-----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, Ci1sRydGy7qSC+07a3EoIMGyenJEYnw8GovL+p/Xiih5JOaH7+kLavRo+2pNqSab aSLlia/Ex9iswG7eAF+xAg== 0000950150-99-000872.txt : 19990716 0000950150-99-000872.hdr.sgml : 19990716 ACCESSION NUMBER: 0000950150-99-000872 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEGO FINANCIAL CORP CENTRAL INDEX KEY: 0000736035 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 135629885 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08645 FILM NUMBER: 99664838 BUSINESS ADDRESS: STREET 1: 4310 PARADISE RD CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027373700 MAIL ADDRESS: STREET 1: 4310 PARADISE RD CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: MEGO CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________ COMMISSION FILE NUMBER: 1-8645 MEGO FINANCIAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-5629885 (STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (702) 737-3700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of July 13, 1999, there were 21,009,506 shares of Common Stock, $.01 par value per share, of the Registrant outstanding. ================================================================================ 2 MEGO FINANCIAL CORP. AND SUBSIDIARIES INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited) Condensed Consolidated Balance Sheets at May 31, 1999 and August 31, 1998..............................................1 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 1999 and 1998............................................2 Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended May 31, 1999.....................................................3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 1999 and 1998...................................................4 Notes to Condensed Consolidated Financial Statements............................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................................7 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................16 PART II OTHER INFORMATION Item 1. Legal Proceedings..............................................................16 Item 5. Other Events...................................................................17 Item 6. Exhibits and Reports on Form 8-K...............................................17 SIGNATURE ................................................................................18
i 3 PART I FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (thousands of dollars, except per share amounts) (unaudited)
MAY 31, AUGUST 31, ASSETS 1999 1998 ----------- ----------- Cash and cash equivalents $ 1,944 $ 1,813 Restricted cash 1,552 1,694 Notes receivable, net of allowance for cancellations and discounts of $13,915 at May 31, 1999 and $12,403 at August 31, 1998 62,050 47,789 Interest only receivables, at fair value 2,788 3,367 Timeshare interests held for sale 31,798 35,798 Land and improvements inventory 7,003 7,965 Other investments 4,982 4,395 Property and equipment, net of accumulated depreciation of $15,797 at May 31, 1999 and $14,119 at August 31, 1998 23,825 23,950 Deferred selling costs 3,876 3,719 Prepaid debt expenses 1,561 1,431 Other assets 13,070 9,830 ----------- ----------- TOTAL ASSETS $ 154,449 $ 141,751 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable $ 97,768 $ 81,986 Accounts payable and accrued liabilities 20,583 18,773 Reserve for notes receivable sold with recourse 4,953 6,620 Deposits 2,456 4,877 Accrued income taxes 3,685 4,468 ----------- ----------- Total liabilities before subordinated debt 129,445 116,724 ----------- ----------- Subordinated debt 4,335 4,348 Stockholders' equity: Preferred stock, $.01 par value (authorized--5,000,000 shares, none outstanding) -- -- Common stock, $.01 par value (authorized--50,000,000 shares; 21,009,506 shares issued and outstanding) 210 210 Additional paid-in capital 12,898 12,789 Retained earnings 7,561 7,680 ----------- ----------- Total stockholders' equity 20,669 20,679 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,449 $ 141,751 =========== ===========
See notes to condensed consolidated financial statements. 1 4 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (thousands of dollars, except per share amounts) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ---------------------------- ----------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ REVENUES Timeshare interest sales, net $ 10,885 $ 9,579 $ 28,494 $ 26,872 Land sales, net 4,869 3,530 11,878 10,114 Gain on sale of investments -- -- 513 -- Interest income 2,672 1,931 6,616 5,248 Financial income 321 769 1,030 2,773 Incidental operations 694 821 1,970 2,242 Other 886 881 2,577 2,277 ------------ ------------ ------------ ------------ Total revenues 20,327 17,511 53,078 49,526 ------------ ------------ ------------ ------------ COSTS AND EXPENSES Direct cost of: Timeshare interest sales 2,483 1,755 5,917 5,206 Land sales 777 421 2,039 1,234 Incidental operations 549 652 1,661 1,949 Marketing and sales 9,014 9,143 25,629 24,739 General and administrative 3,502 4,675 10,473 13,561 Interest expense 2,374 2,157 6,635 5,635 Depreciation 485 549 1,493 1,691 ------------ ------------ ------------ ------------ Total costs and expenses 19,184 19,352 53,847 54,015 ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 1,143 (1,841) (769) (4,489) INCOME TAXES (BENEFIT) -- (1,728) (650) (1,728) ------------ ------------ ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 1,143 $ (113) $ (119) $ (2,761) ============ ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE Basic: Net income (loss) applicable to common stock $ 0.05 $ (0.01) $ (0.01) $ (0.13) ============ ============ ============ ============ Weighted-average number of common shares 21,009,506 21,009,506 21,009,506 21,009,506 ============ ============ ============ ============ Diluted: Net income (loss) applicable to common stock $ 0.05 $ (0.01) $ (0.01) $ (0.13) ============ ============ ============ ============ Weighted-average number of common shares and common share equivalents outstanding 21,009,506 21,009,506 21,009,506 21,009,506 ============ ============ ============ ============
See notes to condensed consolidated financial statements. 2 5 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (thousands of dollars, except per share amounts) (unaudited)
COMMON STOCK $.01 PAR VALUE ADDITIONAL -------------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- ---------- ---------- ---------- ---------- Balance at August 31, 1998 21,009,506 $ 210 $ 12,789 $ 7,680 $ 20,679 Warrants issued 109 109 Net loss for the nine months ended May 31, 1999 -- -- -- (119) (119) ---------- ---------- ---------- ---------- ---------- Balance at May 31, 1999 21,009,506 $ 210 $ 12,898 $ 7,561 $ 20,669 ========== ========== ========== ========== ==========
See notes to condensed consolidated financial statements. 3 6 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars) (unaudited)
NINE MONTHS ENDED MAY 31, ------------------------- 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (119) $ (2,761) -------- -------- Adjustments to reconcile net loss to net cash used in operating activities: Amortization of negative goodwill -- (36) Charges to allowance for cancellations (4,662) (5,152) Provision for cancellations 4,186 3,760 Gain on sale of notes receivable (513) -- Provision for uncollectible Owners' Association advances -- (403) Cost of sales 7,956 6,440 Depreciation 1,493 1,691 Amortization of interest only receivables 579 341 Repayments on notes receivable 29,849 27,548 Additions to notes receivable (43,634) (40,096) Purchase of land and timeshare interests (2,994) (14,232) Additions to other receivables -- (4,193) Decreases in other receivables -- 6,769 Changes in operating assets and liabilities: Decrease in restricted cash 142 34 Increase in other assets (4,928) (4,253) Increase in deferred selling costs (157) (73) Increase in accounts payable and accrued liabilities 1,810 2,561 Increase (decrease) in deposits (2,421) 1,564 Decrease in accrued income taxes (783) (1,527) -------- -------- Total adjustments (14,077) (19,257) -------- -------- Net cash used in operating activities (14,196) (22,018) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,368) (1,826) Proceeds from the sale of property and equipment -- 359 Proceeds from the sale of other investments 747 -- Additions to other investments (821) (2,015) -------- -------- Net cash used in investing activities (1,442) (3,482) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 40,906 35,745 Reduction of debt (25,124) (18,057) Payments on subordinated debt (466) (639) Increase in subordinated debt 453 492 -------- -------- Net cash provided by financing activities 15,769 17,541 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 131 (7,959) CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD 1,813 10,376 -------- -------- CASH AND CASH EQUIVALENTS-- END OF PERIOD $ 1,944 $ 2,417 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest, net of amounts capitalized $ 6,342 $ 5,656 ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES Issuance of warrants related to debt $ 109 $ -- Reduction of additional paid-in capital due to spin-off of previously affiliated company -- (21,735) Reduction of retained earnings due to spin-off of previously affiliated company -- (21,441) Adjustments of receivable from previously affiliated company -- (6,153)
See notes to condensed consolidated financial statements. 4 7 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1999 AND 1998 (unaudited) 1. FINANCIAL STATEMENTS In the opinion of management, when read in conjunction with the audited Consolidated Financial Statements contained in the Form 10-K of Mego Financial Corp. (Mego Financial) filed with the Securities and Exchange Commission for the year ended August 31, 1998, the accompanying unaudited Condensed Consolidated Financial Statements contain all of the information necessary to present fairly the financial position of Mego Financial and Subsidiaries at May 31, 1999, the results of its operations for the three and nine months ended May 31, 1999 and 1998, the change in stockholders' equity for the nine months ended May 31, 1999 and the cash flows for the nine months ended May 31, 1999 and 1998. All intercompany accounts between the parent and its subsidiaries have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all material adjustments necessary for the fair presentation of these statements have been included herein which are normal and recurring in nature. The results of operations for the three and nine months ended May 31, 1999 are not necessarily indicative of the results to be expected for the full year. 2. NATURE OF OPERATIONS Mego Financial is a premier developer and operator of timeshare properties and a provider of consumer financing to purchasers of timeshare intervals and land parcels through its wholly-owned subsidiary, Preferred Equities Corporation (PEC) established in 1970. PEC is engaged in originating, selling, servicing and financing consumer receivables generated through timeshare and land sales. Mego Financial and its subsidiaries are also herein collectively referred to as the Company as the context requires. Mego Financial was incorporated under the laws of the state of New York in 1954 under the name Mego Corp. and, in 1992, changed its name to Mego Financial Corp. PEC markets and finances timeshare interests and land in select resort areas. By providing financing to virtually all of its customers, PEC also originates consumer receivables that it sells and generally services. In February 1988, Mego Financial acquired PEC, pursuant to an assignment by the Assignors (Comay Corp., Growth Realty Inc., RER Corp., and H&H Financial, Inc.) of their contract right to purchase PEC. To facilitate its sales of timeshare interests, the Company has entered into several trust agreements. The trustees administer the collection of the related notes receivable. The Company has assigned title to certain of its resort properties in Nevada and its interest in certain related notes receivable to the trustees. RECENT EVENTS In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego Financial entered into a Forbearance Agreement dated as of December 24, 1998. Under the agreement, FINOVA agreed to make a loan in the amount of $5,662,000 to PEC with a maturity date of June 30, 1999, since extended to September 1, 1999. At that time, the Company agreed to guarantee the loan and, if all of the $5,662,000 was advanced to PEC, to issue to FINOVA warrants to purchase a total of 500,000 shares of common stock of Mego Financial at an exercise price of $1.00 per share, exercisable within a five-year period commencing January 1, 1999. On December 24, 1998, FINOVA advanced to PEC a first tranche of $3,000,000, less fees, secured by a pledge of stock of Central Nevada Utilities Company, a wholly-owned subsidiary of PEC. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 150,000 shares of common stock of Mego Financial. 5 8 Of the second tranche of $2,662,000, FINOVA advanced $1,000,000 to PEC on May 7, 1999. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial. The following table sets forth information regarding the advances from FINOVA to PEC under the Forbearance Agreement for the nine months ended May 31, 1999:
MAXIMUM NUMBER OF SHARES OF MEGO FINANCIAL CORP. COMMON STOCK AVAILABLE FOR FINOVA PURCHASE UNDER LOAN WARRANTS GRANTED ---------- ------------------ First Tranche - ------------- December 24, 1998 $3,000,000 150,000 Second Tranche - -------------- May 7, 1999 1,000,000 131,480 ---------- ---------- Balances as of May 31, 1999 $4,000,000 281,480 ========== ==========
Subsequent to May 31, 1999, FINOVA advanced an additional $1,000,000 of the second tranche. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial. The remaining $662,000 of the second tranche is available for borrowing until September 1, 1999. If the remaining amount is advanced in full under the agreement, FINOVA would be entitled to receive a five-year warrant to purchase an additional 87,040 shares of Mego Financial common stock at an exercise price of $1.00 per share, which would make the total of warrants covering 500,000 shares of Mego Financial common stock. 3. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997. There are no additional items that would be reported as Comprehensive Income that are not included in the Company's Statements of Operations for any of the three and nine months ended May 31, 1999 and 1998. In June 1997, FASB issued SFAS No. 131, "Disclosures and Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 established standards of reporting by publicly-held business enterprises and disclosure of information about operating segments in annual financial statements and, to a lesser extent, in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997, and, will thus be adopted for the fiscal year ending August 31, 1999 and subsequent interim financial statement periods. As SFAS 131 deals with financial statement disclosure, the Company does not anticipate the adoption of this new standard will have a material impact on its financial position, results of operations or cash flows. 4. STOCKHOLDERS' EQUITY Mego Financial's stock option plan (Stock Option Plan), which was amended and restated as of September 16, 1998 upon the approval of Mego Financial's shareholders, provides for grants of non-qualified and qualified incentive options to officers, key employees and directors. On September 23, 1998, an additional 111,000 incentive and non-incentive stock options were granted under the Stock Option Plan by the Stock Option Committee to employees at $1.00 per share being the fair value. In addition, the exercise prices of 304,500 of options issued on September 2, 1997 were revised from $3.125 per share to $1.00 per share. Options for 363,500 shares were outstanding as of July 13, 1999. 6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS The following Management's Discussion and Analysis of Financial Condition and Results of Operations section contains certain forward-looking statements and information relating to Mego Financial Corp. (Mego Financial) (Mego Financial and its subsidiaries are referred to herein collectively as the Company as the text requires) that are based on the beliefs of management as well as assumptions made by and information currently available to management. Such forward-looking statements include, without limitation, the Company's expectation and estimates as to the Company's business operations, including the introduction of new timeshare and land sales programs and future financial performance, such as growth in revenues and net income and cash flows. Such forward-looking statements also include, without limitation, the Company's expectations and beliefs as to the projected costs and anticipated timetable to address Year 2000 compliance issues, the adequacy of its plans to address such issues and the impact on the Company's operations in the event that certain or all of its plans or the plans of its lenders and other third parties in respect of such compliance issues prove to be inadequate. In addition, included herein the words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company's management with respect to future events and are subject to certain risks, uncertainties and assumptions. In addition, the Company specifically advises readers that the factors listed under the caption "Liquidity and Capital Resources" could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, contained elsewhere herein and in the Company's Form 10-K for the fiscal year ended August 31, 1998. GENERAL The business of the Company is primarily the marketing, financing and sale of timeshare interests, retail lots and land parcels, servicing the related receivables and operating and managing timeshare properties. The Company, through its subsidiary, Preferred Equities Corporation (PEC), provides financing to purchasers of its timeshare interests and land. This financing is generally evidenced by notes secured by deeds of trust and mortgages as well as non-recourse installment sale contracts. These notes receivable are generally payable over a period ranging from two to twelve years, bear interest at rates ranging from 12.5% to 15.5% and generally require equal monthly payments of principal and interest. PEC PEC recognizes revenue primarily from sales of timeshare interests and land sales in resort areas, gain on sale of receivables and interest income. PEC periodically sells its consumer receivables while generally retaining the servicing rights. Revenue from sales of timeshare interests and land is recognized after the requisite rescission period has expired and at such time as the purchaser has paid at least 10% of the sales price for sales of timeshare interests and 20% of the sales price for land sales. Land sales typically meet these requirements within six to ten months of closing, and sales of timeshare interests typically meet these requirements at the time of sale. The sales price, less a provision for cancellation, is recorded as revenue and the allocated cost related to such net revenue of the timeshare interest or land parcel is recorded as expense in the year that revenue is recognized. When revenue related to land sales is recognized, the portion of the sales price attributable to uncompleted required improvements, if any, is deferred. Notes receivable with payment delinquencies of 90 days or more have been considered in determining the allowance for cancellations. Cancellations occur when the note receivable is determined to be uncollectible and the related collateral, if any, has been recovered. Cancellation of a note receivable in the quarter the revenue is 7 10 recognized is not deemed to represent a sale and is accounted for as a reversal of the revenue with an adjustment to cost of sales. Cancellation of a note receivable subsequent to the quarter the revenue was recognized is charged to the allowance for cancellations. Gain on sale of notes receivable includes the present value of the differential between contractual interest rates charged to borrowers on notes receivable sold by PEC and the interest rates to be received by the purchasers of such notes receivable, after considering the effects of estimated prepayments and a normal servicing fee. PEC retains certain participations in cash flows from the sold notes receivable and generally retains the associated servicing rights. PEC generally sells its notes receivable at par value. The present values of expected net cash flows from the sale of notes receivable are recorded at the time of sale as interest only receivables. Interest only receivables are amortized as a charge to income, as payments are received on the retained interest differential over the estimated life of the underlying notes receivable. Interest only receivables are recorded at the lower of unamortized cost or estimated fair value. The expected cash flows used to determine the interest only receivables asset have been reduced for potential losses under recourse provisions of the sales agreements. Reserve for notes receivable sold with recourse represents PEC's estimate of the fair value of its future credit losses to be incurred over the lives of the notes receivable in connection with the recourse provisions of the sales agreements and is shown separately as a liability in the Company's Condensed Consolidated Balance Sheets. In discounting cash flows related to notes receivable sales, PEC defers servicing income at an annual rate of 1% and discounts cash flows on its sales at the rate it believes a purchaser would require as a rate of return. Earned servicing income is included under the caption of financial income. The cash flows were discounted to present value using a discount rate of 15% for the nine months ended May 31, 1999 and 1998. PEC has developed its assumptions based on experience with its own portfolio, available market data and ongoing consultations with its financial advisors. In determining expected cash flows, management considers economic conditions at the date of sale. In subsequent periods, these estimates may be revised as necessary using the original discount rate, and any losses arising from prepayment and loss experience will be recognized as realized. Provision for cancellations relating to notes receivable is recorded as expense in amounts sufficient to maintain the allowance at a level considered adequate to provide for anticipated losses resulting from customers' failure to fulfill their obligations under the terms of their notes receivable. PEC records a provision for cancellations at the time revenue is recognized, based on historical experience and current economic factors. The related allowance for cancellations represents PEC's estimate of the amount of the future credit losses to be incurred over the lives of the notes receivable. The allowance for cancellations is reduced by actual cancellations experienced, including cancellations related to previously sold notes receivable which were reacquired pursuant to the recourse obligations discussed herein. Such allowance is also reduced to establish the separate liability for reserve for notes receivable sold with recourse. PEC's judgment in determining the adequacy of this allowance is based upon a periodic review of its portfolio of notes receivable. These reviews take into consideration changes in the nature and level of the portfolio, historical cancellation experience, current economic conditions which may affect the purchasers' ability to pay, changes in collateral values, estimated value of inventory that may be reacquired and overall portfolio quality. Changes in the allowance as a result of such reviews are included in the provision for cancellations. Fees for servicing notes receivable originated by PEC and sold with servicing rights retained are generally based on a stipulated percentage of the outstanding principal balance of such notes receivable and are recognized when earned. Interest received on notes receivable sold, less amounts paid to investors, is reported as financial income. Interest only receivables are amortized systematically to reduce notes receivable servicing income to an amount representing normal servicing income and the present value discount. Late charges and other miscellaneous income are recognized when collected. Costs to service notes receivable are recorded to expense as incurred. Interest income represents the interest received on loans held in PEC's portfolio, the accretion of the discount on the interest only receivables and interest on cash funds. 8 11 Total costs and expenses consist primarily of marketing and sales expenses, general and administrative expenses, direct costs of sales of timeshare interests and land, depreciation and amortization and interest expense. Marketing and sales costs directly attributable to unrecognized sales are accounted for as deferred selling costs until such time as the sale is recognized. PEC has entered into financing arrangements with certain purchasers of timeshare interests and land whereby 5% interest per annum is charged on those sales where the aggregate down payment is at least 50% of the purchase price and the balance is payable in 36 or fewer monthly payments. (PEC discontinued, effective during the quarter ended August 31, 1998, a 0% interest arrangement). Notes receivable of $6.1 million and $7.3 million at May 31, 1999 and August 31, 1998, respectively, were outstanding under this arrangement. Land sales as of May 31, 1999 exclude $13.9 million of sales not yet recognized under generally accepted accounting principles (GAAP) since the requisite payment amounts have not yet been received. If ultimately recognized, revenues from these sales would be reduced by a related provision for cancellations of $1.9 million, deferred selling costs of $3.9 million and cost of sales of $2.0 million. RESULTS OF OPERATIONS Three Months Ended May 31, 1999 Compared to Three Months Ended May 31, 1998 PEC Total revenues for PEC increased 16.2%, or $2.8 million, to $20.3 million during the three months ended May 31, 1999 from $17.5 million during the three months ended May 31, 1998. The increase was primarily due to a 13.6% increase in timeshare interest sales, net (hereinafter, "net" refers to gross sales, less current cancellations and a provision for possible future cancellations), of $1.3 million, a 37.9% increase in land sales, net, of $1.3 million and an increase in interest income of $766,000, partially offset by a decrease of $448,000 in financial income. Gross sales of timeshare interests increased to $12.5 million during the three months ended May 31, 1999 from $10.4 million during the three months ended May 31, 1998, an increase of 19.3%. The provision for cancellations represented 12.7% and 8.3%, respectively, of gross sales of timeshare interests for the three months ended May 31, 1999 and 1998. The percentage increase in the provision for cancellations for timeshare interests was primarily due to a downward adjustment recorded in the quarter ended May 31, 1998 based on a review of the reserve adequacy at that time. Gross sales of land increased to $5.2 million during the three months ended May 31, 1999 from $3.8 million during the three months ended May 31, 1998, an increase of 35.2%. The provision for cancellations decreased to 6.4% of gross sales of land for the three months ended May 31, 1999 from 8.2% for the three months ended May 31, 1998 primarily due to lower cancellation experience of land receivables during the third quarter of fiscal 1999 compared to the third quarter of fiscal 1998. Interest income increased to $2.7 million during the three months ended May 31, 1999 from $1.9 million during the three months ended May 31, 1998, an increase of 40.2%. The increase was primarily due to increased average notes receivable balances for the current period. Financial income decreased to $321,000 during the three months ended May 31, 1999 from $769,000 during the three months ended May 31, 1998, a decrease of 58.3%. The decrease was primarily a result of the termination by agreement of loan servicing for a company previously affiliated with Mego Financial. Total costs and expenses for PEC were $18.8 million for the three months ended May 31, 1999 and 1998. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses relating thereto decreased to 51.0% during the three months ended May 31, 1999 from 64.0% during the three months ended May 31, 1998, due primarily to cost-control measures discussed elsewhere herein. Cost of sales as a percentage of gross sales increased to 18.5% during the three months ended May 31, 1999 from 15.2% during the three months ended 9 12 May 31, 1998. The increase was primarily due to sales of higher cost timeshare intervals in Orlando and higher cost lots in Hartsel, resulting in higher cost of sales during the third quarter of fiscal 1999 compared to the third quarter of fiscal 1998. Sales prices of timeshare interests are typically lower than those of land, while marketing and sales costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Interest expense of PEC increased to $2.2 million during the three months ended May 31, 1999 from $2.0 million during the three months ended May 31, 1998, an increase of 13.7%. The increase is a result of a higher average outstanding balance of notes and contracts payable during the three months ended May 31, 1999 compared to the three months ended May 31, 1998 and is related to the fact that there were no sales of receivables during the current fiscal year. Pretax income of $1.5 million was recorded by PEC during the three months ended May 31, 1999 compared to pretax loss of $1.3 million during the three months ended May 31, 1998. The change in the pretax income is primarily due to the $1.1 million decrease in general and administrative expenses, together with the increase of $2.6 million in net timeshare and land sales during the comparative three month periods, with a related lower percentage of marketing and sales expense as a percentage of sales. As a result of the foregoing, PEC reported net income of $1.5 million during the three months ended May 31, 1999 compared to a net loss of $1.3 million during the three months ended May 31, 1998. COMPANY (consolidated) Pretax income was $1.1 million during the three months ended May 31, 1999 compared to a pretax loss of $1.8 million during the three months ended May 31, 1998. The change in pretax income is primarily attributable to the 25.1% decrease in general and administrative expenses, the increase in net timeshare and land sales, with a related lower percentage of marketing and sales expenses, as a percentage of sales which were partially offset by the decrease in financial income. Total costs and expenses during the three months ended May 31, 1999 were $19.2 million, a decrease of .9% from $19.4 million during the three months ended May 31, 1998. There was no income tax benefit recorded for the three months ended May 31, 1999 compared to an income tax benefit of $1.7 million for the three months ended May 31, 1998. For the three months ended May 31, 1999, there was no tax provision based on a review of the current facts and circumstances related to the Company's income tax liability reserves. Net income applicable to common stock was $1.1 million during the three months ended May 31, 1999 compared to a net loss applicable to common stock of $113,000 during the three months ended May 31, 1998, due to the increase in the PEC pretax consolidated income, with no income tax benefit recorded during the three months ended May 31, 1999 compared to a income tax benefit of $1.7 million recognized during the three months ended May 31, 1998. Nine Months Ended May 31, 1999 Compared to Nine Months Ended May 31, 1998 PEC Total revenues for PEC increased 7.3%, or $3.6 million, to $53.0 million during the nine months ended May 31, 1999 from $49.4 million during the nine months ended May 31, 1998. The increase was primarily due to a 6.0% increase in net timeshare sales of $1.6 million and a 17.4% increase in net land sales of $1.8 million and a 28.7% increase in interest income of $1.5 million, offset by a 62.9% decrease in financial income of $1.7 million. Gross sales of timeshare interests were $31.9 million during the nine months ended May 31, 1999 compared to $29.7 million during the nine months ended May 31, 1998, an increase of 7.2%. The provision for cancellations represented 10.6% and 9.6%, respectively, of gross sales of timeshare interests for the nine months ended May 31, 1999 and 1998. The percentage increase in the provision for cancellations for timeshare interests 10 13 was primarily due to a downward adjustment recorded in the quarter ended May 31, 1998 based on a review of the reserve adequacy at that time. Gross sales of land increased to $12.7 million during the nine months ended May 31, 1999 from $11.0 million during the nine months ended May 31, 1998, an increase of 15.1%. The provision for cancellations decreased to 6.3% of gross sales of land for the nine months ended May 31, 1999 from 8.2% for the nine months ended May 31, 1998, primarily due to lower cancellation experience of land receivables during the first nine months of fiscal 1999 compared to the first nine months of fiscal 1998. Interest income increased to $6.6 million during the nine months ended May 31, 1999 from $5.1 million during the nine months ended May 31, 1998, an increase of 28.7% primarily due to increased average notes receivable balances for the current period. Financial income decreased to $1.0 million during the nine months ended May 31, 1999 from $2.8 million during the nine months ended May 31, 1998, a decrease of 62.9%. The decrease was primarily a result of the termination by agreement of loan servicing for a company previously affiliated with Mego Financial. Total costs and expenses for PEC increased to $52.7 million for the nine months ended May 31, 1999 from $52.3 million for the nine months ended May 31, 1998, an increase of .6%. The increase resulted primarily from an increase in direct costs of land sales to $2.0 million from $1.2 million, an increase of 65.2%; an increase in marketing and sales expense to $25.6 million from $24.8 million, an increase of 3.6%; and, an increase in interest expense to $6.2 million from $5.1 million, an increase of 20.2%, partially offset by a decrease of $2.6 million, or 21.3%, in general and administrative expenses. The increase in direct costs of land is attributable to increased sales of higher cost lots sold during the current fiscal period compared to the same period in fiscal 1998. The increase in marketing and sales expenses is due primarily to the higher gross sales; however, as noted herein, the increase in dollars was accompanied by a related lower percentage of marketing and sales expenses. The increase in interest expense is due to the increase in the average outstanding balance of notes and contracts payable. The decrease in general and administrative expenses is due to the reduction in salaries and benefits. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses relating thereto decreased to 57.5% during the nine months ended May 31, 1999 from 60.7% during the nine months ended May 31, 1998, and cost of sales increased to 17.9% during the nine months ended May 31, 1999 from 15.8% during the nine months ended May 31, 1998. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, PEC generally realizes lower profit margins from sales of timeshare interests than from sales of land. Subsequent to November 30, 1998, the Company restructured its marketing and sales programs, which restructuring has included the closing of unprofitable sales locations, the elimination of certain marketing programs and the layoff of related personnel. Therefore, the results of operations for the three months ended May 31, 1999 are more indicative of the Company's expectations than the nine months ended May 31, 1999. Interest expense of PEC increased to $6.2 million during the nine months ended May 31, 1999 from $5.1 million during the nine months ended May 31, 1998, an increase of 20.2%. The increase is a result of a higher average outstanding balance of notes and contracts payable during the nine months ended May 31, 1999 compared to the nine months ended May 31, 1998 and is related to the fact that there were no sale of receivables during the current fiscal year. Pretax income of $350,000 was recorded by PEC during the nine months ended May 31, 1999 compared to a pretax loss of $2.9 million during the nine months ended May 31, 1998. The increase in the pretax income was primarily due to the $2.6 million decrease in general and administrative expenses, together with an increase of $1.6 million and $1.8 million, respectively, in net timeshare and land sales with a related lower percentage of marketing and sales expenses as a percentage of sales, and an increase of $1.5 million in interest income partially offset by a $1.7 million decrease in financial income and an increase of $1.0 million in interest expense. As a result of the foregoing, PEC reported net income of $350,000 during the nine months ended May 31, 1999 compared to a net loss of $2.9 million during the nine months ended May 31, 1998. 11 14 COMPANY (consolidated) Loss before income taxes decreased $3.7 million to a loss of $769,000 during the nine months ended May 31, 1999 compared to a loss of $4.5 million during the nine months ended May 31, 1998, due primarily to a decrease in general and administrative expenses of $3.1 million, an increase of $1.6 million and a $1.8 million, respectively, in timeshare and land sales, with a related lower percentage of marketing and sales expenses as a percentage of sales and an increase of $1.4 million in interest income, partially offset by an increase of $1.0 million in interest expense. Total costs and expenses during the nine months ended May 31, 1999 were $53.8 million, a decrease of .3% compared to $54.0 million during the nine months ended May 31, 1998. General and administrative expenses decreased 22.8% for the nine months ended May 31, 1999 compared to the nine months ended May 31, 1998 due primarily to PEC's efforts to lower expenses. 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. Mego Financial (parent only) continues to incur interest on subordinated debt. An income tax benefit of $650,000 was recorded for the nine months ended May 31, 1999 compared to an income tax benefit of $1.7 million for the nine months ended May 31, 1998. The change in accrued income taxes for the nine months ended May 31, 1999 and 1998 was based on a review of the current facts and circumstances relating to the Company's income tax liability reserves. Net loss applicable to common stock was $119,000 during the nine months ended May 31, 1999 compared to a net loss applicable to common stock of $2.8 million during the nine months ended May 31, 1998, due to a $2.6 million increase in the PEC pretax consolidated income, with an income tax benefit of $650,000 recognized during the nine months ended May 31, 1999 compared to an income tax benefit of $1.7 million recognized during the nine months ended May 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company were $1.9 million at May 31, 1999 compared to $1.8 million at August 31, 1998. In December 1998, Finova Capital Corporation (FINOVA), PEC and Mego Financial entered into a Forbearance Agreement dated as of December 24, 1998. Under the agreement, FINOVA agreed to make a loan in the amount of $5,662,000 to PEC with a maturity date of June 30, 1999, since extended to September 1, 1999. At that time, the Company agreed to guarantee the loan and, if all of the $5,662,000 was advanced to PEC, to issue to FINOVA warrants to purchase a total of 500,000 shares of common stock of Mego Financial at an exercise price of $1.00 per share, exercisable within a five-year period commencing January 1, 1999. On December 24, 1998, FINOVA advanced to PEC a first tranche of $3,000,000, less fees, secured by a pledge of stock of Central Utilities Company, a wholly-owned subsidiary of PEC. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 150,000 shares of common stock of Mego Financial. Of the second tranche of $2,662,000, FINOVA advanced $1,000,000 to PEC on May 7, 1999. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial. Subsequent to May 31, 1999, FINOVA advanced an additional $1,000,000 of the second tranche. In accordance with the agreement, Mego Financial granted to FINOVA a warrant to purchase 131,480 shares of common stock of Mego Financial. The remaining $662,000 of the second tranche is available for borrowing until September 1, 1999. If advanced in full, FINOVA under the agreement would be entitled to receive a five-year warrant to purchase an additional 87,040 shares of Mego Financial common stock at an exercise price of $1.00 per share, which would make the total of warrants covering 500,000 shares of Mego Financial common stock. 12 15 The Company experienced certain cash flow pressures and took the following steps, beginning in December 1998, to alleviate this situation. In addition to the short-term funding from FINOVA discussed above, subsequent to November 30, 1998, the Company reduced its work force by 180 employees, resulting in an estimated savings of $4.85 million of salaries and related benefits on an annualized basis. In addition, activities in certain unprofitable sales office locations were curtailed. PEC is also actively pursuing the sale of certain non-core properties. PEC has been profitable since the month of February 1999 and has available substantial open credit lines as discussed below. These actions have improved the Company's cash flow and results of operations; however, there can be no assurance that these efforts will be successful in sustaining the improvement in the Company's cash flow. PEC PEC's cash requirements arise from the acquisition of timeshare properties and land, payments of operating expenses, payments of principal and interest on debt obligations and payments of marketing and sales expenses in connection with sales of timeshare interests and land. Marketing and sales expenses payable by PEC in connection with sales of timeshare interests and land typically exceed the down payments received at the time of sale, as a result of which PEC generates a cash shortfall. This cash shortfall and PEC's other cash requirements are funded primarily through sales and hypothecations of receivables, PEC's lines of credit in the aggregate amount of $137.5 million and cash flows from operations. At May 31, 1999, no commitments existed for material capital expenditures. At May 31, 1999, PEC had arrangements with 5 institutional lenders under 6 agreements for the financing of receivables in connection with sales of timeshare interests and land and the acquisition of timeshare properties and land, which provide for 6 lines of credit of up to an aggregate of $137.5 million. Such lines of credit are secured by timeshare and land receivables and mortgages. At May 31, 1999, an aggregate of $94.3 million was outstanding under such lines of credit, and $43.2 million was available for borrowing. Under the terms of these lines of credit, PEC may borrow 70% to 90% of the balances of the pledged timeshare and land receivables. PEC is required to comply with certain covenants under these agreements, which, among other things, require PEC to meet certain minimum tangible net worth requirements. The most stringent of such requirements provides that PEC maintain a minimum tangible net worth of $25 million. At May 31, 1999, PEC's net worth was $27.8 million. Necessary waivers of compliance with certain covenants related to these and other agreements have been received. Summarized lines of credit information and accompanying notes relating to these six lines of credit outstanding at May 31, 1999 consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT BORROWING REVOLVING MAY 31, 1999 AMOUNT EXPIRATION DATE (a) MATURITY DATE INTEREST RATE - ----------------- ------------- -------------------- ------------------ -------------------- $ 59,263 $ 75,000 (b) May 15, 2000 Various Prime + 2.0 - 2.25% 3,700 15,000 (c) May 31, 2000 Various Prime + 2.0% 14,327 15,000 (d) July 1, 1999 * Various LIBOR + 4.0 - 4.25% 6,692 15,000 (d) July 1, 1999 * December 31, 2000 LIBOR + 4.0 - 4.25% 4,128 10,000 (e) August 1, 2000 August 1, 2003 Prime + 2.0 - 2.25% 6,173 11,500 (f) June 30, 2000 Various Prime + 2.0 - 3.00% - -------------------------------------------------------------------------------------------------
* The lender has agreed to continue the revolver during negotiations for renewal-see Note (a). (a) Revolving expiration dates represent the expiration of the revolving features of the lines of credit, at which time the credit lines become loans with fixed maturities. As is customary, the Company is negotiating for extension of the revolving periods expiring in calendar 1999 and for extension of the other loan amounts maturing in 1999. (b) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $20.0 million with such amount increasing each fiscal quarter after August 31, 1997 by an amount equal to 50% of PEC's consolidated net income for each quarter up to a maximum requirement of $25 million. At May 31, 1999, $39.3 million of loans secured by receivables were outstanding related to financings at prime +2%, of which $28.5 million of loans secured by land receivables mature May 15, 2010 and $10.8 million of loans secured by timeshare receivables mature May 15, 2007. The outstanding borrowing amount includes 13 16 $128,000 in acquisition and development (A&D) financing maturing September 1, 1999 and $6.4 million maturing July 1, 2003 for the financing of corporate office buildings, both of which are amortizing loans, and real estate loan with an outstanding balance of $1.2 million maturing March 20, 2000, all bearing interest at prime +2.25%. The remaining A&D loans, receivables loans, and a resort lobby loan outstanding of $12.3 million are at prime +2% and mature at various dates through February 20, 2001. (c) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25.0 million during the life of the loan. These credit lines include available financing for A&D and receivables. At May 31, 1999, $1.0 million was outstanding under the A&D loan which matures on June 30, 2004, and $2.7 million maturing May 31, 2004 was outstanding under the receivables loan. Management has obtained a verbal commitment from the lender to extend this revolving line of credit for a period of 18 months on substantially the same terms. (d) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $17.0 million during the life of the loan. These credit lines include available financings for A&D and receivables. At May 31, 1999, $1.9 million was outstanding under the A&D loans which have maturity dates of December 31, 2000 and June 30, 2001, and bear interest at the 90-day London Interbank Offering Rate (LIBOR) +4.25%. The available receivable financings, of which $12.4 million was outstanding at May 31, 1999, are all at 90-day LIBOR +4% and have maturity dates of June 5, 2005 and August 5, 2005. (e) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25 million. This credit line is for the purpose of financing receivables and costs of remodeling. (f) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $15 million. This credit line is for the purpose of financing receivables, of which $2.2 million was outstanding at May 31, 1999 in respect to the receivable debt, and a real estate loan of $4.0 million with a maturity date of August 31, 1999. The maturity date for the receivable debt is May 31, 2004. A schedule of the cash shortfall arising from recognized and unrecognized sales for the periods indicated is set forth below (thousands of dollars):
THREE MONTHS NINE MONTHS ENDED MAY 31, ENDED MAY 31, ------------------------- ------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Marketing and sales expenses attributable to recognized and unrecognized sales $ 11,479 $ 9,085 $ 25,788 $ 24,811 Less: Down payments (3,488) (3,004) (8,890) (9,267) -------- -------- -------- -------- Cash shortfall $ 7,991 $ 6,081 $ 16,898 $ 15,544 ======== ======== ======== ========
During the nine months ended May 31, 1999 and 1998, PEC did not sell any notes receivable. PEC sells notes receivable subject to recourse provisions as contained in each agreement. PEC is obligated under these agreements to replace or repurchase accounts that become over 90 days delinquent or are otherwise subject to replacement or repurchase in either cash or receivables generally at the option of the purchaser. At May 31, 1999, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $58.2 million. The repurchase provisions provide for substitution of receivables as recourse for $21.3 million of sold notes receivable and cash payments for repurchase related to $36.9 million of sold notes receivable. At May 31, 1999 and 1998, the undiscounted amounts of the recourse obligations on such notes receivable were $6.0 million and $6.1 million, respectively. PEC continually reviews the adequacy of this liability. These reviews take into consideration changes in the nature and level of the portfolio, current and future economic conditions which may affect the obligors' ability to pay, changes in collateral values, estimated value of inventory that may be reacquired and overall portfolio quality. 14 17 The components of the Company's debt, including lines of credit, consist of the following (thousands of dollars):
MAY 31, AUGUST 31, 1999 1998 ------- ---------- Notes collateralized by receivables $59,932 $42,793 Mortgages collateralized by real estate properties 36,477 37,393 Installment contracts and other notes payable 1,359 1,800 ------- ------- Total $97,768 $81,986 ======= =======
FINANCIAL CONDITION May 31, 1999 Compared to August 31, 1998 Cash and cash equivalents increased 7.2% to $1.9 million at May 31, 1999 from $1.8 million at August 31, 1998. Notes receivable, net, increased 30.0% to $62.1 million at May 31, 1999 from $47.8 million at August 31, 1998, primarily as a result of net new receivables added during the nine months ended May 31, 1999. Changes in the aggregate of the allowance for cancellations, excluding discounts, and the reserve for notes receivable sold with recourse for the nine months ended May 31, 1999 consisted of the following (thousands of dollars): Balance at beginning of period $ 18,488 Provision for cancellations 4,186 Amounts charged to allowance for cancellations and reserve for notes receivable sold with recourse (4,173) -------- Balance at end of period $ 18,501 ========
The allowance for cancellations and the reserve for notes receivable sold with recourse consisted of the following at these dates (thousands of dollars):
MAY 31, AUGUST 31, 1999 1998 ------- ---------- Allowance for cancellations, excluding discounts $13,548 $11,868 Reserve for notes receivable sold with recourse 4,953 6,620 ------- ------- Total $18,501 $18,488 ======= =======
Statement of Financial Accounting Standards No. 125 (SFAS 125) requires the reclassification of excess servicing rights as interest only receivables which are carried at fair value. Interest only receivables decreased 17.2% to $2.8 million at May 31, 1999 from $3.4 million at August 31, 1998 due to amortization and the fact that there were no sale of receivables during the current fiscal year. Notes and contracts payable increased 19.3% to $97.8 million at May 31, 1999 from $82.0 million at August 31, 1998. There were increased borrowings and no receivable sales, the proceeds of which are usually used to pay down debt, during the nine months ended May 31, 1999. Reserve for notes receivable sold with recourse decreased 25.2% to $5.0 million at May 31, 1999 from $6.6 million at August 31, 1998 primarily due to the reduced balance of the sold notes receivable. Recourse to PEC on sales of notes receivable is governed by the agreements between the purchasers and PEC. 15 18 Accrued income taxes decreased 17.5% to $3.7 million at May 31, 1999 from $4.5 million at August 31, 1998, due primarily to the fiscal 1999 tax benefit. The change in certain income tax liability reserves was a result of a review of the current facts and circumstances. YEAR 2000 COMPLIANCE The Company is now Year 2000 compliant. To our knowledge, there has been no material change with respect to vendors and lenders from that set forth in the Company's 1998 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There was no material change for the three and nine months ended May 31, 1999 in the information about the Company's "Quantitative and Qualitative Disclosures About Market Risk" as disclosed in the Form 10-K for the fiscal year ended August 31, 1998. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as hereinafter set forth, and as set forth in the Company's Quarterly Report on Form 10-Q for the quarters ended February 28, 1999 and November 30, 1998, there have been no material changes in the status of the litigation reported in the Company's Annual Report on Form 10-K for the year ended August 31, 1998. As previously reported in the Company's 1998 Form 10-K, on August 27, 1998, an action was filed by Robert and Jocelyn Henry, husband and wife individually and on behalf of all others similarly situated. On December 17, 1998, counsel for the plaintiffs filed an amended class action complaint which was served on PEC on December 21, 1998. The Company filed a Motion to Dismiss Plaintiffs' Amended Complaint on January 20, 1999. The Court entered an Order on May 6, 1999 granting Defendants' motion and dismissing Plaintiffs' Amended Complaint without prejudice based upon Plaintiffs' failure to exhaust their administrative remedies by pursuing their allegations regarding the provision of sewer and water services before the Public Utilities Commission of Nevada. On May 18, 1999, the Plaintiffs filed a Motion for Reconsideration of the Court's Order Dismissing the Amended Complaint and the Company filed an opposition to the Motion on May 27, 1999. The Motion was denied and Plaintiffs have appealed the issue to the Nevada Supreme Court. A settlement conference is scheduled for August, 1999. On February 23, 1998, an action was filed by Robert J. Feeney, as a purported class action against Mego Mortgage Corporation, a former subsidiary of the Company (MMC), and Jeffrey S. Moore, the former President and Chief Executive Officer of MMC. On April 8, 1999, the court conditionally dismissed the Amended Complaint and ordered plaintiffs to move the Court for leave to file a second amended complaint. On May 10, 1999, Plaintiff filed a Motion for Leave to Serve and File Second Amended Class Action Complaint. In response, Defendants filed a Response to Plaintiffs' Motion for Leave to File Second Amended Complaint which preserved Defendants' right to challenge whether this case may properly be certified as a class action and challenged issues raised in Plaintiffs' Second Amended Class Action Complaint. On May 10, 1999, an action was filed in the Supreme Court of the State of New York, County of New York, No. 99-109707, by Mo Yossin, as a purported class action against the Company and certain of its officers and directors. The Complaint alleged that the defendants are breaching or have breached their fiduciary duty by acting to put their interests ahead of the interests of the Company's public shareholders, specifically by failing and refusing to attempt to maximize stockholder value and failing to seek a purchaser of the Company and/or any and all of its various assets or divisions at the best price obtainable. The Complaint seeks preliminary and permanent injunctive and declaratory relief preventing Defendants from depriving Plaintiff of his right to realize the full and fair value of his stock and unspecified monetary damages. The Company believes that it has substantial defenses to all of the complaints that have been filed against it described above. However, the Company presently cannot predict the outcome of these matters. The Company 16 19 does not believe that any judgment obtained will have a material adverse effect on the Company's or PEC's business or financial condition. In the general course of business the Company, at various times, has been named in other lawsuits. The Company believes that it has meritorious defenses to these lawsuits and that resolution of these matters will not have a material adverse affect on the business or financial condition of the Company. ITEM 5. OTHER EVENTS On October 6, 1998, the Company announced that it retained Friedman, Billings, Ramsey & Co., Inc. to review strategic alternatives for the Company, including potential offers, mergers and financing transactions, as appropriate. This effort is continuing. The Company received a notice from The Nasdaq Stock Market, Inc. that its common stock would be delisted from the Nasdaq National Market as a result of the failure to maintain a minimum closing bid price of $1.00 unless the closing bid price of the common stock equaled or exceeded $1.00 for a period of ten consecutive trading days prior to April 30, 1999. The minimum closing bid price of the common stock did not satisfy such requirement prior to that date. On June 10, 1999, the Company attended an oral hearing before the Nasdaq Listing Qualifications Committee ("Committee") at which the Company requested an exception to the minimum price listing requirement of the Nasdaq National Market. The Company has not received a response from the Committee regarding its request for an exception. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.164 Amendment No.2 to Interval Receivables Loan and Security Agreement dated as of March 28, 1999 between Heller Financial, Inc. and Preferred Equities Corporation. 10.165 Sales Agreement dated as of March 8, 1999 between Great Escape Marketing, Inc. and Preferred Equities Corporation relating to 6950 Villa de Costa Dr. Orlando, Florida. 10.166 Sales Agreement dated as of March 10, 1999 between D&D Marketing, Inc. and Preferred Equities Corp and Brigantine Preferred Properties. 10.167 Forbearance and Modification Agreement dated as of May 7, 1999 by and between Preferred Equities Corporation and Heller Financial, Inc. 10.168 Management Agreement dated May 20, 1999 by and between Hotel Maison Pierre Lafitte, LTD. Owners Association, Inc. and Preferred Equities Corporation. 10.169 Fifth Amendment to Assignment and Assumption Agreement dated May 28, 1999 by and between RER Corp, COMAY Corp., Growth Realty Inc. and H&H Financial, Inc. and Mego Financial Corp. 10.170 Amendment No. 2 to Severance Agreement, and Consulting Agreement dated June 18, 1999 between Don A. Mayerson and Mego Financial Corp. 10.171 First Amendment to Forbearance Agreement and Amendment No. 6 to Second Amended and Restated and Consolidated Loan and Security Agreement dated May 7, 1999 by and among Finova Capital Corporation, Preferred Equities Corporation and Mego Financial Corp. 27.1 Financial Data Schedule (for SEC use only).
17 20 No reports on Form 8-K were filed during the current period. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MEGO FINANCIAL CORP. By: /s/ Charles G. Baltuskonis ------------------------------------ Charles G. Baltuskonis Vice President and Chief Accounting Officer Date: July 13, 1999 ---------------------- 18 EX-10.164 2 AMENDMT. # 2 TO INTER.RECIV.LOAN & SEC. AGREEMNT. 1 EXHIBIT 10.164 AMENDMENT NO. 2 TO INTERVAL RECIVABLES LOAN AND SECURITY AGREEMENT THIS AMENDMENT No. 2 to the Interval Receivables Loan and Security Agreement dated March 28, 1996 (as amended, the "Agreement") is made as of March 1, 1999 by and between Heller Financial, Inc., a Delaware corporation ("Lender") whose address is 500 West Monroe Street Chicago, Illinois 60661 and Preferred Equities Corporation, a Nevada corporation ("Borrower") whose address is 4310 Paradise Road, Las Vegas Nevada 89109. WHEREAS, the parties entered into the Agreement providing for an interval receivables loan commitment in the total amount of Fifteen Million dollars and No/100 ($15,000,000.00); and WHEREAS, the parties desire to amend the Agreement on the terms and conditions as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties agree as follows: 1. The Recitals set forth above are true and correct and incorporated herein by reference. 2. The referenced definitions of Appendix - Defined Terms of the Agreement are hereby amended as follows: a. The definition of "Revolving Period" is deleted in its entirety and replaced with the following: "REVOLVING PERIOD. The period commencing on the earlier of (i) the date of the first Advance or (ii) nine (9) months from the date of the Agreement, and ending on April 30, 1999." 3. All definitions used in this Amendment, if not otherwise defined, shall have the meaning assigned to such terms in the Agreement, as amended herein. 4. Ratification by Borrower. Borrower hereby ratifies and confirms the Loan Documents amended pursuant hereto, and agrees that as modified pursuant hereto, the Note, and the other Loan Documents are, and continue to be, in full force and effect and are enforceable in accordance with their respective terms. Borrower hereby incorporates by reference all covenants, warranties and representations contained in the Loan Documents and reaffirms such covenants, warranties and representations as of the date hereof. 1 2 5. Ratification and Reaffirmation by Guarantor. Guarantor hereby (a) reaffirms that it is legally and validly indebted to the Lender pursuant to and in accordance with the Guaranty, (b) acknowledges and consents to the Guaranty and Loan Documents in accordance with the terms hereof (c) acknowledges and affirms that the Guaranty remains in full force and effect. Any references in the Guaranty to the Loan shall mean the Loan as amended and affected pursuant hereto. 6. Release. The Borrower and Guarantor, by execution of this Agreement, hereby declare that as of this date each has no claim, set-off, counterclaim, defense, or other cause of action against Lender including, but not limited to, a defense of usury, any claim or cause of action at common law, in equity, statutory or otherwise, in contract or in tort, for fraud, malfeasance, misrepresentation, financial loss, usury, deceptive trade practice, or any other loss, damage or liability of any kind. arising out of or in any way connected with the Agreement. Further, to the extent that any such set-off, counterclaim, defense, or other cause of action may exist or might hereafter arise based on facts known or unknown which exist as of this date, such set-off, counterclaim, defense and other cause of action is hereby expressly and knowingly waived and released by Borrower and Guarantor. 7. Except as modified by this Amendment, all other terms and conditions of the Agreement and other Loan Documents shall remain in full force and effect. In witness whereof, the parties have executed this Amendment on the date first written above. BORROWER: LENDER: PREFERRED EQUITIES CORPORATION HELLER FINANCIAL, INC. By: _________________________ By:___________________________ Name: ______________________ Name:________________________ Its: _________________________ Its: _________________________ APPROVED BY GUARANTOR: MEGO FINANCIAL CORP. By: _____________________________ Name: ___________________________ Its: ______________________________ 2 3 STATE OF NEVADA ) ) SS. COUNTY OF CLARK ) I hereby certify that on this ____ day of March 1999, before me, an officer duly authorized in the State aforesaid and in the County aforesaid to take acknowledgments, personally appeared _____________, as ______________ of Preferred Equities Corporation, to me known to be the person who executed the attached Amendment No. 2 to Interval Receivables Loan and Security Agreement, in the State and County aforesaid, on behalf of the corporation, and acknowledged before me that he/she executed the same. Notary: __________________________________ Print Name: _______________________________ Notary Public, State of Nevada My Commission Expires: Commission Number: STATE OF ILLINOIS ) ) S.S. COUNTYOF COOK ) I hereby certify that on this ___ day of March, 1999, before me, an officer duly authorized in the State aforesaid and in the County aforesaid to take acknowledgments, personally appeared _________, as __________________ of Heller Financial, Inc., to me known to be the person who executed the attached Amendment to Interval Receivables Loan and Security Agreement, in the State and County aforesaid, on behalf of the corporation, and acknowledged before me that she executed the same. Notary : ________________________________ Print Name : _____________________________ Notary Public, State of Illinois My Commission Expires: 3 EX-10.165 3 EXCLUSIVE SALES AGREEMENT DATED MARCH 8, 1999 1 EXHIBIT 10.165 PREFERRED EQUITIES CORPORATION EXCLUSIVE SALES AGREEMENT THIS EXCLUSIVE SALES AGREEMENT ("Agreement") is entered into as of March 8, 1999, by and between Preferred Equities Corporation., a Nevada corporation, having its principal address at 4310 Paradise Road, Las Vegas, Nevada 89109 ("PEC") and Great Escape Marketing, Inc., a Florida corporation having its principal address at 5942 34th Street West, #107, Bradenton, Florida 34201 ("Sales Entity"). RECITAL OF FACTS PEC desires to retain Sales Entity pursuant to the terms and conditions of this Agreement to engage in Sales of Timeshare at PEC's Sales office located at 6950 Villa de Costa Drive, Orlando, Florida 32821 ("Sales Office"). Sales Entity desires to be so retained. For good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS - All capitalized terms used within this Agreement, including all Exhibits attached hereto and made a part hereof, unless otherwise defined within this Agreement or any Exhibit attached hereto, shall have the respective meanings ascribed in the Appendix of Defined Terms attached hereto and made a part hereof. 2. ENGAGEMENT - In consideration of PEC and Sales Entity entering into this Agreement and Sales Entity representing that it and all employees engaged by Sales Entity hold all necessary licenses, PEC hereby engages Sales Entity to conduct Sales of Timeshare at Sales Office. Sales Entity represents and agrees that as of the date of and throughout the term of this Agreement, Sales Entity and all employees of Sales Entity meeting the definition of a broker, broker-salesperson or transaction broker under The 1998 Florida Statutes Chapter 475, are and will be licensed real estate agents and/or agents for Sales of Timeshare licensed by the State of Florida and all lesser municipal bodies or agencies as may be required and Sales Entity and its employees are and will remain in good standing with all applicable State and all lesser municipal bodies licensing requirements. Sales Entity further represents and agrees that it will comply with all applicable laws, policies, rules, regulations and procedures established by any federal, State or local regulatory agency. 3. BEST EFFORTS - During the term of employment, Sales Entity agrees to: (a) devote its best efforts to Sales of Timeshare at Sales Office; (b) fully perform all duties as directed by PEC from time to time; and (c) faithfully and diligently endeavor to promote the best interests of PEC. 1. 2 4. COMPENSATION - PEC shall pay to Sales Entity Sales Commissions at a rate and at times shown on the Sales Commission Schedule, attached hereto, made a part hereof and marked Exhibit "A". Sales Commissions shall be calculated on Net Processed Volume for Contracts meeting Conforming Sales Criteria as shown on Exhibit "B", attached hereto and made a part hereof. Conforming Sales Criteria may be modified upon the giving of written notice to Sales Entity by PEC. Rejection of any such change or modification by Sales Entity shall constitute a termination of this Agreement pursuant to Paragraph 11.B of this Agreement. 5. EARNED COMMISSIONS - Sales Commissions become Earned Commissions at such time as (a) all rights of rescission, including but not limited to all State rescission periods and post-Contract inspection rights, if any, have expired and (b) not less than fifty percent (50%) of a Contract balance has been paid to PEC or the total down payment and six (6) contractual payments have been received by PEC. Advances Against Commissions are subject to Recovery until such time as Sales Commissions become Earned Commissions. 6. REPAYMENT OF ADVANCES AGAINST COMMISSION - In the event that there is a default of any kind in a Contract, as determined in the sole discretion of PEC, prior to the Sales Commission on such defaulted Contract becoming an Earned Commission, Sales Entity shall repay PEC any Advances Against Commissions paid by PEC to Sales Entity with respect to such defaulted Contract and PEC may reduce the Reserve Account for the amount, if any, credited thereto on such defaulted Contract. PEC shall, without waiving any other right to repayment, have the right of Recovery for repayment of Advances Against Commissions paid by PEC to Sales Entity with respect to such defaulted Contracts. 7. RESERVE ACCOUNT - A Reserve Account will be established by PEC to which will be credited the amounts set forth in Paragraph 3. under "Payment of Sales Commissions" on Exhibit "A", attached hereto. A Minimum Balance set forth in Exhibit "A" attached hereto shall be attained and maintained throughout the term of this Agreement in the Reserve Account. PEC may commingle Reserve Account funds with its other funds. PEC retains the right to adjust the Minimum Balance, in its sole discretion, according to Sales Entity's production levels. Within one (1) year following the Termination Date, PEC shall conduct a final accounting of Sales Entity's Sales activities to determine any and/or all Earned Commissions less defaulted, canceled and/or non-processed Contracts and shall pay the net amount, if any, remaining in the Reserve Account to Sales Entity. 8. PREMISES - PEC agrees to provide and maintain the Sales Office, including the Sales room, and existing office equipment, audio visual equipment, telephones, computers, facsimiles, copier, typewriter, office supplies, office furniture, waiting room furniture, signage, as they exist on the date of this Agreement. Sales related documents, approved advertising, presentation books and promotional pieces will be made available to Sales Entity as reasonably requested. The use of telephones and facsimile shall be limited to communication between Sales Entity and PEC, and Sales Entity shall be solely responsible for the payment of any additional charges incurred. One (1) model condominium will be provided by PEC. 9. SALES AND MARKETING - It is understood that Sales Entity will be making use of suites from time to time at PEC's property in Orlando, Florida to house some of Sales Entity's prospective purchasers. Sales Entity shall pay to PEC a refundable rental deposit of $5,600.00 upon the execution of this Agreement in exchange for a block of twenty (20) suites per night at PEC's resort located in Orlando, Florida. Sales Entity shall make reservations with respect 2. 3 thereto through PEC's reservation system for PEC owners. Sales Entity shall notify PEC not less than fourteen (14) days prior to the arrival date of any cancellations. Any canceled reservations for said suites shall become immediately available for PEC's use. PEC shall provide an invoice to Sales Entity on Monday of each week for Rent due through the previous Sunday, which shall be paid no later than 5:00 p.m. Eastern Time on the following Wednesday. Provided all suites have been reserved and confirmed in accordance with the terms herein, and provided that Sales Entity has paid for all such suites, the refundable rental deposit will be returned to Sales Entity upon termination of this Agreement. Sales Entity shall provide, maintain and bear all costs associated with Sales Entity's marketing programs, as approved by PEC, including but not limited to premiums, gifts and charges incurred, other than for items specifically to be provided by PEC pursuant to Paragraph 8. of this Agreement. Sales Entity shall not solicit or sell Timeshares to any persons, appointments for whom have been arranged by PEC with PEC Sales personnel. 10. ADMINISTRATION - PEC shall verify, process and service any and all Contracts in accordance with its corporate policies. All customer payments including down payment and fees shall be payable to PEC or its designee and any such payments received by Sales Entity or any officer or employee of Sales Entity, shall be immediately remitted to PEC. Sales Entity may assist in collecting payment of dishonored checks and similar instruments with the prior approval of PEC. Sales Entity may also assist in the process of completing incomplete sales materials, documents and Contracts, with the prior approval of PEC. 11. TERMINATION - A. This Agreement shall expire on February 28, 2001, ("Termination Date"), or on such earlier date as called for under this Agreement if terminated by either party hereto. Payment of Advances Against Commissions will cease as of the Termination Date and any pending Advances Against Commissions, including Earned Commissions not yet paid, will be held back to cover all Recoveries. When all Sales Commissions payable on the Contracts on which Sales Entity is eligible to receive Sales Commissions have either been withheld as a Recovery or become Earned Commissions, the remaining balance of any Earned Commissions not yet withheld as a Recovery shall be paid to Sales Entity. Sales Entity shall be responsible for repayment to PEC for all Recoveries that exceed previously paid Earned Commissions. B. This Agreement may be terminated by either party at any time and for any or no reason by giving thirty (30) days written notice to the other party in which case the Termination Date shall be upon the expiration of the thirty (30) days following the giving of such written notice. C. In the event of a breach by Sales Entity of the representations or agreements contained in Paragraph 2. hereof, or the failure of Sales Entity to properly remit funds to PEC in accordance with Paragraph 10. hereof, PEC may terminate the Agreement immediately by written notice to Sales Entity. 12. CONFIDENTIALITY - Sales Entity agrees not to disclose, either during or subsequent to the term of this Agreement, any confidential information and trade secrets of PEC, including any and all customer lists, marketing plans or strategies. It is further understood and agreed that Sales Entity's use of the names and/or addresses and/or telephone numbers of PEC's customers 3. 4 and/or other customer prospects, whether supplied by PEC or secured by Sales Entity during Sales Entity's engagement with PEC, for any purpose other than the furtherance of PEC's business is a breach of this Agreement. Sales Entity further agrees not to directly or indirectly attempt to persuade any salesperson to leave PEC's employ. 13. INDEMNIFICATION - Sales Entity hereby covenants and agrees to indemnify and hold PEC, its affiliates and all directors, officers and employees thereof (the "Indemnities") harmless from any and all lawsuits, claims, demands and liabilities resulting in judgment against the Indemnities in favor of any prospective purchasers of Timeshare solicited or procured By Sales Entity, where such claim, demand, liability or judgment arises, or is claimed to arise out of, by reason of, or in connection with any violation by Sales Entity and/or any or all employees engaged by Sales Entity, of any applicable law, ordinance, rule, regulation, or order of competent public authority, and/or obligations assumed by Sales Entity under this Agreement, including the obligations to abide by the Code of Ethics, regulations and operating rules and procedures promulgated from time to time by PEC, its affiliates or subsidiaries, or as the result of Sales Entity's negligence and/or willful misconduct. Sales Entity also agrees to indemnify and hold the Indemnities harmless from all reasonable attorney fees, costs and expenses incurred by an Indemnity in defending against any such lawsuits, claims, demands and liabilities. PEC shall indemnify and hold Sales Entity harmless from all reasonable attorney fees, costs and expenses incurred by Sales Entity that Sales Entity might incur in defense of Sales Entity for suit(s) brought by third parties against Sales Entity based on the willful misconduct of PEC. 14. PROHIBITED ACTS - With respect to the Sales contemplated by this Agreement, Sales Entity will not publish or cause to be published by any means, any advertising, radio or television commercials, brochures, flyers or other written materials or sales scripts without prior written approval of PEC. Sales Entity will not use any contracts, documents, form letters or any other collateral material of any type that has not been approved in writing or provided to Sales Entity by PEC. 15. INDEPENDENT CONTRACTOR - Sales Entity and PEC agree that Sales Entity's relationship to PEC under the terms of this Agreement is that of independent contractor and that Sales Entity is in no way to be construed as a servant, partner, trustee, employee, joint venturer or co-venturer of PEC or any other signatory to this Agreement. 16. GENERAL PROVISIONS - A. This Agreement shall be interpreted in accordance with the laws of the State of Florida. B. Sales Entity agrees at all times to conform its and its employees' conduct to PEC's Code of Ethics, a copy of which Sales Entity acknowledges having received. C. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. 4. 5 D. The provisions of this Agreement are severable, and if any one or more provisions are determined to be judicially unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. E. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. F. The rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the parties' respective heirs, successors and permitted assigns. Sales Entity may not assign its respective benefits or duties under this Agreement. G. Reference to either gender shall apply to both genders. 17. NOTICE - All notices required hereunder shall be given by prepaid, registered or certified air mail, return receipt requested: If to PEC or its affiliates: 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Gregg A. McMurtrie Copy to: Jon A. Joseph If to Sales Entity: 5942 34th Street West, #107 Bradenton, Florida 34201 Attention: Walt Cymansky 18. ENTIRE AGREEMENT - This Agreement, the Appendix of Defined Terms and Exhibits "A" and "B", constitutes the entire Agreement between PEC and Sales Entity relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations and Agreements, whether written or oral. No PEC representative, other than the signatory to this Agreement or his successor in interest as Executive Vice President and Chief Operating Officer, has any authority to agree to anything contrary to the terms and conditions set forth in this Agreement. Any amendment or modification of this Agreement must be in writing. No oral waiver, amendment or modification will be effective under any circumstances. THIS AGREEMENT IS ENTERED INTO AS OF THE DATE FIRST APPEARING HEREIN. GREAT ESCAPE PREFERRED EQUITIES MARKETING, INC. CORPORATION By: /s/ WALT CYMANSKY By: /s/ GREGG A. MCMURTRIE ----------------------- --------------------------- Walt Cymansky Gregg A. McMurtrie Director of Operations Executive Vice President and Chief Operating Officer 5. 6 APPENDIX OF DEFINED TERMS Advance(s) Against Commission(s) - means all payments of Sales Commissions paid by PEC in accordance with the Sales Commission Schedule attached hereto and marked Exhibit "A". Agreement- means this Exclusive Sales Agreement entered into by and between PEC and Sales Entity. Code of Ethics - means Preferred Equities Corporation Code of Ethics used by PEC. Conforming Sales Criteria - means the criteria shown on Exhibit "B", attached hereto. Contract(s) - means a PEC approved Sales agreement for Sale of Timeshare at PEC's Timeshare resort located in Orlando, Florida, entered into by and between Sales Entity on behalf of PEC and a customer, evidencing the Sale of Timeshare, that meets all Conforming Sales Criteria and includes all documents required by Paragraph A of Exhibit "B", attached hereto. Earned Commission - defined in Paragraph 5. of this Agreement. Net Processed Volume - means the sum of Sales prices on processed Contracts entered into by Sales Entity on behalf of PEC meeting the Conforming Sales Criteria, less any authorized discounts and/or authorized waivers of interest or other fees to be charged to a customer(s) pursuant to the terms and conditions of a Contract. Recovery(ies) -means deduction by PEC of any amounts due pursuant to Paragraph 6. of this Agreement from the next payable Advance Against Commission due to Sales Entity. Rent - means $40.00 per unit per night at PEC's Timeshare resort located in Orlando, Florida. Reserve Account - means a non-segregated account maintained by PEC in which the percent of Net Processed Volume set forth in Exhibit "A", attached hereto, shall be held to cover the cost of Contract cancellations following Termination Date. Sale(s) - means sales of PEC's Timeshare products at the Sales Office as evidenced by a Contract. Sales Commission(s) - means commissions paid on Sales in accordance with Exhibit "A" attached hereto. Sales Commissions are determined on Net Processed Volume for Contracts meeting Conforming Sales Criteria, are subject to Recovery, and are not earned until such time as a Sale Commission becomes an Earned Commission. Sales Commission Schedule - means the schedule of Sales Commissions shown on Exhibit "A" attached hereto. State - means the state of Florida. Timeshare(s) - means Preferred Equities Corporation's and its subsidiaries' timeshare products registered in Florida. 6. 7 EXHIBIT "A" SALES COMMISSION SCHEDULE A. Sales Commission Rate Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC, Sales Entity, subject to Recovery, will receive a Sales Commission of forty-eight percent (48%) of the Net Processed Volume of each Contract. B. Payment of Sales Commissions Sales Commissions will be paid in accordance with the following schedule: 1. Thirty percent (30%) of Net Processed Volume of a Contract will be paid to Sales Entity as an Advance Against Commission on the Friday following the week in which the rescission period for a Contract has passed and PEC has processed the Contract; 2. Fifteen percent (15%) of Net Processed Volume of a Contract will be paid to Sales Entity as an Advance Against Commission on the 15th day of the month following receipt and posting of the first Contract payment; 3. On the 15th day of the month following receipt and posting of the second Contract payment, three percent (3%) of the Net Processed Volume of a Contract will be deposited in a Reserve Account until such time as a minimum balance of such Reserve Account, initially set at $90,000.00 ("Minimum Balance") is attained and maintained. At all times that the Reserve Account contains the Minimum Balance, the three percent (3%) of the Net Processed Volume will be paid to Sales Entity after the receipt and posting by PEC of the second Contract payment. C. All Sales Commissions will be paid to Sales Entity via wire transfer to Nations Bank N.A. Florida, account number 003661096900, routing number 063100277, at Sales Entity's expense to be deducted from Advances Against Commissions. D. All Sales Commissions paid or payable to Sales Entity are subject to Recovery until such time as Sales Commissions become Earned Commissions. 7. 8 EXHIBIT "B" CONFORMING SALES CRITERIA A. Documents Required. The following documents for each Contract must be completed by Sales Entity: 1. Contract; 2. Notice of Nonrepresentation (Agency Disclosure); 3. Receipt for Public Offering Statement; 4. Purchaser's Understanding & Acknowledgement form; 5. Credit Application for Membership; 6. Floor Plan; 7. W-9 for US citizens; W-8 for foreign citizens; 8. HUD Documents, including Good Faith Estimate, Servicing Disclosure Statement, Settlement Statement; 9. Verification Sheet; 10. Mortgage, if applicable; 11. Note, if applicable; 12. RBC Card Application, if applicable; and 13. RCI Application, if applicable. The documents that are necessary to complete a Contract evidencing a Sale vary from time to time; therefore, it is the responsibility of Sales Entity to understand and complete the appropriate paperwork required in and by the State of Florida. 8. 9 B. Contract Term. 10 Years on financed balances over $10,000 8 Years (any balance) 7 Years (any balance) 5 Years (any balance) 3 Years (any balance) 1 Year (Associate Program) C. Payments and Interest Rates. 7, 8 and 10 year terms 10% Down Payment 15.5% Interest 15% Down Payment 14.5% Interest 20% Down Payment 14.0% Interest 25% Down Payment 13.5% Interest 5 year terms 10% Down Payment 14.5% Interest 15% Down Payment 14.0% Interest 20% Down Payment 13.5% Interest 25% Down Payment 13.0% Interest 3 year terms 50% Down Payment 5.0% Interest
The minimum acceptable monthly payment on any Contract is $60.00 per month. 9. 10 D. Discounts. 1. Up to a five percent (5%) discount is allowed on new sales only (not upgrades) for existing timeshare owners with RCI or II affiliation; Camp Coast to Coast members; Ramada Business Card holders; Cendant affiliated frequent traveler programs; AARP members and AAA members. A memo outlining specifically how a new Contract qualifies, with proof attached, is required to obtain this discount. Sales Commissions will be held until the memo is accepted by Sales Management. 2. There is NO discount for an all cash payment; however, an owner who pays off a credit balance in full prior to the first due date will not be charged interest. E. Rescission Rights. The rescission period is defined by Florida statute. Deviation from the State-mandated rescission period cannot be waived. F. Payment of Certain Fees. The payment of maintenance fees, document preparation fees and/or RCI dues cannot be waived. 10. EX-10.166 4 EXCLUSIVE SALES AGREEMENT DATED MARCH 10, 1999 1 EXHIBIT 10.166 PREFERRED EQUITIES CORPORATION EXCLUSIVE SALES AGREEMENT THIS EXCLUSIVE SALES AGREEMENT ("Agreement") is entered into as of March 10, 1999, by and between Preferred Equities Corporation and its wholly owned subsidiary, Brigantine Preferred Properties, Inc., Nevada corporations having their principal address at 4310 Paradise Road, Las Vegas, Nevada 89109 (collectively referred to as "PEC") and D&D Marketing, Inc., a New Jersey corporation having its principal address at 1500 Ocean Avenue, Brigantine, New Jersey 03203 ("Sales Entity"). RECITAL OF FACTS PEC desires to retain Sales Entity pursuant to the terms and conditions of this Agreement to engage in Sales of Timeshare at PEC's Sales office located at The Brigantine Inn, 1500 Ocean Avenue, Brigantine, New Jersey 03203 ("Sales Office"). Sales Entity desires to be so retained. For good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS - All capitalized terms used within this Agreement, including all Exhibits attached hereto and made a part hereof, unless otherwise defined within this Agreement or any Exhibit attached hereto, shall have the respective meanings ascribed in the Appendix of Defined Terms attached hereto and made a part hereof. 2. ENGAGEMENT - In consideration of PEC and Sales Entity entering into this Agreement and Sales Entity representing that it and all employees engaged by Sales Entity hold all necessary licenses, PEC hereby engages Sales Entity to conduct Sales of Timeshare at Sales Office. Sales Entity represents and agrees that as of the date of and throughout the term of this Agreement, Sales Entity and all employees of Sales Entity meeting the definition of a broker, broker-salesperson or salesperson pursuant to New Jersey Permanent Statute Title 45, are and will be licensed pursuant to the requirements stated therein and all lesser municipal bodies or agencies as may be required and Sales Entity and its employees are and will remain in good standing with all applicable State and all lesser municipal bodies licensing requirements. Sales Entity further represents and agrees that it will comply with all applicable laws, policies, rules, regulations and procedures established by any federal, State or local regulatory agency. 3. BEST EFFORTS - During the term of employment, Sales Entity agrees to: (a) devote its best efforts to Sales of Timeshare at Sales Office; (b) fully perform all duties as directed by PEC from time to time; and (c) faithfully and diligently endeavor to promote the best interests of PEC. 4. COMPENSATION - PEC shall pay to Sales Entity Sales Commissions at a rate and at times shown on the Sales Commission Schedule, attached hereto, made a part hereof and marked Exhibit "A". Sales Commissions shall be calculated on Net Processed Volume for Contracts meeting Conforming Sales Criteria as shown on Exhibit "B", attached hereto and made a part 1. 2 hereof. Conforming Sales Criteria may be modified upon the giving of written notice to Sales Entity by PEC. Rejection of any such change or modification by Sales Entity shall constitute a termination of this Agreement pursuant to Paragraph 11.B. of this Agreement. 5. EARNED COMMISSIONS - Sales Commissions become Earned Commissions at such time as (a) all rights of rescission, including but not limited to all State rescission periods and post-Contract inspection rights, if any, have expired and (b) not less than fifty percent (50%) of a Contract balance has been paid to PEC or the total down payment and six (6) contractual payments have been received by PEC. Advances Against Commissions are subject to Recovery until such time as Sales Commissions become Earned Commissions. 6. REPAYMENT OF ADVANCES AGAINST COMMISSION - In the event that there is a default of any kind in a Contract, as determined in the sole discretion of PEC, prior to the Sales Commission on such defaulted Contract becoming an Earned Commission, Sales Entity shall repay PEC any Advances Against Commissions paid by PEC to Sales Entity with respect to such defaulted Contract and PEC may reduce the Reserve Account for the amount, if any, credited thereto on such defaulted Contract. PEC shall, without waiving any other right to repayment, have the right of Recovery for repayment of Advances Against Commissions paid by PEC to Sales Entity with respect to such defaulted Contracts. 7. RESERVE ACCOUNT - A Reserve Account will be established by PEC to which will be credited the amounts set forth in Paragraph A.3. under "Payment of Sales Commissions" on Exhibit "A", attached hereto. A Minimum Balance set forth in Exhibit "A" attached hereto shall be attained and maintained throughout the term of this Agreement in the Reserve Account. PEC may commingle Reserve Account funds with its other funds. PEC retains the right to adjust the Minimum Balance, in its sole discretion, according to Sales Entity's production levels. Within one (1) year following the Termination Date, PEC shall conduct a final accounting of Sales Entity's Sales activities to determine any and/or all Earned Commissions less defaulted, canceled and/or non-processed Contracts and shall pay the net amount, if any, remaining in the Reserve Account to Sales Entity. 8. PREMISES - PEC agrees to provide and maintain the Sales Office, including the Sales room, and existing office equipment, audio visual equipment, telephones, computers, facsimiles, copier, typewriter, office supplies, office furniture, waiting room furniture, signage, as they exist on the date of this Agreement. Sales related documents, approved advertising, presentation books and promotional pieces will be made available to Sales Entity as reasonably requested. The use of telephones and facsimile shall be limited to communication between Sales Entity and PEC, and Sales Entity shall be responsible for the payment of any additional charges incurred. 9. SALES AND MARKETING - It is understood that Sales Entity will be making use of suites from time to time at PEC's property at the Brigantine Inn located in Brigantine, New Jersey, to house some of Sales Entity's prospective purchasers. All of Sales Entity's prospective purchasers so housed shall pay Rent to the front desk at the time of check-in. Sales Entity shall pay to PEC the difference between monies collected by such prospective purchasers at the front desk and Rent upon PEC's demand. All reservations are subject to availability. Sales Entity shall provide, maintain and bear all costs associated with Sales Entity's marketing programs, as approved by PEC, including but not limited to premiums, gifts and charges incurred, other than for those items specifically to be provided by PEC pursuant to Paragraph 8. of this Agreement. 2. 3 With respect to persons appointments for which have been arranged by PEC at the Brigantine Inn ("PEC Guest"), PEC shall provide the premiums at its cost. 10. ADMINISTRATION - PEC shall verify, process and service any and all Contracts in accordance with its corporate policies. All customer payments including down payment and fees shall be payable to PEC or its designee and any such payments received by Sales Entity or any officer or employee of Sales Entity, shall be immediately remitted to PEC. Sales Entity may assist in collecting payment of dishonored checks and similar instruments with the prior approval of PEC. Sales Entity may also assist in the process of completing incomplete sales materials, documents and Contracts, with the prior approval of PEC. 11. TERMINATION - A. This Agreement shall expire on February 28, 2001, ("Termination Date"), or on such earlier date as called for under this Agreement if terminated by either party hereto. Payment of Advances Against Commissions will cease as of the Termination Date and any pending Advances Against Commissions, including Earned Commissions not yet paid, will be held back to cover all Recoveries. When all Sales Commissions payable on the Contracts on which Sales Entity is eligible to receive Sales Commissions have either been withheld as a Recovery or become Earned Commissions, the remaining balance of any Earned Commissions not yet withheld as a Recovery shall be paid to Sales Entity. Sales Entity shall be responsible for repayment to PEC for all Recoveries that exceed previously paid Earned Commissions. B. This Agreement may be terminated by either party at any time and for any or no reason by giving thirty (30) days written notice to the other party in which case the Termination Date shall be upon the expiration of the thirty (30) days following the giving of such written notice. C. In the event of a breach by Sales Entity of the representations or agreements contained in Paragraph 2. hereof, or the failure of Sales Entity to properly remit funds to PEC in accordance with Paragraph 10. hereof, PEC may terminate the Agreement immediately by written notice to Sales Entity. 12. CONFIDENTIALITY - Sales Entity agrees not to disclose, either during or subsequent to the term of this Agreement, any confidential information and trade secrets of PEC, including any and all customer lists, marketing plans or strategies. It is further understood and agreed that Sales Entity's use of the names and/or addresses and/or telephone numbers of PEC's customers and/or other customer prospects, whether supplied by PEC or secured by Sales Entity during Sales Entity's engagement with PEC, for any purpose other than the furtherance of PEC's business is a breach of this Agreement. Sales Entity further agrees not to directly or indirectly attempt to persuade any salesperson to leave PEC's employ. 13. INDEMNIFICATION - Sales Entity hereby covenants and agrees to indemnify and hold PEC, its affiliates and all directors, officers and employees thereof (the "Indemnities") harmless from any and all lawsuits, claims, demands and liabilities resulting in judgment against the Indemnities in favor of any prospective purchasers of Timeshare solicited or procured By Sales Entity, where such claim, demand, liability or judgment arises, or is claimed to arise out of, by reason of, or in connection with any violation by Sales Entity and/or any or all employees engaged by Sales Entity, of any applicable law, ordinance, rule, regulation, or order of competent 3. 4 public authority, and/or obligations assumed by Sales Entity under this Agreement, including the obligations to abide by the Code of Ethics, regulations and operating rules and procedures promulgated from time to time by PEC, its affiliates or subsidiaries, or as the result of Sales Entity's negligence and/or willful misconduct. Sales Entity also agrees to indemnify and hold the Indemnities harmless from all reasonable attorney fees, costs and expenses incurred by an Indemnity in defending against any such lawsuits, claims, demands and liabilities. PEC shall indemnify and hold Sales Entity harmless from all reasonable attorney fees, costs and expenses incurred by Sales Entity that Sales Entity might incur in defense of Sales Entity for suit(s) brought by third parties against Sales Entity based on the willful misconduct of PEC. 14. PROHIBITED ACTS - Sales Entity will not publish or cause to be published by any means, any advertising, radio or television commercials, brochures, flyers or other written materials or sales scripts without prior written approval of PEC. Sales Entity will not use any contracts, documents, form letters or any other collateral material of any type that has not been approved in writing or provided to Sales Entity by PEC. 15. INDEPENDENT CONTRACTOR - Sales Entity and PEC agree that Sales Entity's relationship to PEC under the terms of this Agreement is that of independent contractor and that Sales Entity is in no way to be construed as a servant, partner, trustee, employee, joint venturer or co-venturer of PEC or any other signatory to this Agreement. 16. GENERAL PROVISIONS - A. This Agreement shall be interpreted in accordance with the laws of the State of New Jersey. B. Sales Entity recognizes and understands that PEC may change, in its absolute and sole discretion, the Sales Commission rates and/or Recovery criteria at any time, attached hereto as Exhibit "A", and/or the Conforming Sales Criteria, attached hereto as Exhibit "B" by giving written notice thereof. If within five (5) business days Sales Entity accepts such change it shall become effective immediately. If Sales Entity does not accept such change, the written notice of same shall constitute notice of termination pursuant to Paragraph 11.B. of this Agreement. C. Sales Entity agrees at all times to conform its and its employees' conduct to Preferred Equities Corporation's Code of Ethics, a copy of which Sales Entity acknowledges having received. D. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. E. The provisions of this Agreement are severable, and if any one or more provisions are determined to be judicially unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. F. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. 4. 5 G. The rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the parties' respective heirs, successors and permitted assigns. Sales Entity may not assign its respective benefits or duties under this Agreement. H. Reference to either gender shall apply to both genders. 17. NOTICE - All notices required hereunder shall be given by prepaid, registered or certified air mail, return receipt requested: If to PEC or its affiliates: 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Gregg A. McMurtrie Copy to: Jon A. Joseph If to Sales Entity: 1500 Ocean Avenue Brigantine, New Jersey 03203 Attention: Debra Blair 18. ENTIRE AGREEMENT - This Agreement, the Appendix of Defined Terms and Exhibits "A" and "B", constitutes the entire Agreement between PEC and Sales Entity relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations and Agreements, whether written or oral. No Preferred Equities Corporation representative other than the signatory to this Agreement or his successor in interest as Executive Vice President and Chief Operating Officer, has any authority to agree to anything contrary to the terms and conditions set forth in this Agreement. No Brigantine Preferred Properties, Inc. representative, 5. 6 other than the signatory to this Agreement or his successor in interest as President, has any authority to agree to anything contrary to the terms and conditions set forth in this Agreement. Any amendment or modification of this Agreement must be in writing. No oral waiver, amendment or modification will be effective under any circumstances. THIS AGREEMENT IS ENTERED INTO AS OF THE DATE FIRST APPEARING HEREIN. D&D MARKETING, INC. PREFERRED EQUITIES CORPORATION By: /s/ DEBRA BLAIR By: /s/ GREGG A. MCMURTRIE ----------------------- ---------------------------- Debra Blair Gregg A. McMurtrie Director of Operations Executive Vice President and Chief Operating Officer BRIGANTINE PREFERRED PROPERTIES, INC. By: /s/ GREGG A. MCMURTRIE ---------------------------- Gregg A. McMurtrie President 6. 7 APPENDIX OF DEFINED TERMS Advance(s) Against Commission(s) - means all payments of Sales Commissions paid by PEC in accordance with the Sales Commission Schedule attached hereto and marked Exhibit "A". Agreement- means this Exclusive Sales Agreement entered into by and between PEC and Sales Entity. Code of Ethics - means Preferred Equities Corporation, the parent company of Brigantine Preferred Properties, Inc., Code of Ethics. Conforming Sales Criteria - means the criteria shown on Exhibit "B", attached hereto. Contract(s) - means a PEC approved Sales agreement for Sale of Timeshare at PEC's Timeshare resort located in Brigantine, New Jersey, entered into by and between Sales Entity on behalf of PEC and a customer, evidencing the Sale of Timeshare, that meets all Conforming Sales Criteria and includes all documents required by Paragraph A of Exhibit "B", attached hereto. Earned Commission - defined in Paragraph 5. of this Agreement. Net Processed Volume - means the sum of Sales prices on processed Contracts entered into by Sales Entity on behalf of PEC meeting the Conforming Sales Criteria, less any authorized discounts and/or authorized waivers of interest or other fees to be charged to a customer(s) pursuant to the terms and conditions of a Contract. Recovery(ies) -means deduction by PEC of any amounts due pursuant to Paragraph 6. of this Agreement from the next payable Advance Against Commission due to Sales Entity. Rent - means $40.00 per unit per night at Brigantine Inn, located in Brigantine, New Jersey. Reserve Account - means a non-segregated account maintained by PEC in which the percent of Net Processed Volume set forth in Exhibit "A", attached hereto, shall be held to cover the cost of Contract cancellations following Termination Date. Sale(s) - means sales of PEC's Timeshare products at the Sales Office as evidenced by a Contract. Sales Commission(s) - means commissions paid on Sales in accordance with Exhibit "A" attached hereto. Sales Commissions are determined on Net Processed Volume for Contracts meeting Conforming Sales Criteria, are subject to Recovery, and are not earned until such time as a Sale Commission becomes an Earned Commission. Sales Commission Schedule - means the schedule of Sales Commissions shown on Exhibit "A" attached hereto. State - means the state of Florida. Timeshare(s) - means Preferred Equities Corporation's and its subsidiaries' timeshare products registered in New Jersey. 7. 8 EXHIBIT "A" SALES COMMISSION SCHEDULE A. Sales Commission Rate for Sales Other Than to PEC Guests Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC other than to a PEC Guest, Sales Entity, subject to Recovery, will receive a Sales Commission of forty-five percent (45%) of the Net Processed Volume of each Contract. Payment of Sales Commissions for Sales other than to a PEC Guest will be paid in accordance with the following schedule. 1. Thirty percent (30%) of Net Processed Volume of a Contract will be paid to Sales Entity as an Advance Against Commission on the Friday following the week in which the rescission period for a Contract has passed and PEC has processed the Contract; 2. Twelve percent (12%) of Net Processed Volume of a Contract will be paid to Sales Entity as an Advance Against Commission on the 15th day of the month following receipt and posting of the first Contract payment; 3. On the 15th day of the month following receipt and posting of the second Contract payment, three percent (3%) of the Net Processed Volume of a Contract will be deposited in a Reserve Account until such time as a minimum balance of such Reserve Account, initially set at $20,000.00 ("Minimum Balance") is attained and maintained. At all times that the Reserve Account contains the Minimum Balance, the three percent (3%) of the Net Processed Volume will be paid to Sales Entity after the receipt and posting by PEC of the second Contract payment. B. Sales Commission Rate for Sales to PEC Guests Upon PEC approving a Contract entered into by Sales Entity on behalf of PEC to a PEC Guest, Sales Entity, subject to Recovery, will receive a Sales Commission of twelve percent (12%) of the Net Processed Volume of each Contract. Payment of Sales Commissions for Sales to a PEC Guest will be paid in accordance with the following schedule. Twelve percent (12%) shall be paid to Sales Entity as an Advance Against Commission on the Friday following the week in which the rescission period for a Contract has passed and PEC has processed the Contract. 8. 9 C. All Sales Commissions will be paid to Sales Entity via wire transfer to Commerce Bank; account number 47 5977 5, routing number 031201360 at Sales Entity's expense to be deducted from Advances Against Commissions. D. All Sales Commissions paid or payable to Sales Entity are subject to Recovery until such time as Sales Commissions become Earned Commissions. 9. 10 EXHIBIT "B" CONFORMING SALES CRITERIA A. Documents Required. The following documents for each Contract must be completed by Sales Entity: 1. Purchase Agreement; 2. Escrow Agreement; 3. New Jersey Disclosure Statement; 4. Receipt for Documents or Public Offering Statement; 5. Purchaser's Understanding & Acknowledgement form; 6. Credit Application for Membership; 7. Proxy; 8. Floor Plan; 9. W-9 for US citizens; W-8 for foreign citizens; 10. HUD Documents, including Good Faith Estimate, Servicing Disclosure Statement, Settlement Statement; 11. Verification Sheet; 12. Applicable Deeds; 13. Unit Week Deed; 14. Mortgage, if applicable; 15. Promissory Note, if applicable; 16. RBC Card Application, if applicable; and 17. RCI Application, if applicable. The documents that are necessary to complete a Contract evidencing a Sale vary from time to time; therefore, it is the responsibility of Sales Entity to understand and complete the appropriate paperwork required in and by the State of New Jersey. 10. 11 B. Contract Term. 10 Years on financed balances over $10,000 8 Years (any balance) 7 Years (any balance) 5 Years (any balance) 3 Years (any balance) 1 Year (Associate Program) C. Payments and Interest Rates. 7, 8 and 10 year terms 10% Down Payment 15.5% Interest 15% Down Payment 14.5% Interest 20% Down Payment 14.0% Interest 25% Down Payment 13.5% Interest 5 year terms 10% Down Payment 14.5% Interest 15% Down Payment 14.0% Interest 20% Down Payment 13.5% Interest 25% Down Payment 13.0% Interest 3 year terms 50% Down Payment 5.0% Interest
The minimum acceptable monthly payment on any Contract is $60.00 per month. 11. 12 D. Discounts. 1. Up to a five percent (5%) discount is allowed on new sales only (not upgrades) for existing timeshare owners with RCI, II, RVS and/or PEC affiliation; Camp Coast to Coast members; Ramada Business Card holders; Cendant affiliated frequent traveler programs; AARP members and AAA members. A memo outlining specifically how a new Contract qualifies, with proof attached, is required to obtain this discount. Sales Commissions will be held until the memo is accepted by Sales Management. 2. There is NO discount for an all cash payment; however, an owner who pays off a credit balance in full prior to the first due date will not be charged interest. E. Rescission Rights. The rescission period is defined by New Jersey statute. Deviation from the State-mandated rescission period cannot be waived. F. Payment of Certain Fees. The payment of maintenance fees, document preparation fees and/or RCI dues cannot be waived. 12. EX-10.167 5 FORBEARANCE AND MODIFICATION AGREEMENT 1 EXHIBIT 10.167 FORBEARANCE AND MODIFICATION AGREEMENT THIS FORBEARANCE AND MODIFICATON AGREEMENT (this "Agreement") is entered into as of the 7th day of May, 1999 by and between Preferred Equities Corporation, a Nevada corporation ("Borrower") and Heller Financial, Inc., a Delaware corporation (the "Lender"). R E C I T A L S A. The Borrower and Lender are parties to that certain Acquisition and Renovation Loan Agreement (the "Colorado Acquisition Loan") made in connection with a Routt County, Colorado timeshare resort (the "Colorado Resort") and that certain Interval Receivables Loan and Security Agreement (the "Colorado Receivables Loan") made in connection with the Colorado Resort, both dated as of August 6, 1996 (together, as each have been or may be amended from time to time, the "Colorado Loan Agreements"); B. The Borrower and Lender are also parties to that certain Acquisition and Renovation Loan Agreement dated March 29, 1996 (the "Florida Acquisition Loan") made in connection with a Tango Bay, Florida timeshare resort (the "Florida Resort") and that certain Interval Receivables Loan and Security Agreement dated March 28, 1996 (the "Florida Receivables Loan") made in connection with the Florida Resort (together, as each have been or may be amended from time to time, the "Florida Loan Agreements"). The Florida Loan Agreements and the Colorado Loan Agreements are referred to herein as the "Loan Agreements"; C. Borrower failed to make payments due for the months of September, 1998, December, 1998 and March, 1999 under Section 4.1 of the Colorado Acquisition Loan and Section 4.1 of the Florida Acquisition Loan. Such failure to comply with said provisions would constitute,absent the agreement to forbear set forth in this Agreement, an Event of Default under those agreements and Events of Default under the Florida Receivables Loan and Colorado Receivables Loan, thus entitling Lender to exercise its rights and remedies as provided in the Loan Agreements and all documents and agreements executed in connection with the foregoing (collectively, the "Loan Documents"); D. Borrower has requested Lender to forbear from declaring Events of Default as set forth above and enforcing its rights and remedies under the Loan Documents until July 31, 1999 for the purpose of affording the Borrower an opportunity to formulate a comprehensive proposal for the restructuring of Borrower's Obligations under the Loan Agreements; and 2 E. Lender is willing to forbear from declaring such Events of Default and from enforcing its rights and remedies that would arise therefrom for a limited period of time, provided that Borrower performs and meets the conditions of the forbearance set forth herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged the parties hereto agree as follows: SECTION 1. Definitions. 1.1 Capitalized terms used and not otherwise defined herein are used with the meanings set forth in the Loan Agreements. 1.2 The following terms used in this Agreement shall have the meaning set forth below: 1.2.2 "Creditor Action" shall have the meaning set forth in Section 6 hereof. 1.2.3 "Existing Defaults" shall mean the potential Events of Default set forth in Recital C hereof. 1.2.4 "Forbearance Default" shall mean (a) the occurrence of any Default or Event of Default under the Loan Documents other than the Existing Defaults, (b) the failure of the Borrower to comply with any term, condition, or covenant set forth in this Agreement within the time frame set forth, (c) if any representation made by Borrower under or in connection with this Agreement shall prove to be materially false as of the date when made, (d) a material adverse change in the financial condition of Borrower, (e) the occurrence of a Creditor Action, or (f) the filing of any petition (voluntary or involuntary) under the insolvency or bankruptcy laws of the United States or any state. 1.2.5 "Termination Date" shall mean the earlier to occur of (a) 5:00 p.m. Chicago Time on July 31, 1999, (b) immediately upon the occurrence of a Creditor Action, or (c) the date and time, which is twenty-four (24) hours subsequent to the receipt by Borrower of a notice from Lender that a Forbearance Default (other than a Creditor Action) has occurred. 2 3 SECTION 2. Agreement to Forbear. 2.1 The Recitals set forth above are fully incorporated herein by this reference. Provided that no Forbearance Default occurs, the Lender hereby agrees to refrain through the Termination Date from exercising any of its rights under the Loan Agreements, or any of the Loan Documents that may exist by virtue of the Existing Defaults. 2.2 Nothing in this Agreement shall be construed to be a waiver of or acquiescence in any Existing Default, and all such Existing Defaults shall continue in existence, subject only to the Lender's agreement, as set forth herein, not to enforce its remedies for a limited period of time. Except as expressly set forth in Section 4 below, the execution and delivery of this Forbearance Agreement shall not (i) constitute an extension, modification, or waiver of any aspect of the Loan Agreements or the Loan Documents; (ii) extend the terms of the Loan Agreements or the due date of any of Borrower's Obligations; (iii) give rise to any obligation on the part of Lender to extend, modify, or waive any aspect of the Loan Agreements or Loan Documents; or (iv) give rise to any defenses or counterclaims to Lender's right to compel payment of Borrower's Obligations, or otherwise enforce the Loan Agreements and the Loan Documents. Except as expressly limited herein, Lender hereby expressly reserves all of its rights and remedies under the Loan Documents and under applicable law with respect to such Existing Defaults, including, without limitation, the Lender's right to charge interest on Borrower's Obligations at the Default Rate. From and after the Termination Date, the Lender shall be entitled to enforce the Loan Documents according to the original terms of the Loan Documents. SECTION 3. Representations and Warranties. In consideration of the Lender's promise to forbear herein contained, the Borrower hereby represents and warrants to the Lender as of the date hereof: 3.1 In connection with the execution of this Agreement, Borrower has made full disclosure to Lender of all material aspects of its financial condition and business operations. 3 4 3.2 The execution, delivery and performance by the Borrower of this Agreement is within its corporate power and has been duly authorized by all necessary corporate action, and this Agreement constitutes a valid and binding agreement of Borrower, subject only to the effect of any applicable bankruptcy, insolvency, reorganization, or other similar laws or equitable principles relating to or affecting the enforcement of creditors' rights generally. 3.3 All Loan Documents, including without limitation the Loan Agreements and the Exclusive Financing Agreement dated August 6, 1996 with respect to the Colorado Resort and the Exclusive Financing Agreement dated March 29, 1996 with respect to the Florida Resort, constitute valid and binding legal obligations of Borrower and are enforceable against Borrower and the assets thereof in accordance with the terms thereof. This Agreement shall not be deemed or be construed to be a satisfaction, reinstatement, novation, or release of the Loan Agreements or of any of the other Loan Documents, or a waiver by Lender of any of the rights of Lender under the Loan Agreements or any of the other Loan Documents, or any of them, or at law or in equity. Borrower has no defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatever with respect to the Loan Documents or the obligations thereunder to Lender, or with respect to any other documents or instruments now or heretofore evidencing, securing, or in any other way relating to the Obligations or the Loan Documents, or with respect to the administration or funding of any of Borrowers Obligations to Lender. SECTION 4. Other Agreements. In consideration of the Lender's promise to forbear herein contained, the Borrower hereby covenants and agrees with the Lender the following: 4.1 Borrower shall provide full and complete access to Lender in order that Lender may conduct audits, as necessary in Lender's sole discretion, of Borrower's books and records with regard to cash flow and projections; 4.2 The definition of "Revolving Period" set forth in the Appendix to the Colorado Receivables Loan is hereby amended to state as follows: 4 5 "The period commencing on the date of the first Advance and ending on July 31, 1999." 4.3 The definition of "Revolving Period" set forth in the Appendix to the Florida Receivables Loan is hereby amended to state as follows: "The period commencing on the date of the first Advance and ending on July 31, 1999." 4.4 Section 1.5(a) Voluntary Prepayments of the Colorado Receivables Loan is amended by replacing the second sentence of that Section, which states "Notwithstanding the foregoing, in the event of a prepayment of the Loan in whole or in part, upon a bulk sale by Borrower of Financed Notes Receivable, no Prepayment Premium shall be payable and Borrower shall, in lieu thereof, pay to Lender an exit fee of one percent (1%) of the amount of prepayment," with the following sentence: "Notwithstanding the foregoing, in the event of a prepayment of the Loan in whole or in part, upon a bulk sale by Borrower of Financed Notes Receivable, no Prepayment Premium shall be payable and Borrower shall, in lieu thereof, pay to Lender an exit fee of one percent (1%) of the amount of prepayment; provided, however, that the purchase price for any such bulk sale(s) are individually no more than 30% of the outstanding Receivables Loan balance and, in the aggregate for any twelve month period, does not result in a reduction of the Receivables Loan balance of greater than 50%, as calculated from the time of the first bulk sale within the said 12 month period." 4.5 Section 1.5(a) Voluntary Prepayments of the Florida Receivables Loan is amended by replacing the second sentence of that Section, which states "Notwithstanding the foregoing, in the event of a prepayment of the Loan in whole or in part, upon a bulk sale by Borrower of Financed Notes Receivable, no Prepayment Premium shall be payable and Borrower shall, in lieu thereof, pay to Lender an exit fee of one percent (1%) of the amount of prepayment," with the following sentence: 5 6 "Notwithstanding the foregoing, in the event of a prepayment of the Loan in whole or in part, upon a bulk sale by Borrower of Financed Notes Receivable, no Prepayment Premium shall be payable and Borrower shall, in lieu thereof, pay to Lender an exit fee of one percent (1%) of the amount of prepayment; provided, however, that the purchase price for any such bulk sale(s) are, individually no more than 30% of the outstanding Receivables Loan balance and, in the aggregate for any twelve month period, does not result in a reduction of the Receivables Loan balance of greater than 50%, as calculated from the time of the first bulk sale within the said 12 month period." 4.6 Borrower shall remit to Lender all payments, fees or other sums received as prepayments or upon modification to Financed Notes Receivable under the Colorado Receivables Agreement or the Florida Receivables Agreement; 4.7 Borrower shall complete all steps necessary for sales registration of the Colorado Resort for the states of Nevada and Texas prior to the Termination Date. 4.8 Borrower shall throughout the term of this Agreement continue to make a full and complete disclosure of all material aspects of its financial condition and business operations and continue to comply with the Loan Documents in all respects excepts as expressly set forth herein. 4.9 Borrower shall cure all Existing Defaults prior to the Termination Date. If any Existing Defaults remain uncured as of the day after the Termination Date, then such Existing Defaults shall immediately and without any notice or demand, become Events of Default under the Loan Documents, entitling Lender to take all rights and remedies available under the Loan Documents or applicable law. 6 7 SECTION 5. Release. In further consideration of the execution of this Agreement by Lender, the Borrower and each Guarantor hereby releases Lender and its affiliates, officers, employees, directors, agents and attorneys (collectively the "Releasees") from any and all claims, disputes, causes of action, and liabilities that Borrower or any Guarantor may have against any of the Releasees which arise from or relate to any action or inactions which any of the Releasees have taken prior to the date hereof with respect to the Loan Agreements and the other Loan Documents. SECTION 6. Creditor Action. Lender's obligation to forbear hereunder are conditioned upon all other creditors of Borrower (including but not limited to trade creditors and subordinated creditors) refraining from taking any action whatsoever (including acceleration of indebtedness) during the term of this Agreement. In the event that any such creditor takes such action (including acceleration of indebtedness) (a "Creditor Action") all of Lender's obligations hereunder shall terminate without notice. SECTION 7. Miscellaneous. 7.1 Section Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 7.2 Applicable Law. This Agreement and the rights and obligations of the parties hereto and all other aspects hereof shall be deemed to be made under, shall be governed by, and shall be construed and enforced in accordance, the internal laws (as opposed to the conflict of laws provision) and decisions of the State of Illinois. 7 8 7.3 Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto and separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one in the same instrument. 7.4 Continued Effectiveness. Notwithstanding anything contained herein, the terms of this Agreement are not intended to and do not serve to affect a novation as to the Loan Agreements or any of the other Loan Documents. The parties hereto expressly do not intend to extinguish the Loan Agreements or any of the Loan Documents. Instead it is the expressed intention of the parties hereto to reaffirm the Indebtedness created under the Loan Agreements and Loan Documents. 7.5 Notices. Any Notice to any party hereto shall be given in the manner and to the party at the address of such party in accordance with the provisions of Subsection 6.1 of the Loan Agreements. 8 9 IN WITNESS WHEREOF, the parties hereto have caused this Forbearance Agreement to be executed as of the date set forth above, by the respective officers thereunto duly authorized. PREFERRED EQUITIES CORPORATION, a Nevada corporation By: /s/ [SIGNATURE] --------------------------- Title: Vice President --------------------------- HELLER FINANCIAL, INC., a Delaware corporation By: --------------------------- Title: --------------------------- GUARANTOR: MEGO FINANCIAL CORP., a New York corporation By: /s/ [SIGNATURE] --------------------------- Title: Vice President --------------------------- 9 EX-10.168 6 HOTEL MAISON PIERRE LAFITTE MGMT. AGREEMENT 1 EXHIBIT 10.168 HOTEL MAISON PIERRE LAFITTE, LTD. OWNERS ASSOCIATION, INC. MANAGEMENT AGREEMENT THIS AGREEMENT ("Agreement"), is entered into as of the ____ day of May, 1999 by and between HOTEL MAISON PIERRE LAFITTE LTD. OWNERS ASSOCIATION, INC., a Louisiana nonprofit corporation (the "Association") and PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Manager"). For valuable consideration, the parties hereto agree as follows. RECITALS A. The Hotel Maison Pierre Lafitte, Ltd. - A Condominium (the "Property") has been created pursuant to that certain Condominium Declaration And Timeshare Program for Hotel Maison Pierre Lafitte Hotel (the "Declaration"), recorded on June 20, 1996 in Book NA 96-29442, Instrument Number 124103 in the real property records of Orleans Parish, Louisiana. B. Pursuant to the provisions of the Declaration, the Association is responsible for maintenance, control, operation, management and general care of the Property. The Association is authorized to retain a professional management organization and to delegate to such organization certain of the Association's powers and responsibilities. C. The Board of the Association ("Board") desires to engage Manager to manage and operate the Property, and Manager desires to accept such engagement, all on the terms and conditions set forth below. TERMS AND CONDITIONS 1. ENGAGEMENT. Association hereby engages Manager subject to Manager's right to terminate during the Transition Period (as hereinafter defined), commencing on the date of this Agreement as the exclusive managing agent of the Property contemplated by the Declaration to manage the Property and Association under the name "Ramada Vacation Suites" (the cost of all signage including installation, using the name Ramada Vacation Suites, shall be paid for by the Association), and Manager hereby accepts said appointment and undertakes to perform all of the services and responsibilities set forth herein in such capacity and to comply with all the provisions of this Agreement. 2. DEFINITIONS. In addition to other definitions provided for herein, the terms used herein shall have the same meaning as the meanings attributed thereto in the Declaration. As used herein, the term "Transition Period" shall mean the ninety (90) days following the date of this Agreement (or such other time as may be necessary for Manager to obtain any and all federal, state and/or local licenses or permits required of the Manager to perform the obligations stated herein). In the event Manager determines for any or no reason that it cannot fulfill its duties as Manager as stated herein, Manager shall have the right to terminate the Agreement, at its sole option, by delivering a written notice of termination to Association on or before the end of the Transition Period. 3. TERM. 3.1 INITIAL TERM. Unless terminated earlier pursuant to ss. 3.2 below, the term of this Agreement shall expire at the end of three (3) years from the date of this Agreement or upon the resignation of the Manager, whichever occurs first. 3.2 TERMINATION. This Agreement may be terminated by the Board at any time during the term as a result of a breach or default by Manager; provided that Manager shall not be in breach or default under this Agreement unless Manager has been given written notice of said breach or 1 2 default by the Board and has not cured said breach or default within sixty (60) days of said notice. In the event that Manager shall dispute a termination by the Association pursuant to the provisions of this ss. 3.2, the dispute shall be addressed pursuant to Section 14. of this Agreement. In the event Manager loses or terminates its right to use the Ramada Vacation Suites name, the Board may terminate this Agreement upon giving Manager ninety (90) days written notice of its intent to terminate. 3.3 RESIGNATION. Manager may resign only upon condition that Manager shall have given at least ninety (90) days, or such lesser time as may be agreed by the Association, prior written notice to the Association. On or before the effective date of Manager's resignation, Manager shall turn over all books and records relating to the management and operation of the Property to the Association or successor managing agent. 3.4 RENOVATIONS. Notwithstanding the foregoing, in the event renovations ("the Renovations") to the Property as agreed by and among Manager and the Association are not completed, at Association's sole cost and expense, to the reasonable satisfaction of Manager, on or before six (6) months from the date of this Agreement, Manager may resign upon the giving of thirty (30) days written notice. A schedule, defining the Renovations and signed by both parties, shall be attached hereto as an Addendum, prior to the termination of the Transition Period. 4. DUTIES AND OBLIGATIONS OF MANAGER. 4.1 GENERAL. Manager shall at all times, in a manner consistent with the provisions of the Declaration and the Bylaws of Hotel Maison Pierre Lafitte, Ltd. Owners' Association, Inc. ("Bylaws") and subject to the terms and conditions set forth herein, provide or cause to be provided all services and personnel required to administer the affairs of the Association. Manager, to the extent necessary to perform its duties and obligations hereunder, shall have all the powers that the Association has pursuant to the Declaration and Bylaws. Subject to the provisions of ss. 4.5 below, Manager may delegate its authority and responsibilities to one or more subagents for such periods and upon such terms as Manager deems appropriate. 4.2 ADMINISTRATIVE SERVICES. Manager shall, in addition to the duties in ss. 4.1, provide the following services of an administrative nature. (A) ASSOCIATION MEETINGS. Manager shall organize the meetings of the Board and of the Association, including the preparation and delivery of notices of meetings, in accordance with the provisions of the Bylaws. Manager shall prepare the agenda for all meetings, assist in the conduct of the meetings and oversee the election of directors. Manager shall circulate minutes of any such meeting as prepared by the secretary of the Association; or, as prepared by a person designated as secretary for a particular meeting(s) by Manager. All meetings, except the Association's annual meeting, may be conducted by telephone. (B) ASSOCIATION RECORDS. Manager shall keep all records of the affairs of the Association, including but not limited to, minutes of meetings, correspondence, Bylaws, Rules and Regulations, the Declaration and any modification of any of the foregoing, from the date of expiration of the Transition Period throughout the term of this Agreement. (C) RULES AND REGULATIONS. Manager shall, from time to time as necessary, recommend to the Association that it amend, modify or supplement the Rules and Regulations. (D) ROSTER OF OWNERS. Manager shall annually compile a complete and accurate roster of owners of Units ("Owners") setting forth the name of each Owner. Manager shall also maintain a record of the mailing address of each Owner as provided in the Bylaws. 2 3 (E) EXCHANGE SERVICES. The Manager shall have no authority with respect to the administration of any external exchange programs operated by independent corporations, other than to communicate with representatives of such exchange programs regarding the reservations processed at the Property by or for such exchange programs. 4.3 FISCAL SERVICES. Manager shall, in addition to the duties in ss. 4.1, subject to the supervision of the Association, provide the following services of a fiscal nature: (A) BUDGETS. Manager shall, prior to the beginning of each calendar year, prepare and submit to the Board for approval, a budget meeting the requirements of the Declaration. Each budget approved by the Board is called the "Budget." Manager shall distribute or cause to be distributed a copy of the approved Budget to all Owners. (B) SPECIAL ASSESSMENTS. Manager shall determine whether or not a Special Assessment may be required from time to time and shall submit a recommendation to the Board that a Special Assessment be levied. (C) COLLECTION OF ASSESSMENTS. Manager shall collect the Assessments on behalf of the Association and enforce payment of Assessments as follows: (i) Manager shall cause to be prepared and mailed to all Owners periodic statements setting forth the amount of all Assessments then due from each Owner; (ii) Manager shall cause to be prepared and mailed to any delinquent Owner a notice of delinquency and shall use its best efforts lawfully to collect delinquent Assessments as provided in the Declaration. The Board on behalf of the Association hereby assigns to Manager, subject to Manager agreeing to accept such assignment at its sole option and paying any amount in default at the sole option of Manager, any lien placed by the Association against an Owner's interest for non-payment of dues or fees owed by the Association. The Manager shall have the right, but not the duty, to pay said lien out of its own funds and to foreclose the lien or accept a deed in lieu thereof and thereby acquire ownership of said defaulting owner(s) interest in the Unit. (D) BANK ACCOUNTS. Manager shall establish and maintain the bank accounts provided for in the Declaration or Bylaws and shall deposit funds collected from Owners and all other amounts collected by Manager in connection with the performance of its duties hereunder in the accounts designated for such purpose as set forth in the Declaration or Bylaws. The Board shall authorize one or more of Manager's officers to have full signatory authority on said bank accounts. In addition, the Manager shall keep accurate books and records reflecting the amount of such accounts. (E) DISBURSEMENTS. Manager shall disburse from the bank accounts of the Association any and all amounts required for the payment of all Association expenses incurred consistent with the applicable Budget and as otherwise permitted by the Declaration or Bylaws. (F) FINANCIAL STATEMENTS. Manager shall, after the end of each calendar year, prepare and distribute the Annual Report to each Owner in accordance with the Declaration or Bylaws. Manager shall provide quarterly reports to the Board. (G) BOOKS AND RECORDS. Manager shall keep and maintain or cause to be kept and maintained full and adequate books and records reflecting the results of operation of the Property in accordance with the accounting principles utilized by the Association in the preparation of its federal income tax returns. The books of account and other records relating to the operation of the 3 4 Property shall be available to the Association and the Members at all reasonable times for examination and inspection as and to the extent provided in the Bylaws. (H) INTERNAL EXCHANGE. Manager shall enter the Property into Manager's Internal Exchange network. Each Owner exchanged into one of Manager's resort properties that constitute the Internal Exchange shall be subject to all Internal Exchange rules, regulations and fees as set forth in Manager's Timeshare Exchange Disclosure. 4.4 PHYSICAL SERVICES. Manager shall, in addition to the duties in ss. 4.1, provide the following services of a physical nature: (A) INSPECTIONS. Manager shall make regular inspections of the Property and render reports and make recommendations concerning the Property to the Board. (B) ASSOCIATION INSURANCE. Manager shall use its best efforts to procure and keep in force all insurance and/or bonds required. In the event said insurance and/or bonds are not ascertainable, Manager shall notify the Board at once. Manager shall administer all such insurance and claims under such insurance policies. Such insurance shall include, but shall not be limited to: (i) A policy of insurance showing the Association as the named insured, and Manager as an additional insured, evidencing that the Association is insured under the laws of the State of Louisiana in accordance with the provisions of the applicable statutes; (ii) A policy or policies of insurance showing the Association as the named insured, evidencing that the Association is insured against loss from embezzlement, misappropriation and misapplication of funds by the Association's employees retained by Manager, in an amount satisfactory to the Louisiana Division of Real Estate and to the equivalent agency of any other state in which Hotel Maison Pierre Lafitte, Ltd., a Louisiana corporation (the "Developer") registers the Property for sale. Manager shall use its best efforts to insure that all such policies provide that the same shall not be canceled except upon thirty (30) days prior written notice to the Association. (C) REPAIR AND MAINTENANCE OF PROPERTY AND FURNISHINGS. Manager shall cause the Property and the Common Furnishings to be repaired and maintained, in accordance with the provisions of the Declaration. (D) CHECK IN AND CHECK OUT. Manager shall cause on-site personnel to be available at all required times in order to check Owners and/or their Occupants in or out. Manager shall engage George Friedman to manage the Property as Property Manager and operate the front desk and other aspects of the Property as designated by the Property Manager either directly or by delegation to other employees of Manager or the Association. (E) RESERVATIONS. Manager shall establish and operate a reservation system. The reservation system shall include the books and records required to reflect reservations made, Units actually used and such other information as shall be necessary to efficiently coordinate Property operations. 4.5 LIMITATION ON POWERS OF MANAGER. Notwithstanding the powers of the Manager as set forth in ss.ss. 4.1-4.4 above, Manager shall nOT: (A) Enter into a contract with a third person or entity whereby such person or entity will furnish goods or services to the Property for a term longer than one (1) year unless authorized by a majority of non-Developer Owners except: 4 5 (i) A contract with a public utility company if the rates charged for the materials or services are regulated by the State of Louisiana or an agency thereof; provided, however, that the term of the contract shall not exceed the shortest term for which the supplier will contract at the regulated rate. (ii) Prepaid or partially prepaid casualty or liability insurance policies not to exceed three (3) years duration provided that the policy permits short-rate cancellation by the insured. (iii) One or more agreements providing for the implementation of exchange programs at the Property; or (B) Enter into a contract or lease for a period not exceeding five (5) years without the Board's written consent, except: (i) Leases of furnishings; (ii) Leases of the exclusive easement areas or portion thereof; (iii) Leases for laundry room fixtures, equipment and service; (iv) Agreements for cable television service or satellite dish equipment and service; and (v) Agreements for burglar alarm equipment and service. Subject to the Board's written consent, Manager may engage a contractor or lessor in which the Developer or the Manager has a direct or indirect interest of 10% or more. (C) Enter into any contract in the name of the Association for goods or services not contemplated by the Budget or for amounts in excess of those specified in the Budget, unless the Board shall consent thereto in writing. This amount approved by the Board cannot be an amount which would require approval of such assessment by the Majority of Owners. 4.6 LIMITED LIABILITY. Manager shall not be responsible for the acts, omissions to act or conduct of any of the Owners, other Property occupants and/or exchange users, or for the breach of any of the obligations of any of the Owners, occupants and/or exchange users. The Association agrees to indemnify and hold harmless Manager for all acts of Manager in its performance of the duties hereunder other than from liability arising as a result of Manager's gross negligence or unlawful misconduct. 5. COMPENSATION OF MANAGER. 5.1 MONTHLY COMPENSATION. For Manager's full and faithful performance of the duties and obligations provided for herein, Manager shall, during the term hereof, be entitled to a monthly compensation (the "Management Fee") in an amount equal to one-twelfth of fifteen percent (15%) of the total Budget plus three percent (3%) of all Net Processed Volume on sales of Property Units derived from any sales source whatsoever. Net Processed Volume means the sum of sales prices on processed agreements for sales of Units, calculated monthly by Developer and delivered to Manager on or before the tenth (10th) day of the following month, along with any funds owed Manager. Manager may audit any said report(s) at any time. In the event of termination or resignation of this Agreement, during or after the Transition Period, pursuant to the provisions stated herein, unless agreed to by 5 6 Manager, the Property and Association will immediately discontinue use of the Ramada Vacation Suites name. All Manager compensation stated herein is exclusive of any other Manager compensation. 5.2 ADVANCES AND REIMBURSEMENTS. In addition to the Management Fee, Manager shall be paid or reimbursed from the bank accounts of the Association an amount equal to all out-of-pocket expenses incurred by Manager in connection with this Agreement and/or the performance of the duties or obligations provided for herein. Manager shall not be required to perform any act or duty hereunder involving an expenditure of money unless there shall be sufficient funds therefor in the bank accounts of the Association. If at any time the funds in the bank accounts of the Association are not sufficient to pay the obligations, expenses and all charges incident to this Agreement, Association shall make available such funds. Manager, although not obligated to do so, may advance such sums as it deems necessary, and in such event, Manager shall be entitled to reimburse itself from Association funds for the amount of such advances, together with interest at the rate of fifteen percent (15%) per annum, or such lesser rate as allowed under the usury laws of Louisiana, commencing from the date of the advance by Manager. 5.3 PAYMENT OF MANAGEMENT FEE. Manager is hereby authorized to pay itself the Management Fee of fifteen percent (15%) of the total Budget out of the Association bank account(s), or other available Association funds. The three percent (3%) of Net Processed Volume will be paid to Manager on a monthly basis by Developer. Any shortfall of any funds owed Manager shall be paid by Developer upon demand. 5.4 DISCOUNTS. All discounts, rebates or commissions or like items shall inure to the benefit of the Association. Rentals of timeshare weeks owned by Manager may be rented for the benefit of the Manager. 5.5 EMPLOYEES. Each employee, independent contractor or other person performing services for the Association in connection with this Agreement (the "Association Employee") shall, even though retained by Manager, be the employee, agent or independent contractor of the Association and not of Manager. The salary and other related expenses (including, without limitation, payroll taxes and the cost of employee benefits) or other compensations for any Association employee shall be an expense of the Association even though paid by Manager, and Manager shall be entitled to reimbursement from funds of the Association on a monthly basis for such expenditures, which reimbursement shall be in addition to and separate from the amount paid to Manager pursuant to 5.1 above. Any such sums advanced by Manager and not repaid within thirty (30) days of such advances, shall earn interest at fifteen percent (15%) per annum, or such lesser rate as allowed by the laws of the State of Louisiana, from the date of any such advance. 5.6 SINGLE CONTRACTS. Manager may enter into single contracts for operation and maintenance services covering the Property and other projects managed by the Manager. 6. NOTICES. Any notice, request, demand, instruction or other document to be given hereunder to any party shall be in writing and shall either be delivered in the manner and to the person at the appropriate address set forth below: If to Association: Attention: George M. Friedman, President 108 University Place New Orleans, Louisiana 70112 Facsimile: (504) 527-5802 6 7 With a copy to: Hotel Maison Pierre Lafitte, Ltd. Attention: George M. Friedman, President 613 Esplanade Avenue New Orleans, Louisiana 70116 Facsimile: (504) 527-5802 and to Victor A. McElroy at the address shown below If to Manager: Preferred Equities Corporation Attention: Victor A. McElroy, Director: Resort Operations 1500 East Tropicana Avenue Las Vegas, Nevada 89119 Facsimile: (702) 736-2006 With a copy to: Preferred Equities Corporation Attention: Kristen L. Demman, Asst. General Counsel 4310 Paradise Road Las Vegas, Nevada 89109 Facsimile: (702) 369-3194 Any notices required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given 48 hours after the deposit of same in any United States mail post office box in the state to which the notice is addressed or 72 hours after deposit in any such post office box other than in the state to which the notice is addressed. Any notices sent shall be delivered by hand, sent by recognized overnight courier (such as Federal Express), sent by facsimile transmission, or mailed by certified or registered mail, return receipt requested, in a postage prepaid envelope, and addressed as set forth above. The addresses and addressees for the purpose of this paragraph may be changed by giving notice of such change in the manner herein provided for giving notice. Unless and until such notice is received, the last address and addressee stated by notice, or as provided herein if no notice or change has been sent or received, shall be deemed to continue in effect for all purposes hereunder. 7. WAIVER. The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of any future breach of such provision or of any other provisions hereof. 8. MERGER. All understandings and agreements heretofore had between the parties respecting the employment contemplated by this Agreement are merged in this Agreement, which fully and completely expresses the agreement of the parties. There are no agreements except as specifically set forth in this Agreement or to be set forth in the instruments or other documents delivered or to be delivered hereunder. 9. AMENDMENTS. No change in or addition to, or waiver or termination of, this Agreement or any part thereof shall be valid unless in writing and signed by or on behalf of each of the parties hereto. 10. PARAGRAPH HEADINGS. The paragraph headings herein contained are for the purposes of identification only and shall not be considered in construing this Agreement. 11. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and each of their respective successors and assigns. In no event shall the obligations or duties of Manager be assigned, except as provided in ss. 4.1, without the prior written consent of the Association. 7 8 12. SEVERABILITY - Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality shall not affect the validity of the remainder of the within Agreement. 13. GOVERNING LAW - This Agreement shall be governed and interpreted by the laws of the State of Nevada. 14. DISPUTE RESOLUTION/ARBITRATION - In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement or the breach thereof ("Disputed Matter"), the parties to this Agreement hereby waive their right to litigation proceedings in a court of law and agree that any such Disputed Matter shall be settled first by mediation and, if unsuccessful, by binding arbitration, the fee for which shall be advanced by the party requesting mediation or arbitration. The cost of the proceeding shall ultimately be borne as determined by the mediator or arbitrator The site of any such mediation or arbitration proceeding shall be Clark County, Nevada. In the event any Disputed Matter cannot be resolved by mediation or binding arbitration, or in the event the parties' waiver of litigation proceedings is considered invalid for any reason, venue for any litigation proceeding shall be Clark County, Nevada. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. HOTEL MAISON PIERRE LAFITTE, LTD. OWNERS ASSOCIATION By: ----------------------------- GEORGE M. FRIEDMAN President PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ----------------------------- GREGG A. MC MURTRIE Executive Vice President In consideration of this Agreement, George M. Friedman hereby personally guarantees the performance of all Association duties and the payment of any and all fees owed by the Association and Developer to Manager under this Agreement or as may be otherwise agreed to between Manager and Developer or Association. By: --------------------------------- GEORGE M. FRIEDMAN, Individually 8 EX-10.169 7 FIFTH AMEND. TO ASSIGNMENT AND ASSUM. AGREEMNT. 1 EXHIBIT 10.169 FIFTH AMENDMENT TO ASSIGNMENT AND ASSUMPTION AGREEMENT This Fifth Amendment (the "Amendment") to Assignment and Assumption Agreement, by and between RER CORP, COMAY CORP., GROWTH REALTY INC. and H&A FINANCIAL, INC. (the "Assignors"), and MEGO FINANCIAL CORP., formerly named MEGO CORP., (the "Assignee") WITNESSETH: WHEREAS, the Assignors are parties to the Assignment Agreement dated October 25, 1987, with the Assignee, and the Assignment and Assumption Agreement, dated February 1, 1988, between the Assignors and the Assignee, which two agreements were amended by the Amendment to Assignment and Assumption Agreement dated July 29, 1988, and by the Second Amendment to Amendment to Assignment and Assumption Agreement dated as of August 10, 1997 and the Fourth Amendment to Amendment to Assignment and Assumption Agreement dated as of February 26, 1999, between the Assignors and the Assignee (collectively, the described agreements as so amended are hereinafter referred to as the "Assignment"); and WHEREAS, the Assignment fixed the date of January 31, 1995 as the date on which the accrual of amounts due to the Assignors under the Assignment would terminate, except for interest on any of such amounts which remained unpaid; and WHEREAS, the amount due the Assignors, as of January 31, 1995 was $13,328,742.25, plus interest from January 28, 1993 in the amount of $9,322.57, (collectively, and with interest from January 31, 1995 to March 2, 1995 the "Amount Due"); and WHEREAS, $10,000,000 of the Amount Due was agreed to be considered subordinated debt (the "Subordinated Debt"), against which payments were made as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii) $4,250,000 was deemed paid by credit against the exercise price of certain warrants as is set forth in the Third Amendment, and (iii) $35,714.28 was paid on September 1, 1998, leaving a remaining balance of the Subordinated Debt of $4,285,714.29; and WHEREAS, the balance of the Subordinated Debt continues to be secured by a pledge of all of the issued and outstanding common stock of Preferred Equities Corporation (and any distributions in respect thereto) pursuant to a Pledge and Security Agreement dated as of February 1, 1988 (the "Pledge Agreement") between the Assignee and the Assignors; and WHEREAS, interest on the Subordinated Debt has been paid through March 1, 1999; and 1 2 WHEREAS, under the terms of the Assignment, a payment in the amount of $1,428,571.43, which originally was due on March 1, 1999, is presently due on June 1, 1999; and WHEREAS, the Assignee has requested that the Assignors agree to further defer the principal payment of $1,428.571.43, originally due on March 1, 1999, to September 1, 1999; NOW THEREFORE, in consideration of the mutual covenants herein contained it is hereby agreed as follows: 1. The statements in the foregoing preamble are true and correct. 2. That the principal payment originally due on March 1, 1999 on the Subordinated Debt in the amount of $1,428.571.43, and previously deferred until June 1, 1999, is hereby further deferred until September 1, 1999. 3. The Assignee and Assignors agree that all amounts due to Assignors pursuant to the Assignment as amended by this Agreement shall continue to be secured as set forth in the Pledge Agreement, and that the Pledge Agreement remains in full force and effect. 4. The Assignee and Assignors agree that this Amendment is an amendment to the Assignment and not a novation, and that, except as modified hereby, all terms and conditions of the Assignment remain in full force and effect, and, except as modified herein, all unpaid payments of principal and interest on the Subordinated Debt shall continue to be due and payable as set forth in the Assignment. 5. It is agreed that this Amendment may be signed in counterparts, and all such counterparts in the aggregate shall constitute one agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of May 28, 1999. MEGO FINANCIAL CORP. By: /s/ JEROME J. COHEN ------------------------------- Jerome J. Cohen, President RER CORP. By: /s/ [SIGNATURE] ------------------------------- Title: President 2 3 COMAY CORP. By: /s/ [SIGNATURE] ------------------------------- Title: President GROWTH REALTY INC. By: /s/ [SIGNATURE] ------------------------------- Title: President H&H FINANCIAL, INC. By: /s/ [SIGNATURE] ------------------------------- Title: 3 EX-10.170 8 AMEND. #2 TO SEVERANCE & CONSULTING AGREEMENT 1 EXHIBIT 10.170 AMENDMENT NO. 2 TO SEVERANCE AGREEMENT AND CONSULTING AGREEMENT It is hereby agreed as of this 18th day of June, 1999, by and between MEGO FINANCIAL CORP. (the "Company") and DON A. MAYERSON (the "Employee") as follows: WHEREAS, the Employee was a senior officer of the Corporation from January, 1988 to December 31, 1998, holding the offices of Executive Vice President, General Counsel and Secretary during most of that period; and WHEREAS, the parties hereto previously entered into an agreement dated as of September 2, 1997 (the "Agreement") which, among other things provided for a lump sum payment of $250,000 (the "Payment") in the event the Employee's employment by the Company was terminated for any reason; and WHEREAS, the parties hereto have previously entered into an indemnification agreement dated as of September 23, 1998 (the"Indemnification Agreement"); and WHEREAS, the Employee retired on December 31, 1998 and is no longer employed by the Company; and WHEREAS, pursuant to Amendment No. 1 to Severance Agreement, and Consulting Agreement dated as of December 24, 1998 (the "Amendment No.1") the Company and the Employee agreed to modify the payment terms of the Payment so as to defer the payment of a portion thereof, and provided for the possible future services of Employee as a consultant to the Company; and WHEREAS, in accordance with the terms of Amendment No. 1 the Company has paid monthly payments through the date hereof aggregating $60,000, leaving a balance due on the Payment of $190,000 as of the date hereof, and which amount is presently scheduled for payment on June 30, 1999; and WHEREAS, the Company has requested that the Employee agree to further modify the payment terms of the Payment, to which the Employee is agreeable provided that the exercise period of the Stock Options held by the Employee, which were previously granted by the Company, be extended for an additional one year period ending on December 31, 2000, as more particularly hereinafter set forth; NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, it is agreed as follows: 1. The above recitals are true and correct. 2. Paragraph 2 of the Agreement is hereby amended and restated to read in full as follows: "In the event the employment of the Employee in his present capacity with the Company is terminated for any reason, including but not limited to the Employee's death, disability, or retirement, the Company shall pay to the Employee (or his personal representative if the Employee is deceased) the sum of Two Hundred Fifty Thousand Dollars ($250,000), in full satisfaction of any severance obligations of the Company, which amount shall be paid as follows: a. The sum of Ten Thousand Dollars ($10,000) on the first payday of each month to executive officers of the Company for the months of January through September, 1999. b. The balance of One Hundred Sixty Thousand Dollars ($160,000) on September 30, 1999. c. In the event the Company executes an agreement involving a "Change of Control" as hereinafter defined, any unpaid balance of the Payment shall be immediately paid by the Company to the Employee at the closing of the transaction, if prior to September 30, 1999. This sub-paragraph shall not extend the final payment date of the Payment beyond September 30, 1999. 2 d. The Payment shall be deemed to be in the nature of a non-qualified pension. 3. As an inducement to the Employee to defer the full payment of the Payment as set forth above, the Company agrees that it will execute an amendment of the Stock Options for the purchase of Common Stock of the Company, presently held by the Employee, extending the exercise period of such Options until December 31, 2000. 4. Except as modified above, all other terms and conditions of the Agreement and Amendment No. 1 shall remain in full force and effect. The indemnification Agreement shall also remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this agreement the date first above written. MEGO FINANCIAL CORP. (COMPANY) By ----------------------------- Jerome J. Cohen, President DON A. MAYERSON (EMPLOYEE) - ---------------------------- EX-10.171 9 1ST AMEND. FORBEARANCE AG & AMEND.#6 SECOND AMEND. 1 EXHIBIT 10.171 FIRST AMENDMENT TO FORBEARANCE AGREEMENT AND AMENDMENT NO. 6 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT This First Amendment to Forbearance Agreement and Amendment No. 6 to Second Amended and Restated and Consolidated Loan and Security Agreement ("Amendment") dated as of May 7, 1999 (the "Effective Date") is entered into by and among FINOVA CAPITAL CORPORATION, a Delaware corporation ("FINOVA" or "Lender"), PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower") and MEGO FINANCIAL CORP., a New York corporation ("Guarantor") and has reference to the following facts: A. Lender and Borrower entered into a Second Amended and Restated and Consolidated Loan and Security Agreement dated as of May 15, 1997 (the "Original Loan Agreement") that evidences a loan from Lender to Borrower. The Original Loan Agreement was amended by the Hartsel Springs Side Letter dated February 18, 1998 (the "First Amendment"), by the Letter Agreement [Biloxi Property] dated March 20, 1998 (the "Second Amendment"), by the Letter Agreement [Headquarters Readvance] dated September 29, 1998 (the "Third Amendment") and by the Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated November 6, 1998 (the "Fourth Amendment"), by that certain Forbearance Agreement and Amendment No. 5 to Second Amended and Restated and Consolidated Loan and Security Agreement dated December 23, 1998, as the same was amended by a Letter Agreement dated February 8, 1999 (the "Fifth Amendment"). The Original Loan Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment are collectively the "Loan Agreement." Capitalized terms used in this Amendment which are defined in the Loan Agreement shall have the same meaning and definition when used herein. B. Borrower has requested the Lender to make certain modifications to the Loan Agreement and the Loan, which the Lender is willing to do, upon and subject to the terms and conditions set forth in this Amendment. Now, therefore, in consideration of the foregoing and for the good and valuable consideration provided herein, Lender, Borrower and Guarantor agree as follows: 1. On the Effective Date (hereinafter defined) the Loan Agreement is hereby further modified as follows: 1.1 The provisions of Article 1 of the Loan Agreement is amended to add the following definitions: 2 "Fifth Amendment": shall mean and collectively refer to the Forbearance Agreement and Amendment No. 5 to Second Amended and Restated and Consolidated Loan and Security Agreement dated December 23, 1998 among Borrower, Lender and Guarantor, and that certain letter agreement dated February 8, 1999 among Borrower and Lender. "Sixth Amendment": shall mean and refer to the First Amendment to Forbearance Agreement and Amendment No. 6 to Second Amended and Restated and Consolidated Loan and Security Agreement dated May 7, 1999, by and among Borrower, Lender and Guarantor. 2. As of the Effective Date, the Biloxi Note is hereby amended in the following respects: 2.1 The provisions of the Biloxi Note granted the Borrower the right to extend the Maturity Date of the Biloxi Note (the "Biloxi Maturity Date") provided certain conditions set forth in the Biloxi Note (the "Biloxi Conditions") were satisfied on or before the original March 20, 1999 Maturity Date of the Biloxi Note (the "Original Maturity Date "). Notwithstanding the fact that all of the Biloxi Conditions have not been fully satisfied, the Lender hereby agrees to extend the Biloxi Maturity Date to provide that the entire remaining balance of the Biloxi Note, together with all accrued and unpaid interest and all other sums due and owing thereon, shall be due and payable in full on March 20, 2000 (the "New Biloxi Maturity Date"). From and after the Effective Date, references in the Documents and the in the Biloxi Note to the term Maturity Date of the Biloxi Note shall now refer to the New Biloxi Maturity Date. 2.2 Among the Biloxi Conditions is the obligation of the Borrower to pay the Lender a renewal fee in an amount equal to two and one-half percent of the outstanding and unpaid principal balance of the Biloxi Note as of the Original Maturity Date (the "Biloxi Renewal Fee"). In consideration for the agreements of the Lender set forth in Section 2.1 hereof, the Borrower agrees that the Lender has fully earned the entire amount of the Biloxi Renewal Fee and that such fee is presently due and payable to the Lender. Notwithstanding the foregoing or contrary provisions of the Biloxi Note, the parties agree that Biloxi Renewal Fee shall be paid as follows: (i) an amount equal to one percent of the outstanding and unpaid principal balance of the Biloxi Note shall be paid to the Lender concurrently with the execution of this Amendment, and (ii) the balance of the Biloxi Renewal Fee (the "Deferred Fee") being due and payable to the Lender on the earlier of (1) the New Biloxi Maturity Date or (2) the date on which the Borrower has paid in full to the Lender the entire outstanding unpaid principal balance of the Biloxi Note, together with all accrued and unpaid interest (the "Payoff Date"). However, in the event that the Payoff Date occurs, for reasons other than an acceleration of the Loan arising as a result of an Event of Default, prior to New Biloxi Maturity Date, the Deferred Fee will be 2 3 adjusted to be an amount equal to the product obtained by multiplying the number of calendar months occurring between the Original Maturity Date and the Payoff Date by a fraction the numerator being the original amount of the Deferred Fee, the denominator being 12. 3. The Office Note was amended by the Fifth Amendment so as to require the payment of interest only for the period (the "Interest Only Period") commencing with the payment due on January 1, 1999 and continuing for each subsequent payment due until June 1, 1999. On the Effective Date the Office Note is amended to continue the Interest Only Period through the payment due on August 1, 1999. Commencing on September 1, 1999 and on the first day of each month thereafter, the Office Note shall be paid in installments of principal and interest as more fully set forth in the Office Note. The principal payments deferred during the Interest Only Period and the principals payments which were due on June 1, 1999, July 1, 1999 and August 1, 1999, shall continue to accrue interest at the rate set forth in the Office Note and shall be payable on the Maturity Date (as that term is defined in the Office Note) unless the balance of the Office Note is previously accelerated pursuant to the provisions of the Loan Agreement. 4. (a) As of the Effective Date, the Maturity Date of the Additional Advance Note is amended to September 1, 1999. (b) Under the Fifth Amendment, the Lender has made available Tranche B Loan to Borrower on the terms and conditions more particularly described therein. Notwithstanding anything to the contrary contained in the Loan Agreement, as of the Effective Date, the Lender agrees that, subject to (i) the continued satisfaction of the General Conditions; (ii) the satisfaction of the Conditions Subsequent; and (iii) satisfaction of the provisions of this Amendment, the Lender will continue to make the Tranche B available to the Borrower for Advances, until September 1, 1999. 5. (a) The provisions of Section 11.5 of the Fifth Amendment contemplated that the Loan Agreement would be further amended in order to incorporate within its terms financial covenants acceptable to Lender and consistent with the Business Plan. The Lender has elected not to execute its foregoing right. As a result the financial covenants set forth in the Loan Agreement will remain in effect. (b) The financial covenants contained in Section 8.23(d) of the Loan Agreement required, as of February 28, 1999, that Borrower's total aggregate SGA Expenses not exceed seventy percent (70%) of Net Sales. The actual percentage as of February 28, 1999 was seventy-one and one-half percent (71.5%). The Lender agrees that the foregoing shall not constitute an Event of Default or the basis for not making an Advance. 3 4 (c) The financial covenants contained in Section 8.23(e) of the Loan Agreement required, as of February 28, 1999, the Borrower to have an aggregate volume of Net Sales of not less than Sixteen Million Four Hundred Eighty-four Thousand Seven Hundred Sixty-one Dollars ($16,484,761). The Borrower's actual Net Sales volume, as of February 28, 1999 was Fifteen Million Three Hundred Ninety Thousand Dollars ($15,390,000). The Lender agrees that the foregoing shall not constitute an Event of Default or the basis for not making an Advance. (d) The waivers of the Lender set forth in subparagraphs (b) and (c) this Section are limited solely to the matters and circumstances set forth in the subparagraphs. Nothing in this Section should be construed as a waiver by the Lender of the Borrower's compliance with all other provisions of the Documents (as amended hereby) and to require the Borrower to observe the financial covenants for all other testing periods other than those specifically addressed in the foregoing subparagraphs. 6. As of the Effective Date, Section 6 of the Fifth Amendment is deleted in its entirety and replaced with the following: "6. Partial Releases--Project Release Fees. The Project Release Fees with respect to each of Fountains, Project (Terraces-Phase I), Project (Terraces-Phase 2), Winnick, White Sands, Project (Reno), Brigantine Inn, Brigantine Villa Calvada RV Park and Calvada Land, shall computed and paid in accordance with the terms of the February 8, 1999 letter by and between Borrower and Lender (a copy of which is attached hereto as Exhibit A) (the "Release Letter") and applied in the manner set forth in Section 5 of the Fifth Amendment. With respect to CNUC, in the event that the Borrower, prior to satisfaction of the Forbearance Collateral Release Conditions, desires FINOVA to release its lien on the stock of CNUC granted pursuant to the Stock Pledge Agreement together with the assignment of Sales Distributions (hereinafter defined) granted to FINOVA pursuant to the Fifth Amendment and reaffirmed in the Sixth Amendment, then FINOVA agrees, provided there is no Event of Default or Incipient Default and each of the Conditions Subsequent have been satisfied, to release the same upon receipt of a Project Release Fee equal to sum of (a) the greater of (i) $3,000,000, or (ii) the unpaid principal balance of the Tranche A Loan, together with interest on such payment at the rate set forth in the Additional Advance Note (the greater of the foregoing amounts being called the "Base CNUC Release"), and (b) to the extent that the net proceeds of the CNUC Sale (hereinafter defined) exceed the Base CNUC Release (such amount being called the "Excess CNUC Sales Proceeds"), an amount equal to the lesser of (1) the unpaid principal balance of the Tranche B Loan, together with interest on such payment at the rate set forth in the Additional Advance Note, or (2) the amount of the Excess CNUC Sales Proceeds that are Sales Distributions (hereinafter defined). With respect to the Colorado Water Rights, in the event that the Borrower, prior to the satisfaction of the Forbearance Collateral Release Conditions, desires FINOVA to release its lien on the same, then FINOVA agrees, provided there is no Event of 4 5 Default or Incipient Default and each of the Conditions Subsequent have been satisfied, to release the same upon receipt of a Project Release Fee which is not less than eighty percent (80%) of the "asking price" on the Business Plan for the same, minus reasonable closing costs incurred in connection with the sale of the Colorado Water Rights. 7. Lender's obligations under this Amendment are subject to the satisfaction of the following conditions hereinafter set forth below: (a) This Amendment shall have been fully signed by Borrower and Guarantor. (b) Borrower shall have paid to Lender the portion of the Biloxi Renewal Fee due as of the date of this Amendment. (c) Lender has received, on or before June 18, 1999, the following all in a form and content acceptable to Lender: (i) Current updates of the opinion letters received by Lender in connection with the Loan Agreement. (ii) Such resolutions and authorizations and such other documents as Lender may require relating to the existence and good standing of Borrower and Guarantor, and the authority of any person executing this Amendment and other documents on behalf of Borrower and Guarantor. (iii) Such other documents or instruments as required by Lender so as to fully perfect the liens and security interest of Lender granted under the Loan Agreement. (d) Borrower shall have reimbursed Lender for all of Lender's out-of-pocket costs and expenses including, without limitation, attorneys', engineers' and other consultants' fees and costs, incurred in connection with the documentation and closing of this Amendment. 8. Under the Fifth Amendment, the Borrower was obligated to complete certain Conditions Subsequent on or before dates that are more particularly described therein. The Borrower and Lender desire to amend the Conditions Subsequent so as to provide as follows: 8.1 On or before June 18, 1999, Borrower shall, at its sole cost and expense, have obtained and delivered to Lender title insurance policies to the benefit of Lender for each of the following properties: (i) Calvada Meadows Unit 2 RV Park, (ii) Calvada Unit 2 Raw Land, (iii) Former STP Site, (iv) the unsold Units within 5 6 Fountains, (v) the unsold Units within Project (Terraces - Phase 1), (vi) the unsold Units within Project (Terraces - Phase 2), (vii) the unsold Units within Winnick, (viii) the unsold Lots and other land within Calvada RV Park, and (ix) the unsold Lots and other land within Calvada Land (the "Nevada Properties"). On or before July 15, 1999, Borrower shall, at its sole cost and expense, have obtained and delivered to Lender title insurance policies to the benefit of the Lender for the unsold Units within Brigantine Inn and the unsold Units within Brigantine Villas (the "New Jersey Properties") (the Nevada Properties and the New Jersey Properties are collectively called the "Properties"). The foregoing title insurance policies shall be written by insurers and in an amount and form satisfactory to Lender, and shall insure that the lien of the Lender's first deed of trust or mortgage lien (established by the deeds of trust and mortgages which were executed by the Borrower and approved by the Lender prior to the execution of this Amendment) on each of the Properties, subject, in each instance, to such exceptions to title as are acceptable to Lender. 8.2 The provisions of the Fifth Amendment contemplated that the Lender would be granted a mortgage or deed of trust encumbering the Colorado Water Rights. The parties now agree that in lieu of a mortgage or deed of trust, the Lender will be granted a Collateral Assignment of the Colorado Water Rights in form and content similar to the Notice of Assignment of Excess Proceeds Collateral executed in connection with Excess Proceeds Collateral. The foregoing condition shall be satisfied by Borrower on or before June 18, 1999. 8.3 The provisions of Section 4.3(d) of the Fifth Amendment provided as a Condition Subsequent that: "Borrower and Guarantor shall have caused CNUC to have assigned to Lender as additional security for the payment and Performance of the Obligations, all proceeds (net of reasonable closing costs) received from the sale of any assets of CNUC and shall have caused CNUC to have executed and recorded against the real property owned by CNUC a Notice of Assignment of Proceeds, all in form and substance satisfactory to Lender. In the alternative, Borrower and Guarantor shall have caused CNUC to have granted to Lender a first priority lien on and security interest in all of the assets of CNUC as security for the payment and Performance of the Obligations, pursuant to documents and instruments acceptable to Lender. In connection therewith, Borrower and Guarantor shall have caused CNUC to deliver to Lender mortgages, deeds of trust, security agreements, financing statements, environmental certificates, (subject to the provisions of Section 4.4 hereof) surveys and opinions of counsel, acceptable to Lender with regard to such security interest. The aforementioned assignment and security granted to Lender by CNUC shall be absolute, continuing and applicable to all existing and future Advances and shall secure the 6 7 repayment of the Loan (including without limitation the Additional Advances) and the Performance of all Obligations throughout the term of the Loan. Borrower covenants and agrees that if any assets of CNUC are sold, such assets shall be sold solely under terms which require the payment to CNUC of the entire purchase price in cash." 8.3.1 Since the execution of the Fifth Amendment, Borrower has advised Lender that Nevada Law prohibits CNUC from assigning to Lender the net proceeds received from the sale of assets of CNUC and/or granting a security interest in all the assets of CNUC security for the payment and Performance of the Obligations. As a result of the foregoing, the Borrower and Guarantor have been unable to fulfill their obligations to the Lender to cause CNUC to deliver to Lender the documents required by Section 4.3(d) of the Fifth Amendment. Notwithstanding the foregoing, the Borrower and Guarantor covenant and agree that (a) to the extent permitted by Nevada law it will vote its stock in CNUC in a manner which, if any assets of CNUC are to be sold, the Borrower will consent to such sale only if such sale is (i) on terms which require the payment to CNUC of the entire purchase price in cash and (ii) the purchase price for the assets being sold is not less than the amount that is set forth in the Business Plan for such assets (such sale being called a "CNUC Sale"); (b) to the extent proceeds from a CNUC Sale are, under Nevada law, permitted to be distributed to the shareholders of CNUC (the "Sale Distributions"), Borrower will vote its stock in a manner which permit such distributions; and (c) all Sale Distributions from CNUC shall be paid over to Lender to be applied in the manner set forth in Section 5 of the Fifth Amendment. In furtherance of the foregoing, the Borrower and Guarantor agree to use best efforts to obtain any and all consents that are or may be required under Nevada law to accomplish the foregoing. 8.3.2 Pursuant to Section 4.2(b) of the Fifth Amendment, Borrower has pledged to Lender as additional security for the payment and Performance of the Obligations, one hundred percent (100%) of the issued and outstanding stock of CNUC. Borrower reaffirms the security interest granted to Lender and acknowledges that such security interest includes, but is not limited to, the right to receive Sale Distributions. 7 8 9. As described in the Release Letter, the Borrower is required to provide to the Lender monthly reports on the sales of Units, along with a computation and payment of all Release Fees due with respect to the same. As of the Effective Date, the Borrower has failed to supply such reports and Release Fees. The Borrower acknowledges that its failure to perform its obligations under the Release Letter is an Event of Default. Notwithstanding the foregoing, the Lender agrees not to exercise its rights under the Documents with respect to such Event of Default provided the Borrower complies with the following provisions of this Section 9. On or before June 18,1999, the Borrower shall supply to the Lender the reports required by the Release Letter for the period commencing on the date of the Fifth Amendment and ending on May 31, 1999. Based on such reports and other information available to the Lender, the Lender will, based on the Release Letter, determine the Release Fees due and owing to the Lender for the periods covered by the reports and will provide the Borrower with written notice of the same. The Borrower shall pay the Release Fees determined by Lender within five (5) days after its receipt of the Lender's statement of the same. While the Lender has elected to not, at this time, call an Event of Default, the Borrower agrees that Lender will have no obligation, after the Effective Date, to make any further Advances from Tranche B until such as time as the Borrower has fulfilled its obligations under this Section 9. From and after the Effective Date, the Borrower will be required to perform and observe all of its obligations under the Release Letter as and when required therein. The waiver of Lender set forth in this Section is limited to the nature and circumstances set forth in this Section and is predicated upon Borrower fulfilling its obligations under this Section and when required hereby. 10. Borrower and Guarantor each represents and warrants that: (a) All financial information and other documents it has provided to Lender in connection with this Amendment are true, complete and correct as of the date provided and the date hereof; (b) There exists no Event of Default or Incipient Default, after giving effect to the then applicable provisions of this Amendment and other than the Existing Events of Default; (c) After giving effect to this Amendment, there has been no material adverse change in any real property or in the business or financial condition of Borrower and Guarantor since the date of the last financial statements submitted to Lender; (d) After giving effect to this Amendment,, all representations and warranties by Borrower and Guarantor remain true, complete, and correct, in all material respects as of the date hereof; and (e) Attached hereto as Schedule 10(e), is a true and complete summary of status of all litigation matters affecting the Borrower and Guarantor, and 8 9 such litigation matters, if decided adversely to the Borrower or Guarantor, will not have any material adverse affect on the current financial condition (including, without limitation, compliance with financial covenants) of the Borrower and Guarantor as reflected on the most recent financial statements delivered by Borrower and Guarantor to Lender prior to the date hereof. 11. Guarantor acknowledges and agrees that (i) the Guarantee shall remain in full force and effect, (ii) the obligations of the Guarantor under the Guarantee are joint and several with those of each other Obligor (as that term is defined in the Guarantee), (iii) Guarantor's liability under the Guarantee shall continue undiminished by and shall include the obligations of the Borrower under this Amendment, the Biloxi Note and Office Note as amended hereby and any other documents and instruments executed by Borrower in connection with this Amendment and each of the other Documents, as amended through the date hereof and (iv) all terms, conditions and provisions set forth in this Amendment, the Biloxi Note and Office Note as amended hereby and any other documents and instruments executed by Borrower in connection with this Amendment and each of the other Documents, as amended through the date hereof, are hereby ratified, approved and confirmed. 12. Borrower and Guarantor acknowledge and agree that they have no defenses, counterclaims, setoffs, recoupments or other adverse claims or causes of action in tort, contract or of any other kind existing against Lender or with respect to the Documents, including without limitation, claims regarding the amount, validity, perfection, priority and enforceability of the Documents. 13. The Documents shall be deemed amended by the provisions of this Amendment, as and when applicable and any conflict or inconsistency between this Amendment and the Documents shall be resolved in favor of this Amendment. Except as so amended, all other consistent terms and conditions of the Documents will remain in full force and effect. 14. Except as may be expressly provided herein, Borrower's and Guarantor's respective obligations under the Documents shall remain in full force and effect and shall not be waived, modified, superseded or otherwise affected by this Amendment. This Amendment is not a novation, nor is it be construed as a release, waiver, extension of forbearance or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in any of the Documents, except as expressly stated herein. 15. Borrower and Guarantor acknowledge that Lender has performed, and is not in default of, its obligations under the Documents; that there are no offsets, defenses or counterclaims in tort, contract or otherwise, with respect to any of Borrower's or Guarantor's or other party's obligations under the Documents; and that Lender has not directed Borrower to pay or not pay any of Borrower's payables. 9 10 16. Borrower and Guarantor will execute and deliver such further instruments and do such things as in the judgment of Lender are necessary or desirable to effect the intent of this Amendment and to secure to Lender the benefits of all rights and remedies conferred upon Lender by the terms of this Amendment and any other documents executed in connection herewith. 17. If any provision of this Amendment is held to be unenforceable under present or future laws effective while this Amendment is in effect (all of which invalidating laws are waived to the fullest extent possible), the enforceability of the remaining provisions of this Amendment shall not be affected thereby. In lieu of each such unenforceable provision, there shall be added automatically as part of this Amendment a provision that is legal, valid and enforceable and is similar in terms to such unenforceable provisions as may be possible. 18. Any further discussions by and among Borrower, Guarantor and Lender, if any, and all such discussions in the past, together with any other actions or inactions taken by and among Borrower, Guarantor and Lender, shall not cause a modification of the Documents, establish a custom or waive (unless Lender made such express waiver in writing), limit or condition the rights and remedies of Lender under the Documents, all of which rights and remedies are expressly reserved. All of the provisions of the Documents, including, without limitation, the time of the essence provision, are hereby reiterated and if ever waived are hereby reinstated (unless Lender made such express waiver in writing), except as expressly provided herein. 19. This Amendment shall not be binding upon Lender until accepted by Borrower and Guarantor as provided for below. This Amendment may be executed in counterpart, and any number of which have been executed by all parties shall be deemed to constitute one original. Lender, its attorneys and agents, may also integrate into a single Amendment signature pages from separate counterpart Amendments. The telecopied signature of a person shall be deemed an original signature, may be relied upon by others and shall be binding upon the signer for all purposes provided however that Borrower, Guarantor or any person otherwise consenting hereto by telecopied signature shall confirm its telecopied signature by signing and returning to Lender a copy of this Amendment with an original signature. 20. Borrower's and Guarantor's representatives are experienced and knowledgeable business people and have been represented by independent legal counsel who are experienced in all matters relevant to this Amendment, including, but not limited to, bankruptcy and insolvency law. The parties hereto have accepted and agreed to this Amendment after being fully aware and advised of the effect and significance of all of its terms, conditions, and provisions. 21. Unless otherwise specifically stipulated elsewhere in the Documents, if a matter is left in the Documents or this Amendment to the decision, right, requirement, 10 11 request, determination, judgment, opinion, approval, consent, waiver, satisfaction, acceptance, agreement, option or discretion of Lender, its employees, Lender's counsel or any agent for or contractor of Lender, such action shall be deemed to be exercisable by Lender or such other person in its sole and absolute discretion and according to standards established in its sole and absolute discretion. Without limiting the generality of the foregoing, "option" and "discretion" shall be implied by use of the words "if" or "may." 22. The Recitals in this Amendment are incorporated into the body hereof as fully set forth herein. 23. THIS AMENDMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE PERFORMED IN THE STATE OF ARIZONA. THE PROVISIONS OF THIS AMENDMENT AND ALL RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT SUCH LAWS, THE LAWS OF THE UNITED STATES. EACH OF BORROWER, GUARANTOR AND LENDER: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO ANY DOCUMENT OR THE SUBJECT MATTER THEREOF, OR, IF LENDER SHALL INITIATE SUCH ACTION, IN THE COURT IN WHICH SUCH ACTION IS INITIATED PROVIDED THAT SUCH COURT HAS JURISDICTION, AND THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT LENDER'S ELECTION; AND (B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN ANY INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH OF BORROWER, GUARANTOR AND LENDER HEREBY WAIVE THE RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM. [SIGNATURE PAGE FOLLOWS] 11 12 LENDER: FINOVA CAPITAL CORPORATION, a Delaware corporation By: ------------------------------------ Its: ---------------------------------- BORROWER: PREFERRED EQUITIES CORPORATION, a Nevada corporation By: ------------------------------------ Its: ---------------------------------- Signed in the presence of: GUARANTOR: MEGO FINANCIAL CORP., a New York corporation By: ------------------------------------ Its: ---------------------------------- Signed in the presence of: - --------------------------------------- 12 13 STATE OF NEVADA ) ) ss. County of _________________________ ) The foregoing instrument was acknowledged before me this ____ day of June ___, 1999 by ______________ as _______________ of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. ---------------------------------- Notary Public My Commission Expires: - ---------------------- STATE OF NEVADA ) ) ss. County of _________________________ ) The foregoing instrument was acknowledged before me this ____ day of June ___, 1999 by ______________ as _______________ of MEGO FINANCIAL CORP., a New York corporation, on behalf of the corporation. ---------------------------------- Notary Public My Commission Expires: - ---------------------- 14 July 9, 1999 Mr. Jon Joseph Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 89109-6597 Re: Forbearance Agreement and Amendment No. 5 to Second Amended and Restated Consolidated Loan and Security Agreement (the "Agreement") dated as of December 23, 1998, by and between Preferred Equities Corporation ("PEC") and FINOVA Capital Corporation ("FINOVA") Dear Mr. Joseph: The purpose of this letter is to confirm certain understandings and additional agreements that PEC and FINOVA have reached concerning the Agreement. Terms used in this letter which are defined in the Agreement shall have the same meaning and definition when used in this Letter. Notwithstanding contrary provisions that may be contained in the Agreement, FINOVA and PEC have agreed to the following: 1. The deadline to satisfy the Conditions Subsequent associated with only the Brigantine Inn, Brigantine Villas and CNUC projects shall be extended to February 12, 1999. 2. Provided there is No Event of Default or Incipient Default, the Advance of the Tranche B Loan may occur at any time prior to March 31, 1999. FINOVA's obligation to make any Advance of the Tranche B Loan remains subject to the continued satisfaction of any of the General Conditions and to the satisfaction of the Conditions Subsequent. There is no change in the dates by which such conditions must be satisfied. 3. The Excess Proceeds Collateral or, where applicable, the Project Release Fee (collectively, the "Release Fee") for the following described properties shall be in the amount set forth opposite the name of the properties: 15 Mr. Jon Joseph July 9, 1999 Page 2 Fountains $1,574 per Unit Project (Terraces 1) 1,078 per Unit Project (Terraces 2) 1,078 per Unit Project (Towers) 1,039 per Unit Project (Villas) 1,251 per Unit Winnick 963 per Unit White Sands 484 per Unit Project (Reno) 851 per Unit Brigantine Inn 955 per Unit Brigantine Villas 893 per Unit Calvada RV Park 300 per Unit Calvada Land 2,815 per Lot
With respect to only the aforementioned properties, FINOVA consents to the Borrower's sale of these properties for an amount less than eighty percent (80%) of the "Asking Price" as set forth in the Business Plan. Further, with respect to the Calvada Land, references to "Unit" shall be deemed to include the "Lots" located in this Project. With respect to any deed of trust or mortgage encumbering the above properties on behalf of FINOVA, each time share interval therein shall be deemed a "Unit" even if not a "Unit" as defined in the Loan Documents. 4. It is recognized that after the Release Fee for a particular Unit has been paid and the Unit released from the lien of the Documents, ownership of the Unit may revert back to the Borrower (which for purposes of this Paragraph shall be deemed to include any of its Affiliates that own a particular project) as a result of either (i) a default by the Purchaser under the Purchaser Notes which result in a termination of such Purchaser's rights with respect to such Unit (a "Foreclosure"), or (ii) the Borrower and the Purchaser in effect trading Units, whereby the Purchaser will reconvey the previously released Unit to the Borrower in return for a simultaneous conveyance by the Borrower of a similar or additional Unit (a "Trade"). In the event of the Foreclosure, the Unit will not once again be subject to the lien of the Documents and the Borrower will not be required to pay to FINOVA a Release Fee for the Unit when it is resold. However, it will be the responsibility of the Borrower, if requested by FINOVA, to provide evidence, acceptable to FINOVA, showing that it has previously paid the Release Fee for the Unit. As to a Trade, two possible situations exist. The first is a Trade of the same number of Units (the "Even Trade"). The second is a Trade whereby the Purchaser will convey to the Borrower a number of Units which is less than the number of Units being conveyed by the Borrower to the Purchaser (the number of Units conveyed to a Purchaser in excess of the number of Units being reconveyed to the Borrower are called the "Additional Units"). 16 Mr. Jon Joseph July 9, 1999 Page 3 In Even Trade transactions occurring within the same project, no payment of a Release Fee to FINOVA shall be required for the Even Trade. However, for an Even Trade of Units located in two different projects, a payment will be due to FINOVA in an amount equal to the positive difference, if any, between the Release Fees due for Units traded to a Purchaser in the other project, and the Release Fee for the Units that are being reconveyed to the Borrower. A Release Fee will be due and payable for all Additional Units. Subject to compliance with the foregoing, in the event of a Trade, FINOVA will release from the lien of the Documents all Units conveyed to the Purchaser. All Units reacquired by a Borrower as a result of a Trade will automatically become subject to the lien of the Documents without the need to execute any further documents or to take any further action. On or before the tenth (10th) day of each calendar month, Borrower will submit to FINOVA a report (in a form reasonably acceptable to FINOVA) setting forth the Units which, during the preceding calendar month, were reacquired by Borrower as a result of either a Trade or a Foreclosure. Concurrently with the report, Borrower will execute and deliver to FINOVA such recordable documents as are reasonably necessary to confirm that all Units acquired by Trade during the period covered by the Report are once again subject to the lien of the Documents. 5. The Borrower has provided to FINOVA a February 2,1999 memo (a copy of which is attached) outlining a proposed agreement with The Preferred RV Resorts Owners Association (the "Association") concerning the Calvada RV Park. In the event that the Borrower is able to enter into an agreement with the Association consistent with the terms outlined in the memo, FINOVA will not require the payment of a Release Fee for any of the Units in the Calvada RV Park that are conveyed to the Association in accordance with the agreement. FINOVA reserves the right to approve the agreement with the Association which approval shall not be unreasonably withheld provided that the same is consistent with the terms outlined in the memo. Should the foregoing accurately reflect our agreements on the matters set forth herein, please acknowledge your agreement to the same by signing the enclosed copy of this letter and returning the same to the undersigned. It is agreed that in the event of a conflict or inconsistency between the provisions of this Letter and the Agreement, this Letter shall, as to the matters specifically addressed herein, govern and control. It is acknowledged and agreed that a default by the Borrower under this Letter shall be an Event of Default. 17 Mr. Jon Joseph July 9, 1999 Page 4 FINOVA Capital Corporation, a Delaware corporation By: ________________________________ Its: _______________________________ The foregoing has been seen and agreed to this ___ day of February, 1999. Preferred Equities Corporation By: ________________________________ Its: _______________________________ EX-27.1 10 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS AUG-31-1999 MAR-01-1999 MAY-31-1999 3,496 0 75,965 13,915 38,801 0 39,622 15,797 154,449 0 97,768 0 0 210 20,459 154,449 15,754 20,327 3,260 9,563 6,361 0 2,374 1,143 0 1,143 0 0 0 1,143 .05 .05
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