-----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, VMAMHhbUfY6K4fm7v4tUdjqZ3qSDFkFAtDnya5y2tqRzwEvM6STgRfRgDOndzmw7 LpLVJvzgwu4qQW/Dq+nozg== 0000950150-97-000546.txt : 19970415 0000950150-97-000546.hdr.sgml : 19970415 ACCESSION NUMBER: 0000950150-97-000546 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 001-08645 FILM NUMBER: 97579815 BUSINESS ADDRESS: STREET 1: 4310 PARADISE RD CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027373700 FORMER COMPANY: FORMER CONFORMED NAME: MEGO CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR PERIOD ENDED FEBRUARY 28, 1997 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, 1997 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 INCORPORATION (I.R.S. EMPLOYER 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, 1997, there were 18,733,121 shares of Common Stock, $.01 par value per share, of the Registrant outstanding. ================================================================================ 2 MEGO FINANCIAL CORP. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION
PAGE ---- Item 1. Financial Statements........................................................... Consolidated Statements of Financial Condition at February 28, 1997 and August 31, 1996 (Unaudited)........................................................... 1 Consolidated Statements of Operations for the Three and Six Months Ended February 28, 1997 and February 29, 1996 (Unaudited)............................ 2 Consolidated Statements of Stockholders' Equity for the Six Months Ended February 28, 1997 (Unaudited).................................................. 3 Consolidated Statements of Cash Flows for the Six Months Ended February 28, 1997 and February 29, 1996 (Unaudited)......................................... 4 Notes to Consolidated Financial Statements..................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 10 PART II OTHER INFORMATION Item 1. Legal Proceedings.............................................................. 28 Item 6. Exhibits and Reports on Form 8-K............................................... 29 SIGNATURE...................................................................... 30
3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (thousands of dollars, except per share amounts) (unaudited)
FEBRUARY 28, AUGUST 31, 1997 1996 ------------ ---------- ASSETS Cash and cash equivalents............................................. $ 19,183 $ 3,185 Restricted cash....................................................... 7,402 6,657 Notes receivable, net of allowances for cancellations, valuation discounts, and credit losses of $14,494 at February 28, 1997 and $16,794 at August 31, 1996.......................................... 49,166 40,485 Mortgage related securities, at fair value............................ 67,103 22,944 Excess servicing rights............................................... -- 14,268 Mortgage servicing rights............................................. 5,805 3,827 Timeshare interests held for sale..................................... 36,835 36,890 Land and improvements inventory....................................... 3,686 3,721 Other investments..................................................... 1,852 1,972 Property and equipment, net of accumulated depreciation of $14,690 at February 28, 1997 and $13,550 at August 31, 1996.................... 24,322 20,262 Deferred selling costs................................................ 3,206 2,901 Prepaid debt expenses................................................. 3,805 1,003 Prepaid commitment fee................................................ 2,886 -- Other assets.......................................................... 11,832 7,482 -------- -------- TOTAL ASSETS................................................ $237,083 $ 165,597 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable......................................... $ 80,665 $ 84,449 Accounts payable and accrued liabilities............................ 24,338 19,662 Payable to assignors................................................ -- 2,579 Future estimated contingency for notes receivable sold with recourse......................................................... 12,090 9,332 Deposits............................................................ 2,694 2,971 Negative goodwill................................................... 68 82 Income taxes payable................................................ 16,792 10,980 -------- -------- Total liabilities before minority interest, subordinated debt and redeemable preferred stock....................... 136,647 130,055 -------- -------- Minority interest of consolidated subsidiary.......................... 8,267 -- -------- -------- Subordinated debt..................................................... 49,898 9,691 -------- -------- Redeemable preferred stock, Series A, 12% cumulative preferred stock, $.01 par value, $10 redemption value, 0 shares issued and outstanding at February 28, 1997 and August 31, 1996................ -- -- -------- -------- Stockholders' equity: Preferred stock, $.01 par value (authorized -- 5,000,000 shares).... -- -- Common stock, $.01 par value (authorized -- 50,000,000 shares; issued and outstanding -- 18,733,121 at February 28, 1997 and 18,433,121 at August 31, 1996)................................... 187 184 Additional paid-in capital.......................................... 17,974 6,504 Retained earnings................................................... 24,110 19,163 -------- -------- Total stockholders' equity.................................. 42,271 25,851 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $237,083 $ 165,597 ======== ========
See notes to consolidated financial statements. 1 4 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (thousands of dollars, except per share amounts) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ REVENUES Timeshare interest sales, net....... $ 7,573 $ 5,482 $ 15,129 $ 12,194 Land sales, net..................... 4,383 5,677 7,774 10,758 Gain on sale of notes receivable.... 10,869 4,884 20,919 11,281 Net unrealized gain on mortgage related securities............... 3,143 -- 2,908 -- Interest income..................... 3,791 1,561 6,428 3,191 Financial income.................... 958 1,223 1,870 2,453 Amortization of negative goodwill... 7 13 14 35 Incidental operations............... 717 488 1,443 1,232 Other............................... 445 (18) 490 236 ----------- ----------- ----------- ----------- Total revenues................... 31,886 19,310 56,975 41,380 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Direct cost of: Timeshare interest sales......... 1,188 836 2,512 1,851 Land sales....................... 424 551 734 1,045 Incidental operations............ 718 416 1,408 1,120 Commissions and selling............. 8,358 7,206 16,051 14,532 Depreciation and amortization....... 610 620 1,229 1,075 Provision for credit losses......... 3,805 200 5,516 497 Interest expense.................... 3,670 1,286 6,513 2,924 General and administrative.......... 9,081 5,799 16,685 11,470 ----------- ----------- ----------- ----------- Total costs and expenses......... 27,854 16,914 50,648 34,514 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST................... 4,032 2,396 6,327 6,866 ----------- ----------- ----------- ----------- INCOME TAXES (BENEFIT)................ (380) 918 686 2,590 ----------- ----------- ----------- ----------- MINORITY INTEREST..................... 631 -- 694 -- ----------- ----------- ----------- ----------- NET INCOME............................ 3,781 1,478 4,947 4,276 ----------- ----------- ----------- ----------- CUMULATIVE PREFERRED STOCK DIVIDENDS........................... -- 60 -- 140 ----------- ----------- ----------- ----------- NET INCOME APPLICABLE TO COMMON STOCK............................... $ 3,781 $ 1,418 $ 4,947 $ 4,136 =========== =========== =========== =========== EARNINGS PER COMMON SHARE: Primary: Net income....................... $ 0.19 $ 0.08 $ 0.25 $ 0.23 =========== =========== =========== =========== Weighted average number of common shares and common share equivalents outstanding........ 19,662,582 18,087,556 19,619,912 18,087,556 =========== =========== =========== =========== Fully Diluted: Net income....................... $ 0.19 $ 0.07 $ 0.25 $ 0.21 =========== =========== =========== =========== Weighted average number of common shares and common share equivalents outstanding........ 19,662,582 19,463,556 19,619,912 19,463,556 =========== =========== =========== ===========
See notes to consolidated financial statements. 2 5 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (thousands of dollars, except per share amounts) (unaudited)
COMMON STOCK $.01 PAR VALUE ADDITIONAL --------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- ------ ---------- -------- ------- Balance at August 31, 1996............. 18,433,121 $184 $ 6,504 $19,163 $25,851 Gain on sale of stock of subsidiary, net of taxes of $4,972............... -- -- 8,113 -- 8,113 Issuance of warrants in connection with commitment received.................. -- -- 3,000 -- 3,000 Issuance of common stock in connection with the exercise of common stock warrants............................. 300,000 3 357 -- 360 Net income for the six months ended February 28, 1997.................... -- -- -- 4,947 4,947 ---------- ---- ------- ------- ------- Balance at February 28, 1997........... 18,733,121 $187 $17,974 $24,110 $42,271 ========== ==== ======= ======= =======
See notes to consolidated financial statements. 3 6 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars) (unaudited)
SIX MONTHS ENDED ----------------------------- FEBRUARY 28, FEBRUARY 29, 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................................... $ 4,947 $ 4,276 --------- -------- Adjustments to reconcile net income to net cash used in operating activities: Undistributed minority interest.............................. 694 -- Amortization of negative goodwill............................ (14) (35) Charges to allowance for cancellation and credit losses...... (7,137) (3,792) Provisions for cancellation and credit losses................ 10,473 5,468 Cost of sales................................................ 3,246 2,896 Depreciation and amortization expense........................ 1,229 873 Additions to excess servicing rights......................... -- (12,192) Amortization of excess servicing rights...................... -- 1,619 Accretion of residual interest on mortgage related securities.................................................. (1,306) -- Net unrealized gain on mortgage related securities........... (2,908) -- Additions to mortgage related securities..................... (27,317) -- Payments on mortgage related securities...................... 503 -- Amortization of mortgage related securities.................. 1,079 -- Additions to mortgage servicing rights....................... (3,086) (695) Amortization of mortgage servicing rights.................... 1,108 164 Payments on notes receivable, net............................ 18,706 9,922 Proceeds from sale of notes receivable....................... 177,598 63,066 Purchase of land and timeshare interests..................... (3,156) (5,797) Changes in operating assets and liabilities: Increase in restricted cash................................ (745) (704) Increase in notes receivable, net.......................... (200,149) (77,231) Increase in other assets................................... (14,831) (694) Decrease (increase) in deferred selling costs.............. (305) 977 Increase in accounts payable and accrued liabilities....... 4,676 1,629 Decrease in deposits....................................... (277) (1,599) Increase in income taxes payable........................... 5,790 2,391 --------- -------- Total adjustments....................................... (36,129) (13,734) --------- -------- Net cash used in operating activities................. (31,182) (9,458) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment.............................. (5,200) (2,169) Proceeds from the sale of property and equipment................ 8 -- Additions to other investments.................................. (626) (860) Decreases in other investments.................................. 746 150 --------- -------- Net cash used in investing activities................. (5,072) (2,879) --------- --------
See notes to consolidated financial statements. 4 7 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (thousands of dollars) (unaudited)
SIX MONTHS ENDED ----------------------------- FEBRUARY 28, FEBRUARY 29, 1997 1996 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings........................................... $ 145,452 $ 73,402 Payments on borrowings............................................. (149,236) (62,365) Preferred stock dividends.......................................... -- (140) Redemption of preferred stock...................................... -- (1,000) Payments on payable to assignors................................... (2,579) -- Payments on subordinated debt...................................... (500) (500) Interest accrued on subordinated debt.............................. 707 664 Issuance of subordinated debt...................................... 37,750 -- Proceeds from sale of Mego Mortgage Corporation common stock....... 20,658 -- --------- -------- Net cash provided by financing activities.................. 52,252 10,061 --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 15,998 (2,276) --------- -------- CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD..................... 3,185 7,338 --------- -------- CASH AND CASH EQUIVALENTS -- END OF PERIOD........................... $ 19,183 $ 5,062 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest, net of amounts capitalized............................ $ 5,226 $ 3,477 ========= ======== Income taxes.................................................... $ 1,241 $ 25 ========= ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Issuance of 1,000,000 common stock warrants in connection with commitment received............................................. $ 3,000 $ -- ========= ========
See notes to consolidated financial statements. 5 8 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (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, 1996 and 1995, contained in Mego Financial Corp.'s (Mego) Form 10-K filed for the year ended August 31, 1996, the accompanying unaudited Consolidated Financial Statements contain all of the information necessary to present fairly the financial position of Mego Financial Corp. and Subsidiaries at February 28, 1997 and the results of its operations for the three and six months ended February 28, 1997 and February 29, 1996, and the cash flows for the six months ended February 28, 1997 and February 29, 1996. All intercompany accounts between Mego and its subsidiaries have been eliminated. Certain reclassifications have been made to conform prior periods with the current period presentation. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three and six months ended February 28, 1997, are not necessarily indicative of the results to be expected for the full year. 2. NATURE OF OPERATIONS Mego 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. Mego is a specialty financial services company that, through its subsidiaries, Mego Mortgage Corporation (MMC) and Preferred Equities Corporation (PEC), is engaged primarily in originating, selling and servicing consumer receivables generated through home improvement and other consumer loans, and timeshare and land sales. Mego Financial Corp. and its subsidiaries are herein collectively referred to as the Company. 3. PREFERRED EQUITIES CORPORATION PEC markets and finances timeshare interests and land in select resort areas. By providing financing to virtually all of its customers, PEC also originates consumer receivables that it sells and services. In February 1988, Mego acquired PEC, pursuant to an assignment by the assignors (Comay Corp., GRI, RRE 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 and its interest in certain notes receivable to the trustees. 4. MEGO MORTGAGE CORPORATION MMC originates Title I home improvement loans (Title I Loans) insured by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD) through a network of loan correspondents and home improvement contractors. In May 1996, MMC commenced the origination of conventional home improvement, debt consolidation, and home equity loans through its network of loan correspondents and dealers. Mego's ownership in MMC declined from 100% at August 31, 1996 to 81.3% in November 1996, when MMC issued 2,300,000 shares of its common stock in an underwritten public offering at $10.00 per share. Mego continues to have voting control on all matters submitted to the stockholders of MMC, including the election of directors and approval of extraordinary corporate transactions. Concurrently with the common stock offering, MMC issued $40 million of 12.5% Senior Subordinated Notes due in 2001 in an underwritten public offering. The proceeds from the offerings received by MMC have been and will be used to repay borrowings and provide funds for future originations and securitizations of loans. The proceeds 6 9 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (unaudited) received from the public stock offering in excess of the book value of Mego's investment in MMC ($13.1 million, less income taxes of $5 million), has been recorded as additional paid-in capital of Mego. The undistributed minority interest of MMC reflected on the Company's Consolidated Statements of Financial Condition was $8.3 million at February 28, 1997. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion. 5. SUBSEQUENT EVENT On March 10, 1997, $89.7 million of loans were repurchased, securitized and sold by MMC, comprised of $21.9 million of Title I Loans and $67.8 million of conventional loans. Pursuant to this securitization, asset-backed notes secured by the loans were sold in a public offering. MMC continues to service the sold loans and is entitled to receive from payments with respect to interest on the sold loans, a servicing fee equal to 1.00% per annum on the remaining principal balance of each loan. MMC received certificates and contractual rights which will be recorded as mortgage related securities on the Consolidated Statements of Financial Condition, representing the interest differential, after payment of servicing and other fees, between the interest paid by the obligors of the sold loans and the yield on the sold notes. MMC may be required to repurchase loans that do not conform to the representations and warranties made by MMC in the securitization agreements. As of February 28, 1997, the gain on certain whole loan sales during the quarter has been recorded which approximates the gain on this securitization sale. 6. RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", (SFAS 125) which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. It requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value. SFAS 125 also requires that servicing assets be measured by allocating the carrying amount between the assets sold and retained interests based on their relative fair values at the date of transfer. Additionally, this statement requires that the servicing assets and liabilities be subsequently measured by (a) amortization in proportion to and over the period of estimated net servicing income or loss and (b) assessment for asset impairment or increased obligation based on their fair values. The statement requires the Company's existing and future excess servicing rights be measured at fair market value and reclassified as interest only strip receivables, carried as mortgage related securities, and accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As required by the statement, the Company adopted the new requirements effective January 1, 1997 and applied them prospectively. The book value of the Company's mortgage related securities approximates fair value. The adoption of SFAS 125 caused PEC to begin recognizing servicing rights and notes receivable held for sale, similar to the method currently used by MMC for mortgage servicing rights under SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of SFAS No. 65." This increases the gain on sale of notes at the time of sale and reduces future servicing fee income on PEC generated receivables sold after January 1, 1997. No material impact resulted from the implementation of SFAS 125. 7 10 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (unaudited) The following table reflects the components of mortgage related securities as required by SFAS 125, at February 28, 1997: Interest only receivables (formerly excess servicing rights).................................................. $15,438 Interest only strip securities............................. 7,300 Residual interest securities............................... 44,365 ------- Total mortgage related securities........................ $67,103 =======
All mortgage related securities are classified as trading securities and are recorded at their estimated fair value. Changes in the estimated fair values are recorded in current operations. The FASB issued SFAS No. 128, "Earnings per Share" (SFAS 128) in March 1997, effective for financial statements issued after December 15, 1997. The statement provides simplified standards for the computation and presentation of earnings per share (EPS), making EPS comparable to international standards. SFAS 128 requires dual presentation of "Basic" and "Diluted" EPS, by entities with complex capital structures, replacing "Primary" and "Fully Diluted" EPS under APB Opinion No. 15. Basic EPS excludes dilution from common stock equivalents and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from common stock equivalents, similar to fully diluted EPS, but uses only the average stock price during the period as part of the computation. Data utilized in calculating proforma earnings per share under the SFAS 128 statement are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ------------------------- FEBRUARY FEBRUARY FEBRUARY FEBRUARY 28, 29, 28, 29, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Basic: Net income................................ $ 3,781,000 $ 1,418,000 $ 4,947,000 $ 4,136,000 =========== =========== =========== =========== Weighted average number of common shares................................. 18,579,788 18,087,556 18,506,049 18,087,556 =========== =========== =========== =========== Diluted: Net income................................ $ 3,781,000 $ 1,418,000 $ 4,947,000 $ 4,136,000 =========== =========== =========== =========== Weighted average number of common shares and common share equivalents outstanding............................... 19,662,582 18,995,013 19,619,912 19,102,457 =========== =========== =========== ===========
8 11 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (unaudited) The following tables reconcile the net income applicable to common stockholders, basic and diluted shares, and EPS for the following periods:
THREE MONTHS ENDED THREE MONTHS ENDED FEBRUARY 28, 1997 FEBRUARY 29, 1996 ----------------------------------- ----------------------------------- PER-SHARE PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT ---------- ---------- --------- ---------- ---------- --------- Net income.................. $3,781,000 $1,478,000 Less: Preferred stock dividends................. -- 60,000 ---------- ---------- BASIC EPS Income applicable to common stockholders.............. 3,781,000 18,579,788 $0.20 1,418,000 18,087,556 $0.08 ===== ===== Effect of dilutive securities: Warrants.................. -- 806,653 -- 660,463 Stock options............. -- 276,141 -- 246,994 ---------- ---------- ---------- ---------- DILUTED EPS Income applicable to common stockholders and assumed conversions............... $3,781,000 19,662,582 $0.19 $1,418,000 18,995,013 $0.07 ========== ========== ===== ========== ========== =====
SIX MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28, 1997 FEBRUARY 29, 1996 ----------------------------------- ----------------------------------- PER-SHARE PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT ---------- ---------- --------- ---------- ---------- --------- Net income.................. $4,947,000 $4,276,000 Less: Preferred stock dividends................. -- 140,000 ---------- ---------- BASIC EPS Income available to common stockholders.............. 4,947,000 18,506,049 $0.27 4,136,000 18,087,556 $0.23 ===== ===== Effect of dilutive securities: Warrants.................. -- 841,497 -- 748,180 Stock options............. -- 272,366 -- 266,721 ---------- ---------- ---------- ---------- DILUTED EPS Income available to common stockholders and assumed conversions............... $4,947,000 19,619,912 $0.25 $4,136,000 19,102,457 $0.22 ========== ========== ===== ========== ========== =====
7. PAYMENTS TO ASSIGNORS In January 1997, the outstanding balance of payable to assignors of $2.6 million, including accrued interest of $45,000, was paid in full. The assignors are affiliates of certain officers and directors of the Company. See Note 3 of Notes to Consolidated Financial Statements for further discussion. Additionally, effective March 1, 1997, the assignors began receiving the first of 7 equal semi-annual payments of $1,429,000 plus interest related to the repayment of the subordinated debt. These payments are collateralized by a pledge of PEC's outstanding stock. See Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- "Company Liquidity" for additional information. 9 12 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (unaudited) 8. INCOME TAX PROVISION Based on a review of prior years' federal income tax returns, the Company has determined that an unrecognized net operating loss carryforward (NOL) exists for federal income tax purposes. The provision for federal income taxes has been reduced, due to partial utilization of a portion of this NOL. The complete analysis of the taxes is not yet complete, so the entire amount of the NOL has not yet been determined. The reduction for fiscal 1997 has been accomplished based on a portion of the NOL that has been identified. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, contained elsewhere herein. GENERAL The business of the Company is primarily the generation of consumer receivables by marketing timeshare interests, retail lots and land parcels, generating home improvement and equity loans, and servicing the related notes receivable and loans. The Company, through its subsidiary, PEC, provides financing to the purchasers of its timeshare interests and land. This financing is generally evidenced by notes secured by deeds of trust and mortgages as well as non-recourse installment sales contracts. These notes receivable are generally payable over a period of up to 10 years, bear interest at rates ranging from 0% to 16% and require equal monthly installments of principal and interest. MMC originates, purchases, sells, securitizes and services consumer loans consisting primarily of home improvement, home equity, and debt consolidation loans, generally secured by liens on improved property, through its network of correspondents and dealers. The conventional loans are purchased or originated by MMC in amounts up to a maximum of $75,000 with fixed rates and up to 25 year maturities, and are generally secured by a lien on the respective primary residence. The Title I Loans are purchased or originated by MMC in amounts up to a maximum of $25,000 with maturities up to 20 years. During the first quarter of fiscal 1997, MMC began offering conventional home improvement loans through its dealer division and debt consolidation loans to its borrowers through both its correspondent and dealer divisions. Since MMC began offering conventional loans in May 1996, conventional loans have accounted for an increasing portion of loan originations. 10 13 The following table sets forth certain data regarding loans originated, sold, securitized and serviced by MMC and PEC during the three months ended February 28, 1997 and February 29, 1996 (thousands of dollars):
THREE MONTHS ENDED ----------------------------------------- FEBRUARY 28, 1997 FEBRUARY 29, 1996 ------------------ ------------------ Loan Originations: Principal amount of loans: Correspondents: Title I........................................... $ 11,346 9.2% $ 14,317 45.9% Conventional...................................... 87,911 71.5 -- -- -------- ----- -------- ----- Total Correspondents................................... 99,257 80.7 14,317 45.9 -------- ----- -------- ----- Dealers: Title I........................................... 10,186 8.3 8,061 25.8 Conventional...................................... 1,817 1.5 -- -- -------- ----- -------- ----- Total Dealers.......................................... 12,003 9.8 8,061 25.8 -------- ----- -------- ----- Notes receivable additions through sales of timeshare interests and land................................... 11,742 9.5 8,823 28.3 -------- ----- -------- ----- Total.................................................. $123,002 100.0% $ 31,201 100.0% ======== ===== ======== ===== Number of Loans Originated: Correspondents: Title I........................................... 551 9.8% 997 39.5% Conventional...................................... 2,884 51.0 -- -- -------- ----- -------- ----- Total Correspondents................................... 3,435 60.8 997 39.5 -------- ----- -------- ----- Dealers: Title I........................................... 873 15.4 561 22.2 Conventional...................................... 83 1.5 -- -- -------- ----- -------- ----- Total Dealers.......................................... 956 16.9 561 22.2 -------- ----- -------- ----- Notes receivable additions through sales of timeshare interests and land................................... 1,260 22.3 967 38.3 -------- ----- -------- ----- Total.................................................. 5,651 100.0% 2,525 100.0% ======== ===== ======== ===== Loans Serviced at end of period (including notes securitized, sold to investors, and held for sale): Title I................................................ $237,633 49.2% $139,138 55.0% Conventional........................................... 130,736 27.0 -- -- Timeshare and land..................................... 114,964 23.8 113,916 45.0 -------- ----- -------- ----- Total.................................................. $483,333 100.0% $253,054 100.0% ======== ===== ======== =====
The Company has entered into financing arrangements with certain purchasers of timeshare interests and land whereby no stated interest rate is charged if the aggregate down payment is at least 50% of the purchase price and the balance is payable in 24 or fewer monthly payments. Notes receivable of $6.6 million and $6 million at February 28, 1997 and August 31, 1996, respectively, made under this arrangement are included in the table above. A valuation discount is established to provide for an effective interest rate (currently 10%) on notes receivable bearing no stated interest rate at the time of sale, and is applied to the principal balance and amortized over the term of the note. The effective interest rate is based upon the economic interest rate environment and similar industry data. Land sales as of February 28, 1997, exclude $14.3 million in sales not yet recognized under GAAP due to pending receipt of the requisite payment amounts. If ultimately recognized, revenues from these sales will be reduced by a related estimated provision for cancellations of $2.2 million, estimated deferred selling costs of $3.2 million and cost of sales of $1.2 million. 11 14 The Company is obligated under certain agreements for the sale of notes receivable and certain loan agreements to maintain various minimum net worth requirements. The most restrictive of these agreements requires PEC to maintain a minimum tangible net worth of $25 million and MMC to maintain a minimum tangible net worth requirement of $12.5 million plus any issuance of capital stock or other capital instruments since August 31, 1995 plus 50% of MMC's cumulative net income since May 1, 1996. At February 28, 1997, MMC's minimum tangible net worth requirement was $37.1 million. Additionally, MMC is required to maintain a minimum level of profitability of at least $500,000 per rolling 6 month period. At February 28, 1997, and August 31, 1996, receivables aggregating $48.5 million and $54.2 million, respectively, were pledged to lenders to collateralize certain of the Company's indebtedness. Receivables which qualify for the lenders' criteria may be pledged as collateral whether or not such receivables have been recognized for accounting purposes. On December 17, 1996, $67.3 million of loans were repurchased, securitized and sold by MMC, comprised of $36.7 million of Title I Loans and $30.6 million of conventional loans. Pursuant to this securitization, pass-through certificates evidencing interests in the pools of loans were sold in a public offering. MMC continues to service the sold loans and is entitled to receive from payments with respect to interest on the sold loans, a servicing fee equal to 1.00% per annum on the balance of each loan. MMC received certificates and contractual rights which have been recorded as mortgage related securities on the Consolidated Statements of Financial Condition, representing the interest differential, after payment of servicing and other fees, between the interest paid by the obligors of the sold loans and the yield on the sold certificates. MMC may be required to repurchase loans that do not conform to the representations and warranties made by MMC in the securitization agreements. See Note 5 of Notes to Consolidated Financial Statements for a description of a securitization which took place on March 10, 1997. MMC MMC recognizes revenue from the gain on sale of loans, unrealized gain on mortgage related securities, interest income and servicing income. Interest income, net, represents the interest received on loans in MMC's portfolio prior to their sale, net of interest paid under its debt agreements. MMC continues to service all loans sold to date. Net loan servicing income represents servicing fee income and other ancillary fees received for servicing loans less the amortization of capitalized mortgage servicing rights and excess servicing rights through January 1, 1997 which was the date of adoption of SFAS 125. Mortgage servicing rights and excess servicing rights were amortized over the estimated lives of the loans. The following tables set forth the principal balance of loans sold or securitized and related gain on sale data for the three and six months ended February 28, 1997 and February 29, 1996 (thousands of dollars):
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ MMC Loans Sold: Title I Loans............................ $ 22,277 $ 21,395 $ 55,665 $ 56,421 Conventional............................. 84,655 -- 111,776 -- ------- ------ ------- ------ Total................................. $106,932 $ 21,395 $167,441 $ 56,421 ======= ====== ======= ====== Gain on sale of loans...................... $ 10,428 $ 4,845 $ 20,029 $ 10,810 ======= ====== ======= ====== Gain on sale of loans as a percentage of principal balance of loans sold.......... 9.8% 22.6% 12.0% 19.2% ======= ====== ======= ====== Net unrealized gain on mortgage related securities............................... $ 3,143 $ -- $ 2,908 $ -- ======= ====== ======= ====== Gain on sale of loans plus net unrealized gain on mortgage related securities as a percentage of principal balance of loans sold..................................... 12.7% 22.6% 13.7% 19.2% ======= ====== ======= ======
12 15 The combined gain on sale and net unrealized gain on mortgage related securities for the 3 month period ended February 28, 1997, was $15,220,000, or 14.23% of loans sold during the period, before adjustments totaling $1,649,000 relating to FHA Title I Loans originated prior to March 1, 1996. The adjustment was approximately 1.1% of the original principal balances of such loans. MMC sells its loans through whole loan sales to third party purchasers, retaining the right to service the loans and to receive any amounts in excess of the guaranteed yield to the purchasers. In addition, MMC sells loans through securitizations. Certain of the regular interests of the related securitizations are sold, with the interest only and residual interest securities retained by MMC. As a holder of residual interest securities, the Company is entitled to receive certain excess cash flows. These excess cash flows are calculated as the difference between (a) principal and interest paid by borrowers and (b) the sum of (i) pass-through interest and principal to be paid to the holders of the regular securities and interest only securities, (ii) trustee fees, (iii) third-party credit enhancement and FHA insurance fees, (iv) servicing fees and (v) estimated loan pool losses. The Company's right to receive the excess of cash flows is subject to the satisfaction of certain overcollateralization or reserve requirements which are specific to each securitization and are used as a means of credit enhancement. Delinquencies -- The following table sets forth the delinquency and Title I insurance claims experience of loans serviced by MMC at the dates indicated (thousands of dollars):
FEBRUARY 28, AUGUST 31, 1997 1996 ------------ ---------- Delinquency period(1) 31-60 days past due................................. 2.46% 2.17% 61-90 days past due................................. 1.06 0.85 91 days and over past due(2)........................ 3.86 4.53 91 days and over past due, net of claims filed(3)... 2.03 1.94 Outstanding claims filed with HUD(4).................. 1.83 2.59 Outstanding number of Title I insurance claims........ 394 255 Total servicing portfolio............................. $368,368 $ 214,189 Title I Loans serviced................................ 237,633 202,766 Amount of FHA insurance available(5).................. 23,342 21,205 Amount of FHA insurance available as a percentage of Title I Loans serviced.............................. 9.82%(5) 10.46% Losses on liquidated loans(6)......................... $ 58 $ 32
- ------------------------------------------------------------------------------ (1) Represents the dollar amount of delinquent loans as a percentage of the total dollar amount of loans serviced by MMC (including loans owned by MMC) as of the dates indicated. (2) During the year ended August 31, 1996 and the quarter ended February 28, 1997, the processing and payment of claims filed with HUD was delayed. (3) Represents the dollar amount of delinquent loans net of delinquent Title I Loans for which claims have been filed with HUD and payment is pending as a percentage of the total dollar amount of total loans serviced by MMC (including loans owned by MMC) as of the dates indicated. (4) Represents the dollar amount of delinquent Title I Loans for which claims have been filed with HUD and payment is pending as a percentage of the total dollar amount of total loans serviced by MMC (including loans owned by MMC) as of the dates indicated. (5) If all claims filed with HUD had been processed as of February 28, 1997, the amount of FHA insurance available would have been reduced to $16.9 million, which as a percentage of Title I Loans serviced would have been 7.3%. (6) On Title I Loans, a loss is recognized upon receipt of payment of a claim or final rejection thereof. Claims paid in a period may relate to a claim filed in an earlier period. Since MMC commenced its Title I lending operations in March 1994, there has been no final rejection of a claim by the FHA. Aggregate losses on liquidated Title I Loans relates to 290 Title I insurance claims made by MMC, as servicer, since 13 16 commencing operations through February 28, 1997. Losses on Title I Loans liquidated will increase as the balance of the claims are processed by HUD. MMC has received an average payment from HUD equal to 90% of the outstanding principal balance of such Title I Loans, plus appropriate interest and costs. Pooling and servicing agreements and sales and servicing agreements relating to MMC's securitization transactions contain provisions with respect to the maximum permitted loan delinquency rates and loan default rates, which, if exceeded, would allow the termination of MMC's right to service the related loans. At February 28, 1997, the rolling three month average annual default rate on the pool of loans sold in the March 1996 securitization transaction, which exceeded 6.5%, the permitted limit set forth in the related pooling and servicing agreement. Accordingly, this condition could result in the termination of MMC's servicing rights with respect to that pool of loans by the trustee, the master servicer or the insurance company providing credit enhancement for that transaction. Although the insurance company has indicated that it, and to its knowledge, the trustee and the master servicer have no present intention to terminate MMC's servicing rights related to that pool of loans, no assurance can be given that one or more of such parties will not exercise its right to terminate. In the event of such termination, there would be a material adverse effect on the valuation of the Company's mortgage servicing rights and the results of operations in the amount of such mortgage servicing rights ($1.2 million before tax at February 28, 1997) on the date of termination. The pooling and servicing agreements and sales and servicing agreements also require that certain delinquency and default rates not exceed certain thresholds. When these thresholds are exceeded, higher levels of overcollaterialization are required which can cause a delay in cash receipts to the residual interest holders, causing an adverse valuation adjustment to the residual security. Delinquencies of loans serviced by MMC have also decreased the amount of loan servicing income recorded during the 6 months ended February 28, 1997, as MMC's loan servicing income has been reduced by the amount of interest advanced to the owners of these loans. Delinquencies have increased during the six months ended February 28, 1997 from the August 31, 1996 levels. Since MMC began originating loans in 1994, an increasing level of delinquencies appear as expected on loans less than two years old. After this initial period, the level of delinquencies is not anticipated to increase. Management has transferred its entire MMC loan collection function to Atlanta, Georgia to improve efficiency and coordination of collection efforts and to ensure consistent collection strategies with borrowers. MMC's loan collection functions are organized into two areas of operations: routine collections and management of nonperforming loans. Routine collection personnel are responsible for collecting loan payments that are less than 60 days contractually past due and providing prompt and accurate responses to all customer inquiries and complaints. Borrowers are contacted on the due date for each of the first six payments in order to encourage continued prompt payment. Generally, after six months of seasoning, collection activity will commence if the loan payment has not been made within five days of the due date. Borrowers usually will be contacted by telephone at least once every five days and also by written correspondence before the loan becomes 60 days delinquent. With respect to loan payments that are less than 60 days late, routine collection personnel utilize a system of mailed notices and telephonic conferences for reminding borrowers of late payments and encouraging borrowers to bring their accounts current. Installment payment invoices and return envelopes are mailed to each borrower on a monthly basis. Once a loan becomes 30 days past due, a collection supervisor generally analyzes the account to determine the appropriate course of remedial action. On or about the 45th day of delinquency, the supervisor determines if the property needs immediate inspection to determine if it is occupied or vacant. Depending upon the circumstances surrounding the delinquent account, a temporary suspension of payments or a repayment plan to return the account to current status may be authorized. It is MMC's policy to work with the delinquent customer to resolve the past due balance before Title I claim processing or legal action is initiated. Nonperforming loan management personnel are responsible for collection of severely delinquent loan payments (over 60 days late), filing Title I insurance claims or initiating legal action for foreclosure and recovery. Collection and Title I insurance claim personnel are responsible for collecting delinquent loan 14 17 payments and seeking to mitigate losses by providing various alternatives for further actions, including modifications, managing Title I insurance claims, and utilizing a claim management system designed to track insurance claims for Title I Loans, so that all required conditions precedent to claim perfection are met. A foreclosure coordinator will review all previous collection activity for conventional loans, evaluate the lien and equity position and obtain any additional information as necessary. Foreclosure regulations and practices and the rights of the owner in default vary from state to state, but generally procedures may be initiated if: (i) the loan is 90 days (120 days under California law) or more delinquent; (ii) a notice of default on a senior lien is received; or (iii) MMC discovers circumstances indicating potential for loss exposure. PEC PEC recognizes revenue primarily from sales of timeshare interests and land sales in resort areas, gain on sale of receivables and interest income. PEC also 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 eight to ten months from closing, and sales of timeshare interests typically meet these requirements at the time of sale. The sales price, less a provision for cancellation, is recorded as revenue and the allocated cost related to such net revenue of the timeshare interest or land parcel is recorded as expense in the year that revenue is recognized. When revenue related to land sales is recognized, the portion of the sales price attributable to uncompleted required improvements, if any, is deferred. Notes receivable with payment delinquencies of 90 days or more have been considered in determining the allowance for cancellation. 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 year the revenue is recognized is accounted for as a reversal of the revenue. Cancellation of a note receivable subsequent to the year the revenue was recognized is charged to the allowance for cancellation. Interest only strip receivables, which were formerly named excess servicing rights, are included in mortgage related securities, and are carried at fair market value. 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 generally retains the servicing rights and participation in certain cash flows from the sold notes receivable. PEC generally sells its notes receivable at par value. RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO THREE MONTHS ENDED FEBRUARY 29, 1996 MMC MMC originated $111.3 million of loans during the 3 months ended February 28, 1997 compared to $22.4 million of loans during the 3 months ended February 29, 1996, an increase of 397.2%. The increase is a result of the overall growth in MMC's business, including an increase in the number of active Correspondents and an increase in the number of states served. At February 28, 1997, MMC had approximately 484 active Correspondents and 467 active Dealers, compared to approximately 212 active Correspondents and 469 active Dealers at February 29, 1996. Of the $111.3 million of loans originated in the 3 months ended February 28, 1997, $89.7 million were conventional loans. MMC did not originate conventional loans during the three months ended February 29, 1996. Total revenues increased 156.6% to $14.7 million for the 3 months ended February 28, 1997 from $5.7 million for the 3 months ended February 29, 1996. The increase was primarily the result of the increased volume of loans originated and the gain on sale of such loans. 15 18 Loan servicing income decreased 35.6% to $560,000 for the 3 months ended February 28, 1997 from $870,000 for the 3 months ended February 29, 1996. The decrease was primarily the result of increased amortization of excess servicing rights and mortgage servicing rights, and interest advances and reduced servicing fees related to $27.2 million in delinquencies at February 28, 1997 compared to $9 million at February 29, 1996. Interest income on loans held for sale and mortgage related securities, net of interest expense, increased to $526,000 during the 3 months ended February 28, 1997 from a negative $3,000 during the 3 months ended February 29, 1996. The increase was primarily the result of the increase in the average size of the portfolio of loans held for sale and the increase in the mortgage related securities portfolio to $64.5 million at February 28, 1997 from $0 at February 29, 1996. The provision for credit losses increased to $3.8 million for the 3 months ended February 28, 1997 from $200,000 for the 3 months ended February 29, 1996 as a result of the increased ratio of conventional loans to Title I Loans. The increase in the provision was directly related to the increase in volume and mix of loans originated in the three months ended February 28, 1997 compared to the three months ended February 29, 1996. The provision for credit losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers' ability to repay, collateral values, and estimated FHA insurance recoveries on loans originated and sold. As MMC increased its conventional loan originations as compared to Title I Loan originations, the provision for credit losses as a percentage of loans originated increased due to the greater risk of loss associated with conventional loans, which are not FHA insured. Total general and administrative expenses increased 99.2% to $5.2 million for the 3 months ended February 28, 1997 compared to $2.6 million for the 3 months ended February 29, 1996. The increase was primarily a result of increased payroll related to the hiring of additional underwriting, loan processing, administrative, loan quality control and other personnel as a result of the expansion of MMC's business and costs related to the opening of additional offices. Payroll and benefits expense increased 114% to $2.5 million for the 3 months ended February 28, 1997 from $1.2 million for the 3 months ended February 29, 1996. The number of employees increased to 277 at February 28, 1997 from 147 at February 29, 1996, due to increased staff necessary to support the business expansion and improve quality control. Commissions and selling expenses increased 28.9% to $651,000 for the 3 months ended February 28, 1997 from $505,000 for the 3 months ended February 29, 1996 while loan originations increased by $88.9 million to $111.3 million during the period. The sales network has now expanded to substantially all states, adding new personnel and offices to further the loan origination growth strategy. Professional services increased to $195,000 for the 3 months ended February 28, 1997 from $41,000 for the 3 months ended February 29, 1996 due primarily to increased audit and legal fees as MMC expands its operations. FHA insurance decreased 27.2% to $75,000 for the 3 months ended February 28, 1997 from $103,000 for the 3 months ended February 29, 1996 due primarily to a decrease in Title I Loan originations. Other general and administrative expenses increased 78.7% to $604,000 for the 3 months ended February 28, 1997 from $338,000 for the 3 months ended February 29, 1996 due primarily to added expenses related to the ongoing expansion of facilities and increased communications costs. Income before income taxes increased to $5.4 million for the 3 months ended February 28, 1997 from $2.6 million for the 3 months ended February 29, 1996. As a result of the foregoing, MMC's net income increased 116.2% to $3.4 million for the 3 months ended February 28, 1997 from $1.6 million for the 3 months ended February 29, 1996. 16 19 PEC Total revenues for PEC increased 16.1% or $2.2 million to $15.8 million during the 3 months ended February 28, 1997 compared to $13.6 million for the 3 months ended February 29, 1996 primarily due to an increase in net sales of timeshares of $2.1 million as PEC continues to focus more on timeshare sales, partially offset by a decrease in net land sales of $1.3 million. Additionally, income from incidental operations, financial income, gain on sale of notes receivable, and interest income increased during the second quarter of fiscal 1997. Timeshare interests and land sales, net, increased to $12 million in the 3 months ended February 28, 1997 from $11.2 million in the 3 months ended February 29, 1996, or 7.1%. Gross sales of timeshare interests increased to $9.5 million in the 3 months ended February 28, 1997 from $6.4 million in the 3 months ended February 29, 1996, an increase of 47%. Net sales of timeshare interests increased to $7.6 million in the 3 months ended February 28, 1997 from $5.5 million in the 3 months ended February 29, 1996, an increase of 38.1%. The provision for cancellation represented 20.1% and 14.9% of gross sales of timeshare interests for the 3 months ended February 28, 1997 and February 29, 1996, respectively. The increase in the provision for cancellations was primarily due to an increase of cancellations during the current quarter. During the first quarter of fiscal 1997, the Aloha Bay resort in Indian Shores, Florida was completed and 81 timeshare interests in that resort were sold as of February 28, 1997. Gross sales of land decreased to $5.1 million in the 3 months ended February 28, 1997 from $6.6 million in the 3 months ended February 29, 1996, a decrease of 21.8%. Net sales of land decreased to $4.4 million in the 3 months ended February 28, 1997 from $5.7 million in the 3 months ended February 29, 1996, a decrease of 22.8%. The provision for cancellation represented 14.4% and 13.3% of gross sales of land for the 3 months ended February 28, 1997 and February 29, 1996, respectively. The increase in the provision for cancellation was primarily due to an increase in cancellations, resulting in a slightly higher allowance requirement for the quarter. The decrease in land sales is the result of PEC's emphasis shift, as part of its strategic plan, from sales of land to sales of timeshare interests due primarily to its diminishing inventory of land available for sale. Gain on sale of notes receivable increased to $441,000 from $40,000 for the 3 months ended February 28, 1997 compared to February 29, 1996 due to loan sales of $5.4 million during the second quarter of 1997 while no similar sale transactions occurred in the second quarter of 1996. There were normal post sale adjustments of $40,000 in the 1996 period. PEC's interest income increased slightly to $1.7 million in the 3 months ended February 28, 1997 from $1.5 million for the 3 months ended February 29, 1996 primarily due to a relatively flat interest rate environment combined with a slight increase in the average balance of notes receivable outstanding during the current quarter. Financial income increased to $770,000 in the 3 months ended February 28, 1997 from $225,000 in the 3 months ended February 29, 1996, an increase of 242.2%. The increase is primarily due to growth in the serviced loan portfolio. Revenues from incidental operations increased to $717,000 in the 3 months ended February 28, 1997 from $488,000 in the 3 months ended February 29, 1996, an increase of 46.9%, primarily due to an increase in the amount of utility fees and an increase in golf course revenues. As a result of the foregoing, total PEC revenues increased to $15.8 million during the 3 months ended February 28, 1997 from $13.6 million during the 3 months ended February 29, 1996, or 16.1%. Total costs and expenses increased to $16.2 million for the 3 months ended February 28, 1997 from $13.3 million for the 3 months ended February 29, 1996, an increase of 21.8%. The increase resulted primarily from an increase in commission and selling expenses to $8.4 million from $7.2 million, an increase of 16%; an increase in general and administrative costs to $3.3 million from $2.6 million, an increase of 26.9%; an increase in interest expense of $412,000 to $1.7 million, or 31%, due to a higher level of borrowings; and an increase in direct costs of timeshare interest sales to $1.2 million from $837,000, an increase of 41.9%, resulting from increased timeshare interest sales during the current quarter. PEC's selling expenses increased primarily as a result of costs relating to the establishment of new marketing programs during the first and second quarters of 17 20 1997, and strategies designed to increase sales of timeshare interests, market research costs, additional staffing, increased advertising costs, and additional sales offices. The increase in general and administrative costs is primarily due to increases in payroll related to hiring of additional administrative personnel, and maintenance fees and owners' association costs related to a higher level of unsold timeshare inventory. As a percentage of gross sales of timeshare interests and land, commission and selling expenses relating thereto increased to 57.3% in the 3 months ended February 28, 1997 from 55.5% in the 3 months ended February 29, 1996, and cost of sales increased to 11% in the 3 months ended February 28, 1997 from 10.7% in the 3 months ended February 29, 1996. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Depreciation expense increased to $454,000 in the 3 months ended February 28, 1997 from $347,000 in the 3 months ended February 29, 1996, an increase of 30.8%. The increase is a result of additions made to property and equipment. Interest expense increased to $1.7 million in the 3 months ended February 28, 1997 from $1.3 million in the 3 months ended February 29, 1996, an increase of 31%. The increase is a result of an increased outstanding balance of notes payable from $52.7 million at February 29, 1996 to $69.7 million at February 28, 1997. Income before income taxes decreased to a loss of $414,000 for the 3 months ended February 28, 1997 from income of $292,000 for the three months ended February 29, 1996. As a result of the foregoing, PEC's net loss amounted to $273,000 for the 3 months ended February 28, 1997 compared to net income of $193,000 for the 3 months ended February 29, 1996. Company Net income applicable to common stock increased $2.4 million to $3.8 million for the 3 months ended February 28, 1997 from $1.4 million for the 3 months ended February 29, 1996 due principally to an increase of $1.8 million in MMC net income, a reduction of income tax expense of $1.3 million due to utilization of a NOL, offset partially by a decrease of $706,000 in PEC pre-tax income as a result of increased expenses related to the expansion of selling operations. See prior discussion for MMC and PEC. Total costs and expenses during the 3 months ended February 28, 1997 were $27.9 million, an increase of 64.7% over $16.9 million in the 3 months ended February 29, 1996. Commissions and selling expenses increased 16% to $8.4 million for the 3 months ended February 28, 1997 compared to $7.2 million the 3 months ended February 29, 1996 due primarily to the expansion of timeshare marketing efforts by PEC. General and administrative expenses increased 56.6% to $9.1 million for the 3 months ended February 28, 1997 compared to $5.8 million for the period ended February 29, 1996 primarily due to the expansion of the operating staff of MMC. Provision for credit losses increased $3.6 million due to the increase in the ratio of conventional loan originations by MMC compared to Title I originations. Additionally, Mego Financial incurred interest expense on amounts payable to assignors and continues to incur interest on subordinated debt. Total general and administrative expenses for Mego Financial (parent only) were primarily comprised of professional services, external financial reporting expenses, and regulatory and other public company corporate expenses. Based on a review of prior years' federal income tax returns, the Company has determined that an unrecognized net operating loss carry forward (NOL) exists for federal income tax purposes. The provision for federal income taxes has been reduced, due to partial utilization of a portion of this NOL. The complete analysis of the taxes is not yet complete, so the entire amount of the NOL has not yet been determined. The reduction for fiscal 1997 has been accomplished based on a portion of the NOL that has been identified. See Note 8 of Notes to Consolidated Financial Statements. 18 21 RESULTS OF OPERATIONS SIX MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO SIX MONTHS ENDED FEBRUARY 29, 1996 MMC MMC originated $173.7 million of loans during the 6 months ended February 28, 1997 compared to $56.1 million of loans during the 6 months ended February 29, 1996, an increase of 209.7%. The increase is a result of the overall growth in MMC's business, including an increase in the number of active Correspondents and an increase in the number of states served. At February 28, 1997, MMC had approximately 484 active Correspondents and 467 active Dealers, compared to approximately 212 active Correspondents and 469 active Dealers at February 29, 1996. Of the $173.7 million of loans originated in the 6 months ended February 28, 1997, $120.8 million were conventional loans. MMC did not originate conventional loans during the six months ended February 29, 1996. Total revenues increased 96.9% to $25 million for the 6 months ended February 28, 1997 from $12.7 million for the 6 months ended February 29, 1996. The increase was primarily the result of the increased volume of loans originated and the gain on sale of such loans. Loan servicing income decreased 32% to $1.2 million for the 6 months ended February 28, 1997 from $1.8 million for the 6 months ended February 29, 1996. The decrease was primarily the result of increased amortization of excess servicing rights and mortgage servicing rights, and interest advances and reduced servicing fees related to $27.2 million in delinquencies at February 28, 1997 compared to $9 million at February 29, 1996. Interest income on loans held for sale and mortgage related securities, net of interest expense, increased 552.6% to $881,000 during the 6 months ended February 28, 1997 from $135,000 during the 6 months ended February 29, 1996. The increase was primarily the result of the increase in the average size of the portfolio of loans held for sale, and the increased mortgage related securities portfolio. The provision for credit losses increased to $5.5 million for the 6 months ended February 28, 1997 from $497,000 for the 6 months ended February 29, 1996. The increase in the provision was directly related to the increase in volume and mix of loans originated in the six months ended February 28, 1997 compared to the six months ended February 29, 1996 from the increased ratio of conventional loans to Title I Loans. The provision for credit losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers' ability to repay, collateral values, and estimated FHA insurance recoveries on loans originated and sold. As MMC increased its conventional loan originations as compared to Title I Loan originations, the provision for credit losses as a percentage of loans originated increased due to the greater risk of loss associated with conventional loans, which are not FHA insured. Total general and administrative expenses increased 81.5% to $9.6 million for the 6 months ended February 28, 1997 compared to $5.3 million for the 6 months ended February 29, 1996. The increase was primarily a result of increased payroll related to the hiring of additional underwriting, loan processing, administrative, loan quality control and other personnel as a result of the expansion of MMC's business and costs related to the opening of additional offices. Payroll and benefits expense increased 91.6% to $4.3 million for the 6 months ended February 28, 1997 from $2.3 million for the 6 months ended February 29, 1996. The number of employees increased to 277 at February 28, 1997 from 147 at February 29, 1996, due to increased staff necessary to support the business expansion and improve quality control. Commissions and selling expenses increased 21.3% to $1.2 million for the 6 months ended February 28, 1997 from $1 million for the 6 months ended February 29, 1996 while loan originations increased by $117.6 million or 209.7% to $173.7 million at February 28, 1997. The sales network expanded to substantially all states, adding new personnel and offices to further the loan origination growth strategy. Professional services increased 111.7% to $307,000 for the 6 months ended February 28, 1997 from $145,000 for the 6 months ended February 29, 1996 due primarily to increased audit and legal fees attributable to continued growth. 19 22 FHA insurance decreased 16.8% to $278,000 for the 6 months ended February 28, 1997 from $334,000 for the 6 months ended February 29, 1996 due primarily to a decrease in Title I Loan originations. Other general and administrative expenses increased 102.6% to $1.4 million for the 6 months ended February 28, 1997 from $685,000 for the 6 months ended February 29, 1996 due primarily to increased expenses related to the ongoing expansion of facilities and increased communications costs. Income before income taxes increased to $9.5 million for the 6 months ended February 28, 1997 from $6.4 million for the 6 months ended February 29, 1996. As a result of the foregoing, MMC's net income increased 51.3% to $5.9 million for the 6 months ended February 28, 1997 from $3.9 million for the 6 months ended February 29, 1996. PEC Total revenues for PEC increased 6% or $1.7 million to $30.4 million during the 6 months ended February 28, 1997 from $28.7 million for the 6 months ended February 29, 1996 mostly due to an increase in financial income, interest income, incidental operations and gain on sale of notes receivable. Timeshare interests and land sales, net, decreased slightly to $22.9 million in the 6 months ended February 28, 1997 from $23 million in the 6 months ended February 29, 1996. Gross sales of timeshare interests increased to $18.9 million in the 6 months ended February 28, 1997 from $15.1 million in the 6 months ended February 29, 1996, an increase of 25%. Net sales of timeshare interests increased to $15.1 million in the 6 months ended February 28, 1997 from $12.2 million in the 6 months ended February 29, 1996, an increase of 24.1%. The provision for cancellation represented 20% and 19.4% of gross sales of timeshare interests for the 6 months ended February 28, 1997 and February 29, 1996, respectively. During the first quarter of fiscal 1997, the Aloha Bay resort in Indian Shores, Florida was completed and 81 timeshare interests in that resort were sold as of February 28, 1997. Gross sales of land decreased to $8.9 million in the 6 months ended February 28, 1997 from $12.8 million in the 6 months ended February 29, 1996, a decrease of 30.1%. Net sales of land decreased to $7.8 million in the 6 months ended February 28, 1997 from $10.8 million in the 6 months ended February 29, 1996, a decrease of 27.7%. The provision for cancellation represented 13% and 15.9% of gross sales of land for the 6 months ended February 28, 1997 and February 29, 1996, respectively. The decrease in the provision for cancellation for land was primarily due to a decrease in cancellations, resulting in a lower allowance requirement. The decrease in land sales is the result of PEC shifting its emphasis as part of its strategic plan from sales of land, to sales of timeshare interests due primarily to its diminishing inventory of land available for sale. Gain on sale of notes receivable increased to $890,000 for the 6 months ended February 28, 1997 from $471,000 in the 6 months ended February 29, 1996, an increase of 89%. The increase is due to loan sales of $10.1 million for the 6 months ended February 28, 1997 compared to loan sales of $6.7 million for the 6 months ended February 29, 1996. PEC's interest income increased slightly to $3.3 million in the 6 months ended February 28, 1997 from $3 million for the 6 months ended February 29, 1996 primarily due to a relatively flat interest rate environment combined with a slight increase in the average balance of notes receivable outstanding. Financial income increased to $1.3 million in the 6 months ended February 28, 1997 from $692,000 in the 6 months ended February 29, 1996, an increase of 92.1%. The increase is primarily due to increased loan volume in the serviced loan portfolio. Revenues from incidental operations increased slightly to $1.4 million in the 6 months ended February 28, 1997 from $1.2 million in the 6 months ended February 29, 1996, an increase of 17.1%, primarily due to the increased amount of utility fees and an increase in golf course revenues. As a result of the foregoing, total PEC revenues increased to $30.4 million during the 6 months ended February 28, 1997 from $28.7 million during the 6 months ended February 29, 1996. 20 23 Total costs and expenses increased to $31.7 million for the 6 months ended February 28, 1997 from $26.9 million for the 6 months ended February 29, 1996, an increase of 17.9%. The increase resulted primarily from an increase in commission and selling expenses to $16.1 million from $14.5 million, an increase of 10.5%; an increase in general and administrative costs to $6.6 million from $5.1 million, an increase of 29%; and an increase in interest expense to $3.5 million from $2.5 million, an increase of 37.7%. PEC's selling expenses increased primarily as a result of costs relating to the establishment of new marketing programs and strategies designed to increase sales of timeshare interests, market research costs, additional staffing, increased advertising costs, and additional sales offices. The increase in general and administrative costs is primarily due to increases in payroll related to hiring of additional administrative personnel, and maintenance fees and owners' association costs related to a higher level of unsold timeshare inventory. As a percentage of gross sales of timeshare interests and land, commission and selling expenses relating thereto increased to 57.6% in the 6 months ended February 28, 1997 from 52% in the 6 months ended February 29, 1996, and cost of sales increased to 11.7% in the 6 months ended February 28, 1997 from 10.4% in the 6 months ended February 29, 1996. Sales prices of timeshare interests are typically lower than those of land while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Depreciation expense increased to $933,000 in the 6 months ended February 28, 1997 from $701,000 in the 6 months ended February 29, 1996, an increase of 33.1%. The increase is a result of the additions made to property and equipment. Interest expense increased to $3.5 million in the 6 months ended February 28, 1997 from $2.5 million in the 6 months ended February 29, 1996, an increase of 37.7%. The increase is a result of an increased outstanding balance of notes payable from $52.7 million at February 29, 1996 to $69.7 million at February 28, 1997. Income before income taxes decreased to a loss of $1.3 million for the 6 months ended February 28, 1997 from income of $1.8 million for the 6 months ended February 29, 1996. As a result of the foregoing, PEC's net loss amounted to $856,000 for the 6 months ended February 28, 1997 compared to net income of $1.2 million for the 6 months ended February 29, 1996. Company Net income applicable to common stock increased $811,000 to $4.9 million in the 6 months ended February 28, 1997 from $4.1 million in the 6 months ended February 29, 1996 due to a decrease in the federal tax provision for Mego Financial. See prior discussion for MMC and PEC and Note 8 of Notes to Consolidated Financial Statements. Total costs and expenses during the 6 months ended February 28, 1997 were $50.6 million, an increase of 46.7% over $34.5 million in the 6 months ended February 29, 1996. Commissions and selling expenses increased 10.5% to $16.1 million for the 6 months ended February 28, 1997 from $14.5 million in the 6 months ended February 29, 1996 due primarily to the expansion of timeshare marketing efforts by PEC. General and administrative expenses increased 45.5% to $16.7 million for the 6 months ended February 28, 1997, compared to $11.5 million for the 6 months ending February 29, 1996 primarily due to the expansion of the operating staff of MMC. Additionally, Mego Financial incurred interest expense on amounts payable to assignors and continues to incur interest on subordinated debt. Total general and administrative expenses for Mego Financial (parent only) were primarily comprised of professional services, external financial reporting expenses, regulatory and other public company corporate expenses. Based on a review of prior years' federal income tax returns, the Company has determined that a NOL exists for federal income tax purposes. The provision for federal income taxes has been reduced, due to partial utilization of a portion of this NOL. The complete analysis of the taxes is not yet completed, so the entire amount of the NOL has not yet been determined. The reduction for fiscal 1997 has been accomplished based on a portion of the NOL that has been identified. See Note 8 of Notes to Consolidated Financial Statements. 21 24 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company was $19.2 million at February 28, 1997 compared to $3.2 million at August 31, 1996. The increase was primarily due to proceeds received from the common stock and debt offerings of MMC. The Company's principal cash requirements relate to loan originations, the acquisition of timeshare properties and land, and the payment of commissions and selling expenses in connection with timeshare and land sales. MMC and PEC each require continued access to sources of debt financing and sales in the secondary market of loans and receivables, respectively. MMC -- Negative Cash Flow As a result of the substantial growth in loan originations, MMC has operated since March 1994, and expects to continue to operate for the foreseeable future, on a negative operating cash flow basis. During the 6 months ended February 28, 1997, MMC operated on a negative operating cash flow basis due primarily to an increase in loans originated and sold, using $28.4 million in operations that was funded primarily from borrowings and the proceeds of its stock and debt public offerings. In connection with whole loan sales and securitizations, MMC recognizes a gain on sale of the loans upon the closing of the transaction and the delivery of the loans, but does not receive the cash representing such gain until it receives the excess servicing spread, which is payable over the actual life of the loans sold. MMC incurs significant expenses in connection with securitizations and incurs tax liabilities as a result of the gain on sale. MMC must maintain external sources of cash to fund its operations and pay its taxes and therefore must maintain warehouse lines of credit and other external funding sources. If the capital sources of MMC were to decrease, the rate of growth of MMC would be negatively affected. In November 1996, MMC issued 2,300,000 shares of its common stock in an underwritten public offering at $10.00 per share. As a result of this transaction, the Company's ownership in MMC declined from 100% at August 31, 1996 to 81.3%. The Company continues to have voting control on all matters submitted to stockholders of MMC, including the election of directors and approval of extraordinary corporate transactions. Concurrently with the common stock offering, MMC issued $40 million of 12.5% Senior Subordinated Notes due in 2001 in an underwritten public offering. MMC used approximately $13.9 million of the aggregate net proceeds received from the offerings to repay amounts due to Mego Financial and an affiliate and approximately $21.5 million to reduce the amounts outstanding under MMC's warehouse and revolving lines of credit. The revolving line of credit has been repaid. Additionally, MMC repaid $3 million under a repurchase agreement. Funds of $2.7 million received by Mego Financial and PEC are being used in their respective operations and by MMC to provide capital to originate and securitize loans. The pooling and servicing agreements and sale and servicing agreements relating to MMC's securitizations require MMC to build over-collateralization levels through retention within each securitization trust of excess servicing distributions and application thereof to reduce the principal balances of the senior interests issued by the related trust or cover interest shortfalls. This retention causes the aggregate principal amount of the loans in the related pool to exceed the aggregate principal balance of the outstanding investor certificates. Such over-collateralization amounts serve as credit enhancement for the related trust and therefore are available to absorb losses realized on loans held by such trust. MMC continues to be subject to the risks of default and foreclosure following the sale of loans through securitizations to the extent excess servicing distributions are required to be retained or applied to reduce principal or cover interest shortfalls from time to time. Such retained amounts are predetermined by the entity insuring the related senior interests and are a condition to obtaining insurance and an AAA/Aaa rating thereon. In addition, such retention delays cash distributions that otherwise would flow to MMC through its retained interests, thereby adversely affecting the flow of cash to MMC. MMC's cash requirements arise from loan originations, payments of operating and interest expenses and deposits to reserve accounts related to loan sale transactions. Loan originations are initially funded principally through MMC's $20 million warehouse line of credit pending the sale of loans in the secondary market. Substantially all of the loans originated by MMC are sold. Net cash used in MMC's operating activities was funded primarily from the reinvestment of proceeds from the sale of loans in the secondary market totaling 22 25 approximately $167.4 million for the 6 months ended February 28, 1997. The loan sale transactions required the subordination of certain cash flows payable to MMC to the payment of scheduled principal and interest due to the loan purchasers. In connection with certain of such sale transactions, a portion of amounts payable to MMC from the excess interest spread is required to be maintained in a reserve account to the extent of the subordination requirements. The subordination requirements generally provide that the excess interest spread is payable to the reserve account until a specified percentage of the principal balances of the sold loans is accumulated therein. Excess interest spread payable to MMC is subject to being utilized first to replenish cash paid from the reserve account to fund shortfalls in collections of interest from borrowers who default on the payments on the loans until MMC's deposits into the reserve account equal the specified percentage. The excess interest required to be deposited and maintained in the respective reserve accounts is not available to support the cash flow requirements of MMC. At February 28, 1997, amounts on deposit in such reserve accounts totaled $5.6 million. Adequate credit facilities and other sources of funding, including the ability of MMC to sell loans in the secondary market, are essential for the continuation of MMC's loan origination operations. At February 28, 1997, MMC had a $20 million warehouse line of credit (warehouse line) for the financing of loan originations which expires in August 1997. MMC is presently negotiating a $60 million warehouse line from 3 banking institutions to replace this existing warehouse line. There is no assurance that the proposed warehouse line will be obtained. At February 28, 1997, $9.3 million was outstanding under the warehouse line and $10.7 million was available due to the repayment of the outstanding balance from the proceeds of the MMC common stock and debt offerings. The warehouse line bears interest at the prime rate plus 1% per year and is secured by loans prior to sale. The agreement with the lender requires MMC to maintain a minimum tangible net worth of $12.5 million plus any issuance of capital stock or other capital instruments since August 31, 1995, plus 50% of MMC's cumulative net income after May 1, 1996, and a minimum level of profitability of at least $500,000 per rolling 6 month period. At February 28, 1997, MMC's minimum tangible net worth requirement was $37.1 million and its tangible net worth was $44.2 million. While MMC believes that it will be able to maintain its existing credit facilities and obtain replacement financing as its credit arrangements mature and additional financing, if necessary, there can be no assurance that such financing will be available on favorable terms, or at all. MMC also sells loans through whole loan sales. MMC has entered into agreements with 3 financial institutions to which an aggregate of $397.3 million in principal amount of loans had been sold at February 28, 1997, for an amount equal to their remaining principal balances and accrued interest. Pursuant to the agreements, the purchasers are entitled to receive interest at various rates. MMC retained the right to service the loans and the right to receive the difference (excess interest) between the sold loans' stated interest rate and the yield to the purchasers. MMC is required to maintain reserve accounts ranging from 1% to 2% of the declining principal balance of the loans sold pursuant to the agreement funded from the excess interest received by MMC, less its servicing fee, to fund shortfalls in collections from borrowers who default in the payment of principal or interest. In November 1996, MMC entered into an agreement with a financial institution, providing for the purchase of up to $2 billion of loans over a 5 year period. Pursuant to the agreement, Mego Financial issued to the financial institution four-year warrants to purchase 1,000,000 shares of Mego Financial's common stock at an exercise price of $7.125 per share. The agreement also provides (i) that so long as the aggregate principal balance of loans purchased by the financial institution and not resold to third parties exceeds $100 million, the financial institution shall not be obligated to purchase, and MMC shall not be obligated to sell, loans under the agreement and (ii) that the percentage of conventional loans owned by the financial institution at any one- time and acquired pursuant to the agreement, shall not exceed 65% of the total amount of loans owned by the financial institution at such time and acquired pursuant to the agreement which provision has been waived from time to time. The value of the warrants of $3 million (0.15% of the commitment amount) as of the commitment date, was charged to MMC and is being amortized as the commitment for the purchase of loans is utilized. At February 28, 1997, $1.8 billion remained available to be sold under the commitment. These warrants were recorded as additional paid-in capital of the Company. The financial institution has also agreed 23 26 to provide MMC a separate one-year facility of up to $11 million for the financing of the interest only and residual certificates from securitizations. During the 6 months ended February 28, 1997 and February 29, 1996, MMC used net cash of $28.4 million and $6.9 million, respectively, in operating activities. During the 6 months ended February 28, 1997 and February 29, 1996, MMC used net cash of $1.2 million and $468,000, respectively, in investing activities, which was substantially expended for office equipment and furnishings and data processing equipment. During the 6 months ended February 28, 1997 MMC provided net cash of $43.9 million from financing activities, primarily due to the issuance of subordinated debt and common stock, compared to $7.7 million during the 6 months ended February 29, 1996. PEC -- Liquidity PEC's cash requirements arise from the acquisition of timeshare properties and land, payments of operating expenses, payments of taxes to the parent, payments of principal and interest on debt obligations, and payments of commissions and selling expenses in connection with the sale of timeshare interests and land. Commissions and selling expenses payable by PEC in connection with sales of timeshare interests and land typically exceed the down payments received at the time of sale, as a result of which PEC generates a cash shortfall. This cash shortfall and PEC's other cash requirements are funded primarily through sales of receivables, PEC's lines of credit in the aggregate amount of $109.5 million and cash flows from operations. At February 28, 1997, PEC had arrangements with 4 institutional lenders in 5 agreements for the financing of receivables in connection with sales of timeshare interests and land and the acquisition of timeshare properties and land, which provide for 5 lines of credit of up to an aggregate of $109.5 million. such lines of credit are secured by timeshare and land receivables and mortgages. At February 28, 1997, an aggregate of $65.8 million was outstanding under such lines of credit, and $43.7 million was available for borrowing. At February 28, 1997 and August 31, 1996, $65.8 million and $65.9 million, respectively, had been borrowed under these lines. Under the terms of these lines of credit, PEC may borrow up to a range of 75% to 85% of the balances of the pledged timeshare and land receivables. Summarized lines of credit information and accompanying notes relating to these five lines of credit outstanding at February 28, 1997, consist of the following (thousands of dollars):
BORROWING AMOUNT AT FEBRUARY MAXIMUM 28, BORROWING REVOLVING 1997 AMOUNT EXPIRATION DATE(D) MATURITY DATE INTEREST RATE - ----------- ---------- --------------------- ------------------- ------------- $48,648 $ 57,000 (a) April 15, 1997 September 22, 2003 Prime + 2.25% 4,382 15,000 (b) May 30, 1998 June 1, 2002 Prime + 2.0% 5,946 15,000 (c) June 27, 1998 June 27, 2005 LIBOR + 4.25% 3,404 15,000 (c) February 6, 1998 August 6, 2005 LIBOR + 4.25% 3,459 7,500 (b) April 30, 1998 May 31, 2002 Prime + 2.0%
(a) Restrictions include PEC's requirement to maintain a tangible net worth of at least $25 million during the borrowing term. Thereafter this requirement is permitted to decrease to $15 million depending on the loan balance. A commitment letter was signed in March 1997 to increase the credit line to $75 million, reduce the rate to prime plus 2%, and extend the revolving expiration date to May 1, 2001 or 36 months after the first advance, whichever is sooner. (b) Restrictions include PEC's requirement to maintain a tangible net worth of $25 million during the life of the loan. (c) Restrictions include PEC's requirement to maintain a tangible net worth of $17 million during the life of the loan. (d) Revolving expiration date represents the expiration of the revolving features of the lines of credit, at which time the credit lines assume fixed maturity. 24 27 Set forth below is a schedule of the cash shortfall arising from recognized and unrecognized sales for PEC for the periods indicated (thousands of dollars):
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Commissions and selling expenses attributable to recognized and unrecognized sales....................... $ 8,371 $ 6,706 $ 16,412 $ 13,557 Less: Down payments........................ (3,227) (2,676) (6,742) (6,172) ------- ------- ------- ------- Cash shortfall............................. $ 5,144 $ 4,030 $ 9,670 $ 7,385 ======= ======= ======= =======
During the 3 months ended February 28, 1997, PEC sold notes receivable of $5.4 million to a financial institution from which $4.5 million of the proceeds were used to pay down debt . The receivables which have interest rates of 12.9% were sold to yield a return of 9% to the purchasers, with any excess interest payable to PEC from the obligors. At February 28, 1997, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $72.6 million. 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 otherwise subject to replacement or repurchase. The repurchase provisions provide for substitution of receivables as recourse for $70.6 million of sold notes receivable and cash payments for repurchase relating to $2 million of sold notes receivable. At February 28, 1997, the undiscounted amount of the recourse obligations on such notes receivable were $11.9 million. PEC periodically reviews the adequacy of this liability. These reviews take into consideration changes in the nature and level of the portfolio, current and future economic conditions which may affect the obligors' ability to pay, collateral values and overall portfolio quality. During the 6 months ended February 28, 1997 and February 29, 1996, PEC used net cash of $335,000 and $3.2 million, respectively in operating activities. During the 6 months ended February 28, 1997 and February 29, 1996, PEC provided net cash of $924,000 and used net cash of $7.3 million, respectively, in investing activities. During the 6 months ended February 28, 1997 and February 29, 1996, PEC used net cash of $1 million and provided net cash of $9.4 million, respectively from financing activities. Company -- Liquidity At January 31, 1995, when accrual of payments to assignors ceased, $13.3 million was payable to the assignors. On March 2, 1995, the assignors agreed to defer payment of $10 million (subordinated debt) of the amounts due to them pursuant to an amendment to the Assignment and Assumption Agreement providing for the subordination of such amounts to payment of debt for money borrowed by the Company or obligations of the Company's subsidiaries guaranteed by the Company. In January 1997, the outstanding balance of payable to assignors of $2.6 million (including interest of $45,000) was paid in full. Additionally, effective March 1, 1997, the assignors received the first of 7 equal semi-annual payments of $1,429,000 plus interest related to the repayment of the subordinated debt. These payments are collateralized by a pledge of PEC's outstanding stock. Interest of $218,000 was paid during the first half of fiscal 1997 related to payable to assignors and interest on subordinated debt of $500,000 was paid during the first half of fiscal 1997. During the 6 months ended February 28, 1997 and February 29, 1996, the Company used cash of $31.2 million and $9.5 million, respectively, in operating activities. During the 6 months ended February 28, 1997 and February 29, 1996, the Company used cash of $5.1 million and $2.9 million, respectively, in investing activities. During the 6 months ended February 28, 1997 and February 29, 1996, the Company provided cash of $52.3 million and $10.1 million, respectively, from financing activities, which was substantially from the MMC stock and debt offerings during the 1997 time period. The Company believes that its capital requirements will be met from the recent stock and debt offering proceeds, cash balances, internally generated cash, existing lines of credit, sales and securitizations of loans, and the modification, replacement or addition to its credit lines. 25 28 The components of the Company's debt, including lines of credit consist of the following (thousands of dollars):
FEBRUARY 28, AUGUST 31, 1997 1996 ------------ ---------- Notes collateralized by receivables.................... $ 38,369 $ 41,568 Mortgages collateralized by real estate properties..... 29,793 31,078 Notes collateralized by excess servicing rights and mortgage related securities.......................... -- 10,000 Installment contracts and other notes payable.......... 12,503 1,803 ------- ------- Total............................................. $ 80,665 $ 84,449 ======= =======
FINANCIAL CONDITION February 28, 1997 compared to August 31, 1996 Cash and cash equivalents increased 502.3% to $19.2 million at February 28, 1997 from $3.2 million at August 31, 1996, primarily as a result of the use of proceeds from the MMC common stock and debt offerings to acquire short term investments after repayment of debt. Restricted cash deposits increased 11.2% to $7.4 million at February 28, 1997 from $6.7 million at August 31, 1996 primarily due to an increase in the level of securitizations. Notes receivable, net, increased 21.4% to $49.2 million at February 28, 1997 from $40.5 million at August 31, 1996 primarily as a result of MMC loan originations increasing and the timing of loan sales. The Company provides an allowance for cancellation and credit losses, in an amount which in the Company's judgment will be adequate to absorb losses on notes receivable and loans after FHA insurance recoveries on the loans, that may become uncollectible. The Company's judgment in determining the adequacy of this allowance is based on its continual review of its portfolio which utilizes historical experience and current economic factors. These reviews take into consideration changes in the nature and level of the portfolio, historical rates, collateral values, and current and future economic conditions which may affect the obligors' ability to pay, collateral values and overall portfolio quality. Changes in the allowance for cancellation 26 29 and credit losses for notes receivable for the three and six months ended February 28, 1997 consist of the following (thousands of dollars): Balance at November 30, 1996....................................... $27,114 Provisions for credit losses and cancellations..................... 3,805 Amounts charged to allowance for cancellations..................... (4,811) ------- Balance at February 28, 1997............................. $26,108 ======= Balance at August 31, 1996......................................... $26,253 Provisions for credit losses and cancellations..................... 5,516 Amounts charged to allowance for cancellations..................... (5,661) ------- Balance at February 28, 1997............................. $26,108 ======= Allowance for cancellations and credit losses excluding valuation discount......................................................... $14,018 Future estimated contingency for notes receivable sold with recourse and valuation discount.................................. 12,090 Total.................................................... $26,108 =======
Excess servicing rights decreased to $0 at February 28, 1997 from $14.3 million at August 31, 1996 due to the implementation of SFAS 125, which requires the reclassification of excess servicing rights as mortgage related securities which are carried at fair market value. The excess cash flow created through securitization which had been recognized as excess servicing rights on loans reacquired and securitized are included in the cost basis of the mortgage related securities. Mortgage related securities were $67.1 million at February 28, 1997 and $22.9 million at August 31, 1996. The increase is due to the increased value of loans originated and securitized and the reclassification of excess servicing rights. See Note 6 of Notes to Consolidated Financial Statements. Mortgage servicing rights increased 51.7% to $5.8 million at February 28, 1997 from $3.8 million at August 31, 1996 as a result of additional sales of loans and the resulting increase in sales of loans serviced to $167.4 million during the first half of fiscal 1997 from $56.4 million during the first half of fiscal 1996. Property and equipment, net, increased 20% to $24.3 million at February 28, 1997 from $20.3 million at August 31, 1996 due to increased purchases of office equipment related to facility expansion and building, water, and sewer improvements. Notes and contracts payable decreased 4.5% to $80.7 million at February 28, 1997 from $84.4 million at August 31, 1996 due to the paydown of debt from the proceeds from the MMC stock and debt offerings. Accounts payable and accrued liabilities increased to $24.3 million at February 28, 1997 from $19.7 million at August 31, 1996 primarily as a result of the timing of accruals and payments. Future estimated contingency for notes receivable sold with recourse increased 29.6% to $12.1 million at February 28, 1997 from $9.3 million at August 31, 1996. Loans sold with recourse which were reacquired and included in the 1996 securitizations decreased the amount needed for this allowance while increased loan sales increased the allowance requirements. Recourse to the Company on sales of loans is limited to sales made by PEC and is governed by the agreements between the purchasers and the Company. Mego Financial is a guarantor of PEC's recourse obligations. Recourse on some of the whole loan sales made by MMC is limited to the future excess spread MMC will receive. The allowance for credit losses on loans sold with recourse represents the Company's estimate of its probable future credit losses to be incurred over the lives of the loans considering estimated future FHA insurance recoveries on Title I Loans. No allowance for credit losses on loans sold with recourse is established on loans sold through securitizations, as the Company has no recourse obligation, other than for customary representations and warranties, under those securitization agreements. Estimated credit losses on loans sold through securitizations are considered in MMC's valuation of its residual interest securities. 27 30 Income taxes payable increased 52.7% to $16.8 million at February 28, 1997 from $11 million at August 31, 1996 due to taxable income for the period and taxes on the sale of MMC stock. See Note 4 of Notes to Consolidated Financial Statements for further discussion. Based on a review of the prior years' federal income tax returns, the Company has determined that an unrecognized net operating loss carry forward (NOL) exists for federal income tax purposes. The provision for federal income taxes has been reduced, due to partial utilization of a portion of this NOL. The complete analysis of the taxes is not yet complete, so the entire amount of the NOL has not yet been determined. The reduction for fiscal 1997 has been accomplished based on a portion of the NOL that has been identified. See Note 8 of Notes to Consolidated Financial Statements. Stockholders' equity increased 63.6% to $42.3 million at February 28, 1997 from $25.9 million at August 31, 1996 as a result of the sale of MMC stock, the issuance of a warrant, valued at $3 million for the purchase of 1 million shares of Mego Financial common stock, the exercise of warrants to purchase 300,000 shares of Mego common stock for an exercise price of $360,000, and net income applicable to common stock of $5 million during the 6 months ended February 28, 1997. In February 1997, warrants outstanding to purchase 300,000 shares of the Company's common stock at an exercise price of $1.20 per share were exercised in full for $360,000 and 300,000 shares of the Company's common stock was subsequently issued in March 1997. CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations and beliefs concerning future events, including the sufficiency of the Company's cash flow for the Company's future liquidity and capital resource needs. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following: decline in demand for home improvement and debt consolidation loans; decline in demand for timeshare interests; increases in the level of delinquencies on the Company's loans and receivables; the effect of general economic conditions generally and specifically changes in interest rates; the effect of competition; the Company's dependence on the ability to sell its loans and receivables; and the regulation of the Company by federal, state and local regulatory authorities. Actual events or results may differ as a result of these and other factors. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 26, 1996, in the matter of "In re Mego Financial Corp. Securities Litigation," Master File No. CV-9-95-01082-LDG (RLH), in the United States District court for the District of Nevada (the "Court"), which matter was described in the Company's Form 10-K for the fiscal year ended August 31, 1996 (the "1996 10-K"), Michael Nadler ("Nadler") filed a purported class action complaint against the Company, certain of the Company's officers and directors, and the Company's independent auditors. On January 2, 1997, Nadler withdrew his "Class Member's Motion to be Included as a Class Representative," which had been pending. On January 9, 1997, Nadler filed a "Plaintiff's Motion for Relief from Certain Portions of Pre-Trial Order No. 1 Entered in Related Litigation." The Company opposed that motion. On February 13, 1997, defendants moved to dismiss Nadler's complaint. On March 13, 1997, Nadler filed a "Motion for the Filing of a Consolidated Complaint and a Class Certification Motion, the Holding of a Pretrial Conference and the Suspension of Briefing on Defendants' Motions to Dismiss." The Company opposed that motion. On March 31, 1997 the Court denied Nadler's motion to be included as a putative class representative and denied, without prejudice to refiling after either the filing of a consolidated complaint or a ruling on Nadler's motion for the filing of a consolidated complaint, Nadler's motion for relief from certain portions of Pretrial Order No. 1, Nadler's motion to consolidate and defendants' motions to dismiss Nadler's complaint. The Company believes that it has substantial defenses to the Nadler complaint; however, the Company presently cannot predict the outcome of this matter. 28 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION ------ -------------------------------------------------------------------------- 10.103 Subdivision Improvement Agreement dated March 7, 1995 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.104 Subdivision Improvement Agreement dated February 20, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.105 Subdivision Improvement Agreement dated February 20, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.106 Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.107 Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities and the Board of County Commissioners of the County of Nye, State of Nevada. 10.108 Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.109 Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.110 Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada. 10.111 Commitment letter between Preferred Equities Corporation and Finova Capital Corporation dated March 3, 1997. 10.112 Employment Agreement between Mego Financial Corp. and Irving J. Steinberg. 27.1 Financial Data Schedule (for SEC use only).
- --------------- No reports on Form 8-K were filed during the period. 29 32 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/ HERBERT B. HIRSCH -------------------------------------- Herbert B. Hirsch Senior Vice President, Chief Financial Officer and Treasurer Date: April 14, 1997 30 EX-10.103 2 SUBDIVISION IMPROVEMENT AGREEMENT DATED 3/7/95 1 EXHIBIT 10.103 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 7th day of March, 1995, by and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, W I T N E S S E T H : WHEREAS, at a regular meeting of the BOARD, held on the 7th day of March, 1995, the DEVELOPER submitted a final Subdivision Map entitled "Calvada Valley North Unit 4" consisting of 97 lots, and relating to the following described property located within Nye County, Nevada: A portion of Section 17, Township 19 South, Range 53 East, Mount Diablo Base and Meridian, Nye County, State of Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: -1- 2 1. IMPROVEMENTS The estimated cost of roads, water system, sewer system, and amenities is provided by Crosby, Mead, Benton and Associates (see Exhibit A). The estimated cost of surveying is provided by Sher-Rich Enterprises (see Exhibit B). 1.1 Roads Developer shall improve all portions of streets and roads which appear on said map; namely, Atoll Drive, Megan Avenue, Annie Avenue, Edleen Place, Faust Place, Fleetwood Place, Cosmic Place and Linda Street, in conformance with plans submitted to, and approved by, the Public Works Department. Cost: $58,010.00 1.2 Sewer Lines and Lift Station Developer shall construct all sewer lines to service each lot including laterals to each lot abutting Linda Street only; also including the required lift station in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $176,959.10 1.3 Water System Developer shall construct water system lines to provide service to each lot including laterals to each lot abutting Linda Street only, in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $203,975.00 -2- 3 1.4 Amenities Developer shall construct all amenities related to the lift station including 56 linear feet of 6' high masonry and 12' wide chain link gate. Cost: $2,400.00 1.5 Surveying Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $3,800.00 Total Cost of Improvements: $445,144.10 2. SECURITY The complete performance of construction of the roads, water system, sewer system, amenities and surveying is secured by: A Performance Bond numbered 137-20-20 and dated March 13, 1995 (see Exhibit C) in the amount of $489,658.51, representing 110% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and -3- 4 County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indicate the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same, including laterals and "Y's" for connection of individual service lines. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. -4- 5 DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ Richard Carver /s/ Frederick H. Conte - ------------------------------- ----------------------------- Richard Carver, Vice-Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer Preferred Equities Corporation ATTEST: /s/ Arte Robb - ------------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -5- 6 EXHIBIT A - ------------------------------------------------------------------------------- CROSBY MEAD BENTON & ASSOCIATES 6345 Balboa, Blvd. Suite 140 Encino, CA 91316 Tel: (818) 343-5384 - ------------------------------------------------------------------------------- FINAL **** CONSTRUCTION COST ESTIMATE **** Job: CVN4SW Estimate Date: 27 February 1995 CALVADA NORTH UNIT NO. 4 SEWER MAIN By: Anthony NOTE: 'c' after Item Dollar Amount Indicates Contingency Item. Quantity Unit Cost Item Total *** SANITARY SEWERS *** Mains: 10" Pipe, PVC SDR-35.......... 3800 LF 14.30 54,340.00 c 8" Pipe, PVC SDR-35.......... 3995 LF 12.70 50,736.50 c 6" Pipe, PVC................. 606 LF 12.10 7,332.60 c ---------- Mains Subtotal: 112,409.10 Manholes: Standard Manhole............ 27 EA 1,045.00 28,215.00 c ---------- Manholes Subtotal: 28,215.00 Miscellaneous: Wye......................... 97 EA 55.00 5,335.00 Lift Station................ LS 31,000.00 c ---------- Miscellaneous Subtotal: 36,335.00 SANITARY SEWERS Subtotal: 176,959.10 Contingencies: 17,695.91 SANITARY SEWERS Total: 194,655.01 Page 1 of 2 7 EXHIBIT A Construction Cost Estimate - CVN4SW Quantity Unit Cost Item Total *** AMENITIES & SPECIAL CONSTRUCTION *** Walls & Fences: 6' Masonry Wall.................... 56 LF 35.00 1,960.00 c 12' Chain Link Gate................ 1 EA 440.00 440.00 c --------- Walls & Fences Subtotal: 2,400.00 AMENITIES & SPECIAL CONSTRUCTION Subtotal: 2,400.00 Contingencies: 240.00 AMENITIES & SPECIAL CONSTRUCTION Total: 2,640.00 *** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs): SANITARY SEWERS: 176,959.10 AMENITIES & SPECIAL CONSTRUCTION: 2,400.00 ---------- TOTAL COST WITHOUT CONTINGENCIES: 179,359.10 *** SUMMARY (Including Contingency Costs): TOTAL OF COSTS SUBJECT TO CONTINGENCY: 179,359.10 CONTINGENCIES @ 10%: 17,935.91 TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00 ---------- TOTAL ESTIMATED CONSTRUCTION COST: 197,295.01 AVERAGE COST PER LOT (97 LOTS): 2,033.97 NOTES: 1. Since Crosby, Mead, and Benton has no control over the cost of labor, materials, or equipment, or over the contractor's methods of determining prices, or over competitive bidding or market conditions, our opinions of probable project cost or construction cost provided for herein are to be made on the basis of our experience and qualifications and represent our best judgment as design professionals familiar with the construction industry, but Crosby, Mead, and Benton cannot, and does not, guarantee that proposals, bids, or the construction cost will not vary from opinions of probable cost prepared by the firm. Page 2 of 2 8 EXHIBIT A CROSBY MEAD BENTON & ASSOCIATES 6345 Balboa Blvd. Suite 140 Encino, CA 91316 Tel: (818) 343-5384 FINAL **** CONSTRUCTION COST ESTIMATE **** Job: CVN4W Estimate Date: 27 February 1995 CALVADA NORTH UNIT NO. 4 WATER EST. By: ANTHONY NOTE: 'c' after Item Dollar Amount Indicates Contingency Item. Quantity Unit Cost Item Total *** WATER DISTRIBUTION *** Mains: 8" P.V.C., C-900 DR-18......... 4,631 LF 11.50 53,256.50 c 10" P.V.C., C-900 DR-18......... 2,950 LF 15.40 45,430.00 c 12" P.V.C., C-900 DR-18......... 1,355 LF 18.70 25,338.50 c ---------- Mains Subtotal: 124,025.00 Valves: 8" Valve Assembly............... 9 EA 495.00 4,455.00 c 10" Valve Assembly............... 7 EA 660.00 4,620.00 c 12" Valve Assembly............... 2 EA 990.00 1,980.00 c ---------- Valves Subtotal: 11,055.00 Meters: 1" House Service................ 97 EA 55.00 5,335.00 1" Meter & Box.................. 97 EA 275.00 26,675.00 ---------- Special Assemblies: Fire Hydrant & Assembly......... 15 EA 2,200.00 33,000.00 1" Combo Air/Vac Relief Valve... 1 EA 1,540.00 1,540.00 2" Blowoff...................... 2 EA 550.00 1,100.00 Elbow........................... 3 EA 55.00 165.00 Reducer (10"x8")................ 1 EA 55.00 55.00 Cross........................... 2 EA 55.00 110.00 Tee............................. 9 EA 55.00 495.00 ---------- Special Assemblies Subtotal: 36,465.00 Page 1 of 2 9 EXHIBIT A Construction Cost Estimate - CVN4W Quantity Unit Cost Item Total Miscellaneous: Thrust Blocks................ 15 EA 28.00 420.00 c ---------- Miscellaneous Subtotal: 420.00 WATER DISTRIBUTION Subtotal: 203,975.00 Contingencies: 20,397.50 WATER DISTRIBUTION Total: 224,372.50 *** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs): WATER DISTRIBUTION: 203,975.00 ---------- TOTAL COST WITHOUT CONTINGENCIES: 203,975.00 *** SUMMARY (Including Contingency Costs): TOTAL OF COSTS SUBJECT TO CONTINGENCY: 203,975.00 CONTINGENCIES @ 10%: 20,397.50 TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00 ---------- TOTAL ESTIMATED CONSTRUCTION COST: 224,372.50 AVERAGE COST PER LOT (97 LOTS): 2,313.12 NOTES: 1. Since Crosby, Mead, and Benton has no control over the cost of labor, materials, or equipment, or over the contractor's methods of determining prices, or over competitive bidding or market conditions, our opinions of probable project cost or construction cost provided for herein are to be made on the basis of our experience and qualifications and represent our best judgment as design professionals familiar with the construction industry, but Crosby, Mead, and Benton cannot, and does not, guarantee that proposals, bids, or the construction cost will not vary from opinions of probable cost prepared by the firm. Page 2 of 2 10 EXHIBIT A - -------------------------------------------------------------------------------- CROSBY MEAD BENTON & ASSOCIATES 6345 Balboa Blvd. Suite 140 Encino, CA 91316 Tel: (818) 343-5384 - -------------------------------------------------------------------------------- FINAL **** CONSTRUCTION COST ESTIMATE **** Job: CVN4ST Estimate Date: 27 February 1995 CALVADA VALLEY NORTE UNIT NO. 4 STREET By: ANTHONY NOTE: 'c' after Item Dollar Amount Indicates Contingency Item. *** ROADWAY/STREET IMPROVEMENTS *** Quantity Unit Cost Item Total -------- --------- ---------- Pavements: 26'W-6" Gravel (60R/W full improv.) 4750 LF 5.50 26,125.00 c 13'W-6" Gravel (30R/W 1/2 ST imp).. 2495 LF 4.00 9,980.00 c 26' wide 2" AC ON 6" Base (LINDA St) 1685 LF 13.00 21,905.00 c --------- Pavements Subtotal: 58,010.00 ROADWAY/STREET IMPROVEMENTS Subtotal: 58,010.00 Contingencies: 5,801.00 ROADWAY/STREET IMPROVEMENTS Total: 63,811.00 *** MAJOR CATEGORY TOTALS (Does Not Include Contingency Costs): ROADWAY/STREET IMPROVEMENTS: 58,010.00 --------- TOTAL COST WITHOUT CONTINGENCIES: 58,010.00 *** SUMMARY (Including Contingency Costs): TOTAL OF COSTS SUBJECT TO CONTINGENCY: 58,010.00 CONTINGENCIES @ 10%: 5,801.00 TOTAL OF COSTS NOT SUBJECT TO CONTINGENCY: 0.00 --------- TOTAL ESTIMATED CONSTRUCTION COST: 63,811.00 Page 1 of 2 11 EXHIBIT B [SHER-RICH ENTERPRISES LETTERHEAD] Feb. 24, 1995 Nye County Planning Box 531 Tonopah, Nevada 89049 ATT: Ron Williams RE: CALVADA VALLEY NORTH UNIT 4 The monuments will be of the character shown and occupy the positions indicated by the Calvada Valley unit 4 Plat and to be installed by February 1, 1997 and a appropriate performance bond of $40.00 per lot to be posted with the Governing Body to assure their installation. Thank You /s/ RICHARD L. HAFEN - ------------------------- Richard L. Hafen PLS 4428 [PROFESSIONAL LAND SURVEYOR STATE OF NEVADA No. 4428 SEAL] RICHARD L. HAFEN 2/24/95 12 EXHIBIT C [INSURANCE COMPANY OF THE WEST LETTERHEAD] Bond No. 137-20-20 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of Nevada as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of FOUR HUNDRED EIGHTY NINE THOUSAND SIX HUNDRED FIFTY EIGHT AND 51/100 Dollars ($489,658.51), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors, and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated March 7, 1995, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH UNIT 4, LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 13th day of MARCH, 1995. Witness: BY: /s/ [SIG] ---------------------------- PREFERRED EQUITIES CORPORATION COUNTERSIGNED THIS 13th DAY OF BY: /s/ [SIG] MARCH 1995 ---------------------------- BY: /s/ [SIG] Principal ----------------------------- Executive Vice President (NEVADA AGENT) INSURANCE COMPANY OF THE WEST /s/ NORMAN E. GRATTAN, JR. --------------------------------- NORMAN E. GRATTAN, JR. ATTORNEY-IN-FACT 13 STATE OF NEVADA ss COUNTY OF CLARK [STACY ROBINSON SEAL] STACY ROBINSON Notary Public - Nevada Clark County My appt. exp. Nov. 15, 1998 On this 13TH day of MARCH, in the year 1995, before me, the undersigned Notary Public, in and for the State of NEVADA, personally appeared NORMAN E. GRATTAN, JR., personally known to me (or proven to me on the basis of satisfactory evidence) to be the person who executed the written instrument as Attorney-in-Fact on behalf of the Corporation therein named and acknowledged to me that the Corporation executed it. Given under my hand and the Notary Seal this 13TH day of MARCH A.D. 1995. My Commission expires NOVEMBER 15, 1998. /s/ STACY ROBINSON ----------------------- Notary Public 14 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a Corporation duly authorized and existing under the laws of the State of CALIFORNIA and having its principal office in the City of San Diego, California, does hereby nominate, constitute and appoint: NORMAN E. GRATTAN, JR. its true and lawful Attorney(s)-in-Fact, with full power and authority hereby conferred in its name, place and stead, to execute, seal, acknowledge and deliver any and all bonds, undertakings, recognizances or other written obligations in the nature thereof. This Power of Attorney is granted and is signed and sealed by facsimile under and by the authority of the following Resolution adopted by the Board of Directors of INSURANCE COMPANY OF THE WEST at a meeting duly called and held on the 16th day of AUGUST, 1991, which said Resolution has not been amended or rescinded and of which the following is a true, full, and complete copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, be, and that each or any of them is, authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, bonds, undertakings, and all contracts of suretyship; and that a Vice President, an Assistant Vice President, a Secretary or an Assistant Secretary be, and that each or any of them hereby is, authorized to attest the execution of any such Power of Attorney, and to attach thereto the seal of the Company. FURTHER RESOLVED, that the signature of such officers and the seal of the Company may be affixed to any such Power of Attorney or to any certificate relating thereto by facsimile, and any such Power of Attorney or certificate bearing such facsimile signatures or facsimile seal shall be valid and binding upon the Company when so affixed and in the future with respect to any bond, undertaking or contract of suretyship to which it is attached. FURTHER RESOLVED, that the Attorney-in-Fact may be given full power to execute for and in the name of and on behalf of the Company any and all bonds and undertakings as the business of the Company may require, and any such bonds or undertakings executed by any such Attorney-in-Fact shall be as binding upon the Company as if signed by an authorized officer of the Company." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused its official seal to be hereunto affixed and these presents to be signed by its duly authorized officers this 7th day of September, 1994. [INSURANCE COMPANY OF THE WEST SEAL] INSURANCE COMPANY OF THE WEST INCORPORATED MARCH 1, 1972 CALIFORNIA STATE OF CALIFORNIA /s/ JOHN L. HANNUM SS: --------------------------------- COUNTY OF SAN DIEGO John L. Hannum, Senior Vice President On this 7th day of September, 1994 before the subscriber, a Notary Public of the State of California, in and for the County of San Diego, duly commissioned and qualified, came John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, to me personally known to be the individual and officer described in and who executed the preceding instrument, and he acknowledged the execution of the same, and being by me duly sworn, deposeth and saith, that he is the said officer of the Corporation aforesaid, and that the seal affixed to the preceding instrument is the Corporate Seal of the said Corporation, and that the said Corporate Seal and his signature as such officer were duly affixed and subscribed to the said instrument by the authority and direction of the said Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal, at the City of San Diego, the day and year first above written. [NORMAN PORTER SEAL] STATE OF CALIFORNIA /s/ NORMA PORTER SS: --------------------------------- COUNTY OF SAN DIEGO Notary Public I, the undersigned, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a full, true and correct copy, is in full force and effect, and has not been revoked. IN WITNESS WHEREOF, I have hereunto subscribed my name as Vice President, and affixed the Corporate Seal of the Corporation, this 13TH day of MARCH, 1995. [INSURANCE COMPANY OF THE WEST SEAL] INSURANCE COMPANY OF THE WEST INCORPORATED MARCH 1, 1972 CALIFORNIA STATE OF CALIFORNIA /s/ E. HARNED DAVIS SS: --------------------------------- COUNTY OF SAN DIEGO E. Harned Davis Vice President 15 [STAMP] OFFICIAL RECORDS NYE. CO. NEV. Preferred Equities Corp. '95 MAR 23 A9:38 369308 NAOMA LYDON RECORDER FEE 21.00 DEP top EX-10.104 3 SUBDIVISION IMPROVEMENT AGREEMENT DATED 02/20/96 1 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 20th day of February, 1996, by and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, W I T N E S S E T H: WHEREAS, at a regular meeting of the BOARD, held on the 20th day of February, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Amended Plat of Calvada Valley Unit 5, Block 26, Lot 7" consisting of 6 lots, and relating to the following described property located within Nye County, Nevada: Calvada Valley Unit 5, Block 26, Lot 7; being a portion of Section 28, Township 20 South, Range 53 East, Mount Diablo Base and Meridian, Nye County, State of Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: -1- 2 1. IMPROVEMENT ----------- The estimated cost of surveying is provided by Crosby, Mead, Benton & Associates (see Exhibit A). 1.1 Surveying Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $250 Total Cost of Improvements: $250 2. SECURITY -------- The complete performance of the surveying is secured by: A Performance Bond numbered 147-84-97 and dated February 12, 1996 (see Exhibit B) in the amount of $287.00, representing 115% of the estimated cost of said improvement. 3. APPROVAL OF WORK AFTER INSPECTION --------------------------------- Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for improvement in question may have been approved by the BOARD's representative. -2- 3 DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvement to be made by an independent contractor at the expense of the DEVELOPER or the security. 5. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. -3- 4 6. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ------------------------------- ----------------------------- Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer Preferred Equities Corporation ATTEST: /s/ NICOLE L. TISUE Deputy - ------------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 5 EXHIBIT A [CROSBY MEAD BENTON & ASSOCIATES LETTERHEAD] [SEAL] February 15, 1996 CALVADA VALLEY UNIT 5, BLOCK 10, LOT 1, QUANTITY/COST ESTIMATE ROAD IMPROVEMENTS Item Quantity Cost Unit Total - ---- -------- ---- ---- ----- 2" AC on 6" base 1,130 $13. L.F. $14,690 GRADING IMPROVEMENTS Item Quantity Cost Unit Total - ---- -------- ---- ---- ----- Excavation 21,200 $0.75 CY $15,900 TRACT MONUMENTATION Item Quantity Cost Unit Total - ---- -------- ---- ---- ----- Lot Monumentation 17 $50 EA $ 850 ------- Total $31,440 CALVADA VALLEY UNIT 5, BLOCK 26, LOT 7, QUANTITY/COST ESTIMATE TRACT MONUMENTATION Item Quantity Cost Unit Total - ---- -------- ---- ---- ----- Lot Monumentation 5 $50 EA $ 250 ------- Total $ 250 6 EXHIBIT B - PAGE 1 OF 2 [INSURANCE COMPANY OF THE WEST LETTERHEAD] Bond No. 147-84-97 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of THIRTY SIX THOUSAND FOUR HUNDRED FORTY THREE AND NO/100*** Dollars ($36,443.00******), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors, and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated _____________, 19___, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: ONSITE IMPROVEMENTS FOR CALVADA VALLEY, UNIT 5, BLOCK 10, LOT 1 AND CALVADA VALLEY, UNIT 5, BLOCK 26, LOT 7 NOW THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 12th day of FEBRUARY , 1996. ---------- ---------------------------- Witness: BY: /s/ BARBARA S. PERFECT ---------------------------- PREFERRED EQUITIES CORPORATION BY: /s/ SEDGWICK JAMES OF NV, INC. BY: [SIG ILLEGIBLE] ---------------------------- ------------------------------- COUNTERSIGNED THIS 13th DAY OF Principal 1996 Vice President/Secretary - ------------------------- BY: [SIG ILLEGIBLE] ---------------------------- INSURANCE COMPANY OF THE WEST (NEVADA AGENT) SEDGWICK JAMES OF NEVADA, INC. /s/ Debbie K. Bailey 3380 W. SAHARA AVE. #100 ---------------------------------- LAS VEGAS, NV 89102 DEBBIE K. BAILEY ATTORNEY-IN-FACT 7 EXHIBIT B - PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE: I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in full force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 12TH day of FEBRUARY 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HARNED DAVIS ------------------------------ E. Harned Davis, Vice President [OFFICIAL REQUEST STAMP NYE CO. NEV. RECORDER] EX-10.105 4 SUBDIVISION IMPROVEMENT AGREEMENT DATED 02/20/96 1 EXHIBIT 10.105 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 20th day of February, 1996, by and between PREFERRED EQUITIES CORPORATION (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, WITNESSETH: WHEREAS, at a regular meeting of the BOARD, held on the 20th day of February, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Amended Plat of Calvada Valley Unit 5, Block 10, Lot 1" consisting of 17 lots, and relating to the following described property located within Nye County, Nevada: Calvada Valley Unit 5, Block 10, Lot 1; being a portion of Section 32, Township 20 South, Range 53 East, Mount Diablo Base and Meridian, Nye County, State of Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: -1- 2 of 2 Originals 2 1. IMPROVEMENTS The estimated cost of all improvements is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 Roads Developer shall improve all portions of streets and roads which appear on said map; namely, Zephyr Avenue, in conformance with plans submitted to, and approved by, the Public Works Department. Cost: $14,690 1.2 Removal of Shooting Range Berm Cost: $15,900 1.3 Surveying Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $850 Total Cost of Improvements: $31,440 2. SECURITY The complete performance of construction of the roads and surveying is secured by: A Performance Bond numbered 147-84-97 and dated February 12, 1996 (see Exhibit B) in the amount of $36,156., representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. -2- 2 of 2 Originals 3 Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 5. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. -3- 2 of 2 Originals 4 DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer Preferred Equities Corporation ATTEST: /s/ NICOLE L. TISUE DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A [CROSBY MEAD BENTON & ASSOCIATES LETTERHEAD] [ALAN C. MEAD CIVIL REGISTERED PROFESSIONAL ENGINEER -- STATE OF NEVADA NO. 05299] February 15, 1996 CALVADA VALLEY UNIT 5, BLOCK 10, LOT 1, QUANTITY/COST ESTIMATE
ROAD IMPROVEMENTS Item Quantity Cost Unit Total - ---- -------- ----- ---- ------- 2" AC ON 6" base 1130 $13. L.F. $14,690 GRADING IMPROVEMENTS Item Quantity Cost Unit Total - ---- -------- ----- ---- ------- Excavation 21,200 $0.75 CY $15,900 TRACT MONUMENTATION Item Quantity Cost Unit Total - ---- -------- ----- ---- ------- Lot Monumentation 17 $50 EA $ 850 ------- Total $31,440 CALVADA VALLEY UNIT 5, BLOCK 26, LOT 7, QUANTITY/COST ESTIMATE TRACT MONUMENTATION Item Quantity Cost Unit Total - ---- -------- ----- ---- ------- Lot Monumentation 5 $50 EA $ 250 ------- Total $ 250
6 EXHIBIT B -- PAGE 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 147-84-97 Subdivision Bond Faithful Performance -- Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of THIRTY SIX THOUSAND FOUR HUNDRED FORTY THREE AND NO/100*** Dollars ($36,443.00******), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors, and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated _____________, 19__, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: ONSITE IMPROVEMENTS FOR CALVADA VALLEY, UNIT 5, BLOCK 10, LOT 1 AND CALVADA VALLEY, UNIT 5, BLOCK 26, LOT 7 NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 12TH day of FEBRUARY, 1996. Witness: BY: Barbara S. Perfect PREFERRED EQUITIES CORPORATION - ---------------------------------- BY: [SIG] BY: Sedgwick James of Nevada, Inc. ---------------------------------- - ---------------------------------- Vice President/Secretary COUNTERSIGNED THIS 13th day of February 1996 INSURANCE COMPANY OF THE WEST BY: Cheryl Koon - ---------------------------------- Debbie K. Bailey (NEVADA AGENT) ---------------------------------- DEBBIE K. BAILEY ATTORNEY-IN-FACT SEDGWICK JAMES OF NEVADA, INC. 3380 W. SAHARA AVE. #100 LAS VEGAS, NV 89102 7 EXHIBIT B - PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [SEAL] /s/ John L. Hannum ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. /s/ Norma Porter [NOTARY PUBLIC STAMP] ------------------------------ Notary Public CERTIFICATE: I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in full force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 12TH day of FEBRUARY 1996. INSURANCE COMPANY OF THE WEST [SEAL] /s/ E. Harned Davis ------------------------------ E. Harned Davis, Vice President [STAMP] OFFICIAL RECEIPT NYE, CO. NEV. RECORD REQUESTED BY PREFERRED EQUITIES CORP. '96 APR - P4:16 0 393099 NAOMA LYDON RECORDER FEE 13.00 DEP PH EX-10.106 5 SUBDIVISION IMPROVEMENT AGREEMENT DATED 12/17/96 1 EXHIBIT 10.106 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 17th day of December, 1996 by and between Preferred Equities Corporation (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, W I T N E S S E T H : WHEREAS, at a regular meeting of the BOARD, held on the 17th day of December, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Calvada Meadows Unit 4," Assessor's parcel numbers 27-301-12 and 27-301-13, consisting of 443 lots, located within the Town of Pahrump, Nye County, Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: 1. IMPROVEMENTS The estimated cost of roads, water system, on- and off-site sewer system and surveying is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 ROADS Developer shall improve all portions of streets and roads which appear on said map in conformance with plans submitted to, and approved by, the -1- 2 of 2 Originals 2 Public Works Department. Cost: $240,190.00 1.2 ON- AND OFF-SITE SEWER SYSTEM LINES Developer shall construct all on- and off-site sewer lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $1,065,323.00 1.3 ON-SITE WATER SYSTEM LINES Developer shall construct water system lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $850,635.25 1.4 SURVEYING Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $17,720.00 Total Cost of Improvements: $2,173,868.25 2. SECURITY The complete performance of construction of the roads, water system, sewer system and surveying is secured by: A Performance Bond numbered 149-37-90 and dated Dec 19, 1996 (see Exhibit B) in the amount of $2,499,948.49, representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. -2- 2 of 2 Originals 3 Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indicate the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or -3- 2 of 2 Originals 4 nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer, Preferred Equities Corporation ATTEST: /s/ SANDRA L. MERLINO, DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A 1 OF 3 Improvement Bond Estimates for the following subdivisions: Calvada North Unit 1, Block 37 Calvada North Unit 1, Block 57 Calvada North Unit 3, Block 24 Calvada Valley Unit 4a, Block 5 Country Place II, Unit 4, Block 17 Calvada Meadows Unit 4 Prepared by: Crosby Mead Benton & Associates 6345 Balboa Blvd., Suite 140 Encino, CA 91315 (818) 343-5384 [ SEAL OF ] [ REGISTERED PROFESSIONAL ENGINEER ] [ STATE OF NEVADA ] [ No. 05299 ] 6 12/16/96 EXHIBIT B PAGE 1 CALVADA MEADOWS UNIT 4 443-1/4 ACRE LOTS
STREET IMPROVEMENTS - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 6" Gravel incl/Grading 22,585 LF 9.00 203,265.00 6" Gravel incl/Grading 1/2 Rd 5,275 LF 7.00 36,925.00 ------------ TOTAL STREET IMPROVEMENTS 240,190.00 SEWER SYSTEM ONSITE - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 24,391 LF 15.00 365,865.00 10" PVC 270 LF 16.75 4,522.50 Manholes 74 EA 1,650.00 122,100.00 Pipe bedding 24,661 LF 2.50 61,652.50 ------------ SUBTOTAL SEWER SYSTEM ONSITE 554,140.00 SEWER SYSTEM OFFSITE - -------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 10" PVC 300 LF 16.75 5,025.00 12" PVC 16,072 LF 19.00 305,368.00 8" PVC Sewer Force Main 6,280 LF 13.00 81,640.00 Manholes 51 EA 1,650.00 84,150.00 Sewer Lift Station 1 LS 35,000.00 35,000.00 ------------ SUBTOTAL SEWER SYSTEM OFFSITE 511,183.00 TOTAL SEWER SYSTEM 1,065,323.00
7 12/16/96 EXHIBIT B PAGE 2 CALVADA MEADOWS UNIT 4 443-1/4 ACRE LOTS
WATER SYSTEM ONSITE - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 18,207 LF 15.00 273,105.00 12" PVC 5,136 LF 18.75 96,300.00 16" PVC 5,127 LF 25.75 132,020.25 8" Water Valve 47 EA 550.00 25,850.00 12" Water Valve 12 EA 950.00 11,400.00 16" Water Valve 11 EA 1,350.00 14,850.00 8" Cross 10 EA 400.00 4,000.00 8" Tee 5 EA 305.00 1,525.00 12" Cross 2 EA 700.00 1,400.00 12" Tee 8 EA 575.00 4,600.00 16" Cross 3 EA 1,225.00 3,675.00 16" Tee 6 EA 985.00 5,910.00 Fire Hydrants 58 EA 2,000.00 116,000.00 Water wells, Pumps & Hydro tank 2 EA 80,000.00 160,000.00 ------------ SUBTOTAL WATER SYSTEM ONSITE 850,635.25 TOTAL WATER SYSTEM 850,635.25 FIELD SURVEY - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL Set Monumentation 443 LOT 40.00 17,720.00 ------------ TOTAL FIELD SURVEY 17,720.00 SUBTOTAL CONSTRUCTION COSTS 2,173,868.25 15% CONTINGENCY 326,080.24 ------------ TOTAL CONSTRUCTION COSTS 2,499,948.49
8 EXHIBIT B 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 149-37-90 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of TWO MILLION FOUR HUNDRED NINETY-NINE THOUSAND NINE HUNDRED FORTY-EIGHT AND 49/100 Dollars ($2,499,948.49), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated DECEMBER 17, 1996, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: OFFSITE IMPROVEMENTS AT CALVADA MEADOWS UNIT 4 443-1/4 ACRE LOTS LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 19TH day of DECEMBER, 1996. Witness: BY: PREFERRED EQUITIES CORPORATION ------------------------------ BY: /s/ [ILLEGIBLE] COUNTERSIGNED THIS 19TH DAY OF ------------------- DECEMBER, 1996 Principal BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST --------------------- (NEVADA AGENT) /s/ DEBBIE K. BAILEY ---------------------------------- Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT - ------------------------ 9 EXHIBIT B 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 19TH day of DECEMBER 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HARNED DAVIS ------------------------------ E. Harned Davis, Vice President [OFFICIAL REQUEST STAMP NYE CO. NEV. RECORDER] EX-10.107 6 SUBDIVISION IMPROVEMENT AGREEMENT DATED 12/17/96 1 EXHIBIT 10.107 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 17th day of December, 1996 by and between Preferred Equities Corporation (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, WITNESSETH: WHEREAS, at a regular meeting of the BOARD, held on the 17th day of December, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Calvada Valley Unit 4A, Block 5, Lots 16 and 28," Assessor's parcel numbers 40-472-37 and 40-472-28, consisting of 26 lots, located within the Town of Pahrump, Nye County, Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: 1. IMPROVEMENTS The estimated cost of roads, water system, sewer system and surveying is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 ROADS Developer shall improve all portions of streets and roads which appear on said map in conformance with plans submitted to, and approved by, the -1- 2 of 2 Originals 2 Public Works Department. Cost: $16,650.00 1.2 ON-SITE WATER SYSTEM LINES Developer shall construct water system lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $36,390.00 1.3 SURVEYING Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $1,300.00 Total Cost of Improvements: $54,340.00 2. SECURITY The complete performance of construction of the roads, water system, sewer system and surveying is secured by: A Performance Bond numbered 149-37-89 and dated Dec 19, 1996 (see Exhibit B) in the amount of $62,491.00, representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and -2- 2 of 2 Originals 3 County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indicate the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless -3- 2 of 2 Originals 4 of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer, Preferred Equities Corporation ATTEST: /s/ SANDRA L. MERLINO, DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A 1 OF 2 Improvement Bond Estimates for the following subdivisions: Calvada North Unit 1, Block 37 Calvada North Unit 1, Block 57 Calvada North Unit 3, Block 24 Calvada Valley Unit 4a, Block 5 Country Place II, Unit 4, Block 17 Calvada Meadows Unit 4 Prepared by: Crosby Mead Benton & Associates 6345 Balboa Blvd., Suite 140 Encino, CA 91315 (818) 343-5384 [ SEAL OF ] [ REGISTERED PROFESSIONAL ENGINEER ] [ STATE OF NEVADA ] [ No. 05299 ] 6 12/16/96 EXHIBIT A PAGE 2 OF 2 CALVADA VALLEY UNIT 4A, BLK 5, LOT 16, 28
STREET IMPROVEMENTS - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 6" Gravel Road incl/Grading 1850 LF 9.00 16,650.00 TOTAL STREET IMPROVEMENTS 16,650.00 WATER SYSTEM - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 1676 LF 15.00 25,140.00 8" Water Valve 4 EA 550.00 2,200.00 Fire Hydrants Assembly 4 EA 2,000.00 8,000.00 8" Tee 3 EA 350.00 1,050.00 TOTAL WATER SYSTEM 36,390.00 FIELD SURVEY - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL Survey Monuments 26 EA 50.00 1,300.00 TOTAL FIELD SURVEY 1,300.00 SUBTOTAL CONSTRUCTION COSTS 54,340.00 15% CONTINGENCY 8,151.00 TOTAL CONSTRUCTION COSTS 62,491.00 ------------
7 EXHIBIT B 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 149-37-89 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of SIXTY-TWO THOUSAND FOUR HUNDRED NINETY-ONE AND NO/100 Dollars ($62,491.00), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated DECEMBER 17, 1996, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: OFFSITE IMPROVEMENTS AT CALVADA VALLEY UNIT 4A, BLK 5, LOT 16, 26 LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 19TH day of DECEMBER, 1996. Witness: BY: PREFERRED EQUITIES CORPORATION ------------------------------ BY: [SIG.] COUNTERSIGNED THIS 19TH DAY OF ------------------- DECEMBER, 1996 Principal BY: /s/ [SIG.] INSURANCE COMPANY OF THE WEST --------------------- (NEVADA AGENT) /s/ DEBBIE K. BAILEY ---------------------------------- Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT - ------------------------ 8 EXHIBIT B - PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE I, E. Hamed Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 19TH day of DECEMBER 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HAMED DAVIS ------------------------------ E. Hamed Davis, Vice President [OFFICIAL REQUEST STAMP NYE CO. NEV. RECORDER] EX-10.108 7 SUBDIVISION IMPROVEMENT AGREEMENT DATED 12/17/96 1 EXHIBIT 10.108 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 17th day of December, 1996 by and between Preferred Equities Corporation (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, WITNESSETH: WHEREAS, at a regular meeting of the BOARD, held on the 17th day of December, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Calvada North Unit 3, Block 24, Lot 12," Assessor's parcel number 31-293-06, consisting of 41 lots, located within the Town of Pahrump, Nye County, Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: 1. IMPROVEMENTS The estimated cost of roads, water system, sewer system and surveying is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 ROADS Developer shall improve all portions of streets and roads which appear on said map in conformance with plans submitted to, and approved by, the -1- 2 of 2 Originals 2 Public Works Department. Cost: $14,850.00 1.2 SITE SEWER SYSTEM LINES Developer shall construct all sewer lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $43,739.25 1.3 ON-SITE WATER SYSTEM LINES Developer shall construct water system lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $72,357.50 1.4 SURVEYING Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $2,050.00 Total Cost of Improvements: $132,996.75 2. SECURITY The complete performance of construction of the roads, water system, sewer system and surveying is secured by: A Performance Bond numbered 149-37-88 and dated Dec 19, 1996 (see Exhibit B) in the amount of $152,946.26, representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. -2- 2 of 2 Originals 3 Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indicate the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or -3- 2 of 2 Originals 4 nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer, Preferred Equities Corporation ATTEST: /s/ SANDRA L. MERLINO, DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A 1 OF 2 Improvement Bond Estimates for the following subdivisions: Calvada North Unit 1, Block 37 Calvada North Unit 1, Block 57 Calvada North Unit 3, Block 24 Calvada Valley Unit 4a, Block 5 Country Place II, Unit 4, Block 17 Calvada Meadows Unit 4 Prepared by: Crosby Mead Benton & Associates 6345 Balboa Blvd., Suite 140 Encino, CA 91315 (818) 343-5384 [ SEAL OF ] [ REGISTERED PROFESSIONAL ENGINEER ] [ STATE OF NEVADA ] [ No. 05299 ] 6 12/16/96 EXHIBIT A PAGE 2 OF 2 CALVADA VALLEY NORTH UNIT NO. 3, BLK 24, LOT 12
STREET IMPROVEMENTS - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 6" Gravel Road incl/Grading 1650 LF 9.00 14,850.00 TOTAL STREET IMPROVEMENTS 14,850.00 SEWER SYSTEM - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 603 LF 15.00 9,045.00 10" PVC 1331 LF 16.75 22,294.25 Manholes 8 EA 1,500.00 12,000.00 Conc. Enc'mt 40 LF 10.00 400.00 TOTAL SEWER SYSTEM 43,739.25 WATER SYSTEM - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 3251 LF 15.00 48,765.00 10" PVC 310 LF 16.75 5,192.50 8" Water Valve 6 EA 550.00 3,300.00 8" Tee 1 EA 350.00 350.00 10" Tee 2 EA 500.00 1,000.00 Road Crossing 2 EA 500.00 1,000.00 10" Water Valve 1 EA 750.00 750.00 Fire Hydrants Assembly 5 EA 2,000.00 10,000.00 Fire Hydrants Assembly (No FH) 2 EA 1,000.00 2,000.00 TOTAL WATER SYSTEM 72,357.50 FIELD SURVEY - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL Survey Monuments 41 EA 50.00 2,050.00 TOTAL FIELD SURVEY 2,050.00 SUBTOTAL CONSTRUCTION COSTS 132,996.75 15% CONTINGENCY 19,949.51 TOTAL CONSTRUCTION COSTS 152,946.26 ------------
7 EXHIBIT B 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 149-37-88 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of ONE HUNDRED FIFTY-TWO THOUSAND NINE HUNDRED FORTY-SIX AND 26/100 Dollars ($152,946.26), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contracted dated _________________, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH UNIT NO. 3, BLK 24, LOT 12 LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 19TH day of DECEMBER, 1996. Witness: BY: PREFERRED EQUITIES CORPORATION ------------------------------ BY: /s/ [ILLEGIBLE] COUNTERSIGNED THIS 19TH DAY OF ------------------- DECEMBER, 1996 Principal BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST --------------------- (NEVADA AGENT) /s/ DEBBIE K. BAILEY ---------------------------------- Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT - ------------------------ 8 EXHIBIT B - PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE I, E. Hamed Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 19TH day of DECEMBER 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HARNED DAVIS ------------------------------ E. Harned Davis, Vice President [OFFICIAL REQUEST STAMP NYE CO. NEV. RECORDER] EX-10.109 8 SUBDIVISION IMPROVEMENT AGREEMENT DATED 12/17/96 1 EXHIBIT 10.109 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 17th day of December 1996 by and between Preferred Equities Corporation (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, WITNESSETH: WHEREAS, at a regular meeting of the BOARD, held on the 17th day of December, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Calvada North Unit 1, Block 57, Lot 101," Assessor's parcel number 30-161-01, consisting of 50 lots, located within the Town of Pahrump, Nye County, Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: 1. IMPROVEMENTS The estimated cost of roads, water system, sewer system and surveying is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 ROADS Developer shall improve all portions of streets and roads which appear on said map in conformance with plans submitted to, and approved by, the -1- 2 of 2 Originals 2 Public Works Department. Cost: $21,240.00 1.2 ON SITE SEWER SYSTEM LINES Developer shall construct all sewer lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $41,565.00 1.3 ON-SITE WATER SYSTEM LINES Developer shall construct water system lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $52,130.00 1.4 SURVEYING Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $2,500.00 Total Cost of Improvements: $117,435.00 2. SECURITY The complete performance of construction of the roads, water system, sewer system and surveying is secured by: A Performance Bond numbered 149-37-86 and dated Dec 19, 1996 (see Exhibit B) in the amount of $135,050.25, representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. -2- 2 of 2 Originals 3 Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indict the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or -3- 2 of 2 Originals 4 nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer, Preferred Equities Corporation ATTEST: /s/ SANDRA L. MERLINO, DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A 1 OF 2 Improvement Bond Estimates for the following subdivisions: Calvada North Unit 1, Block 37 Calvada North Unit 1, Block 57 Calvada North Unit 3, Block 24 Calvada Valley Unit 4a, Block 5 Country Place II, Unit 4, Block 17 Calvada Meadows Unit 4 Prepared by: Crosby Mead Benton & Associates 6345 Balboa Blvd., Suite 140 Encino, CA 91316 (818) 343-5384 [ SEAL OF ] [ REGISTERED PROFESSIONAL ENGINEER ] [ STATE OF NEVADA ] [ No. 05299 ] 6 12/16/96 EXHIBIT A PAGE 2 OF 2 CALVADA VALLEY NORTH UNIT NO. 1, BLOCK 57, LOT 101
STREET IMPROVEMENTS - ------------------- UNIT DESCRIPTION QTY UNIT PRICE TOTAL 6" Gravel Road incl/Grading 2360 LF 9.00 21,240.00 TOTAL STREET IMPROVEMENTS 21,240.00 SEWER SYSTEM - ------------ UNIT DESCRIPTION QTY UNIT PRICE TOTAL 8" PVC 1971 LF 15.00 29,565.00 Manholes 8 EA 1500.00 12,000.00 TOTAL SEWER SYSTEM 41,565.00 WATER SYSTEM - ------------ UNIT DESCRIPTION QTY UNIT PRICE TOTAL 8" PVC 2202 LF 15.00 33,030.00 8" Water Valve 7 EA 550.00 3,850.00 Fire Hydrants Assembly 6 EA 2,000.00 12,000.00 8" Tee 3 EA 350.00 1,050.00 12" Tee 2 EA 600.00 1,200.00 Road crossing 2 EA 500.00 1,000.00 TOTAL WATER SYSTEM 52,130.00 FIELD SURVEY - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL Survey Monuments 50 EA. LOT 50.00 2,500.00 TOTAL FIELD SURVEY 2,500.00 SUBTOTAL CONSTRUCTION COSTS 117,435.00 15% CONTINGENCY 17,615.25 TOTAL CONSTRUCTION COSTS 135,050.25 ------------
7 EXHIBIT B 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 149-37-86 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of ONE HUNDRED THIRTY-FIVE THOUSAND FIFTY DOLLARS AND 25/100 Dollars ($135,050.25), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated DECEMBER 17, 1996, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH UNIT NO. 1, BLK 57, LOT 101 LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 19TH day of DECEMBER, 1996. Witness: BY: PREFERRED EQUITIES CORPORATION ------------------------------ BY: /s/ [ILLEGIBLE] COUNTERSIGNED THIS 19TH DAY OF ------------------- DECEMBER, 1996 Principal BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST --------------------- (NEVADA AGENT) /s/ DEBBIE K. BAILEY ---------------------------------- Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT - ------------------------ 8 EXHIBIT B - PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 19TH day of DECEMBER 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HARNED DAVIS ------------------------------ E. Harned Davis, Vice President [OFFICIAL REQUEST STAMP NYE CO. NEV. RECORDER] EX-10.110 9 SUBDIVISION IMPROVEMENT AGREEMENT DATED 12/17/96 1 EXHIBIT 10.110 SUBDIVISION IMPROVEMENT AGREEMENT THIS AGREEMENT, made and entered into this 17th day of December 1996 by and between Preferred Equities Corporation (hereinafter referred to as "DEVELOPER"), party of the first part, and the BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF NYE, STATE OF NEVADA (hereinafter referred to as "BOARD"), party of the second part, WITNESSETH: WHEREAS, at a regular meeting of the BOARD, held on the 17th day of December, 1996, the DEVELOPER submitted a final Subdivision Map entitled "Calvada North Unit 1, Block 37, Lot 262," Assessor's parcel number 30-551-02, consisting of 16 lots, located within the Town of Pahrump, Nye County, Nevada; and WHEREAS, approval of said final Subdivision Map was conditioned upon, and subject to, certain improvements required by the laws of the State of Nevada, the ordinances of the County of Nye, or in order to provide for the health, safety, welfare and morals of the citizens of Nye County; and WHEREAS, said final Subdivision Map has been examined by Nye County and found to be in compliance with current laws and ordinances in effect as of the date of this Agreement, excepting that certain required improvements have not been completed. NOW, THEREFORE, in consideration of the approval of said final Subdivision Map by the BOARD, DEVELOPER promises and agrees, at no expense to Nye County nor its citizens, to complete the following improvements: 1. IMPROVEMENTS The estimated cost of roads, water system, sewer system and surveying is provided by Crosby, Mead, Benton and Associates (see Exhibit A). 1.1 ROADS Developer shall improve all portions of streets and roads which appear on said map in conformance with plans submitted to, and approved by, the -1- 2 of 2 Originals 2 Public Works Department. Cost: $8,865.00 1.2 ON-SITE SEWER SYSTEM LINES Developer shall construct all sewer lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $19,914.50 1.3 ON-SITE WATER SYSTEM LINES Developer shall construct water system lines in conformance with plans and specifications approved by the Nevada Division of Health. Cost: $19,473.50 1.4 SURVEYING Developer shall cause each lot to be properly surveyed and monumented in accordance with Nevada Revised Statutes. Cost: $800.00 Total Cost of Improvements: $49,053.00 2. SECURITY The complete performance of construction of the roads, water system, sewer system and surveying is secured by: A Performance Bond numbered 149-37-87 and dated Dec 19, 1996 (see Exhibit B) in the amount of $56,410.95, representing 115% of the estimated cost of said improvements. 3. APPROVAL OF WORK AFTER INSPECTION Whenever an authorized representative of the BOARD inspects portions of work as mentioned above, and finds the work performed to be in a satisfactory condition for inclusion in the completed project, the BOARD's representative shall issue a statement of inspection that shall approve the work. -2- 2 of 2 Originals 3 Inspection and approval of any item of work shall not forfeit the right of the BOARD to require the corrections of workmanship quality or materials at any time during the course of work, although previously approved by oversight. The BOARD shall have the right to require reasonable corrections by the Developer of any improvements contained in this Agreement that does not conform to present State and County standards, specifications, or ordinances even though the plans for the improvement in question may have been approved by the BOARD's representative. DEVELOPER must provide the BOARD copies of all reports, tests, inspections, etc. that are required to be provided to state agencies. Also, DEVELOPER must provide written certification that the construction was completed in accordance with plans and specifications. 4. MAP REQUIREMENTS ON COMPLETION OF IMPROVEMENTS Upon completion of all of the improvements required within this Agreement, the DEVELOPER shall furnish the BOARD with a map that shall accurately indicate the location of manholes; the location, size, and depth of sewer mains, underground water, power, and other lines if any with street plans and profiles for same. 5. TIME LIMIT FOR COMPLETION OF IMPROVEMENTS All of the improvements as set forth in the above paragraphs shall be completed no later than three (3) years from the date of this Agreement, failing which the BOARD may, at its option, avail itself of the security provided for the enforcement hereof to cause such improvements to be made by an independent contractor at the expense of the DEVELOPER or the security. 6. LIABILITY OF DEVELOPER DEVELOPER shall save and hold the BOARD harmless and free from any suit or cause of action, claim or demand, which may be brought or made against the DEVELOPER or its successor in interest or its purchaser by any third party arising from the performance or -3- 2 of 2 Originals 4 nonperformance of the construction of the subdivision improvements as provided herein or any and all other conditions of this Agreement. DEVELOPER shall furthermore continue to be liable to the BOARD for the performance of all terms and conditions of this Agreement regardless of the DEVELOPER's failure to continue work under this Agreement or assignment of its rights to do such work and regardless of the status of ownership of the real property or any portion thereof made the subject of the final Subdivision Map of the Subdivision referred to in this Agreement. In the event the BOARD is required to institute legal action to compel performance of this Agreement, or to defend any suit or claim, or liability resulting from or arising out of this Agreement, DEVELOPER shall pay to the BOARD all reasonable attorney's fees, costs of suit, and all other expenses of litigation incurred by the BOARD in connection therewith. 7. SUCCESSORS OF DEVELOPER This Agreement shall be binding upon, and inure to the benefit of all heirs, executors, administrators, successors, assigns, or purchasers of the respective parties to this Agreement, and all terms and conditions contained herein shall be equally binding on said heirs, executors, administrators, successors, assigns, or purchasers. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. COUNTY OF NYE DEVELOPER /s/ CAMERON MCRAE /s/ FREDERICK H. CONTE - ----------------------------- ------------------------------ Cameron McRae, Chairman Frederick H. Conte Board of County Commissioners Executive Vice President & Chief Operating Officer, Preferred Equities Corporation ATTEST: /s/ SANDRA L. MERLINO, DEPUTY - ----------------------------- Arte Robb, County Clerk and Ex-Officio Clerk of the Board -4- 2 of 2 Originals 5 EXHIBIT A 1 OF 2 Improvement Bond Estimates for the following subdivisions: Calvada North Unit 1, Block 37 Calvada North Unit 1, Block 57 Calvada North Unit 3, Block 24 Calvada Valley Unit 4a, Block 5 Country Place II, Unit 4, Block 17 Calvada Meadows Unit 4 Prepared by: Crosby Mead Benton & Associates 6345 Balboa Blvd., Suite 140 Encino, CA 91316 (818) 343-5384 [SEAL] 6 EXHIBIT A PAGE 2 OF 2 12/16/96 PAGE 1 CALVADA VALLEY NORTH UNIT NO. 1, BLOCK 37, LOT 262
STREET IMPROVEMENTS - ------------------- DESCRIPTION QTY UNIT UNIT PRICE TOTAL 6" Gravel Road incl/Grading 985 LF 9.00 8,865.00 TOTAL STREET IMPROVEMENTS 8,865.00 SEWER SYSTEM - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 612 LF 15.00 9,180.00 12" PVC 337 LF 18.50 6,234.50 Manholes 3 EA 1500.00 4,500.00 TOTAL SEWER SYSTEM 19,914.50 WATER SYSTEM - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL 8" PVC 633 LF 15.00 9,495.00 10" PVC 342 LF 16.75 5,728.50 8" Water Valve 1 EA 550.00 550.00 10" Water Valve 1 EA 750.00 750.00 10" Tee 1 EA 450.00 450.00 Road crossing 1 EA 500.00 500.00 Fire Hydrants Assembly 1 EA 2,000.00 2,000.00 TOTAL WATER SYSTEM 19,473.50 FIELD SURVEY - ------------ DESCRIPTION QTY UNIT UNIT PRICE TOTAL Survey Monuments 16 EA/LOT 50.00 800.00 TOTAL FIELD SURVEY 800.00 SUBTOTAL CONSTRUCTION COSTS 49,053.00 15% CONTINGENCY 7,357.95 TOTAL CONSTRUCTION COSTS 56,410.95 ------------
7 EXHIBIT B 1 OF 2 [LOGO] INSURANCE COMPANY OF THE WEST P.O. Box 85563 San Diego, CA 92186-5563 Bond No. 149-37-87 Subdivision Bond Faithful Performance--Public Works SUBDIVISION BOND KNOW ALL MEN BY THESE PRESENTS: That PREFERRED EQUITIES CORPORATION, as Principal, and the INSURANCE COMPANY OF THE WEST, a corporation organized and existing under the laws of the State of California and authorized to transact surety business in the State of NEVADA as Surety, are held and firmly bound unto COUNTY OF NYE, NEVADA in the sum of FIFTY-SIX THOUSAND FOUR HUNDRED TEN DOLLARS AND 95/100 Dollars ($56,410.95), for the payment whereof, well and truly to be made, said Principal and Surety bind themselves, their heirs, administrators, successors and assigns, jointly and severally, firmly by these presents. The condition of the foregoing obligation is such that, whereas the above bounden Principal has entered into a contract dated DECEMBER 17, 1996, with the COUNTY OF NYE, NEVADA to do and perform the following work, to wit: OFFSITE IMPROVEMENTS AT CALVADA VALLEY NORTH UNIT NO. 1, BLOCK 37, LOT 262 LOCATED WITHIN NYE COUNTY, NEVADA NOW, THEREFORE, if the above bounden Principal shall well and truly perform the work contracted to be performed under said contract, then this obligation shall be void; otherwise to remain in full force and effect. SIGNED and SEALED this 19TH day of DECEMBER, 1996. Witness: BY: PREFERRED EQUITIES CORPORATION ------------------------------ BY: /s/ [ILLEGIBLE] COUNTERSIGNED THIS 19TH DAY OF ------------------- DECEMBER, 1996 Principal BY: /s/ [ILLEGIBLE] INSURANCE COMPANY OF THE WEST --------------------- (NEVADA AGENT) /s/ DEBBIE K. BAILEY ---------------------------------- Sedgwick James of Nevada DEBBIE K. BAILEY ATTORNEY-IN-FACT - ------------------------ 8 EXHIBIT B PAGE 2 OF 2 INSURANCE COMPANY OF THE WEST HOME OFFICE: SAN DIEGO, CALIFORNIA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That INSURANCE COMPANY OF THE WEST, a California Corporation, does hereby appoint: DEBBIE K. BAILEY its true and lawful Attorney(s)-in-Fact, with full power and authority, to execute, on behalf of the Company, fidelity and surety bonds, undertakings, and other contracts of suretyship of a similar nature. This Power of Attorney is granted and is signed and sealed by facsimile under the authority of the following Resolution adopted by the Board of Directors on the 22nd day of November, 1994, which said Resolution has not been amended or rescinded and of which the following is a true copy: "RESOLVED, that the Chairman of the Board, the President, an Executive Vice President or a Senior Vice President of the Company, and each of them, is hereby authorized to execute Powers of Attorney qualifying the attorney named in the given Power of Attorney to execute on behalf of the Company, fidelity and surety bonds, undertakings, or other contracts of suretyship of a similar nature; and to attach thereto the seal of the Company; provided however, that the absence of the seal shall not affect the validity of the instrument. FURTHER RESOLVED, that the signatures of such officers and the seal of the Company, and the signatures of any witnesses, the signatures and seal of any notary, and the signatures of any officers certifying the validity of the Power of Attorney, may be affixed by facsimile." IN WITNESS WHEREOF, INSURANCE COMPANY OF THE WEST has caused these presents to be signed by its duly authorized officers this 7th day of September 1995. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ JOHN L. HANNUM ------------------------------------- John L. Hannum, Senior Vice President STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On September 7th, 1995 before me, personally appeared John L. Hannum, Senior Vice President of INSURANCE COMPANY OF THE WEST, personally known to me to be the individual and officer who executed the within instrument, and acknowledged to me that he executed the same in his official capacity and that by his signature on the instrument, the corporation, on behalf of which he acted, executed the instrument. WITNESS my hand and official seal. [NOTARY PUBLIC-CALIFORNIA /s/ NORMA PORTER SAN DIEGO COUNTY SEAL] ---------------- Notary Public CERTIFICATE: I, E. Harned Davis, Vice President of INSURANCE COMPANY OF THE WEST, do hereby certify that the original POWER OF ATTORNEY, of which the foregoing is a true copy, is still in force and effect, and that this certificate may be signed by facsimile under the authority of the above quoted resolution. IN WITNESS WHEREOF, I have subscribed my name as Vice President, on this 19TH day of DECEMBER 1996. INSURANCE COMPANY OF THE WEST [INSURANCE COMPANY OF THE WEST CORPORATE SEAL] /s/ E. HARNED DAVIS ------------------------------- E. Harned Davis, Vice President ICW 37 Official Records Nye County Nevada Requested by: Preferred Equities Corp. 01/02/97 3:36 PM Naoma Lydon Recorder Fee: $14.00 State: $ Dep: tp EX-10.111 10 COMMITMENT LETTER / FINOVA CAPITAL CORP. 1 EXHIBIT 10.111 [FINOVA LETTERHEAD] February 28, 1997 Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Herbert Hirsch VIA AIRBORNE EXPRESS Re: Increase in Revolving Receivables Loan to $75 Million Dear Mr. Hirsch: We are pleased to advise you that FINOVA Capital Corporation ("Lender") has agreed to increase the Revolving Receivables Line of Credit to Preferred Equities Corporation, a Nevada corporation ("Borrower"), to $75 million (the "Loan"), subject to the terms and conditions set forth in this letter. 1. BORROWER. Preferred Equities Corporation, a Nevada Corporation. 2. GUARANTOR. Mego Financial Corp., a New York Corporation. 3. AMOUNT AND PURPOSE. The Loan shall be in the total aggregate amount of $75 million. The Loan shall be constituted of the following loan facilities: (a) $75 million aggregate revolving Receivables line of credit (the "Receivables Line"), which represents a $25 million increase in the existing $50 million Receivables line; (b) $15 million aggregate revolving mortgage loan facility (the "Mortgage Loan Facility") for the purpose of providing funds to Borrower on a revolving basis in order to finance Borrower's acquisition and refurbishment of time-share projects; (c) $5 million nonrevolving mortgage loan previously made with respect to the Aloha Bay time-share project located in Pinellas County, Florida (the "Aloha Bay Loan"); and (d) $7 million nonrevolving mortgage loan made with respect to two (2) office buildings owned by Borrower and located in Las Vegas, Nevada (the "Office Loan"). 2 [FINOVA LOGO] Preferred Equities Corporation February 28, 1997 Page 2 The maximum aggregate balance of the Loan at any time shall not exceed $75 million (the "Maximum Loan Amount"). The maximum amount of the Loan available to Borrower under the Receivables Line shall be reduced by the then aggregate outstanding principal balances of the Mortgage Loan Facility, the Aloha Bay Loan and the Office Loan. In addition, the total principal amount of any and all indebtedness of Borrower to Lender under the Loan which is secured by Receivables Collateral encumbering Lots shall not exceed $35 million at any time. 4. TERMS AND CONDITIONS OF LOAN. The terms and conditions applicable to the Loan shall be as currently set forth in that Amended and Restated Loan and Security Agreement dated as of May 10, 1989, executed by Borrower and Lender's predecessor-in-interest, Greyhound Real Estate Finance Company, an Arizona corporation ("GREFCO"), as subsequently amended pursuant to fifteen (15) amendments thereafter executed by Borrower and Lender (collectively, the "PEC Loan Agreement"), and by that Loan and Security Agreement dated as of March 30, 1989, executed by Borrower's predecessor-in-interest, Vacation Spa Resorts, Inc., a Tennessee corporation, and GREFCO, as subsequently amended pursuant to six (6) amendments executed by Borrower and Lender (collectively, the "VSR Loan Agreement"), with the material modifications and amendments hereinafter set forth (for the purpose of this Commitment Letter, all references to the "Loan Agreement" shall be deemed to refer to the applicable provision(s) of the PEC Loan Agreement and/or the VSR Loan Agreement, and all initial capitalized terms used herein which are not otherwise defined herein shall have the meaning ascribed thereto in the Loan Agreement): 4.1 Interest. As of the Closing Date (hereinafter described), the Receivables Line and the Mortgage Loan Facility shall bear interest at a rate per annum (the "Interest Rate") equal to the "Prime Rate" of interest publicly announced from time to time by Citibank, N.A. as its base rate plus 2%, adjusted monthly. The initial Prime Rate shall be Citibank's base rate in effect on the first day of the month of the initial advance of the Loan proceeds. Thereafter, the Prime Rate will change based upon Citibank's base rate in effect on the first day of each subsequent month. Interest shall be calculated on the basis of a 360-day year and charged for the actual days elapsed. The Interest Rate payable on the Aloha Bay Loan and the Office Loan shall remain unchanged. 4.2 Borrowing Term. Borrower shall have the right to request and receive Advances under the Receivables Line for a period of thirty-six (36) months following the first Advance made under the Receivables Line after the Closing Date, or thirty-nine (39) months after date of this Commitment Letter, whichever comes first. Borrower shall have the right to request and receive Advances under the Mortgage Loan Facility for a period of twelve (12) months after the Closing Date. 3 [FINOVA LOGO] Preferred Equities Corporation February 28, 1997 Page 3 The Borrowing Terms with respect to the Aloha Bay Loan and the Office Loan shall remain unchanged. 4.3 Borrowing Base Formula Under Receivables Line. The Advances of the Loan which shall be available to Borrower under the Receivables Line shall be equal to lesser of (a) eighty-five percent (85%) of the unpaid principal balance payable under the Eligible Receivables, or (b) ninety percent (90%) of the then present value assigned to the unmatured installments of principal and interest payable under the Eligible Receivables, discounted at Lender's prevailing discount rate as described in the Loan Agreement (except that the Lender's prevailing discount rate as described in paragraph 7.6.1(c) of the Loan Agreement shall be amended to provide a floor of twelve percent (12%) per annum); provided, however, that the maximum Borrowing Base allocable to Eligible Receivables arising from the sale of Units in Project (Reno) shall not in any event exceed $4 million. There shall no longer be a limitation on the maximum Borrowing Base allocable to Eligible Receivables arising from sales of Lots in projects located in Colorado; provided, however, that in calculating the Borrowing Base, the indebtedness secured by Eligible Receivables arising from the sale of Lots shall be limited to $35 million. In addition, Advances of the Loan with respect to Eligible Receivables arising from "Unsolidified Lot Sales" shall be limited to 65% of the unpaid principal balance payable under any Eligible Receivables arising from "Unsolidified Lot Sales"; provided that the indebtedness secured by Eligible Receivables arising from "Unsolidified Lot Sales"; shall not exceed at any time $2.5 million. For the purpose of the Loan, "Unsolidified Lot Sales" shall be deemed to mean an Instrument or Contract which arises out of the sale of a Lot by Borrower to a Purchaser where such Purchaser has not personally inspected the Lot with a representative of Borrower and the Instrument or Contract provides a specific period after the date of purchase within which such Purchaser may cancel the Instrument or Contract as a result of the fact that the Purchaser had not inspected the Lot prior to the purchase. At such time as the Purchaser makes any such required inspection or the period for rescission of the Instrument or Contract has expired, the 65% Advance limitation with respect to such Eligible Receivables shall no longer apply. 4.4 Maturity Date. The principal balance of the Loan consisting of Advances under the Receivables Line shall be payable on a monthly basis in an amount equal to one hundred percent (100%) of all proceeds of the Receivables Collateral collected during each month during the Loan term. All amounts of unpaid principal representing Advances made under the Receivables Line with respect to Receivables Collateral secured by Units shall be paid in full not later than the seventh (7th) anniversary of the date of the last Advance made by Lender under the Receivables Line. All Advances of the Loan made under the Receivables Line with respect to Lots shall be paid in full not later than the tenth (10th) anniversary of the date of the last Advance made under the Receivables Line. 4 [FINOVA LOGO] Preferred Equities Corporation February 28, 1997 Page 4 Payments of the outstanding principal balance under the Mortgage Loan Facility shall be made on a monthly basis commencing with the first full calendar month following the final Advance made with respect to the Project being financed by such Advance with payments of principal and interest in an amount necessary to amortize the entirety of the Advance over a twenty-four (24) month amortization period. The payment provisions with respect to the Aloha Bay Loan and the Office Loan shall continue as set forth in the promissory notes executed by Borrower in connection with such loans. 4.5 Partial Prepayment. Advances under the Receivables Line may be partially prepaid in increments of not less than $2 million per prepayment; provided that Borrower gives Lender thirty (30) days prior written notice of its intent to partially prepay the Receivables Line, which notice shall be irrevocable; and provided, further, that any such prepayment is accompanied by accrued interest on the amount to be prepaid, any and all other sums then due to Lender, and a prepayment premium in an amount equal to one percent (1%) of the amount to be prepaid; and provided, further, that in no event shall any partial prepayment reduce the total outstanding principal balance of the Loan below $35 million. Advances which are represented by Borrower's promissory notes executed in connection with the Aloha Bay Loan and the Office Loan and any Advances under the Mortgage Loan Facility may be prepaid in accordance with the terms and conditions of the promissory notes executed by Borrower in connection therewith. 4.6 Full Prepayment. The Loan may be prepaid in whole; provided that Borrower gives Lender at least thirty (30) days prior written notice of its intent to prepay the total outstanding principal balance of the Loan, which notice shall be irrevocable; and provided, further, that any such prepayment is accompanied by accrued interest on the Loan and any and all other sums then due to Lender, together with a prepayment premium determined in accordance with the following schedule:
Month of Prepayment Prepayment Premium - ------------------- ------------------ Months 1-18 3% of the principal balance outstanding Months 19-36 2% of the principal balance outstanding Months 37-54 1% of the principal balance outstanding Month 55 and thereafter 0% of the principal balance outstanding
5 [FINOVA LOGO] Preferred Equities Corporation February 28, 1997 Page 5 4.7 Security. All obligations of Borrower to Lender shall continue to be secured by (a) the Receivables Collateral as described in the Loan Agreement, (b) the First Mortgage Liens recorded with respect to the following Projects as described in the Loan Agreement: Aloha Bay Phase I, Headquarters, FCFC Building, Ida Building Addition, Ida Building I, Ida Building II and Winnick Building Addition, (c) the Mego Guarantee, and (d) all other security for the performance of Borrower's obligations under the Loan as described in the Loan Agreement. 4.8 Loan Fees. Borrower shall pay to Lender the following Loan Fees in connection with the Loan described herein: (a) One percent (1%) of the increase in the Receivables Line ($250,000.00), which shall be paid by Borrower to Lender in an amount equal to $180,000.00 simultaneously with the first Advance made under the Receivables Line after the Closing Date, and the balance thereof ($70,000.00) shall be paid at such time as the outstanding principal balance of the Loan under the Receivables Line equals or exceeds $68 million. (b) For each Project funded by an Advance under the Mortgage Loan Facility, Borrower shall pay a fee equal to one-half percent (.5%) of each Advance at the time of such Advance, together with an incentive fee equal to $20.00 per Time-Share Interval (the "Incentive Fee"), which Incentive Fee shall be payable at such time as such interval is sold to a Purchaser and released from the mortgage or deed of trust recorded with respect to such Project. 4.9 Eligible Receivables. The existing requirements for Eligible Receivables as defined under the Loan Agreement shall continue to apply with the following modifications: (a) With respect to Instruments or Contracts in the case of Receivables Collateral encumbering Units, consecutive monthly installments of principal and interest shall have a remaining term not exceeding ninety-six (96) months; provided, however, that Instruments or Contracts consisting of Receivables Collateral encumbering Units with consecutive monthly installments of principal and interest having a remaining term exceeding 96 months, but not exceeding 120 months, shall be includable as Eligible Receivables to the extent that such Instruments or Contracts have an aggregate unpaid principal balance not exceeding twenty percent (20%) of the aggregate unpaid principal balance of the total Receivables Collateral encumbering Units then pledged by Borrower to Lender under the Loan Agreement. 6 Preferred Equities Corporation February 28, 1997 Page 6 (b) Receivables Collateral arising out of the sale of Lots which are not within a Project included within the definition of "Project" under the Loan Agreement, shall not be deemed to constitute Eligible Receivables unless such Project is first approved by Lender. 4.10 Requirements for Funding Under Mortgage Loan Facility. In addition to all other conditions and requirements under the Loan Agreement with respect to Advances under the Mortgage Loan Facility, each Project to be funded under the Mortgage Loan Facility shall satisfy the following conditions and requirements: (a) The Borrower shall have a total equity investment in such Project of not less than ten percent (10%) of the total Project cost; (b) Each Project to be funded under the Mortgage Loan Facility shall be located in relatively close proximity to existing Projects or in time-share markets whose historical sales are deemed satisfactory to Lender. (c) No Projects funded under the Mortgage Loan Facility shall consist of Lots; (d) Each Project to be funded under the Mortgage Loan Facility must be approved by Lender. 4.11 Marketing Expenses. Borrower's covenant with respect to Marketing Costs shall be modified to provide that Borrower's Marketing Costs (as defined in the Loan Agreement) shall not exceed fifty-five percent (55%) of Net Sales (as defined in the Loan Agreement) for any of Borrower's trailing four (4) quarters. Any fees payable by Borrower to Hospitality Franchise Systems, Inc. (Ramada) shall be excluded from the calculation of Marketing Costs. The covenant with respect to Marketing Costs shall be tested on a semiannual basis at the end of Borrower's second (2nd) fiscal quarter and again at the end of Borrower's fourth (4th) fiscal quarter for each of Borrower's fiscal years. 4.12 Tangible Net Worth. The Tangible Net Worth requirement under the Loan Agreement shall be modified to read as follows: "Until full and complete performance of all of Borrower's Obligations under the Loan, the Consolidated Tangible Net Worth of Borrower and its Subsidiaries shall be, at all times, not less than $20 million (the "Tangible Net Worth Base"); provided, however, that the Tangible Net Worth Base shall be increased each fiscal quarter by an amount equal to fifty percent (50%) of the consolidated Net Income of Borrower and its Subsidiaries (if any), commencing with Borrower's fiscal 7 Preferred Equities Corporation February 28, 1997 Page 7 quarter ending November 30, 1997; and provided, further, that the Tangible Net Worth base shall not be increased to more than $25 million. In the event that Borrower and its Subsidiaries do not realize any Net Income for any fiscal quarter, or if there is a Net Loss for such quarter, the Tangible Net Worth Base applicable to the next successive quarter shall remain unchanged and shall not in any event be reduced or decreased. For purposes of testing the Tangible Net Worth requirement, the definition of "Consolidated Tangible Net Worth" shall mean, on any date of determination thereof, the Consolidated Net Worth of Borrower and its Subsidiaries, as determined in accordance with GAAP, after deducting the value of patents, trademarks, goodwill and other intangible assets, the value of assets treated as "questionable" by the accounting firm shall have prepared Borrower's most recent financial statement, and after deducting all amounts due Borrower from its Affiliates or from Mego Financial Corp. (provided that the deduction for any amounts owed to Borrower from Mego Mortgage shall include only amounts which are owed in excess of $1 million). It is agreed that deferred selling expenses determined in accordance with GAAP shall not be classified as intangible assets. For the purposes of determining the quarterly increases in the Tangible Net Worth Base, the Net Income of Borrower and its Subsidiaries shall be determined in accordance with GAAP." 5. CONDITIONS PRECEDENT TO CLOSING. The following shall be delivered to lender or occur prior to the Closing Date, all in form, manner and substance satisfactory to Lender, in Lender's sole discretion: 5.1 Loan Documents. Such duly executed loan documents as lender shall require to evidence and secure the Loan (the "Loan Documents"), which shall include a Second Amended and Restated Loan and Security Agreement which shall operate to restate and consolidate all of the current and applicable terms and conditions of the Loan Agreement as modified by this Commitment Letter. 5.2 Continued Perfection of Liens. Evidence that all liens and security interests granted to Lender have been duly perfected and continue to be perfected as first and prior liens and security interests, and that there are no other financing statements or liens filed against either Borrower or the property of either Borrower, except those which are approved by Lender. 5.3 Power and Authority. Such documents as Lender shall require to establish the proper organization and good standing of Borrower and Guarantor, the authority of the Borrower and Guarantor to execute the Loan Documents, and evidence that Borrower and Guarantor have obtained all approvals and consents which are necessary to enable Borrower to execute the Loan Documents and consummate the Loan. 8 Preferred Equities Corporation February 28, 1997 Page 8 5.4 Insurance. Evidence that there is in effect such casualty and hazard insurance, flood, business interruption, title, public liability and other insurance required by Lender and written by insurers, and in amounts and form satisfactory to Lender. 5.5 Legal Opinion. Favorable legal opinions of counsel for Borrower, dated as of the day of Closing, covering the due authorization, execution, delivery, validity, binding effect and enforceability of the Loan Documents and the validity of all liens and security interests granted thereby, compliance with usury laws, and such other matters as Lender may require. 5.6 Material Adverse Change. Evidence that as of the date of Closing there has been no material adverse change in the financial condition of Borrower or Guarantor from the financial statements and other documents most recently submitted to Lender. 5.7 Loan Costs. Payment of the applicable portion of the Loan Fees to Lender. Any other known third-party expenses (including, without limitation, appraisal fees, Lender's outside attorneys' fees and costs, Lender's out-of-pocket costs, brokerage commissions, environmental assessment fees, costs and premiums related to the examination and insurance of title, survey fees and travel expenses) shall also have been paid. 5.8 Other Institutional Financing. Such documents or evidence as Lender shall require to establish that any and all indebtedness owed by Borrower to Heller Financial and Textron Financial is currently paid and Borrower is in good standing and in compliance with all of its obligations to Heller Financial and Textron Financial. 5.9 Searches. Current lien, tax lien, litigation and judgment searches on each of Borrower and Guarantor. 5.10 Title Insurance. Borrower shall have obtained and delivered to Lender, at Borrower's expense, current date-down endorsements to all existing ALTA extended coverage mortgagee's title insurance policies issued in favor of Lender with respect to Aloha Bay Phase I, Headquarters, FCFC Building, Ida Building Addition, Ida Building I, Ida Building II and the Winnick Building Addition, which date-down endorsements shall insure that the deeds of trust or mortgages recorded with respect to such properties continue to be a first and prior lien on such property, subject only to such additional exceptions as may be approved by Lender. 5.11 Management Letters. Lender shall have received, reviewed and approved to its satisfaction Management Letters written by Deloitte & Touche to Guarantor and Borrower with respect to their 1996 fiscal year, together with any responses to such Management Letters by Borrower or Guarantor. 9 Preferred Equities Corporation February 28, 1997 Page 9 5.12 Financial Statements. Lender shall have received, reviewed and approved to its satisfaction financial statements for Guarantor and Borrower for the fiscal quarter ending November 30, 1996. In addition, and as a post-closing condition, not later than May 15, 1997, Lender shall have received, reviewed and approved to its satisfaction financial statements for Guarantor and Borrower for the fiscal quarter ending February 28, 1997. 5.13 Litigation Update. Borrower shall have delivered to Lender, and Lender shall have reviewed and approved to its satisfaction, an updated report and analysis with respect to all litigation matters involving Borrower and Guarantor. 6. FEES AND EXPENSES: Whether or not the Loan closes, Borrower shall pay to Lender on demand all outside attorneys' fees and costs, appraisal fees, title and recording charges, and all costs and expenses incurred by Lender in making the Loan. 7. CHOICE OF LAW: This Commitment and the Loan Documents shall be governed by the laws of the State of Arizona. Proper and exclusive (unless Lender requires otherwise) jurisdiction and venue for any dispute arising out of this Commitment or the Loan Documents shall be in Federal and State courts sitting in Phoenix, Arizona. 8. JURY TRIAL: Given the fact that any controversy which may arise under any of the Loan Documents or with respect to the transaction contemplated thereby would be based upon difficult and complex issues, the parties agree that any lawsuit arising out of such controversy will be tried in a court of competent jurisdiction by a judge sitting without a jury. 9. ACCEPTANCE AND EXPIRATION AND TERM: This Commitment shall not become effective unless a copy of the Commitment executed by Borrower, is delivered to Lender on or before March 5, 1997 at its offices at 7272 East Indian School Road, Suite 410, Scottsdale, Arizona 85251, to the attention of Jeffrey A. Owings. If the closing (the "Closing") does not occur on or before April 15, 1997, or the date to which the term is extended by the written agreement of Borrower and Lender, except for Borrower's obligations pursuant to Section 6, this Commitment shall automatically terminate. Cordially, FINOVA CAPITAL CORPORATION By: /s/ RANDALL HELLER ------------------------------------ Name: Randall Heller Title: Vice President 10 Preferred Equities Corporation February 28, 1997 Page 10 ACCEPTED AND AGREED TO THIS 3rd day of March, 1997: PREFERRED EQUITIES CORPORATION, a Nevada corporation By: /s/ RICHARD L. RODRIGUEZ ------------------------------------- Name: Richard L. Rodriguez Title: Vice President "BORROWER" MEGO FINANCIAL CORP., a Nevada corporation By: /s/ RICHARD L. RODRIGUEZ ------------------------------------- Name: Richard L. Rodriguez Title: Asst. Secretary & Asst. Treasurer "GUARANTOR" EX-10.112 11 EMPLOYMENT AGREEMENT / IRVING J. STEINBERG 1 EXHIBIT 10.112 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement") by and between MEGO FINANCIAL CORP., a New York corporation (the "Company"), with its principal office located at 4310 Paradise Road, Las Vegas, NV 89109 and IRVING J. STEINBERG (the "Employee") shall become effective on the Effective Date, as hereinafter defined. BACKGROUND OF THE AGREEMENT The Company desires to employ the Employee as an executive officer and the Employee desires to be employed by the Company under the terms of this Agreement. AGREEMENT The Company and the Employee, in consideration of the promises and the mutual covenants herein set forth, agree as follows: 1. Term. This Agreement shall commence as of the 1st day of August, 1996 (the "Effective Date"). The "Primary Period" of this Agreement shall mean that time period commencing on the Effective Date, and terminating on December 31, 1997, unless sooner terminated as provided in this Agreement. The "Second Period" of this Agreement shall mean that time period commencing on January 1, 1998 (unless the Agreement has been terminated prior to that date, in which case there will be no Second Period) and terminating on December 31, 2003, unless sooner terminated as provided in this Agreement. 2. Employment. The Company hereby employs the Employee, and the Employee hereby accepts such employment, to serve as an executive officer of the Company during the Primary Period, and as an employee of the Company during the Second Period, on the terms and conditions provided in this Agreement. 3. Duties and Performance. During the Primary Period, the Employee shall serve as Vice President of the Company and, if requested by the Company, as an officer of the Company's subsidiaries, and shall perform such tax, accounting, executive and administrative services as are generally expected of a Vice President with accounting and tax responsibilities, or as may be assigned to him from time to time by the Chairman of the Board, President, or the Chief Financial Officer of the Company, or by the board of directors of the Company (the "Board"). The Employee agrees to devote his full time, attention, energy and skill to the Company's business and good will during the Primary Period. During the Second Period, Employee shall devote such of his time, attention, energy and skill as shall be required to 1 2 fulfill his reduced duties, set forth on Exhibit A attached hereto and made a part hereof, or as agreed upon by the parties. During the Second Period, Employee may accept such other employment as Employee reasonably deems will not prevent Employee from fulfilling such reduced duties. During the Primary Period, the Employee shall be headquartered in the offices of the Company in Las Vegas, but shall be available to travel to other offices of the Corporation or its subsidiaries, or elsewhere, in the performance of his duties; and during the Second Period there shall be no restriction on the location where Employee shall reside or perform his duties. 4. Compensation. (a) The Company shall pay to the Employee, as compensation for his services, a salary at the rate of $188,000 per year during that portion of the Primary Period ending December 31, 1996, and at the rate of $194,000 per year during the remaining portion of the Primary Period, and a salary at the rate of $10,000 a year during the Second Period, which amounts are hereinafter referred to as the "Base Compensation". The Base Compensation shall be payable in equal installments, the frequency of which shall be determined by the Company, but in no event less frequently than monthly. The Company shall withhold and pay over to the appropriate governmental agency all payroll taxes (including income, social security and unemployment compensation taxes) required by the federal, state and local governments with jurisdiction over the Company. (b) The Base Compensation for the Second Period was calculated on the assumption that the Employee would provide four hours of service per month for an aggregate of forty-eight hours per year. Should the Company fail to utilize Employee's services to that extent, or not at all, or if Employee has other employment as contemplated in Paragraph 3, above, Employee shall still be entitled to his Base Compensation and other benefits to be received by Employee during the Second Period under this Agreement, unless this Agreement has been terminated by the Company as permitted by Section Five of this Agreement. Should the Employee perform additional hours of service beyond four hours per month at the Company's request during the Second Period, the Employee shall receive additional compensation for such additional hours at the rate of $200.00 per hour for such additional services performed during calendar year 1998, $225.00 per hour during calendar 1999, $250.00 per hour during calendar 2000, $275.00 per hour during calendar 2001, $300.00 per hour during calendar 2002 and $325.00 per hour during calendar 2003. (c) The Employee shall be included in the group of executives considered for an annual bonus under the Company's Executive Incentive Compensation Plan for fiscal years 1996 and 1997 only. (d) During the full term of this Agreement (including the Second Period) the Employee shall be entitled to such health, 2 3 dental, medical (Employee's medical insurance, but not that of his spouse, shall be at the Company's expense), disability, life and other insurance and 401(k) benefits as are provided to other executives of the Company, provided that with respect to any new benefits, or any existing benefits which are modified to require additional or new qualifications from all affected employees, all qualification requirements have been met. The Company will use its best efforts to cause Employee to be included in such benefits. (e) During the Primary Period, so long as the Employee is performing his duties hereunder, the Employee shall receive a monthly automobile allowance of $1,000 per month through December 1996, and $500 per month during the remainder of the Primary Period. The Company shall continue to pay the Employee's Country Club dues on the current basis, and the Employee shall be reimbursed for reasonable continuing education costs. (f) During the Primary Period, so long as the Employee is performing his duties hereunder, the Employee shall be entitled to the accrual of paid vacation time at the rate of one week on September 1, 1996, December 1, 1996, March 1, 1997, June 1, 1997, September 1, 1997, and December 1, 1997. It is agreed that the Employee will not take more than two weeks of vacation during the remaining portion of calendar 1996 and four weeks in calendar 1997, notwithstanding any carryover unused and accrued vacation time to which the Employee is entitled as of the date of this Agreement, for which the Employee will be compensated in accordance with subparagraph 4(h) below. (g) In addition to the foregoing, the Company shall reimburse the Employee for all reasonable business expenses, including cost of travel, meals and lodging while traveling. (h) Provided that this Agreement has not been terminated by the Company for Cause prior to January 1, 1998, on January 10, 1998, the Company shall pay to the Employee as advance severance pay the sum of $100,000 plus the amount of any remaining unused accrued vacation and sick time due to the Employee, at the Primary Period Base Salary rate in effect at that date. Such amounts shall be in full satisfaction of any severance pay or severance benefits due to the Employee in connection with this Agreement. 5. Termination of Employment 5.1 The Company may immediately terminate the Employee's employment for (a) Cause (as hereinafter defined), and (b) upon the Employee's death or total and permanent disability (as set forth below), and for no other reason, upon giving written notice of such involuntary termination to the Employee. "Cause" shall mean any one of the following acts of, or omissions by, or actions of others relating to, the Employee, as set forth below: 3 4 (i) The Employee's conviction of a felony, whether or not such conviction is appealed. (ii) Deliberate and premeditated acts by the Employee which a reasonable person would realize would be against the best interests of the Company; (iii) Material breach of the terms of this Agreement, except that if such breach is capable of being cured, such breach shall have remained uncured ten days after written notice from the Company to the Employee; (iv) With respect to actions of the Employee during the term of this Agreement, the Employee is found guilty of, or is enjoined from, violation of any state or federal securities laws, state or federal laws governing the business of the Company, or rules and regulations of any state or federal agency regulating any of the business of the Company; (v) Misappropriation of the Company's funds or property; or (vi) Habitual use of alcohol or drugs to a degree that such use substantially interferes with Employee's performance of his duties. 5.2 In the event the Employee's employment shall be terminated for Cause prior to the expiration of the term of this Agreement, the Employee shall be entitled only to his Base Compensation prorated to the effective date of such termination. 5.3 This Agreement shall terminate immediately upon the Employee's death or total and permanent disability. For the purposes of this Agreement, total and permanent disability shall mean (i) during the Primary Period, the Employee's inability to adequately perform his duties on behalf of the Company, at the Company's offices in Las Vegas, Nevada, as reasonably determined by the Board, for a period of ninety (90) consecutive days due to an illness or injury, and (ii) during the Second Period, the Employee's inability (as reasonably determined by the Board) to perform at least four hours of services, which have been requested by the Company, for each of three consecutive months. In the event of such termination, the Employee shall be entitled to his Base Compensation prorated to the end of the month of his death or the date of the determination of Employee's total and permanent disability by the Board, together with the amount of any accrued and unpaid vacation and sick time due the Employee. If this Agreement is terminated due to the Employee's total and permanent disability, the health, dental and medical insurance coverage for the Employee specified in Paragraph 4(d) shall continue to be provided to the Employee until the end of the Second Period, provided that (i) such coverage is obtainable by the Company under its plans, and (ii) the cost of such coverage for the Employee does not exceed by more than $10,000 per annum the average cost per other employee for such coverage. The 4 5 portion of any stock option granted by the Company to the Employee which has vested pursuant to the terms of such option at the time of the termination of this Agreement due to the Employee's death or total and permanent disability shall remain exercisable as set forth in such option relating to such a termination event. 6. Covenant Not to Solicit. The following provisions of subparagraph 6(a) shall hereinafter be referred to as the "Covenant Not to Solicit": (a) The Employee agrees that during the term of this Agreement, and for a period of one year after the expiration or termination of this Agreement for Cause or Employee's total and permanent disability, the Employee will not without authorization from the Company, in any capacity, directly or indirectly solicit or encourage other employees or officers of the Company to terminate their employment by the Company for any purpose whatsoever. (b) The Employee acknowledges and agrees that: (i) the foregoing Covenant Not to Solicit is reasonable for the protection of the goodwill and business of the Company against irreparable injury. (ii) the foregoing Covenant Not to Solicit does not place an undue hardship on the Employee. (c) The Employee agrees that the Company will be irreparably damaged by a breach of the Covenant Not to Solicit and that damages at law will be an insufficient remedy for the Company. The Employee also agrees that the Company shall be entitled, upon application to a court of competent jurisdiction, to obtain injunctive relief to enforce the provisions of the Covenant Not to Solicit, which injunctive relief shall be in addition to any other rights or remedies available to the Company. 7. Confidentiality. The Employee recognizes and acknowledges that the services which he will perform for the Company and the knowledge which he will obtain of the Company's proprietary information such as trade secrets, processes, business practices, strategic plans and financial data through his close relationship with the Company, are confidential, proprietary and valuable in nature. The Employee therefore agrees that, other than in the regular and proper course of the business of the Company, he will not divulge to others or use for his own benefit, or the benefit of any person, firm, corporation or other entity, other than the Company, at any time during or subsequent to this employment, any information obtained in the course of his employment, concerning such proprietary information, without first obtaining the Company's written permission, unless such information has become public knowledge by a means other than a breach of the provisions of this Agreement. 8. Modification. No change or modification of this Agree- 5 6 ment shall be valid unless made in writing and signed by both of the parties hereto. 9. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada. 10. Assignment Prohibited. This Agreement is personal to the parties hereto and neither party may assign or transfer any rights or obligations under this Agreement without the written consent of the other party. 11. Corporate Authority to Enter into Agreement. The Company warrants and represents that all necessary approvals have been obtained to authorize it to enter into this Agreement, and that this Agreement is valid, binding and enforceable against the Company in accordance with its terms. 12. Other. The Company and the Employee each agree that such party will not make oral or written disparaging statements about the other party at any time during or after the term of this Agreement. 13. Entire Agreement. This Agreement incorporates the entire agreement between the parties and supersedes all other prior or contemporaneous agreements, negotiations or discussions between the Employee and the Company. Notwithstanding the previous sentence, this Agreement does not affect any indemnification obligation from the Company or its subsidiaries to the Employee pursuant to their articles of incorporation, bylaws, general corporate policies or existing written agreements. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 1st day of August, 1996. COMPANY: MEGO FINANCIAL CORP. BY: [SIG.] --------------------------------- TITLE: EMPLOYEE: Irving J. Steinberg ------------------------------------ Irving J. Steinberg 6 7 EXHIBIT A During the Second Period, the Employee's reduced duties will be to provide tax consulting, tax planning, financial planning, and historical review services, as well as such other services as may be agreed upon between the Employee and the Company. 1 EX-27.1 12 FINANCIAL DATA SCHEDULE
5 6-MOS AUG-31-1996 FEB-28-1997 26,585 0 63,660 14,494 40,521 0 39,012 14,690 237,083 0 80,665 0 0 187 42,084 237,083 22,903 56,975 3,246 20,705 29,943 5,516 6,513 6,327 686 5,641 0 0 0 4,947 0.25 0.25 Excludes $694 of income associated with minority interest.
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