfolio quality. Changes in the allowance as a result of such reviews are included in the provision for cancellations. Fees for servicing notes receivable originated 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. 8 11 Marketing and sales costs directly attributable to unrecognized sales are accounted for as deferred selling costs until such time as the sale is recognized. PEC has entered into financing arrangements with certain purchasers of timeshare interests and land whereby a 5% interest rate is charged on those sales where the aggregate down payment is at least 50% of the purchase price and the balance is payable in 36 or fewer monthly payments. Notes receivable of $6.5 million at November 30, 2000 and $6.4 million at August 31, 2000 were made under this arrangement. Land sales as of November 30, 2000 exclude $18.8 million of sales not yet recognized under generally accepted accounting principles (GAAP) since the requisite payment amounts have not yet been received or the respective recission periods have not yet expired. Of the $18.8 million unrecognized land sales, the Company estimates that it will ultimately recognize $15.4 million of revenues, which would be reduced by a related provision for cancellations of $1.3 million, estimated deferred selling costs of $4.3 million and cost of sales of $2.2 million, for an estimated net profit of $7.6 million. RESULTS OF OPERATIONS Three Months Ended November 30, 2000 Compared to Three Months Ended November 30, 1999 Total revenues for the Company increased 25.0% or $5.2 million to $25.9 million during the three months ended November 30, 2000 from $20.7 million during the three months ended November 30, 1999. The increase was primarily due to a net increase of $2.7 million in timeshare interest and land sales to $18.7 million during the three months ended November 30, 2000 from $16.0 million during the three months ended November 30, 1999 (net timeshare interest sales increased by $2.0 million and net land sales increased by $700,000), an increase in interest income to $3.2 million during the three months ended November 30, 2000 from $2.9 million during the three months ended November 30, 1999, and gains on sale of receivables and investments and other assets of $1.9 million during the three months ended November 30, 2000, compared to no gain on sales during the three months ended November 30, 1999. Gross sales of timeshare interests increased to $15.8 million during the three months ended November 30, 2000 from $13.3 million during the three months ended November 30, 1999, an increase of 18.7%. Net sales of timeshare interests increased to $14.0 million from $12.0 million, an increase of 16.9%. The provision for cancellations represented 11.1% and 9.7%, respectively, of gross sales of timeshare interests for the three months ended November 30, 2000 and 1999. The comparative increase in the provision was primarily due to a downward adjustment for the three months ended November 30, 1999 based on the results of the customary quarterly review of the reserve adequacy. Gross sales of land increased to $4.9 million during the three months ended November 30, 2000 from $4.1 million during the three months ended November 30, 1999, an increase of 19.4%. Net sales of land increased to $4.7 million during the three months ended November 30, 2000 from $4.0 million during the three months ended November 30, 1999, an increase of 18.0%. The provision for cancellations represented 4.0% and 2.8%, respectively, of gross sales of land for the three months ended November 30, 2000 and 1999. The comparative increase in the provision was primarily due to a downward adjustment for the three months ended November 30, 1999 based on the results of the customary quarterly review of the reserve adequacy. A gain on sale of receivables of $292,000 was recorded for the three months ended November 30, 2000 compared to no gain on sale of receivables for the three months ended November 30, 1999. Gains in the amount of $1.6 million were recorded for the three months ended November 30, 2000 on the sales of the Company's two office buildings, compared to no gains on the sale of investments and other assets for the three months ended November 30, 1999. Interest income increased to $3.2 million during the three months ended November 30, 2000 from $2.9 million for the three months ended November 30, 1999, an increase of 11.8%, primarily due to increased average notes receivable balances for the comparative quarters. 9 12 Total costs and expenses for the Company increased to $24.1 million for the three months ended November 30, 2000 from $20.0 million for the three months ended November 30, 1999, an increase of 20.2%. The increase resulted primarily from an increase in direct costs of timeshare interest sales to $3.2 million from $2.4 million, an increase of 32.8%; an increase to $11.5 million from $9.3 million in marketing and sales expense, an increase of 23.6%; and, an increase to $4.9 million from $3.9 million in general and administrative expenses, an increase of 26.7%. The increase in direct costs of timeshare interest sales is attributable to higher net timeshare interest sales during the current fiscal quarter compared to the same quarter last year. As a percentage of gross sales of timeshare interests and land marketing and sales expenses related thereto increased to 55.4% for the three months ended November 30, 2000 from 53.2% for the three months ended November 30, 1999. The increase in marketing and sales expenses is due primarily to higher gross sales, new sales offices and general increases related to a competitive sales environment. The increase in general and administrative expenses is primarily due to the increase in recording and filing fees and escrow costs related to the increased sales volume, and reserves for the Company's guaranty of office and equipment leases related to a previously affiliated company. Also, after the sale/leaseback of the two office buildings, the related rent expense, which commenced during the three months ended November 30, 2000, is now included in General and administrative expenses compared to Interest and Depreciation expense in the comparative period when the buildings were owned by the Company. Interest expense increased to $3.0 million during the three months ended November 30, 2000 from $2.9 million during the three months ended November 30, 1999, an increase of 6.2%. The increase is a result of higher average outstanding balance of notes and contracts payable during the three months ended November 30, 2000 compared to the three months ended November 30, 1999, partially offset by a decrease in interest expense as a result of the reduction of debt related to the sale of the office buildings. Pretax income of $1.8 million was earned during the three months ended November 30, 2000 compared to pretax income of $655,000 during the three months ended November 30, 1999. An income tax benefit of $137,000 was recorded for the three months ended November 30, 2000, compared to no income tax provision for the three months ended November 30, 1999. The income tax calculations for the three months ended November 30, 2000 and 1999 were reduced due to the use of net operating loss carryforwards which were previously fully reserved and currently are used to offset income on a consolidated basis. Income taxes are recorded, and the liability is adjusted, based on an ongoing review of related facts and circumstances. Net income applicable to common stock amounted to $1.9 million during the three months ended November 30, 2000 compared to a net income applicable to common stock of $655,000 during the three months ended November 30, 1999, primarily due to the foregoing. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company was $337,000 at November 30, 2000 compared to $1.1 million at August 31, 2000. This was due primarily to a timing difference in certain of the Company's fundings, which occur in the normal course of business. Such fundings were subsequently received in December 2000. 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, payments of marketing and sales expenses in connection with sales of timeshare interests and land, and payments of income taxes to Mego Financial. Marketing and sales expenses payable by PEC in connection with sales of timeshare interests and land typically exceed the down payments received at the time of sale, as a result of which PEC generates a cash shortfall. This cash shortfall and PEC's other cash requirements are funded primarily through advances under PEC's lines of credit in the aggregate amount of $133.5 million, sales of receivables and cash flow from operations. At November 30, 2000, no commitments existed for material capital expenditures. At November 30, 2000, 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 $133.5 million. Such lines of credit 10 13 are secured by timeshare and land receivables and mortgages. At November 30, 2000, an aggregate of $96.1 million was outstanding under such lines of credit, and $37.4 million was available for borrowing. Under the terms of these lines of credit, PEC may borrow 65% 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 maintains a minimum tangible net worth of $25 million. At November 30, 2000, PEC's tangible net worth was $32.5 million. Summarized lines of credit information and accompanying notes relating to these six lines of credit outstanding at November 30, 2000, consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT BORROWING REVOLVING NOVEMBER 30, 2000 AMOUNTS EXPIRATION DATE (a) MATURITY DATE INTEREST RATE - ------------------- ------------- -------------------- --------------- -------------------- $ 51,406 $ 75,000 (b) April 30, 2001 Various Prime + 2.0 - 2.25% - ------------------- ------------- 16,623 15,000 (c) December 1, 2002 Various Prime + 2.0 3,423 11,500 (d) December 31, 2001 Various Prime + 2.0 - 3.00% - ------------------- ------------- 20,046 26,500 Considered one borrowing line for the maximum amount. - ------------------- ------------- 22,701 30,000 (e) June 30, 2001 Various Libor + 4.0 - 4.25% 1,972 1,972 (f) July 30, 2003 Prime + 2.25% - ------------------- ------------- $ 96,125 $ 133,472 =================== =============
(a) When the revolver expires as shown, the loans convert to term loans with maturities as stated below. In addition, management expects to extend the lines on similar terms. (b) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25 million. Other restrictions, commencing with the fiscal quarter ended November 30, 1999, 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; PEC's requirement to maintain a minimum net processed sales requirement for each fiscal quarter; and PEC's requirement not to exceed a ratio of 4:1 of consolidated total liabilities to consolidated tangible net worth. At November 30, 2000, $46.8 million of loans secured by receivables were outstanding related to financings at prime plus 2%, of which $21.5 million of loans secured by land receivables mature May 15, 2010 and $25.3 million of loans secured by timeshare receivables mature May 15, 2007. The outstanding borrowing amount includes a real estate loan with an outstanding balance of $1.1 million maturing April 30, 2001, bearing interest at prime plus 2.25%. The remaining Acquisition and Development (A&D) loans, receivables loans and a resort lobby loan outstanding of $2.8 million are at prime plus 2% and mature at various dates through February 18, 2001. In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego Financial entered into an Agreement under which FINOVA agreed to make a loan in the amount of $5,662,000 to PEC with an original maturity date of June 30, 1999, which date has been extended to April 30, 2001. Mego Financial guaranteed the loan and issued warrants to FINOVA to purchase a total of 83,333 shares of common stock of Mego Financial at an exercise price of $6.00 per share, exercisable within a five-year period commencing January 1, 1999. The balance outstanding under this Agreement was $700,000 as of November 30, 2000. (c) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25 million during the life of the loan. These credit lines include available financing for A&D and receivables. At November 30, 2000, $6.0 million was outstanding under the A&D loan, which matures on June 30, 2004, and $10.6 million was outstanding under the receivables loan, which matures on May 31, 2004. (d) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $15 million. This credit line consists of receivable financing with a maturity date of May 31, 2004, under which $100,000 was outstanding at November 30, 2000, and a real estate loan of $3.3 million with a maturity date of December 31, 200l. 11 14 (e) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $17 million during the life of the loan. These credit lines include available financings for A&D and receivables. At November 30, 2000, $2.5 million was outstanding under the A&D loans which have a maturity date of June 30, 2001 and bear interest at the 90-day London Interbank Offering Rate (LIBOR) plus 4.25%. The available receivable financings, of which $20.2 million was outstanding at November 30, 2000, are at 90-day LIBOR plus 4% and have a maturity date of June 5, 2005. (f) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25 million. 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 NOVEMBER 30, ------------------------- 2000 1999 -------- -------- Marketing and selling expenses attributable to recognized and unrecognized sales $ 11,447 $ 9,797 Less: Down payments (3,459) (3,016) -------- -------- Cash Shortfall $ 7,988 $ 6,781 ======== ========
During the three months ended November 30, 2000, PEC sold $9.6 million in notes receivable compared to the three months ended November 30, 1999 when PEC did not sell any notes receivable. PEC sells notes receivable subject to recourse provisions as contained in each agreement. PEC is obligated under these agreements to replace or repurchase accounts that become over 90 days delinquent or are otherwise subject to replacement or repurchase in either cash or receivables generally at the option of the purchaser. At November 30, 2000, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $65.4 million. The repurchase provisions provide for substitution of receivables as recourse for $58.3 million of sold notes receivable and cash payments for repurchase relating to $7.1 million of sold notes receivable. The undiscounted amounts of the recourse obligations on such notes receivable were $4.8 million and $4.5 million at November 30, 2000 and August 31, 2000, respectively. PEC continually reviews the adequacy of this liability. These reviews take into consideration changes in the nature and level of the portfolio, current and future economic conditions which may affect the obligors' ability to pay, changes in collateral values, estimated value of inventory that may be reacquired and overall portfolio quality. The components of the Company's debt, including lines of credit consist of the following (thousands of dollars):
NOVEMBER 30, AUGUST 31, 2000 2000 ------------ ---------- Notes collateralized by receivables $ 77,718 $ 80,593 Mortgages collateralized by real estate properties 19,292 27,407 Installment contracts and other notes payable 893 1,131 -------- -------- Total $ 97,903 $109,131 ======== ========
12 15 FINANCIAL CONDITION Changes in the aggregate of the allowance for cancellations, excluding discounts, and the reserve for notes receivable sold with recourse for the three months ended November 30, 2000 consisted of the following (thousands of dollars): Balance at beginning of period $ 16,860 Provision for cancellations 1,946 Amounts charged to allowance for cancellations, net (1,705) -------- Balance at end of period $ 17,101 ========
The allowance for cancellations and the reserve for notes receivable sold with recourse consisted of the following at these dates (thousands of dollars):
NOVEMBER 30, AUGUST 31, 2000 2000 ------------ ---------- Allowance for cancellations, excluding discounts $ 12,836 $ 12,827 Reserve for notes receivable sold with recourse 4,265 4,033 -------- -------- Total $ 17,101 $ 16,860 ======== ========
November 30, 2000 Compared to August 31, 2000 Cash and cash equivalents decreased to $337,000 at November 30, 2000 from $1.1 million at August 31, 2000. This was due to a timing difference in certain of the Company's fundings, which occur in the normal course of business. Such fundings were subsequently received in December 2000. Notes receivable, net, increased 1.1% to $84.1 million at November 30, 2000 from $83.2 million at August 31, 2000, as a result of net new receivables added, less sale of receivables, during the first quarter of fiscal 2001. Timeshare interests held for sale decreased 9.9% to $21.0 million at November 30, 2000 from $23.3 million at August 31, 2000. Land and improvements inventory decreased 12.6% to $3.6 million at November 30, 2000 from $4.1 million at August 31, 2000. Notes and contracts payable decreased 10.3% to $97.9 million at November 30, 2000 from $109.1 million at August 31, 2000. The debt paydown in connection with the sales of two office buildings and sale of notes receivables more than offset new borrowings during the three months ended November 30, 2000. Reserve for notes receivable sold with recourse increased 5.8% to $4.3 million at November 30, 2000 from $4.0 million at August 31, 2000 as the reserve addition due to the sale of notes receivable more than offset paydowns on such sold notes receivable. Such paydowns would serve to reduce the balance of the reserve for notes receivable sold with recourse. Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and the Company. 13 16 Stockholders' equity increased 5.6% to $27.2 million at November 30, 2000 from $25.8 million at August 31, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There was no material change for the quarter ended November 30, 2000 in the information about the Company's "Quantitative and Qualitative Disclosures About Market Risk" as disclosed in its Annual Report on Form 10-K for the fiscal year ended August 31, 2000. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 27, 1998, an action was filed in Nevada District Court, County of Clark, No. A392585, by Robert and Jocelyne Henry, husband and wife individually and on behalf of all others similarly situated against PEC, PEC's wholly-owned subsidiary, Central Nevada Utilities Company (CNUC), and certain other defendants. The plaintiffs' complaint asked for class action relief claiming that PEC and CNUC were guilty of collecting certain betterment fees and not providing sewer and water lines to their property. The court determined that plaintiffs had not properly pursued their administrative remedies with the Nevada Public Utilities Commission (PUC) and dismissed plaintiffs' amended complaint, without prejudice. Notwithstanding plaintiffs' appeal of the dismissal, plaintiff filed for administrative relief with the PUC. On November 17, 1999, the PUC found that CNUC, the only defendant over which the PUC has jurisdiction, was not in violation of any duties owed the plaintiffs or otherwise in violation of CNUC's approved tariffs. Subsequent to the PUC's decision, plaintiffs voluntarily dismissed their appeal of the trial court's order dismissing their case without prejudice and directing plaintiffs to exhaust their administrative remedies. On May 4, 2000, plaintiffs refiled their complaint in Nevada District Court, naming all of the above parties with the exception of CNUC. The defendants filed a motion to dismiss, which was denied. The defendant is preparing to file a motion for summary judgment. There has been no material change in the status of other litigation reported in the Company's Annual Report on Form 10-K for the year ended August 31, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of shareholders for fiscal 1999 (Meeting) of the Company was held on November 9, 2000. (b) Not applicable because: (i) Proxies for the Meeting were solicited pursuant to Regulation 14 under the Securities Act of 1934. (ii) There were no solicitations in opposition to management's nominees as listed in the Company's proxy statement dated October 12, 2000. (iii) All such nominees were elected. (c) The matter voted on at the Meeting consisted of the following: (i) The election of six members to the Company's Board of Directors. The name of each nominee for election and the number of shares voted for and against such nominee, as well as the number of abstentions and broker non-votes with respect to such nominee, are set forth below. 14 17
Name For Against Abstentions Non-Votes - -------------------------- ------------ ---------- ------------ ------------ Robert Nederlander 3,205,035 15,699 0 0 Jerome J. Cohen 3,205,022 12,712 0 0 Herbert B. Hirsch 3,205,035 15,699 0 0 John E. McConnaughy, Jr. 3,205,022 15,712 0 0 Wilbur L. Ross, Jr. 3,204,991 15,743 0 0 Eugene I. Schuster 3,205,035 15,699 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS.
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.221 Amended and Restated Employment Agreement dated November 10, 2000 by and between MEGO Financial Corp and Jerome J. Cohen. 10.222 Seventh Amendment to loan and security agreement by Preferred Equities Corporation and Colorado Land and Grazing Corp., dated December 15, 2000. 10.223 Fifth Amendment to Promissory Note made by Preferred Equities Corporation and Colorado Land And Grazing Corp on December 15, 2000. 10.224 Compensation Agreement between Carol Sullivan and Preferred Equities Corporation dated January 8, 2001.
No reports on Form 8-K were filed during the period. 15 18 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 Senior Vice President and Chief Accounting Officer Date: January 12, 2001 16 EX-10.221 2 a67971ex10-221.txt EXHIBIT 10.221 1 EXHIBIT 10.221 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AGREEMENT made as of the 10th day of November, 2000, by and between MEGO FINANCIAL CORP., a New York corporation (herein called "Company"), and JEROME J. COHEN (herein called "Employee"). BACKGROUND OF AGREEMENT The Company and the Employee entered into an Employment Agreement dated as of September 1, 1996, pursuant to which the Employee was engaged by the Company as an executive officer of the Company (the "Original Agreement"). The term of the original agreement was to run from September 1, 1996, through January 31, 2002, and the Company and the Employee wish to extend the term of the Initial Agreement and make certain other modifications thereto, as set forth in this Amended and Restated Employment Agreement (the "Agreement"). NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, and in consideration of the mutual covenants herein contained, agree as follows: 1. EMPLOYMENT The Company hereby continues to employ the Employee, and the Employee hereby accepts such continued employment, upon the terms and conditions set forth herein. 2. DUTIES The Employee shall be an executive officer of the Company, and his duties and powers in such capacity shall be such as may be determined by the Board of Directors of the 2 Company; provided that until action by the said Board of Directors, the powers and duties shall be those of President of the Company and its subsidiaries, and such powers and duties shall only be determined so that they are at all times consistent with those of an executive officer. During the term of this Agreement, the Employee shall also serve, without additional compensation, as a Director or Officer of the Company or any of its subsidiaries. 3. EXTENT OF SERVICES Employee agrees to devote as much time to the Company's business as necessary to fulfill his fiduciary responsibility. During the term of this Agreement, Employee agrees not to be engaged in the operation of any other business requiring any substantial amount of his business time, and except for such time as may be approved in connection with the affairs of such other companies as are approved by the Board of Directors of the Company. However, this provision shall not be deemed to prevent the Employee from investing and managing his assets in such form or manner as will not unreasonably interfere with the services to be rendered by Employee hereunder, or to prevent him from acting as a director, trustee, or officer of, or upon a committee of, any other firm, trust or corporation where such positions do not unreasonably interfere with the services to be rendered by the Employee hereunder. 4. COMPENSATION 4.1 As compensation for all services rendered by Employee to Company and its subsidiaries during the term hereof, Company agrees to pay and Employee agrees to accept the Basic Salary (as hereinafter defined) set forth in Section 4.2 hereof and the Incentive Bonus (as hereinafter defined) set forth in Section 4.3 hereof. However, neither the provisions for the 2 3 Basic Salary or the Incentive Bonus nor any other provision of this Agreement shall be deemed to preclude Employee from being eligible to receive, or to participate in or to continue to participate in, any supplemental employee benefits which the Board of Directors of the Company may, from time to time, generally make available to, or provide for, executive and management employees of the Company or of any one or more of its subsidiaries, including such benefit plans as are now in force. 4.2 The Basic Salary (herein called "Basic Salary") for the term of this Agreement shall be $300,000 per annum payable in agreed monthly installments or otherwise as mutually agreed. Notwithstanding the foregoing, the Employee's Basic Salary may be reduced in accordance with the provisions of Section 6 below. 4.3 For each fiscal year of the Company, commencing with fiscal 1997 and ending with fiscal 2004, the Employee shall receive, in addition to the Basic Salary as hereinabove defined, a sum of money (herein called the "Incentive Bonus") in an amount equal to two and one-half percent (2-1/2%) of the Incentive Income of the Company as defined in, and calculated pursuant to, the Executive Incentive Compensation Plan of the Company adopted by the Company's Board of Directors on June 22, 1994, a copy of which is attached hereto as Exhibit "A". Such amount shall be due and payable whether or not the Company's Executive Incentive Compensation Plan shall be in effect for such fiscal year, and shall be paid no later than ninety days after the amount of Incentive Income can be calculated. Notwithstanding the foregoing, the Employee's Incentive Bonus may be reduced or eliminated in accordance with the provisions of Section 6 below. 3 4 5. TERM 5.1 The term of this Agreement, as amended and restated, shall commence as of November 10, 2000, and shall continue until January 31, 2005. The Company may terminate this Agreement for any reason on 60 days prior written notice to the Executive, provided, however, that in the event of, and as a condition to, such termination, the Company shall enter into the Termination Agreement attached as Exhibit "A" and made a part hereof with the Employee to be effective as of the date of such termination. 5.2 In the event that (i) the company shall effect a reorganization, consolidation with, or merger into, any other corporation, partnership, organization or other entity (each a "Transaction") and the shareholders of the Company immediately prior to the Transaction own less than 50% of the common stock of the surviving entity in substantially the same proportions as their ownership in the Company immediately prior to the Transaction, or (ii) 50% or more of the common stock of the Company is sold to any other party or group of parties, or (iii) the Company sells all or substantially all of its assets, then the Company and the Employee, and the successor or purchasing entity, shall enter into the Termination Agreement attached as Exhibit A hereto and made a part hereof, and this Employment Agreement shall be terminated. 6. DISABILITY In the event that, while this Agreement is in force, Employee shall become disabled for any reason whatsoever so as to prevent him from performing his duties hereunder, and such disability shall continue for any consecutive period of six months or more, Company 4 5 shall pay and Employee shall accept, from and after the end of such six-month period, (the "Disability Date") for the balance of the remaining term of this Agreement, an annual income benefit equal to one-half of the Basic Salary which was being received hereunder by Employee at the commencement of such six-month period. During such six-month period, Employee shall be entitled to compensation payable pursuant to Section 4 hereof. In addition, for the fiscal year in which the Disability Date may occur, the Incentive Bonus due and payable to the Employee shall be reduced to an amount calculated by multiplying the amount of the Incentive Bonus which would otherwise be due and payable to the Employee had be not become disabled, by a fraction, the numerator of which is the number of days from the commencement of the fiscal year through the Disability Date and the denominator of which is 365. The Employee shall not be entitled to any Incentive Bonus for a fiscal year commencing after the Disability Date. 7. EXPENSES The parties recognize that in the course of performing his duties hereunder, Employee will necessarily incur expenses in connection with his duties. Company agrees to reimburse Employee upon presentation of vouchers for reasonable expenses incurred by Employee in performance of his duties hereunder. Moreover, while this Agreement shall be in force, Company shall provide Employee with appropriate offices, in Las Vegas, Nevada, secretarial help, administrative staff and automobile and other transportation facilities in Las Vegas. 5 6 8. VACATION For and during each year of employment, Employee shall be entitled to reasonable vacation periods consistent with his position with the Company. 9. MEDICAL EXPENSES In addition to any other benefits which may be due to Employee, Company shall, to the extent that any medical insurance program established by Company, the premiums for which are to be paid by the Company, shall be insufficient to meet any medical expenses of Employee incurred from and after September 1, 1996, and prior to January 31, 2005, expend and pay over or reimburse to Employee the full amount by which such medical expenses shall exceed the benefits provided by such Insurance. 10. SITUS This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 11. ENTIRE AGREEMENT This Agreement constitutes the full and complete understanding and agreement of the parties and, effective as of November 10, 2000, supersedes all prior understandings and agreements between Employee and the Company or any of its subsidiaries concerning the subject matter of this Agreement, and may not be modified or amended orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 6 7 12. BINDING EFFECT This Agreement and all of the terms hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, administrators and assigns. 13. SEVERABILITY In the event that it shall be determined, to the mutual satisfaction of the parties hereto, or by a final order of a court of competent jurisdiction, that any term or provision herein set forth is prohibited by, or is unlawful or unenforceable under any applicable law of any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: MEGO FINANCIAL CORP. - ----------------------------------- ----------------------------------- Jon A. Joseph Robert Nederlander Secretary Chairman of the Board & Chief Executive Officer -------------------------------- Jerome J. Cohen Employee 7 8 TERMINATION AGREEMENT THIS TERMINATION AGREEMENT (this "Agreement") is made and entered into effective as of [ ], [ ], by and among MEGO FINANCIAL CORP., A New York corporation ("Mego"), [ ], a [ ] corporation, [as successor to][as the purchaser of more than 50% of the common stock of] Mego (collectively referred to herein as the "Company") and JEROME J. COHEN ("Cohen"). This Agreement is intended to replace that certain Amended and Restated Employment Agreement, dated as of November 10, 2000, by and between Mego and the Consultant (the "Employment Agreement"). Accordingly, effective as of the Commencement Date hereof as that term is hereafter defined, the Employment Agreement shall be terminated and declared null and void. RECITATIONS A. The Company recognizes that Cohen has performed substantial services for Mego which have contributed to the growth of Mego. B. The Company and Cohen now each desire to terminate their existing business relationship on the terms and conditions set forth in this Agreement. OPERATIVE PROVISIONS 8 9 In consideration of the foregoing recitations, the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are acknowledged hereby, the parties hereto, intending to be legally bound, hereby covenant agree as follows: ARTICLE I TERMINATION AGREEMENT 1.1 TERMINATION FEE. In consideration for prior services provided by Cohen to Mego and for the termination of Cohen's Employment Agreement, the Company shall pay a fee to Cohen equal to Seven Hundred Fifty Thousand Dollars ($750,000), payable in thirty six (36) equal consecutive monthly installments of Twenty Thousand Eight Hundred and Thirty-Three Dollars and Thirty-Three cents ($20,833.33) per month, commencing [insert the effective date] (the "Commencement Date"). In the event of Cohen's death prior to the entire distribution of the fee set forth in this Section 1.1, the remaining amounts shall be paid to the beneficiary designated by Cohen, in writing, to the Company, or if no such beneficiary shall be designated, then to Cohen's estate, at such times and in such amounts as if Cohen had not died. 1.2 OTHER BENEFITS. (a) Medical Insurance Coverage. During the period commencing on the Commencement Date and ending on [insert the date that is thirty six months after the 9 10 commencement date] (the "Coverage Period"), Cohen and his Spouse shall continue to be covered under that certain Equitable Life Assurance Society of the United States medical insurance policy, number PPB N 86 803 722 (the "Policy"), and the Company shall pay the premiums thereon that are allocable to the Coverage Period. In addition, the Company shall reimburse Cohen for any medical expenses incurred by Cohen (but not for those medical expenses incurred by his Spouse) during the Coverage Period that are not covered under the Policy including, without limitation, any amounts that are not covered by the reason of the deductible and/or copayment provisions of the Policy. Reimbursements made by the Company to Cohen shall be made on a quarterly basis and the amount of the quarterly reimbursement shall be based upon invoices submitted by Cohen to the Company during such quarter. Notwithstanding anything to the contrary herein, the Company shall not be required to pay any medical expenses incurred by Cohen that are not covered by the Policy by reason of their being in excess of the maximum amount of covered expenses under the Policy. (b) Occupancy of Office. During the period beginning on the Commencement Date and ending on the last day of the third calendar month that begins after the Commencement Date (as defined in Section 1.1 hereof) (the "Office Period"), the Company shall continue to lease, and pay the rent and utility costs of, and Cohen shall have the right to continue utilizing, the Company's office space in Miami, Florida (the "Miami Office") where Cohen previously performed services for Mego. In addition, as of the Commencement Date, Cohen shall be entitled to keep any office furniture, furnishings or equipment located in the Miami Office. During the Office Period, Cohen shall organize all records, files and transaction bibles of the Company, and arrange to have those documents packaged and shipped, at the Company's expense, to the Company's offices in Las Vegas, Nevada. Cohen shall be entitled to keep or discard any such documents that the Company does not wish to have shipped as aforesaid. 10 11 ARTICLE II RESTRICTIVE COVENANTS. 2.1 NON-COMPETITION. For the three (3) year period ending on the third anniversary of the Commencement Date (the "Restricted Period") and provided that the Company is not in breach of any of its obligations under Sections 1.1, 1.2 or 3.4 of this Agreement, Cohen shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, corporation, company, partnership, association, venture or business or any other person or entity (whether as an employee, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly (or through any affiliated entity) competes with the Company's business (for this purpose, the Company's business shall mean any business that engages in time share sales in North America); provided that such provision shall not apply to Cohen's ownership of Common Stock of the Company or the acquisition by Cohen, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the National Association of Securities Dealers Automated Quotations System, or any similar system or automated dissemination of quotations of securities prices in common use, so long as Cohen does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control of, more than five percent of any class of capital stock of such corporation. 2.2 NONSOLICITATION OF EMPLOYEES. During the Restricted Period, and provided that the Company is not in breach of any of its obligations under Sections 1.1, 1.2, or 3.4 of this Agreement, 11 12 Cohen shall not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity employ or attempt to employ or enter into any contractual arrangement with any employee or former employee of the Company, unless such employee or former employee has not been employed by the Company for a period in excess of six months. 2.3 ACKNOWLEDGMENT BY COHEN. Cohen acknowledges and confirms that (i) the restrictive covenants contained in this Article II are reasonably necessary to protect the legitimate business interests of the Company, and (ii) the restrictions contained in this Article II (including without limitation the length of the term of the provisions of this Article II) are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. Cohen further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Article II will not cause him any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. Cohen acknowledges and confirms that his special knowledge of the business of the Company is such as would cause the Company serious injury or loss if he were to use such ability and knowledge to the benefit of a competitor or were to compete with the Company in violation of the terms of this Article II. Cohen further acknowledges that the restrictions contained in this Article II are intended to be, and shall be, for the benefit of and shall be enforceable by, the Company's successors and assigns. 2.4 REFORMATION BY COURT. In the event that a court of competent jurisdiction shall determine that any provision of this Article II is invalid or more restrictive than permitted under the 12 13 governing law of such jurisdiction, then only as to enforcement of this Article II within the jurisdiction of such court, such provision shall be interpreted and enforced as if it provided for the maximum restriction permitted under such governing law. 2.5 SURVIVAL. The provisions of this Article II shall survive the payment by the Company to Cohen of the Lump Sum Payment pursuant to Article II hereof. 2.6 INJUNCTION. It is recognized and hereby acknowledged by the parties hereto that a breach by Cohen of any of the covenants contained in Article II of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, Cohen recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Article II of this Agreement by Cohen or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. ARTICLE III MISCELLANEOUS 3.1 ENTIRE AGREEMENT: AMENDMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral, among the parties hereto. This 13 14 Agreement may not be amended or modified in any way except by a written instrument executed by the Company and Cohen. 3.2 NOTICE. All notices under this Agreement shall be in writing and shall be given by personal delivery, or by registered or certified United States mail, postage prepaid, return receipt requested, to the address set forth below: If to Cohen: Jerome J. Cohen [ ] [ ] [ ] with copy to: If to the Company or a MEGO FINANCIAL CORP. Successor Corporation Attn: [ ], President [ ] 14 15 Attn: [ ], President or to such other person or persons or to such other address or addresses as Cohen and the Company or their respective successors or assigns may hereafter furnish to the other by notice similarly given. Notices, if personally delivered, shall be deemed to have been received on the date of delivery, and if given by registered or certified mail, shall be deemed to have been received on the fifth business day after mailing. 3.3 GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Florida, without giving effect to the conflict of laws principles of each State. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Eleventh Circuit. 3.4 ASSIGNMENT: SUCCESSORS AND ASSIGNS. Neither Cohen nor the Company may make an assignment of this Agreement or any interest herein, by operation of laws or otherwise, without the prior written consent of the other party. This Agreement shall inure to the benefit of, and be binding upon, the Company and Cohen, his heirs, personal representatives, executors, legal representatives, successors and their permitted assigns, if any. In the event that the Company shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity, or if more than fifty percent (50%) of its stock shall be sold, transferred or issued to another party 15 16 or parties, the Company shall immediately pay Cohen the balance of the $750,000 fee set forth in Section 1.1 hereof not previously paid by the monthly payments provided for in the said Section 1.1 hereof (such payment being referred to as the "Lump Sum Payment"). Upon payment by the Company of the Lump Sum Payment in accordance with the foregoing sentence of this Section 3.4, then the Coverage Period for the continued payment of health insurance premiums and reimbursement of medical expenses under Section 1.2(a) hereof shall cease for expenses incurred after the date on which the Company has made the Lump Sum Payment to Cohen. 3.5 WAIVER. The waiver by any party hereto of the other party's prompt and complete performance or breach or violation of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or violation, and the waiver by any party hereto to exercise any right or remedy which he or it may possess shall not operate nor be construed as the waiver of such right or remedy by such party or as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation. 3.6 SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall be declared invalid by a court of competent jurisdiction, then this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections, or subsection or subsections had not been inserted. 16 17 3.7 DAMAGES. Nothing contained herein shall be construed to prevent the Company or Cohen from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. In the event that either party hereto brings suit for the collection of any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then the party found to be at fault shall pay all reasonable court costs and attorneys' fees of the other. 3.8 CONSENT TO JURISDICTION. In the event any controversy or claim arises out of or relates to this Agreement or the breach thereof, the parties hereby consent to the jurisdiction of the Supreme Court of Florida, the Florida District Court of Appeal, and the United States District Court for the District of Florida. Accordingly, with respect to any such court action, Cohen and the Company each (i) submit to the personal jurisdiction of such courts; (ii) consent to service of process; and (iii) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process. 3.9 GENDER AND NUMBER. Wherever the context shall so require, all words herein in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural and all plural words shall include the singular. 3.10 SECTION HEADINGS. The section or other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions of this Agreement. 17 18 3.11 NO THIRD PARTY BENEFICIARY OTHER THAN COMPANY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person, firm, corporation, partnership, association or other entity, other than the parties hereto and each of their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. THE COMPANY: MEGO FINANCIAL CORP., a New York corporation --------------------------------- [ ], President [ ].,a[ ] corporation 18 19 --------------------------------- [ ], President COHEN: ---------------------------------- JEROME J. COHEN 19 EX-10.222 3 a67971ex10-222.txt EXHIBIT 10.222 1 EXHIBIT 10.222 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Seventh Amendment" or "Amendment"), made as of the 15th day of December, 2000, by and among PREFERRED EQUITIES CORPORATION, a Nevada Corporation, having an address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as "Preferred"); and COLORADO LAND AND GRAZING CORP., a Colorado Corporation, having an address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as "CLGC") (Preferred and CLGC are hereinafter collectively referred to as the "Borrower" and any documents required to be executed by (or prepared for) the Borrower pursuant to this Amendment shall be executed by (or prepared for) each Borrower); and MEGO FINANCIAL CORP., a New York corporation having an address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as "Guarantor"); and DORFINCO CORPORATION, a Delaware Corporation, having an address of 40 Westminster Street, P.O. Box 6687, Providence, Rhode Island 02940-6687(hereinafter referred to as "Lender"). WITNESSETH: WHEREAS, On August 9, 1991, Preferred executed in favor of Lender a note evidencing a revolving line of credit loan (the "Loan") in the maximum principal sum of Five Million Dollars ($5,000,000.00) which note was amended by a First Amendment to Promissory Note dated June 30, 1993, which amendment, inter alia, increased the maximum amount of the Loan to Seven Million Five Hundred Thousand Dollars ($7,500,000.00) and by a Second Amendment to Promissory Note dated August 23, 1994 and by a Third Amendment to Promissory Note dated September 30, 1995 and by a Fourth Amendment to Promissory Note dated as of November 29, 1996 and by a Fifth Amendment to Promissory Note of even date herewith (collectively, "Note Amendment") (Said note, as amended, being hereinafter referred to as the "Note"); and WHEREAS, the above described Note evidences sums advanced or to be advanced pursuant to a Loan and Security Agreement dated July 31, 1991, which agreement was amended by a First Amendment dated January 8, 1992, and by Second Amendment to Loan and Security Agreement dated June 30, 1993 and by a Third Amendment to Loan and Security Agreement and Assumption Agreement dated August 23, 1994 which amendment inter alia, added CLGC as a Borrower and by a Fourth Amendment to Loan and Security Agreement dated September 30, 1995 and by a Fifth 2 Amendment to Loan and Security Agreement dated November 29, 1996 and a Sixth Amendment to Loan and Security Agreement dated as of June 30, 1999 (the Loan and Security Agreement, as so amended, being hereinafter referred to as the "Loan Agreement"); and WHEREAS, Preferred is currently marketing residential lots (the "HSR Lots") in a subdivision known as Hartsel Springs Ranches, located in Park County, Colorado (the HSR Subdivision"). WHEREAS, Preferred and CLGC have requested that Lender modify the terms of the Loan, upon the terms and provisions hereinafter set forth, in order to amend the definition of Eligible Notes Receivables to include Eligible Notes Receivables generated from the sale of the HSR Lots, to extend the Term and the Revolving Credit Period as well as certain other provisions. NOW THEREFORE, in consideration of the foregoing recitals, and in further consideration of the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto mutually agree as follows: I. AMENDMENTS 1. The date of this Seventh Amendment is referred to as the "Seventh Amendment Date." 2. The parties hereto mutually agree that all references to the Uniform Commercial Code of the State of Nevada as contained in Paragraph 1.1 (h) of the Loan Agreement shall be deemed to refer to the Uniform Commercial Code of the State of Colorado, when pertaining to the procedures for perfecting any security interest in any Collateral and for enforcement of any remedy against Collateral in each case located within or subject to the laws of the State of Colorado including but not limited to any Pledged Deeds of Trust or Eligible Notes Receivable generated by the Sale of the SPR Lots or of HSR Lots. In all other respects the parties hereto agree that the Uniform Commercial Code of the State of Nevada shall govern. 3. The parties hereto mutually agree that Section 1.1 (p) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof, the following provision is inserted: "1.1 (p) DEED OF TRUST. A deed of trust and an assignment of rents, executed and delivered by a Purchaser to Borrower, securing that Purchaser's Note Receivable and constituting a Lien upon the fee simple estate and interest of the Purchaser in and to its Lot. Said deed of trust and assignment shall be in substantially the form attached hereto as Exhibit "M-1" for any Lot located in the state of Nevada, and in substantially the 2 3 form attached hereto as Exhibit "M-2" for any SPR Lot located in the state of Colorado and in substantially the form attached hereto as Exhibit "M-3" for any HSR Lot located in the State of Colorado. Any reference in this Agreement to Exhibit "M" shall be deemed to refer to Exhibit "M-1" if the Lot is located in the State of Nevada, and to Exhibit "M-2" if SPR Lot and to Exhibit "M-3" if a HSR Lot." 4. The parties hereby mutually agree that the Loan Agreement is hereby amended by adding thereto, Exhibit M-3 which shall be in the form of Deed of Trust attached hereto and made a part hereof and marked Exhibit "B (M-3)". 5. The parties hereto mutually agree that Section 1.1 (u) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "1.1 (u) FINAL MATURITY DATE. December 31, 2005." 6. The parties hereto mutually agree that Paragraph 1.1 (ee) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof, the following provision is inserted: "1.1 (ee) LOAN YEAR. A period of twelve calendar months, commencing with the first day of the first full month following the Seventh Amendment Date, and each twelve (12) month period thereafter, provided that the period from the Seventh Amendment Date through the last day of the month in which the Seventh Amendment occurs shall constitute a part of the first Loan Year." 7. The parties hereto mutually agree that Section 1.1 (ss) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof, the following provision is inserted: "1.1 (ss) REVOLVING CREDIT PERIOD. The period from the Seventh Amendment Date to June 30, 2002." 8. The parties hereto mutually agree that Section 1.1 (vv) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "1.1 (vv) TERM. The period commencing on the Seventh Amendment Date and continuing until December 31, 2005. The Term includes both the 3 4 Revolving Credit Period and the period during which no Advances are permitted." 9. The parties hereto mutually agree that Schedule 1.1 (gg) (Lot) of the Loan Agreement is hereby amended by substituting therefor Revised Schedule 1.1 (gg) which is attached and made a part hereof, and marked Exhibit "A (1.1 (gg))". 10. The parties hereto mutually agree that Section 1.1 (kk) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "1.1 (kk) NOTE RECEIVABLE. A promissory note, substantially in the form attached hereto as Exhibit "L-1" where such note pertains to the sale of any Lot located in the State of Nevada, and in substantially the form attached hereto as Exhibit "L-2" or "L-3" where such note pertains to the sale of any SPR Lot located in the State of Colorado and is substantially the form attached hereto as Exhibit "L-4" where such note pertains to the sale of any HSR Lot located in the State of Colorado. Any reference in this Agreement to Exhibit "L" shall be deemed to refer to Exhibit "L-1" if the Lot is located in the State of Nevada, and to Exhibit "L-2" or "L-3" if a SPR Lot and to Exhibit "L-4" or Exhibit "L-5" if a HSR Lot. 11. The parties hereto mutually agree that the Loan Agreement is hereby amended by adding thereto Exhibit "L-4", Exhibit "L-5" which shall be the form of either promissory note applicable to the sale of a HSR Lot attached hereto, made a part hereof and marked Exhibit "C (L-4) and (L-5)". 12. The parties hereto mutually agree that Paragraph 1.1 (uu) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "1.1 (uu) SUBDIVISION. One of seven subdivisions (NRS 278.320) in a planned community called Calvada located in Pahrump, Nye County, Nevada, known as Calvada Valley, Calvada Valley North, Calvada Meadows, Country View Estates, Country Place II, Vegas Acres Unit 2 and Golden Spring Ranch, and a subdivision known as South Park Ranches located in Park County, Colorado (the "SPR Subdivision") and a subdivision known a Hartsel Springs Ranches consisting of parcels of land within such subdivision known as either Estates of Colorado or Hartsel 4 5 Ranch located in Park County, Colorado (the "HSR Subdivision")." 13. The parties hereto mutually agree that Section 1.1 (ww) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "1.1 (ww) TITLE COMPANY. Chicago Title Insurance Corporation or Security Title Guaranty Co. or any other reputable title insurer acceptable to Lender and doing business in Nye County, Nevada or Park County, Colorado." 14. The parties hereto mutually agree that Section 2.2 of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "2.2 NON-REVOLVING PERIOD. Notwithstanding anything contained herein to the contrary, no Advances of the Loan will be made after June 30, 2002." 15. The parties hereto mutually agree that Section 2.5 (a) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof the following provision is inserted: "2.5 (a) VOLUNTARY PREPAYMENTS. Subject to the provisions of Section 2.5 (b), Borrower may not prepay the Loan, in whole or in part, prior to December 31, 2001; subject to the terms of this Agreement and to the payment of the applicable premium set forth below, at any time on or after December 1, 2001, Borrower may prepay the Loan, in whole but not in part, upon thirty (30) days' prior written notice to Lender. Any such prepayment must include all outstanding principal, accrued but unpaid interest, accrued but unpaid fees and charges (if any), and the applicable prepayment premium provided below." 16. The parties hereto mutually agree that Section 2.5 (b) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof the following provision is inserted: "2.5 (b) PERMITTED PREPAYMENTS. Borrower may prepay the Loan (i) as a result of any payments or prepayments made under the Pledged Notes Receivable; or (ii) in connection with a Mandatory Prepayment required under Section 2.5 (c)." 5 6 17. The parties hereto mutually agree that Section 2.5 (d) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "2.5 (d) PREMIUMS. Any prepayment of the Loan pursuant to Section 2.5 (a) above and not pursuant to Section 2.5(b) must be accompanied by a premium calculated as follows:
Date of Prepayment Premium ------------------ ------- On or after December 31, 2001 one percent (1%) of the _____ outstanding principal balance of the Loan.
18. The parties hereto mutually agree that Section 3.5 (b) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "3.5 (b) Attached hereto as Exhibits L-1, L-2, L-3 L-4, M-1, M-2 and M-3, respectively, are true, accurate and complete copies of the forms of Note Receivable and the Deed of Trust in use by the Borrower. Attached hereto as Exhibit N-1 is a true, accurate and complete copy of the form of Grant, Bargain, Sale Deed conveying fee simple interest to a purchaser in use by Borrower in the State of Nevada. Attached hereto as Exhibit N-2 and N-3 is a true, accurate and complete copy of the form of Special Warranty Deed conveying fee simple interest to a purchaser in use by Borrower for SPR Lot and HSR Lot respectively in the State of Colorado. All references in this Agreement to Exhibit "N" shall be deemed to refer to Exhibit "N-1" when dealing with Lots in the State of Nevada, and to Exhibit "N-2" when dealing with SPR Lots and to Exhibit "N-3" when dealing with HSR Lots in the State of Colorado." 19. The parties hereto mutually agree that the Loan Agreement is hereby amended to add thereto Exhibit N-3, which shall be the form of Special Warranty Deed attached hereto and made a part hereof and marked Exhibit "D (N-3)". 20. The parties hereto mutually agree that Section 4.1 (1) (vii) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof, the following provision is inserted: 6 7 "(vii) FINANCING STATEMENTS. UCC Financing Statements governing the Collateral in form and substance satisfactory to Lender and its counsel to be recorded in Nye County, Nevada and with the Nevada Secretary of State (if the Collateral was generated by the sale of lots in Nye County Nevada) or in Park County, Colorado and with the Colorado Secretary of State (if the Collateral was generated from the Sale of SPR Lots or HSR Lots)." 21. The parties hereto mutually agree that Section 4.1 (o) (i) is hereby deleted in its entirety and in lieu thereof, the following provision is inserted: "(i) the current registration with and approval from the Real Estate Division of the Department of Commerce of the State of Nevada (for Lots located or sold in the State of Nevada) and registration with and the approval of the Colorado Real Estate Commission of the State of Colorado (for Lots located in the State of Colorado), to sell the Lots." 22. The parties hereto mutually agree that Schedule 4.1 (p) of the Loan Agreement is hereby amended by adding thereto the Liens affecting the HSR Lots as set forth on Exhibit "E (4.1 (p))" attached hereto and made a part hereof. 23. Notwithstanding the language contained in Section 5.1 (c) (i) of the Loan Agreement, the Assignments of Notes Receivable pertaining to the sale of HSR Lots shall be in the form attached hereto, made a part hereof, and marked Exhibit "F (H.3)". 24. The parties hereto mutually agree that Section 5.1 (c) (ii) of the Loan Agreement is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "5.1 (c) (ii) delivered to Title Company, with a copy to Lender and Custodian (or if Lender shall instruct, to Lender) a list of all Pledged Deeds of Trust and the Lots encumbered thereby, which are to be the subject of such requested advance, together with an executed and acknowledged Assignment of Deeds of Trust relating thereto in the form attached hereto, made a part hereof and marked Exhibit "H.2-1" (for Deeds of Trust encumbering Lots in the State of Nevada), and in the form attached hereto, made a part hereof and marked Exhibit "H.2-2" (for Deeds of Trust encumbering SPR Lots) and in the form attached hereto made a part hereof and marked Exhibit "H.2-3" (for Deeds of Trust encumbering HSR Lots), and such additional information as Lender may in good faith 7 8 request. All references contained herein to Exhibit "H.2" shall be deemed to refer to Exhibit H.2-1 when referring to Deeds of Trust encumbering Lots in the State of Nevada, and to Exhibit H.2-2 and H.2-3 when referring to Deeds of Trust encumbering SPR Lots and HSR Lots respectively in the State of Colorado." 25. The parties hereto mutually agree that the Loan Agreement is hereby amended by adding thereto as Exhibit "H.2-3" the form of Assignment of Deed of Trust attached hereto as Exhibit "G (H.2-3)". 26. The parties hereto mutually agree that Section 7.1 (w) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof the following provision is inserted: "7.1 (w) FORM OF NOTE RECEIVABLE: Instruments in substantially the form of Exhibits L-1 and L-2 or L-3 or L-4 or L-5 attached hereto shall be used by Borrower for all Notes Receivable transactions which may be entered into in the future during the term of the Loan. Borrower will not modify, amend or otherwise alter the form or any of the terms of the Notes Receivable or any other documents relating thereto without Lender's prior written consent, except as required by law or regulatory agency. Borrower will promptly notify Lender of any such modification, amendment or alteration required by any law or regulatory agency." 27. The parties hereto mutually agree that Schedule 6.5 (a) of the Loan Agreement is hereby amended by adding thereto, the covenants, conditions, restrictions and easements of record pertaining to the HSR Subdivision, as set forth on Exhibit "I (6.5(a))", attached hereto and made a part hereof. All references in the Agreement to Exhibit I shall be deemed to refer to Exhibit I-1 when dealing with the SPR Subdivision and to Exhibit I-2 when dealing with the HSR Subdivision. 28. The parties hereto mutually agree that the Loan Agreement is hereby amended to add thereto Exhibit I-2 which shall relate to the HSR Subdivision attached and made a part hereof and marked "Exhibit H (I-2). II. REAFFIRMATIONS 1. Nothing contained herein shall be construed in any manner so as to affect the validity or priority lien of any security interest held by Lender, its successors and assigns, in any Collateral described in the Loan Agreement. Borrower acknowledges and agrees that the Note, Loan Agreement, Custodial Agreement, Lockbox Agreement, 8 9 Assignment, Environmental Indemnification Agreement and all other Loan Documents (as modified herein) shall remain in full force and effect, unimpaired by this Amendment and that they are valid, binding and enforceable documents, duly executed and delivered by Borrower, and that Borrower has no offsets or defenses to the enforcement of the terms and provisions contained therein. 2. Borrower, and as applicable, the Guarantor, hereby reaffirm, restate and incorporate by this reference all of their respective representations, warranties and covenants as updated hereunder made in the Loan Agreement (including as amended hereby), as if the same were made as of this date and with reference to the Loan Agreement as amended hereby. In addition, Borrower (and, as applicable, the Guarantor) represents and warrants as follows: a. This Amendment (and the Note Amendment) has been duly authorized by Borrower and is the legal, valid and binding obligation of Borrower, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting creditor's rights and remedies generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and, as applicable with respect to the Guarantor, this Amendment is the legal, valid and binding obligation of the Guarantor, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). b. The execution, delivery and performance of this Amendment and the documents, instruments and materials to be delivered in connection herewith and the transactions contemplated hereby do not and will not result in any breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon the Collateral or the Subdivisions pursuant to, any provision of law, or any indenture, agreement or instrument to which Borrower or the Guarantor is a party or by which the Borrower or the Guarantor may be bound or affected except for liens in favor of Lender and the Deeds of Trust. c. There are no Defaults or Events of Default pursuant to the Loan Documents; Lender has fully performed its obligations under the Loan Documents which Lender is required to perform as of the date hereof, and neither Borrower nor the Guarantor has any defense, set-offs, claims, counterclaims or recoupments against Lender or with respect to the Loan. 3. Borrower and the Guarantor hereby reaffirm their respective obligations, agreements and undertakings as set forth in the Loan Documents, and acknowledge that the Indebtedness, or with respect to the Guarantor, the guaranteed Obligations defined in 9 10 the Guaranty, are the valid, legally binding and enforceable obligations of Borrower, and the Guarantor, respectively. III. CLOSING CONDITIONS AND ADDITIONAL TERMS 1. The obligation of Lender to enter into this Amendment and, in addition to all of the other conditions precedent set forth in the Loan Agreement or the other Loan Documents, to fund any further Advance pursuant to the terms hereof, shall be subject to the satisfaction of each of the following conditions precedent by no later than January 15, 2001 (the "Expiration Date"). a. Simultaneously with the first advance after the Seventh Amendment Date, Borrower shall pay to Lender a commitment fee equal to $50,000 ("Seventh Amendment Commitment Fee"). b. Commencing with the first Advance after the Seventh Amendment Date, Borrower shall pay to Lender an advance fee equal to one percent of any advances over $5,000,000 in aggregate advances ("Advance Fee"). Such Advance Fee shall be payable at the time of each applicable advance. c. Simultaneously with the first Advance after the Seventh Amendment Date, Borrower shall pay Lender Five Thousand Dollars ($5,000) toward attorney's fees and costs incurred by Lender in connection with the preparation of this Seventh Amendment and related documentation. d. Lender shall have received from Borrower the original executed Note Amendment, and a fully executed original or executed counterpart originals of this Amendment. e. Lender shall have received from Ballard Spahr Andrews and Ingersoll, LLP, Colorado Counsel for the Borrower, Jon Joseph, counsel for the Borrower and Mego Financial Corp., a New York corporation ("Guarantor"), or other counsel reasonably acceptable to Lender, closing opinions in form and substance reasonably acceptable to Lender, dated as of the Seventh Amendment Date. f. Except for information contained in certificates provided pursuant to Article III(1)(i) hereof, the representations and warranties contained in the Loan Agreement and in this Amendment, and in the certifications and closing documents delivered in connection herewith, shall be true and correct in all material respects, and all covenants and agreements to have been complied with performed by Borrower (or Guarantor), shall have been fully complied with and performed to the satisfaction of Lender. 10 11 g. Neither Borrower nor Guarantor shall have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Loan Documents. h. No Default or Event of Default shall exist immediately prior to the closing hereof, or after giving effect to such closing, or immediately after the making of any Advance requested in connection with such closing. i. Lender shall have received a certificate or certificates in form and substance satisfactory to it, dated as of the Seventh Amendment Date and signed by the president or other authorized officer of the Borrower, certifying that the conditions specified in this Amendment have been fulfilled, and "bringing down" the representations and warranties contained in the Loan Agreement. j. Borrower shall deliver to Lender, and Lender shall have approved, by no later than the Seventh Amendment Date or Expiration Date: i. A certificate of current good standing for the Borrower, together with copies of any amendments to the certificate of incorporation or bylaws of the Borrower since November 29, 1996, certified to be true, correct and complete by the Borrower, its secretary or assistant secretary, or the Nevada or Colorado Secretary of State, as applicable; ii. Evidence satisfactory to Lender that all taxes and assessments, including without limitation, those specified in Section 4.1 (q) of the Loan Agreement, owed by or for which Borrower is responsible for collection have been paid or will be paid prior to delinquency; iii. A certificate of secretary or assistant secretary of Borrower certifying the adoption by the Board of Directors thereof of a resolution authorizing specified officers of Borrower to enter and execute this Amendment, the Note Amendment and all other documents, certificates and instruments to be executed and delivered in connection with the Amendment closing, and to consummate the transactions contemplated hereunder; iv. A certificate of the secretary or assistant secretary of the Borrower certifying the incumbency of, and verifying the authenticity of the signatures of, the officers of Borrower authorized to sign this Amendment, the Note Amendment and the other documents, instruments and materials to be executed and delivered in connection herewith; v. A certificate of the secretary or assistant secretary of Guarantor certifying the adoption by the Board of Directors thereof of a resolution authorizing specified officers of the Guarantor to enter and execute this Amendment and all other documents, certificates and instruments to be executed 11 12 and delivered in connection with this Amendment closing, and to consummate the transactions contemplated hereunder; vi. A certificate of the secretary or assistant secretary of the Guarantor certifying the incumbency of, and verifying the authenticity of signatures of, the officers of the Guarantor authorized to sign this Amendment and the other documents, instruments and materials to be executed and delivered in connection herewith; vii. To the extent any of the same have not previously been delivered to Lender, true, correct and complete copies of any amendments since the Seventh Amendment Date, to any of the Lot Sale Documents (as defined in Section 4.1 [o] of the Loan Agreement) including but not limited to those Lot Sale Documents applicable to the HSR Lots, together with such copies of any Lot Sale Documents, or required governmental permits or licenses obtained, subsequent to the Seventh Amendment Date and not previously delivered to Lender; and viii. Such updated litigation and UCC searches as Lender may require. vix. An updated Lockbox Account Agreement and/or Blocked Account Agreement if deemed necessary by Lender and Lockbox Agent. k. All actions taken in connection with the execution or delivery of this Amendment, all documents, certificates, instruments and materials relating hereto, shall be reasonably satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of such documents and papers as Lender or such counsel may reasonably request in connection herewith all in form and substance satisfactory to Lender and its counsel. l. Borrower shall have paid all fees and expenses required to be paid prior to or at the closing pursuant to this Amendment. IV. GUARANTOR'S OBLIGATIONS 1. The Guarantor: a. has reviewed this Amendment with counsel of its choice, and accepts and consents to the terms of this Amendment and the transactions provided for herein; b. acknowledges and agrees that it receives material benefit and valuable consideration as a result of the transactions provided for herein or contemplated hereunder; 12 13 c. ratifies and reaffirms the Guaranty, and all of the terms, provisions, agreements, conditions and undertakings contained in the Guaranty or any of the Loan Documents (as applicable to the Guarantor), all of which remain unmodified except as modified herein and in full force and effect; d. acknowledges and confirms its continuing obligations under the Guaranty and agrees to be bound by the terms thereof, and that it has been since July 31, 1991 and remains liable with respect to the guaranteed Obligations as defined and provided in the Guaranty; e. acknowledges and agrees that the guaranteed Obligations encompass and apply to all Advances, including Advances from and after the Seventh Amendment Date, and to all Obligations, including Obligations arising pursuant to this Amendment; f. is fully aware of the financial and other conditions of the Borrower and the HSR Subdivision, and is executing and delivering this Amendment based solely upon its own independent investigation and not upon any representation or statement of Lender; g. except for information contained in certificates provided pursuant to IV(1)(i) hereof reaffirms, restates and incorporates by this reference all of the representations, warranties and covenants made in the Guaranty as if the same were made as of this date; h. acknowledges that its agreements, consents and acknowledgments contained herein, and the provisions of the Guaranty (which are reaffirmed by Guarantor), are a material inducement to Lender to enter into this Amendment, and that, but for the Guaranty, and the Guarantor's agreements as set forth herein, Lender would decline to enter into this Amendment; and i. shall deliver to Lender a certificate or certificates in form and substance satisfactory to it, dated as of the Seventh Amendment Date and signed by the president or other authorized officer of the Guarantor, certifying that the conditions specified in this Amendment have been fulfilled, and "bringing down" the representations and warranties contained in the Guaranty. V. MISCELLANEOUS 1. This Amendment is entered into for the benefit of the parties hereto, and is binding on the respective heirs, successors or assigns; provided that Borrower may not transfer or assign any of its rights or obligations under this Amendment without the prior written consent of Lender or as permitted under the Loan Agreement, as amended. Guarantor is a party to this Amendment solely for the purposes of affirming its obligations in accordance with Article IV hereof. 13 14 2. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment shall become effective upon Lender's receipt of one or more counterparts hereof timely executed by Borrower, the Guarantor and Lender. This Amendment may not be amended or modified, and no term or provision hereof may be waived, except by written instrument signed by the parties hereto. 3. Section headings have been inserted in this Amendment as a matter of convenience of reference only; such headings are not part of this Amendment and shall not be used in the interpretation of this Amendment. 4. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF BORROWER, THE GUARANTOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AMENDMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OF OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF BORROWER, THE GUARANTOR AND LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED UNLESS SUCH FAILURE TO CONSOLIDATE WOULD RESULT IN INABILITY TO ENFORCE A CLAIM. FURTHER, BORROWER AND THE GUARANTOR HEREBY CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR LENDER'S COUNSEL, HAS REPRESENTED EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER AND THE GUARANTOR ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS. 5. This Agreement and all other Loan Documents shall be governed by the laws of the State of Nevada in all respects, including matters of construction, performance and enforcement, except to the extent that the procedural laws of the State of Colorado govern the enforcement of any remedy against Collateral or property located in the State of Colorado, and excluding principles governing conflicts of laws. 14 15 6. Capitalized terms used herein which are not otherwise defined shall have the meaning ascribed in the Note and/or the Loan Agreement. 7. Whenever possible, the terms of this Amendment and the terms of all prior amendments shall be read together, but to the extent of any irreconcilable conflict, the terms of this Amendment shall govern. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have set their hands and seals the day and year first above written. ATTEST: BORROWER: PREFERRED EQUITIES CORPORATION /s/ [Signature Illegible] By: /s/ GREGG McMURTRIE - ----------------------------- ------------------------------------- COLORADO LAND AND GRAZING CORP. /s/ [Signature Illegible] By: /s/ GREGG McMURTRIE - ----------------------------- ------------------------------------- GUARANTOR: MEGO FINANCIAL CORP. /s/ [Signature Illegible] By: /s/ CHARLES BALTUSKONIS - ----------------------------- ------------------------------------- LENDER: DORFINCO CORPORATION /s/ [Signature Illegible] By: - ----------------------------- ------------------------------------- The address of the within named Lender is: 40 Westminster Street P.O. Box 6687 Providence, Rhode Island 02940-6687 - ------------------------------- on behalf of Lender 15 16 CORPORATE ACKNOWLEDGMENT STATE 0F NEVADA : ------------- COUNTY OF CLARK : ------------- ON THIS, the 19th day of December, 2000 before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared GREGG McMURTRIE, who acknowledged himself to be the EXEC. VICE PRESIDENT of PREFERRED EQUITIES CORPORATION, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ SYONJA L. GARCIA ----------------------------------- Notary Public My commission expires: =================================== NOTARY PUBLIC STATE OF NEVADA County of Clerk SYONJA L. GARCIA Appt. No. 00-64553-1 My Appt. Expires Aug. 24, 2004 =================================== CORPORATE ACKNOWLEDGMENT STATE OF NEVADA : ------------- COUNTY OF CLARK : ------------- ON THIS, the 19th day of December, 2000 before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared GREGG McMURTRIE, who acknowledged himself to be the PRESIDENT of COLORADO LAND AND GRAZING CORP., being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ SYONJA L. GARCIA ----------------------------------- Notary Public My commission expires: =================================== NOTARY PUBLIC STATE OF NEVADA County of Clerk SYONJA L. GARCIA Appt. No. 00-64553-1 My Appt. Expires Aug. 24, 2004 =================================== 16 17 CORPORATE ACKNOWLEDGMENT STATE OF NEVADA : ------------- COUNTY OF CLARK : ------------- ON THIS, the 19th day of December, 2000 before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared CHARLES BALTUSKONIS, who acknowledged himself to be the SR. VICE PRESIDENT of MEGO FINANCIAL CORP., being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ SYONJA L. GARCIA ----------------------------------- Notary Public My commission expires: ==================================== NOTARY PUBLIC STATE OF NEVADA County of Clerk SYONJA L. GARCIA Appt. No. 00-64553-1 My Appt. Expires Aug. 24, 2004 ==================================== CORPORATE ACKNOWLEDGMENT STATE OF : ------------- COUNTY OF : ------------- ON THIS, the ___ day of December, 2000 before me, a Notary Public in and for the State and County aforesaid, the undersigned officer, personally appeared _________________, who acknowledged himself to be the _____________________ of DORFINCO CORPORATION, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ----------------------------------- Notary Public My commission expires: 17 18 EXHIBITS EXHIBIT A REVISED LOT SCHEDULE 1.1 (gg) EXHIBIT B EXHIBIT M-3 DEED OF TRUST EXHIBIT C EXHIBIT L-4 PROMISSORY NOTE/EXHIBIT L-5 PROMISSORY NOTE EXHIBIT D EXHIBIT N-3 WARRANTY DEED EXHIBIT E EXHIBIT 4.1 (p) LIENS AFFECTING LOTS INCLUDING HSR EXHIBIT F EXHIBIT H.3 ASSIGNMENT OF NOTES RECEIVABLE - HSR LOTS EXHIBIT G EXHIBIT H.2-3 ASSIGNMENT OF DEED OF TRUST EXHIBIT H EXHIBIT I-2 HSR SUBDIVISION RESTRICTIONS
18 19 EXHIBIT A REVISED LOT SCHEDULE 1.1 (gg) 19 20 EXHIBIT B EXHIBIT M-3 DEED OF TRUST 20 21 EXHIBIT C EXHIBIT L-4 PROMISSORY NOTE/EXHIBIT L-5 PROMISSORY NOTE 21 22 EXHIBIT D EXHIBIT N-3 WARRANTY DEED 22 23 EXHIBIT E EXHIBIT 4.1 (p) LIENS AFFECTING LOTS INCLUDING HSR 23 24 EXHIBIT F TO SEVENTH AMENDMENT EXHIBIT H-3 COLLATERAL ASSIGNMENT OF NOTES RECEIVABLE (HARTSEL SPRINGS RANCH) AGREEMENT, made and executed this ____ day of ____________ ___, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower") and DORFINCO CORPORATION, a Delaware corporation ("Lender"). W I T N E S S E T H: WHEREAS, Borrower and Lender have entered into a Loan and Security Agreement, dated as of August 9, 1991, as amended, (the "Loan Agreement"), pursuant to which it is contemplated that Lender will lend an amount not to exceed $7,500,000.00 (the "Loan") on a revolving basis to Borrower to be secured by a lien and security interest granted by Borrower to Lender in respect to certain Notes Receivable (the "Pledged Notes Receivable") of which Borrower is the payee. The Pledged Notes Receivable are to be delivered to Custodian. NOW, THEREFORE, to secure the payment of the Indebtedness owed by Borrower to Lender under the Loan Agreement and the performance of all obligations owed by Borrower to Lender under the Loan Agreement, and in consideration of the extension of the Loan to Borrower, Borrower hereby, subject to all conditions, representations and warranties, covenants and obligations of Borrower under the Loan Agreement, conveys, assigns, transfers and sets over unto Lender all of its right, title and interest in and to the Pledged Notes Receivable set forth on SCHEDULE "A" HEREOF, together with all of Borrower's right, title and interest in and to the following (together with the Pledged Notes Receivable collectively the "Collateral"): All amendments, extensions, renewals and replacements of, and substitutions for, the Pledged Notes Receivable; All proceeds (cash and non-cash), property, property rights, privileges and benefits pertaining to, or arising from the enforcement of, the Pledged Notes Receivable, including, without limitation, proceeds in the form of all funds held in any accounts pursuant to any agency or lockbox agreement or similar arrangement related to any of the Pledged Notes Receivable to the extent such funds represent or arise from any of the foregoing, accounts, accounts receivable, chattel paper, contract rights, general intangibles and other receivables arising under or arising in connection with the Pledged Notes Receivable, instruments and documents, and all payments made from time to time on the Pledged Notes Receivable in whatever form, including cash, checks, notes, drafts and other instruments for the payment of money, all property returned by or reclaimed or repossessed from Account Debtors, all rights of foreclosure, termination, repossession, dispossession, all documents, instruments, contracts, liens and security instruments and guaranties relating to the Pledged Notes Receivable, all collateral, security deposits, tax escrows (to the extent the same may be pledged under applicable law) or other security securing the obligations of any Person under or relating to the Pledged Notes Receivable; 24 25 Documents, instruments, pledged assets and chattel paper relating to the Pledged Notes Receivable; and All books, records, computer tapes and disks summarizing or evidencing the Collateral. Borrower hereby warrants and represents to Lender that, to the extent the Collateral assigned hereby constitutes Primary Collateral, it is held and owned by Borrower free and clear of all prior liens, security interests, charges and encumbrances. Borrower covenants and agrees with Lender not to take any action with respect to the Collateral which may be prejudicial to the rights of Lender hereunder except actions which are specifically permitted under the Loan Agreement. All capitalized used herein, but not defined herein, shall have the meanings assigned to them in the Loan Agreement. This assignment shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. This instrument is governed by and shall be construed under the laws of the State of Colorado. IN WITNESS WHEREOF, Borrower has duly executed this Collateral Assignment of Notes Receivable as of the date first written above. Borrower: PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ------------------------------------- Its: ------------------------------------ STATE OF ___________________ } } ss. COUNTY OF __________________ } On _______________ ______, personally appeared before me, a notary public, personally known (or proved) to me to be the person whose name is subscribed to the above instrument (Collateral Assignment of Notes Receivable) who acknowledged that he/she executed the above instrument. ------------------------------------ Notary Public 25 26 EXHIBIT G TO SEVENTH AMENDMENT EXHIBIT H2-3 ASSIGNMENT OF DEEDS OF TRUST (HARTSEL SPRINGS RANCH) FOR VALUE RECEIVED, the undersigned, PREFERRED EQUITIES CORPORATION, hereby grants, assigns and transfers to DORFINCO CORPORATION, a Delaware corporation, all beneficial interest in, to and under those certain Deeds of Trust (and the Promissory Notes secured thereby), listed on EXHIBIT "A" attached hereto and made a part hereof, executed by Borrowers, as grantor to The Public Trustee of Park County, Colorado, as Trustee recorded, as set forth on EXHIBIT "A", in the official Records in the office of the Clerk and Recorder of Park County, State of Colorado. TOGETHER, with the note or notes therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Deeds of Trust. Dated this _____ day of __________ __________. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ------------------------------- STATE OF NEVADA } Escrow No. __________________ } ss. WHEN RECORDED MAIL TO: COUNTY OF CLARK } Preferred Equities Corporation On _________________, ______, personally 4310 Paradise Road appeared before me, a notary public, Las Vegas, NV 89109 ______________________________, personally Attention: Mark Prasse known to me to be the person whose name is subscribed to the above instrument who acknowledged that he executed the above instrument. - ------------------------------ NOTARY PUBLIC 26 27 EXHIBIT H EXHIBIT I-2 HSR SUBDIVISION RESTRICTIONS 27 EX-10.223 4 a67971ex10-223.txt EXHIBIT 10.223 1 EXHIBIT 10.223 FIFTH AMENDMENT TO PROMISSORY NOTE THIS FIFTH AMENDMENT TO PROMISSORY NOTE ("Fifth Amendment"), made as of December 15, 2000, by and among PREFERRED EQUITIES CORPORATION, a Nevada Corporation, having an address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as "Preferred"), and COLORADO LAND AND GRAZING CORP., a Colorado Corporation, having an address of 4310 Paradise Road, Las Vegas, Nevada 89109 (hereinafter referred to as "CLGC"), and DORFINCO CORPORATION, a Delaware Corporation, having an address of 40 Westminster Street, P.O. Box 6687, Providence, Rhode Island 02940-6687 (hereinafter referred to as "Lender"). WITNESSETH: WHEREAS, On August 9, 1991, Preferred executed in favor of Lender a note evidencing a revolving line of credit loan (the "Loan") in the maximum principal sum of Five Million Dollars ($5,000,000.00) which note was amended by a First Amendment to Promissory Note dated June 30, 1993, which amendment, inter alia, increased the maximum amount of the Loan to Seven Million Five Hundred Thousand Dollars ($7,500,000.00) which note was further amended by a Second Amendment to Promissory Note dated August 23, 1994 and by a Third Amendment to Promissory Note dated September 30, 1995 and a Fourth Amendment to Promissory Note dated December 15, 2000 (said note, as amended, being hereinafter referred to as the "Note"); and WHEREAS, the above described Note evidences sums advanced or to be advanced pursuant to a Loan and Security Agreement dated July 31, 1991, which Agreement was amended by a First Amendment dated January 8, 1992, and by Second Amendment to Loan and Security Agreement dated June 30, 1993, and by a Third Amendment to Loan and Security Agreement and Assumption Agreement dated August 23, 1994, which amendment, inter alia, added CLGC as a Borrower (the "Third Amendment") and by a Fourth Amendment to Loan and Security Agreement dated September 30, 1995 (the "Fourth Amendment") and by a Fifth Amendment to Loan and Security Agreement dated November 29, 1996 (the "Fifth Amendment") and a Sixth Amendment dated June 30, 1999 ("Sixth Amendment") and a Seventh Amendment of even date herewith (the "Seventh Amendment") (collectively, the Loan and Security Agreement, as amended, being hereinafter referred to as the "Loan Agreement"); and WHEREAS, Preferred and CLGC have requested that Lender modify the terms of the Loan, upon the terms and provisions hereinafter set forth, in order to extend the Term and the Revolving Credit Period as well as other certain provisions; and 2 NOW THEREFORE, in consideration of the foregoing recitals, and in further consideration of the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto mutually agree as follows: 1. The foregoing recitals are hereby incorporated herein by reference thereto. 2. The parties hereto mutually agree that paragraph 3(c) of the Note is hereby deleted in its entirety, and in lieu thereof the following provision is inserted: "(c) Repayment on Maturity. On December 31, 2005, (THE "FINAL MATURITY DATE"), or on such earlier date as the Note becomes due and payable, whether by acceleration or otherwise, the entire outstanding principal balance hereof, together with accrued but unpaid interest thereon and all other sums owing to Holder hereunder or under the Loan Documents, shall be due and payable in full." 3. The parties hereto mutually agree that paragraph 8(a) of the Note is hereby deleted and in lieu thereof the following provision is inserted: "8. Prepayment (a) Except as otherwise specifically provided in the Loan Agreement, this Loan may not be prepaid prior to the last day of the twelfth full calendar month after the Seventh Amendment Date (such period and each twelve month period thereafter being referred to as a "Loan Year"). After the first Loan Year, this Loan may be prepaid at any time in whole or in part, upon thirty (30) days prior written notice to Holder and upon payment, in addition to such outstanding principal amount, all accrued and unpaid interest, all other amounts then due and payable hereunder and a prepayment penalty equal to one percent (1%) of the then outstanding principal balance. 4. Nothing contained herein shall be construed in any manner so as to affect the validity or prior time lien of any security interest held by Lender, its successors and assigns, in any Collateral described in the Loan Agreement. Borrower acknowledges and agrees that the Note is a valid, binding and enforceable document, duly executed and delivered by Borrower, and that Borrower has no offsets or defenses to the enforcement of the terms and provisions contained therein. 5. Simultaneously with the execution hereof, Lender shall make a notation on the original Note indicating the existence of this Fifth Amendment. 6. The execution of this Fifth Amendment shall serve as additional evidence of the obligation of Borrower (as that term was modified by the Third Amendment to include CLGC) or so much thereof as may then be outstanding, to repay the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00), to Lender in accordance with the terms, covenants, provisions and conditions contained in the Note, as modified herein, which terms, covenants, provisions and conditions are incorporated herein by reference thereto. 2 3 7. Except as specifically set forth herein, all terms and provisions set forth in the Note shall remain in full force and effect, unimpaired by this Fifth Amendment. 8. This Fifth Amendment shall be governed by the laws of the State of Nevada in all respects, including matters of construction, performance and enforcement, excluding principles governing conflicts of laws. 9. Capitalized terms used herein which are not otherwise defined shall have the meaning ascribed in the Note and/or the Loan Agreement. 10. Wherever possible, the terms of this Fifth Amendment and the terms of all prior amendments shall be read together, but to the extent of any irreconcilable conflict, the terms of this Fifth Amendment shall govern. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have set their hands and seals the day and year first above written. ATTEST: BORROWER: PREFERRED EQUITIES CORPORATION /s/ [Signature Illegible] By: /s/ GREGG McMURTRIE - ------------------------------- ------------------------------------- Title: Vice President Title: Executive Vice President ------------------------- ---------------------------------- COLORADO LAND AND GRAZING CORP. /s/ [Signature Illegible] By: /s/ GREGG McMURTRIE - ------------------------------- ------------------------------------- Title: Vice President Title: President ------------------------- ---------------------------------- DORFINCO CORPORATION By: ------------------------------------- Title: ---------------------------------- 3 4 CORPORATE ACKNOWLEDGMENT STATE OF NEVADA ) ---------------------- ) SS: COUNTY OF CLARK ) ---------------------- ON THIS, the 14th day of December, 2000 before me, a Notary Public in and for the Sate and county aforesaid, the undersigned officer, personally appeared Gregg McMurtrie, who acknowledged himself to be the Executive Vice President, of PREFERRED EQUITIES CORPORATION, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ SYONJA L. GARCIA ---------------------------------------- Notary Public MY COMMISSION EXPIRES: ==================================== NOTARY PUBLIC STATE OF NEVADA County of Clerk SYONJA L. GARCIA Appt. No. 00-64553-1 My Appt. Expires Aug. 24, 2004 ==================================== 4 5 CORPORATE ACKNOWLEDGMENT STATE OF NEVADA ) ---------------------- ) SS: COUNTY OF CLARK ) ---------------------- ON THIS, the 14th day of December, 2000 before me, a Notary Public in and for the Sate and county aforesaid, the undersigned officer, personally appeared Gregg McMurtrie, who acknowledged himself to be the President, of COLORADO LAND AND GRAZING CORP., being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ SYONJA L. GARCIA ---------------------------------------- Notary Public MY COMMISSION EXPIRES: ==================================== NOTARY PUBLIC STATE OF NEVADA County of Clerk SYONJA L. GARCIA Appt. No. 00-64553-1 My Appt. Expires Aug. 24, 2004 ==================================== 5 6 CORPORATE ACKNOWLEDGMENT STATE OF ) ---------------------- ) SS: COUNTY OF ) ---------------------- ON THIS, the ___ day of _____________, 2000 before me, a Notary Public in and for the Sate and county aforesaid, the undersigned officer, personally appeared ___________________, who acknowledged himself to be the _______________________, of DORFINCO CORPORATION, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ---------------------------------------- Notary Public MY COMMISSION EXPIRES: 6 EX-10.224 5 a67971ex10-224.txt EXHIBIT 10.224 1 EXHIBIT 10.224 COMPENSATION AGREEMENT THIS COMPENSATION AGREEMENT ("Agreement") is entered into by and between Carol Sullivan, an individual residing at 8653 Robinson Ridge Drive, Las Vegas, Nevada, 89117. ("Sullivan") and Preferred Equities Corporation, a Nevada corporation with its principal address being 4310 Paradise Road, Las Vegas, Nevada 89109 ("PEC"). RECITAL As of January 8, 2001, Sullivan is employed as the Senior Vice President and Chief Financial Officer ("CFO") of PEC. In her role as CFO, Sullivan is responsible for arranging financings, lender relations and supervision of the Trust Deed and Portfolio Management departments and other financial and back office duties assigned to her from time to time by the Chief Executive Officer of PEC. Sullivan reports to the Chairman of the Board and Chief Executive Officer of PEC, Jerome J. Cohen. Sullivan and PEC desire to enter into this Agreement in order to reduce to writing Sullivan's compensation arrangement with PEC for such period of time as Sullivan is employed by PEC as CFO or until modified by mutual agreement of the parties. In consideration of the foregoing, the parties hereto agree as follows. 1. TERM. The term of this Agreement shall be for a period of one year and shall expire on January 7, 2002, unless earlier terminated in accordance with the provisions contained herein. 2. BASE SALARY. Sullivan shall be paid a base salary of Two hundred thousand dollars ($200,000.00) per annum payable bi-weekly as part of the regular PEC payroll. Base salary payments shall be subject to ordinary withholding for taxes and withholding for items designated by Sullivan such as for 401(k) contributions. 3. EXECUTIVE BONUS POOL. Sullivan shall be eligible to participate in the Executive Incentive Compensation Plan of Mego Financial Corp. with awards thereunder at the discretion of the Incentive Compensation Committee of the Board of Directors of Mego Financial Corp., PEC'S parent. 4. STOCK OPTIONS. Sullivan may receive stock options under the Stock Option Plan of , Mego Financial Corp., at the discretion of the Board of Directors of Mego Financial Corp. 5. TRAVEL AND BUSINESS EXPENSE. Sullivan shall be reimbursed for usual business and travel expenses. Sullivan shall be entitled to fly first class on any flight or combination of flights longer than two hours in scheduled duration. 6. OTHER BENEFITS. Sullivan shall be eligible for all benefits afforded to PEC executives from time to time provided Sullivan meets any eligibility requirements set forth 2 for employees participating therein. 7. VACATION. Sullivan shall have three (3) weeks paid vacation during each PEC fiscal year. 8. TERMINATION. (a) PEC shall have the right to terminate the Agreement at any time with Thirty days written notice to Sullivan. (b) If Sullivan's employment is terminated by PEC for any reason other than for Cause during the term of this Agreement, or if PEC gives Sullivan notice that PEC does not intend to renew the Agreement pursuant to Section 9., Sullivan shall receive base salary as set forth in Sections 2. to the date of termination and a severance payment in the amount of One Hundred Thousand Dollars ($100,000.00). If Sullivan resigns or terminates her employment by PEC she will only be entitled to her base salary to the date of such termination. 9. RENEWAL. This Agreement shall be renewed from year to year provided that neither party has given written notice to the other party of her or its intention not to renew, at least thirty (30) days prior to the expiration of the then term of the Agreement. In the event that the Agreement has been renewed for a term following the initial term then the severance payment set forth in Section 8.(b) shall be Two Hundred Thousand Dollars ($200,000.00). 10. DEFINITION OF CAUSE. "Cause" shall mean any one of the following acts of, or omissions by, or actions of others relating to, Sullivan: (a) Conviction of a felony, whether or not such conviction is appealed. (b) Deliberate and premeditated acts against the best interests of PEC. (c) Sullivan is found guilty of or is enjoined from violation of any state or federal security laws, state or federal laws governing the business of PEC, or rules or regulations of any state or federal agency regulating any of the business of PEC. (d) Misappropriation of PEC funds or property. (e) Habitual use of alcohol or drugs to a degree that such use interferes in any way with Sullivan's performance of her duties. 11. COVENANT NOT TO SOLICIT. Sullivan agrees that so long as she is employed by PEC and for a period of one year after termination of her employment by PEC with or without Cause, or resignation or termination of her 2 3 employment by Sullivan, Sullivan will not solicit or encourage other employees or officers of PEC to terminate their employment by PEC for any purpose whatsoever. 12. NOTICE. All notices under this Agreement shall be in writing and shall be given by personal delivery, certified United States mail or by facsimile, to the address set forth below: If to Sullivan: Carole Sullivan 8653 Robinson Ridge Drive Las Vegas, NV 89117 Facsimile # 702-804-5699 If to PEC: Preferred Equities Corporation 4310 Paradise Road Las Vegas, NV 89109 Facsimile # 702-369-4398 Attn. Jerome J. Cohen President 13. MISCELLANEOUS. (a) This Agreement is personal to Sullivan and the duties and responsibilities hereunder may not be assigned by Sullivan. (b) This Agreement shall terminate except, to the extent applicable, on the date of termination of Sullivan's employment by PEC, or Sullivan's resignation, her termination of employment, death or permanent disability. (c) This Agreement may only be modified by mutual written agreement of the parties. (d) The headings to this Agreement are for convenience of reference only and are not to be considered in the interpretation of this Agreement. (e) This Agreement shall be governed by the laws of the State of Nevada. (f) This Agreement constitutes the entire agreement between the parties and there are no other agreements, representations or warranties other than as set forth herein. 3 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 8th day of January, 2001. Preferred Equities Corporation - ----------------------------- ----------------------- Jerome J. Cohen Carol Sullivan President 4 -----END PRIVACY-ENHANCED MESSAGE-----