-----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, Q1JMiNzLzSzhYuAdeHGP8Ie6oxGokLX+IhgYSR/PM3pTm3xzpCbugX4SNUWJ71O/ D0yurC2k6xwKY+oUS+fobQ== 0000950150-01-500228.txt : 20010417 0000950150-01-500228.hdr.sgml : 20010417 ACCESSION NUMBER: 0000950150-01-500228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010416 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: 1602677 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 a69978e10-q.txt FORM 10-Q FOR QUARTER ENDED FEBRUARY 28, 2001 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: FEBRUARY 28, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER: 1-8645 MEGO FINANCIAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-5629885 (STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (702) 737-3700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of April 11, 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 February 28, 2001 and August 31, 2000..........................................1 Condensed Consolidated Income Statements for the Three and Six Months Ended February 28, 2001 and February 29, 2000..................................2 Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended February 28, 2001.................................................3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2001 and February 29, 2000..................................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.....................15 PART II OTHER INFORMATION Item 1. Legal Proceedings...............................................................15 Item 5 Other Information...............................................................15 Item 6. Exhibits and Reports on Form 8-K................................................16 SIGNATURE..................................................................................17
i 3 PART I FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (thousands of dollars, except per share amounts) (unaudited)
FEBRUARY 28, AUGUST 31, ASSETS 2001 2000 ------------ ---------- Cash and cash equivalents $ 1,323 $ 1,069 Restricted cash 3,123 1,255 Notes receivable, net of allowance for cancellations and discounts of $13,839 at February 28, 2001 and $13,234 at August 31, 2000 92,117 83,156 Interest only receivables, at fair value 2,954 2,701 Timeshare interests held for sale 19,632 23,307 Land and improvements inventory 3,126 4,113 Other investments 4,485 4,492 Property and equipment, net of accumulated depreciation of $16,158 at February 28, 2001 and $17,632 at August 31, 2000 16,771 23,167 Deferred selling costs 5,665 5,231 Prepaid debt expenses 2,004 2,060 Other assets 16,128 18,041 --------- --------- TOTAL ASSETS $ 167,328 $ 168,592 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable $ 103,577 $ 109,131 Accounts payable and accrued liabilities 22,755 19,544 Reserve for notes receivable sold with recourse 3,931 4,033 Deposits 3,362 2,841 Accrued income taxes 2,311 2,975 --------- --------- Total liabilities before subordinated debt 135,936 138,524 --------- --------- 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 February 28, 2001 and August 31, 2000) 35 35 Additional paid-in capital 13,068 13,068 Retained earnings 15,025 12,679 Accumulated other comprehensive loss (1,022) -- --------- --------- Total stockholders' equity 27,106 25,782 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 167,328 $ 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 SIX MONTHS ENDED ----------------------------- ------------------------------ FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUES Timeshare interest sales, net $ 12,108 $ 10,906 $ 26,126 $ 22,897 Land sales, net 5,085 4,563 9,827 8,582 Interest income 3,550 3,172 6,759 6,043 Financial income 850 269 1,329 541 Gain on sale of notes receivable -- -- 292 -- Gain on sale of investments -- 678 1,608 678 Incidental operations 388 511 878 1,135 Other 932 919 1,974 1,839 ----------- ----------- ----------- ----------- Total revenues 22,913 21,018 48,793 41,715 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Direct cost of: Timeshare interest sales 2,455 2,210 5,612 4,588 Land sales 777 741 1,546 1,297 Interest expense 3,088 3,113 6,132 5,979 Marketing and sales 11,057 8,593 22,521 17,867 General and administrative 4,409 4,395 9,323 8,273 Incidental operations 353 499 707 1,099 Depreciation 351 461 743 951 ----------- ----------- ----------- ----------- Total costs and expenses 22,490 20,012 46,584 40,054 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 423 1,006 2,209 1,661 INCOME TAXES (BENEFIT) -- -- (137) -- ----------- ----------- ----------- ----------- NET INCOME APPLICABLE TO COMMON STOCK $ 423 $ 1,006 $ 2,346 $ 1,661 =========== =========== =========== =========== INCOME PER COMMON SHARE Basic: Net income applicable to common stock $ 0.12 $ 0.29 $ 0.67 $ 0.47 =========== =========== =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,500,557 3,500,557 =========== =========== =========== =========== Diluted: Net income applicable to common stock $ 0.12 $ 0.29 $ 0.67 $ 0.47 =========== =========== =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 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 six months ended February 28, 2001 2,346 2,346 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 six months ended February 28, 2001, net of related income tax of $495 (854) (854) ------------------------------------------------------------------------------------- Total comprehensive income 1,324 --------- Balances at February 28, 2001 3,500,557 $ 35 $ 13,068 $ 15,025 $ (1,022) $ 27,106 =====================================================================================
See notes to condensed consolidated financial statements. 3 6 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars) (unaudited)
SIX MONTHS ENDED --------------------------- FEBRUARY 28, FEBRUARY 29, 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,346 $ 1,661 -------- -------- Adjustments to reconcile net income to net cash used in operating activities: Charges to allowance for cancellations (4,085) (3,831) Provision for cancellations 3,702 2,717 Amortization of interest rate swap 106 -- Gain on sale of notes receivable (292) -- Gain on sale of other assets (1,608) (678) Cost of sales 7,158 5,885 Depreciation 743 951 Additions to interest only receivable (562) -- Amortization of interest only receivables 309 271 Repayments on notes receivable 22,337 24,334 Additions to notes receivable (40,614) (36,347) Proceeds from sale of notes receivable 9,889 -- Purchase of land and timeshare interests (2,496) (2,483) Changes in operating assets and liabilities: (Increase) decrease in restricted cash (1,868) 399 (Increase) decrease in other assets 1,969 (3,574) Increase in deferred selling costs (434) (920) Increase (decrease) in accounts payable and accrued liabilities 1,556 (759) Increase in deposits 521 427 Decrease in accrued income taxes (137) -- -------- -------- Total adjustments (3,806) (13,608) -------- -------- Net cash used in operating activities (1,460) (11,947) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (592) (435) Proceeds from the sale of property and equipment 7,853 -- Proceeds from the sale of other investments 7 1,001 Additions to other investments -- (29) Payments on other investments -- 30 -------- -------- Net cash provided by investing activities 7,268 567 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 27,310 33,675 Reduction of debt (32,864) (22,288) Payments on subordinated debt -- (215) Increase in subordinated debt -- 237 -------- -------- Net cash provided by (used in) financing activities (5,554) 11,409 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 254 29 CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD 1,069 1,821 -------- -------- CASH AND CASH EQUIVALENTS-- END OF PERIOD $ 1,323 $ 1,850 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest, net of amounts capitalized $ 6,090 $ 5,795 ======== ========
See notes to condensed consolidated financial statements. 4 7 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 2001 (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 February 28, 2001, the results of its operations for the three and six months ended February 28, 2001 and 2000, the change in stockholders' equity for the six months ended February 28, 2001 and the cash flows for the six months ended February 28, 2001 and February 29, 2000. 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 and six months ended February 28, 2001 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 either hypothecates or sells, and typically 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 loss. The cumulative effect of change in accounting principle of $168,000, which is net of related income tax, was recorded as of September 1, 2000 under the same caption. 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 48,570 shares of Mego Financial common stock were outstanding as of February 28, 2001. 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 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 payable over a period up to twelve years, bear interest at rates generally 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 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 three 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 accounted for as a reversal of the revenue with an adjustment to cost of sales. Cancellation of a note receivable subsequent to the quarter the revenue was recognized is charged to the allowance for cancellations. 7 10 Gain on sale of notes receivable includes the present value of the differential between contractual interest rates charged to borrowers on notes receivable sold by PEC and the interest rates to be received by the purchasers of such notes receivable, after considering the effects of estimated prepayments and a normal servicing fee. PEC retains certain participations in cash flows from the sold notes receivable and generally retains the associated servicing rights. PEC generally sells its notes receivable at par value. The present values of expected net cash flows from the sale of notes receivable are recorded at the time of sale as interest only receivables. Interest only receivables are amortized as a charge to income, as payments are received on the retained interest differential over the estimated life of the underlying notes receivable. Interest only receivables are recorded at the lower of unamortized cost or estimated fair value. The expected cash flows used to determine the interest only receivables asset have been reduced for potential losses under recourse provisions of the sales agreements. Reserve for notes receivable sold with recourse represents PEC's estimate of the fair value of its future credit losses to be incurred over the lives of the notes receivable in connection with the recourse provisions of the sales agreements and is shown separately as a liability in the Company's Condensed Consolidated Balance Sheets. In discounting cash flows related to notes receivable sales, PEC defers servicing income at an annual rate of 1% and discounts cash flows on its sales at the rate it believes a purchaser would require as a rate of return. Earned servicing income is included under the caption of financial income. The cash flows were discounted to present value using a discount rate of 15% for the six months ended February 28, 2001 and February 29, 2000. 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 a provision for cancellations at the time revenue is recognized, based on historical experience and current economic factors. The related allowance for cancellations represents PEC's estimate of the amount of the future credit losses to be incurred over the lives of the notes receivable. The allowance for cancellations is 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 $6.4 million at February 28, 2001 and August 31, 2000 were made under this arrangement. Land sales as of February 28, 2001 exclude $20.3 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 $20.3 million unrecognized land sales, the Company estimates that it will ultimately recognize $16.7 million of revenues, which would be reduced by a related provision for cancellations of $1.3 million, estimated deferred selling costs of $4.7 million and cost of sales of $2.5 million, for an estimated net profit of $8.2 million. RESULTS OF OPERATIONS Three Months Ended February 28, 2001 Compared to Three Months Ended February 29, 2000 Total revenues for the Company increased 9.0% or $1.9 million to $22.9 million during the three months ended February 28, 2001 from $21.0 million during the three months ended February 29, 2000. The increase was primarily due to a net increase of $1.7 million in timeshare interest and land sales to $17.2 million during the three months ended February 28, 2001 from $15.5 million during the three months ended November 30, 2000 (net timeshare interest sales increased by $1.2 million and net land sales increased by $500,000), an increase in interest income to $3.6 million during the three months ended February 28, 2001 from $3.2 million during the three months ended February 29, 2000, an increase in financial income to $850,000 during the three months ended February 28, 2001 from $269,000 during the three months ended February 28, 2000, and no gains on sale of receivables and investments and other assets during the three months ended February 28, 2001, compared to a gain on sale of investments during the three months ended February 28, 2000 of $678,000. Gross sales of timeshare interests increased to $13.6 million during the three months ended February 28, 2001 from $12.0 million during the three months ended February 29, 2000, an increase of 13.4%. Net sales of timeshare interests increased to $12.1 million during the three months ended February 28, 2001 from $11.0 million during the three months ended February 28, 2000, an increase of 11.0%. The provision for cancellations increased to 11.1% of gross sales of timeshare interests for the three months ended February 28, 2001 from 9.2% for the three months ended February 29, 2000, primarily due to a downward adjustment based on the results of the customary quarterly review of the allowance adequacy during the three months ended February 29, 2000. Gross sales of land increased to $5.3 million during the three months ended February 28, 2001 from $4.8 million during the three months ended February 29, 2000, an increase of 11.7%. Net sales of land increased to $5.1 million during the three months ended February 28, 2001 from $4.6 million during the three months ended February 29, 2000, an increase of 11.4%. The provision for cancellations represented 4.4% and 4.2, respectively, of gross sales of land for the three months ended February 28, 2001 and February 29, 2000. Interest income increased to $3.5 million during the three months ended February 28, 2001 from $3.2 million for the three months ended February 29, 2000, an increase of 11.9%, primarily due to increased average notes receivable balances for the comparative quarters. Financial income increased to $850,000 during the three months ended February 28, 2001 from $269,000 for the three months ended February 29, 2000, an increase of 216.0%. The increase was primarily due to the comparative increased volume of sold loans and the increase in spread on those sold loan portfolios with a variable, pass-through interest rate. 9 12 There was no gain on sale of other investments for the three months ended February 28, 2001 compared to a net gain of $678,000 resulting from the sale of two golf courses recorded for the three months ended February 29, 2000. Total costs and expenses for the Company increased to $22.5 million for the three months ended February 28, 2001 from $20.0 million for the three months ended February 29, 2000, an increase of 12.4%. The increase resulted primarily from an increase in direct costs of timeshare sales to $2.5 million from $2.2 million, an increase of 11.1%; and an increase of $2.5 million in marketing and sales expense, an increase of 28.7%. The increase in direct costs of timeshare sales is attributable to higher net timeshare sales during the current fiscal quarter compared to the same quarter last year. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses related thereto increased to 58.4% for the three months ended February 28, 2001 from 51.2% for the three months ended February 29, 2000. 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. Interest expense was $3.1 million during the three months ended February 28, 2001 and February 29, 2000 due to offsetting factors. There was a higher average outstanding balance of Notes and contracts payable during the three months ended February 28, 2001 compared to the three months ended February 29, 2000, and this was offset by a decrease in interest expense as a result of the reduction of debt related to the sale of the office buildings and the decrease in overall interest expense related to the prime rate decline. Pretax income of $423,000 was earned during the three months ended February 28, 2001 compared to a pretax income of $1.0 million during the three months ended February 29, 2000. No income taxes were recorded for the three months ended February 28, 2001 and February 29, 2000. 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 $423,000 during the three months ended February 28, 2001 compared to net income applicable to common stock of $1.0 million during the three months ended February 29, 2000, primarily due to the foregoing. Six Months Ended February 28, 2001 Compared to Six Months Ended February 29, 2000 Total revenues for the Company increased 17.0%, or $7.0 million, to $48.8 million during the six months ended February 28, 2001 from $41.7 million during the six months ended February 29, 2000. The increase was primarily due to an increase in timeshare and land sales to $36.0 million during the six months ended February 28, 2001 from $31.5 million during the six months ended February 29, 2000 (net timeshare sales increased by $3.2 million and net land sales increased by $1.2 million), an increase in interest income to $6.8 million during the six months ended February 28, 2001 from $6.0 million during the six months ended February 29, 2000, and a gain on sale of notes receivable and investments of $1.9 million during the six months ended February 29, 2000 compared to $678,000 during the six months ended February 29, 2000. Gross sales of timeshare interests increased to $29.4 million during the six months ended February 28, 2001 from $25.3 million during the six months ended February 29, 2000, an increase of 16.2%. Net sales of timeshare interests increased to $26.1 million during the six months ended February 28, 2001 from $22.9 million during the six months ended February 29, 2000, an increase of 14.1%. The provision for cancellations increased to 11.1% of gross sales of timeshare interests for the six months ended February 28, 2001 from 9.5% for the six months ended February 29, 2000, primarily due to a downward adjustment based on the results of the customary quarterly review of the allowance adequacy during the six months ended February 29, 2000. Gross sales of land increased to $10.3 million during the six months ended February 28, 2001 from $8.9 million during the six months ended February 29, 2000, an increase of 15.3%. Net sales of land increased to $9.8 million during the six months ended February 28, 2001 from $8.6 million during the six months ended February 28, 2000, an increase of 14.5%. The provision for cancellations increased to 4.2% of gross sales of land for the six 10 13 months ended February 28, 2001 from 3.6% for the six months ended February 29, 2000, primarily due to a downward adjustment based on the results of the customary quarterly review of the allowance adequacy during the six months ended February 29, 2000. Interest income increased to $6.8 million for the six months ended February 28, 2001 from $6.0 million for the six months ended February 29, 2000, an increase of 11.8%, primarily due to increased notes receivable for the current period. Financial income increased to $1.3 million during the six months ended February 28, 2001 from $541,000 for the six months ended February 29, 2000, an increase of 145.7%. The increase was primarily due to the comparative increased volume of sold loans and the increase in spread on those sold loan portfolios with a variable, pass-through interest rate. A net gain on sale of investments of $1.6 million, resulting from the sale of the Company's two office buildings, and a gain of $292,000 on the sale of notes receivable, were recorded for the six months ended February 28, 2001 compared to a net gain on sale of other investments of $678,000, resulting from the sale of two golf courses in Pahrump, recorded for the six months ended February 29, 2000. Total costs and expenses for the Company increased to $46.6 million for the six months ended February 28, 2001 from $40.1 million for the six months ended February 29, 2000, an increase of 16.3%. The increase resulted primarily from an increase in direct costs of timeshare sales to $5.6 million from $4.6 million, an increase of 22.3%; an increase in marketing and sales expenses to $22.5 million from $17.9 million, an increase of 26.0%; and, an increase in general and administrative expenses to $9.3 million from $8.3 million, an increase of 12.7%. The increase in direct costs of timeshare sales is attributable to higher net timeshare sales during the current fiscal period compared to the same period last fiscal year. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses related thereto increased to 56.8% for the six months ended February 28, 2001 from 52.2 % for the six months ended February 29, 2000. The increase in marketing and sales expense is due primarily to higher gross sales, new sales offices and general increases related to a competitive sales environment. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, the Company generally realizes lower profit margins from sales of timeshare interests than from sales of land. The increase in General and administrative expenses is primarily due to the inclusion of the rent expense related to the sale and leaseback of the two office buildings in fiscal 2001, the expense for which was formerly reported in Interest and Depreciation expense; an 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. Pre-tax income of $2.2 million was earned during the six months ended February 28, 2001 compared to pre-tax income of $1.7 million during the six months ended February 29, 2000. An income tax benefit of $137,000 was recorded for the six months ended February 28, 2001 compared to no income tax provision during the six months ended February 29, 2000, 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 was $2.3 million during the six months ended February 28, 2001 compared to net income applicable to common stock of $1.7 million during the six months ended February 29, 2000, primarily due to the foregoing. 11 14 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company were $1.3 million at February 28, 2001 compared to $1.1 million at August 31, 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 February 28, 2001, no commitments existed for material capital expenditures. At February 28, 2001, PEC had arrangements with 4 institutional lenders 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 lines of credit of up to an aggregate of $123.5 million. Such lines of credit are secured by timeshare and land receivables and mortgages. At February 28, 2001, an aggregate of $102.2 million was outstanding under such lines of credit, and $21.3 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 February 28, 2001, PEC's tangible net worth was $33.0 million. Summarized lines of credit information and accompanying notes relating to these lines of credit outstanding at February 28, 2001, consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT BORROWING REVOLVING FEBRUARY 28, 2001 AMOUNTS EXPIRATION DATE (a) MATURITY DATE INTEREST RATE - ------------------- ------------- -------------------- --------------- -------------------- $ 51,963 $ 65,000 (b) December 31, 2001 Various Prime + 2.0 - 2.25% - ------------------ ------------ 16,986 15,000 (c) December 1, 2002 Various Prime + 2.0 7,842 11,500 (d) December 31, 2001 Various Prime + 2.0 - 3.00% - ------------------ ------------ 24,828 26,500 Considered one borrowing line for the maximum amount. - ------------------ ------------ 23,452 30,000 (e) April 30, 2003 Various Libor + 4.0 - 4.25% 1,972 1,972 (f) July 30, 2003 Prime + 2.25% - ------------------ ------------ $ 102,215 $ 123,472 ================== ============
(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 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 February 28, 2001, $48.4 million of loans secured by receivables were outstanding related to financings at prime plus 2%, of which $20.8 million of loans secured by land receivables mature May 15, 2011 and $27.6 million of loans secured by timeshare receivables mature May 15, 2008. The outstanding borrowing amount includes a real estate loan with an outstanding balance of $1.1 million maturing December 31. 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 $2.5 million are at prime plus 2% and mature December 31, 2001. 12 15 (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 February 28, 2001, $5.9 million was outstanding under the A&D loan, which matures on June 30, 2004, and $11.1 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 $4.5 million was outstanding at February 28, 2001, and a real estate loan of $3.3 million with a maturity date of December 31, 200l. (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 February 28, 2001, $1.7 million was outstanding under the A&D loans which have a maturity date of April 30, 2003 and bear interest at the 90-day London Interbank Offering Rate (LIBOR) plus 4.25%. The available receivable financings, of which $21.7 million was outstanding at February 28, 2001, 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):
SIX MONTHS ENDED --------------------------- FEBRUARY 28, FEBRUARY 29, 2001 2000 ------------ ------------ Marketing and selling expenses attributable to recognized and unrecognized sales $ 22,025 $ 18,787 Less: Down payments (6,375) (5,678) -------- -------- Cash Shortfall $ 15,650 $ 13,109 ======== ========
During the six months ended February 28, 2001, PEC sold $9.6 million in notes receivable. PEC did not sell any notes receivable during the six months ended February 29, 2000. PEC sells notes receivable subject to recourse provisions as contained in each agreement. PEC is obligated under these agreements to replace or repurchase accounts that become over 90 days delinquent or are otherwise subject to replacement or repurchase in either cash or receivables generally at the option of the purchaser. At February 28, 2001 and August 31, 2000, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $61.7 million and $59.6 million, respectively. At February 28, 2001, the repurchase provisions provide for substitution of receivables as recourse for $55.1 million of sold notes receivable and cash payments for repurchase relating to $6.6 million of sold notes receivable. The undiscounted amounts of the recourse obligations on such notes receivable were $4.4 million and $4.5 million at February 28, 2001 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): 13 16
FEBRUARY 28, AUGUST 31, 2001 2000 ------------ ---------- Notes collateralized by receivables $ 85,805 $ 80,593 Mortgages collateralized by real estate properties 16,546 27,407 Installment contracts and other notes payable 1,226 1,131 -------- -------- Total $103,577 $109,131 ======== ========
FINANCIAL CONDITION Changes in the aggregate of the allowance for cancellations, excluding discounts, and the reserve for notes receivable sold with recourse for the six months ended February 28, 2001 consisted of the following (thousands of dollars): Balance at beginning of period $ 16,860 Provision for cancellations 3,702 Amounts charged to allowance for cancellations, net (4,087) -------- Balance at end of period $ 16,475 ========
The allowance for cancellations and the reserve for notes receivable sold with recourse consisted of the following at these dates (thousands of dollars):
FEBRUARY 28, AUGUST 31, 2001 2000 ------------ ---------- Allowance for cancellations, excluding discounts $ 12,544 $ 12,827 Reserve for notes receivable sold with recourse 3,931 4,033 -------- -------- Total $ 16,475 $ 16,860 ======== ========
February 28, 2001 Compared to August 31, 2000 Cash and cash equivalents increased to $1.3 million at February 28, 2001 from $1.1 million at August 31, 2000. Notes receivable, net, increased $8.9 million to $92.1 million at February 28, 2001 from $83.2 million at August 31, 2000, as a result of net new receivables added, less sale of receivables, during the six months ended February 28, 2001. Timeshare interests held for sale decreased 15.8% to $19.6 million at February 28, 2001 from $23.3 million at August 31, 2000. Land and improvements inventory decreased 24.0% to $3.1 million at February 28, 2001 from $4.1 million at August 31, 2000. Notes and contracts payable decreased 5.1% to $103.6 million at February 28, 2001 from $109.1 million at August 31, 2000. This was primarily due to the debt paydown in connection with the sales of two office buildings and sale of notes receivables. 14 17 Reserve for notes receivable sold with recourse decreased 2.5% to $3.9 million at February 28, 2001 from $4.0 million at August 31, 2000. Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and the Company. Stockholders' equity increased 5.1% to $27.1 million at February 28, 2001 from $25.8 million at August 31, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company engages in business activities that expose it to interest rate risk. The financial exposure is managed as an integral part of the Company's risk management program, which seeks to reduce the potentially adverse effects that the volatility of the interest rate market may have on the Company's operating results. The Company does not engage in speculative transactions or hold financial instruments for trading purposes. In August 2000, the Company entered into a $25 million, 5-year, interest rate swap transaction to hedge potential exposure to its variable rate notes' portfolio. The interest rate swap is considered and is documented as a highly effective cash flow hedge. The swap will mature in fiscal 2005, and the unrealized depreciation as of February 28, 2001 was $1.5 million. The fixed interest rate of the swap is 10.94%. Other than as previously noted, there was no material change for the quarter ended February 28, 2001 in the information about the Company's "Quantitative and Qualitative Disclosures About Market Risk" as disclosed in its Annual Report on Form 10K for the fiscal year ended August 31, 2000. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 6, 2001, plaintiff John Ruell filed a purported class action lawsuit in the District Court, Nye County, Nevada. The complaint alleges two causes of action against defendant PEC: (1) a claim requesting specific performance of an alleged obligation to provide an airport taxiway and water service to lot owners in Calvada Meadows Unite 2; and, (2) Fraud. The Complaint is alleged to be brought on behalf of a class consisting of all lot owners in Calvada Meadows Unit 2 located in Nye County, Nevada and seeks unspecified damages in excess of $10,000 and unspecified punitive damages. On March 14, 2001, PEC filed a motion to dismiss the complaint on the grounds that (i) all of the claims are barred by the Plaintiffs failure to exhaust administrative remedies and the primary administrative jurisdiction of the Nevada Public Utilities Commission; (ii) all of the claims are barred by the filed tariff doctrine; (iii) all of the claims are barred by the applicable statute of limitations; (iv) the claim for specific performance is inapplicable to the construction contracts at issue and money damages are an adequate remedy, precluding specific performance as a remedy, and (v) the fraud claim is barred due to the failure to plead fraud with particularity and because the mere failure to fulfill a promise to perform an act in the future does not amount to fraud. The hearing on PEC's motion to dismiss is scheduled for May 21, 2001. 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 5. OTHER INFORMATION On March 7, 2001, Leonard Toboroff was elected to the Board of Directors. 15 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.225 First Amendment to Loan and Security Agreement by and between Preferred Equities Corporation and Dorfinco Corporation dated November 30, 2000. 10.226 First Amendment to General Loan and Security Agreement between Steamboat Suites, Inc., and Preferred Equities Corporation dated February 1, 2001. 10.227 Eighth Amendment to Forbearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement between Finova Capital corporation and Preferred Equities Corporation dated December 29, 2000. 10.228 Twelfth Amendment to Assignment and Assumption Agreement by and between RER Corp., COMAY Corp., Growth Realty Inc. and H&H Financial, Inc. and Mego Financial Corp. dated February 15, 2001.
No reports on Form 8-K were filed during the period. 16 19 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: April 11, 2001 17 EX-10.225 2 a69978ex10-225.txt EXHIBIT 10.225 1 EXHIBIT 10.225 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT This First Amendment to Loan and Security Agreement (this "AMENDMENT") is made and entered into as of November 30, 2000, by and between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("BORROWER"), and DORFINCO CORPORATION, a Delaware corporation ("LENDER"). FACTUAL BACKGROUND A. Under a Loan and Security Agreement dated as of August 12, 1998, between Lender as lender and Borrower as borrower (as now or hereafter amended, the "LOAN AGREEMENT"), Lender agreed to make a loan in the principal amount of Four Million and 00/100 Dollars ($4,000,000.00) (as defined in the Loan Agreement and herein, the "LOAN") to Borrower. Capitalized terms used herein without definition have the meanings given to them in the Loan Agreement. B. The Loan is guaranteed by Mego Financial Corp., a New York corporation ("GUARANTOR"), in accordance with that certain Guaranty Agreement, dated August 12, 1998, from Guarantor to Lender. C. Borrower is a wholly-owned subsidiary corporation of Guarantor. It is of material and substantial benefit to Guarantor that the Loan was made to Borrower, and each of Guarantor and Borrower acknowledges that it has received full and adequate consideration for the incurrence by it of the obligations to Lender as set forth in this Amendment. D. Certain intra-company debt obligations of Borrower to Guarantor have been subordinated to the repayment by Borrower of the Loan in accordance with that certain Subordination Agreement, dated August 12, 1998, among Guarantor, Borrower and Lender. E. Pursuant to paragraph 4 of the Note, Borrower elected to extend the term of the Loan for the Extended Term (as defined in the Note) to the Extended Maturity Date. F. This Amendment is a "LOAN DOCUMENT" as defined in the Loan Agreement. G. Lender and Borrower entered into a letter agreement dated as of September 18, 2000 (the "LETTER AGREEMENT"), pursuant to which they agreed, inter alia, that certain terms and provisions relating to the Loan Agreement, the Note, the Subordination Agreement and the Deed of Trust were amended and that Lender, Borrower and/or Guarantor would enter into this Amendment and the other amendments required hereunder to reflect the amendments and agreements set forth in the Letter Agreement. 2 AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. RECITALS. The recitals set forth above in the Factual Background are true, accurate and correct. 2. REAFFIRMATION OF LOAN AGREEMENT AND LOAN DOCUMENTS. Borrower reaffirms all of its obligations under the Loan Agreement and the Loan Documents, and Borrower acknowledges that it has no claims, offset or defenses with respect to the payment of any sum due under the Loan Agreement or any other Loan Documents. Borrower hereby acknowledges and regrants for the benefit of Lender all of the grants of liens, encumbrances and security interests and the assignments contained in the Loan Agreement and the other Loan Documents. 3. AMENDMENT. The Loan Agreement is hereby amended as follows: (a) The third full paragraph under "WITNESSETH:" on the first page of the Loan Agreement is hereby amended and restated in its entirety as follows: NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of the parties and subject to the following terms and conditions, Borrower agrees to borrow from Lender, and Lender agrees to loan to Borrower, the Loan for the purposes provided herein. The Loan shall be evidenced by a Promissory Note bearing even date herewith, as amended by that certain First Amendment to Promissory Note, dated as of November 30, 2000 (as amended, the "NOTE"), and repayment thereof shall be secured by a Deed of Trust, Security Agreement and Fixture Filing, as amended by that certain First Amendment to Deed of Trust, Security Agreement and Fixture Filing, dated as of November 30, 2000 (as amended, the "DEED OF TRUST"), this Agreement and, as described in on Exhibit "B" hereof, that certain loan and security agreement and that certain deed of trust, pursuant to a First Amendment to Loan and Security Agreement and a Third Amendment to Deed of Trust, respectively (collectively, the "AMENDMENTS"), and guaranteed by MEGO Financial Corp., a New York corporation (the "GUARANTOR"), by the execution of a Guaranty Agreement in form and content acceptable to Lender (the "GUARANTY"). This Agreement, the Note, the Deed of Trust, the Amendments, the Guaranty, any assignment of rents or leases, or both, and any 2 3 and all other documents now or hereafter executed by Borrower or any other affiliated person or party in connection with or to evidence or secure payment of the Loan are sometimes hereafter collectively referred to as the "LOAN DOCUMENTS". (b) Section A.5 is hereby amended and restated in its entirety as follows: MATURITY DATE. The outstanding principal balance of the Loan, together with all accrued and unpaid interest then due and owing and any other amounts then due and owing under any of the Loan Documents, shall be due and payable on December 31, 2001. (c) A new Section B.7 is hereby added to the Loan Agreement: B.7 PAYMENTS TO GUARANTOR AND ITS SHAREHOLDERS PROHIBITED. From and after the occurrence of any failure by Borrower to make the payments when due under Section 4 of the Note or the failure by Borrower to pay the entire outstanding principal balance of the Note, together with accrued but unpaid interest thereon, on the Maturity Date (regardless of whether Lender elects to exercise any of its remedies with respect to any such failure under any of the Loan Documents), Borrower shall not directly or indirectly, permit any payment, prepayment or redemption to be made in respect of any indebtedness, liabilities or obligations, direct or contingent, of Borrower to Guarantor or any shareholder of Guarantor without the prior written consent of Lender. 4. CONDITIONS PRECEDENT. Before this Amendment becomes effective and any party becomes obligated under it, all of the following conditions shall have been satisfied at Lender's sole cost and expense in a manner acceptable to Lender in the exercise of Lender's sole judgment: (a) Documents. Lender shall have received fully executed and acknowledged originals of this Amendment, the attached consent signed by Guarantor, the First Amendment to Promissory Note in the form attached hereto as Exhibit "A", the First Amendment to Subordination Agreement in the form attached hereto as Exhibit "B", the First Amendment to Deed of Trust, Security Agreement and Fixture Filing in the form attached hereto as Exhibit "C", and any other documents which Lender may require or request in accordance with this Amendment or the other Loan Documents. 3 4 (b) Payments. Lender shall have received payment of an amendment fee in the amount of Thirty Three Thousand and 00/100 Dollars ($33,000.00), and reimbursement, in immediately available funds, of all costs and expenses incurred by Lender in connection with this Amendment, including charges for title insurance (including endorsements), recording, filing and escrow charges, fees for appraisal services, and legal fees and expenses of Lender's counsel. Such costs and expenses may include the actual costs for services for Lender's in-house staffs, such as legal and appraisal services. 5. BORROWER'S REPRESENTATION AND WARRANTIES. Borrower represents and warrants to Lender as follows: (a) Accuracy. All representations and warranties made and given by Borrower herein are true, accurate and correct. (b) No Default. No Default or Event of Default has occurred and is continuing under the Loan Agreement or this Amendment, and no event has occurred and is continuing which, with notice or the passage of time or both, would be a Default or Event of Default. (c) Property. Borrower continues to lawfully possess and hold title to the property encumbered by the Loan Agreement, as amended by this Amendment, and the other Loan Documents, and the security interests, collateral assignments and other collateral transfers made by Borrower in the Loan Agreement and the other Loan Documents as amended constitute a first and prior security interest encumbering that property, subject to permitted exceptions to title approved by Lender. 6. NO PREJUDICE: RESERVATION OF RIGHTS. This Amendment shall not prejudice any rights or remedies of Lender under the Loan Documents. Lender reserves, without limitation, all rights which it has against any indemnitor, guarantor, or endorser of the promissory note secured by the Loan Agreement and the other Loan Documents. 7. NO IMPAIRMENT. Except as specifically hereby amended, the Loan Agreement shall remain unaffected by this Amendment, and the Loan Agreement shall remain in full force and effect. Nothing in this Amendment shall impair the security interests, collateral assignments or other collateral transfers arising under the Loan Agreement or other Loan Documents, which shall remain a security agreement, creating a first priority security interest in the property described therein, subject to permitted exceptions to title approved by Lender. 8. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment the day and year first above written. 4 5 BORROWER: PREFERRED EQUITIES CORPORATION, a Nevada corporation WITNESS: By: ------------------------------------------ Name: ---------------------------------------- Title: - --------------------------- --------------------------------------- LENDER: DORFINCO CORPORATION, a Delaware corporation WITNESS: By: ------------------------------------------ Name: ---------------------------------------- Title: - --------------------------- --------------------------------------- 5 6 GUARANTOR'S CONSENT The undersigned Guarantor hereby consents to the terms, conditions and provisions of the foregoing First Amendment to Loan and Security Agreement and the transactions contemplated by it. Guarantor hereby affirms the full force and effectiveness of the Guarantees (as defined therein) and its unconditional obligations thereunder with respect to any indebtedness and obligations of Borrower to Lender or any of its affiliates guaranteed by Guarantor under each and every one of the "Loan Documents", as that term is defined in the Loan Agreement, as amended pursuant to the foregoing First Amendment to Loan and Security Agreement and as hereafter from time to time amended. Further, Guarantor, with the advice of counsel, hereby waives any and all rights it may have to assert any defense to enforcement of the Guarantees. Guarantor acknowledges and reasserts all of the waivers contained in the Guarantees and acknowledges that it has no claims, offset or defenses with respect to its obligations under the Guarantees. Dated: November ___, 2000. GUARANTOR: MEGO FINANCIAL CORP., a New York corporation WITNESS: By: ------------------------------------------ Name: ---------------------------------------- Title: - --------------------------- --------------------------------------- 6 7 EXHIBIT "A" FIRST AMENDMENT TO PROMISSORY NOTE THIS First Amendment to Promissory Note (this "AMENDMENT") is entered into as of November 30, 2000, between DORFINCO CORPORATION, a Delaware corporation ("LENDER"), and PREFERRED EQUITIES CORPORATION, a Nevada corporation ("MAKER"). RECITALS This Amendment is made with reference to, and in reliance on, the following facts: A. Lender and Maker entered into a Loan and Security Agreement dated as of August 12, 1998 (as amended, the "LOAN AGREEMENT") pursuant to which Lender agreed to advance to Maker $4,000,000.00 (the "LOAN") on terms and conditions set forth in the Loan Agreement. Capitalized terms used herein without definition have the meanings given to them in the Loan Agreement. B. To evidence the obligations of Maker with respect to the Loan, Maker executed, inter alia, a Promissory Note dated as of August 12, 1998 (as amended, the "NOTE") in the original principal sum of $4,000,000.00. C. Pursuant to paragraph 4 of the Note, Maker elected to extend the term of the Loan for the Extended Term (as defined in the Note) to the Extended Maturity Date. D. Lender and Maker have entered into a First Amendment to Loan and Security Agreement of even date herewith (the "FIRST LOAN AMENDMENT") for the purpose of further extending the maturity of the Loan and amending certain other terms and provisions of the Loan Documents. E. A condition precedent, inter alia, to the effectiveness of the First Loan Amendment is that Maker execute and deliver to Lender this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. PRINCIPAL BALANCE. Lender and Maker each acknowledge that the principal balance outstanding under the Note as of November 30, 2000 is $3,332,546 and that such amount is due and owing to Lender without defense, set-off or counterclaim. 7 8 2. AMENDMENT. The Note is hereby amended as follows: (a) The definition of "SECURITY DOCUMENTS" appearing in Section 1 is amended in its entirety as follows: "(all of the aforementioned documents, as the same shall now or hereafter be amended or modified, shall herein be referred to as "SECURITY DOCUMENTS")." (b) Paragraph 2(b) of Section 2 is hereby amended and restated in its entirety as follows: Commencing on the first (1st) day of September, 1998 and continuing on the first (1st) day of each and every month thereafter through and including the Maturity Date, all interest accrued at the Basic Interest Rate shall be due and payable monthly in arrears. (c) Paragraph 2(c) of Section 2 is hereby amended and restated in its entirety as follows: On December 31, 2001 (the "MATURITY DATE"), or on such earlier date as this Note becomes due and payable, whether by acceleration or otherwise, the entire outstanding principal balance hereof, together with accrued by unpaid interest thereon, and all other sums owing to Holder hereunder or under the Security Documents, shall be due and payable in full. (d) Section 4 of the Note is hereby amended and restated in its entirety as follows: During the term hereof, monthly payments shall be made in arrears equal to the interest accrued at the Basic Interest Rate plus fixed principal payments in the following amounts and on the following dates: (i) On January 31, 2001, an installment of principal in an amount necessary and sufficient to cause the total outstanding principal balance remaining under the Note to be Two Million Five Hundred Thousand Dollars ($2,500,000.00) or less; (ii) On July 31, 2001, an installment of principal in an amount necessary and sufficient to cause the outstanding principal balance remaining under the Note to be One Million Five Hundred Thousand Dollars ($1,500,000.00) or less; 8 9 (iii) On the Maturity Date, the entire outstanding principal balance of the Loan, plus all accrued and unpaid interest thereon and any other amounts then due and payable under this Note or any of the other Loan Documents shall be due and payable; and (iv) In addition to the mandatory principal payments above, Maker shall pay a monthly principal payment commencing on October 1, 2000 in an amount equal to $13,900 or such amount as is determined based on a twenty (20) year amortization together with the interest payment payable under Section 2 of this Note. 3. EFFECTIVENESS OF NOTE. Except as amended hereby, the terms of the Note shall remain in full force and effect as originally executed, and the same is confirmed by Lender and Maker. 4. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment the day and year first above written. LENDER: DORFINCO CORPORATION, a Delaware corporation WITNESS: By: Title: - -------------------------- 9 10 MAKER: PREFERRED EQUITIES CORPORATION, a Nevada corporation WITNESS: By: Title: - --------------------------- Acknowledged and Agreed to: GUARANTOR: MEGO FINANCIAL CORP., a New York corporation WITNESS: By: ------------------------------------------ Name: ---------------------------------------- Title: - --------------------------- --------------------------------------- 10 11 EXHIBIT "B" FIRST AMENDMENT TO SUBORDINATION AGREEMENT THIS First Amendment to Subordination Agreement (this "AMENDMENT") is made and entered into as of November 30, 2000, by and among PREFERRED EQUITIES CORPORATION, a Nevada corporation ("DEBTOR"), MEGO FINANCIAL CORP., a New York corporation ("CREDITOR"), and DORFINCO CORPORATION, a Delaware corporation ("LENDER"). RECITALS A. Debtor and Lender entered into a Loan and Security Agreement dated as of August 12, 1998 (as amended, the "LOAN AGREEMENT") pursuant to which Lender agreed to advance to Debtor $4,000,000.00 (the "LOAN") on terms and conditions set forth in the Loan Agreement. Capitalized terms used herein without definition have the meanings given to them in the Loan Agreement. B. In connection with the Loan, Debtor, Creditor and Lender entered into a Subordination Agreement dated as of August 12, 1998 (as now or hereafter amended, the "SUBORDINATION AGREEMENT"). C. Debtor and Lender have entered into a First Amendment to Loan and Security Agreement of even date herewith (the "FIRST LOAN AMENDMENT") for the purpose of extending the maturity of the Loan and amending certain other terms and provisions of the Loan Documents. D. A condition precedent, inter alia, to the effectiveness of the First Loan Amendment is that Debtor and Creditor execute and deliver to Lender this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. AMENDMENT. Debtor, Creditor and Lender hereby amend Section 2 of the Subordination Agreement in its entirety to read as follows: 2. Creditor agrees with you that the PEC Indebtedness and all security therefor shall be and hereby is subordinated to the obligations of Debtor to you with respect to the Loan (as defined in the Loan Agreement) and all other obligations of Debtor to you under any and all of the Loan Documents (as defined in the Loan Agreement) (collectively, the 11 12 "OBLIGATIONS") to the extent (and only to the extent) hereinafter provided. After the occurrence and during the continuance of an Event of Default under, and as defined in, that certain Loan and Security Agreement, dated as of August 12, 1998, as amended by that certain First Amendment to Loan and Security Agreement, dated as of November 30, 2000 (as now or hereafter amended, the "LOAN AGREEMENT"), between you, as lender, and Debtor, as borrower (regardless of whether you elect to exercise any of your remedies with respect to any such Event of Default under any of the Loan Documents [as defined in the Loan Agreement]): (a) no direct or indirect payment, prepayment or redemption shall be made or permitted in respect of the PEC Indebtedness without your prior written consent until the full payment of the Obligations (including all interest accruing after the date of filing of a petition by or against Debtor under any bankruptcy act or code) of any nature whatsoever now due to you from Debtor or which may hereafter be incurred and become due to you from Debtor has been made. (b) Creditor will not, without your prior written consent, assert, collect, enforce or release the PEC Indebtedness or any part thereof or take any action to foreclose, realize upon or release any collateral securing the PEC Indebtedness or enforce any security agreements, real estate mortgages, lien instruments, or other encumbrances securing the PEC Indebtedness. (c) Creditor will hold in trust and immediately pay to you in the same form of payment received from application upon the amount now or hereafter owing to you by Debtor, any amount Debtor pays to Creditor on the PEC Indebtedness. (d) Creditor will forthwith assign, deliver or cause to be delivered to you any collateral for the PEC Indebtedness now held by Creditor or anyone on its behalf, or in the future received by it or anyone on its behalf. (e) Creditor, in its capacity hereunder as 12 13 Creditor, agrees that it will not, without your prior written consent, commence, prosecute or participate in any administrative, legal, or equitable action against Debtor for collection of the PEC Indebtedness or in any administrative, legal, or equitable action for collection of the PEC Indebtedness that might adversely affect Debtor or its properties. (f) Creditor will not permit Debtor to make or permit any direct or indirect payment, prepayment or redemption to be made in respect of any of the PEC Indebtedness or any other indebtedness, liabilities or obligations, direct or contingent, of Debtor to any shareholder of Guarantor without the prior written consent of Lender. 2. ACKNOWLEDGMENT OF SUBORDINATION. Creditor hereby acknowledges and remakes for the benefit of Lender the subordination of the Subordinated Debt to the Senior Debt (as defined in the Subordination Agreement, as amended), subject to the terms and provisions thereof. 3. EFFECT OF AMENDMENT. Except as hereby amended, all of the terms and conditions of the Subordination Agreement shall continue in full force and effect. 4. COUNTERPARTS. This Amendment may be executed in any one or more counterparts, and all of such counterparts, taken together, shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment the day and year first above written. DEBTOR: PREFERRED EQUITIES CORPORATION, a Nevada corporation WITNESS: By: Name: ---------------------------------------- Title: - ------------------------------ 13 14 CREDITOR: MEGO FINANCIAL CORP., a New York corporation WITNESS: By: Name: ---------------------------------------- Title: - ----------------------------- LENDER: DORFINCO CORPORATION, a Delaware corporation WITNESS: By: Name: ---------------------------------------- Title: - ----------------------------- 14 15 EXHIBIT "C" WHEN RECORDED MAIL TO: DORFINCO CORPORATION C/O TEXTRON FINANCIAL CORPORATION 40 WESTMINSTER STREET PROVIDENCE, RHODE ISLAND 02903 ATTENTION: MARGARET R. HAYES-COTE, SENIOR DIVISION COUNSEL FIRST AMENDMENT TO DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING THIS First Amendment to Deed of Trust, Security Agreement and Fixture Filing (this "AMENDMENT") is made as of November 30, 2000, by and between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("GRANTOR"), and DORFINCO CORPORATION, a Delaware corporation ("BENEFICIARY"). RECITALS A. Beneficiary and Grantor entered into a Loan and Security Agreement dated as of August 12, 1998 (as amended, the "LOAN AGREEMENT") pursuant to which Lender agreed to advance to Grantor $4,000,000.00 (the "LOAN") on terms and conditions set forth in the Loan Agreement. Capitalized terms used herein without definition have the meanings given to them in the Loan Agreement. B. As partial security for the Loan, Grantor executed and delivered to Beneficiary that certain Deed of Trust, Security Agreement and Fixture Filing, dated as of August 12, 1998 and recorded August 13, 1998, in File No. 98123383 as Instrument No. 450693 in the Official Records of the Recorder of Nye County, Nevada (as now amended and as further amended from time to time, the "DEED OF TRUST"). C. Beneficiary and Grantor have entered into a First Amendment to Loan and Security Agreement of even date herewith (the "FIRST LOAN AMENDMENT") for the purpose of extending the maturity of the Loan and amending certain other terms and provisions of the Loan Documents. D. A condition precedent, inter alia, to the effectiveness of the First Loan Amendment is that Grantor execute and deliver to Beneficiary this Amendment. 15 16 AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. AMENDMENT. Section 1.16(b)(i) of the Deed of Trust is hereby amended and restated in its entirety as follows: ...(i) Grantor shall pay to Beneficiary a release payment equal to 100% of the gross sales proceeds for the applicable parcel of Land (including, without limitation, any deferred, contingent or earn-out portions thereof or any additional consideration to be paid by the purchaser or transferee subsequent to the closing of the acquisition of the applicable parcel of Land), minus a six percent (6%) broker's commission and reasonable closing costs. Notwithstanding the foregoing, if an Event of Default or circumstance that with the passage of time or giving of notice or both would constitute an Event of Default shall then exist and be continuing, Beneficiary may in its sole discretion require that any such release payment be increased. No additional release payment shall be payable upon the repayment and satisfaction in full of the Indebtedness... 2. ACKNOWLEDGMENT OF GRANTS AND ASSIGNMENTS. Grantor hereby acknowledges and regrants for the benefit of Beneficiary all of the grants of liens, encumbrances and security interests and the assignments contained in the Deed of Trust. 3. EFFECT OF AMENDMENT. Except as hereby amended, all of the terms and conditions contained in the Deed of Trust shall remain in full force and effect. 4. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment the day and year first above written. 16 17 GRANTOR: PREFERRED EQUITIES CORPORATION, a Nevada corporation WITNESS: By: Name: ---------------------------------------- Title: - ------------------------------ BENEFICIARY: DORFINCO CORPORATION, a Delaware corporation WITNESS: By: Name: ---------------------------------------- Title: - ------------------------------ STATE OF NEVADA ) )ss COUNTY OF CLARK ) This instrument was acknowledged before me on ____, 2000, by ___________________________ as ____________________ of PREFERRED EQUITIES CORPORATION, a Nevada corporation. -------------------------------- NOTARY PUBLIC My Commission Expires: _________ 17 18 STATE OF ) )ss COUNTY OF ) This instrument was acknowledged before me on ___, 2000, by _________________________ as _______________________ of DORFINCO CORPORATION, a Delaware corporation. -------------------------------- NOTARY PUBLIC My Commission Expires: ________ 18 EX-10.226 3 a69978ex10-226.txt EXHIBIT 10.226 1 EXHIBIT 10.226 FIRST AMENDMENT TO GENERAL LOAN AND SECURITY AGREEMENT (Inventory Loan) THIS First Amendment to General Loan and Security Agreement (Inventory Loan) (the "Amendment"), made as of 1st day of February, 2001, by and between STEAMBOAT SUITES, INC., a Colorado Corporation, and PREFERRED EQUITIES CORPORATION, each having an address of 4310 Paradise Road Las Vegas, Nevada 89109 (hereinafter collectively referred to as "Debtor"); and TEXTRON FINANCIAL CORPORATION, a Delaware Corporation, having an address of 333 East River Drive, East Hartford, CT 06108 (hereinafter referred to as "Lender") RECITALS This Amendment modifies and amends that certain General Loan and Security Agreement (Inventory Loan) dated as of December 17, 1999 which effectively restated the original loan agreement dated October 4, 1994 as amended (collectively the "Existing GLSA", the Existing GLSA, as amended hereby and as further amended from time to time is referred to herein as the "Agreement") Debtor has requested that Lender modify certain terms of the Loan upon the terms and provisions hereinafter set forth in order to provide for a re-advice of certain inventory proceeds and to extend the Receivables Maturity Date and to repledge certain inventory under the duration loan as well as other certain 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. INTERPRETATION OF AMENDMENT A. Terms Defined Capitalized terms used in this Amendment and not defined herein shall have the respective meanings specified in the Existing GLSA, as amended hereby. As used in this Amendment, the following terms have the respective meanings specified below: Agreement - as defined in the Recitals hereto. Amendment or this Amendment - as defined in the Recitals hereto. B. Directly or Indirectly Where any provision in the Amendment refers to an action taken by any Person or which such Person is prohibited from taking, such provisions shall be applicable whether such action is taken directly or indirectly by such Person. C. Headings 2 Section headings have been inserted in this Amendment as a matter of convenience of reference only; such section headings are not part of this Amendment and shall not be used in the interpretation of this Amendment. II. AMENDMENTS A. Definitions. 1. The definitions set forth below are hereby added to Section 1.1 of the Existing GLSA so as to preserve the alphabetical ordering of the definitions set forth therein: "First Inventory Loan Amendment Effective Date - means February 1, 2001." "First Inventory Loan Amendment means that certain amendment of this Agreement dated as of February 1, 2001. "First Amendment Commitment Fee" means the amount equal to 1% of the principal amount of the Inventory Re-advance on or about February 1, 2001 or $3,000 as of February 1, 2001 and $15,000,000. "First Amendment Transaction Fee" means the amount equal to 1% of the principal amount of the Inventory Re-advance on or about February 1, 2001 or $3,000 as of February 1, 2001. "First Amendment Commitment Letter means that certain letter dated January 18, 2001 from Lender to Debtor which Letter was accepted on January 22, 2001." "Inventory Re-advance" means the principal amount up to $300,000 based on the current unsold Inventory Timeshare Intervals at the Steamboat Resorts. The principal amount of the Inventory Loan plus Inventory Re-advance shall not exceed an amount equal to 14% advance against the retail value of the remaining unsold inventory at the Steamboat Resort. 2. The parties hereto mutually agree that Section 2.1(c) shall be added to the Agreement. 2(c) Inventory Re-advance. The Lender agrees pursuant to the terms of the First Inventory Loan Amendment to make a special-one-time Inventory Re-advance in the principal amount not to exceed $300,000 be made by Lender to Debtors in accordance with the terms of the Agreement and the First Inventory Loan Amendment, such advance to occur not later than March 1, 2001. Upon issuance of such Inventory Re-advance the principal balance outstanding under the Inventory Loan shall be $1,570,205. The Inventory Promissory Note, the Inventory Deed of Trust and other documents shall continue to secure the Inventory Loan. In addition, the undersigned hereby confirm and represent that 2 3 the Collateral pledged for the Inventory Loan has a Fair Market Value sufficient to continue to secure and repay the Inventory Loan. The terms of repayment set forth under Section 2.1(a) shall remain in full force and effect. 3. The parties hereto mutually agree that Section 2.4(c) shall be modified to delete subsection (c) in its entirety and in lieu thereof, the following provision to be inserted: (c) Mandatory Prepayment. Debtor shall make payments in addition to the Release Payments on or before the following anniversary dates to the extent necessary so that the principal balance of the Inventory Loan does not exceed the following levels:
Date Principal Balance Remaining ---- --------------------------- December 1, 2000 $6,200,000 February 28, 2001 4,500,000 February 28, 2002 2,500,000 February 28, 2003 1,000,000 February 28, 2004 0
2. The parties hereto mutually agree that the definition of "Inventory Maturity Date " is hereby deleted in its entirety and in lieu thereof, the following provision is inserted: "INVENTORY MATURITY DATE" means February 28, 2004. III. REAFFIRMATIONS 1. 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 Agreement. 2. To ensure that the Inventory Loan is paid by the Inventory Maturity Date of February 28, 2004, the Debtor is pledging all unsold previously released Intervals under an Amendment to the Inventory Deed of Trust. Debtor acknowledges and agrees that the Notes, Agreement, Inventory Deed of Trust, assignment of Pledged Notes Receivable, Pledged Notes Receivable Deeds of Trust and Pledged Contracts, Guaranty Agreement, Subordination Agreements, Agency Agreement and all other Security 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 Debtor, and that Debtor has no offsets or defenses to the enforcement of the terms and provisions contained therein. 3. Except as provided in Schedule 1 hereto, Debtor, and as applicable, the Guarantors, hereby reaffirm, restate and incorporate by this reference all of their respective representations, warranties and covenants as updated hereunder made in the Agreement 3 4 (including, as amended hereby), as if the same were made as of this date and with reference to the Agreement as amended hereby. In addition, Debtor (and, as applicable, the Guarantors) represents and warrants as follows: a. This Amendment has been duly authorized by Debtor and is the legal, valid and binding obligation of Debtor, 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 Guarantors, this Amendment is the legal, valid and binding obligation of the Guarantors, enforceable against them 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). 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, or result in the creation of any lien, charge or encumbrance upon the Collateral, under any provision of law, or any indenture, agreement or instrument to which Debtor or any Guarantor is a party or by which the Debtor or Guarantors may be bound or affected except for liens in favor of Lender and the Pledged Notes Receivable Deeds of Trust. c. There are no Defaults or Events of Default pursuant to the Security Documents; Lender has fully performed its obligations under the Security Documents which Lender is required to perform as of the date hereof, and neither Debtor nor the Guarantors have any defense, set-offs, claims, counterclaims or recoupments against Lender or with respect to the Loan. 3. Debtor and the Guarantor hereby reaffirm their respective obligations, agreements and undertakings as set forth in the Security Documents, and acknowledge that the Obligations, or with respect to the Guarantors, the guaranteed Indebtedness defined in the Guaranty and as amended herein, are the valid, legally binding and enforceable obligations of Debtor, and the Guarantors, respectively. IV. 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 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 March 30, 2001. a. Debtor shall pay Lender (i) the First Amendment Commitment Fee and (ii) the First Amendment Transaction Fee and (iii) Two Thousand Five Hundred Dollars ($2,500) as payment in full for attorney's fees and costs incurred by Lender in connection with the preparation of this Amendment and related documentation. 4 5 b. Lender shall have received from Debtor fully executed original or executed counterpart originals of this Amendment. c. Except for information contained in certificates provided pursuant to Article IV(1)(g) and (h) hereof or any schedule to this Amendment, the representations and warranties contained in the 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 and performed by Debtor (or Guarantor), shall have been fully complied with and performed to the satisfaction of Lender. d. Neither Debtor nor Guarantors shall have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Security Documents. e. 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. f. Lender shall have received a certificate or certificates in form and substance satisfactory to it, dated as of the First Inventory Amendment Effective Date and signed by the president or other authorized officer of the Debtor, certifying that the conditions specified in this Amendment have been fulfilled, and "bringing down" the representations and warranties contained in the Agreement. g. Debtor shall deliver to Lender, and Lender shall have approved, by no later than March 30, 2001: i. A certificate of current good standing for Debtor, together with copies of any amendments to the certificate of incorporation or bylaws of Debtor since November 1, 2000, certified to be true, correct and complete by the Debtor, its secretary or assistant secretary, or the Colorado Secretary of State; ii. Evidence satisfactory to Lender that all taxes and assessments, including without limitation, those specified in Section 7.1 (a) of the Agreement, owed by or for which Debtor is responsible for collection have been paid or will be paid prior to delinquency; iii. A certificate of the secretary or assistant secretary of Debtor certifying the adoption by the Board of Directors thereof of a resolution authorizing specified officers of Debtor to enter into and execute this 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 Debtor certifying the incumbency of, and verifying the authenticity of the signatures of, the officers of 5 6 Debtor authorized to sign this 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 each Guarantor certifying the adoption by the Board of Directors thereof of a resolution authorizing specified officers of the Guarantor to enter into and execute this 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; and vi. A certificate of the secretary or assistant secretary of each Guarantor certifying the incumbency of, and verifying the authenticity of signatures of, the officers of each Guarantor authorized to sign this Amendment and the other documents, instruments and materials to be executed and delivered in connection herewith. i. All actions taken in connection with the execution or delivery of this Amendment, and 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. j. Debtor shall have paid all fees and expenses required to be paid prior to or at the closing pursuant to this Amendment. V. GUARANTORS' OBLIGATIONS 1. Each Guarantor: a. has reviewed this Amendment with counsel of it's 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; c. ratifies and reaffirms the terms of its Guaranty Agreement, and all of the terms provisions, agreements, conditions and undertakings contained in the Guaranty Agreement or any of the Security 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 (i) its continuing obligations under the Guaranty Agreement and agrees to be bound by the terms thereof, and (ii) that it has been since December 17, 1999 and remains liable with respect to the guaranteed Indebtedness as defined and provided in its Guaranty Agreement; 6 7 e. acknowledges and agrees that the guaranteed Indebtedness encompasses and apply to all Advances, including Advances from and after the Amendment closing date, and to all Indebtedness, including Indebtedness arising pursuant to this Amendment; f. is fully aware of the financial and other conditions of the Debtor 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 V(1)(i) hereof reaffirms, restates and incorporates by this reference all of the representations, warranties and covenants made in its Guaranty Agreement as if the same were made as of this date; h. acknowledges that its agreements, consents and acknowledgments contained herein, and the provisions of its Guaranty Agreement (which are reaffirmed by Guarantor), are a material inducement to Lender to enter into this Amendment, and that, but for the Guaranty Agreement, 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 February 1, 2001 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 Agreement. VI. MISCELLANEOUS a. This Amendment is entered into for the benefit of the parties hereto, and is binding on the respective heirs, successors or assigns; provided that Debtor may not transfer or assign any of its rights or obligations under this Amendment without the prior written consent of Lender. Guarantors are a party to this Amendment solely for the purposes of affirming their respective obligations in accordance with Article V hereof. b. 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 Debtor and the Guarantors. This Amendment may not be amended or modified, and no term or provision hereof may be waived, except by written instrument signed by all of the parties hereto. c. 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. d. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF DEBTOR, THE GUARANTORS AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY 7 8 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 SECURITY 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 DEBTOR, THE GUARANTORS 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, DEBTOR AND THE GUARANTORS 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. DEBTOR AND THE GUARANTORS ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS AMENDMENT AND THE OTHER SECURITY DOCUMENTS. e. This Amendment and all other Security Documents shall be governed by the laws of the State of Colorado in all respects, including matters of construction, performance and enforcement. f. Whenever possible, the terms of this Amendment and the terms of the Agreement and 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: DEBTOR: STEAMBOAT SUITES, INC. By: - ----------------------------- ------------------------------------------ DEBTOR: PREFERRED EQUITIES CORPORATION By: - ----------------------------- ------------------------------------------ LENDER: TEXTRON FINANCIAL CORPORATION 8 9 By: - ----------------------------- ------------------------------------------ --------------------------------------------- on behalf of Lender 9 10 ACKNOWLEDGED AND AGREED: GUARANTOR: MEGO FINANCIAL CORP. By: - ----------------------------- ------------------------------------------ 10 11 CORPORATE ACKNOWLEDGMENT STATE OF ____________: COUNTY OF ___________: ON THIS, the ___ day of ___________, 2001 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 STEAMBOAT SUITES, INC., 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: CORPORATE ACKNOWLEDGMENT STATE OF ____________: COUNTY OF ___________: ON THIS, the ___ day of ___________, 2001 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 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. ----------------------------------- Notary Public My commission expires: 11 12 CORPORATE ACKNOWLEDGMENT STATE OF ____________: COUNTY OF ___________: ON THIS, the ___ day of ___________, 2001 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 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. ----------------------------------- Notary Public My commission expires: CORPORATE ACKNOWLEDGMENT STATE OF ____________: COUNTY OF ___________: ON THIS, the ___ day of ___________, 2001 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 TEXTRON FINANCIAL 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: 12 13 COMBINATION DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT SECOND AMENDMENT This COMBINATION DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT SECOND AMENDMENT (this "Second Amendment") is made as of the 1st day of February, 2001, by and between STEAMBOAT SUITES, INC., a Colorado corporation and PREFERRED EQUITIES CORPORATION, (collectively "Grantor"), whose local address is 1485 Pine Grove Road, Steamboat Springs, Colorado 80477, and the Public Trustee of the County of Routt, Colorado ("Trustee") for the benefit of TEXTRON FINANCIAL CORPORATION, a Delaware corporation ("Beneficiary"), whose address is 333 East River Drive, Suite 305, East Hartford, Connecticut 06108. WITNESSETH: WHEREAS, Grantor heretofore duly executed and delivered that certain Combination Deed of Trust, Security Agreement and Fixture Financing Statement (the "Existing Deed of Trust," and as amended and/or supplemented hereby and from time to time, the "Deed of Trust"), dated as of December 17, 1999; and WHEREAS, the Existing Deed of Trust was recorded with the Routt County Clerk and Recorder on December 23, 1999 in Book 765 at Page 1060; WHEREAS, Grantor and Beneficiary have entered into a First Amendment to General Loan and Security Agreement (Inventory Loan) (the "Inventory Loan First Amendment"), dated as of February 1, 2001 and attached hereto as EXHIBIT A, which modifies and amends the General Loan and Security Agreement (the "Existing Loan Agreement"), dated as of December 17, 1999, by and between Grantor and Beneficiary; and NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. Capitalized terms used in this Second Amendment and not defined herein have the respective meanings specified in the Existing Loan Agreement, as amended by the Inventory Loan First Amendment. 2. All references to the term "Loan Agreement" in the Deed of Trust are hereby amended and modified to mean the Existing Loan Agreement, as amended by the Inventory Loan First Amendment. 3. EXHIBIT A-1 attached hereto is hereby made a part of Exhibit A-1 to the Existing Deed of Trust and is incorporated therein for all purposes and, pursuant thereto and in 1 14 accordance with the terms thereof, amends and modifies said Exhibit A to the Existing Deed of Trust. 4. Grantor warrants that it is seized of an indefeasible estate in fee simple in, and has good and marketable title to, the Mortgaged Property (as defined in the Existing Deed of Trust, as amended hereby), free and clear of all claims, liens, charges, encumbrances, and exceptions to title except for those set forth in Exhibit C to the Existing Deed of Trust. 5. The Existing Deed of Trust, as amended hereby, shall be and hereby is made subordinate to the Amended and Restated Declaration. 6. Grantor and Beneficiary acknowledge and agree that, except as provided in this First Amendment, the Existing Deed of Trust has not been modified, amended, cancelled, terminated or superseded and remains in full force and effect. 7. The Existing Deed of Trust is hereby ratified and confirmed by Grantor and Beneficiary, and every provision, covenant, condition, obligation, right and power contained therein and thereunder, as modified by this First Amendment, shall continue in full force and effect. 8. All provisions of this First Amendment shall be binding upon and inure to the benefit of the respective heirs, legal representatives, successors and assigns of Grantor and Beneficiary and shall be effective as of the date set forth above. 9. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute and be taken as one and the same instrument. [Remainder of Page Intentionally Blank; Next Page is Signature Page] 2 15 IN WITNESS WHEREOF, the parties have hereto executed this First Amendment as of the date first written above. Signed and Acknowledged STEAMBOAT SUITES, INC. in the Presence of: By: ------------------------------------------ Its: ----------------------------------------- STATE OF ) )ss. COUNTY OF ) The foregoing instrument was acknowledged before me this _____ day of February, 2001 by _________________________, the _______________ of Steamboat Suites, Inc., a Colorado corporation, on behalf of such corporation. Witness my hand and official seal. My commission expires:_____________________. ------------------------------------ Notary Public [SIGNATURE PAGE OF COMBINATION DEED OF TRUST, SECURITY AGREEMET AND FIXTURE FINANCING STATEMENT SECOND AMENDMENT BETWEEN STEAMBOAT SUITES, INC. AND TEXTRON FINANCIAL CORPORATION DATED AS OF FEBRUARY 1, 2001] 3 16 Signed and Acknowledged TEXTRON FINANCIAL CORPORATION in the Presence of: By: ------------------------------------------ Its: ----------------------------------------- STATE OF CONNECTICUT ) )ss. COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this ___ day of February, 2001 by _________________, an Assistant Vice President of Textron Financial Corporation, a Delaware corporation, on behalf of such corporation. Witness my hand and official seal. My commission expires:_____________________. ------------------------------------ Notary Public [SIGNATURE PAGE OF COMBINATION DEED OF TRUST, SECURITY AGREEMET AND FIXTURE FINANCING STATEMENT SECOND AMENDMENT BETWEEN STEAMBOAT SUITES, INC. AND TEXTRON FINANCIAL CORPORATION DATED AS OF FEBRUARY 1, 2001] 4 EX-10.227 4 a69978ex10-227.txt EXHIBIT 10.227 1 EXHIBIT 10.227 EIGHTH AMENDMENT TO FORBEARANCE AGREEMENT AND AMENDMENT NO. 13 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT This Eighth Amendment to Forbearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement ("Amendment") is made and entered into this 29th day of December, 2000 (the "Effective Date"), by and among FINOVA CAPITAL CORPORATION, a Delaware corporation ("FINOVA" or "Lender"), PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower") and MEGO FINANCIAL CORP., a New York corporation ("Guarantor") and has reference to the following facts: A. Lender and Borrower entered into a Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 (the "Original Loan Agreement") that evidences a loan from Lender to Borrower. The Original Loan Agreement was amended by the Hartsel Springs Side Letter dated February 18, 1998 (the "First Amendment"); by the Letter Agreement [Biloxi Property] dated March 20, 1998 (the "Second Amendment"); by the Letter Agreement [Headquarters Readvance] dated September 29, 1998 (the "Third Amendment"); by the Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated November 6, 1998 (the "Fourth Amendment"); by that certain Forbearance Agreement and Amendment No. 5 to Second Amended and Restated and Consolidated Loan and Security Agreement dated December 23, 1998 ("Amendment 5"), as the same was amended by a Letter Agreement dated February 8, 1999 (the "Release Fee Letter") (the Amendment 5 and Release Fee Letter are collectively called the "Fifth Amendment"); by a First Amendment to Forbearance Agreement and Amendment No. 6 to Second Amended and Restated and Consolidated Loan and Security Agreement dated May 7, 1999 (the "Sixth Amendment"); by a Second Amendment to Forebearance Agreement and Amendment No. 7 to Second Amended and Restated and Consolidated Loan and Security Agreement dated August 6, 1999 (the "Seventh Amendment"); by a September 7, 1999 letter agreement regarding the Additional Advance Note (the "Additional Advance Letter"); by a Third Amendment to Forebearance Agreement and Amendment No. 8 to Second Amended and Restated and Consolidated Loan and Security Agreement dated November 9, 1999 (the "Eighth Amendment"); by a letter agreement dated December 3, 1999 between the Borrower and Lender (the "Receivable Loan Lot Cap Letter"); by a Fourth Amendment to Forebearance Agreement and Amendment No. 9 to Second Amended and Restated and Consolidated Loan and Security Agreement dated December 17, 1999 (the "Ninth Amendment"); by a Fifth Amendment to Forebearance Agreement and Amendment No. 10 to Second Amended and Restated and Consolidated Loan and Security Agreement dated February 25, 2000 (the "Tenth Amendment"); a Sixth Amendment to Forbearance Agreement and Amendment No. 11 to Second Amended and Restated and Consolidated Loan Agreement (the "Eleventh Amendment"); by a Seventh Amendment to the Forbearance Agreement and Amendment No. 12 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Twelfth Amendment"); and by a Letter Agreement 2 entitled Side Letter Re: 4310 Paradise Road dated November 6, 2000 ("Headquarters Side Letter"). The Original Loan Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment, Seventh Amendment, Additional Advance Letter, Eighth Amendment, the Receivable Loan Lot Cap Letter, Ninth Amendment, Tenth Amendment, Eleventh Amendment, Twelfth Amendment and Headquarters Side Letter are collectively called the "Loan Agreement." Capitalized terms used in this Amendment which are defined in the Loan Agreement shall have the same meaning and definition when used herein. B. Borrower has requested the Lender to make certain modifications to the Loan Agreement and the Loan, which the Lender is willing to do, upon and subject to the terms and conditions set forth in this Amendment. Now, therefore, in consideration of the foregoing and for the good and valuable consideration provided herein, Lender, Borrower and Guarantor agree as follows: 1. On the Effective Date, Article I of the Loan Agreement is amended by amending and restating the following terms: "RECEIVABLES BORROWING TERM": shall mean the period of time during which Lender is committed to make Advances of the Receivables Loan under this Agreement which commitment shall terminate on April 30, 2001. "IDA BUILDING ADDITION MATURITY DATE": shall mean April 30, 2001. "WINNICK BUILDING ADDITION MATURITY DATE": shall mean April 30, 2001. 2. On the Effective Date, the provisions of Article I of the Loan Agreement are amended to add the following definitions: "TWELFTH AMENDMENT" shall collectively refer to the Seventh Amendment to Forbearance Agreement and Amendment No. 12 to Second Amended and Restated and Consolidated Loan and Security Agreement made and entered into on July 20, 2000 among Borrower, Lender and Guarantor. "THIRTEENTH AMENDMENT" shall collectively refer to the Eighth Amendment to Forbearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement made and entered into on December 29, 2000 among Borrower, Lender and Guarantor. 3. As of the Effective Date, the Winnick Building Addition Note and the Documents shall be amended to provide that amounts due and owing under the Winnick Building Addition shall be due and payable in full on April 30, 2001. 2 3 4. As of the Effective Date, the Ida Building Addition Note and the Documents shall be amended to provide that amounts due and owing under the Ida Building Addition shall be due and payable in full on April 30, 2001. 5. As of the Effective Date, the Towers Note and the Documents shall be amended to provide that all amounts due and owing under the Towers Note shall be due and payable in full on April 30, 2001, all as more fully set forth in an Amendment No. 4 to Promissory Note [Towers Note] of even date with this Amendment. 6. As of the Effective Date, the Note executed in connection with the First Amendment (the "Hartsel Springs Note") and the Documents shall be amended to provide that amounts due and owing under the Hartsel Springs Note shall be due and payable in full on April 30, 2001, all as more fully set forth in an Amendment No. 1 to Note [Hartsel Springs Note] of even date with this Amendment. 7. As of the Effective Date, the Additional Advance Note and the Documents shall be amended to provide that all amounts due and owing under the Additional Advance Note shall be due and payable in full on April 30, 2001, all as more fully set forth in an Amendment No. 2 to Promissory Note [Additional Advance Note] of even date with this Amendment. 8. As of the Effective Date, the Biloxi Note and the Documents shall be amended to provide that all amounts due and owing under the Biloxi Note shall be due and payable in full on April 30, 2001, all as more fully set forth in an Amendment No. 2 to Promissory Note [Biloxi Note] of even date with this Amendment. 9. As of the date hereof, there exists certain Instruments arising from the sale of Hartsel Springs Lots, with respect to which Lender has made an Advance but with respect to which Lender has not received appropriate deed of trust assignments, title policies or other items that are conditional to the making of such Advance (such unsatisfied conditions as to the foregoing Instruments hereafter the "Outstanding Conditions"). Without waiving any rights that are now available to Lender as a result of such Outstanding Conditions failing to be satisfied, on or before February 10, 2001, Borrower agrees to (i) satisfy all Outstanding Conditions, (ii) replace with a sufficient amount of Eligible Receivables, those Instruments with respect to which there exists Outstanding Conditions, or (iii) pay to Lender, in good funds, the unpaid principal balance of those Instruments with respect to which there exists Outstanding Conditions. Failure of Borrower to abide by the foregoing covenants within the foregoing time period shall constitute an immediate Event of Default without the benefit of any notice or grace periods. Lender shall reasonably cooperate with Borrower in connection with the satisfaction of the Outstanding Conditions; however such cooperation shall not include any requirement on Lender's part to release collateral pledged to Lender (without the immediate receipt of substitute collateral) unless Lender, in its sole and absolute discretion, chooses to release such collateral. In consideration of Lender's agreement giving Borrower until February 10, 2001 to satisfy the Outstanding Conditions, Borrower agrees to pay to Lender an accommodation fee in the amount of 3 4 Fifteen Thousand Dollars ($15,000) which is due and payable on the date hereof and may be withheld from the proceeds of any Advance made by Lender to Borrower. 10. The obligations of the Lender under this Amendment are conditioned upon the satisfaction of the following conditions: (a) This Amendment has been fully signed by the Borrower and Guarantor; (b) Lender has received the following in form and content acceptable to Lender: (i) Amendment No. 4 to Promissory Note [Towers Note]. (ii) Amendment No. 1 to Note [Hartsel Springs Note]. (iii) Amendment No. 2 to Promissory Note [Additional Advance Note]. (iv) Amendment No. 2 to Promissory Note [Biloxi Note]. (v) Such resolutions and authorizations and such other documents as Lender may require relating to the existence and good standing of Borrower and Guarantor, and the authority of any person executing this Amendment and other documents on behalf of Borrower and Guarantor; and (vi) Such additional documents or instruments as required and approved by the Lender so as to fully perfect the liens and security interest of Lender granted under the Loan Agreement and this Amendment. (c) Borrower shall have reimbursed Lender for all of Lender's out-of-pocket costs and expenses including, without limitation, attorney's, engineers' and other consultants' fees and costs, incurred in connection with the documentation and closing of this Amendment. 11. Borrower and Guarantor each represents and warrants that: (a) All financial information and other documents it has provided to Lender in connection with this Amendment are true, complete and correct as of the date provided and the date hereof; (b) There exists no Event of Default or Incipient Default, after giving effect to the then applicable provisions of this Amendment and other than the Existing Events of Default and the Unsolidified Lot Sales Default; 4 5 (c) After giving effect to this Amendment, there has been no material adverse change in any real property or in the business or financial condition of Borrower and Guarantor since the date of the last financial statements submitted to Lender; and (d) After giving effect to this Amendment (including the disclosures contained herein) and the most recent financial and litigation reports supplied to Lender, all representations and warranties by Borrower and Guarantor remain true, complete, and correct, in all material respects as of the date hereof. 12. Guarantor acknowledges and agrees that (i) the Guarantee shall remain in full force and effect, (ii) the obligations of the Guarantor under the Guarantee are joint and several with those of each other Obligor (as that term is defined in the Guarantee), (iii) Guarantor's liability under the Guarantee shall continue undiminished by and shall include the obligations of the Borrower under this Amendment and any other documents and instruments executed by Borrower in connection with this Amendment and each of the other Documents, as amended through the date hereof and (iv) all terms, conditions and provisions set forth in this Amendment and any other documents and instruments executed by Borrower in connection with this Amendment and each of the other Documents, as amended through the date hereof, are hereby ratified, approved and confirmed. 13. Borrower and Guarantor acknowledge and agree that they have no defenses, counterclaims, setoffs, recoupments or other adverse claims or causes of action in tort, contract or of any other kind existing against Lender or with respect to the Documents, including without limitation, claims regarding the amount, validity, perfection, priority and enforceability of the Documents. 14. The Documents shall be deemed amended by the provisions of this Amendment, as and when applicable and any conflict or inconsistency between this Amendment and the Documents shall be resolved in favor of this Amendment. Except as so amended, all other consistent terms and conditions of the Documents will remain in full force and effect, and are hereby ratified and affirmed. 15. Except as may be expressly provided herein, Borrower's and Guarantor's respective obligations under the Documents shall remain in full force and effect and shall not be waived, modified, superseded or otherwise affected by this Amendment. This Amendment is not a novation, nor is it be construed as a release, waiver, extension of forbearance or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in any of the Documents, except as expressly stated herein. 16. This Amendment in no way acts as a waiver of any default of Borrower or as a release or relinquishment of any of the liens, security interests, rights or remedies securing payment and Performance of the Borrower's Obligations or the enforcement thereof. Such liens, security interests, rights and remedies are hereby ratified, confirmed, preserved, 5 6 renewed and extended by Borrower in all respects. Further, Lender's execution of this Amendment shall not constitute a waiver (either express or implied) of the requirement that any further forbearance under or modification of the Loan Agreement or any other Document shall require the express written approval of Lender. No such approval (either express or implied) has been given as of the date hereof. 17. Borrower and Guarantor acknowledge that Lender has performed, and is not in default of, its obligations under the Documents; that there are no offsets, defenses or counterclaims in tort, contract or otherwise, with respect to any of Borrower's or Guarantor's or other party's obligations under the Documents; and that Lender has not directed Borrower to pay or not pay any of Borrower's payables. 18. Borrower and Guarantor will execute and deliver such further instruments and do such things as in the judgment of Lender are necessary or desirable to effect the intent of this Amendment and to secure to Lender the benefits of all rights and remedies conferred upon Lender by the terms of this Amendment and any other documents executed in connection herewith. 19. If any provision of this Amendment is held to be unenforceable under present or future laws effective while this Amendment is in effect (all of which invalidating laws are waived to the fullest extent possible), the enforceability of the remaining provisions of this Amendment shall not be affected thereby. In lieu of each such unenforceable provision, there shall be added automatically as part of this Amendment a provision that is legal, valid and enforceable and is similar in terms to such unenforceable provisions as may be possible. 20. Any further discussions by and among Borrower, Guarantor and Lender, if any, and all such discussions in the past, together with any other actions or inactions taken by and among Borrower, Guarantor and Lender, shall not cause a modification of the Documents, establish a custom or waive (unless Lender made such express waiver in writing), limit or condition the rights and remedies of Lender under the Documents, all of which rights and remedies are expressly reserved. All of the provisions of the Documents, including, without limitation, the time of the essence provision, are hereby reiterated and if ever waived are hereby reinstated (unless Lender made such express waiver in writing), except as expressly provided herein. Notwithstanding anything to the contrary contained herein or in any other instrument executed by the parties and notwithstanding any other action or conduct undertaken by the parties on or before the date hereof, the agreements, covenants and provisions contained herein and the Loan Agreement shall constitute the only evidence of Lender's agreement to forbear or to modify the Loan Agreement. Accordingly, no express or implied consent to any further forbearances or modifications shall be inferred or implied by Lender's execution of this Amendment. The Loan Agreement and this Amendment, together with the other Documents, constitute the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter. In entering into this Amendment, Borrower acknowledges that it is 6 7 relying on no statement, representation, warranty, covenant or agreement of any kind made by the Lender or any employee or agent of the Lender, except for the agreements of Lender set forth herein. 21. This Amendment shall not be binding upon Lender until accepted by Borrower and Guarantor as provided for below. This Amendment may be executed in counterpart, and any number of which have been executed by all parties shall be deemed to constitute one original. Lender, its attorneys and agents may also integrate into a single Amendment signature pages from separate counterpart Amendments. The telecopied signature of a person shall be deemed an original signature, may be relied upon by others and shall be binding upon the signer for all purposes provided however that Borrower, Guarantor or any person otherwise consenting hereto by telecopied signature shall confirm its telecopied signature by signing and returning to Lender a copy of this Amendment with an original signature. 22. Borrower's and Guarantor's representatives are experienced and knowledgeable business people and have been represented by independent legal counsel who are experienced in all matters relevant to this Amendment, including, but not limited to, bankruptcy and insolvency law. The parties hereto have accepted and agreed to this Amendment after being fully aware and advised of the effect and significance of all of its terms, conditions, and provisions. 23. Unless otherwise specifically stipulated elsewhere in the Documents, if a matter is left in the Documents or this Amendment to the decision, right, requirement, request, determination, judgment, opinion, approval, consent, waiver, satisfaction, acceptance, agreement, option or discretion of Lender, its employees, Lender's counsel or any agent for or contractor of Lender, such action shall be deemed to be exercisable by Lender or such other person in its sole and absolute discretion and according to standards established in its sole and absolute discretion. Without limiting the generality of the foregoing, "option" and "discretion" shall be implied by use of the words "if" or "may." 24. The Recitals in this Amendment are incorporated into the body hereof as fully set forth herein. 25. THIS AMENDMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE PERFORMED IN THE STATE OF ARIZONA. THE PROVISIONS OF THIS AMENDMENT AND ALL RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT SUCH LAWS, THE LAWS OF THE UNITED STATES. EACH OF BORROWER, GUARANTOR AND LENDER: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO ANY DOCUMENT OR THE 7 8 SUBJECT MATTER THEREOF, OR, IF LENDER SHALL INITIATE SUCH ACTION, IN THE COURT IN WHICH SUCH ACTION IS INITIATED PROVIDED THAT SUCH COURT HAS JURISDICTION, AND THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN ANY INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH OF BORROWER, GUARANTOR AND LENDER HEREBY WAIVE THE RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM. [SIGNATURE PAGE FOLLOWS] 8 9 LENDER: FINOVA CAPITAL CORPORATION, a Delaware corporation By: /s/ Susan Babbitt -------------------------------- Its: Vice President BORROWER: PREFERRED EQUITIES CORPORATION, a Nevada corporation By: /s/ Gregg McMurtrie -------------------------------- Its: Executive Vice President Signed in the presence of: s/s Mark Prasse -------------------------------- GUARANTOR: MEGO FINANCIAL CORP., a New York corporation By: /s/ Charles Baltuskonis -------------------------------- Its: SVP/ CAO Signed in the presence of: Mark Prasse -------------------------------- 9 10 STATE OF NEVADA ) ) ss. County of Clark ) The foregoing instrument was acknowledged before me this 29th day of December 2000 by Gregg McMurtrie as Exec V.P. of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. Syonja L. Garcia ------------------------------------ Notary Public My Commission Expires: Aug. 24, 2004 [SEAL] STATE OF NEVADA ) ) ss. County of Clark ) The foregoing instrument was acknowledged before me this 29th day of December 2001, by Charles G. Baltuskonis as Sr. V.P. of MEGO FINANCIAL CORP., a New York corporation, on behalf of the corporation. Syonja L. Garcia ------------------------------------ Notary Public My Commission Expires: Aug. 24, 2004 [SEAL] STATE OF ARIZONA ) ) ss. County of Maricopa ) This instrument was acknowledged before me this 19th day of January 2001, by Susan Babbitt, as Vice President of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Carmen I. YZaguirre ------------------------------------ Notary My Commission expires: [SEAL] 11 AMENDMENT NO. 2 TO PROMISSORY NOTE [ADDITIONAL ADVANCES] THIS AMENDMENT NO. 2 TO PROMISSORY NOTE [ADDITIONAL ADVANCES] (this "Amendment") entered into as of this 29th day of December, 2000, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with reference to the following: R E C I T A L S Maker previously executed and delivered to Lender a Promissory Note dated December 23, 1998, in the original principal amount of $5,662,000.00 (the "Original Note") to evidence the Loan (the "Additional Advance") made pursuant to the terms of that certain Forbearance Agreement and Amendment No. 5 to Second Amended and Restated Loan and Security Agreement dated December 23, 1998, between Maker and Lender (the "Original Loan Agreement"). Maker and Lender previously entered into a letter agreement dated September 7, 1999 which extended the Maturity Date of the Original Note to October 1, 1999 (the "Additional Advance Letter ") and thereafter entered into an Amendment No. 1 to Promissory Note dated November 9, 1999 further extending the Maturity Date of the Original Note to December 31, 2000 (the "Amendment No. 1"). The Original Note, as amended by the Additional Advance Letter and the Amendment No. 1, is called the "Additional Advance Note". On even date herewith, the Maker and Lender have entered into a Eighth Amendment to Forebearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Loan Amendment"). The Loan Amendment provides, among other things, for an amendment to the maturity date of the Original Note. The Original Loan Agreement, as amended by the Loan Amendment and all other amendments executed prior to the date hereof, and as the same may, in the future, be amended and restated, is called the "Loan Agreement". All capitalized terms used in this Amendment, which are defined in the Loan Agreement, shall have the same meaning and definition when used herein. NOW, THEREFORE, in consideration of these Recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, Lender and Maker agree as follows: 1. Notwithstanding anything to the contrary contained in the Additional Advance Note, the Maker agrees that if not sooner paid, the entire unpaid principal balance of the Additional Advance Note, together with all accrued and 12 unpaid interest and fees payable thereunder, shall be due and payable, in full, to the Lender on April 30, 2001 (the "Maturity Date"). 2. Maker hereby ratifies and confirms the Additional Advance Note, as amended hereby, in all respects; and, as amended hereby, the terms thereof shall remain in full force and effect. This Amendment may be attached to and shall form a part of the Additional Advance Note for all purposes. IN WITNESS WHEREOF, this instrument is executed as of the date and year first above written. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: --------------------------------- Name: Title: "MAKER" FINOVA CAPITAL CORPORATION, a Delaware corporation By: --------------------------------- Name: Title: "LENDER" 2 13 State of Nevada ) ) County of __________ ) This instrument was acknowledged before me on September ___, 1999, by _________________________, as ______________________, of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on September ___, 1999, by ________________________, as ______________________ of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) 3 14 AMENDMENT NO. 2 TO PROMISSORY NOTE [BILOXI PROPERTY] THIS AMENDMENT NO. 2 TO PROMISSORY NOTE [BILOXI PROPERTY] (this "Amendment") entered into as of this 29th day of December, 2000, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with reference to the following: R E C I T A L S Maker previously executed and delivered to Lender a Promissory Note (Biloxi Property), dated March 20, 1998, in the original principal amount of $1,173,750.00, as amended by that certain Amendment No. 1 to Promissory Note [Biloxi Property] dated March ___, 2000 (collectively the "Note") to evidence the Biloxi Advance (as defined in the Loan Agreement [hereinafter defined] made pursuant to the terms of that certain Second Amended and Restated Loan and Security Agreement dated May 15,1997, between Maker and Lender (the "Original Loan Agreement"). On even date herewith, the Maker and Lender have entered into a Eighth Amendment to Forebearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Loan Amendment"). The Loan Amendment provides, among other things, for an amendment to the maturity date of the Original Note. The Original Loan Agreement, as amended by the Loan Amendment and all other amendments executed prior to the date hereof, and as the same may, in the future, be amended and restated, is called the "Loan Agreement". All capitalized terms used in this Amendment, which are defined in the Loan Agreement, shall have the same meaning and definition when used herein. The Maker and Lender desire to amend the Original Note. NOW, THEREFORE, in consideration of these Recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, Lender and Maker agree as follows: 1. All references in the Original Note to the term "Maturity Date" shall now mean and refer to April 30, 2001. Maker shall have no right to further extend the Maturity Date. 15 2. Maker hereby ratifies and confirms the Original Note, as amended hereby, in all respects; and, as amended hereby, the terms thereof shall remain in full force and effect. This Amendment may be attached to and shall form a part of the Original Note for all purposes. IN WITNESS WHEREOF, this instrument is executed as of the date and year first above written. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: --------------------------------- Name: Title: "MAKER" FINOVA CAPITAL CORPORATION, a Delaware corporation By: --------------------------------- Name: Title: "LENDER" 2 16 State of __________ ) ) County of _________ ) This instrument was acknowledged before me on ______________ ___, 2000, by _______________________________, as ______________________, of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on __________________ ___, 2000, by ____________________________________, as ______________________ of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) 3 17 AMENDMENT NO. 1 TO NOTE [HARTSEL SPRINGS NOTE] THIS AMENDMENT NO. 1 TO NOTE (this "Amendment") entered into as of this 29th day of December, 2000, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with reference to the following: R E C I T A L S Maker previously executed and delivered to Lender a Note, dated February 18, 1998, in the original principal amount of $4,000,000.00 (the "Original Note") to evidence a loan made pursuant to the terms of that certain Second Amended and Restated Loan and Security Agreement dated May 15,1997, between Maker and Lender (the "Original Loan Agreement"). On even date herewith, the Maker and Lender have entered into an Eighth Amendment to Forbearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Loan Amendment"). The Loan Amendment provides, among other things, for an amendment to the maturity date of the Original Note. The Original Loan Agreement, as amended by the Loan Amendment and all other amendments executed prior to the date hereof, and as the same may, in the future, be amended and restated, is called the "Loan Agreement". All capitalized terms used in this Amendment, which are defined in the Loan Agreement, shall have the same meaning and definition when used herein. The Maker and Lender desire to amend the Original Note. NOW, THEREFORE, in consideration of these Recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, Lender and Maker agree as follows: 1. The entire remaining balance of the Original Note, together with all accrued and unpaid interest and all other sums due and owing thereunder, shall be due and payable in full on April 30, 2001. 2. Maker hereby ratifies and confirms the Original Note, as amended hereby, in all respects; and, as amended hereby, the terms thereof shall remain in full force and effect. This Amendment may be attached to and shall form a part of the Original Note for all purposes. 18 IN WITNESS WHEREOF, this instrument is executed as of the date and year first above written. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: --------------------------------- Name: Title: "MAKER" FINOVA CAPITAL CORPORATION, a Delaware corporation By: --------------------------------- Name: Title: "LENDER" 2 19 State of Nevada ) ) County of Clark ) This instrument was acknowledged before me on _________ ___, 2000, by _____________________________________, as ______________________, of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on _____________ ___, 2000, by __________________________________, as ______________________ of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) 3 20 AMENDMENT NO. 4 TO PROMISSORY NOTE [TOWERS LOBBY] THIS AMENDMENT NO. 4 TO PROMISSORY NOTE [TOWERS LOBBY] (this "Amendment") entered into as of this 29th day of December, 2000, between PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Maker"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), is made with reference to the following: R E C I T A L S Maker previously executed and delivered to Lender a Promissory Note dated December 13, 1995, in the original principal amount of $700,000.00 (the "Original Towers Note") to evidence the Loan (the "Towers Loan") made pursuant to the terms of that Amendment No. 13 to Amended and Restated Loan and Security Agreement dated December 13, 1995, between Maker and Lender (said Amended and Restated Loan and Security Agreement, as so amended and as thereafter amended, the "Original Loan Agreement"). Maker and Lender previously entered into an Amendment No. 1 to Promissory Note which, among other things, increased the principal amount of the Original Towers Note to $1,286,126.00. Maker and Lender previously entered into an Amendment No. 2 to Promissory Note which, among other things, provided for a reduction of the interest rate applicable to the unpaid principal balance under the note. Maker and Lender previously entered into an Amendment No. 3 to Promissory Note which extended the maturity date under the note (said Original Towers Note, as so amended up to the date hereof and as hereinafter amended, the "Towers Note"). On even date herewith, the Maker and Lender have entered into an Eighth Amendment to Forbearance Agreement and Amendment No. 13 to Second Amended and Restated and Consolidated Loan and Security Agreement (the "Loan Amendment"). The Loan Amendment provides, among other things, for an amendment to the maturity date of the Towers Note. The Original Loan Agreement, as amended by the Loan Amendment and all other amendments executed prior to the date hereof, and as the same may, in the future, be amended and restated, is called the "Loan Agreement". All capitalized terms used in this Amendment, which are defined in the Loan Agreement, shall have the same meaning and definition when used herein. 21 NOW, THEREFORE, in consideration of these Recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, Lender and Maker agree as follows: 1. Notwithstanding anything to the contrary contained in the Towers Note, the Maker agrees that, if not sooner paid, the entire unpaid principal balance of the Towers Note, together with all accrued and unpaid interest and fees payable thereunder, shall be due and payable, in full, to the Lender on April 30, 2001 (the "Maturity Date"). 2. Maker hereby ratifies and confirms the Towers Note, as amended hereby, in all respects; and, as amended hereby, the terms thereof shall remain in full force and effect. This Amendment may be attached to and shall form a part of the Towers Note for all purposes. IN WITNESS WHEREOF, this instrument is executed as of the date and year first above written. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: --------------------------------- Name: Title: "MAKER" FINOVA CAPITAL CORPORATION, a Delaware corporation By: --------------------------------- Name: Title: "LENDER" 2 22 State of Nevada ) ) County of Clark ) This instrument was acknowledged before me on ___________ ___, 2000 by ______________________________________, as ___________________________, of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on _____________ ___, 2000 by ________________________________________, as _____________________________ of FINOVA CAPITAL CORPORATION, a Delaware corporation, on behalf of the corporation. ------------------------------------ Notary (My commission expires: ___________) 3 23 SIDE LETTER RE: 4310 PARADISE ROAD November 6, 2000 Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 84109-6597 Attention: Jon Joseph, Esq. Dear Mr. Joseph: Reference is made to the provisions of that certain Second Amended and Restated Loan and Security Agreement dated as of May 15, 1997, between Preferred Equities Corporation, a Nevada corporation and FINOVA Capital Corporation, a Delaware corporation, as amended up to the date hereof, (the "Loan Agreement"). Unless otherwise defined herein, all capitalized terms used herein shall have the meaning as set forth in the Loan Agreement. 1. The Borrower has represented to the Lender that the Borrower has entered into a transaction pursuant to which the Headquarters Building will be sold and thereafter leased by the new owner back to the Borrower. The Borrower has requested that Lender release the Headquarters Deed of Trust. Lender is willing to release the Headquarters Deed of Trust in consideration of the Borrower's and Guarantor's agreements contained herein. 2. By execution below, Borrower hereby agrees as follows: (a) From the proceeds of the sale of the Headquarters Building and concurrently with the closing of such sale, the remaining unpaid principal balance and all accrued interest due and owing on the Office Note shall be paid in full. (b) Furthermore, from the proceeds of the sale of the Headquarters Building and concurrently with the closing of such sale, a principal reduction shall be made on the Biloxi Note in the amount of Seventy Three Thousand Six Hundred Forty Dollars ($73,640) which amount shall be applied against the installments due under the Biloxi Note in the inverse order of maturity. No prepayment premium or penalty shall be due in connection with such payment. (c) The remaining proceeds from the sale of the Headquarters Building shall be used to complete certain renovations at Borrower's Reno Spa Resort and to pay six (6) months rent at Borrower's OPC location at the Westward Ho Hotel. Borrower shall supply Lender with evidence satisfactory to it as to the making of the foregoing expenditures upon request of Lender. 24 Preferred Equities Corporation November 6, 2000 Page 2 (d) The unpaid principal balance of the Additional Advance Note shall be reduced to Three Hundred Fifty Thousand Dollars ($350,000) by December 31, 2000. 3. (i) Borrower hereby reaffirms, as if made as of the date hereof, all of Borrower's representations and warranties contained in the Documents. Borrower furthermore reaffirms the validity, enforceability and legality of the Documents, and all provisions of the Documents, as modified, are hereby confirmed and ratified. Without limiting the generality of the foregoing, Borrower hereby reaffirms the validity and enforceability of the security interests granted to Lender in the collateral pledged to Lender. Borrower confirms that such security interests will continue to secure the timely and faithful performance of all Obligations, including, without limitation, the obligations under this Side Letter. In the event of a conflict or inconsistency between the provisions of the Loan Agreement as amended up to the date immediately prior to the date of this Side Letter and the provisions of this Side Letter, the provisions of this Side Letter will prevail. All terms, conditions and provisions of the Loan Agreement as amended are continued in full force and effect and will remain unaffected and unchanged except as specifically amended or modified hereby. (ii) Borrower and Guarantor acknowledges that Lender has performed, and is not in default of, its obligations under the Documents; that there are no offsets, defenses or counterclaims with respect to any of Borrower's, any Guarantor's or any other party's obligations under the Documents; and that Lender has not directed Borrower to pay or not pay any of Borrower's payables. Neither Borrower nor Guarantor presently has any existing claims, defenses (personal or otherwise) or rights of setoff whatsoever with respect to the Obligations. Borrower and Guarantor furthermore agree that they have no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. (iii) Borrower acknowledges that the indebtedness evidenced by the Documents is just and owing and agrees to pay such indebtedness in accordance with the terms of the Documents. Borrower further acknowledges and represents that no event has occurred and no condition presently exists that would constitute a default or event of default by Lender under the Loan Agreement or any of the other Documents, with or without notice or lapse of time. Borrower hereby ratifies, reaffirms, acknowledges and agrees that the Loan Agreement and the other Documents represent valid, enforceable and collectable obligations of Borrower. 4. Borrower and Guarantor represent and warrant that (i) they have the full power and authority to execute and deliver this Side Letter; (ii) all action necessary and required by Borrower's and Guarantor's organizational documents and all other legal requirements for Borrower and Guarantor to execute and deliver this Side Letter have been duly and effectively taken; (iii) this Side Letter does not violate or constitute a default or result in the imposition of a lien under the terms or provisions of any agreement to which Borrower or Guarantor is a party; and (iv) no consent of any governmental agency or any other person not a party to this Side Letter is or will be required as a condition to the execution, delivery or enforceability of this Side Letter. 25 Preferred Equities Corporation November 6, 2000 Page 3 5. Guarantor acknowledges and agrees that the obligations of the Borrower under this Side Letter constitute additional obligations of the Borrower, the performance of which are guaranteed under the Guarantee signed by the Guarantor. 6. This Side Letter may be executed in counterparts, each of which when taken together shall constitute one and the same instrument, notwithstanding the fact that all parties have not signed the same counterpart. In addition, this Side Letter may be executed by facsimile and such facsimile signatures shall be deemed original signatures for all purposes. 7. This Side Letter shall be deemed a Document and the obligations of the Borrower hereunder shall be deemed an Obligation. 8. Time is of the essence in the Performance of the Obligations and in the event any time is of the essence provisions have previously been waived, such provisions are hereinafter reinstated in full force and effect. In the event the foregoing represents an accurate statement of the agreements that have been reached, please sign and return a copy of this Side Letter to the undersigned. Sincerely yours, FINOVA CAPITAL CORPORATION, a Delaware corporation By ---------------------------------- Name: ------------------------------- Title: ------------------------------ 26 Preferred Equities Corporation November 6, 2000 Page 4 Accepted this _______ day of November, 2000. BORROWER Preferred Equities Corporation, a Nevada corporation By: -------------------------------- Name: --------------------------- Title: -------------------------- Agreed to as to paragraphs 3(ii), 4 and 5 acknowledged as to the balance, this ______ day of November, 2000 by the following Guarantor: MEGO Financial Corp., a New York corporation By: -------------------------------- Name: --------------------------- Title: -------------------------- EX-10.228 5 a69978ex10-228.txt EXHIBIT 10.228 1 EXHIBIT 10.228 TWELFTH AMENDMENT TO ASSIGNMENT AND ASSUMPTION AGREEMENT This Twelfth Amendment (the "Amendment") to Assignment and Assumption Agreement, by and between RER Corp., COMAY Corp., GROWTH REALTY INC. and H&H FINANCIAL, INC. (the "Assignors") and MEGO FINANCIAL CORP., formerly named Mego Corp., (the "Assignee") WITNESSETH: WHEREAS, the Assignors are parties to the Assignment Agreement dated October 25, 1987, with the Assignee, and the Assignment and Assumption Agreement, dated February 1, 1988, between the Assignors and the Assignee, which two agreements were amended by the Amendment to Assignment and Assumption Agreement dated July 29, 1988 and by the Second Amendment to Assignment and Assumption Agreement dated as of March 2, 1995, the Third Amendment to Assignment and Assumption Agreement dated as of August 20, 1997 and the Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh amendments to Assignment and Assumption Agreement dated as of February 26, 1999, May 28, 1999, August 9, 1999, November 20, 1999, January 31, 2000, April 30, 2000, August 31, 2000 and November 15, 2000, respectively, between the Assignors and the Assignee (collectively, the described agreements as so amended are hereinafter referred to as the "Assignment"); and WHEREAS, the Assignment fixed the date of January 31, 1995 as the date on which the accrual of amounts due to the Assignors under the Assignment would terminate, except for interest on any of such amounts which remained unpaid; and WHEREAS, the amount due the Assignors as of January 31, 1995 was $13,328,742.25, plus interest from January 28, 1995, in the amount of $9,322.57, collectively, and with interest from January 31, 1995 to March 2, 1995 (the "Amount Due"); and WHEREAS, $10,000,000 of the Amount Due was agreed to be considered subordinated debt (the "Subordinated Debt"), against which payments were made as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii) $4,250,000 was deemed paid by credit against the exercise price of certain warrants as is set forth in the Third Amendment, and (iii) $35, 714.28 was paid on September 1, 1998, leaving a remaining balance of the Subordinated Debt of $4,285,714.29; and WHEREAS, the balance of the Subordinated Debt continues to be secured by a pledge of all of the issued and outstanding common stock of Preferred Equities Corporation (and any distributions in respect thereto) pursuant to a Pledge and Security Agreement dated as of February 1, 1988 (the "Pledge Agreement") between the Assignee and the Assignors; and 1 2 WHEREAS, interest on the Subordinated Debt has been paid through September 1, 2000; and WHEREAS, under the terms of the Assignment, all of the principal in the amount of $4,285,714.29 will be due and payable on March 1, 2001; and WHEREAS, the Assignee has requested that the Assignors further defer the payment of principal of the Subordinated Debt payable on March 1, 2001, in the total amount of $4,285,714.29, to July 1, 2001. NOW THEREFORE, in consideration of the mutual covenants herein contained it is hereby agreed as follows: 1. The statements in the foregoing preamble are true and correct. 2. The payments previously deferred to March 1, 2001, totaling in the aggregate $4,285,714.29, and hereby deferred to July 1, 2001. 3. The Assignee and Assignors agree that all amounts due to Assignors pursuant to the Assignment as amended by this Amendment shall continue to be secured as set forth in the Pledge Agreement and that the Pledge Agreement remains in full force and effect. 4. The Assignee and Assignors agree that this Amendment is an amendment to the Assignment and not a novation, and that except as modified hereby, all terms and conditions of the Assignment, including but not limited to provisions with respect to the payment of interest and acceleration of the entire balance of principal and interest if any payment is not made within 30 days of its due date, shall remain in full force and effect. 5. It is agreed that this Amendment may be signed in counterparts. IN WITNESS WHEREOF, the parties have duly executed this Amendment as of February 15, 2001. MEGO FINANCIAL CORP. H&H Financial, Inc By:/s/ Jerome J. Cohen By:/s/ Herbert Hirsch ---------------------------------- -------------------------- Jerome J. Cohen, President Title: President RER CORP. Growth Realty Inc. By:/s/ Robert Nederlander By: s/s Eugene Schuste ---------------------------------- ------------------------- Title: President Title: C.E.O. Comay Corp By:/s/ Jerome J. Cohen -------------------------- Title: President 2 -----END PRIVACY-ENHANCED MESSAGE-----