-----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, KONMHwfhslKCxz1ZgM1N1bYWQ5NBg7EN8MYy3xXb6TB2zeIdvRVx1j66gqWHd5Ji l0A1xTuu9bP+RYdP6s6JJg== 0000950150-99-001291.txt : 19991130 0000950150-99-001291.hdr.sgml : 19991130 ACCESSION NUMBER: 0000950150-99-001291 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991129 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-K SEC ACT: SEC FILE NUMBER: 001-08645 FILM NUMBER: 99765747 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-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED 8/31/99 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 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 (IRS Employer of incorporation or organization) identification no.) 4310 PARADISE ROAD, LAS VEGAS, NV 89109 ---------------------------------------- ------------ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 702-737-3700 --------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE -------------------- Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE - -------------------------------------------------------------------------------- (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of November 15, 1999, 3,500,557 shares of the registrant's common stock were outstanding. The aggregate market value of common stock held by non-affiliates of the registrant as of November 15, 1999 was approximately $8,082,837 based on a closing price of $4.50 for the common stock as reported on the NASDAQ National Market on such date. For purposes of the foregoing computation, all executive officers, directors and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers, directors or 5 percent beneficial owners are, in fact, affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 2 MEGO FINANCIAL CORP. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART I PAGE Item 1. Business.................................................................... 1 Item 2. Properties..................................................................11 Item 3. Legal Proceedings...........................................................12 Item 4. Submission of Matters to a Vote of Security Holders.........................14 PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters...........................................................15 Item 6. Selected Consolidated Financial Data........................................15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................31 Item 8. Financial Statements and Supplementary Data.................................32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................................32 PART III Item 10. Directors and Executive Officers of the Company.............................33 Item 11. Executive Compensation......................................................36 Item 12. Security Ownership of Certain Beneficial Owners and Management..............40 Item 13. Certain Relationships and Related Transactions..............................41 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K...........44 Signatures..................................................................54
i 3 PART I ITEM 1. BUSINESS GENERAL Mego Financial Corp. (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. 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 retains for its own account or sells to third parties under contracts which generally provide for PEC to continue servicing the sold receivables. Unless the context requires otherwise, the "Company" refers to Mego Financial and its consolidated subsidiaries. The Company 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. In January 1988, the Company sold a controlling interest in the Company consisting of approximately 43% of the then outstanding common stock after the sale, to affiliates of the Assignors (as hereinafter defined). See "Item 13. Certain Relationships and Related Transactions" and Note 2 of Notes to Consolidated Financial Statements. In February 1988, the Company acquired PEC, pursuant to an assignment by the Assignors (Comay Corp., GRI, RRE Corp., and H&H Financial Inc.) of their contract right to purchase PEC. The Company's executive offices are located at 4310 Paradise Road, Las Vegas, Nevada, and its telephone number is (702) 737-3700. RECENT EVENTS On September 2, 1999, the Company's shareholders approved a one for six reverse stock split of its outstanding shares of common stock. The reverse stock split was effective on September 9, 1999, with respect to all of the Company's 21,009,506 shares of common stock outstanding. After payment of cash in lieu of fractional shares totaling 1,027 shares, the Company now has 3,500,557 common shares outstanding. All share and per share references in this Form 10-K have been restated to retroactively show the effect of this reverse stock split. PREFERRED EQUITIES CORPORATION GENERAL PEC acquires, develops and converts rental and condominium apartment buildings and hotels for sale as timeshare interests and engages in the retail sale of land. PEC's strategy is to acquire properties in desirable destination resort areas that offer a range of recreational activities and amenities. PEC markets and sells timeshare interests in its resorts in Las Vegas and Reno, Nevada; Honolulu, Hawaii; Brigantine, New Jersey; Steamboat Springs, Colorado; Indian Shores and Orlando, Florida; and sells land in Nevada and Colorado. PEC owns property in Biloxi, Mississippi which it is considering for the possible construction of a future timeshare resort. PEC is considering the purchase of additional properties for use in its timeshare operations. In the third quarter of the fiscal 1999, PEC signed a management agreement with Hotel Maison Pierre Lafitte Ltd. in New Orleans, Louisiana. PEC will receive management fees as well as fees based on sales of timeshare interests. In recent years, several major lodging, hospitality and entertainment companies, including The Walt Disney Company, Hilton Hotels Corporation, Marriott Ownership Resorts, Inc. and Hyatt Corporation, among others, have commenced developing and marketing timeshare interests in various resort properties. The Company believes that the entry into the timeshare industry of certain of these large and well-known lodging, hospitality and entertainment companies has contributed to the growth and acceptance of the industry. To enhance its competitive position, in April 1995, PEC entered into a strategic alliance with Ramada Franchise Systems, Inc. (Ramada) and its parent, Hospitality Franchise Systems, Inc., now Cendant Corporation (Cendant), pursuant to which PEC was granted a ten-year (including a renewal option) exclusive license to operate both its existing and future timeshare properties under the name "Ramada Vacation Suites." The American Resort Development Association (ARDA) estimates that approximately 2 million families in the United States own timeshare interests in resorts worldwide and that sales of timeshare interests in the United States aggregated approximately $3.5 billion in 1999. Additionally, it is estimated by ARDA that sales volume is increasing at a compounded annual rate of 1 4 almost 9% due to the entry of brand-name hospitality firms, such as Ramada, and well-financed publicly held companies with lower costs of capital and strong growth among seasoned timeshare companies. TIMESHARE PROPERTIES AND SALES The timeshare interests offered by PEC in its resorts other than in Hawaii generally consist of undivided fee interests in the land and facilities comprising the property or an undivided fee interest in a particular unit, pursuant to which the owner acquires the perpetual right to weekly occupancy of a residence unit each year. In its resort in Hawaii, PEC offers "right-to-use" interests, pursuant to which the owner has occupancy rights for one week each year until December 31, 2009, the last full year of the underlying land lease for the resort property. During fiscal 1999, 1998 and 1997, PEC had net sales of 2,841, 2,237, and 2,287 timeshare interests, respectively, at prices ranging from $4,250 to $30,990. The Company believes that PEC's alliance with Ramada has enabled it to capitalize on the Ramada reputation, name recognition and customer profile, which closely matches PEC's customer profile. The arrangement required PEC to pay an initial access fee of $1 million and monthly recurring fees equal to 1% of PEC's Gross Sales (as defined in the agreement) through January 1996 and 1.5% of PEC's Gross Sales each month commencing after January 1996. The initial term of the arrangement is 5 years and PEC has the option to renew the arrangement for an additional term of 5 years if it has met certain conditions, including the addition of at least 20,000 timeshare interests during the initial term, which condition was satisfied, and the payment of minimum annual fees. Management intends to exercise the renewal option when the initial five-year term of the agreement has expired. In addition to the grant of the license, the arrangement provides for the establishment of joint marketing programs. The Company believes it has benefited from the use of the Ramada name, but is unable to quantify the amount of such benefit. In May 1997, PEC began offering a sales program whereby a customer pays a fixed fee on an installment basis to use a timeshare interest during an initial one-year period with an option to purchase the timeshare interest. If the customer exercises the option to purchase the interest, the fixed fee is applied toward the down payment of the timeshare interest purchased. PEC's Ramada Vacation Suites at Las Vegas includes 34 buildings with a total of 471 studio units and one and two bedroom units which have been converted for sale as 24,021 timeshare interests, of which 4,072 remained available for sale as of August 31, 1999. The resort is in close proximity to "the Strip" in Las Vegas and features swimming pools and other amenities. Nevada timesharing attracts the upper end of the tourism market and Las Vegas is the most dynamic region of the state for timeshare industry growth according to ARDA statistics. PEC is in the process of converting additional adjacent properties it owns to timesharing units. PEC has completed the expansion of the common areas to include an expanded lobby, convenience store and expanded sales facilities. In October 1999, an additional 3 buildings containing 18 apartment units to be sold as 918 timeshare interests were registered for sale. The Ramada Vacation Suites at Reno consists of a 95-unit hotel that has been converted for sale as 4,845 timeshare interests, of which 1,122 remained available for sale as of August 31, 1999. The resort features an indoor swimming pool, exercise facilities, sauna, jacuzzi and sun deck. PEC's Ramada Vacation Suites at Honolulu is an 80-unit hotel consisting of 3 buildings that have been converted for sale as 4,160 timeshare interests, of which 531 remained available for sale as of August 31, 1999. The resort is within walking distance of a public beach and features a swimming pool and jacuzzi. PEC holds the buildings, equipment and furnishings under a land lease expiring in March 2010, under which PEC makes annual rental payments of approximately $192,000. The Ramada Vacation Suites at Steamboat Springs consists of 60 one- and two-bedroom units, which have been converted for sale as 3,060 timeshare interests, of which 850 remained available for sale as of August 31, 1999. PEC acquired this condominium resort in 1994 and completed the conversion in 1995. PEC has constructed a 5,500-square foot amenities building at this facility which features a lobby, front desk, spa and sauna. The Ramada Vacation Suites - Hilltop at Steamboat Springs is a hotel building with indoor swimming pool, restaurant, cocktail lounge and meeting room facilities. The complex contains 56 one- and two-bedroom units to be sold as 2,856 timeshare interests. 28 of the units, containing 1,428 timeshare interests, were registered for sale, of which 1,051 2 5 timeshare interests remained available for sale, as of August 31, 1999. There are 28 additional units to be registered containing 1,428 timeshare interests. The resort is located in Steamboat Springs, Colorado, in close proximity to the area's ski slopes and attractions. The Ramada Vacation Suites at Orlando consists of a 7-building 102 unit complex that has been converted into 5,202 timeshare interests. Three buildings, containing 42 units and 2,142 timeshare interests, were registered for sale in 1997. In 1998, 2 buildings, containing 30 units to be sold as 1,530 timeshare interests, were registered for sale. At August 31, 1999, 550 timeshare interests in the 5 buildings remained available for sale. In September 1999, the remaining 2 buildings containing 30 units to be sold as 1,530 timeshare interests were registered for sale. Florida is one of the country's most significant timeshare markets, representing 23.6% of the total number of resorts in the United States, and, according to ARDA, has experienced unprecedented growth. The Ramada Vacation Suites at Indian Shores consists of a 2-building complex, which has been converted into a total of 32 one- and two-bedroom units to be sold as 1,632 timeshare interests, of which 171 timeshare interests remained available for sale at August 31, 1999. The resort is located on the intercoastal waterway and is in close proximity to St. Petersburg, Florida. The Ramada Vacation Suites on Brigantine Beach consists of a 91-unit hotel and a 17-unit three story building that have been either converted or constructed for sale as 5,508 timeshare interests, of which 799 were available for sale as of August 31, 1999. The resort is situated on beach front property in close proximity to Atlantic City, New Jersey and features an enclosed swimming pool, cocktail lounge, bar and restaurant. The Ramada Vacation Suites at New Orleans is an existing 19-suite hotel which consists of studios, as well as one-and two-bedroom suites. The resort is located next to the Fairmont Hotel, adjacent to the historic French Quarter. The location provides easy access to the City's key tourist attractions. The Company has entered into an agreement to manage this resort. 3 6 The following table sets forth certain information regarding the timeshare interests at the Company's resort properties:
STEAMBOAT INDIAN LAS VEGAS RENO WAIKIKI SPRINGS HILLTOP ORLANDO SHORES BRIGANTINE TOTAL --------- -------- -------- --------- ------- ------- -------- ---------- -------- Maximum number of timeshare interests 24,021 4,845 4,160 3,060 1,428 3,672 1,632 5,508(1) 48,326 Net number of timeshare interests sold through August 31, 1999 19,949 3,723 3,629 2,210 377 3,122 1,461 4,709 39,180 Number of timeshare interests available for sale at August 31, 1999 4,072 1,122 531 850 1,051 550 171 799 9,146 Percent sold through August 31, 1999 83% 77% 87% 72% 26% 85% 90% 85% 81% Number of timeshare interests sold during the year ended August 31, 1999 1,842 31 399 649 380 2,507 665 42 6,515 Number of timeshare interests reacquired during the year ended August 31, 1999 through: Contract cancellations 328 79 178 99 9 108 50 24 875 Exchanges (2) 1,100 128 290 357 100 486 199 97 2,757 Acquired for unpaid maintenance fees 15 2 6 -- -- -- -- 19 42 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total number of timeshare interests reacquired during the year 1,443 209 474 456 109 594 249 140 3,674 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net number of timeshare interests sold (reacquired) during the year ended August 31, 1999 399 (178) (75) 193 271 1,913 416 (98) 2,841 Additional timeshare interests pending registration as of August 31, 1999 918 -- -- -- 1,428 1,530 -- -- 3,876 Sales prices of timeshare interests available at August 31, 1999 range From $ 8,550 $ 6,650 $ 4,250 $ 7,490 $ 7,990 $ 8,550 $ 10,690 $ 4,250 N/A To $ 21,690 $ 10,690 $ 6,450 $ 25,690 $ 30,990 $ 13,830 $ 16,050 $ 14,690 N/A
- ---------------------- (1) 4,823 timeshare interests were sold by the prior developer. (2) These exchanges are primarily related to customers exchanging and/or upgrading their current property to generally larger higher-priced units. For the fiscal years ended August 31, 1999, 1998 and 1997, PEC's consolidated revenue from net sales of timeshare interests was $41.3 million, $37.7 million and $32.3 million, respectively, representing approximately 55.4%, 55.0% and 47.8% of total revenues, respectively. RCI EXCHANGE NETWORK The attractiveness of timeshare interest ownership in resorts is enhanced significantly by the availability of exchange networks allowing owners to exchange their occupancy right in the resort in which they own an interest for an 4 7 occupancy right in another participating network resort. Several companies, including Resorts Condominiums International (RCI), which became a wholly-owned subsidiary of Cendant in 1997, provide broad-based timeshare interest exchange networks. PEC has qualified its resort properties for participation in the RCI network. RCI has a total of more than 3,500 participating resort facilities located worldwide. Approximately 49.8% of the participating facilities are located in the United States and Canada. PEC and the Owners' Association (as defined later) of each of PEC's timeshare resorts have entered into an agreement with RCI pursuant to which purchasers of timeshare interests in PEC's resorts may apply for membership in the RCI exchange network. Under the terms of these agreements, RCI agrees to make its exchange program available to PEC's customers who apply for membership. RCI and the Owners' Association agree to promote RCI's program and to honor qualified exchanges by members from other participating resorts. The initial five-year terms of the agreements are automatically renewable for additional five-year terms, unless either party gives the other party at least 180 days written notice prior to the expiration of the then current term. Either party may terminate the agreement upon a breach of the agreement by the other party. Membership in RCI entitles PEC's customers, based on availability, trading potential (which is based on their timeshare interval), and the payment of a variable exchange fee to RCI, to exchange their occupancy right in the resort in which they own an interest, for an occupancy right at the same or a different time in another participating resort of similar trading potential. The cost of the subscription fee for RCI, which is at the option and expense of the timeshare interest owner, is approximately $63 for the first year and $74 for each annual renewal. OWNERS' ASSOCIATIONS AND PROPERTY MANAGEMENT PEC's resort properties require ongoing management services. Independent not-for-profit corporations known as Owners' Associations have been established to administer each of PEC's resorts other than the resort in Honolulu. PEC's resort in Honolulu is administered by the White Sands Resort Club, a division of PEC (together with the Owners' Associations, collectively the Associations). Owners of timeshare interests in each of these resorts are responsible for the payment of annual assessment fees to the respective Association, which are intended to fund all of the operating expenses at the resort facilities and accumulate reserves for replacement of furnishings, fixtures and equipment, and building maintenance. Annual assessment fees for 1999 ranged from $249 to $445. PEC has in the past financed budget deficits of the Associations, but is not obligated to do so in the future, except in its Florida resorts. The Public Offering Statements for the Florida resorts at Indian Shores and Orlando contain a provision whereby PEC guarantees that the annual assessment fees will not exceed a specified amount, in which case PEC agrees to pay any monetary deficiencies. These guarantees are effective through the Associations' calendar year of December 31, 1999 and at the option of PEC, may be extended annually thereafter. In fiscal 1999, PEC financed a budget deficit of $247,000 and $92,000 for the Owners' Association at Indian Shores and Orlando, respectively. During calendar year 1998 and 1997, the Associations had an aggregate excess of $102,000 and $742,000 respectively, of fees received compared to expenses paid. The deficit and/or excess position of the Associations vary primarily due to the timing of major improvement expenditures. Any budget deficits financed by PEC are expected to be recovered in the future by increased assessments to the Associations. If the owner of a timeshare interest defaults in the payments of the annual assessment fee, the Association may impose a lien on the related timeshare interest. PEC has agreed to pay to the Associations the annual assessment fees of timeshare interest owners who are delinquent with respect to such fees, but have paid PEC in full for their timeshare interest. In exchange for the payment by PEC of such fees, the Associations assign their liens for non-payment on the respective timeshare interests to PEC. In the event the timeshare interest holder does not satisfy the lien after having an opportunity to do so, PEC typically acquires a quitclaim deed or forecloses on and acquires the timeshare interest for the amount of the lien and any related foreclosure costs. PEC has entered into management arrangements with the Associations pursuant to which PEC receives annual management and administrative fees in exchange for providing or arranging for various property management services such as reservations, bookkeeping, staffing, budgeting, maintenance and housekeeping services. During fiscal 1999, 1998 and 1997, PEC received $2.5 million, $2.4 million and $2.2 million, respectively, of such fees from the Associations. The management arrangements are typically for initial terms ranging from three to five years and automatically renew for successive additional one-year terms unless canceled by the Association. No management arrangement has been canceled to date. The Company believes that proper management is important for maintaining customer satisfaction and protecting PEC's investment in its inventory of unsold timeshare interests. 5 8 PEC's intent and goal is to manage these properties until all timeshare interests are sold and the receivables generated from such sales have been paid. However, due to cancellations, exchanges and upgrades, none of the resorts are likely to realize a 100% sellout for an extended period of time. The Company believes that continued management of these properties preserves the integrity of the property and the portfolio performance on an ongoing basis beyond the end of the sales period. LAND SALES PEC is engaged in the retail sale of land in Nevada and Colorado for residential, commercial, industrial and recreational use. PEC acquires lots and large tracts of unimproved land and then subdivides the tracts into lots and parcels for retail sale. Residential lots range in size from one-quarter acre to one and one-half acres, while commercial and industrial lots vary in size. PEC's residential lots generally range in price from $16,000 to $47,000 while commercial and industrial lots generally range in price from $19,000 to $79,000. Improvements such as roads and utilities and, in some instances, amenities are typically part of the development program in Nevada. During fiscal 1999, 1998 and 1997, PEC sold 613, 530 and 412 residential lots, net, and 14, 12 and 50 commercial and industrial lots, respectively. PEC has a continuing program to plat various properties that it owns. Purchasers of lots and parcels frequently exchange their property after the initial purchase for other property interests offered by PEC. Additionally, PEC is required from time to time to cancel the purchase of lots and parcels as a result of payment defaults or customer cancellations following inspections of the property pursuant to contractual provisions. To date, a substantial portion of PEC's sales of retail lots and land parcels have been in its Calvada subdivisions, containing approximately 30,000 lots in the Pahrump Valley, in Nye County, Nevada, located approximately 60 miles west of Las Vegas. The lots are designated as single family residential, multiple family residential, mobile home, hotel/motel, industrial or commercial. PEC owns a utility company that provides water and sewer service to portions of the subdivisions and two golf courses that are available to property owners and the public. The community of Pahrump has a population of approximately 29,000 and contains an urgent care medical facility, shopping, churches, fast food restaurants, hotel/casino facilities and several schools. The following table illustrates certain statistics regarding the Pahrump valley subdivisions:
Number of acres acquired since 1969 18,777 Number of lots platted 29,849 Net number of lots sold through August 31, 1999 29,692 Percent of lots sold through August 31, 1999 99% Number of platted lots available for sale at August 31, 1999 157 FOR THE YEAR ENDED AUGUST 31, 1999: Number of lots sold 962 Number of lots canceled (429) Number of lots exchanged (437) ------- Number of lots sold, net of cancellations and exchanges 96 =======
Central Nevada Utilities Company (CNUC), a wholly-owned subsidiary of PEC, operates a sewer and water utility for portions of PEC's Nevada subdivisions and certain other properties located within that subsidiary's certificated service area (which is subject to the regulation of the Public Utilities Commission of Nevada). As of August 31, 1999, CNUC had 1,991 customers. In recent years, connections have grown at an average annual rate of 17% and 14% for residential water and sewer, respectively. PEC also sells larger unimproved tracts of land in Colorado. PEC owns unimproved land in Huerfano County, Colorado, which is being sold for recreational use in parcels of at least 35 acres, at prices ranging from $15,330 to $18,995 depending on location and size. These parcels are sold without any planned improvements and without water rights, which rights have been reserved by PEC, except for an owner's right to drill a domestic well. Substantially all of the parcels have been sold, with approximately 81 parcels remaining in inventory. 6 9 In February 1998, PEC acquired a tract of land in Park County, Colorado near the town of Hartsel. This property is being sold as 2,137 separate parcels with an average price and size of $24,263 and five acres, respectively. This includes 333 parcels which need approval of a water augmentation plan (yet to be filed) by the State of Colorado water court, and also includes 172 parcels which will eventually be sold in pairs. As of August 31, 1999, 1,071 parcels remained unsold (excluding those awaiting water court approval). PEC previously acquired improved and unimproved land in Park County, Colorado, known as South Park Ranch, which is being sold for recreational use as 1,872 separate parcels typically ranging in size from 5 to 9 acres and a few larger at prices beginning at $16,995. As of August 31, 1999, 1,825 parcels had been sold with 45 parcels remaining in inventory. These parcels are sold without any planned improvements, except for a recreational facility which includes a basketball court, baseball field and picnic facilities. The following table illustrates certain statistics regarding the parcels and lots in Huerfano and Park Counties, Colorado:
Number of acres acquired since 1969 60,782 Number of parcels and lots platted 4,831 Net number of parcels and lots sold through August 31, 1999 3,631 Percent of parcels and lots sold through August 31, 1999 75% Number of platted parcels and lots available for sale at August 31,1999 1,197 FOR THE YEAR ENDED AUGUST 31, 1999: Number of parcels and lots sold 1,241 Number of parcels and lots canceled (232) Number of parcels and lots exchanged (478) ------- Number of parcels and lots sold, net of cancellations and exchanges 531 =======
The Company also owns and holds for sale certain non-core commercial real estate assets located in Pahrump, Nevada. The Company currently has 16 parcels for sale, ranging in size from 3.8 acres to 58.2 acres, as well as two golf courses and CNUC. For the fiscal years ended August 31, 1999, 1998 and 1997, respectively, PEC's revenue from net land sales was $16.0 million, $13.8 million and $16.6 million, representing 21.4%, 20.1% and 24.7% of total revenues. TRUST ARRANGEMENTS Title to certain of PEC's resort properties and land parcels in Huerfano County, Colorado is held in trust by trustees to meet regulatory requirements which were applicable at the time of the commencement of sales. In connection with sales of timeshare interests pursuant to "right-to-use" or installment sales contracts, title to certain of PEC's resort properties in the states of Nevada and Hawaii are held in trust by trustees to meet requirements of certain state regulatory authorities. Prior to 1988, PEC sold timeshare interests in certain of its resorts in the state of Nevada pursuant to "right-to-use" contracts and continues in other resorts to sell under installment sales contracts under which the purchaser does not receive a deed until the purchase price is paid in full. In addition, PEC offers "right-to-use" interests in its resort in Hawaii, since it is on leased property. In connection with the registration of the sale of such "right to use" timeshare interests, the Department of Real Estate of the state of Nevada and the Department of Commerce and Consumer Affairs of the state of Hawaii require that title to the related resorts be placed in trust. CUSTOMER FINANCING PEC provides financing to virtually all the purchasers of its timeshare interests, retail lots and land parcels who make a down payment equal to at least 10% of the purchase price. The financing is generally evidenced by non-recourse installment sale contracts as well as notes secured by deeds of trust. Currently, the term of the financing generally ranges from two to twelve years, with principal and interest payable in equal monthly payments. Interest rates are fixed and generally range from 12.5% to 15.5% per year based on prevailing market rates and the amount of the down payment made relative to the sales price. PEC has a sales program whereby a 5% interest rate is charged on those sales where the aggregate down payment is at least 50% of the purchase price and the balance is payable in 36 or fewer 7 10 monthly payments. PEC believes its financing is attractive to purchasers who find it convenient to handle all facets of the purchase through a single source. At August 31, 1999, PEC serviced customer receivables' of 17,359 notes receivable relating to sales of timeshare interests and land, which receivables had an aggregate outstanding principal balance of $132.2 million, a weighted-average maturity of approximately 6.9 years and a weighted-average interest rate of 12.6%. PEC has 6 financing arrangements with 5 institutional lenders for the financing of customer receivables, which provide for borrowings of up to an aggregate of $135.3 million. These lines of credit bear interest at variable rates tied to the prime rate and 90-day London Interbank Offering Rate (LIBOR) and are secured by timeshare and land receivables and inventory. At August 31, 1999, an aggregate of $101.6 million was outstanding under such lines of credit and $33.7 million was available for borrowing. PEC periodically sells its timeshare and land receivables to various third party purchasers and uses a portion of the sales proceeds to reduce the outstanding balances of its lines of credit, thereby increasing the borrowing availability under such lines by the amount of prepayment. The sales have generally resulted in yields to the purchaser less than the weighted-average yield on the receivables, with PEC entitled to retain the difference, the estimated value of which is carried as interest only receivables. The sales agreements generally provide for PEC to continue servicing the sold receivables, and require that PEC repurchase or replace accounts that have become more than 90 days contractually delinquent, or as to which certain warranties and representations are determined to be incorrect. In addition, the sales agreements generally require the maintenance of cash reserve accounts for losses and contain minimum net worth requirements and other covenants, the non-compliance with which would allow the purchaser to replace PEC as the servicer. The sales agreements for timeshare receivables contain certain covenants that generally require PEC to use its best efforts to remain the manager of the related resorts and to cause the Associations to maintain appropriate insurance and pay the real estate taxes. Performance by PEC of such covenants generally is guaranteed by the Company. The principal balances of receivables sold by PEC were $0, $9.4 million and $30.1 million during fiscal 1999, 1998 and 1997, respectively. At August 31, 1999, PEC was contingently liable to replace or repurchase receivables sold with recourse in the aggregate amount of $53.5 million, if and as such receivables become delinquent. Delinquencies greater than 60 days have decreased in fiscal 1999 from fiscal 1998 primarily due to a change in emphasis in collection procedures. The Preferred Client Services (PCS) group was instituted to work with the portfolio and develop better relationships with customers, thus reducing otherwise potential cancellations. Beginning in fiscal 1998 and carrying forward to fiscal 1999, there was a much greater focus on working with the purchasers and their individual problems rather than merely demanding repayment of debt. Continuing these procedures contributed to a decrease in cancellations to $15.1 million during fiscal 1999 from $15.3 million in fiscal 1998, a 1% decrease in absolute dollars, notwithstanding that the total portfolio increased from $136 million to $151 million during this fiscal year. PEC charges off or fully reserves all receivables that are more than 90 days delinquent. The following table sets forth information with respect to receivables owned and sold that were 60 or more days delinquent, excluding accounts that have been fully reserved, as of the dates indicated (thousands of dollars):
AUGUST 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- 60-day delinquent $ 11,733 $ 11,836 $ 5,233 $ 6,685 $ 5,407 Total receivables $151,706 $136,509 $137,688 $132,438 $123,752 60-day delinquency percentage 7.73% 8.67% 3.80% 5.05% 4.37%
The 60-day delinquent amounts include any account that is contractually 60 days delinquent, including those accounts whereby customers are still making payments but have not cured their delinquency status. PEC provides an allowance for cancellations at the time it recognizes revenues from sales of timeshare interests, which PEC believes, based on its experience and its analysis of economic conditions, is adequate to absorb losses on receivables that become uncollectible. Upon the sale of the receivables, the allowance related to those receivables is reduced and the reserve for notes receivable sold with recourse is appropriately increased. MARKETING PEC markets timeshare interests and land through on-site and off-site sales offices. PEC's sales staff receives commissions based on net sales volume. PEC maintains fully-staffed on-site sales offices at its timeshare properties in 8 11 Las Vegas, Nevada and Steamboat Springs, Colorado as well as the Las Vegas headquarters, and at its land projects in Nevada and Colorado. Brokers for PEC maintain an on-site sales office in Orlando, Florida with approximately 20 sales associates and smaller on-site sales offices staffed with one to two sales associates in Hawaii; Indian Shores, Florida; and Brigantine New Jersey. PEC also maintains off-site sales offices in West Covina, California; Dallas, Texas; and Denver, Colorado. PEC's marketing efforts are targeted primarily at tourists and potential tourists meeting its customer profile. Currently, approximately 31.3% of sales are made through the Las Vegas sales office. One of the principal sales techniques utilized by PEC in Las Vegas is to offer pre-screened potential customers a gift such as show tickets in exchange for attending PEC's sales presentations. In addition, to show tickets, other inducements such as local tour packages, dinners and short-term room accommodations are also offered. The marketing techniques utilized at PEC's sales offices at locations other than Las Vegas include (i) exhibition booths located at shows, fairs and other attractions, that generate inquiries from prospective customers, whom PEC then contacts by telephone, (ii) referrals from existing customers, (iii) limited direct mail programs, and (iv) brokers specializing in lead generation. Various premiums and inducements are offered to prospective customers to obtain their attendance at sales presentations, including the offer of short-term accommodations at certain of PEC's timeshare resorts. As part of its marketing strategy, PEC maintains an internal exchange program. This program enables owners of PEC's timeshare interests to exchange their occupancy right in the resort in which they own an interest for an occupancy right at the same or a different time in another of PEC's timeshare resorts. In addition, PEC has a sales program pursuant to which purchasers of its timeshare interests, retail lots and land may exchange their equity interests in one property for an interest in another of PEC's properties. For example, a purchaser of a timeshare interest in one of PEC's timeshare resorts may exchange his equity interest for an interest in a different unit within the same resort, for an interest in one of PEC's other resorts or for a retail lot or land parcel. The agreement of sale for a timeshare interest or land may be rescinded within various statutory rescission periods ranging from five to ten days. For land sales made at a location other than the property, the customer may generally cancel the contract within a specified period, usually five months from the date of purchase, provided that the contract is not in default, and provided the customer has completed a developer-guided inspection and tour of the subject property first, and then requests the cancellation. At August 31, 1999, $1.2 million of recognized sales remained subject to such cancellation. If a customer defaults after all rescission and cancellation periods have expired, all payments are generally retained by PEC, and the customer forfeits all rights to the property. SEASONALITY Sales of timeshare interests and land are somewhat seasonal. For the fiscal years ended August 31, 1999, 1998 and 1997, quarterly sales as a percentage of annual sales, for each of the fiscal quarters averaged:
QUARTER ENDED % OF ANNUAL SALES - --------------------------------- ------------------------------- November 30 22.4% February 28 23.0 May 31 26.6 August 31 28.0 -------- 100.0% ========
The majority of the Company's customers are tourists. The Company's marketing and sales areas are generally not subject to significant seasonality factors. The quarterly numbers in the preceding table are slightly higher in the third and fourth quarters of the fiscal year as the Company's major sales area in Las Vegas, Nevada, experiences higher tourist activity in those seasons. The Company is not dependent upon any large affinity group of customers whose loss would have a material adverse effect on the Company. COMPETITION The timeshare and real estate industries are highly competitive. Competitors in the timeshare and real estate business include hotels, other timeshare properties and real estate properties. Certain of the Company's competitors are substantially larger and have more capital and other resources than the Company. 9 12 PEC's timeshare plans compete directly with many other timeshare plans, some of which are in facilities located in Las Vegas, Reno, Lake Tahoe, Honolulu, Atlantic City, Orlando, Tampa, and Steamboat Springs. In recent years, several major lodging, hospitality and entertainment companies have begun to develop and market timeshare properties. According to ARDA data, in 1999, approximately 31.5% of timeshare resorts were located in the Mountain/Pacific region of the United States, 23.6% in Florida, 12% in the Northeast region, 16.5% in the Southeast region and 16.4% in the Central region of the United States. In addition, PEC competes with condominium projects and with traditional hotel accommodations in these areas. Certain of these competing projects and accommodations are larger and more luxurious than PEC's facilities. There are currently available approximately 109,000 hotel and motel rooms in Las Vegas, Nevada; 37,000 in Honolulu, Hawaii; 23,000 in Washoe County, Nevada, which includes Reno and Lake Tahoe; 106,000 in the Orlando, Florida metropolitan area; 24,000 in the Indian Shores, Florida area; 23,000 in Atlantic City, New Jersey and 3,000 in Steamboat Springs, Colorado. GOVERNMENT REGULATION The Company's timeshare and real estate operations are subject to extensive regulation, potential suspension and licensing requirements by federal and state authorities. The following is a summary of the regulations applicable to the Company. ENVIRONMENTAL REGULATION Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or chemical releases at such property, and may be held liable to a governmental entity or to third parties for property damage, personal injury and investigation and cleanup costs incurred by such parties in connection with the contamination. Such laws typically impose cleanup responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such property, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not the facility is owned or operated by such person. In addition, the owner or former owners of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. TIMESHARE REGULATION Nevada Revised Statutes Chapter 119A requires the Company to give each customer a Public Offering Statement that discloses all aspects of the timeshare program, including the terms and conditions of sale, the common facilities, the costs to operate and maintain common facilities, the Company's history and all services and facilities available to the purchasers. Section 514E of the Hawaii Revised Statutes provides for similar information to be provided to all prospective purchasers through the use of the Hawaii Disclosure Statement, just as Chapter 721 of the Florida Statutes similarly provides through the use of a Public Offering Statement. Section 11000, et seq., of the California Business and Professions Code also provides for similar information to be provided to all prospective purchasers through the use of an Out-of-State Timeshare Permit issued by the California Department of Real Estate. Section 45 of the New Jersey Statutes Annotated provides for similar information to be provided to all prospective purchasers through the use of a Public Offering Statement. The Texas Register at 22 Texas Administrative Code, Section 543 provides for similar information to be provided to all prospective purchasers through the use of the Texas Timeshare Disclosure Statement, and similarly, the Mississippi Real Estate Commission requires that the situs state Public Offering Statement provides prospective purchasers with the same information. Title 12, Article 61 of the Colorado Revised Statutes provides for similar information to be provided to all prospective purchasers in their contracts of sales or by separate written documents. Nevada and Colorado require a five-day rescission period for all timeshare purchasers. The rescission period required by Hawaii and New Jersey is seven days. The rescission period required by Florida is ten days. The rescission period in California, Mississippi and Texas for out-of-state sales is five days. The Nevada, California, New Jersey, Hawaii, Colorado, Texas, Florida, Mississippi and Texas timeshare statutes have stringent restrictions on sales and advertising practices and require the Company to utilize licensed sales personnel. 10 13 LENDING REGULATION PEC is subject to various federal lending regulations related to marketing, financing and selling consumer receivables. These federal regulations include: Fair Housing Act, Americans With Disabilities Act, Interstate Land Sales Full Disclosure Act, Truth-In-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Federal Trade Commission Telemarketing Rule, Federal Communications Commission Telephone Census Protection Act, Federal Trade Commission Act (Unfair or Deceptive Act or Practices) and Fair Debt Collections Practices Act. The Company believes that it has made all required filings with state, city and county authorities and is in material compliance with all federal, state and local regulations governing timeshare interests. The Company believes that such regulations have not had a material adverse effect on any phase of the Company's operations, including the overall cost of acquiring property. Compliance with or changes in official interpretations of regulations might, however, impose additional compliance costs on the Company that cannot be predicted. REAL ESTATE REGULATION The real estate industry is subject to extensive regulation. The Company is subject to compliance with various federal, state and local environmental, zoning and other statutes and regulations regarding the acquisition, subdivision, development and sale of real estate and various aspects of its financing operations. The Interstate Land Sales Full Disclosure Act establishes strict guidelines with respect to the subdivision and sale of land in interstate commerce. The U.S. Department of Housing and Urban Development (HUD) has enforcement powers with respect to this statute. In some instances (e.g., land sales in Huerfano County, Colorado), the Company has been exempt from HUD registration requirements because of the size or number of the subdivided parcels and the limited nature or type of its offerings. The Company registers its timeshare properties with various state agencies. The Company must disclose financial information concerning the property, evidence of title, a description of the intended manner of offering, proposed advertising materials, and must bear the costs of such registration, which include legal and filing fees. The Company believes that it is in compliance, in all material respects, with all applicable federal, state and local regulations. The Company believes that such regulations have not had a material adverse effect on any phase of its operations. Compliance with future changes in regulations might, however, impose additional compliance costs on the Company that cannot be predicted. The city and county governments in areas where the Company operates have enacted licensing and other ordinances that affect timeshare projects. ADVERTISING REGULATION In addition to requirements imposed by the various state timeshare acts, PEC's marketing and advertising procedures are subject to the Federal Trade Commission Act (Unfair and Deceptive Practices), Federal Trade Commission Telemarketing Rules, Federal Communication Commission Telephone Consumer Protection Act, Fair Housing Act, Equal Credit Opportunity Act and various state consumer protection laws regulating telephone solicitations, the sale of travel, and sweepstakes, both in states in which PEC timeshare resorts are located or registered and in states in which it advertises. EMPLOYEES As of August 31, 1999, PEC had 1,215 employees, of whom 1,053 were full-time employees and 162 were part-time employees. Full-time employees were comprised of the following: 570 sales and marketing officers and personnel, 165 general and administrative officers, managers and support staff, 307 hotel personnel, and 11 utility company personnel. None of PEC's employees are represented by a collective bargaining unit. The Company believes that its relations with its employees are satisfactory. ITEM 2. PROPERTIES At August 31, 1999, the Company had 157 residential, commercial and industrial lots, 1,197 recreational land parcels, and 9,146 timeshare interests in its inventory. In addition, the Company maintains the following properties: 11 14 The Company's principal executive offices are located at 4310 Paradise Road, Las Vegas, Nevada 89109, where it occupies approximately 31,000 square feet of office space in a building it owns. Title to the property is held by the Company. The Company owns a second office building located in Las Vegas, Nevada. This building has approximately 57,500 square feet of office space, of which the Company occupies approximately 31,500 square feet. Of the remaining space, approximately 10,000 square feet is leased to tenants on a short-term basis, and approximately 16,000 square feet is unoccupied. The Company leases an executive office at 1125 N. E. 125th Street in North Miami, Florida, comprising approximately 3,200 square feet, on a month-to-month basis at a rental of $2,856 per month. The Company leases various other facilities on a long-term, short-term or month-to-month basis for off-site marketing and sales offices. The Company has sales offices in West Covina, California; Denver, Colorado and Dallas, Texas and marketing locations in close proximity of those offices and the Las Vegas sales' offices. ITEM 3. LEGAL PROCEEDINGS Following the Company's November 10, 1995 announcement disclosing certain accounting adjustments, an action was filed on November 13, 1995, in the United States District Court, District of Nevada (Court) by Christopher Dunleavy, as a purported class action against the Company, certain of the Company's officers and directors and the Company's independent auditors. On November 16, 1995, a second action was filed in the Court by Alan Peyser as a purported class action against the Company and certain of its officers and directors. Each complaint alleged, among other things, that the defendants violated the federal securities laws in connection with the preparation and issuance of certain of the Company's financial reports issued in 1994 and 1995, including certain financial statements reported on by the Company's independent auditors. The Dunleavy complaint also alleged that one of the director defendants violated the federal securities laws by engaging in "insider trading." The named plaintiff in the Dunleavy action sought to represent a class consisting of purchasers of Mego Financial's common stock between January 14, 1994 and November 9, 1995. The named plaintiff in the Peyser action sought to represent a class consisting of purchasers of Mego Financial's common stock between November 28, 1994 and November 9, 1995. Each complaint sought damages in an unspecified amount, costs, attorney's fees and such other relief as the Court may deem just and proper. On or about June 10, 1996, the Dunleavy and Peyser actions were consolidated under the caption "In re Mego Financial Corp. Securities Litigation," Master File No. CV-9-95-01082-LD (RLJ), pursuant to a stipulation by the parties. On December 26, 1996, a third action was filed in the Court by Michael Nadler as a purported class action. The Nadler complaint asserts claims substantially similar to those in the Dunleavy and Peyser Actions. On April 23, 1998, counsel for the plaintiffs in the Dunleavy and Peyser actions, and counsel for the defendants filed in the Court a Stipulation and Agreement of Settlement (the Settlement Agreement) in accordance with a prior Memorandum of Understanding dated May 12, 1997. The Settlement Agreement, which was subject to a number of conditions, including approval by the Court, calls for certification, for settlement purposes only, of a class consisting of all purchasers of Mego Financial stock (excluding the defendants and their respective directors, executive officers, partners and affiliates and their respective immediate families, heirs, successors and assigns) during the period from January 14, 1994 through November 9, 1995, inclusive, for creation of a settlement fund of $1.725 million to be distributed to the class, for the dismissal of all claims asserted in the actions with prejudice and for certain releases to defendants. The Company contributed $225,000 of the settlement amount, which payment did not have a material adverse effect on the Company. On October 19, 1998, the Court issued a Final Judgment and Order of Dismissal with Prejudice, approving the Settlement Agreement, which will not become final until the Effective Date, which is the date following either the expiration of any appeal period without appeal, the date following the affirmation of the Final Judgment on appeal, and on which such Final Judgment is no longer subject to further judicial review. On November 13, 1998, Michael Nadler, who had filed objections to the settlement, filed a Notice of Appeal from the Final Judgment and Order of Dismissal with Prejudice and certain other orders of the Court. In the event, for any reason, the Final Judgment is vacated, 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 this matter. 12 15 On February 23, 1998, an action was filed in the United States District Court for the Northern District of Georgia, Civil Action No.1:98CV0593-CAM, by Robert J. Feeney, plaintiff, as a purported class action against Mego Mortgage Corporation (MMC), a former subsidiary of the Company now known as Altiva Financial Corporation, and Jeffrey S. Moore, the former President and Chief Executive Officer of MMC. The complaint alleges, among other things, that the defendants violated the federal securities laws in connection with the preparation and issuance of certain of MMC's financial statements. The named plaintiff seeks to represent a class consisting of purchasers of the common stock of MMC between April 11, 1997 and December 18, 1997, and seeks such other relief as the Court may deem just and proper. An amended complaint was filed in such matter on or about June 29, 1998, which amended complaint, among other things, adds Mego Financial as a defendant, adds John Cole, Trent Hildebrand, Burt W. Price and Frank J. Murphy as plaintiffs and alleges an expansion of the purported class to certain purchasers of MMC's common stock from April 11, 1997 through May 20, 1998. However, the Company was not the parent company of MMC at the time when the majority of the matters which are cited in the above-described action occurred. On April 8, 1999, the court conditionally dismissed the Amended Complaint and ordered plaintiff to move the Court for leave to file a second amended complaint. On May 10, 1999, plaintiff filed a Second Amended Class Action Complaint. In response, on July 19, 1999, defendants filed a motion to dismiss the Second Amended Class Action Complaint, which motion is still pending. The Company does not believe that any judgment obtained will have a material adverse effect on the Company's or PEC's business or financial condition. On August 27, 1998, an action was filed in Nevada District Court, County of Clark, No. A392585, by Robert and Jocelyne Henry, husband and wife individually and on behalf of all others similarly situated against PEC, PEC's wholly-owned subsidiary, CNUC, and certain other defendants. The plaintiffs' complaint asked for class action relief claiming that PEC and CNUC were guilty of: breach of contract; unjust enrichment; customer fraud; and bait and switch tactics as a result of a solicitation of betterment fees pursuant to a letter sent to certain lot owners by PEC on January 26, 1995 (Letter). The Letter was sent to approximately 1,400 lot owners stating that their lots would be buildable by April 1, 1995 as a result of sewer and water lines being run near their respective lots. The Letter offered to accept a betterment fee payment in the amount of $2,380 per lot prior to an increase in betterment fees. The plaintiffs paid the fee and claimed they did not have a buildable lot as sewer and water lines did not reach their property. The court determined that plaintiffs had not properly pursued their administrative remedies with the Nevada Public Utilities Commission (PUC) and dismissed plaintiffs' amended complaint, without prejudice, pending plaintiffs' exhaustion of their administrative remedies before the PUC. Notwithstanding plaintiffs' appeal of the dismissal, plaintiff filed for administrative relief with the PUC. On November 17, 1999, the PUC found that CNUC, the only defendant over which the PUC has jurisdiction, was not in violation of any duties owed the plaintiffs or otherwise in violation of CNUC's approved tariffs Only approximately 350 customers accepted the offer presented in the Letter and a number of those customers own lots that are currently buildable. The Company does not believe that the litigation will result in a material judgment against PEC or CNUC or any other defendant. 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. In October 1999, the plaintiff and the defendants executed a stipulation, voluntarily discontinuing and dismissing the action, which stipulation was approved by order of the court on October 25, 1999. On August 9, 1999, an action was filed in Nevada District Court, County of Clark, No. A407152, by a dissident director and a former director of the Grand Flamingo Towers Owners Association purporting to act on behalf of the Association. The complaint alleges, among other things, breach of a fiduciary duty by the defendant with respect to the management agreement between the plaintiff and defendant. In particular, plaintiff is seeking rescission of the management agreement, an injunction requiring the defendant to turn over plaintiff's property held as plaintiff's manager, imposition of a constructive trust on plaintiffs funds and profits received and held by the defendant as plaintiff's manager, and an accounting of profits and property obtained by the 13 16 defendant as plaintiff's manager. The Company has filed an answer denying all liability and does not believe a determination in favor of the plaintiff will result in a material judgment against the Company. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended August 31, 1999. 14 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS MARKET INFORMATION The Company's common stock is traded in the over-the-counter market and since April 1, 1994, prices have been quoted on the Nasdaq National Market under the symbol MEGO. Prior to April 1, 1994, the common stock was quoted on the Nasdaq Small Cap Market under the symbol MEGO and, prior to May 1, 1994, was traded on the Boston Stock Exchange under the symbol MGO. The following table sets forth the high and low sales prices of the common stock as reported on the Nasdaq National Market for the periods presented (1):
HIGH LOW ------ ------ FISCAL YEAR 1998: First Quarter (2) 49 1/8 16 1/2 Second Quarter 31 1/2 19 1/2 Third Quarter 33 3/4 22 7/8 Fourth Quarter 22 7/8 11 5/8 FISCAL YEAR 1999: First Quarter 13 1/2 4 1/8 Second Quarter 7 7/8 4 1/2 Third Quarter 7 1/8 4 1/2 Fourth Quarter 6 3/8 3 3/4 FISCAL YEAR 2000: First Quarter (through November 15, 1999) 4 5/8 3 9/16
(1) On September 2, 1999, the Company's shareholders approved a one for six reverse stock split of its common stock. The reverse split was effective on September 9, 1999, with respect to all of the Company's 21,009,506 shares of common stock outstanding. After payment of cash in lieu of fractional shares totaling 1,027 shares, the Company now has 3,500,557 common shares outstanding. All amounts in the above table and elsewhere in this Form 10-K have been restated to retroactively show the effect of this reverse stock split. (2) On September 2, 1997, the Company distributed all of its 10 million shares of MMC's common stock to the Company's shareholders in a tax-free spin-off (Spin-off). The Company believes the decline in the closing price of the common stock on September 3, 1997 to $18.75 per share from the closing price on September 2, 1997 of $48 per share is directly attributable to the Spin-off. As of November 15, 1999, there were 1,875 holders of record of the 3,500,557 outstanding shares of common stock. The closing sales price for the common stock on November 15, 1999 was $4.50. The Company did not pay any cash dividends on its common stock during the fiscal years ended August 31, 1999 and 1998. The Company intends to retain future earnings for the operation and expansion of its business and does not currently anticipate paying cash dividends on its common stock. Any future determination as to the payment of such cash dividends would depend on a number of factors including future earnings, results of operations, capital requirements, the Company's financial condition and any restrictions under credit agreements existing from time to time, as well as such other factors as the Board of Directors might deem relevant. No assurance can be given that the Company will pay any dividends in the future. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected financial data set forth below have been derived from the consolidated financial statements of the Company and its subsidiaries. The consolidated financial statements as of August 31, 1999 and 1998 and for each of the three years in the period ended August 31, 1999 have been audited by Deloitte & Touche LLP, independent auditors, 15 18 and are included elsewhere herein. The consolidated financial statements as of August 31, 1997, 1996 and 1995 and for the years ended August 31, 1996 and 1995 have been audited by Deloitte & Touche LLP, independent auditors, and are not included herein. Certain reclassifications have been made to conform prior years with the current year presentation. As a result of the Spin-off, all fiscal years presented reflect the financial results of MMC as a discontinued operation prior to fiscal 1995. See "Item 7. MD&A--Discontinued Operations of MMC" and Note 3 of Notes to Consolidated Financial Statements for additional information regarding the Spin-off. The selected financial information set forth below should be read in conjunction with the consolidated financial statements, the related notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein (thousands of dollars, except per share amounts): CONSOLIDATED SELECTED FINANCIAL DATA (1)(2)
FOR THE YEARS ENDED AUGUST 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- INCOME STATEMENT DATA: REVENUES OF CONTINUING OPERATIONS: Timeshare interest sales, net $ 41,262 $ 37,713 $ 32,253 $ 27,778 $ 20,682 Land sales, net 15,979 13,812 16,626 17,968 20,812 Gain on sale of notes receivable -- 656 2,013 1,116 1,586 Gain on sale of other investments 513 -- -- -- -- Interest income 9,310 7,161 7,168 6,594 7,238 Financial income 1,184 3,304 2,922 1,253 508 Other(3) 6,254 5,944 6,514 5,943 6,687 -------- -------- -------- -------- -------- Total revenues of continuing operations 74,502 68,590 67,496 60,652 57,513 -------- -------- -------- -------- -------- COSTS AND EXPENSES OF CONTINUING OPERATIONS: Cost of sales(4) 13,510 11,789 10,477 8,099 7,749 Marketing and sales 35,291 34,167 34,078 30,351 23,690 Depreciation 1,878 2,245 1,964 1,526 1,131 Interest expense 9,270 7,850 8,458 7,314 6,306 General and administrative 14,333 17,736 17,175 15,849 12,909 Payments to assignors -- -- -- -- 7,252 -------- -------- -------- -------- -------- Total costs and expenses of continuing operations 74,282 73,787 72,152 63,139 59,037 -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 220 (5,197) (4,656) (2,487) (1,524) INCOME TAXES (BENEFIT) (830) (1,968) (12,662) (1,068) 1,016 -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 1,050 (3,229) 8,006 (1,419) (2,540) INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES AND MINORITY INTEREST(5) -- -- 11,334 6,270 3,434 GAIN ON PRIOR DISCONTINUED OPERATIONS, NET OF INCOME TAXES(6) -- -- -- -- 873 -------- -------- -------- -------- -------- NET INCOME (LOSS) 1,050 (3,229) 19,340 4,851 1,767 CUMULATIVE PREFERRED STOCK DIVIDENDS(7) -- -- -- 240 360 -------- -------- -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 1,050 $ (3,229) $ 19,340 $ 4,611 $ 1,407 ======== ======== ======== ======== ========
16 19
FOR THE YEARS ENDED AUGUST 31, ----------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- PER SHARE DATA (8)(9): BASIC: Income (loss) from continuing operations $ 0.30 $ (0.92) $ 2.58 $ (0.47) $ (0.84) Income (loss) from discontinued operations -- -- 3.64 2.08 1.14 Gain on prior discontinued operations -- -- -- -- 0.29 Cumulative preferred stock dividends -- -- -- (0.08) (0.12) ----------- ----------- ----------- ----------- ----------- Net income (loss) applicable to common stock $ 0.30 $ (0.92) $ 6.22 $ 1.53 $ 0.47 =========== =========== =========== =========== =========== Weighted-average number of common shares 3,500,557 3,500,557 3,108,510 3,018,493 3,013,493 =========== =========== =========== =========== =========== DILUTED(10): Income (loss) from continuing operations $ 0.30 $ (0.92) $ 2.46 $ (0.45) $ (0.82) Income from discontinued operations -- -- 3.48 1.97 1.11 Gain on prior discontinued operations -- -- -- -- 0.28 Cumulative preferred stock dividend -- -- -- (0.08) (0.12) ----------- ----------- ----------- ----------- ----------- Net income applicable to common stock $ 0.30 $ (0.92) $ 5.94 $ 1.44 $ 0.45 =========== =========== =========== =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,253,718 3,184,788 3,106,742 =========== =========== =========== =========== =========== BALANCE SHEET DATA: Total assets $ 158,961 $ 142,076 $ 178,303 $ 145,505 $ 107,910 Net assets of discontinued operations -- -- 53,276 30,514 19,234 Total liabilities excluding subordinated debt 132,650 117,049 100,745 109,963 76,328 Subordinated debt(11) 4,478 4,348 4,321 9,691 9,352 Redeemable preferred stock -- -- -- -- 3,000 Total stockholders' equity 21,833 20,679 73,237 25,851 19,230 - --------------------------------
(1) On September 2, 1997, the Company distributed all of its 10 million shares of MMC's common stock to the Company's shareholders in a tax-free Spin-off. The operations of MMC have been reclassified as discontinued operations and prior years' Consolidated Financial Statements of the Company included herein reflect the reclassification accordingly. See "Item 7. MD&A--Discontinued Operations of MMC" and Note 3 of Notes to Consolidated Financial Statements. (2) The income statement data, per share data and balance sheet data herein for the five fiscal years are not necessarily indicative of the results to be expected in the future. Certain reclassifications have been made to conform prior years with the current presentation. (3) Other revenues include incidental operations, management fees from owners' associations, and amortization of negative goodwill. (4) Direct cost of sales includes costs of sales of timeshare interests, land and incidental operations. (5) Income from discontinued operations, net of taxes of $9.1 million and minority interest of $2.4 million, includes the net income from MMC, after tax, reduced by the related minority interests and certain general and administrative expense related to the discontinued operations. (6) A gain on discontinued operations of $873,000 after deducting $450,000 of tax was recognized in fiscal 1995. (7) See Note 15 of Notes to Consolidated Financial Statements. (8) All share and per share references have been restated to reflect the one for six reverse split of the Company's common stock, effective September 9, 1999. (9) No cash dividends per common share were declared during the fiscal years included herein. 17 20 (10) The incremental shares from assumed conversions are not included in computing the diluted per share amounts for the years ended August 31, 1999 and 1998 because the Company incurred a net loss and the effect would be anti-dilutive. (11) In payment of the exercise price of $4,250,000 of warrants exercised for 166,666 shares of the Company's common stock by the Assignors, the subordinated debt due to the Assignors was reduced by that amount in August 1997. See Note 14 of Notes to Consolidated Financial Statements and "Item 13. Certain Relationships and Related Transactions." ITEM 7. 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 and the foregoing Business sections contain certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. Such forward-looking statements include, without limitation, the Company's expectation and estimates as to the Company's business operations, including the introduction of new timeshare and land sales programs and future financial performance, including growth in revenues and net income and cash flows. Such forward-looking statements also include, without limitation, the Company's Year 2000 compliance 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 Consolidated Financial Statements, including the notes thereto, contained elsewhere herein. GENERAL The business of the Company after the acquisition of PEC (see "Item 1. Business" and "Item 13. Certain Relationships and Related Transactions"), 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. Discontinued Operations of Mego Mortgage Corporation The Company formed MMC in June 1992 as a wholly-owned subsidiary and operated MMC as such until November 1996. MMC is a specialized consumer finance company that originates, purchases, sells, securitizes and services consumer loans consisting primarily of conventional uninsured home improvement and debt consolidation loans which are generally secured by liens on residential property. In November 1996, MMC consummated an initial public offering (IPO) and as a result, the Company's ownership of MMC was reduced to approximately 81.3% of the outstanding common stock. On September 2, 1997, the Company distributed all of its 10 million shares of MMC's common stock to the Company's shareholders in the Spin-off. To fund MMC's past operations and growth and in conjunction with a Tax Allocation and Indemnity Agreement dated November 19, 1996 (Tax Agreement), MMC incurred debt and other obligations due to the Company and its subsidiary, PEC. The amount of debt due to the Company was $10.1 million at August 31, 1997, of which $3.4 million was paid by MMC in October 1997 together with $500,000 advanced by the Company to PEC on behalf of MMC in September 1997. In April 1998, an agreement was made to adjust the balance due on the receivable by a reduction of the income tax portion in the 18 21 amount of $5.3 million previously deemed owed by MMC to the Company under the Tax Agreement, since that amount was no longer payable under that agreement. As of the date of the April 1998 agreement, MMC owed the Company an estimated total of $6.2 million, of which $5.3 million was the estimated amount due to the Company under the Tax Agreement prior to the Spin-off. An agreement was subsequently made to settle the remaining $870,000 balance due the Company by MMC. In consideration of this settlement, MMC paid the entire amount of $1.6 million, which was separately owed to PEC, in June 1998. Following this transaction, MMC had no outstanding indebtedness to the Company. MMC also had agreements with PEC for providing management services and loan servicing. The accompanying Consolidated Income Statements reflect the operating results of MMC as discontinued operations in accordance with APB Opinion No. 30. For additional information see Note 3 of Notes to Consolidated Financial Statements. The Consolidated Income Statements for the years ended August 31, 1999 and 1998, and the Consolidated Pro Forma Income Statement for the year ended August 31, 1997, reflect the continuing operations of the Company. The Consolidated Pro Forma Income Statement is unaudited and is based on the historical statements of the fiscal years presented and provides an understanding of the results of the Company on a stand-alone basis excluding the operations of MMC and the prior discontinued operations. The Consolidated Pro Forma Income Statement gives effect to the Spin-off as if it had occurred prior to September 1, 1996 and is presented for comparative purposes only (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------ 1999 1998 1997 -------- -------- -------- PRO FORMA REVENUES: Timeshare interest and land sales, net $ 57,241 $ 51,525 $ 48,879 Gain on sale of receivables -- 656 2,013 Gain on sale of other investments 513 -- -- Interest income 9,310 7,161 7,168 Financial income and other 7,438 9,248 9,436 -------- -------- -------- Total revenues 74,502 68,590 67,496 -------- -------- -------- EXPENSES: Direct costs of timeshare interest and land sales 11,236 9,145 7,493 Operating expenses 53,776 56,792 56,201 Interest expense 9,270 7,850 8,458 -------- -------- -------- Total expenses 74,282 73,787 72,152 -------- -------- -------- Income (loss) before income taxes 220 (5,197) (4,656) Income taxes (benefit) (830) (1,968) (12,662) -------- -------- -------- Income (loss) from continuing operations 1,050 (3,229) 8,006 Cumulative preferred stock dividends -- -- -- -------- -------- -------- Net income (loss) applicable to common stock $ 1,050 $ (3,229) $ 8,006 ======== ======== ========
The unaudited consolidated pro forma financial information is presented for informational purposes only and should be read in conjunction with the Company's historical Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth herein. The pro forma financial statements should not be considered indicative of the operating results which the Company will achieve in the future if it were operated on an independent, stand-alone basis because, among other things, these statements are based on historical rather than prospective information and upon certain assumptions which are subject to change. The unaudited Consolidated Pro Forma Income Statement of the Company reflects, in management's opinion, all adjustments necessary to fairly state the pro forma results of operations for the fiscal year presented and to make the unaudited pro forma statement not misleading. 19 22 PEC PEC recognizes revenue primarily from sales of timeshare interests and land sales in resort areas, gain on sale of receivables and interest income. Although it did not do so in fiscal 1999, PEC periodically sells its consumer receivables while generally retaining the servicing rights. Revenue from sales of timeshare interests and land is recognized after the requisite rescission period has expired and at such time as the purchaser has paid at least 10% of the sales price for sales of timeshare interests and 20% of the sales price for land sales. Land sales typically meet these requirements within six to ten months of closing, and sales of timeshare interests typically meet these requirements at the time of sale. The sales price, less a provision for cancellation, is recorded as revenue and the allocated cost related to such net revenue of the timeshare interest or land parcel is recorded as expense in the year that revenue is recognized. When revenue related to land sales is recognized, the portion of the sales price attributable to uncompleted required improvements, if any, is deferred. Notes receivable with payment delinquencies of 90 days or more have been considered in determining the allowance for cancellations. Cancellations occur when the note receivable is determined to be uncollectible and the related collateral, if any, has been recovered. Cancellation of a note receivable in the quarter the revenue is recognized is deemed to not represent a sale and is accounted for as a reversal of the revenue with an adjustment to cost of sales. Cancellation of a note receivable subsequent to the quarter the revenue was recognized is charged to the allowance for cancellations. 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 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% in each of fiscal years 1999, 1998 and 1997. PEC has developed its assumptions based on experience with its own portfolio, available market data and consultation with its financial advisors. In determining expected cash flows, management considers economic conditions at the date of sale. In subsequent periods, these estimates may be revised as necessary using the original discount rate, and any losses arising from prepayment and loss experience will be recognized as realized. Provision for cancellations relating to notes receivable is recorded as expense in amounts sufficient to maintain the allowance at a level considered adequate to provide for anticipated losses resulting from customers' failure to fulfill their obligations under the terms of their notes receivable. PEC records provision for cancellations at the time revenue is recognized, based on historical experience and current economic factors. The related allowance for cancellations represents PEC's estimate of the amount of the future credit losses to be incurred over the lives of the notes receivable. The allowance for cancellations is 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 affect the purchasers' 20 23 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. Recourse to PEC on sales of notes receivable is governed by the agreements between the purchasers and PEC. The reserve for notes receivable sold with recourse represents PEC's estimate of the fair value of future credit losses to be incurred over the lives of the notes receivable. A liability for reserve for notes receivable sold with recourse is established at the time of each sale based upon PEC's estimate of the fair value of the future recourse obligation under each agreement of sale. Fees for servicing notes receivable originated or acquired by PEC and sold with servicing rights retained are generally based on a stipulated percentage of the outstanding principal balance of such notes receivable and are recognized when earned. Interest received on notes receivable sold, less amounts paid to investors, is reported as financial income. Interest only receivables are amortized systematically to reduce notes receivable servicing income to an amount representing normal servicing income and the present value discount. Late charges and other miscellaneous income are recognized when collected. Costs to service notes receivable are recorded to expense as incurred. Interest income represents the interest received on loans held in PEC's portfolio, the accretion of the discount on the interest only receivables and interest on cash funds. Total costs and expenses consist primarily of marketing and sales expenses, general and administrative expenses, direct costs of sales of timeshare interests and land, depreciation and amortization and interest expense. Marketing and sales costs directly attributable to unrecognized sales are accounted for as deferred selling costs until such time as the sale is recognized. The Company incurs a portion of operating expenses of the timeshare Associations based on ownership of unsold timeshare interests at each of the respective timeshare properties. These costs are referred to as "association assessments" or "maintenance payments", and are included in the Consolidated Income Statements under the caption of general and administrative expenses. Management fees received from the associations are included under the caption of other revenues. These fees are deemed not to be the result of a separate revenue generating line of business since the management activities to which they relate are part of the support of the timeshare business and the fees are actually a reduction of the expense the Company incurs to fulfill obligations regarding timeshares. The following table sets forth certain data regarding notes receivable additions and servicing through sales of timeshare interests and land:
FOR THE YEARS ENDED AUGUST 31, ------------------------------ 1999 1998 ------------ ------------ Principal balance of notes receivable additions $ 64,112,000 $ 57,789,000 ------------ ------------ Number of notes receivable additions, net of upgrades and downgrades 6,448 5,076 ------------ ------------ Notes receivable serviced at end of period $132,240,000 $117,150,000 ============ ============
Land sales as of August 31, 1999 exclude $15.4 million of sales not yet recognized under generally accepted accounting principles (GAAP) since the requisite payment amounts have not yet been received or the respective recission periods have not yet expired. If ultimately recognized, revenues from these sales would be reduced by a related provision for cancellations of $2.1 million, estimated deferred selling costs of $4.3 million and cost of sales of $2.2 million. REAL ESTATE RISK Real estate development involves significant risks, including risks that suitable properties will not be available at reasonable prices, that acquisition, development and construction financing may not be available on favorable terms or at all, that infrastructure and construction costs may exceed original estimates, that construction may not be completed on schedule, and that upon completion of construction and improvements, properties may not be sold on favorable terms or at all. In addition, PEC's timeshare activities, as well as its ownership, improvement, subdivision and sale of land, are subject to comprehensive federal, state and local laws regulating environmental and health matters, protection of endangered species, water supplies, zoning, land development, land use, building design and construction and other 21 24 matters. Such laws and difficulties in obtaining, or the failure to obtain, the requisite licenses, permits, allocations, authorizations and other entitlements pursuant to such laws can adversely impact the development and completion of PEC's projects. The enactment of "slow-growth" or "no-growth" initiatives in any area where PEC sells land or timeshare interests could also delay or preclude entirely the development of such properties. RESULTS OF OPERATIONS Year Ended August 31, 1999 Compared to Year Ended August 31, 1998 Total revenues for the Company increased 8.6% or $5.9 million to $74.5 million during fiscal 1999 from $68.6 million during fiscal 1998 primarily due to a net increase of $5.7 million in timeshare and land sales to $57.2 million in fiscal 1999 from $51.5 million in fiscal 1998 (net timeshare sales increased by $3.5 million and net land sales increased by $2.2 million), an increase in interest income to $9.3 million in fiscal 1999 from $7.2 million in fiscal 1998, partially offset by an aggregate decrease of $2.1 million in financial income. Gross sales of timeshare interests increased to $45.8 million in fiscal 1999 from $41.4 million in fiscal 1998, an increase of 10.6%. Net sales of timeshare interests increased to $41.2 million from $37.7 million, an increase of 9.4%. The provision for cancellations represented 10.0% and 9.0%, respectively, of gross sales of timeshare interests for the years ended August 31, 1999 and 1998. The percentage increase in the provision for cancellations for timeshare interests was primarily due to a larger downward adjustment recorded during the prior fiscal year based on a review of the reserve adequacy at that time. The number of cancellations during fiscal 1999 was 875 compared to 781 during fiscal 1998. The number of exchanges, generally for timeshares, which are primarily made for upgrades, during fiscal 1999 was 2,757 compared to 4,019 during fiscal 1998. Gross sales of land increased to $17.0 million in fiscal 1999 from $14.9 million in fiscal 1998, an increase of 14.3%. Net sales of land increased to $16.0 million in fiscal 1999 from $13.8 million in fiscal 1998 an increase of 15.7%. The provision for cancellations decreased to 6.2% for the year ended August 31, 1999 from 7.3% of gross sales of land for the year ended August 31, 1998, primarily due to a decrease in cancellation experience during fiscal 1999. Gain on sale of investments of $513,000 was recorded during the fiscal 1999 as the Company sold a vacant parcel of land in Pahrump, Nevada containing approximately 40 acres. Interest income increased to $9.3 million in fiscal 1999 from $7.2 million in fiscal 1998, an increase of 30.0% primarily due to increased average notes receivable balances for the current period. Financial income decreased to $1.2 million in fiscal 1999 from $3.3 million in fiscal 1998, a decrease of 64.2%. The decrease was primarily a result of the termination by agreement of loan servicing for a company previously affiliated with Mego Financial and a decrease in loans serviced for others. Total costs and expenses for the Company increased to $74.3 million for fiscal 1999 from $73.8 million for fiscal 1998, an increase of .6%. The increase resulted primarily from an increase in direct costs of land sales to $2.7 million from $1.8 million, an increase of 53.1%, an increase in direct costs of timeshare interest sales to $8.5 million from $7.4 million, an increase of 15.6%, an increase in marketing and sales to $35.3 million from $34.1 million, an increase of 3.3%, an increase in interest expense to $9.3 million from $7.9 million, an increase of 18.1%, partially offset by a decrease of $3.4 million, or 19.2%, in general and administrative expenses. The increase in direct costs of land is attributable to increased land sales, including higher cost lots sold during fiscal 1999 compared to fiscal 1998. The increase in direct costs of timeshare sales is directly attributable to higher net timeshare sales in 1999 and to the higher costs to develop new timeshare inventory. The increase in marketing and sales expenses is due primarily to the higher gross sales; however, as noted below, 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 primarily to the reduction in salaries and benefits. 22 25 As a percentage of gross sales of timeshare interests and land, marketing and sales expenses related thereto decreased to 56.1% in fiscal 1999 from 60.6% in fiscal 1998, and cost of sales increased to 17.9% in fiscal 1999 from 16.2% in fiscal 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, the Company generally realizes lower profit margins from sales of timeshare interests than from sales of land. Subsequent to the first quarter of fiscal 1999, the Company restructured its marketing and sales programs, which restructuring included the closing of unprofitable sales locations, the elimination of certain marketing programs and the layoff of related personnel. Interest expense was $9.3 million in fiscal 1999 and $7.9 million in fiscal 1998. The increase is a result of a higher average outstanding balance of notes and contracts payable during fiscal 1999 compared to fiscal 1998 and is related to the fact that there were no sale of receivables during the current fiscal year. Pretax income of $220,000 was recorded in fiscal 1999 compared to a pretax loss of $5.2 million in fiscal 1998. The improvement in fiscal 1999 resulted from the $5.9 million increase in revenues partially offset by the $500,000 increase in expenses. The income tax benefit for fiscal 1999 was $830,000 compared to the larger income tax benefit of $2.0 million for fiscal 1998. The benefit for both fiscal 1999 and 1998 was primarily due to the application of net operating loss (NOL) carryforwards and changes in certain income tax liability reserves. The income tax liability reserves are a result of facts and circumstances determined in an ongoing review and analysis of the Company's federal income tax liability. See Notes 4 and 15 of Notes to Consolidated Financial Statements. Net income applicable to common stock amounted to $1.1 million during fiscal 1999 compared to a loss of $3.2 million during fiscal 1998, primarily due to the foregoing. Year Ended August 31, 1998 Compared to Year Ended August 31, 1997 Total revenues for the Company increased 1.6% or $1.1 million to $68.5 million during fiscal 1998 from $67.4 million during fiscal 1997 primarily due to a net increase of $2.6 million in timeshare and land sales to $51.5 million in fiscal 1998 from $48.9 million in fiscal 1997 (net timeshare sales increased by $5.4 million and net land sales decreased by $2.8 million), an increase in financial income to $3.3 million in fiscal 1998 from $2.9 million in fiscal 1997, partially offset by an aggregate decrease of $1.9 million in gain on sale of notes receivable, incidental operations and other income. Gross sales of timeshare interests increased to $41.4 million in fiscal 1998 from $39.9 million in fiscal 1997, an increase of 4.0%. Net sales of timeshare interests increased to $37.7 million from $32.3 million, an increase of 16.9%. The provision for cancellations represented 9.0% and 19.1% of gross sales of timeshare interests for the years ended August 31, 1998 and 1997, respectively. The decrease in the provision for cancellations was primarily due to lower cancellation experience during fiscal 1998. The number of cancellations during fiscal 1998 was 781 compared to 1,496 during fiscal 1997 which reduction was due, in part, to a change in the collection procedures as previously discussed herein. The number of exchanges, generally for timeshares, which are primarily made for upgrades, was 4,019 during fiscal 1998 compared to 3,749 during fiscal 1997. Gross sales of land decreased to $14.9 million in fiscal 1998 from $19.2 million in fiscal 1997, a decrease of 22.6%. Net sales of land decreased to $13.8 million in fiscal 1998 from $16.6 million in fiscal 1997, a decrease of 16.9%. The provision for cancellations decreased to 7.3% for the year ended August 31, 1998 from 13.6% of gross sales of land for the year ended August 31, 1997, primarily due to a decrease in cancellation experience during fiscal 1998. The 1998 decrease in gross land sales was the result of the Company's emphasis shift from sales of land to sales of timeshare interests due both to its diminishing inventory of land available for sale and its increasing inventory of timeshare interests from the opening of new timeshare resorts. The shift from land sales to timeshare sales was due primarily to the reduction of the Company's land inventory in Nevada which had not been fully replenished with additional land due generally to the unavailability of suitable land at acceptable prices. 23 26 Gain on sale of receivables decreased to $.7 million for fiscal 1998 from $2.0 million for fiscal 1997, as more loans were kept in the Company's own portfolio. The Company periodically sells receivables to reduce the outstanding balances under its lines of credit. Interest income was $7.0 million in fiscal 1998, relatively unchanged from $7.1 million in fiscal 1997. Financial income increased to $3.3 million in fiscal 1998 from $2.9 million in fiscal 1997, an increase of 13.1%. The increase is a result of the increased number of loans serviced by PEC during fiscal 1998, generating increased servicing fees. Included in the above is $2.0 million and $1.8 million for fiscal years 1998 and 1997, respectively, for servicing of MMC's receivables. As a result of the foregoing, total revenues for the Company increased to $68.6 million during fiscal 1998 from $67.5 million during fiscal 1997. Total costs and expenses increased to $73.8 million for fiscal 1998 from $72.2 million for fiscal 1997, an increase of 2.3%. The increase resulted primarily from an increase in general and administrative expenses to $17.7 million from $17.2 million, an increase of 3.3%, an increase in direct costs of timeshare interest sales to $7.4 million from $5.9 million, an increase of 24.5%, and an increase in depreciation to $2.2 million from $2.0 million, an increase of 14.3%. The increase in general and administrative expenses is primarily due to general increases in payroll and commissions paid to the collections and verifications department functions. The increase in direct costs of timeshare sales is directly attributable to higher net timeshare sales in 1998 and to the higher costs to develop new timeshare inventory. Depreciation expense increased to $2.2 million in fiscal 1998 from $2 million in fiscal 1997, an increase of 14.3%. The increase is a result of the additions made to property and equipment during fiscal 1998, and a full year of depreciation from fiscal 1997 additions, to support continued growth. Property and equipment, net of accumulated depreciation, was $24.0 million at August 31, 1998 compared to $24.2 million at August 31, 1997. As a percentage of gross sales of timeshare interests and land, marketing and sales expenses relating thereto increased to 60.6% in fiscal 1998 from 57.7% in fiscal 1997, and cost of sales increased to 16.2% in fiscal 1998 from 12.7% in fiscal 1997. Sales prices of timeshare interests are typically lower than those of land, while selling costs per sale, other than commissions, are approximately the same in amount for timeshare interests and land; accordingly, the Company generally realizes lower profit margins from sales of timeshare interests than from sales of land. Interest expense was $7.9 million in fiscal 1998 and $8.5 million in fiscal 1997. The decrease is a result of a lower average outstanding balance of notes and contracts payable during fiscal 1998 compared to fiscal 1997. Income from continuing operations decreased $11.2 million to a loss of $3.2 million in fiscal 1998 from income of $8.0 million in fiscal 1997, due principally to the recording of a $2.0 million tax benefit in fiscal 1998 compared to the much larger $12.7 million income tax benefit in fiscal 1997. Income from discontinued operations, net of taxes and minority interest, was $11.3 million in fiscal 1997 due to the inclusion of MMC. Income from discontinued operations represents net income from MMC of $14.8 million reduced by minority interest of $2.4 million and $1.1 million in general and administrative expenses related to the discontinued operations. See "Item 7. MD&A--Discontinued Operations of MMC" and Note 3 of Notes to Consolidated Financial Statements. The income tax benefit for fiscal 1998 was $2.0 million compared to the much larger income tax benefit of $12.7 million for fiscal 1997. The benefit for both fiscal 1998 and 1997 was primarily due to the application of net operating loss (NOL) carryforwards and changes in certain income tax liability reserves. The income tax liability reserves are a result of facts and circumstances determined in an ongoing review and analysis of the Company's federal income tax liability. See Notes 4 and 15 of Notes to Consolidated Financial Statements. Net loss applicable to common stock amounted to $3.2 million during fiscal 1998 compared to income of $19.3 million during fiscal 1997, primarily due to the foregoing. 24 27 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents for the Company was $1.8 million as of August 31, 1999 and 1998. The Company's principal cash requirements relate to PEC's acquisition of timeshare properties and land and the payment of marketing and sales expenses in connection with timeshare and land sales and Mego Financial's payment of principal and interest on subordinated debt. PEC requires continued access to sources of debt financing and sales in the secondary market for receivables. The Company experienced certain cash flow pressures in the first quarter of fiscal 1999 and, in the second quarter of fiscal 1999, took the following steps to alleviate this situation. In addition to the short-term funding from FINOVA discussed below, 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 continues to actively pursue 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 continue to be successful in sustaining the improvement in the Company's cash flow and results of operations. 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 an original maturity date of June 30, 1999 which has been extended to December 31, 2000. Mego Financial agreed to guarantee the loan and issued warrants in tranches to FINOVA to purchase a total of 83,333 shares of common stock of Mego Financial at an exercise price of $6.00 per share, exercisable within a five-year period commencing January 1, 1999. The following table sets forth information regarding the advances from FINOVA to PEC under the Forbearance Agreement for the year ended August 31, 1999:
MAXIMUM NUMBER OF SHARES OF MEGO FINANCIAL CORP. COMMON STOCK FINOVA AVAILABLE FOR PURCHASE DATE OF ADVANCE LOAN AMOUNT UNDER WARRANTS GRANTED(a) - ----------------------------- ----------- -------------------------- December 24, 1998 $3,000,000 25,000 May 7, 1999 1,000,000 21,913 June 9, 1999 1,000,000 21,913 July 30, 1999 662,000 14,507 ---------- ------ Balances as of August 31,1999 $5,662,000 83,333 ========== ======
(a) Adjusted for one for six reverse stock split, effective September 9, 1999. PEC's cash requirements arise from the acquisition of timeshare properties and land, payments of operating expenses, payment of taxes to Mego Financial, 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 advances, under PEC's lines of credit in the aggregate amount of $135.3 million, sales of receivables and cash flows from operations. At August 31, 1999, no commitments existed for material capital expenditures. At August 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 $135.3 million. Such lines of credit are secured by timeshare 25 28 and land receivables and mortgages. At August 31, 1999, an aggregate of $101.6 million was outstanding under such lines of credit, and $33.7 million was available for borrowing. At August 31, 1998, $77.4 million had been borrowed under these lines. Under the terms of these lines of credit, PEC may borrow 70% to 90% of the balances of the pledged timeshare and land receivables. Summarized lines of credit information and accompanying notes relating to these six lines of credit outstanding at August 31, 1999, consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT BORROWING REVOLVING AUGUST 31, 1999 AMOUNT EXPIRATION DATE (a) MATURITY DATE INTEREST RATE - ------------------- ----------------- ------------------------- ------------------ ------------------------ $ 65,682 $ 75,000 (b) May 15, 2000 Various Prime + 2.0 - 2.25% 4,278 15,000 (c) May 31, 2000 Various Prime + 2.0% 14,734 17,000 (d) June 30, 2001 Various LIBOR + 4.0 - 4.25% 6,914 13,000 (d) December 31, 1999 * December 31, 2000 LIBOR + 4.0 - 4.25% 3,834 3,834 (e) July 31, 2000 Prime + 2.0 - 2.25% 6,129 11,500 (f) June 30, 2000 Various Prime + 2.0 - 3.00% - ------------ $ 101,571
- -------------------------------------------------------------------------------- * 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 period expiring in fiscal year 2000. (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. New restrictions, commencing with the fiscal quarter ended November 30, 1998, include: PEC's requirements to maintain costs and expenses for marketing and sales and general and administrative expenses relating to net processed sales for each fiscal quarter; and PEC's requirement to maintain a minimum net processed sales requirement for each fiscal quarter. In addition, commencing with the fiscal quarter ended August 31, 1999, these restrictions also include PEC's requirement not to exceed a ratio of 4:1 of consolidated total liabilities to consolidated tangible net worth. At August 31, 1999, $44.7 million of loans secured by receivables were outstanding related to financings at prime plus 2%, of which $31.5 million of loans secured by land receivables mature May 15, 2010 and $13.2 million of loans secured by timeshare receivables mature May 15, 2007. The outstanding borrowing amount includes $6.4 million in acquisition and development (A&D) financing maturing July 1, 2003 for the corporate office buildings, which is an amortizing loan, and real estate loan with an outstanding balance of $1.2 million maturing March 20, 2000, all bearing interest at prime plus 2.25%. The remaining A&D loans, receivables loans, and a resort lobby loan outstanding of $13.4 million are at prime plus 2% and mature at various dates through February 28, 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 August 31, 1999, $.8 million was outstanding under the A&D loan which matures on June 30, 2004, and $3.4 million maturing May 31, 2004 was outstanding under the receivables loan. (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 August 31, 1999, $1.1 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) plus 4.25%. The available receivable financings, of which $13.6 million was outstanding at August 31, 1999, are all at 90-day LIBOR plus 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. The revolving receivable line was paid in full in September 1999. The A&D loan is due in full by February 1, 2000. 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 $2.1 million was outstanding at August 31, 1999 in respect to the receivables' debt, and a real estate loan of $4.0 million with a maturity date of August 31, 2000. The maturity date for the receivable debt is May 31, 2004. 26 29 A schedule of the cash shortfall arising from recognized and unrecognized sales for the periods indicated is set forth below (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------ 1999 1998 1997 -------- -------- -------- Marketing and sales expenses attributable to recognized and unrecognized sales $ 35,856 $ 34,733 $ 34,388 Less: Down payments (12,452) (12,934) (13,966) -------- -------- -------- Cash shortfall $ 23,404 $ 21,799 $ 20,422 ======== ======== ========
During the fiscal year ended August 31, 1998, PEC sold notes receivable of $9.4 million from which $8.0 million of the sales proceeds were used to pay down debt during the fiscal year ended August 31, 1998. The receivables, which have interest rates ranging from 13.0% - 14.3% depending on the transaction were sold to yield returns of 9.75% to the purchasers, with any excess interest received from the obligors being payable to PEC. 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 August 31, 1999, PEC was contingently liable to replace or repurchase notes receivable sold with recourse totaling $53.5 million. The repurchase provisions provide for substitution of receivables as recourse for $19.8 million of sold notes receivable and cash payments for repurchase relating to $33.7 million of sold notes receivable. At August 31, 1999 and 1998, the undiscounted amounts of the recourse obligations on such sold notes receivable were $5.5 million and $7.8 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. Recourse to PEC on sales of notes receivable is governed by the agreements between the purchasers and PEC. The reserve for notes receivable sold with recourse is established at the time of each sale based upon PEC's analysis and represents PEC's estimate of its probable future credit losses to be incurred over the lives of the notes receivable. Proceeds from the sale of notes receivable sold with recourse were $0 and $9.4 million for the years ended August 31, 1999 and 1998, respectively. To improve its financial position, the Company is pursuing the sale of certain of its non-core commercial real estate assets located in Pahrump, NV. The Company currently has 16 parcels for sale, ranging in size from 3.8 acres to 58.2 acres. The Company has held numerous discussions with parties interested in acquiring certain of the large parcels, as well as discussions concerning the golf courses and CNUC. At January 31, 1995, when accrual of payments to assignors ceased, $13.3 million was payable to the Assignors. On March 2, 1995, the Assignors agreed to defer payment of $10 million of the amounts due to them pursuant to an amendment to the Assignment and Assumption Agreement providing for the subordination of such amounts to payment of debt for money borrowed by the Company or obligations of the Company's subsidiaries guaranteed by the Company (Subordinated Debt). Warrants (Warrants) to purchase 166,666 shares of common stock, at an exercise price of $25.50 per share (the closing market price per share on March 2, 1995), were granted to the Assignors in consideration of the payment deferral and subordination. The balance of $3.3 million was paid to the assignors as follows: $809,000 including interest of $59,000 in June 1995, and the balance of $2.6 million including interest of $45,000 in January 1997. The Warrants were exercised in August 1997 in a non-cash transaction, whereby the Subordinated Debt was reduced by $4.25 million. Interest on the Subordinated Debt was to be paid semiannually at the rate of 10% per year starting September 1, 1995, and the Subordinated Debt was to be repaid in semiannual principal payments commencing March 1, 1997. On March 1, 1997, the Assignors received the first semiannual principal payment of $1.4 million plus interest related to the repayment of the Subordinated Debt. In connection with exercise of the Warrants, payments aggregating $4.25 million were deemed paid and the semiannual payments were scheduled to resume in March 1999, with a partial payment made in September 1998. In accordance with the Seventh Amendment to Assignment and Assumption Agreement, the scheduled March 1, 1999 and September 1, 1999 principal payments aggregating $2.9 million were deferred until February 1, 2000. Interest of $430,000 on Subordinated Debt was 27 30 paid during fiscal 1999. The Subordinated Debt is collateralized by a pledge of PEC's outstanding stock. See "Item 13. Certain Relationships and Related Transactions" and Note 14 of Notes to Consolidated Financial Statements. During fiscal years 1999 and 1998, the Company used cash of $20.9 million and $20.8 million in operating activities, respectively. During fiscal years 1999 and 1998, the Company used cash of $1.8 million and $4.2 million in investing activities, respectively, as a result of a decline in purchases of property and equipment and a decline in additions to other investments. During fiscal years 1999 and 1998, the Company provided cash of $22.7 million and $16.4 million in financing activities, respectively, as a result of increased borrowings and increased paydowns applied to such borrowings. Capital expenditures during fiscal years 1999 and 1998 were $3.7 million and $15.6 million, respectively, for the acquisition of timeshare and land inventory and $1.6 million and $2.3 million, respectively, for the purchase of property and equipment. The Company made additional capital expenditures in 1998 for renovation of future timeshare inventory, refurbishment of present timeshare inventory and the acquisition of replacement equipment. No commitments existed at August 31, 1999 for material capital expenditures. The Company believes that its capital requirements will be met from cash balances, internally generated cash, existing lines of credit, sales of receivables, and the modification, replacement or addition to its lines of credit and new financings. The components of the Company's debt, including lines of credit consist of the following (thousands of dollars):
AUGUST 31, ------------------------ 1999 1998 -------- -------- Notes collateralized by receivables $ 67,457 $ 42,793 Mortgages collateralized by real estate properties 35,846 37,393 Installment contracts and other notes payable 1,252 1,800 -------- -------- Total $104,555 $ 81,986 ======== ========
FINANCIAL CONDITION The Company provides allowance for cancellations in amounts which, in the Company's judgment, will be adequate to absorb losses on notes receivable that may become uncollectible. The Company's judgment in determining the adequacy of this allowance is based on its continual review of its portfolio which utilizes historical experience and current economic factors. These reviews take into consideration changes in the nature and level of the portfolio, historical rates, collateral values, and current and future economic conditions which may affect the obligors' ability to pay, collateral values and overall portfolio quality. Changes in the aggregate of the allowance for cancellations, excluding discounts, and the reserve for notes receivable sold with recourse for the fiscal years ended August 31, 1999, 1998 and 1997, consisted of the following (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------ 1999 1998 1997 -------- -------- -------- Balance at beginning of year $ 18,488 $ 19,527 $ 19,924 Provision for cancellations 5,626 4,827 10,219 Amounts charged to allowance for cancellations and reserve for notes receivable sold with recourse (5,965) (5,866) (10,616) -------- -------- -------- Balance at end of year $ 18,149 $ 18,488 $ 19,527 ======== ======== ========
The allowance for cancellations and the reserve for notes receivable sold with recourse consisted of the following at these dates (thousands of dollars):
AUGUST 31, ------------------------------------- 1999 1998 1997 ------- ------- ------- Allowance for cancellations, excluding discounts $13,987 $11,868 $10,824 ------- Reserve for notes receivable sold with recourse 4,162 6,620 8,703 ------- ------- ------- Total $18,149 $18,488 $19,527 ======= ======= =======
28 31 Timeshare and land sales, net, increased to $57.2 million at August 31, 1999 from $51.5 million at August 31, 1998. Timeshare and land sales, net, are set forth in the following table (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------ 1999 1998 $ CHANGE % CHANGE ------- ------- -------- -------- Timeshare sales, net $41,262 $37,713 $ 3,549 9.4% Land sales, net 15,979 13,812 2,167 15.7% ------- ------- ------- ---- Total timeshare and land sales, net $57,241 $51,525 $ 5,716 11.1% ======= ======= ======= ====
August 31, 1999 Compared to August 31, 1998 Cash and cash equivalents was $1.8 million at August 31, 1999 and 1998. Notes receivable, net, increased 45.0% to $69.3 million at August 31, 1999 from $47.8 million at August 31, 1998 as a result of net new receivables added, and no sales of receivables, during fiscal 1999. Interest only receivables decreased 23.8% to $2.6 million at August 31, 1999 from $3.4 million at August 31, 1998. See Note 4 of Notes to Consolidated Financial Statements. Land and improvements inventory and timeshare interests held for sale decreased 17.3% to $36.2 million at August 31, 1999 from $43.8 million at August 31, 1998. Notes and contracts payable increased 27.5% to $104.6 million at August 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 fiscal year ended August 31, 1999. Reserve for notes receivable sold with recourse decreased 37.1% to $4.2 million at August 31, 1999 from $6.7 million at August 31, 1998 due to the reduced balance of the sold notes receivable. Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and PEC. Accrued income taxes decreased 21.6% to $3.5 million at August 31, 1999 from $4.5 million, due primarily to the fiscal 1999 tax benefit. The change in certain income tax liability reserves was a result of utilization of net operating losses and an ongoing review of the facts and circumstances. Stockholders' equity increased to $21.8 million at August 31, 1999 from $20.7 million at August 31, 1998 as a result of net income of $1.1 million during fiscal 1999. August 31, 1998 Compared to August 31, 1997 Cash and cash equivalents decreased 82.5% to $1.8 million at August 31, 1998 from $10.4 million at August 31, 1997, primarily as a result of funding of the Company's sales operations with a lesser amount of receivable sales. Notes receivable, net, increased 39.4% to $47.8 million at August 31, 1998 from $34.3 million at August 31, 1997 primarily as a result of decreased receivable sales of $9.4 million to one financial institution during fiscal 1998 compared to $30.1 million to two different financial institutions during fiscal 1997. 29 32 Timeshare and land sales, net, increased to $51.5 million at August 31, 1998 from $48.9 million at August 31, 1997. Timeshare and land sales, net, are set forth in the following table (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------- 1998 1997 $ CHANGE % CHANGE --------- --------- --------- ----------- Timeshare sales, net $37,713 $32,253 $ 5,460 16.9% Land sales, net 13,812 16,626 (2,814) (16.9)% ------- ------- ------- ---- Total timeshare and land sales, net $51,525 $48,879 $ 2,646 5.4% ======= ======= ======= ====
The implementation of SFAS No. 125 required the reclassification of excess servicing rights as interest only receivables which are carried at fair market value. Interest only receivables increased 2.2% to $3.4 million at August 31, 1998 from $3.3 million at August 31, 1997. See Note 4 of Notes to Consolidated Financial Statements. Land and improvements inventory and timeshare interest held for sale increased 17.3% to $43.8 million at August 31, 1998 from $37.3 million at August 31, 1997 primarily as a result of the acquisition of Hartsel Ranch property and the development of timeshare property. Property and equipment, net, decreased 1.1% to $24.0 million at August 31, 1998 from $24.2 million at August 31, 1997. Notes and contracts payable increased 25.0% to $82.0 million at August 31, 1998 from $65.6 million at August 31, 1997 due to decreased paydowns of debt with proceeds from receivable sales during fiscal 1997. Accounts payable and accrued liabilities increased to $19.1 million at August 31, 1998 from $17.2 million at August 31, 1997, primarily as a result of increases in accrued payroll, interest and other unpaid operational costs. Reserve for notes receivable sold with recourse decreased 24.0% to $6.6 million at August 31, 1998 from $8.7 million at August 31, 1997 due to the decreased amount of receivable sales in fiscal 1998. Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and the Company. Accrued income taxes decreased 28.3% to $4.5 million at August 31, 1998 from $6.2 million at August 31, 1997 primarily due to application of NOL carryforwards and changes in certain income tax liability reserves. The changes in fiscal 1997 income tax liability reserves are a result of facts and circumstances determined in an analysis of the Company's federal income tax liability. See Note 16 of Notes to Consolidated Financial Statements. Stockholders' equity decreased to $20.7 million at August 31, 1998 from $73.2 million at August 31, 1997 as a result of the distribution of MMC common stock totaling $49.3 million in connection with the Spin-off, including the adjustment of the receivable from MMC, and a net loss applicable to common stock of $3.2 million during fiscal 1998. EFFECTS OF CHANGING PRICES AND INFLATION The Company's operations are sensitive to increases in interest rates and to inflation. Increased borrowing costs resulting from increases in interest rates may not be immediately recoverable from prospective purchasers. Inflationary increases are difficult to pass on to customers since increases in sales prices often result in lower sales closing rates and higher cancellations. The Company's notes receivable consist primarily of fixed-rate long term installment contracts that do not increase or decrease as a result of changes in interest rates charged to the Company. In addition, delinquency and cancellation rates may be affected by changes in the national economy. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the 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 30 33 disclosure of information about operating segments in annual financial statements and, to a lesser extent, in interim financial reports issued to shareholders. SFAS No. 131 is effective for the 1999 fiscal year. In accordance with SFAS No. 131, the Company considers its business to consist of one reportable operating segment. The Company does not allocate revenues and expenses, or assets and liabilities, in a segmented format for internal use or decision-making processes. In June 1998, the FASB issued SFAS No. 133 (SFAS 133) "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes standards for accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. SFAS 133 is effective for fiscal years beginning after June 15, 1999. However, since the Company does not use such financial instruments, SFAS 133 will not have an impact on the Company's financial statements. YEAR 2000 COMPLIANCE The Company believes it is now Year 2000 compliant. There are no anticipated future material expenditures regarding Year 2000 compliance. The Company continues to test its software programs by advancing the dates past January 2000 and no problems have been noted. The Company has not received final assurances from all of its significant third party vendors, lenders and other parties that they are, or will be, Year 2000 compliant by December 31, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's various business activities generate liquidity, market and credit risk: - - liquidity risk is the possibility of being unable to meet all present and future financial obligations in a timely manner. - - market risk is the possibility that changes in future market rates or prices will make the Company's positions less valuable. - - credit risk is the possible loss from a customer's failure to perform according to the terms of the transaction. 31 34 The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. Such information includes fair values of the market risk sensitive instruments and contract terms sufficient to determine future cash flows from those instruments, categorized by expected maturity dates:
EXPECTED MATURITY DATE ------------------------------------------------------------------------- THERE- FAIR AUGUST 31, 2000 2001 2002 2003 2004 AFTER TOTAL VALUE - ------------------------------- --------- --------- --------- --------- --------- -------- --------- --------- ASSETS: Interest only receivables(a) Fixed rate $ 245 $ 277 $ 314 $ 355 $ 403 $ 972 $ 2,566 $ 2,566 Average interest rate 12.50% 12.23% 13.14% 13.33% 12.80% 13.04% LIABILITIES: Notes and contracts payable(b) Fixed rate $ 730 $ 357 $ 107 $ 46 $ 11 $ -- $ 1,251 $ 1,251 Average interest rates 10.39% 10.41% 11.80% 14.21% 13.98% --% Variable rate $ 7,282 $ 20,776 $ 443 $ 1,236 $ 6,679 $66,888 $103,304 $103,304 Average interest rates 10.80% 10.16% 8.83% 10.25% 10.31% 9.88% Subordinated debt(c) Fixed rate $ 4,478 $ -- $ -- $ -- $ -- $ -- $ 4,478 $ 4,478 Average interest rates 10.00% --% --% --% --% --%
- ------------------ (a) The fair value was estimated by discounting future cash flows of the instruments using discount rates, default, loss and prepayment assumptions based upon available market data, opinions from financial advisors and portfolio experience. (b) Notes payable generally are adjustable rate, indexed to the prime rate, or to the 90-day London Interbank Offering Rate (LIBOR); therefore, carrying value approximates fair value. (c) Carrying value is approximately the same as fair value. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements of the Company and its subsidiaries are included herewith:
PAGE ---- Independent Auditors' Report F-2 Consolidated Balance Sheets at August 31, 1999 and 1998 F-3 Consolidated Income Statements - Years Ended August 31, 1999, 1998 and 1997 F-4 - F-5 Consolidated Statements of Stockholders' Equity - Years Ended August 31, 1999, 1998 and 1997 F-6 Consolidated Statements of Cash Flows - Years Ended August 31, 1999, 1998 and 1997 F-7 - F-8 Notes to Consolidated Financial Statements - Years Ended August 31, 1999, 1998 and 1997 F-9 - F-36
All schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 32 35 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information with respect to the directors and executive officers of the Company.
POSITION (OF COMPANY UNLESS NAME AGE OTHERWISE NOTED) ---- --- --------------------------- Robert Nederlander 66 Chairman of the Board, Chief Executive Officer and Director Jerome J. Cohen 71 President and Director Chairman of the Board, Chief Executive Officer and President of PEC Herbert B. Hirsch 63 Senior Vice President, Chief Financial Officer, Treasurer and Director Eugene I. Schuster 62 Vice President and Director Wilbur L. Ross, Jr. 61 Director John E. McConnaughy, Jr. 70 Director Jon A. Joseph 52 Senior Vice President, General Counsel and Secretary Charles G. Baltuskonis 49 Vice President and Chief Accounting Officer
Robert Nederlander has been the Chairman of the Board and Chief Executive Officer of the Company since January 1988, when affiliates of the Assignors, including Mr. Cohen, acquired approximately 43% of the outstanding common stock of the Company (Share Acquisition). See "Item 13. Certain Relationships and Related Transactions." Mr. Nederlander is the Chairman of the Executive Committee and a member of the Audit Committee. Since July 1995, Mr. Nederlander served on the Board of Directors of Cendant Corporation, formerly Hospitality Franchise Systems, Inc. (HFS). In April 1995, prior to Mr. Nederlander becoming a Board member of HFS, the Company entered into an agreement with Ramada, a subsidiary of Cendant Corporation, pursuant to which the Company is licensed to use the Ramada name in its timeshare operations. Mr. Nederlander has been Chairman of the Board of Riddell Sports Inc. since April 1988 and was Riddell Sports Inc.'s Chief Executive Officer from April 1988 through March 1993. From February 1992 until June 1992, Mr. Nederlander was also Riddell Sports Inc.'s interim President and Chief Operating Officer. Since November 1981, Mr. Nederlander has been President and/or a director of the Nederlander Organization, Inc., owner and operator of one the world's largest chains of legitimate theaters. Since December 1998, Mr. Nederlander is co-managing member of the Nederlander Co. LLC, operator of legitimate theaters in various cities outside New York. Mr. Nederlander served as the Managing General Partner of the New York Yankees from August 1990 until December 1991, and has been a limited partner since 1973. Since October 1985, Mr. Nederlander has been President of Nederlander Television and Film Productions, Inc.; and Chairman of the Board of Allis-Chalmers Corp. from May 1989 to 1993, and from 1993 to 1996 as Vice Chairman. Mr. Nederlander remains a director of Allis-Chalmers Corp. Mr. Nederlander was a director of MMC from September 1996 until June 1998. In October 1996, Mr. Nederlander became a director of News Communications Inc., a publisher of community oriented free circulation newspapers. Mr. Nederlander does not currently serve on a full time basis in his capacities with the Company. Jerome J. Cohen has been the President and a Director of the Company since the Share Acquisition. Mr. Cohen serves as a member of the Executive Committee and is Chairman of the Board, Chief Executive Officer and President of PEC. Mr. Cohen served as Chairman of the Board of MMC from April 1995 to June 1998, as Chief Executive Officer from June 1992 to September 1997 and as President from June 1992 to March 1995. From April 1992 to June 1997, Mr. Cohen was a director of Atlantic Gulf Communities Inc., formerly known as General Development Corporation, a publicly held company engaged in land development, land sales and utility operations in Florida and Tennessee. Herbert B. Hirsch has been the Senior Vice President, Chief Financial Officer, Treasurer and a Director of the Company since the Share Acquisition. Mr. Hirsch serves as a member of the Executive Committee. Mr. Hirsch served 33 36 as a director of MMC from June 1992 to June 1998, and served as Vice President, Chief Financial Officer and Treasurer of MMC from 1992 to September 1996. Eugene I. Schuster has been a Vice President and a Director of the Company since the Share Acquisition. Mr. Schuster is a member of the Stock Option Committee. Mr. Schuster has also been Chief Executive Officer and Chairman of the Board of Directors of Venture Funding, Ltd., a business development corporation, since its inception in May 1983. Since February 1986, Mr. Schuster has been the President and Chief Executive Officer and a director of Quest BioTechnology, Inc., a publicly held biotechnology research and development firm. Since September 1985, Mr. Schuster has been a director of Wavemat, Inc., a publicly held company engaged in the manufacture and sale of microwave equipment for advanced materials processing. Since January 1988, Mr. Schuster has been the Chairman and from May 1988 through February 1995 was Chief Executive Officer, of Cellex Biosciences, Inc., a publicly held manufacturer of automated cell culture systems. Mr. Schuster is Chairman and Chief Executive Officer of Art Renaissance, Inc., a privately held company which operates several chains of retail art galleries. Mr. Schuster does not currently serve on a full time basis in his capacities with the Company. Wilbur L. Ross, Jr. has been a Director of the Company since 1984. Mr. Ross serves as a member of the Audit, Stock Option and Executive Incentive Compensation Committees. Mr. Ross has been a Senior Managing Director of Rothschild Inc., an investment banking firm, since August 1976. Mr. Ross serves as a director of Syms Corporation and is Chief Executive Officer and a director of News Communications, Inc. and is a director of KTI, Inc. John E. McConnaughy, Jr. has been a Director of the Company since 1984. Mr. McConnaughy serves as Chairman of the Audit Committee and a member of the Stock Option and Executive Incentive Compensation Committees. Mr. McConnaughy was Chairman and Chief Executive Officer of Peabody International Corp. from 1969 to 1986. He was Chairman and Chief Executive Officer of GEO International Corp. (GEO), a nondestructive testing, screen printing and oil field services company, from 1981 to 1992. GEO was spun off in 1981 and became publicly held. Mr. McConnaughy has been a director of Oxigene, Inc., Texstar Corporation, MAI Corporation, Akzona Corp., First Bank Corp. (New Haven), Beringer Co., Inc. the Pullman Co., Moore McCormack Resources and Peabody International Corp. He is currently on the Board of Directors of Transact International, Inc., DeVlieg Bullard, Inc., Levcor International, Inc., Riddell Sports, Inc., Wave Systems, Inc and Adrien Arpel, Inc. Mr. McConnaughy is on the Board of Trustees and Executive Committee of the Strang Cancer Prevention Center and is Chairman of the Board of the Harlem School of the Arts. Jon A. Joseph has been a Vice President and Associate General Counsel of the Company since July 1995. Mr. Joseph was Executive Vice President of Valley Bank of Nevada from 1984 to 1991. In 1992, Valley Bank of Nevada was acquired by Bank of America. Mr. Joseph remained with the legal department of Bank of America until June 1, 1995, when he joined the Company. Charles G. Baltuskonis has been a Vice President and Chief Accounting Officer of the Company since April 1997. He is a certified public accountant and served as Senior Vice President and Controller of Chase Federal Bank from May 1995 to March 1997. Prior to that date, he was Chief Financial Officer of F&C Bancshares and First Coastal Bank, a Senior Vice President - Finance of Bank of New England, and was a Senior Manager with the public accounting firm of Ernst & Young. Don A. Mayerson held the offices of Executive Vice President, General Counsel and Secretary from January 1988 to December 1998. Mr. Mayerson retired on December 31, 1998 and continues to serve the Company as a consultant. The following are other key employees of the Company: Gregg A. McMurtrie was named Executive Vice President and Chief Operating Officer of PEC in November 1998. Mr. McMurtrie joined the staff of PEC in August 1982. From August 1982 to July 1987, Mr. McMurtrie served in various capacities in the credit, internal auditing, marketing, customer relations, sales and executive departments. He was General Manager, Colorado Land Sales, from September 1987 to February 1989. Since September 1989, Mr. McMurtrie has served as Director of Sales Administration. He was promoted to Vice President of PEC in August 1991. 34 37 S. Duke Campbell serves as the Senior Vice President, Marketing and Sales of PEC and prior to his most recent appointment in May 1998 had been a Vice President of PEC since July 1996. From 1995 to 1996, Mr. Campbell served as a Principal at D.I.A.L. Pro Northwest, Inc., a value added reseller for several customer management systems in the Northwest. Mr. Campbell served as Vice President of Marketing and sales for Hostar International, Inc., a manufacturer of innovative material management systems for hospitals, from 1991 to 1994. From 1989 to 1990, Mr. Campbell was the Senior Principal of Gulf American Financial Services, Inc., a financial services company that specializes in receivables management. Prior to 1990, Mr. Campbell served in various positions at Thousand Trails, Inc., a Texas company that owns and operates member campground resorts. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's Directors and executive officers, and persons who own more than ten percent of the Company's outstanding common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. Such persons are required by SEC regulation to furnish the Company with copies of all such reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company all Section 16(a) filing requirements applicable to its officers, Directors and greater than ten percent beneficial owners have been satisfied, except that a Form 5 filed by each of Robert Nederlander, Jerome J. Cohen, Herbert B. Hirsch, Eugene I. Schuster, John E. McConnaughy and Wilbur L. Ross, Jr. to report the receipt of options to purchase 2,083, 2083, 833, 833, 833 and 833 shares, respectively, of common stock under the Company's Stock Option Plan was not timely filed. ADDITIONAL INFORMATION CONCERNING OFFICERS AND DIRECTORS The Company's officers are elected annually by the Board of Directors and serve at the discretion of the Board of Directors. The Company's directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. The Company reimburses all directors for their expenses in connection with their activities as directors of the Company. Directors of the Company who are also employees of the Company do not receive additional compensation for their services as directors. Members of the Board of Directors of the Company who are not employees of the Company received an annual fee of $40,000 in fiscal 1998 and were scheduled to receive an annual fee of $30,000 for fiscal 1999. Payments of director fees were suspended in December 1998. Directors are reimbursed for their expenses incurred in attending meetings of the Board of Directors and its committees. Effective as of September 23, 1998, the Company entered into indemnification agreements with each of its directors and a former officer, which superseded indemnification agreements entered into by the Company and such persons in April 1998. The new indemnification agreements provide certain protections now afforded by the Company's Articles of Incorporation and By-laws so that they cannot be changed without the consent of such directors and officer. In addition, such agreements clarify the procedures for obtaining indemnification from the Company and require the Company to maintain directors and officers insurance. 35 38 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the annual and long-term compensation earned by the Company's chief executive officer and each of the four other most highly compensated executive officers (Named Executive Officers), and the Chief Operating Officer of PEC, whose annual salary and bonus during the fiscal years presented exceeded $100,000.
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ----------------------------------------------- ------------------------------------- NUMBER OF NAME AND PRINCIPAL FISCAL OTHER ANNUAL OPTIONS ALL OTHER POSITION YEAR SALARY BONUS COMPENSATION GRANTED(b) COMPENSATION(c) --------------------- ------ ------- ----- ------------ ---------- --------------- Robert Nederlander 1997 $150,000 $ 2,885 $ 4,378 -- $ 2,010 Chairman of the Board 1998 200,000 -- 6,373 2,083 1,039 and Chief Executive 1999 65,424(d) -- 5,901 833 -- Officer, MFC Chairman of the Board, PEC Jerome J. Cohen, 1997 $300,002 $368,800 $ 7,259 -- $ 2,329 President, MFC 1998 300,002 -- 8,383 2,083 2,644 Chairman of the Board, 1999 300,002 6,000 9,800 2,083 2,400 Chief Executive Officer and President, PEC Herbert B. Hirsch 1997 $200,000 $147,520 $ 1,743 -- $ 2,319 Senior Vice President, 1998 200,000 -- 2,005 833 2,341 Chief Financial 1999 200,000 2,400 2,335 1,667 2,909 Officer & Treasurer, MFC Senior Vice President and Chief Financial Officer, PEC Jon A. Joseph 1999 $209,770 $ 1,200 $ -- -- $ 2,838 General Counsel and Secretary, MFC Senior Vice President, PEC Charles G. Baltuskonis 1999 $129,000 $ -- $ -- 833 $ 1,943 Vice President, and Chief Accounting Officer, MFC and PEC Gregg A. McMurtrie 1999 $144,869 $ -- $ -- 833 $ 2,172 Executive Vice President and Chief Operating Officer, PEC (effective November 1998)
- ------------------- (a) Incentive compensation attributable to the year ended August 31, 1999 to Messrs. Cohen, Hirsch and Joseph is included in the preceding table as 1999 compensation and to the year ended August 31, 1997 paid to Messrs. Cohen and Hirsch is included in the above table as 1997 compensation. (b) The Company adopted the Stock Option Plan on November 17, 1993, and options were granted to certain executive officers on December 22, 1993 and subsequently to other employees, subject to shareholder approval of the Stock Option Plan. The Stock Option Plan was approved by the shareholders on February 9, 1994 and later amended and restated. See Stock Option Plan. One-fifth of each grant to the Named Executive Officers became exercisable on December 22, 1994 and an additional one-fifth became exercisable on December 22, 1995 and December 22, 1996. In August 1997, in connection with the approval by the Company's Board of Directors of the distribution to the holders of record of the Company's common stock as of August 27, 1997 of all 10,000,000 shares of MMC's common stock held by the Company in the Spin-off, the Stock Option Committee accelerated the vesting of all such options, excluding those options granted subsequent to February 26, 1997. See "Aggregated Fiscal Year-End Option Table" and "Stock Option Plan." There were 25,417 of options held by Named Executive Officers at August 31, 1999. There were no options exercised by the executive officers during fiscal 1999. 36 39 (c) Represents the Company's discretionary matching contributions of 25% of the employee's contribution to the Company's 401(k) Plan on behalf of the employee. (d) Prior to December 11, 1998, Mr. Nederlander earned an annual salary of $200,000. On that date, his salary was eliminated. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information concerning grants of stock options made during the fiscal year ended August 31, 1999 to the Named Executive Officers:
INDIVIDUAL GRANTS ---------------------------------------------- POTENTIAL REALIZABLE NUMBER OF VALUE AT ASSUMED SECURITIES PERCENT OF ANNUAL RATES OF UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION FOR OPTIONS/SARS GRANTED TO EXERCISE OPTION TERM GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------------- NAME (#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($) - ------------------------ ------------ ----------- ---------- ---------- ------------ ------------ Robert Nederlander 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347 Jerome J. Cohen 2,083 12.5% $ 6.00 09/22/08 $ 5,312 $ 15,872 Herbert B. Hirsch 1,667 10.0% $ 6.00 09/22/08 $ 4,251 $ 12,703 Jon A. Joseph -- -- $ -- -- $ -- $ -- Charles G. Baltuskonis 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347 Gregg A. McMurtrie 833 5.0% $ 6.00 09/22/08 $ 2,124 $ 6,347
- ------------------- (1) On September 23, 1998, the exercise price of these options was revised to $6.00 per share which represented fair value at the date of repricing. Effective September 9, 1999, the Company consummated a one for six reverse stock split to all of the Company's common shares outstanding. All shares and per share references have been restated to retroactively show the effect of this reverse stock split. AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE The following table sets forth certain information concerning unexercised stock options held by the Named Executive Officers as of August 31, 1999. No stock options were exercised by the Named Executive Officers during the fiscal year ended August 31, 1999. See "Stock Option Plan" below in this section.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS HELD AT OPTIONS HELD AT AUGUST 31, 1999 AUGUST 31, 1999(1) ------------------------------ ------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Robert Nederlander 416 2,500 $ -- $ -- Jerome J. Cohen 416 3,750 $ -- $ -- Herbert B. Hirsch 167 2,333 $ -- $ -- Jon A. Joseph 2,667 6,500 $ -- $ -- Charles G. Baltuskonis 1,333 3,667 $ -- $ -- Gregg A. McMurtrie 333 2,167 $ -- $ --
- ------------------- (1) The closing sales price of the Company's Common Stock as reported on the Nasdaq National Market on August 31, 1999 was $4.14. The exercise price as of August 31, 1999 was $6.00 per share, therefore, the value of the unexercised options at August 31, 1999 was zero. On September 9, 1999, the Company consummated a one for six reverse stock split. All shares and per share references have been restated to retroactively show the effect of this reverse stock split. EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with Jerome J. Cohen which expires on January 31, 2002. The agreement provides for an annual base salary of $300,000 plus 2.5% of Incentive Income as defined in the 37 40 Company's Incentive Plan (See "Executive Incentive Compensation Plan"). Mr. Cohen's employment agreement does not provide for an early termination bonus or other additional compensation based on performance. The Company has entered into an employment agreement, renewable annually unless either party gives notice of termination, with Jon A. Joseph which expires on August 31, 2000 and provides for an annual base salary of $200,000, plus .5% of Incentive Income as defined in the Company's Incentive Plan. The Company has entered into a Compensation Agreement with S. Duke Campbell dated August 26, 1999, which provides for an annual base salary of $125,000. In addition, Mr. Campbell is to be paid, monthly, a sales commission of one-quarter of one percent (0.25%) of net sales, occurring after September 1, 1999,and a Profit Contribution Bonus for reducing sales and marketing costs for fiscal 2000. If Mr. Campbell's employment is terminated by the Company, other than for cause, Mr. Campbell shall receive his base salary and sales commissions to the date of termination, the portion of his Profit Contribution Bonus, if any, earned through the immediately preceding quarter, and a severance payment in an amount equal to his then current annual base salary. If Mr. Campbell resigns or terminates his employment by the Company he will be entitled to his base salary and sales commissions through the date of such termination. In addition, after the end of fiscal 2000, a new arrangement relating to profitability to take the place of the Profit Contribution Bonus will be agreed upon and added to the agreement by amendment. If the Company and Mr. Campbell have not agreed to such amendment to this agreement by November 30, 2000, and Mr. Campbell has received or earned, a Profit Contribution Bonus for fiscal 2000, Mr. Campbell may elect to resign or terminate his employment by the Company during the thirty-day period following November 30, 2000 and he then shall be entitled to a severance payment in an amount equal to his then current annual base salary in addition to his base salary and sales commissions through the date of such termination. STOCK OPTION PLAN Under the Company's Stock Option Plan, as originally adopted, 87,500 shares of common stock were reserved for issuance upon exercise of options. In 1997, the Company's Board of Directors approved an amendment to the Stock Option Plan to increase by 83,333 shares the number of shares of common stock reserved for issuance pursuant to the Company's Stock Option Plan, subject to approval by the Company's shareholders. The amendment was approved by the shareholders at the Annual Meeting held September 9, 1997, resulting in an aggregate of 170,833 shares of common stock reserved for issuance pursuant to the Stock Option Plan, of which 76,833 had been issued due to the exercise of options through August 31, 1997. During fiscal 1998, the Company's Board of Directors unanimously approved, subject to approval by the Company's shareholders, the amendment and restatement of the Stock Option Plan. The amendments to the Stock Option Plan (the Plan Amendments) approved by the Company's Board of Directors consist of changes to permit the grant of options to non-employee directors of the Company and changes to conform the Stock Option Plan to changes to the federal securities laws. On September 16, 1998, the shareholders approved the amendment and restatement of the Stock Option Plan. The Stock Option Plan is designed to serve as an incentive for retaining qualified and competent employees and directors. The Stock Option Committee of the Company's Board of Directors administers and interprets the Stock Option Plan and is authorized, in its discretion, to grant options thereunder to all eligible employees of the Company, including officers of the Company. The Stock Option Plan provides for the granting of both "incentive stock options" (as defined in Section 422A of the Internal Revenue Code) and nonstatutory stock options. Options can be granted under the Stock Option Plan on such terms and at such prices as determined by the Board, or a committee thereof, except that the per share exercise price of options may not be less than 80% of the fair market value of the common stock on the date of grant, and, in the case of an incentive stock option, the per share exercise price may not be less than 100% of such fair market value. In the case of incentive stock options granted to a 10% shareholder, the per share exercise price may not be less than 110% of the fair market value of the common stock on the date of grant and shall expire five years from the date of grant. The aggregate fair market value of the shares covered by incentive stock options granted under the Stock Option Plan that become exercisable by a grantee for the first time in any calendar year is subject to a $100,000 limit. Options granted under the Stock Option Plan are exercisable after the period or periods specified in the option agreement. Options granted under the Stock Option Plan are not exercisable after the expiration of ten years from the date of grant (except five years in the case of options granted to 10% shareholders) and are not transferable other than by will or by the laws of descent and distribution. 38 41 In August 1997, in connection with the Spin-off of MMC, the Stock Option Committee accelerated the vesting of all options granted, excluding those granted subsequent to February 26, 1997. As of August 31, 1997, an aggregate of 75,833 of such options were exercised. In September 1997, subsequent to the Spin-off, an additional 58,083 incentive stock options were granted under the Stock Option Plan to employees at fair market value, which was authorized by the Stock Option Committee, of which 2,500 were subject to future shareholder approval of the Plan Amendments in accordance with applicable law, which shareholders' approval was obtained on September 16, 1998, when the Amended and Restated Stock Option Plan was approved by shareholders. On September 23, 1998, an additional 18,500 incentive stock options were granted under the Stock Option Plan. In addition, the exercise price of all options issued September 2, 1997 was revised from $18.75 per share to $6.00 per share. Effective September 9, 1999, the Company consummated a one for six reverse stock split of all of the Company's shares of common stock. All shares and per share references have been restated to retroactively show the effect of this reverse stock split. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors has not designated a Compensation Committee, but has delegated the responsibility and authority for setting and overseeing the administration of policy which governs the compensation of all of the Company's employees (with the exception of Messrs. Nederlander, Cohen, Hirsch and Schuster) to its President, Jerome J. Cohen. The compensation paid to Messrs. Nederlander, Cohen, Hirsch and Schuster and, prior to December 31, 1998, Mr. Mayerson, is determined by the Board of Directors. The directors who are also executive officers of the Company do not participate in deliberations of the Board of Directors of the Company concerning their own compensation. EXECUTIVE INCENTIVE COMPENSATION PLAN On June 22, 1994, the Board of Directors of the Company approved and adopted an Executive Incentive Compensation Plan (Incentive Plan) for executives and other key employees of the Company and its subsidiaries who contribute to the success of the Company. Under the terms of the Incentive Plan, awards of incentive compensation are determined by the Incentive Compensation Committee of the Board of Directors of the Company, which committee shall be composed of not less than two members. The Incentive Plan provides that the Board of Directors may amend, suspend or terminate the Incentive Plan at any time. Incentive Compensation for any fiscal year is defined as an amount equal to 7.5% of incentive income (Incentive Income) for such year. Incentive Income for any fiscal year is defined as the amount reported as income before taxes in the consolidated financial statements of the Company for such year. The maximum amount of all awards of Incentive Compensation for any fiscal year shall not exceed (a) 7.5% of Incentive Income for such year, reduced by (b) the amount of Incentive Income which must be paid by the Company to employees pursuant to any contractual obligation of the Company, increased by (c) any unawarded Incentive Compensation carried forward from a prior fiscal year. On June 22, 1994, the Board of Directors also approved an employment agreement with Jerome J. Cohen, President of the Company, and an agreement with Herbert B. Hirsch, executive officer of the Company, pursuant to which Messrs. Cohen and Hirsch are entitled to receive 2.5% and 1% respectively, of Incentive Income of the Company, as defined in the Incentive Plan, for the five-year period commencing with fiscal 1995 (extended to a seven-year period for Mr. Cohen), which amounts would directly reduce the amounts available for awards under the Incentive Plan. On September 2, 1997, the Board of Directors authorized agreements with Mr. Hirsch and Mr. Mayerson, pursuant to which the Company would pay them a separation payment of $150,000 and $250,000, respectively, at such time as they no longer are employed by the Company. Payments of $10,000 per month to Mr. Mayerson commenced in January 1999 and the remaining balance of $130,000 is due on December 31, 1999. Effective December 1998, Messrs. Nederlander and Schuster no longer receive a salary. SPLIT-DOLLAR INSURANCE PLAN On April 5, 1995, the Board of Directors of the Company established a split-dollar life insurance plan (Split-Dollar Plan) pursuant to which the Company was obligated to pay premiums for certain "second to die" life insurance policies on the lives of Robert Nederlander, Jerome J. Cohen, and Herbert B. Hirsch, executive officers and directors of 39 42 the Company, and their respective spouses, and for Don A. Mayerson, former executive officer of the Company, originally for a period of five years, at an annual aggregate premium outlay of $400,000. Each policy is in the name of a trust established for family beneficiaries selected by each executive. On August 3, 1995, the Company approved a life insurance policy for Mr. Schuster at an annual cost of $100,000 per annum, originally for a period of five years. Pursuant to the plan, and with respect to each policy, at the end of ten years after issuance, or earlier upon the deaths of the respective insured parties, or certain other events, the Company was to receive the amount of premiums paid on the policy. Through December 31, 1998, $300,000 was paid on Mr. Schuster's policy and $400,000 was paid on each of the others, leaving a balance of premiums in the amount of $600,000 still owed by the Company on the policies. Pursuant to an amendment to the original agreement, executed in April 1999, future payments by the Company relating to the policies were waived by Messrs. Nederlander, Cohen, Hirsch, Mayerson and Schuster. In consideration of the waiver, the Company agreed to accept repayment of the lesser of the premiums paid or the cash value of the policy, upon the deaths of the respective insured parties. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of November 15, 1999, information with respect to the beneficial ownership of the Company's common stock by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each director of the Company, (iii) each of the Named Executive Officers (as defined in "Item. 11 Executive Compensation"), and (iv) all directors and executive officers of the Company as a group. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
PERCENTAGE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF OUTSTANDING COMMON BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP(1) STOCK OWNED - ------------------------------------- ------------------------ ------------------ Robert Nederlander(2) 356,140 10.2% Eugene I. Schuster and Growth Realty Inc. 251,171 7.2% (GRI)(3) Jerome J. Cohen(4) 184,826 5.3% Herbert B. Hirsch(5) 271,076 7.7% John E. McConnaughy, Jr.(6) 99,845 2.8% Wilbur L. Ross, Jr.(7) 499 * Jon A. Joseph(8) 3,749 * Charles G. Baltuskonis(9) 1,832 -- Friedman Billings Ramsey Group, Inc. and 546,060 15.6% affiliates(10) All Executive Officers and Directors as a 1,169,138 33.3% Group (8 persons)(11)
- ------------------- * Less than 1%. (1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from November 15, 1999 upon the exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming that options and warrants that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the applicable date have been exercised. (2) 810 Seventh Avenue, 21st Floor, New York, New York 10019. Includes 41,666 shares held by an affiliate of Mr. Nederlander and 1,166 shares issuable under an option granted pursuant to the Company's Stock Option Plan. Does not include 16,666 shares of common stock owned by the Robert E. Nederlander Foundation, an entity organized and operated exclusively for charitable purposes (the Foundation), of which Mr. Nederlander is President. Mr. Nederlander disclaims beneficial ownership of the shares owned by the Foundation. (3) 321 Fisher Building, Detroit, Michigan 48202. Consists of (i) 211,506 shares held of record by GRI, a wholly-owned subsidiary of Venture Funding, Ltd. of which Mr. Schuster is a principal shareholder, Director and Chief Executive Officer, (ii) 39,166 shares held of record by Growth Realty Holdings L.L.C., a limited 40 43 liability corporation owned by Mr. Schuster, GRI and Mr. Schuster's three children, and (iii) 499 shares issuable under an option granted pursuant to the Company's Stock Option Plan. (4) 1125 N. E. 125th Street, Suite 206, North Miami, Florida 33161. Includes 1,666 shares issuable under options granted pursuant to the Company's Stock Option Plan. Excludes 15,583 shares owned by Mr. Cohen's spouse and 83,333 shares owned by a trust for the benefit of his children over which Mr. Cohen does not have any investment or voting power, as to which he disclaims beneficial ownership. Also excludes 5,000 shares of common stock owned by the Rita and Jerome J. Cohen Foundation, Inc., an entity organized and operated exclusively for charitable purposes (the Cohen Foundation), of which Mr. Cohen is President. Mr. Cohen disclaims beneficial ownership of the shares owned by the Cohen Foundation. (5) 230 East Flamingo Road, Las Vegas, Nevada 89109. Includes 666 shares issuable under an option granted pursuant to the Company's Stock Option Plan. (6) 1011 High Ridge Road, Stamford, Connecticut 06905. Includes 833 shares issuable under options granted pursuant to the Company's Stock Option Plan. Excludes 500 shares owned by a member of Mr. McConnaughy's family, as to which Mr. McConnaughy does not have any investment or voting power, and as to which he disclaims beneficial ownership. (7) 1251 Avenue of the Americas, 51st Floor, New York, New York 10020. Consists of 499 shares issuable under an option granted pursuant to the Company's Stock Option Plan. Excludes 2,500 shares owned by a member of Mr. Ross' family and 41,666 shares owned by Rothschild, Inc., of which Mr. Ross is a Managing Director, over which Mr. Ross does not have any investment or voting power, and as to which he disclaims beneficial ownership. (8) 4310 Paradise Road, Las Vegas, Nevada 89109. Includes 3,666 shares issuable under options granted pursuant to the Company's Stock Option Plan. (9) 4310 Paradise Road, Las Vegas, Nevada 89109. Consists of shares issuable under options granted pursuant to the Company's Stock Option Plan. (10) 1001 19th Street North, Arlington, VA. 22209. Based upon a Schedule 13G dated July 13, 1998, as amended on February 16, 1999, filed jointly by Friedman Billings Ramsey Group, Inc., Friedman Billings Ramsey Group, Inc. Voting Trust, Eric F. Billings, Emanuel J. Friedman and W. Russell Ramsey with the SEC. Consists of 536,060 shares owned by Friedman Billings Ramsey Group, Inc. and 10,000 shares owned personally by Emanuel J. Friedman. The Company has been advised that Emanuel J. Friedman, Eric F. Billings and W. Russell Ramsey are each control persons with respect to Friedman Billings Ramsey Group, Inc. and are the sole voting trustees of the Friedman Billings Ramsey Group, Inc. Voting Trust, which has sole discretion to vote approximately 89.1% of the voting power of Friedman Billings Ramsey Group, Inc. (11) See Notes (2)-(9). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Purchase of Preferred Equities Corporation. Pursuant to a Stock Purchase and Redemption Agreement dated October 6, 1987 and amended October 25, 1987, Comay Corp., an affiliate of Mr. Cohen (Comay), GRI, an affiliate of Mr. Schuster, RRE Corp., an affiliate of Mr. Nederlander (together with its assignee, RER Corp., another affiliate of Mr. Nederlander, RER), and H&H Financial Inc., an affiliate of Mr. Hirsch (H&H), obtained the rights (PEC Purchase Rights) to acquire PEC, a privately-held Nevada corporation engaged in retail land sales, resort time-sharing and other real estate related activities. (Comay, GRI, RER and H&H are collectively referred to as the Assignors). Certain Arrangements Between the Company and Affiliates of Certain Officers and Directors. Pursuant to the Assignment and Assumption Agreement, dated February 1, 1988 as subsequently amended, the Assignors assigned (Assignment) their PEC Purchase Rights to the Company. As part of the consideration for the Assignment to the Company, the Assignors were entitled to receive from the Company, on a quarterly basis until January 31, 1995, amounts equal in the aggregate to 63% of the "Unrestricted Cash Balances" of PEC. The Assignment and Assumption Agreement defines Unrestricted Cash Balances of PEC as the cash on hand and on deposit of PEC and its subsidiary as of the end of a fiscal quarter that could be used to make a dividend or other payment to the Company without violating the most restrictive loan agreement to which PEC is a party or by which PEC is bound. 41 44 At January 31, 1995, when accrual of payments to assignors ceased, $13.3 million was payable to the Assignors. On March 2, 1995, the Assignors agreed to defer payment of $10 million of the amounts due to them pursuant to an amendment to the Assignment and Assumption Agreement providing for the subordination of such amounts to payment of debt for money borrowed by the Company or obligations of the Company's subsidiaries guaranteed by the Company (Subordinated Debt). Warrants (Warrants) to purchase 166,666 shares of common stock, at an exercise price of $25.50 per share (the closing market price per share on March 2, 1995), were granted to the Assignors in consideration of the payment deferral and subordination. The balance of $3.3 million was paid to the assignors as follows: $809,000 including interest of $59,000 in June 1995, and the balance of $2.6 million including interest of $45,000 in January 1997. The Warrants were exercised in August 1997 in a non-cash transaction, whereby the Subordinated Debt was reduced by $4.25 million. Interest on the Subordinated Debt was to be paid semiannually at the rate of 10% per year starting September 1, 1995, and the Subordinated Debt was to be repaid in semiannual principal payments commencing March 1, 1997. On March 1, 1997, the Assignors received the first semiannual principal payment of $1.4 million plus interest related to the repayment of the Subordinated Debt. In connection with exercise of the Warrants, payments aggregating $4.25 million were deemed paid and the semiannual payments were scheduled to resume in March 1999, with a partial payment made in September 1998. In accordance with the Seventh Amendment to Assignment and Assumption Agreement, the scheduled March 1, 1999 and September 1, 1999 principal payments aggregating $2.9 million were deferred until February 1, 2000. Interest of $430,000 on Subordinated Debt was paid during fiscal 1999. The Subordinated Debt is collateralized by a pledge of PEC's outstanding stock. See "Item 13. In April 1995, PEC entered into an arrangement with Ramada, a subsidiary of Cendant Corporation, of which Mr. Nederlander became a director in July 1995. See "Business-Preferred Equities Corporation-Timeshare Properties and Sales." Transactions with MMC. The Company formed MMC in June 1992 as a wholly-owned subsidiary and operated MMC as such until November 1996. MMC is a specialized consumer finance company that originates, purchases, sells, securitizes and services consumer loans consisting primarily of conventional uninsured home improvement and debt consolidation loans which are generally secured by liens on residential property. In November 1996, MMC consummated an initial public offering and as a result, the Company's ownership of MMC was reduced to approximately 81.3% of the outstanding common stock. On September 2, 1997, Mego Financial distributed all of its 10 million shares of MMC's common stock to Mego Financial's shareholders in the Spin-off. To fund MMC's past operations and growth and in conjunction with filing consolidated income tax returns, MMC incurred debt to the Company and its subsidiary, PEC. The amount of intercompany debt was $10.1 million at August 31, 1997 of which $3.4 million was paid in October 1997 together with $500,000 advanced by the Company to MMC in September 1997. Subsequently, separate agreements were made in April and June 1998 to adjust by reductions the remaining $6.2 million indebtedness, since the major portion was no longer payable under the Tax Sharing and Indemnity Agreement between the Company and MMC. Under these agreements, MMC paid $1.6 million, which was separately owed to PEC. Following this transaction, MMC had no outstanding indebtedness to the Company. See Note 4 to Notes to Consolidated Financial Statements. Management Services Provided by PEC to MMC. MMC and PEC were parties to a management services arrangement (the Management Arrangement) pursuant to which certain executive, accounting, legal, management information, data processing, human resources, advertising and promotional personnel of PEC provided services to MMC on an as needed basis. For the years ended August 31, 1998 and 1997, approximately $616,000 and $967,000, respectively, of the salaries and expenses of certain employees of PEC were attributable to and paid by MMC in connection with services rendered by such employees to MMC. This agreement was terminated by agreement during fiscal 1998. Servicing Agreement between PEC and MMC. For the years ended August 31, 1998 and, 1997 MMC paid servicing fees to PEC of approximately $2 million and $1.8 million, respectively. MMC entered into a servicing agreement with PEC (the Servicing Agreement), providing for the payment of servicing fees at an annual rate of 50 basis points on the principal balance of loans serviced per year. The Servicing Agreement was modified effective September 1, 1997, to provide for the payment of servicing fees at an annual rate of 40 basis points on the principal balance of loans serviced per year, reduced to 35 basis points per year in January 1998. For the years ended 42 45 August 31, 1998 and 1997, MMC incurred interest expense in the amount of $29,000 and $16,000 respectively, related to fees payable to PEC for these services. The interest rates were based on PEC's average cost of funds and equaled 10.46% in 1998 and 10.48% in 1997. As of August 31, 1998, PEC no longer serviced loans for MMC. 43 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) Certain documents filed as part of Form 10-K. See Item 8 above for a list of financial statements included as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K. The Company did not file any current report on Form 8-K during the quarter ended August 31, 1999. (c) Exhibits.
EXHIBIT NUMBER DESCRIPTION -------- ----------- 2.1(1) Disclosure Statement dated October 3, 1983, together with Schedules A through G and Debtors' Plan, filed as Exhibit (2) to Mego International (a predecessor of the Company) Form 10-K for the year ended February 28, 1983, and incorporated herein by reference. 2.2(8) Articles of Merger of Vacation Spa Resorts, Inc. with and into Preferred Equities Corporation dated March 10, 1993, Agreement and Plan of Merger dated as of July 24, 1992, among Preferred Equities Corporation and Vacation Spa Resorts, Inc., Amendment to Agreement and Plan of Merger dated July 14, 1992, and Amendment to Agreement and Plan of Merger dated December 7, 1992. 3.1(a)(1) Certificate of Incorporation of the Company, as amended, filed as Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended August 31, 1987 and incorporated herein by reference. 3.1(b)(5) Certificate of Amendment of the Certificate of Incorporation of the Company, dated June 19, 1992. 3.1(c)(8) Certificate of Amendment of the Certificate of Incorporation of the Company, dated August 26, 1993. 3.2(1) By-laws of the Company, as amended. 10.4(a)(1) Stock Purchase Agreement dated October 25, 1987 by and among the Company, and Robert Nederlander, Jerome J. Cohen, Don A. Mayerson, Herbert Hirsch and Growth Realty Inc. (GRI) (collectively, the Purchasers) filed as Exhibit A to a Schedule 13D dated October 25, 1987, filed by Jerome J. Cohen, et al., and incorporated herein by reference. 10.4(b)(1) Letter dated January 7, 1988 from the Purchasers of the Company, updating representations made by the Company, in the Stock Purchase Agreement (Exhibit 10.5(a)) filed as Exhibit 10.2 to a Current Report on Form 8-K of the Company, dated January 7, 1988, and incorporated herein by reference. 10.5(a)(1) Assignment Agreement dated October 25, 1987 by and among Comay Corp. (Comay), GRI, RER Corp. (RER) (as successor in interest to RRE Corp.) and H&H Financial, Inc. (H&H) (collectively the Assignors) and the Company, with respect to shares of Common Stock of Preferred Equities Corporation (PEC), filed as Exhibit B to a Schedule 13D dated October 25, 1987 filed by Jerome J. Cohen, et al., and incorporated herein by reference. 10.5(b)(1) Assignment and Assumption Agreement dated February 1, 1988 by and among the Assignors and the Company filed as Exhibit 10.2 to a Current Report of Form 8-K of the Company, dated February 1, 1988 and incorporated herein by reference. 10.5(c)(1) Amendment to Exhibit 10.6(b) dated as of July 29, 1988 filed as Exhibit 10.3 to a Current Report on Form 8-K of the Company, dated August 1, 1988 and incorporated herein by reference. 10.6(a)(1) Stock Purchase and Redemption Agreement dated as of October 6, 1987 by and among PEC, Comay, GRI, RRE Corp., H&H, Linda Sterling and the 1971 Rosen Family Stock Trust filed as Exhibit C to a Schedule 13D dated October 25, 1987 filed by Jerome J. Cohen, et al., and incorporated herein by reference. 10.6(b)(1) Amendment dated as of October 25, 1987 of Exhibit 10.7(a) filed as Exhibit 10.3(b) to a Current Report on Form 8-K of the Company dated February 1, 1988, and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.7(1) Loan and Security Agreement dated February 1, 1988 by and between the Company and Greyhound Real Estate Finance Company filed as Exhibit 10.7 to a Current Report on Form 8-K of the Company dated February 1, 1988 and incorporated herein by reference. 10.8(1) Pledge and Security Agreement dated February 1, 1988 by and among the Company and Comay, GRI, REF, H&H and PEC regarding the pledge of PEC stock pursuant to the Assignment Agreement and the Assignment and Assumption Agreement (Exhibits 10.6(a) and (b)) filed as Exhibit 10.8 to the Form 8 Amendment dated April 18, 1988 to a Current Report on Form 8-K of the Company dated February 1, 1988 and incorporated herein by reference. 10.9(1) Purchase Agreement dated June 30, 1988 by and among Preferred Equities Corporation (PEC), Southern Colorado Properties, Inc., Colorado Land and Grazing Company and The Oxford Finance Companies, Inc. filed as Exhibit 10.1 to a Quarterly Report of the Company on Form 10-Q for the quarter ended May 31, 1988 and incorporated herein by reference. 10.10(2) Amendment to Exhibit 10.5(b), dated July 29, 1988. 10.11(3) Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Vacation Spa Resorts, Inc., dated May 10, 1989 and Amended and Restated Promissory Note and Guarantee and Subordination Agreement. 10.12(3) Amendment No. 2 to Loan and Security Agreement between Greyhound Real Estate Finance Company and Vacation Spa Resorts, Inc., dated April 16, 1990 and Amendment No. 2 to Promissory Note and Guarantee and Subordination Agreement. 10.13(3) Purchase Agreement dated 24th day of September, 1990 by and among Brigantine Inn, Ltd., Brigantine Preferred Properties, Inc. and Preferred Equities Corporation. 10.14(3) Purchase Agreement dated 24th day of September, 1990 by and among Brigantine Villas, L.P., Brigantine Preferred Properties, Inc., and Preferred Equities Corporation. 10.15(4) Amendment No. 3 to Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated May 31, 1991 and Amendment No. 2 to Promissory Note. 10.16(4) Amendment No. 3 to Loan and Security Agreement between Greyhound Real Estate Finance Company and Vacation Spa Resorts, Inc., dated May 31, 1991 and Amendment No. 2 to Promissory Note. 10.17(4) Loan and Security Agreement between Dorfinco Corporation and Preferred Equities Corporation, dated July 31, 1991 and related Promissory Note dated August 9, 1991. 10.18(4) Forbearance and Assumption Agreement, Guarantee and Second Amendment to Loan and Security Agreement between Chemical Bank of New Jersey, Brigantine Villas, L.P. and Brigantine Preferred Properties, Inc., dated June 12, 1991, Amended and Restated Promissory Note dated June 18, 1991, and Second Amendment to Mortgage dated June 18, 1991. 10.19(5) Stock Purchase Agreement dated August 13, 1992 between the Company and PEC. 10.20(5) Amendment No. 4 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated January 13, 1992, and Amendment No. 3 to Amended and Restated Promissory Note. 10.21(5) Agreement to Wholesale Financing and related Promissory Note between ITT Commercial Finance Corp. and Calvada Homes, Inc., dated January 17, 1992. 10.22(5) Purchase and Sale Agreement between Golden West Homes and Calvada Homes, Inc., dated February 26, 1992. 10.23(5) Standard Form of Agreement between Owner and Contractor between Calvada Homes, Inc. and Emfad Enterprises, Inc., dated March 23, 1992. 10.24(5) Loan Modification and Extension Agreement between Valley Bank of Nevada and Preferred Equities Corporation dated January 30, 1992. 10.25(5) Amendment No. 2 to Amended and Restated Loan Agreement between Valley Bank of Nevada and Vacation Spa Resorts, Inc., dated February 20, 1992, and related Promissory Note dated February 20, 1992. 10.26(6) Purchase and Servicing Agreement dated as of October 15, 1992 among Vacation Spa Resorts, Inc. and Preferred Equities Corporation as Sellers, Preferred Equities Corporation as Servicer, and NBD Bank, N.A. as Purchaser.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.27(6) Guaranty Agreement as of October 15, 1992 made by Vacation Spa Resorts, Inc., Preferred Equities Corporation, and the Company in favor of NBD Bank, N.A. 10.28(6) Letter from Greyhound Financial Corporation dated December 4, 1992 extending the borrowing term of the Amended and Restated Loan and Security Agreement dated May 10, 1992, between Greyhound Real Estate Finance Company and Preferred Equities Corporation and Loan and Security Agreement dated March 30, 1989, between Greyhound Real Estate Finance Company and Vacation Spa Resorts, Inc., to December 31, 1992. 10.29(7) Asset Sale Agreement dated December 22, 1992, by and between Brigantine Preferred Properties, Inc. as Seller, and The Oxford Finance Companies as Buyer. 10.30(7) Amendment No. 5 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated February 23, 1993, Amendment No. 4 to Loan and Security Agreement between Greyhound Real Estate Finance Company and Vacation Spa Resorts, Inc., dated February 23, 1993. 10.31(7) First Amendment to Stock Purchase Agreement dated March 10, 1993, by and between the Company and Preferred Equities Corporation. 10.32.(7) Amendment No. 6 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated June 28, 1993, and three(3) related Promissory Notes, relating to the Grand Flamingo Winnick, Grand Flamingo Fountains, and Preferred Equities Corporation corporate offices. 10.33(7) Second Amendment to Loan and Security Agreement dated June 30, 1993, between Dorfinco Corp. and Preferred Equities Corporation, and First Amendment to Promissory Note. 10.34(7) Agreement for Sale of Notes Receivable arising from Timeshares sales dated August 3, 1993, by and between Brigantine Properties, Inc. as Seller, and The Oxford Finance Companies as Buyer. 10.35(7) Purchase and Sale Agreement dated August 30, 1993, between Preferred Equities Corporation as Developer, and Marine Midland Bank, N.A., and Wellington Financial Corp. 10.36(7) Purchase Agreement dated August 31, 1993, between Mego Financial Corp. as Seller, and Legg Mason Special Investment Trust as Buyer, for the purchase of 300,000 shares of the Company's Preferred Stock. 10.37(8) Amended and Restated Loan Agreement between Bank of America Nevada and Preferred Equities Corporation, dated September 10, 1993. 10.38(8) Agreement for Line of Credit and Commercial Promissory Note between Mego Mortgage Corporation and First National Bank of Boston, dated January 4, 1994. 10.39(8) Amendment No. 7 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated January 24, 1994. 10.42(8) Amendment No. 8 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated April 15, 1994. 10.43(8) Purchase and Servicing Agreement dated as of June 1, 1994, between Preferred Equities Corporation as Seller and Servicer, and NBD Bank, N.A. as Purchaser. 10.44(8) Purchase and Servicing Agreement dated as of July 6, 1994, between Preferred Equities Corporation as Seller, and First National Bank of Boston as Purchaser. 10.45(8) Amendment No. 9 to Amended and Restated Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation, dated August 31, 1994, and Amendment No. 4 to Amended and Restated Promissory Note dated August 31, 1994, Amendment No. 6 to Loan and Security Agreement between Greyhound Real Estate Finance Company and Preferred Equities Corporation dated August 31, 1994, and Amendment No. 4 to Promissory Note dated August 31, 1994, between Preferred Equities Corporation as successor-in-interest to Vacation Spa Resorts, Inc., and Greyhound Financial Corporation. 10.47(9) Third Amendment to Loan and Security Agreement and Assumption Agreement dated August 23, 1994, by and between Preferred Equities Corporation, Colorado Land and Grazing Corp. and Dorfinco Corporation. 10.48(9) General Loan and Security Agreement dated October 5, 1994, between Steamboat Suites, Inc. and Textron Financial Corporation. 10.49(9) Purchase and Servicing Agreement, Second Closing, dated November 29, 1994, between Preferred Equities Corporation and NBD Bank, N.A.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.50(9) Form of Agreement with respect to the Company's "Split-Dollar" Life Insurance Plan, including Form of Assignment of Limited Interest in Life Insurance as Collateral Security. 10.51(9) Construction Loan Agreement dated January 20, 1995, by and between Preferred Equities Corporation and NBD Bank. 10.52(9) Amendment No. 10 to Amended and Restated Loan and Security Agreement dated January 26, 1995, by and between Greyhound Financial Corporation and Preferred Equities Corporation. 10.53(9) Loan Agreement re: Calvada Golf Course dated January 31, 1995, by and among The First National Bank of Boston and Preferred Equities Corporation. 10.54(9) Second Amendment to Assignment and Assumption Agreement dated March 2, 1995, by and between RER Corp., Comay Corp., Growth Realty, Inc. and H&H Financial, Inc. and Mego Financial Corp. 10.55(9) First Amendment to General Loan and Security Agreement dated February 27, 1995, between Steamboat Suites, Inc. and Textron Financial Corporation. 10.56(9) Master Loan Purchase and Servicing Agreement dated April 1, 1995, by and between Greenwich Capital Financial Products, Inc. and Mego Mortgage Corporation. 10.57(9) Licensing Agreement dated April 18, 1995, by and among Hospitality Franchise Systems, Inc., Ramada Franchise Systems, Inc. and Preferred Equities Corporation. 10.58(9) Purchase and Servicing Agreement, Third Closing, dated May 24, 1995, between NBD Bank, N.A. and Preferred Equities Corporation. 10.60(9) Purchase and Servicing Agreement, dated as of August 31, 1995, between Preferred Equities Corporation, Colorado Land and Grazing Corp. and First National Bank of Boston. 10.63(10) Form of Tax Allocation and Indemnity Agreement entered into between Mego Mortgage Corporation and the Company. 10.64(10) Loan Program Sub-Servicing Agreement between Mego Mortgage Corporation and Preferred Equities Corporation dated as of September 1, 1996. 10.74(10) Office Lease by and between MassMutual and Mego Mortgage Corporation dated April 1996. 10.77(10) Services and Consulting Agreement between Mego Mortgage Corporation and Preferred Equities Corporation dated as of September 1, 1996. 10.83(10) Form of Agreement entered into between Mego Mortgage Corporation and Mego Financial Corp. 10.85(12) Amendment No. 11 to Amended and Restated Loan and Security Agreement dated September 22, 1995, by and between Finova Capital Corporation and Preferred Equities Corporation and related Promissory Note relating to Aloha Bay Phase II. 10.86(12) Amendment No. 12 to Amended and Restated Loan and Security Agreement dated September 29, 1995, by and between Finova Capital Corporation and Preferred Equities Corporation and Amended and Restated Promissory Note relating to Corporate Office Building. 10.87(12) Fourth Amendment to Loan and Security Agreement and Assumption Agreement dated September 30, 1995, by and between Preferred Equities Corporation, Colorado Land and Grazing Corp., Mego Financial Corp. and Dorfinco Corporation. 10.88(12) Request for Receivables Purchase dated November 16, 1995, by and between Preferred Equities Corporation as Seller and NBD Bank as Purchaser. 10.89(12) Second Amendment to General Loan and Security Agreement dated November 30, 1995, by and between Steamboat Suites, Inc. and Textron Financial Corporation and Restated and Amended Receivables Promissory Note. 10.90(12) Amendment No. 13 to Amended and Restated Loan and Security Agreement dated December 13, 1995, by and between Finova Capital Corporation and Preferred Equities Corporation and three (3) related Promissory Notes, relating to the Grand Flamingo Towers Lobby, Ida and Winnick Building Additions. 10.91(12) Purchase and Sale Agreement dated December 29, 1995, by and between Overlook Lodge Limited Liability Company as Seller and Preferred Equities Corporation as Purchaser. 10.92(12) Second Amendment to Purchase and Sale Agreement dated February 8, 1996, as previously amended by an Amendment to Purchase and Sale Agreement dated May 10, 1994, between Preferred Equities Corporation, Marine Midland Bank, and Wellington Financial Corp.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.93(12) Acquisition and Construction Loan Agreement dated March 27, 1996, by and between Heller Financial, Inc. and Preferred Equities Corporation and three (3) related Promissory Notes; Acquisition Promissory Note, Revolving Renovation Promissory Note, and Receivables Promissory Note. 10.94(12) Construction Loan Agreement dated April 30, 1996, by and between Preferred Equities Corporation and NBD Bank and related Promissory Note. 10.95(12) Amendment No. 14 to Amended and Restated Loan and Security Agreement dated June 5, 1996, by and between Finova Capital Corporation and Preferred Equities Corporation and Second Amended and Restated Promissory Note, relating to Headquarters and FCFC Property. 10.96(12) Amendment No. 15 to Amended and Restated Loan and Security Agreement dated August 16, 1996, by and between Finova Capital Corporation and Preferred Equities Corporation; Amendment No. 7 to Loan and Security Agreement; Amendment No. 5 to Amended and Restated Promissory Note; Amendment No. 5 to Promissory Note; Amendment No. 1 to Promissory Note [Towers Lobby]. 10.97(12) Request for Receivables Purchase dated July 30, 1996, by and between Preferred Equities Corporation as Seller and NBD Bank as Purchaser. 10.98(12) Preferred Stock redemption agreement by and between Mego Financial Corp. and Legg Mason Special Investment Trust, Inc. 10.99(12) Amendment to Common Stock Purchase Warrant issued by Mego Financial Corp. to Legg Mason Special Investment Trust, Inc. 10.100(14) Third Amendment to General Loan and Security Agreement dated November 29, 1996 between Steamboat Suites, Inc. as Debtor and Textron Financial Corporation as Lender and the related Restated and Amended Receivables Promissory Note dated November 30, 1996 effective October 6, 1994. 10.101(14) Fifth Amendment to Loan and Security Agreement dated November 29, 1996 by and among Preferred Equities Corporation and Colorado Land and Grazing Corp. as Borrower; Mego Financial Corp. as Guarantor; and Dorfinco Corporation as Lender and the related Fourth Amendment to Promissory Note dated November 29, 1996. 10.102(14) Acquisition and Renovation Loan Agreement dated August 6, 1996 between Heller Financial, Inc. as Lender and Preferred Equities Corporation as Borrower; and Interval Receivables Loan and Security Agreement dated August 6, 1996 by and among Heller Financial, Inc. as Lender and Preferred Equities Corporation as Borrower and Mego Financial Corp. as Guarantor, and the three related Promissory Notes. 10.103(15) Subdivision Improvement Agreement dated March 7, 1995 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.104(15) Subdivision Improvement Agreement dated February 20, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.105(15) Subdivision Improvement Agreement dated February 20, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.106(15) Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.107(15) Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.108(15) Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.109(15) Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.110(15) Subdivision Improvement Agreement dated December 17, 1996 between Preferred Equities Corporation and the Board of County Commissioners of the County of Nye, State of Nevada 10.112(15) Employment Agreement between Mego Financial Corp. and Irving J. Steinberg dated August 1, 1996. 10.113(16) Employment Agreement between Jerome J. Cohen and Mego Financial Corp. dated September 1, 1996.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.114(16) Purchase and Servicing Agreement between Preferred Equities Corporation as Seller and BankBoston, N.A. as Purchaser dated May 30, 1997. 10.115(16) Second Amended and Restated and Consolidated Loan and Security Agreement between Preferred Equities Corporation as Borrower and FINOVA Capital Corporation as lender, dated May 15, 1997. 10.116(16) Form of Owners Association Agreement between Resort Condominiums International, Inc. and Homeowners Associations with schedule listing the associations. 10.127(13) Agreement between Mego Financial Corp. and Mego Mortgage Corporation dated August 29, 1997. 10.128(17) Sub-Servicing Agreement dated September 1, 1996, as amended September 2, 1997, between Mego Financial Corp., Mego Mortgage Corporation and Preferred Equities Corporation. 10.129(17) Third Amendment to Assignment and Assumption Agreement by and between RER Corp., Comay Corp., Growth Realty, Inc. and H&H Financial, Inc. and Mego Financial Corp. dated August 20, 1997. 10.130(17) Loan and Security Agreement between Litchfield Financial Corporation and Preferred Equities Corporation dated July 30, 1997. 10.132(17) Employment Agreement between Jon A. Joseph and Mego Financial Corp. dated August 31, 1997. 10.133(17) Agreement between the Company and Herbert B. Hirsch dated September 2, 1997 relating to a severance payment. 10.134(17) Agreement between the Company and Don A. Mayerson dated September 2, 1997 relating to a severance payment. 10.135(17) Amendment to Services and Consulting Agreement between Mego Mortgage Corporation and Preferred Equities Corporation dated January 20, 1998. 10.136(17) Amendment to Loan Program Sub-Servicing Agreement between Mego Mortgage Corporation and Preferred Equities Corporation dated January 20, 1998. 10.137(17) Agreement between Mego Mortgage Corporation and Preferred Equities Corporation, dated February 9, 1998, regarding assignment of rights related to the Loan Program Sub-Servicing Agreement to Greenwich Capital Markets, Inc. 10.138(17) Mortgage Loan Facility Agreement between FINOVA Capital Corporation and Preferred Equities Corporation dated February 18, 1998. 10.139(18) Termination of Services and Consulting Agreement between Mego Mortgage Corporation and Preferred Equities Corporation, dated April 22, 1998. 10.140(18) Settlement letter from Mego Financial Corp. to Mego Mortgage Corporation dated June 26, 1998. 10.141(18) Settlement letter from Preferred Equities Corporation to Mego Mortgage Corporation dated June 26, 1998. 10.142(23) Amended and Restated Real Estate Purchase and Sales Agreement by and among Preferred Equities as borrower and Mercantile Equities Corporation and Hartsel Springs Ranch of Colorado, Inc., as Noteholder dated as of November 25, 1997. 10.143(23) Letter Amendment to General Loan and Security Agreement dated December 1, 1997, between Steamboat Suites, Inc. and Textron Financial Corporation. 10.144(23) Mortgage Loan Facility Agreement between FINOVA Capital Corporation and Preferred Equities Corporation dated March 20, 1998. 10.145(23) Loan and Security Agreement dated August 12, 1998 between Preferred Equities Corporation as Borrower and Dorfinco Corporation as Lender and the related Promissory Note. 10.146(23) Post-72 Lots Purchase Money Promissory Note by and among Preferred Equities and Mercantile Equities Corporation and Hartsel Springs Ranch of Colorado, Inc. dated as of February 20, 1998. 10.147(23) Purchase Money Promissory Note by and among Preferred Equities as borrower and Mercantile Equities Corporation and Hartsel Springs Ranch of Colorado, Inc., as Noteholder dated as of February 20, 1998. 10.148(23) Compensation Agreement between Frederick H. Conte and Preferred Equities Corporation dated September 1, 1998.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.149(23) Form of Indemnification Agreement, each dated as of September 23, 1998 between the Company and each of Robert Nederlander, Jerome J. Cohen, Eugene I. Schuster, Herbert B. Hirsch, John E. McConnaughy, Jr., Wilbur L. Ross, Jr. and Don A. Mayerson. 10.150(20) Amended and Restated and Consolidated Loan and Security Agreement between Finova and PEC & Mego Financial dated December 23, 1998 10.151(20) Common Stock Purchase Warrant issued by Mego Financial to Finova Capital Corporation dated December 23, 1998. 10.152(21) First Amended and Restated and Consolidated Promissory Note dated as of November 5, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to Aloha Bay Phase I. 10.153(21) Third Amended and Restated Promissory Note dated as of September 29, 1998 by and between FINOVA Capital Corporation and Preferred Equities Corporation relating to the Headquarters and FCFC Property. 10.154(21) Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated as of November 6, 1998 between Finova Capital Corporation and Preferred Equities Corporation. 10.155(21) Amendment No. 4 to Second Amended and Restated and Consolidated Loan and Security Agreement dated as of November 6, 1998 between Greyhound Real Estate Finance Company and Preferred Equities Corporation. 10.156(21) Amended and Restated Guarantee and Subordination Agreement dated as of September 29, 1998 between Greyhound Real Estate Finance Company and Mego Financial Corporation relating to the Headquarters Re-advance. 10.157(21) First Amended and Restated Promissory Note dated as of November 6, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to the IDA Building Addition. 10.158(21) Letter Agreement dated as of September 29, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to the Headquarters Re-advance. 10.159(21) Additional Advance Note dated as of November 6, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation relating to Aloha Bay Phase II. 10.160(21) Request for Advance and Disbursement Instructions dated as of November 11, 1998 between FINOVA Capital Corporation and Preferred Equities Corporation. 10.161(21) First Amended and Restated Promissory Note dated as of November 6, 1998 between FINOVA Capital Corp. and Preferred Equities Corporation relating to the Winnick Building Addition. 10.162(21) Fourth Amendment to Assignment and Assumption Agreement dated as of February 26, 1999 by and between RER Corp, COMAY Corp., Growth Realty Inc. and H & H Financial, Inc. and Mego Financial Corporation. 10.163(21) Amended and Restated Stock Option Plan dated September 16, 1998 for Mego Financial Corp. 10.164(22) 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(22) 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(22) Sales Agreement dated as of March 10, 1999 between D&D Marketing, Inc. and Preferred Equities Corp and Brigantine Preferred Properties. 10.167(22) Forbearance and Modification Agreement dated as of May 7, 1999 by and between Preferred Equities Corporation and Heller Financial, Inc. 10.168(22) Management Agreement dated May 20, 1999 by and between Hotel Maison Pierre Lafitte, LTD. Owners Association, Inc. and Preferred Equities Corporation. 10.169(22) 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(22) Amendment No. 2 to Severance Agreement, and Consulting Agreement dated June 18, 1999 between Don A. Mayerson and Mego Financial Corp.
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EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.171(22) 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. 10.172 Sixth 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. 10.173 Forbearance Agreement dated August 6, 1999 among Preferred Equities, and Mego Financial Corporation and Litchfield Financial Corporation. 10.174 Purchase and Sale Agreement between The Villas at Monterey Limited Partnership and Tango Bay of Orlando and Preferred Equities Corporation regarding Ramada Suites at Tango Bay Orlando. 10.175 Extension dated September 7, 1999 to the Second Amendment to Forbearance Agreement and Amendment No. 7 to Second Amended and Restated Consolidated Loan and Security Agreement dated December 23, 1998 between Preferred Equities Corporation and Finova Capital Corporation. 10.176 Purchase and Security Agreement dated June 11, 1999 between Preferred Equities Corporation and Preferred RV Resort Owners Association regarding the Preferred RV Resort. 10.177 Forbearance Agreement and Amendment No. 5 to Second Amended and Restated and Consolidated Loan and Security Agreement dated December 23, 1998 between Finova Capital Corporation and Preferred Equities Corp. 10.178 Letter Agreement dated February 8, 1999 between Preferred Equities Corporation and Finova Capital Corporation regarding additional agreements to the Forbearance Agreement and Amendment No. 5 to Second Amended and Restated Consolidated Loan and Security Agreement dated December 23, 1998. 10.179 Amendment No. 3 to Severance Agreement and Consulting Agreement between Mego Financial Corp. and Don A. Mayerson dated September 28, 1999. 10.180 Compensation Agreement between S. Duke Campbell and Preferred Equities Corporation dated July 27, 1998. 10.181 Amendment dated October 15, 1999 to the General Loan and Security Agreement Inventory Advance between Preferred Equities Corporation and Textron Financial Corporation dated October 5, 1994. 10.182 Amendment dated April 26, 1999 to the Agreement made January 1, 1995 between Mego Financial Corp. and Herbert A. Krasow, as Trustee of the Herbert B. Hirsch Property Trust Insurance Trust dated October 22, 1990 regarding the Agreement concerning "Split-Dollar" Life Insurance Plan. 10.183 Amended Assignment of Limited Interest in Life Insurance as Collateral Security dated April 26, 1999 to an Assignment made as of January 1, 1995 by Herbert A. Krasow, as Trustee of the Herbert B. Hirsch Property Trust Insurance Trust, dated October 22, 1990 to Mego Financial Corp. 10.184 Amended Agreement Concerning "Split-Dollar" Life Insurance Plan dated April 26, 1999 to the Agreement made January 1, 1995, between Mego Financial Corp., Lawrence J. Cohen and Clifford A. Schulman as Trustees of the Cohen 1994 Insurance Trust dated December 2, 1994, Jerome J. Cohen and Rita Cohen. 10.185 Amended Assignment of Limited Interest in Life Insurance as Collateral Security dated April 26, 1999 to an Assignment made as of January 1, 1995, by Lawrence J. Cohen and Clifford A. Schulman, as Trustees of the Cohen 1994 Insurance Trust dated December 21, 1994 to Mego Financial Corp. 10.186 Amended Agreement Concerning "Split-Dollar" Life Insurance Plan dated April 23, 1999 to the Agreement made as of June 1, 1995 between Mego Financial Corp, Joseph A. Schuster, as Trustee of the Eugene I. Schuster Irrevocable Trust - dated May 30 1995, and Eugene I. Schuster. 10.187 Amended Assignment of Limited Interest in Life Insurance as Collateral Security dated April 23, 1999 to an Assignment made as of June 1, 1995, by Joseph A. Schuster, as Trustee of the Eugene I. Schuster Irrevocable Trust - Mego, dated May 30, 1995 to Mego Financial Corp. 10.188 Amended Agreement Concerning "Split-Dollar" Life Insurance Plan dated April 26, 1999 to the Agreement made January 1, 1995 between Mego Financial Corp., Tracy Allen, and Jane Gerard, as Trustees of the Nederlander 1994 Insurance Trust, dated December 19, 1994, Robert E. Nederlander and Gladys Nederlander.
51 54
EXHIBIT NUMBER DESCRIPTION -------- ----------- 10.189 Amended Assignment of Limited Interest in Life Insurance as Collateral Security Amendment made April 26, 1999 to as Assignment made January 1, 1995 by Tracy Allen and Jane Gerard, as Trustees of the Nederlander 1994 Insurance Trust, dated December 19, 1994 to Mego Financial Corp. 10.190 Amended Agreement Concerning "Split-Dollar" Life Insurance Plan Amendment made as of April 26, 1999 to the Agreement made as of January 1, 1995, between Mego Financial Corp., Gary Steven Mayerson and Robert Keith Mayerson, as Trustees of the Mayerson 1994 Insurance Trust, dated December 21, 1994, Don A. Mayerson and Evelyn W. Mayerson. 10.191 Amended Assignment of Limited Interest in Life Insurance as Collateral Security Amendment made April 26, 1999 to an Assignment made January 1, 1995, by Gary Steven Mayerson and Robert Keith Mayerson, as Trustees of the Mayerson 1994 Insurance Trust, dated December 21, 1994 to Mego Financial Corp. 10.192 Seventh Amendment to Assignment and Assumption Agreement by and between RER Corp., Comay Corp., Growth Realty Inc. and H&H Financial, Inc. and Mego Financial Corp. dated November 20, 1999. 21.1(19) List of subsidiaries. 27.1 Financial Data Schedule (for SEC use only).
- ----------------------- (1) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1988 and incorporated herein by reference. (2) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1989 and incorporated herein by reference. (3) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1990 and incorporated herein by reference. (4) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1991 and incorporated herein by reference. (5) Filed as part of the Company's Registration Statement on Form S-4 originally filed August 31, 1992 and incorporated herein by reference. (6) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1992 and incorporated herein by reference. (7) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1993 and incorporated herein by reference. (8) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1994 and incorporated herein by reference. (9) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1995 and incorporated herein by reference. (10) Filed as part of the Registration Statement on Form S-1 filed by Mego Mortgage Corporation, as amended (File No. 333-12443), and incorporated herein by reference. (12) Filed as part of the Company's Form 10-K for fiscal year ended August 31, 1996 and incorporated herein by reference. (13) Filed as part of Mego Mortgage Corporation's Form 10-K for fiscal year ended August 31, 1997 and incorporated herein by reference. (14) Filed as part of the Company's Form 10-Q for the quarter ended November 30, 1996 and incorporated herein by reference. (15) Filed as part of the Company's Form 10-Q for the quarter ended February 28, 1997 and incorporated herein by reference. (16) Filed as part of the Company's Form 10-Q for the quarter ended May 31, 1997 and incorporated herein by reference. (17) Filed as part of the Company's Form 10-Q for the quarter ended February 28, 1998 and incorporated herein by reference. (18) Filed as part of the Company's Form 10-Q for the quarter ended May 31, 1998 and incorporated herein by reference. 52 55 (19) Filed as part of the Company's Form 10-K for the fiscal year ended August 31, 1997 and incorporated herein by reference. (20) Filed as part of the Company's Form 10-Q for the quarter ended November 30, 1998 and incorporated herein by reference. (21) Filed as part of the Company's Form 10-Q for the quarter ended February 28, 1999 and incorporated herein by reference. (22) Filed as part of the Company's Form 10-Q for the quarter ended May 31, 1999 and incorporated herein by reference. (23) Filed as part of the Company's Form 10-K for the fiscal year ended August 31, 1998 and incorporated herein by reference. (d) Financial Statement schedules required by Regulation S-X. No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto. 53 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MEGO FINANCIAL CORP. Date: November 23, 1999 By: /S/ JEROME J. COHEN ----------------- --------------------------------- Jerome J. Cohen, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date(s) indicated.
SIGNATURE TITLE DATE --------- ----- ---- /S/ ROBERT NEDERLANDER Chairman of the Board, Chief November 23, 1999 - ------------------------------- Executive Officer and Director Robert Nederlander /S/ JEROME J. COHEN President and Director November 23, 1999 - ------------------------------- Jerome J. Cohen /S/ HERBERT B. HIRSCH Senior Vice President, Chief November 23, 1999 - ------------------------------- Financial Officer, Treasurer Herbert B. Hirsch and Director /S/ EUGENE I. SCHUSTER Vice President and Director November 23, 1999 - ------------------------------- Eugene I. Schuster /S/ CHARLES G. BALTUSKONIS Vice President and November 23, 1999 - ------------------------------- Chief Accounting Officer Charles G. Baltuskonis /S/ WILBUR L. ROSS, JR. Director November 23, 1999 - ------------------------------- Wilbur L. Ross, Jr. /S/ JOHN E. MCCONNAUGHY, JR. Director November 23, 1999 - ------------------------------- John E. McConnaughy, Jr.
54 57 MEGO FINANCIAL CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. -------- Independent Auditors' Report............................................................. F-2 Consolidated Financial Statements: Consolidated Balance Sheets at August 31, 1999 and 1998 ............................ F-3 Consolidated Income Statements - Years Ended August 31, 1999, 1998 and 1997.................................................. F-4 - F-5 Consolidated Statements of Stockholders' Equity - Years Ended August 31, 1999, 1998 and 1997.................................................. F-6 Consolidated Statements of Cash Flows - Years Ended August 31, 1999, 1998 and 1997.................................................. F-7 - F-8 Notes to Consolidated Financial Statements............................................... F-9 - F-34
F-1 58 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Mego Financial Corp. and Subsidiaries Las Vegas, Nevada We have audited the accompanying consolidated balance sheets of Mego Financial Corp. and its subsidiaries (the Company) as of August 31, 1999 and 1998, and the related consolidated income statements, statements of stockholders' equity, and statements of cash flows for each of the three years in the period ended August 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mego Financial Corp. and its subsidiaries at August 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1999, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP San Diego, California November 8, 1999 F-2 59 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (thousands of dollars, except per share amounts)
AUGUST 31, ------------------------------ ASSETS 1999 1998 -------- -------- Cash and cash equivalents $ 1,821 $ 1,813 Restricted cash 1,676 1,694 Notes receivable, net of allowance for cancellations and discounts of $14,340 and $12,403 at August 31, 1999 and 1998, respectively 69,300 47,789 Interest only receivables, at fair value 2,566 3,367 Timeshare interests held for sale 29,529 35,798 Land and improvements inventory 6,649 7,965 Other investments 5,111 4,395 Property and equipment, net of accumulated depreciation of $16,252 and $14,119 at August 31, 1999 and 1998, respectively 23,560 23,950 Deferred selling costs 4,285 3,719 Prepaid debt expenses 1,757 1,431 Other assets 12,707 10,155 -------- -------- TOTAL ASSETS $158,961 $142,076 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes and contracts payable $104,555 $ 81,986 Accounts payable and accrued liabilities 18,141 19,098 Reserve for notes receivable sold with recourse 4,162 6,620 Deposits 2,287 4,877 Accrued income taxes 3,505 4,468 -------- -------- Total liabilities before subordinated debt 132,650 117,049 -------- -------- Subordinated debt 4,478 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; 3,500,557 shares issued and outstanding at August 31, 1999 and 1998) 35 35 Additional paid-in capital 13,068 12,964 Retained earnings 8,730 7,680 -------- -------- Total stockholders' equity 21,833 20,679 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $158,961 $142,076 ======== ========
See notes to consolidated financial statements. F-3 60 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (thousands of dollars, except share and per share amounts)
FOR THE YEARS ENDED AUGUST 31, --------------------------------------------- 1999 1998 1997 --------- --------- ---------- REVENUES OF CONTINUING OPERATIONS Timeshare interest sales, net $ 41,262 $ 37,713 $ 32,253 Land sales, net 15,979 13,812 16,626 Gain on sale of notes receivable -- 656 2,013 Gain on sale of investments 513 -- -- Interest income 9,310 7,161 7,168 Financial income 1,184 3,304 2,922 Incidental operations 2,597 2,831 3,050 Other 3,657 3,113 3,464 -------- -------- -------- Total revenues of continuing operations 74,502 68,590 67,496 -------- -------- -------- COSTS AND EXPENSES OF CONTINUING OPERATIONS Direct cost of: Timeshare interest sales 8,527 7,375 5,922 Land sales 2,709 1,770 1,571 Incidental operations 2,274 2,644 2,984 Marketing and sales 35,291 34,167 34,078 Depreciation 1,878 2,245 1,964 Interest expense 9,270 7,850 8,458 General and administrative 14,333 17,736 17,175 -------- -------- -------- Total costs and expenses of continuing operations 74,282 73,787 72,152 -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 220 (5,197) (4,656) INCOME TAXES (BENEFIT) (830) (1,968) (12,662) -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 1,050 (3,229) 8,006 INCOME FROM DISCONTINUED OPERATIONS NET OF INCOME TAXES OF $9,062 AND MINORITY INTEREST OF $2,358 -- -- 11,334 -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 1,050 $ (3,229) $ 19,340 ======== ======== ========
See notes to consolidated financial statements. F-4 61 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (continued) (thousands of dollars, except share and per share amounts)
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------ 1999 1998 1997 ------------- ------------- ------------- EARNINGS (LOSS) PER COMMON SHARE Basic: Income (loss) from continuing operations $ 0.30 $ (0.92) $ 2.58 Income from discontinued operations -- -- 3.64 ------------- ------------- ------------- Net income (loss) applicable to common stock $ 0.30 $ (0.92) $ 6.22 ============= ============= ============= Weighted-average number of common shares outstanding 3,500,557 3,500,557 3,108,510 ============= ============= ============= Diluted: Income (loss) from continuing operations $ 0.30 $ (0.92) $ 2.46 Income from discontinued operations -- -- 3.48 ------------- ------------- ------------- Net income (loss) applicable to common stock $ 0.30 $ (0.92) $ 5.94 ============= ============= ============= Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,253,718 ============= ============= =============
See notes to consolidated financial statements. F-5 62 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (thousands of dollars, except share and per share amounts)
COMMON STOCK $.01 PAR VALUE -------------------------- ADDITIONAL PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- --------- ---------- ----------- -------- Balance at August 31, 1996 3,071,160 $ 31 $ 6,657 $ 19,163 $ 25,851 Gain on sale of stock of subsidiary -- -- 13,085 -- 13,085 Issuance of warrants in connection with commitment received -- -- 3,000 -- 3,000 Issuance of common stock in connection with the exercise of common stock warrants 383,333 4 11,731 -- 11,735 Issuance of common stock in connection with exercise of stock options 46,064 -- 226 -- 226 Net income fiscal 1997 -- -- -- 19,340 19,340 --------- ------- -------- -------- -------- Balance at August 31, 1997 3,500,557 35 34,699 38,503 73,237 Distribution of MMC common stock in connection with spin-off and adjustments of receivable from MMC -- -- (21,735) (27,594) (49,329) Net loss fiscal 1998 -- -- -- (3,229) (3,229) --------- ------- -------- -------- -------- Balance at August 31, 1998 3,500,557 35 12,964 7,680 20,679 Warrants issued -- -- 104 -- 104 Net income fiscal 1999 1,050 1,050 --------- ------- -------- -------- -------- Balance at August 31, 1999 3,500,557 $ 35 $ 13,068 $ 8,730 $ 21,833 ========= ======= ======== ======== ========
See notes to consolidated financial statements. F-6 63 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars, except share amounts)
FOR THE YEARS ENDED AUGUST 31, --------------------------------------- 1999 1998 1997 ------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 1,050 $ (3,229) $ 19,340 ----------- -------- -------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of negative goodwill -- (53) (29) Charges to allowance for cancellations (5,987) (5,984) (10,470) Provision for cancellations 5,626 4,827 10,219 Gain on sale of notes receivable -- (656) (2,013) Gain on sale of other investments (513) -- -- Provision for uncollectible owners' association advances -- (403) 275 Cost of sales 11,236 9,145 7,493 Depreciation 1,979 2,245 1,964 Gain on sale of subsidiary -- -- 13,085 Additions to interest only receivables -- (523) (1,543) Amortization of interest only receivables 801 452 394 Repayments on notes receivable, net 42,962 36,669 34,243 Additions to notes receivable (64,112) (57,789) (55,469) Proceeds from sale of notes receivable -- 9,418 30,117 Purchase of land and timeshare interests (3,651) (15,614) (8,911) Additions to other receivables -- (4,193) -- Decreases to other receivables -- 8,140 -- Changes in operating assets and liabilities: Decrease in restricted cash 18 355 134 Increase in other assets (5,557) (5,050) (1,328) Increase in deferred selling costs (566) (566) (252) Increase (decrease) in accounts payable and accrued liabilities (632) 1,896 1,606 Increase (decrease) in deposits (2,590) 1,894 12 Decrease in payable to assignors -- -- (2,579) Decrease in accrued income taxes (963) (1,767) (3,836) ------- ------- ------- Total adjustments (21,949) (17,557) 13,112 ------- ------- ------- Net cash provided by (used in) operating activities (20,899) (20,786) 32,452 ------- ------- ------- NET CASH USED IN DISCONTINUED OPERATIONS -- -- (19,762) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,589) (2,334) (6,811) Proceeds from sale of property and equipment -- 359 24 Additions to other investments (950) (2,246) (769) Decreases in other investments 747 -- 592 ------- ------- ------- Net cash used in investing activities (1,792) (4,221) (6,964) ------- ------- -------
See notes to consolidated financial statements. F-7 64 MEGO FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (thousands of dollars, except share amounts)
FOR THE YEARS ENDED AUGUST 31, ---------------------------------------------- 1999 1998 1997 ------------ --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 59,047 51,311 38,568 Reduction of debt (36,478) (34,894) (43,251) Increase in additional paid-in capital due to exercise of warrants -- -- 7,472 Increase in additional paid-in capital due to exercise of stock options -- -- 223 Increase in common stock due to exercise of stock options -- -- 3 Increase in common stock due to exercise of warrants -- -- 13 Payments on subordinated debt (465) (640) (2,429) Increase in subordinated debt 595 667 1,309 -------- -------- -------- Net cash provided by financing activities 22,699 16,444 1,908 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8 (8,563) 7,634 CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR 1,813 10,376 2,742 -------- -------- -------- CASH AND CASH EQUIVALENTS--END OF YEAR $ 1,821 $ 1,813 $ 10,376 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest, net of amounts capitalized $ 9,000 $ 7,595 $ 8,193 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES Issuance of warrants $ 104 $ -- $ 3,000 ======== ======== ======== Reduction of subordinated debt to assignors in connection with the exercise of 166,666 common stock warrants $ -- $ -- $ 4,250 ======== ======== ========
See notes to consolidated financial statements. F-8 65 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 1. NATURE OF OPERATIONS Mego Financial Corp. (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 herein individually or collectively referred to as the Company as the context requires. PEC markets and finances timeshare interests and land in select resort areas. By providing financing to virtually all of its customers, PEC also originates consumer receivables that it hypothecates and services. 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. In February 1988, Mego Financial acquired PEC, pursuant to an assignment by the Assignors, as defined below, of their contract right to purchase PEC. See Note 2 for further discussion. 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. In 1992, Mego Financial organized a subsidiary, Mego Mortgage Corporation (MMC), which has been a specialized consumer finance company that originates, purchases, sells, securitizes and services consumer loans consisting primarily of conventional uninsured home improvement and debt consolidation loans. After an initial public offering (the IPO) of MMC common stock in November 1996, Mego Financial held 81.3% of the outstanding stock of MMC. On September 2, 1997, Mego Financial distributed all of its remaining 10,000,000 shares of MMC's common stock to Mego Financial's shareholders in a tax-free spin-off (the Spin-off). See Notes 3 and 18. 2. ACQUISITION OF PREFERRED EQUITIES CORPORATION The acquisition of PEC on February 1, 1988, was effected pursuant to an Assignment Agreement, dated October 25, 1987, between Mego Financial and several corporations (Assignors) and a related Assignment and Assumption Agreement (Assignment and Assumption Agreement), dated February 1, 1988, and amended on July 29, 1988, between Mego Financial and the Assignors (collectively, such agreements constitute the Assignment). The acquisition of PEC was accomplished by PEC issuing 2 shares of its common stock to Mego Financial for a purchase price of approximately $50,000. Simultaneously the previously outstanding shares held by others were surrendered and redeemed by PEC at a cost to PEC of approximately $10,463,000 plus fees and expenses, leaving Mego Financial with all of the outstanding shares of PEC. The right to purchase shares from PEC was obtained by Mego Financial pursuant to the Assignment, which assigned to Mego Financial the right to purchase shares from PEC pursuant to the Stock Purchase and Redemption Agreement, dated October 6, 1987, between PEC and the Assignors, as amended on October 25, 1987. Consideration for the Assignment consisted of promissory notes (Purchase Notes) from Mego Financial to the Assignors in the aggregate amount of $2,000,000 and additional payments to the Assignors as described below. The Purchase Notes were paid in full prior to August 31, 1988. After the payment of the Purchase Notes, the Assignors were entitled to receive from Mego Financial on a quarterly basis, as determined as of the end of each quarter, additional payments equal in the aggregate to 63% of PEC's consolidated unrestricted cash balances, for a period ended on January 31, 1995. The additional payments were collateralized by a pledge of PEC stock to the Assignors. On March 2, 1995, Mego Financial entered into the Second Amendment to Assignment and Assumption Agreement (Amendment) whereby the Assignors agreed to defer payment of $10,000,000 of the amount payable to Assignors and to subordinate such amount (Subordinated Debt), in right of payment to debt for money borrowed by Mego Financial or obligations of subsidiaries guaranteed by Mego Financial. Warrants (Warrants) for 166,666 shares of Mego Financial common stock, at an exercise price of $25.50 per share (the closing market price per F-9 66 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 share on March 2, 1995) were granted to the Assignors in consideration of the payment deferral and subordination. The Warrants were exercised in August 1997, in a non-cash transaction, whereby the Subordinated Debt was reduced by $4,250,000. The Amendment calls for interest to be paid semiannually at the rate of 10% per annum starting September 1, 1995, and 7 equal semi-annual payments of $1,429,000 plus interest, which commenced March 1, 1997. However, in connection with the reduction of the Subordinated Debt, payments aggregating $4,250,000 have been deemed paid and the semiannual payments were scheduled to resume in March 1999 with a partial payment in September 1998, pursuant to the Third Amendment to the Assignment and Assumption Agreement. In accordance with the Seventh Amendment to Assignment and Assumption Agreement, the scheduled March 1, 1999 and September 1, 1999 principal payments aggregating $2,857,000 were deferred until February 1, 2000. The Subordinated Debt is collateralized by a pledge of PEC's outstanding stock. See Notes 14 and 18 for further discussion. 3. DISCONTINUED OPERATIONS On September 2, 1997, Mego Financial distributed all of its 81.3% interest in MMC comprised of 10,000,000 shares of MMC's common stock to Mego Financial's shareholders in the Spin-off. MMC's financial results have been accounted for as discontinued operations. In April 1998, an agreement was made to adjust the balance due on a $10,100,000 receivable at August 31, 1997 by a reduction of the income tax portion in the amount of $5,283,000 previously deemed owed by MMC to the Company under a Tax Allocation and Indemnity Agreement dated November 19, 1996 (Tax Agreement) since that amount was no longer payable under that agreement. As of the date of the April 1998 agreement, MMC owed the Company an estimated total of $6,153,000, of which $5,283,000 was the estimated amount due to the Company under the Tax Agreement prior to the Spin-off. An agreement was subsequently made to settle the remaining $870,000 balance due the Company by MMC. In consideration of this settlement, MMC paid the entire amount of $1,574,000, which was separately owed to PEC, in June 1998. Following this transaction, MMC had no outstanding indebtedness to the Company. The net effect of the Spin-off resulted in the Company recording a distribution in the amount of $49,329,000 for financial statement purposes in fiscal 1998. F-10 67 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 Operating results of the discontinued operations for the year ended at August 31, 1997 were as follows (thousands of dollars): Revenues Gain on sale of loans and mortgage related securities $48,641 Interest income, net 3,133 Financial income and other 3,036 ------- Total revenues 54,810 ------- Expenses Operating expenses 25,511 Net provision for credit losses 6,300 Interest expense 245 ------- Total expenses 32,056 ------- Income before income taxes 22,754 Income taxes 9,062 Minority interest in discontinued operations 2,358 ------- Net income from discontinued operations $11,334 =======
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation--The accompanying consolidated financial statements include the accounts of Mego Financial and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. See Note 1 for further discussion. The accompanying Consolidated Income Statements reflect the operating results of MMC as discontinued operations for fiscal 1997 in accordance with Accounting Principles Board (APB) Opinion No. 30. The footnote information presented herein applies only to the continuing operations of Mego Financial unless otherwise stated. See Note 3 for further discussion. Parent Company Only Basis--At August 31, 1999 and 1998, Mego Financial, on a "parent company only" basis, reflected total assets of $30,467,000 and $29,495,000, respectively, which were comprised principally of its equity investment in subsidiaries of $29,127,000 and $27,294,000, respectively, and liabilities of $4,156,000 and $4,468,000, respectively, excluding subordinated debt. At August 31, 1999 and 1998, liabilities were comprised principally of accrued income taxes of $3,505,000 and $4,468,000, respectively, excluding subordinated debt. At August 31, 1999 and 1998, subordinated debt of $4,478,000 and $4,348000, respectively, was outstanding. See Notes 2 and 18 for further discussion. Cash Equivalents--Cash equivalents consist primarily of certificates of deposit, repurchase agreements and commercial paper with original maturities of 90 days or less. Restricted Cash--Restricted cash represents cash on deposit which relates to utility subsidiary customer deposits and betterment fees; cash on deposit in accordance with notes receivable sale agreements; and untransmitted funds received from collection of notes receivable which have not as yet been disbursed to the purchasers of such notes receivable in accordance with the related sale agreements. Notes Receivable--The basis is the outstanding principal balance of the notes reduced by the allowance for cancellations and discounts. Substantially all of the notes receivable generated by PEC are carried at the lower of cost or market on an aggregate basis by type of receivable. Allowance for Cancellations--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. The Company records F-11 68 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 provision for cancellations at the time revenue is recognized, based upon periodic analysis of the portfolio, collateral values, historical credit loss experience, borrowers' ability to repay and current economic factors. The allowance for cancellations represents the Company's estimate 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 the reserve for notes receivable sold with recourse. Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and the Company. The Company's judgment in determining the adequacy of this allowance is based upon a periodic review of its portfolio of notes receivable. These reviews take into consideration changes in the nature and level of the portfolio, current economic conditions which may affect the purchasers' ability to pay, the estimated value of inventory that may be reacquired and overall portfolio quality. Changes in the allowance as a result of such reviews are reflected in the provision for cancellations. Timeshare Interests Held for Sale--Costs incurred in connection with preparing timeshare interests for sale are capitalized and include all costs of acquisition, renovation and furnishings. Timeshare interests held for sale are valued at the lower of cost or net realizable value. Land and Improvements Inventory--Land and improvements inventory include carrying costs capitalized during the development period and costs of improvements incurred to date and are stated at cost, not in excess of market value. Property and Equipment--Property and equipment is stated at cost and is depreciated over its estimated useful life (generally 3 - 40 years) using the straight-line method. Costs of maintenance and repairs that do not improve or extend the life of the respective assets are recorded as expense. Utility Accounting Policies--The Company, through a wholly-owned subsidiary, provides water and sewer services to customers in the Pahrump valley of Nevada. This subsidiary is subject to regulation by the Public Utilities Commission of Nevada and the Company's accounting policies conform to generally accepted accounting principles as applied in the case of regulated public utilities in accordance with the accounting requirements of the regulatory authority having jurisdiction. Contributions in aid of construction (CIAC) received by the Company from its customers are included as a separate liability and amortized over the period of 9 - 25 years, which represents the estimated remaining useful life of the corresponding improvements. Amortization of CIAC reduces depreciation expense. CIAC is included in accounts payable and accrued liabilities in the amounts of $8,495,000 and $8,264,000 at August 31, 1999 and 1998, respectively. Reserve for Notes Receivable Sold with Recourse--Recourse to the Company on sales of notes receivable is governed by the agreements between the purchasers and the Company. The reserve for notes receivable sold with recourse represents the Company's estimate of the fair value of future credit losses to be incurred over the lives of the notes receivable. Proceeds from the sale of notes receivable sold with recourse were $0, $9,418,000 and $30,117,000 for the years ended August 31, 1999, 1998 and 1997, respectively. A liability for reserve for notes receivable sold with recourse is established at the time of each sale based upon the Company's estimate of the future fair value of the recourse obligation under each agreement of sale and is reviewed on a quarterly basis. Income Taxes--The Company utilizes the provisions of SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the Company to adhere to an asset/liability approach for financial accounting and reporting for income taxes. Income tax expense is provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the bases of the balance sheet for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when they are recovered or settled. See Note 15. Revenue and Profit Recognition--Timeshare Interests and Land Sales--Sales of timeshare interests and land are recognized and included in revenues after certain "down payment" and other "continuing investment" criteria are F-12 69 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 met. Land sale revenues are recognized using the deposit method in accordance with the provisions of SFAS No. 66, "Accounting for Sales of Real Estate." The agreement for sale generally provides for a down payment and a note secured by a deed of trust or mortgage payable to the Company in monthly installments, including interest, over a period of up to ten years. Revenue 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 usually meet these requirements within eight to ten months from closing, and sales of timeshare interests usually 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 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. All payments received prior to the recognition of the sale as revenue are accounted for as deposits. Selling costs directly attributable to unrecognized sales are accounted for as deferred selling costs until the sale is recognized. For land sales made at a location other than at the property, the purchaser may cancel the contract within a specified inspection period, usually five months from the date of purchase, provided that the purchaser is not in default under the terms of the contract. At August 31, 1999, $1,175,000 of recognized sales remain subject to such cancellation. If a purchaser defaults under the terms of the contract, after all rescission and inspection periods have expired, all payments are generally retained by the Company. If the underlying note receivable is at a "below market" interest rate, a discount is applied to the note receivable balance and amortized over the note's term so that the effective yield is 10%. 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 sale in the quarter the revenue is recognized is deemed to not represent a sale and is accounted for as a reversal of the revenue with an adjustment to cost of sales. Cancellation of a note receivable subsequent to the quarter the revenue was recognized is charged to the allowance for cancellations. Revenue Recognition--Gain on Sale of Notes Receivable--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 the Company 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. The Company retains certain participations in cash flows from the sold notes receivable and generally retains the associated servicing rights. The Company 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 estimated fair value. Reserve for notes receivable sold with recourse represents the Company's estimate of losses to be incurred in connection with the recourse provisions of the sales agreements and is shown separately as a liability in the Company's Consolidated Balance Sheets. In discounting cash flows related to notes receivable sales, the Company 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 which averaged 15% in each of fiscal years 1999, 1998 and 1997. The Company has developed its assumptions based on experience with its own portfolio, available market data and consultation with its financial advisors. In determining expected cash flows, management considers economic conditions at the date of sale. In subsequent periods, these estimates may be revised as necessary using the original discount rate, and any losses arising from prepayment and loss experience will be recognized as realized. F-13 70 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 Interest Income--Interest income is recorded as earned. Interest income represents the interest earned on notes receivable and short term investments. Financial Income--Fees for servicing notes receivable originated or acquired by the Company 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. Capitalized interest only receivables are amortized systematically to reduce 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 as expense when incurred. Timeshare Owners' Associations--The Company incurs a portion of operating expenses of the timeshare owners' associations based on ownership of the unsold timeshare interests at each of the respective timeshare properties. These costs are referred to as Association Assessments and are included in the Consolidated Income Statements in general and administrative expense. Management fees and costs received from the associations are included in other revenues. See Note 18. Income (Loss) Per Common Share--Basic income (loss) per common share is based on the net income (loss) applicable to common stock for each period divided by the weighted-average number of common shares outstanding during the period. Diluted income per common share is computed by dividing net income applicable to common stock by the weighted-average number of common shares plus common share equivalents. Income (loss) from continuing operations per share, income (loss) from discontinued operations per share and gain on prior discontinued operations per share, are also disclosed due to the Spin-off of MMC. See Note 3. In loss periods, anti-dilutive common share equivalents are excluded. Effective September 9, 1999, the Company consummated a one for six reverse stock split for all of the Company's common shares outstanding. All share and per share references have been restated to retroactively show the effect of this reverse stock split. Basic EPS excludes dilution from common stock equivalents and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from common stock equivalents, similar to fully diluted EPS, but uses only the average stock price during the period as part of the computation. F-14 71 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 An entity that reports discontinued operations is required to present Basic and Diluted EPS for each of the income related line items. Data utilized in calculating pro forma earnings per share are as follows (thousands of dollars, except share amounts):
1999 1998 1997 ----------- ----------- ----------- Basic: Income (loss) from continuing operations $ 1,050 $ (3,229) $ 8,006 Income from discontinued operations -- -- 11,334 Preferred stock dividends -- -- -- ---------- ----------- ---------- Net income (loss) $ 1,050 $ (3,229) $ 19,340 ========== =========== ========== Weighted-average number of common shares outstanding 3,500,557 3,500,557 3,108,510 ========== =========== ========== Diluted: Income (loss) from continuing operations $ 1,050 $ (3,229) $ 8,006 Income from discontinued operations -- -- 11,334 Preferred stock dividends -- -- -- ---------- ----------- ---------- Net income (loss) $ 1,050 $ (3,229) $ 19,340 ========== =========== ========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,253,718 ========== =========== ==========
The following table reconciles income (loss) from continuing operations, basic and diluted shares and EPS for the following periods (thousands of dollars, except per share amounts):
FOR THE YEARS ENDED AUGUST 31, ---------------------------------------------------------------------------------------------------------- 1999 1998 1997 -------------------------------- ------------------------------- ----------------------------------- PER- PER- PER- INCOME SHARE INCOME SHARE INCOME SHARE (LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT ---------- -------- ------- --------- ---------- ------ ---------- -------- -------- Income (loss) from continuing $ 1,050 $ (3,229) $ 8,006 operations BASIC EPS Income (loss) from continuing 1,050 3,500,557 $ 0.30 (3,229) 3,500,557 $ (0.92) 8,006 3,108,510 $ 2.57 operations -------- --------- ------- --------- ---------- ------- --------- --------- ------- Effect of dilutive securities: Warrants -- -- -- -- -- 103,356 Stock options -- -- -- -- -- 41,852 ---------- ---------- -------- ---------- --------- --------- DILUTED EPS Income (loss) from continuing operations and assumed $ 1,050 3,500,557 $ 0.30 $ (3,229) 3,500,557 $ (0.92) $ 8,006 3,253,718 $ 2.46 conversions ========== ========== ======= ======== ========== ======= ========= ========= =======
F-15 72 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 The following table reconciles income from discontinued operations, net of tax and minority interest, basic and diluted shares, and EPS for the following periods (thousands of dollars, except share and per share amounts):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------- 1997 ------------------------------------- PER-SHARE INCOME SHARES AMOUNT --------- ----------- ---------- Income from discontinued operations (1) $13,692 Less: Minority interest in discontinued 2,358 operations BASIC EPS Income from discontinued operations 11,334 3,108,510 $ 3.64 ------- ----------- ======= Effect of dilutive securities: Warrants -- 103,356 Stock options -- 41,852 ------- ----------- DILUTED EPS Income from discontinued operations and assumed conversions $11,334 3,253,718 $ 3.48 ======= =========== =======
- ---------------------- (1) Net of income taxes of $9,062. The following table reconciles the net income (loss) applicable to common shareholders, basic and diluted shares and EPS for the following periods (thousands of dollars, except share and per share amounts):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------------------------------------------------------------ 1999 1998 1997 -------------------------------- -------------------------------- ----------------------------------- PER- PER- PER- INCOME SHARE INCOME SHARE INCOME SHARE (LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT ----------- --------- ------- ------------ ----------- ------- --------- --------- ------- Net income $ 1,050 $(3,229) $ 19,340 (loss) Less: Preferred -- -- -- stock dividends -------- ------- -------- BASIC EPS Income (loss) applicable to common stockholders 1,050 3,500,557 $ 0.30 (3,229) 3,500,557 $(0.92) 19,340 3,108,510 $ 6.22 -------- --------- ------- ------ --------- ------ -------- --------- ------- Effect of dilutive securities: Warrants -- -- -- -- -- 103,356 Stock options -- -- -- -- -- 41,852 -------- --------- ------ --------- -------- --------- DILUTED EPS Income (loss) applicable to common stockholders and assumed conversions $1,050 3,500,557 $ 0.30 $(3,229) 3,500,557 $(0.92) $19,340 3,253,718 $ 5.94 ====== ========= ======= ======= ========= ====== ======= ========= =======
At August 31, 1999, the options to purchase 58,916 shares of common stock range from $6.00 to $33.75 per share were outstanding and warrants to purchase 83,333 shares of common stock at $6.00 per share were outstanding. The options and warrants were not included in the computation of diluted EPS because the options' and warrants' exercise price was greater than the average market price of the common shares. The options, which expire on September 2, 2002 through September 22, 2008, and the warrants, which expire on January 1, 2004, were still outstanding at August 31, 1999. F-16 73 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 Recently Issued Accounting Standards--In June 1997, the 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 No. 131 is effective for the 1999 fiscal year. In accordance with SFAS No. 131, the Company considers its business to consist of one reportable operating segment. The Company does not allocate revenues and expenses, or assets and liabilities, in a segmented format for internal use or decision-making processes. In June 1998, the FASB issued SFAS No. 133 (SFAS 133) "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes standards for accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. SFAS 133 is effective for fiscal years beginning after June 15, 1999. However, since the Company does not use such financial instruments, SFAS 133 will not have an impact on the Company's financial statements. Reclassification--Certain reclassifications have been made to conform prior years with the current year presentation. Use of Estimates--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. 5. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosure about Fair Value of Financial Instruments" (SFAS 107), requires disclosure of estimated fair value information for financial instruments, whether or not recognized in the Balance Sheets. Fair values are based upon estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Estimated fair values, carrying values and various methods and assumptions used in valuing the Company's financial instruments at August 31, 1999 and 1998 are set forth below (thousands of dollars):
AUGUST 31, 1999 AUGUST 31, 1998 -------------------------------- ------------------------------- CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR VALUE VALUE VALUE VALUE -------- --------------- ---------- -------------- FINANCIAL ASSETS: Cash and cash equivalents (a) $ 1,821 $ 1,821 $ 1,813 $ 1,813 Notes receivable, net (b) 69,300 71,900 47,789 48,152 Interest only receivables (c) 2,566 2,566 3,367 3,367 FINANCIAL LIABILITIES: Notes and contracts payable (d) 104,555 104,555 81,986 81,986 Subordinated debt (a) 4,478 4,478 4,348 4,348
- ------------------ (a) Carrying value is approximately the same as fair value. F-17 74 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 (b) The fair value was estimated by using outstanding commitments from investors adjusted for non-qualified receivables and the collateral securing such receivables. (c) The fair value was estimated by discounting future cash flows of the instruments using discount rates, default, loss and prepayment assumptions based upon available market data, opinions from financial advisors and historical portfolio experience. (d) Notes payable generally are adjustable rate, indexed to the prime rate, or to the 90 day London Interbank Offering Rate (LIBOR); therefore, carrying value approximates fair value. The fair value estimates were based upon pertinent market data and relevant information on the financial instruments at that time. Because no market exists for a certain portion of the financial instruments, fair value estimates may be based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and historical and other factors. Changes in assumptions could significantly affect the estimates and do not reflect any premium or discount that could result from the bulk sale of the entire portion of the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Fair value estimates are based upon existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have an effect on fair value estimates and have not been considered in any of the estimates. 6. CONCENTRATIONS OF RISK Availability of Funding Sources--The Company funds substantially all of the notes receivable, timeshare inventory and land inventory with borrowings through its financing facilities and internally generated funds. These borrowings are in turn repaid with the proceeds received by the Company from such notes receivable through loan sales and payments. Any failure to renew or obtain adequate financing under its financing facilities, or other borrowings, or any substantial reduction in the size of or pricing in the markets for the Company's notes receivable, could have a material adverse effect on the Company's operations. Geographic Concentrations--The Company services notes receivable in all 50 states, the District of Columbia and Canada. At August 31, 1999, 26.9% of the dollar value of notes receivable serviced had been originated in California. No other state accounted for more than 10% of the servicing portfolio of the Company's receivables. The risk inherent in such concentrations is dependent upon regional and general economic stability which affects property values and the financial stability of the borrowers. The Company's timeshare and land inventories are concentrated in Nevada, New Jersey, Colorado, and Florida. The risk inherent in such concentrations is in the continued popularity of these resort destinations, which affects the marketability of the Company's products. Credit Risk--The Company is exposed to on-balance sheet credit risk related to its notes receivable. The Company is exposed to off-balance sheet credit risk related to notes receivable sold under recourse provisions. The outstanding balance of notes receivable sold with recourse provisions totaled $53,797,000 and $71,890,000 at August 31, 1999 and 1998, respectively. Interest Rate Risk--The Company's profitability is in part determined by the difference, or "spread," between the effective rate of interest received on the notes receivable originated by the Company and the interest rates payable under its financing facilities to fund the Company's notes receivable and inventory held for sale and the yield required by financial institutions on notes receivable hypothecated or sold. The spread can be adversely affected after a note is originated and while it is held, by increases in the interest rate. Additionally, the fair value of interest only receivables owned by the Company may be adversely affected by changes in the interest rate environment which could affect the discount rate and prepayment assumptions used to value the assets. F-18 75 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 7. NOTES RECEIVABLE Notes receivable consist of the following (thousands of dollars):
AUGUST 31, --------------------------- 1999 1998 ----------- ----------- Related to timeshare sales $ 52,174 $ 32,353 Related to land sales 31,466 27,839 ---------- ---------- Total 83,640 60,192 ---------- ---------- Less: Allowance for cancellations (13,987) (11,868) Discounts (353) (535) ---------- ---------- (14,340) (12,403) ---------- ---------- Total $ 69,300 $ 47,789 ========== ==========
The Company provides financing to the purchasers of its timeshare interests and land. This financing is generally evidenced by notes secured by deeds of trust or mortgages. These notes receivable are generally payable over a period of up to 12 years, bear interest at rates ranging from 10.0% to 15.5% and require equal monthly installments of principal and interest. The Company has entered into financing arrangements with certain purchasers of timeshare interests and land whereby a 5% interest rate is charged if the aggregate down payment is at least 50% of the purchase price and the balance is payable in 36 or fewer monthly payments. Notes receivable of $5,953,000 and $7,258,000 at August 31, 1999 and 1998, respectively, made under this arrangement are included in the table above. A discount is established to provide for an effective interest rate (currently 10%) on notes receivable bearing no stated interest rate at the time of sale, and is applied to the principal balance and amortized over the terms of the notes receivable. The effective interest rate is based upon the economic interest rate environment and similar industry data. The Company is obligated under certain agreements for the sale of notes receivable and certain loan agreements to maintain various minimum net worth requirements. The most restrictive of these agreements requires PEC to maintain a minimum net worth of $25,000,000. PEC's net worth at August 31, 1999 was $27,370,000. At August 31, 1999 and 1998, receivables aggregating $77,582,000 and $49,646,000, respectively, were pledged to lenders to collateralize certain of the Company's indebtedness. Receivables which qualify for the lenders' criteria may be pledged as collateral whether or not such receivables have been recognized for accounting purposes. See Note 13 for further discussion. Allowance for Cancellations--The Company provides an allowance for cancellations, in an amount which in the Company's judgment will be adequate to absorb losses on notes receivable that may become uncollectible. The Company's judgment in determining the adequacy of this allowance is based on its continual review of its portfolio which utilizes historical experience and current economic factors. These reviews take into consideration changes in the nature and level of the portfolio, historical rates, collateral values, current and future economic conditions which may affect the obligors' ability to pay and overall portfolio quality. Changes in both the allowance for cancellations and the reserve for notes receivable sold with recourse consist of the following (thousands of dollars): F-19 76 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------- 1999 1998 1997 -------- -------- --------- Balance at beginning of year $ 18,488 $ 19,527 $ 19,924 Provision for cancellations 5,626 4,827 10,219 Amounts charged to allowance for cancellations and reserve for notes receivable sold with recourse (5,965) (5,866) (10,616) -------- -------- -------- Balance at end of year $ 18,149 $ 18,488 $ 19,527 ======== ======== ======== Allowance for cancellations $ 13,987 $ 11,868 $ 10,824 Reserve for notes receivable sold with recourse 4,162 6,620 8,703 -------- -------- -------- Total $ 18,149 $ 18,488 $ 19,527 ======== ======== ========
Number of Notes Receivable Accounts Serviced--The number of notes receivable accounts serviced at August 31, 1999 and 1998, was 17,359 and 16,704, including 5,581 and 7,109, respectively, serviced for others. At August 31, 1999 and 1998, the amount of notes receivable with payment delinquencies of 90 days or more was $9,743,000 and $9,654,000, on serviced accounts, including $38,000 and $182,000, respectively, serviced for others. Notes Receivable Serviced and Originated--At August 31, 1999 and 1998, notes receivable serviced were $132,240,000 and $117,150,000 including $33,679,000 and $47,360,000, respectively, serviced for others. Notes receivable originated were $64,112,000 and $57,789,000 for the years ended August 31, 1999 and 1998, respectively. 8. INTEREST ONLY RECEIVABLES Activity in interest only receivables is as follows (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, -------------------------------------- 1999 1998 1997 -------- -------- -------- Balance at beginning of year $ 3,367 $ 3,296 $ 2,147 Additions -- 523 1,543 Amortization (801) (452) (394) ------- ------- ------- Balance at end of year $ 2,566 $ 3,367 $ 3,296 ======= ======= =======
As of August 31, 1999 and 1998, interest only receivables consisted of excess cash flows on sold loans totaling $53,797,000 and $71,890,000, respectively, yielding weighted-average interest rates of 12.5%, for both years, net of normal servicing fees and had weighted-average pass-through yields to the investor of 9.2%, for both years. These loans were sold under recourse provisions as described in Note 4. 9. INVENTORIES Timeshare interests held for sale consist of the following (thousands of dollars):
AUGUST 31, ---------------------------- 1999 1998 ----------- ---------- Timeshare interests (including capitalized interest of $507 and $710 in 1999 and 1998, respectively) $ 16,874 $ 22,845 Timeshare interests not registered (including capitalized interest of $1,228 and $888 in 1999 and 1998, respectively) 12,655 12,953 ----------- ---------- Total $ 29,529 $ 35,798 =========== ==========
F-20 77 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 At August 31, 1999 and 1998, 9,146 and 11,273 timeshare interests, respectively, were available for sale. Timeshare units amounting to 62 and 90 representing 3,876 and 4,590 timeshare interests, at August 31, 1999 and 1998, respectively, were awaiting registration. In September 1999, 30 units were converted into 1,530 timeshare interests in Orlando, Florida, and in October 1999, 18 units were converted into 918 timeshare interests in Las Vegas, Nevada. Also, 14 units at Hilltop in Steamboat Springs, Colorado are awaiting registration. 10. OTHER INVESTMENTS Other investments in the following locations, at lower of cost or market, consist of the following (thousands of dollars):
AUGUST 31, ------------------------- 1999 1998 ---------- ---------- Water rights: Huerfano County, Colorado $ 543 $ 533 Nye County, Nevada 413 413 Land: Nye County, Nevada 1,435 721 Clark County, Nevada -- 84 Timeshare project: Biloxi, Mississippi 2,380 2,257 Other 340 387 --------- -------- Total $ 5,111 $ 4,395 ========= ========
11. PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation, consist of the following (thousands of dollars):
AUGUST 31, ------------------------------ 1999 1998 ----------- ------------- Water and sewer systems $ 18,438 $ 17,450 Furniture and equipment 5,915 5,330 Buildings 9,868 9,745 Vehicles 2,840 2,812 Recreational facilities and equipment 1,050 1,050 Land 1,344 1,342 Leasehold improvements 357 340 ----------- ------------ 39,812 38,069 Less: Accumulated depreciation (16,252) (14,119) ----------- ------------ Total $ 23,560 $ 23,950 =========== ============
F-21 78 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 12. OTHER ASSETS Other assets consist of the following (thousands of dollars):
AUGUST 31, ------------------------------ 1999 1998 ------------- ------------- Amount withheld from Marine Midland loan sales $ 2,198 $ 2,105 Trust deed's clearing account 1,851 1,759 Owners' association receivables 1,398 -- Cash surrender value of split-dollar life insurance plan 1,330 1,263 Prepaid expenses 901 422 Interest receivable 838 466 Deposits and impounds 696 404 Ramada license 567 667 White Sands HOA maintenance fees receivable 448 442 Inventories 415 424 Other 2,065 2,203 ------------ ------------ Total $ 12,707 $ 10,155 ============ ============
13. NOTES AND CONTRACTS PAYABLE The Company's debt including lines of credit consists of the following (thousands of dollars):
AUGUST 31, ----------------------- 1999 1998 ---------- -------- Notes collateralized by receivables Borrowings bearing interest at prime plus 2% in 1999 and 1998 including "lines of credit" $ 67,457 $42,793 Mortgages collateralized by real estate properties (1) Mortgages collateralized by the respective underlying assets with various repayment terms and fixed interest rates of 8% in 1999 and variable rates of prime plus 2% to 3% and 90 day LIBOR plus 4.25% in 1999 and 1998 35,846 37,393 Installment contracts and other notes payable 1,252 1,800 -------- ------- Total $104,555 $81,986 ======== =======
(1) Includes $2,790,000 of separate mortgage borrowings not under the lines of credit. The prime rate of interest was 8.25% and the 90 day LIBOR was 5.50% at August 31, 1999. F-22 79 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 Lines of Credit--PEC is the borrower under 6 agreements for lines of credit with 5 lenders not to exceed $135,334,000 which are collateralized by security interests in timeshare and land receivables and are guaranteed by the Company. At August 31, 1999 and 1998, an aggregate of $101,571,000 and $77,396,000 had been borrowed under these lines, respectively. Under the terms of such lines of credit, PEC may borrow 70% to 90% of the balances of the pledged timeshare and land receivables. Summarized line of credit information relating to these six lines of credit outstanding at August 31, 1999, consist of the following (thousands of dollars):
BORROWING MAXIMUM AMOUNT AT OUTSTANDING REVOLVING AUGUST 31, 1999 AMOUNT EXPIRATION DATE (a) MATURITY DATE INTEREST RATE --------------- ----------- ------------------------ ------------------- ----------------------- $ 65,682 $ 75,000 (b) May 15, 2000 Various Prime + 2.0 - 2.25% 4,278 15,000 (c) May 31, 2000 Various Prime + 2.0% 14,734 17,000 (d) June 30, 2001 Various LIBOR + 4.0 - 4.25% 6,914 13,000 (d) December 31, 1999* December 31, 2000 LIBOR + 4.0 - 4.25% 3,834 10,000 (e) July 31, 2000 Prime + 2.0 - 2.25% 6,129 11,500 (f) June 30, 2000 Various Prime + 2.0 - 3.00% ---------- $ 101,571 ===========
* 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 period expiring in fiscal year 2000. (b) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $20,000,000 with such amount increasing each fiscal quarter after August 31, 1997 by an amount equal to 50% of PEC's consolidated net income for each quarter up to a maximum requirement of $25 million. New restrictions, commencing with the fiscal quarter ending November 30, 1998, include: PEC's requirements to maintain costs and expenses for marketing and sales, and general and administrative expenses relating to net processed sales for each fiscal quarter; and, PEC's requirement to maintain a minimum net processed sales requirement for each fiscal quarter. In addition, commencing with the fiscal quarter ending August 31, 1999, include PEC's requirement not to exceed a ratio of 4:1 of consolidated total liabilities to consolidated tangible net worth. At August 31, 1999, $44,683,000 of loans secured by receivables were outstanding related to financings at prime plus 2%, of which $31,539,000 of loans secured by land receivables mature May 15, 2010 and $13,144,000 of loans secured by timeshare receivables mature May 15, 2007. The outstanding borrowing amount includes $6,356,000 in acquisition and development (A&D) financing maturing July 1, 2003 for the corporate office buildings, which is an amortizing loan, and real estate loan with an outstanding balance of $1,174,000 maturing March 20, 2000, all bearing interest at prime plus 2.25%. The remaining A&D loans, receivables loans, and a resort lobby loan outstanding of $13,469,000 million are at prime plus 2% and mature at various dates through February 20, 2001. (c) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25,000,000 during the life of the loan. These credit lines include available financing for A&D and receivables. At August 31, 1999, $843,000 was outstanding under the A&D loan which matures on June 30, 2004, and $3,435,000 maturing May 31, 2004 was outstanding under the receivables loan (d) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $17,000,000 during the life of the loan. These credit lines include available financings for A&D and receivables. At August 31, 1999, $1,091,000 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) plus 4.25%. The available receivable financings, of which $13,643,000 was outstanding at May 31, 1999, are all at 90-day LIBOR plus 4% and have maturity dates of June 5, 2005 and August 5, 2005. F-23 80 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 (e) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $25,000,000. The revolving receivable line was paid in full in September 1999. The A&D loan is due in full by February 1, 2000. (f) Restrictions include PEC's requirement to maintain a minimum tangible net worth of $15,000.000. This credit line is for the purpose of financing receivables, of which $2,129,000 million was outstanding at August 31, 1999 in respect to the receivable debt, and a real estate loan of $4,000,000 with a maturity date of August 31, 2000. The maturity date for the receivable debt is May 31, 2004. Maturities--Scheduled maturities of the Company's notes and contracts payable are as follows (thousands of dollars):
YEARS ENDING AUGUST 31, ----------------------- 2000............................................................... $ 8,012 2001............................................................... 21,133 2002............................................................... 549 2003............................................................... 1,282 2004............................................................... 6,691 Thereafter......................................................... 66,888 --------- $ 104,555 =========
- ------------------ 14. SUBORDINATED DEBT On March 2, 1995, Mego Financial entered into the Amendment whereby the Assignors agreed to defer payment of $10,000,000 of the amount payable to Assignors and to subordinate such amount, constituting Subordinated Debt, in right of payment to debt for money borrowed by Mego Financial or obligations of subsidiaries guaranteed by Mego Financial. Warrants for 166,666 shares of Mego Financial common stock, at an exercise price of $25.50 per share (the closing market price per share on March 2, 1995) were granted to the Assignors in consideration of the payment deferral and subordination. The Warrants were exercised in August 1997 in a non-cash transaction whereby the Subordinated Debt was reduced by $4,250,000. The Amendment calls for interest to be paid semi-annually at the rate of 10% per annum starting September 1, 1995, and semi-annual payments of $1,429,000 plus interest, which commenced March 1, 1997. In connection with the exercise of Warrants, payments aggregating $4,250,000 were deemed paid and the semiannual payments were scheduled to resume in March 1999 (subsequently deferred until February 1, 2000) with a partial payment in September 1998. In accordance with the Seventh Amendment to Assignment and Assumption Agreement, the scheduled March 1, 1999 and September 1, 1999 principal payments aggregating $2,857,000 were deferred until February 1, 2000. Interest of $430,000 on Subordinated Debt was paid during fiscal 1999. The Subordinated Debt is collateralized by a pledge of PEC's outstanding stock. See Note 2 for further discussion. The following table represents Subordinated Debt activity (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------ 1999 1998 ------------ ----------- Balance at beginning of year $ 4,348 $ 4,321 Accreted interest 595 667 Less: Interest payments (429) (640) Principal paydowns (36) -- ----------- ----------- Balance at end of year $ 4,478 $ 4,348 =========== ===========
F-24 81 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 15. INCOME TAXES Mego Financial files a consolidated federal income tax return with its subsidiaries for its tax year which ends the last day of February. The benefit for fiscal 1998 and from continuing operations recorded for fiscal 1997 is primarily a result of the use of net operating loss (NOL) carryforwards which were previously fully reserved and currently are used to offset income on a consolidated basis. In addition, due to changes in facts and circumstances determined in fiscal 1997, certain income tax liability reserves recorded in prior periods were reversed, resulting in a deferred tax liability. Deferred income taxes shown in Balance Sheets as Accrued Income Taxes, reflect the net tax effects of (a) temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, (b) temporary differences between the timing of revenue recognition for book purposes and for income tax purposes, and (c) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred income tax, shown on Balance Sheets as Accrued Income Taxes, as of August 31, 1999 and 1998 are as follows (thousands of dollars):
AUGUST 31, ------------------------------ 1999 1998 ------- ------- Deferred tax liabilities: Timing of revenue recognition $14,368 $20,651 ------- ------- 14,368 20,651 ------- ------- Deferred tax assets: Difference between book and tax carrying value of assets 10,569 14,007 Other 294 2,176 ------- ------- 10,863 16,183 ------- ------- Net deferred income tax $ 3,505 $ 4,468 ======= =======
The provision for income taxes as reported is different from the tax provision computed by applying the statutory federal rate of 34%. The differences are as follows (thousands of dollars):
1999 1998 1997 ----- ------- -------- Income (loss) from continuing operations before income taxes $ 220 $(5,197) $ (4,656) ===== ======= ======== Tax at the statutory federal rate $ 75 $(1,767) $ (1,583) Decrease in income taxes resulting from application of NOL carryforwards and changes in certain income tax liability reserves (905) (201) (11,079) ----- ------- -------- Total $(830) $(1,968) $(12,662) ===== ======= ========
The income tax provision applied to discontinued operations exceeds the statutory federal rate primarily due to state income taxes. F-25 82 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 16. STOCKHOLDERS' EQUITY Mego Financial has a stock option plan (Stock Option Plan), adopted November 1993, amended September 9, 1997, and amended and restated as of September 16, 1998 by approval of shareholders, for officers, key employees and directors which provides for non-qualified and qualified incentive options. The Stock Option Committee of the Board of Directors determines the option price (not to be less than fair market value for qualified incentive options) at the date of grant. The options generally expire ten years from the date of grant and are exercisable over the period stated in each option generally at the cumulative rate of 20% per year for three years from the date of grant, and the remaining 40% at the end of the fourth year. In August 1997, in connection with the Spin-off of MMC, the Stock Option Committee vested all options previously granted, excluding those granted subsequent to February 26, 1997. On September 23, 1998, an additional 18,500 incentive and non-incentive stock options were granted under the Stock Option Plan. In addition, the exercise prices of 50,750 of options issued on September 2, 1997 were revised from $18.75 per share to $6.00 per share (restated for the one for six reverse stock split effective September 9, 1999), which represented the fair value at date of repricing. The following table sets forth shares reserved and options exercised, granted and forfeited for the following periods:
NUMBER OF RESERVE SHARES OPTIONS PRICE PER SHARE ---------------- ---------------- ------------------ At August 31, 1996 86,500 80,000 $ 15.00 /52.50 Exercised (75,833) (75,833) $ 15.00 /52.50 Forfeited - (8,333) $ 40.50 /48.00 Granted 83,333 11,666 $ 33.75 /40.50 --------------- --------------- ---------------- At August 31, 1997 94,000 7,500 $ 33.75 Exercised -- -- $ -- Forfeited -- (8,167) $ 18.75 / 33.75 Granted -- 58,083 $ 18.75 / 20.63 --------------- --------------- ---------------- At August 31, 1998 94,000 57,416 $ 18.75 / 33.75 Exercised -- -- $ -- Forfeited -- (17,000) $ 6.00 / 18.75 Granted -- 18,500 $ 6.00 --------------- --------------- ---------------- At August 31, 1999 94,000 58,916 $ 6.00/33.75 =============== =============== ----------------
SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and for transactions in which an entity issues its equity instruments to acquire goods or services from non employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company elected to continue to apply the provisions of APB Opinion No. 25 as permitted by SFAS 123 and, accordingly, provides pro forma disclosure below. Stock options granted under Mego Financial's Stock Option Plan are qualified and unqualified stock options that: (1) are generally granted at prices which are equal to the fair value of the stock on the date of grant; (2) generally subject to a grantee's continued employment with the Company, vest at various periods over a four-year period; and (3) generally expire ten years subsequent to the award. F-26 83 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 A summary of the status of Mego Financial's stock options granted under the Stock Option Plan as of August 31, 1999, 1998 and 1997 and the changes during the year is presented below:
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997 ------------------------- ------------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- --------- ------- --------- ------- --------- Outstanding at beginning of year 57,416 $ 9.22 7,500 $ 33.75 80,000 $ 22.48 Granted 18,500 6.00 58,083 6.00 11,666 36.16 Exercised -- -- -- -- 75,833 21.07 Forfeited 17,000 6.00 8,167 6.00 8,333 44.25 ------ ----- ------ ------ ------ ------ Outstanding at end of year 58,916 9.14 57,416 9.22 7,500 33.75 ====== ===== ====== ====== ====== ====== Options exercisable at end of 9,783 13.56 -- -- -- -- year ====== ===== ====== ====== ====== ======
The fair value of each option granted during fiscal 1999, 1998 and 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: (1) dividend yield of zero; (2) expected volatility of 35.0% for 1999 and 65.0% for 1998 and 59.3% for 1997 (3) risk-free interest rate of 6% for 1999, 1998 and 1997 and; (4) expected life of 7 years. The weighted-average fair value of options granted during 1999, 1998 and 1997 were $1.63, $4.09 and $7.55, respectively. As of August 31, 1999, there were 58,916 options outstanding which have exercise prices ranging from $6.00 to $33.75 per common share and a weighted-average remaining contractual life of 8 years. Had compensation cost for Mego Financial's fiscal 1999, 1998 and 1997 grants for stock options been determined consistent with SFAS 123, the Company's pro forma net income and pro forma net income per common share for fiscal 1999, 1998 and 1997 would approximate the pro forma amounts below (thousand of dollars, except per share amounts):
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997 ------------------------- -------------------------- ------------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- ----------- ------------- ----------- ------------ ------------ Net income (loss) applicable to common stock $ 1,050 $ 850 $ (3,229) $ (3,333) $ 19,340 $ 19,042 Net income (loss) per common share: Basic 0.30 0.24 (0.92) (0.95) 6.22 6.13 Diluted 0.30 0.24 (0.92) (0.95) 5.94 5.85
In addition to the 166,666 warrants exercised as described in Note 14, an additional 216,667 warrants were exercised in August 1997 for $7,485,000. As of August 31, 1999, there were 83,333 warrants outstanding. F-27 84 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 17. TIMESHARE INTEREST SALES AND LAND SALES Timeshare interest sales, net -- A summary of the components of timeshare interest sales is as follows (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, -------------------------------------------- 1999 1998 1997 --------- -------- -------- Timeshare interest sales $ 45,830 $ 41,449 $ 39,850 Less: Provision for cancellations (4,568) (3,736) (7,597) -------- -------- -------- Total $ 41,262 $ 37,713 $ 32,253 ======== ======== ========
Land sales, net -- A summary of the components of land sales is as follows (thousands of dollars):
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------ 1999 1998 1997 -------- -------- -------- Land sales $ 17,037 $ 14,903 $ 19,248 Less: Provision for cancellations (1,058) (1,091) (2,622) -------- -------- -------- Total $ 15,979 $ 13,812 $ 16,626 ======== ======== ========
The following table reflects the maturities of receivables from land sales for each of the five years after August 31, 1999 (thousands of dollars):
2000 2001 2002 2003 2004 ----------- ----------- --------- ---------- --------- Land receivables maturities $ 388 $ 482 $ 1,971 $ 1,149 $ 1,448
The range of interest rates are from 0% to 15.0% and the weighted-average interest rate at August 31, 1999 was 11.7%. The delinquency information related to land loans at August 31, 1999 is as follows (thousands of dollars):
PRINCIPAL BALANCE % OF LOANS SERVICED ----------------- ------------------- 30 - 59 days $ 1,312 1.0% 60 - 90 days 831 .6 Over 90 days 3,299 2.5
The estimated total costs and expenditures for improvements on these loans for the next five years are deemed immaterial for disclosure purposes at August 31, 1999. No material obligations for future improvements on land existed at August 31, 1999. 18. RELATED PARTY TRANSACTIONS Timeshare Owners' Associations--Owners' Associations have been incorporated for the Grand Flamingo, Reno Spa, Brigantine, Steamboat Springs, Aloha Bay and Orlando timesharing resorts. The respective Owners' Associations are independent not-for-profit corporations. PEC acts as the managing agent for these Owners' Associations and the White Sands Waikiki Resort Club, which is a division of PEC, (Associations) and has received management fees for its services of $2,540,000, $2,388,000 and $2,198,000 in 1999, 1998 and 1997, respectively. Such fees were recorded under the caption of other revenue. The expenses of PEC for management of each timeshare resort are incurred to preserve the integrity of the property and the portfolio performance on an on-going basis beyond the end of the sales period. The owners of timeshare interests in each Association are responsible for payment to the Associations of assessments, which are intended to fund all of the operating expenses at each of the F-28 85 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 resort facilities. The Company's share of the Association Assessments, based on unsold inventory owned, net of room income, was $968,000, $1,677,000 and $1,589,000 for 1999, 1998 and 1997, respectively, and have been recorded under the caption general and administrative expense. The Company has in the past financed budget deficits of the Associations as is reflected in the receivable from such Associations, but is not obligated to do so in the future, except in its Florida resorts. The Public Offering Statements for the Indian Shores and Orlando resorts contain a provision whereby PEC guarantees that the annual assessment fees will not exceed a specified amount, in which case PEC agrees to pay any monetary deficiencies. These guarantees are effective through the Associations' calendar year of December 31, 1999, and at the option of PEC, may be extended by PEC annually thereafter. In fiscal 1999, PEC financed a budget deficit of $247,000 and $92,000 for the Owners' Association at Indian Shores and Orlando, respectively. The Company has agreed to pay to the Associations the annual assessments fees of timeshare interest owners who are delinquent with respect to such fees, but have paid the Company in full for their timeshare interests. In exchange for the payment by the Company of such fees, the Associations assign their liens for non-payment on the respective timeshare interests to the Company. In the event the timeshare interest holder does not satisfy the lien after having an opportunity to do so, the Company acquires a quitclaim deed or forecloses on and acquires the timeshare interest for the amount of the lien and any related foreclosure costs. At August 31, 1999 and 1998, $1,398,000 was due from Owners Associations, and $1,334,000 was due to Owners' Associations, respectively. The $1,398,000 is included under the caption of other assets at August 31,1999 and the $1,334,000 is included under the caption accounts payable and accrued liabilities at August 31, 1998. Payments to Assignors--Certain transactions have been entered into with the Assignors, who are affiliates of certain officers and directors of the Company, and these transactions are more fully described in Notes 2 and 14. During the year ended August 31, 1997, approximately $2,796,000, including interest of $218,000 was paid to the Assignors. There were no principal payments to the Assignors for the years ended August 31, 1999 and 1998. Subordinated Debt--See Note 14. Transactions with MMC--In November 1996, MMC consummated the IPO and as a result, the Company's ownership of MMC was reduced to approximately 81.3% of the outstanding common stock. On September 2, 1997, Mego Financial distributed all of its 10,000,000 shares of MMC's common stock to Mego Financial's shareholders in the Spin-off. To fund MMC's past operations and growth and in conjunction with the consolidated income tax returns, MMC incurred debt to the Company and its subsidiary PEC. The amount of intercompany debt was $10,100,000 at August 31, 1997 of which $3,400,000 was paid to by MMC in October 1997 together with $500,000 advanced by the Company to MMC in September 1997. Subsequently, separate agreements were made in April and June 1998 to adjust by reductions the remaining $6,153,000 indebtedness, since the major portion was no longer payable under the Tax Sharing and Indemnity Agreement between the Company and MMC. Under these agreements, MMC paid $1,574,000 which was separately owed to PEC. Following this transaction, MMC had no outstanding indebtedness to the Company. Management Services Provided by PEC. MMC and PEC were parties to a management services arrangement pursuant to which certain executive, accounting, legal, management information, data processing, human resources, advertising and promotional personnel of PEC provided services to MMC on an as needed basis. For the years ended August 31, 1998 and 1997, approximately $616,000 and $967,000, respectively, of the salaries and expenses of certain employees of PEC were attributable to and paid by MMC in connection with services rendered by such employees to MMC. This agreement was terminated by agreement during fiscal 1998. Servicing Agreement between PEC and MEC. For the years ended August 31, 1998 and 1997 MMC paid servicing fees to PEC of approximately $2,008,000 and $1,766,000, respectively. MMC entered into a servicing agreement with PEC, providing for the payment of servicing fees at an annual rate of 50 basis points on the principal balance of loans serviced per year. The Servicing Agreement was modified effective September 1, 1997, to provide for the payment of servicing fees at an annual rate of 40 basis points on the principal balance of loans serviced per year, reduced to 35 basis points per year in January 1998. For the years ended August 31, 1998 and 1997, MMC incurred interest expense in the amount of $29,000 and $16,000 respectively, related to fees payable to PEC for these services. The interest rates were based on PEC's average cost of funds and equaled 10.46% in 1998 and 10.48% in 1997. As of August 31, 1998, PEC no longer serviced loans for MMC. F-29 86 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 19. COMMITMENTS AND CONTINGENCIES Future Improvements--Central Nevada Utilities Company (CNUC), a subsidiary, has issued performance bonds of $2,943,000 outstanding at August 31, 1999, to ensure the completion of water, sewer and other improvements in portions of the Calvada development areas. The cost of the improvements will be offset by the future receipt of betterment fees and connection fees. Leases--The Company leases certain real estate for sales offices. The Company also leases its Hawaii real estate for timeshare usage. Rental expense for fiscal 1999, 1998 and 1997 was $2,112,000, $2,035,000 and $2,339,000, respectively. Future minimum rental payments under operating leases are set forth below (thousands of dollars):
FOR THE YEARS ENDING AUGUST 31, ------------------------------- 2000 $ 2,792 2001 1,538 2002 679 2003 267 2004 236 Thereafter 1,073 --------------- Total $ 6,585 ===============
Litigation--Following the Company's November 10, 1995 announcement disclosing certain accounting adjustments, an action was filed on November 13, 1995, in the United States District Court, District of Nevada (Court) by Christopher Dunleavy, as a purported class action against the Company, certain of the Company's officers and directors and the Company's independent auditors. On November 16, 1995, a second action was filed in the Court by Alan Peyser as a purported class action against the Company and certain of its officers and directors. Each complaint alleged, among other things, that the defendants violated the federal securities laws in connection with the preparation and issuance of certain of the Company's financial reports issued in 1994 and 1995, including certain financial statements reported on by the Company's independent auditors. The Dunleavy complaint also alleged that one of the director defendants violated the federal securities laws by engaging in "insider trading." The named plaintiff in the Dunleavy action sought to represent a class consisting of purchasers of Mego Financial's common stock between January 14, 1994 and November 9, 1995. The named plaintiff in the Peyser action sought to represent a class consisting of purchasers of Mego Financial's common stock between November 28, 1994 and November 9, 1995. Each complaint sought damages in an unspecified amount, costs, attorney's fees and such other relief as the Court may deem just and proper. On or about June 10, 1996, the Dunleavy and Peyser actions were consolidated under the caption "In re Mego Financial Corp. Securities Litigation," Master File No. CV-9-95-01082-LD (RLJ), pursuant to a stipulation by the parties. On December 26, 1996, a third action was filed in the Court by Michael Nadler as a purported class action. The Nadler complaint asserts claims substantially similar to those in the Dunleavy and Peyser Actions. On April 23, 1998, counsel for the plaintiffs in the Dunleavy and Peyser actions, and counsel for the defendants filed in the Court a Stipulation and Agreement of Settlement (the Settlement Agreement) in accordance with a prior Memorandum of Understanding dated May 12, 1997. The Settlement Agreement, which was subject to a number of conditions, including approval by the Court, calls for certification, for settlement purposes only, of a class consisting of all F-30 87 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 purchasers of Mego Financial stock (excluding the defendants and their respective directors, executive officers, partners and affiliates and their respective immediate families, heirs, successors and assigns) during the period from January 14, 1994 through November 9, 1995, inclusive, for creation of a settlement fund of $1.725 million to be distributed to the class, for the dismissal of all claims asserted in the actions with prejudice and for certain releases to defendants. The Company contributed $225,000 of the settlement amount, which payment did not have a material adverse effect on the Company. On October 19, 1998, the Court issued a Final Judgment and Order of Dismissal with Prejudice, approving the Settlement Agreement, which will not become final until the Effective Date, which is the date following either the expiration of any appeal period without appeal, the date following the affirmation of the Final Judgment on appeal, and on which such Final Judgment is no longer subject to further judicial review. On November 13, 1998, Michael Nadler, who had filed objections to the settlement, filed a Notice of Appeal from the Final Judgment and Order of Dismissal with Prejudice and certain other orders of the Court. In the event, for any reason, the Final Judgment is vacated, 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 this matter. On February 23, 1998, an action was filed in the United States District Court for the Northern District of Georgia, Civil Action No.1:98CV0593-CAM, by Robert J. Feeney, plaintiff, as a purported class action against Mego Mortgage Corporation (MMC), a former subsidiary of the Company now known as Altiva Financial Corporation, and Jeffrey S. Moore, the former President and Chief Executive Officer of MMC. The complaint alleges, among other things, that the defendants violated the federal securities laws in connection with the preparation and issuance of certain of MMC's financial statements. The named plaintiff seeks to represent a class consisting of purchasers of the common stock of MMC between April 11, 1997 and December 18, 1997, and seeks such other relief as the Court may deem just and proper. An amended complaint was filed in such matter on or about June 29, 1998, which amended complaint, among other things, adds Mego Financial as a defendant, adds John Cole, Trent Hildebrand, Burt W. Price and Frank J. Murphy as plaintiffs and alleges an expansion of the purported class to certain purchasers of MMC's common stock from April 11, 1997 through May 20, 1998. However, the Company was not the parent company of MMC at the time when the majority of the matters which are cited in the above-described action occurred. On April 8, 1999, the court conditionally dismissed the Amended Complaint and ordered plaintiff to move the Court for leave to file a second amended complaint. On May 10, 1999, plaintiff filed a Second Amended Class Action Complaint. In response, on July 19, 1999, defendants filed a motion to dismiss the Second Amended Class Action Complaint, which motion is still pending. The Company does not believe that any judgment obtained will have a material adverse effect on the Company's or PEC's business or financial condition. On August 27, 1998, an action was filed in Nevada District Court, County of Clark, No. A392585, by Robert and Jocelyne Henry, husband and wife individually and on behalf of all others similarly situated against PEC, PEC's wholly-owned subsidiary, CNUC, and certain other defendants. The plaintiffs' complaint asked for class action relief claiming that PEC and CNUC were guilty of: breach of contract; unjust enrichment; customer fraud; and bait and switch tactics as a result of a solicitation of betterment fees pursuant to a letter sent to certain lot owners by PEC on January 26, 1995 (Letter). The Letter was sent to approximately 1,400 lot owners stating that their lots would be buildable by April 1, 1995 as a result of sewer and water lines being run near their respective lots. The Letter offered to accept a betterment fee payment in the amount of $2,380 per lot prior to an increase in betterment fees. The plaintiffs paid the fee and claimed they did not have a buildable lot as sewer and water lines did not reach their property. The court determined that plaintiffs had not properly pursued their administrative remedies with the Nevada Public Utilities Commission (PUC) and dismissed plaintiffs' amended complaint, without prejudice, pending plaintiffs' exhaustion of their administrative remedies before the PUC. Notwithstanding plaintiffs' appeal of the dismissal, plaintiff filed for administrative relief with the PUC. On November 17, 1999, the PUC found that CNUC, the only defendant over which the PUC has jurisdiction, was not in violation of any duties owed the plaintiffs or otherwise in violation of CNUC's approved tariffs Only approximately 350 customers accepted the offer presented in the Letter and a number of those customers own lots that are currently buildable. The Company does not believe that the litigation will result in a material judgment against PEC or CNUC or any other defendant. F-31 88 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 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. In November 1999, the plaintiff and the defendants executed a stipulation, voluntarily discontinuing and dismissing the action, which stipulation was approved by order of the court on October 25, 1999. On August 9, 1999, an action was filed in Nevada District Court, County of Clark, No. A407152, by a dissident director and a former director of the Grand Flamingo Towers Owners Association purporting to act on behalf of the Association. The complaint alleges, among other things, breach of a fiduciary duty by the defendant with respect to the management agreement between the plaintiff and defendant. In particular, plaintiff is seeking rescission of the management agreement, an injunction requiring the defendant to turn over plaintiff's property held as plaintiff's manager, imposition of a constructive trust on plaintiffs funds and profits received and held by the defendant as plaintiff's manager, and an accounting of profits and property obtained by the defendant as plaintiff's manager. The Company has filed an answer denying all liability and does not believe a determination in favor of the plaintiff will result in a material judgment against the Company. 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. Contingencies--At August 31, 1999, irrevocable letters of credit in the amount of $310,000 were issued and outstanding to secure certain obligations of the Company. These letters are collateralized by notes receivable in the amount of $444,000. License Agreement--In April 1995, PEC entered into a strategic alliance pursuant to which PEC was granted a ten-year (including a renewal option) exclusive license to operate both its existing and future timeshare properties under the name "Ramada Vacation Suites." PEC has renamed its timeshare resorts. The arrangement provides for the payment by PEC of an initial access fee of $1,000,000, which has been paid, and monthly recurring fees equal to 1% of PEC's Gross Sales (as defined) each month through January 1996 and 1.5% of PEC's Gross Sales each month commencing in February 1996. The initial term of the arrangement is five years and PEC has the option to renew the arrangement for an additional term of five years. F-32 89 MEGO FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 20. QUARTERLY FINANCIAL DATA (unaudited) The following tables reflect consolidated quarterly financial data for the Company for the fiscal years ended August 31, 1999 and 1998 (thousands of dollars, except share and per share amounts):
FOR THE THREE MONTHS ENDED ------------------------------------------------------------------------- AUGUST 31, MAY 31, FEBRUARY 28, NOVEMBER 30, 1999 1999 1999 1998 ----------- ----------- ----------- ----------- REVENUES: Net timeshare interest and land sales $ 16,869 $ 15,754 $ 12,077 $ 12,541 Gain on sale of other investments -- -- -- 513 Interest income 2,694 2,672 1,952 1,992 Financial income and other 1,861 1,901 1,857 1,819 ----------- ----------- ----------- ----------- Total revenues 21,424 20,327 15,886 16,865 ----------- ----------- ----------- ----------- EXPENSES: Direct costs of timeshare interest and land sales 3,280 3,260 2,362 2,334 Operating expenses 14,520 13,550 12,142 13,564 Interest expense 2,635 2,374 2,173 2,088 ----------- ----------- ----------- ----------- Total expenses 20,435 19,184 16,677 17,986 ----------- ----------- ----------- ----------- Income (loss) before income taxes 989 1,143 (791) (1,121) Income taxes (benefit) (180) -- (269) (381) ----------- ----------- ----------- ----------- Net income applicable to common stock $ 1,169 $ 1,143 $ (522) $ (740) =========== =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE: Basic: Net income (loss) applicable to common stock $ 0.33 $ 0.33 $ (0.15) $ (0.21) =========== =========== =========== =========== Weighted-average number of common shares 3,500,557 3,500,557 3,550,557 3,500,557 =========== =========== =========== =========== Diluted: Net income (loss) applicable to common stock $ 0.33 $ 0.33 $ (0.15) $ (0.21) =========== =========== =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,500,557 3,500,557 =========== =========== =========== ===========
F-33 90
FOR THE THREE MONTHS ENDED --------------------------------------------------------------------------- AUGUST 31, MAY 31, FEBRUARY 28, NOVEMBER 30, 1998 1998 1998 1997 ----------- ----------- ----------- ----------- REVENUES: Net timeshare interest and land sales $ 14,539 $ 13,109 $ 12,016 $ 11,861 Gain on sale of receivables 656 -- -- -- Interest income 1,913 1,931 1,693 1,624 Financial income and other 1,956 2,471 2,219 2,602 ----------- ----------- ----------- ----------- Total revenues 19,064 17,511 15,928 16,087 ----------- ----------- ----------- ----------- EXPENSES: Direct costs of timeshare interest and land sales 2,705 2,176 2,018 2,246 Operating expenses 14,852 15,019 13,431 13,490 Interest expense 2,215 2,157 1,762 1,716 ----------- ----------- ----------- ----------- Total expenses 19,772 19,352 17,211 17,452 ----------- ----------- ----------- ----------- Loss before income taxes (708) (1,841) (1,283) (1,365) Income taxes (benefit) (240) (1,728) -- -- ----------- ----------- ----------- ----------- Net loss applicable to common stock $ (468) $ (113) $ (1,283) $ (1,365) =========== =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE: Basic: Net loss applicable to common stock $ (0.13) $ (0.03) $ (0.37) $ (0.39) =========== =========== =========== =========== Weighted-average number of common shares 3,500,557 3,500,577 3,500,557 3,500,557 =========== =========== =========== =========== Diluted: Net loss applicable to common stock $ (0.13) $ (0.03) $ (0.37) $ (0.39) =========== =========== =========== =========== Weighted-average number of common shares and common share equivalents outstanding 3,500,557 3,500,557 3,500,557 3,500,557 =========== =========== =========== ===========
F-34 EX-10.172 2 6TH AMEND. TO ASSIGNMENT & ASSUMPTION AGREEMENT 1 EXHIBIT 10.172 SIXTH AMENDMENT TO ASSIGNMENT AND ASSUMPTION AGREEMENT This Sixth Amendment (the "Amendment") to Assignment and Assumption Agreement, by and between RER CORP, COMAY CORP., GROWTH REALTY INC. and H&H FINANCIAL, INC. (the "Assignors"), and MEGO FINANCIAL CORP., formerly named MEGO CORP., (the "Assignee") WITNESSETH: WHEREAS, the Assignors are parties to the Assignment Agreement dated October 25, 1987, with the Assignee, and the Assignment and Assumption Agreement, dated February 1, 1988, between the Assignors and the Assignee, which two agreements were amended by the Amendment to Assignment and Assumption Agreement dated July 29, 1988, and by the Second Amendment to Assignment and Assumption Agreement dated as of March, 2, 1995, the Third Amendment to Assignment and Assumption Agreement dated as of August 20, 1997 and the Fourth and Fifth Amendments to Assignment and Assumption Agreement dated as of February 26, 1999, and May 28, 1999, respectively, between the Assignors and the Assignee (collectively, the described agreements as so amended are hereinafter referred to as the "Assignment"); and WHEREAS, the Assignment fixed the date of January 31, 1995 as the date on which the accrual of amounts due to the Assignors under the Assignment would terminate, except for interest on any of such amounts which remained unpaid; and WHEREAS, the amount due the Assignors, as of January 31, 1995 was $13,328,742.25, plus interest from January 28, 1995 in the amount of $9,322.57, collectively, and with interest from January 31, 1995 to March 2, 1995 (the "Amount Due"); and WHEREAS, $10,000,000 of the Amount Due was agreed to be considered subordinated debt (the "Subordinated Debt"), against which payments were made as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii) $4,250,000 was deemed paid by credit against the exercise price of certain warrants as is set forth in the Third Amendment, and (iii) $35,714.28 was paid on September 1, 1998, leaving a remaining balance of the Subordinated Debt of $4,285,714.29; and WHEREAS, the balance of the Subordinated Debt continues to be secured by a pledge of all of the issued and outstanding common stock of Preferred Equities Corporation (and any distributions in respect thereto) pursuant to a Pledge and Security Agreement dated as of February 1, 1988 (the "Pledge Agreement") between the Assignee and the Assignors; and 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 is due on September 1, 1999; and WHEREAS, under the terms of the Assignment, a payment in the amount of $1,428,571.43, which was originally due on March 1, 1999, was deferred to, and is due on, September 1, 1999; and WHEREAS, the Assignee has requested that the Assignors agree to defer both of the principal payments, each in the amount of $1,428,571.43, one originally due on March 1, 1999 and the other due on September 1, 1999, to December 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 payments on the Subordinated Debt, each in the amount of $1,428,571.43, one originally due on March 1, 1999, and the other due on September 1, 1999, are hereby deferred to December 1, 1999. 3. The Assignee and Assignors agree that all amounts due to Assignors pursuant to the Assignment as amended by this Amendment shall continue to be secured as set forth in the Pledge Agreement, and that the Pledge Agreement remains in full force and effect. 4. The Assignee and Assignors agree that this Amendment is an amendment to the Assignment and not a novation, and that, except as modified hereby, all terms and conditions of the Assignment remain in full force and effect, 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 this ________________ day of August, 1999. MEGO FINANCIAL CORP. By: ___________________________________ Jerome J. Cohen, President -2- 3 RER CORP. By: ___________________________________ Title: COMAY CORP By: ___________________________________ Title: GROWTH REALTY INC. By: ___________________________________ Title: H&H FINANCIAL, INC. By: ___________________________________ Title: -3- EX-10.173 3 FORBEARANCE AGREEMENT 1 EXHIBIT 10.173 FORBEARANCE AGREEMENT This Forbearance Agreement ("Agreement") is made as of the 6th day of August, 1999 by and among Preferred Equities Corporation, a Nevada corporation with its chief executive office and principal place of business at 4310 Paradise Road, Las Vegas, Nevada 89109, Attention: Herbert Hirsch (hereinafter called the "Borrower") and with Mego Financial Corp. a New York corporation having an office at and address of The PEC Building, 4310 Paradise Road, Las Vegas, Nevada 89109, Attention: Jon A. Joseph (hereinafter called the "Guarantor") (Borrower and Guarantor may hereinafter be referred to collectively as "Obligors") and Litchfield Financial Corporation, a Massachusetts corporation with an office at 430 Main Street, Williamstown Massachusetts 01267, Attention: Joseph S. Weingarten, Executive Vice President (hereinafter called the "Lender"). Reference is hereby made to the following documents by and among Borrower, Guarantor and Lender: 1. Loan and Security Agreement by and between Preferred Equities Corporation and Litchfield Financial Corporation dated as of July 30, 1997 as amended by the First Amendment to Loan and Security Agreement by and between by and between Preferred Equities Corporation and Litchfield Financial Corporation (the "Loan Agreement"). 2. Secured Promissory Note in the original principal amount of $10,000,000.00 executed by Preferred Equities Corporation in favor of Litchfield Financial Corporation dated July 30, 1997 (the "Original Note") as amended by the First Amended and Restated Secured Promissory Note/Receivables Loan in the original principal amount of $10,000,000.00 executed by Preferred Equities Corporation in favor of Litchfield Financial Corporation dated as of December 19, 1998 (the "Amended Receivables Note") and as amended by the First Amended Secured Promissory Note/Mortgage Loan in the original principal amount of $4,500,000.00 executed by Preferred Equities Corporation in favor of Litchfield Financial Corporation dated as of December 19, 1998 (the "Amended Mortgage Note"). 3. Assignment of Receivables Collateral executed by Preferred Equities Corporation in favor of Litchfield Financial Corporation dated July 30, 1997. 4. Assignment of Deeds of Trust executed by Preferred Equities Corporation in favor of Litchfield Financial Corporation dated July 30, 1997. 5. Short Form Deed of Trust and Assignment of Rents by and between Preferred Equities Corporation, United Title and Litchfield Financial Corporation dated July 30, 1997. 6. Guaranty Agreement by Mego Financial in favor of Litchfield Financial Corporation dated July 30, 1997. 2 7. UCC-1 Financing Statements recorded with the Secretary of the State of Nevada and Clark County Recorder. The documents above referenced are collectively referred to herein as the "Loan Documents". The Original Note, the Amended Receivables Note and the Amended Mortgage Note may also hereinafter be referred to as the "Notes". All capitalized terms used in this Agreement which are not defined herein, but which are defined in the Loan Documents, shall have the same meanings herein as therein. Obligors acknowledge and agree that certain Events of Default, as set forth in Lender's correspondence to Borrower dated July 21, 1999 and July 27, 1999, have occurred and are continuing. As a result of these Events of Default, the Lender has declared the Events of Default to be in existence under the Loan Documents and has accelerated the date of payment, in full, of all of the Obligations. Borrower acknowledges and agrees that the Lender has no obligation to make additional loans or otherwise extend credit to Borrower under the Loan Documents or otherwise. Borrower has, by correspondence dated July 29, 1999, requested that the Lender forbear from enforcing its rights to take possession of the Collateral under the Loan Documents and from enforcing its right to collect the accelerated Obligations (as hereinafter defined). Obligors acknowledge that the outstanding amounts due as of August 6, 1999 are: MORTGAGE LOAN #20410007651: Principal: $2,572,962.72 Accrued, but unpaid Interest: $ 52,667.80 Late Charges: $ 37,067.73 Costs of Collection: $ 3,000.00 Total Amount Due: $2,665,698.25 Per Diem Interest $ 808.07 From and After August 6, 1999 Plus the Remaining Balance of $ 24,915.00 Minimum Release Fee Payment Obligations (which will Reduce at $25.00 per Interval, for Intervals sold which are not described on Schedule 4 attached hereto) 2 3 RECEIVABLES LOAN #20220000123: Principal: $1,409,397.84 Accrued, but unpaid Interest: $ 13,177.19 Costs of Collection: $ 4,500.00 Total Amount Due: $1,427,075.03 Per Diem Interest $ 376.38 From and After August 6, 1999 (hereinafter collectively referred to as the "Obligations"). In response to Borrower's request, the Lender agrees to forbear from enforcing its rights to take possession of the Collateral and to collect, in full, the Obligations until the Forbearance Termination Date (as hereinafter defined) upon the following terms and conditions: 1. Ratification of Existing Agreements. All of Obligors' obligations, indebtedness and liabilities to the Lender as evidenced by or otherwise arising under the Loan Documents, except as may otherwise be expressly modified in this Agreement upon the terms set forth herein and therein, are, by Obligors' execution of this Agreement, ratified and confirmed in all respects by Obligors. Borrower and Guarantor acknowledge that all of Borrower's obligations, indebtedness and liabilities to the Lender under the Loan Documents are joint and several. In addition, by Obligors' execution of this Agreement, Obligors represent and warrant that no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations, indebtedness and liabilities. Obligors further acknowledge that the security interests given by Borrower to Lender in the Real Estate Collateral and Receivables Collateral which secure Obligors' obligations to the Lender constitute a valid lien on such Real Estate Collateral and Receivables Collateral and that Obligors shall take no action to impair or invalidate the security interests therein. 2. Representations and Warranties. All of the representations and warranties made by Obligors to Lender in the Loan Documents are true and correct on the date hereof as if made on and as of the date hereof, except to the extent that any of such representations and warranties relate by their terms to a prior date. 3. Forbearance Obligations. Subject to the satisfaction of the conditions precedent set forth below, the Lender agrees to waive the existing declaration of default and nullify the acceleration of sums due and forbear from instituting proceedings to enforce its rights and remedies under the Loan Documents until the earliest to occur of (a) February 1, 2000, (b) Lender's declaration of an Event of Default under the Loan Documents arising from an event or condition in existence and not disclosed to Lender as of this date or arising subsequent to the date of this Agreement, (c) the failure of Obligors to comply with the terms of this Agreement, including any of Obligors' undertakings set forth in Section 7 hereof which such failure shall constitute an Event of Default under this Agreement and under the Loan Documents, (d) the failure of Obligors to comply with any of the terms and conditions of any of the Additional Security Agreements (each as hereinafter 3 4 defined), (e) the initiation of any federal or state Bankruptcy, insolvency or similar proceeding by (or against and not dismissed or withdrawn within 90 days after the commencement of the proceeding brought against Obligors) Obligors, (f) the commencement of litigation or legal proceedings by Obligors against the Lender or any of its affiliates, or (g) the failure of Obligors to comply with any term or condition of any other agreement, document or instrument evidencing any other indebtedness of Borrower to the Lender (the "Forbearance Termination Date"). Upon the Forbearance Termination Date, the Lender shall be free, in its sole and absolute discretion, to proceed to enforce any or all of its rights and remedies under or in respect of the Loan Documents, the Additional Security Agreements in connection with Section 4(b) below and applicable law. All of Obligors' obligations and liabilities to the Lender hereunder (including without limitation Obligors' payment obligations) shall survive the Forbearance Termination Date, and all of such obligations are secured under the Loan Documents and any other documents, instruments or agreements pursuant to which Obligors may, from time to time, grant to the Lender collateral security for Obligors' obligations to the Lender. 4. Conditions. The Lender's forbearance hereunder shall be subject to the satisfaction on or before September 10, 1999 of the following conditions precedent: (a) Borrower shall have paid in full all principal, accrued interest and applicable fees due Lender under the Receivables Loan, at the interest rate and in accordance with the terms set forth in the Loan Agreement. (b) Pursuant to security and pledge agreements in form and substance satisfactory to the Lender, Uniform Commercial Code Financing Statements and Assignment of Deeds of Trust, as applicable (the "Additional Security Agreements"), Borrower shall have granted to the Lender valid and perfected security interests in and liens on all of the assets and properties of Borrower as set forth on Schedule 4 attached hereto. (c) Borrower shall have paid to the Lender on or before August 31, 1999 the balance of $25,000 due as a non-refundable fee in the total amount of $50,000.00; $25,000 being acknowledged by Lender as received on August 4, 1999. 5. Representations and Warranties. As of the date of this Agreement, all of the representations and warranties made by Obligors to Lender, whether directly or incorporated by reference shall be true and correct on the date hereof. 6. Interest. Interest shall continue to be payable monthly in arrears on the first business day of each calendar month in accordance with the Loan Documents. 7. Covenants. Without any prejudice or impairment whatsoever to any of the Lender's rights and remedies contained in the Loan Documents, Obligors covenant and agree with the Lender as follows: 4 5 (a) Obligors agree to pay in full, in cash to Lender, the outstanding Obligations, outstanding principal amount of Obligors' indebtedness and all other sums due Lender under the Loan Documents, together with all interest thereon and all fees and expenses of the Lender incurred in connection therewith on the Forbearance Termination Date. (b) Notwithstanding anything to the contrary contained herein or in the Loan Documents and in lieu of the principal payments otherwise provided for under Section 2.5(ii)(C) of the Loan Agreement, Borrower agrees to pay or cause to be paid to Lender, on the first business day of each calendar month, commencing on September 1, 1999 and continuing on the 1st business day of each calendar month thereafter during the Forbearance Period a principal payment, for application to the Mortgage Loan, in the amount of One Hundred Thousand Dollars ($100,000.00) less the sum of all Release Payments made to Lender during the preceding calendar month. Commencing October 1, 1999 and continuing through January 2, 2000, provided that Obligors have have made the payment required hereunder for all prior months, Obligors may cumulate the aggregate amount of required payments due under this Section 7(b) against the amount of Release Payments required to be made upon a sale of an Interval under Section 2.5(ii)(B) of the Agreement for any given month. Lender acknowledges that the intent of the cumulative credit of required payments under this Section is to not penalize Obligor in any month where the amount of Release Payments exceeds the required amount by requiring Obligor to pay such excess if Obligor has in prior months not sustained sufficient sales but has made the required payments hereunder. Nothing contained herein shall relieve Obligor of the requirement to pay Release Fees in connection with each sale of an Interval as required under Section 2.5(ii)(B) of the Agreement, provided however, that no Release Fee shall be due upon the sale of an Interval listed on Schedule 4 attached hereto. (c) Borrower will provide to the Lender such financial information as it may request from time to time, and shall permit the Lender to enter (upon reasonable notice and at reasonable times) upon Borrower's premises and inspect its books and records, to make extracts therefrom and to discuss Borrower's affairs with the employees, agents and officers, all at Borrower's expense. (d) Obligors shall comply and continue to comply with all of the terms, covenants and provisions contained in the Loan Documents, except as such terms, covenants and provisions are expressly modified by this Agreement upon the terms set forth herein. (e) Obligors shall at any time or from time to time execute and deliver such further instruments, and take such further action as the Lender may reasonably request, in each case further to effect the purposes of this Agreement and the Loan Documents. 8. Releases of Collateral. (a) So long as the Forbearance Termination Date has not occurred, Borrower or Guarantor may request that the Lender release its security interest in the Real Estate Collateral and such other collateral pledged to Lender pursuant to Section 4(b) of this Agreement (a "Release Request") as is sold in the ordinary course of business provided however that Lender shall be entitled to the payment of the Release Fees, other than for the sale of an 5 6 Interval listed on Schedule 4 attached hereto, and Release Payments as provided for in the Loan Agreement prior to the issuance of such release of security interest. Obligors specifically acknowledge their obligation to pay any remaining Release Fees due in accordance with the Loan Agreement upon payment in full of the Obligations under the Mortgage Loan. 9. Expenses. Obligors agree to pay to the Lender upon demand (a) an amount equal to any and all out-of-pocket costs or expenses (including legal fees (including allocable costs of staff counsel and disbursements) incurred or sustained by the Lender in connection with the preparation of this Agreement and all related matters and (b) from time to time after the Forbearance Termination Date, any and all out-of-pocket costs or expenses (including legal fees including allocable costs of staff counsel and disbursements and reasonable consulting, accounting, appraisal and other similar professional fees and expenses) hereafter incurred or sustained by the Lender in connection with the administration of credit extended by the Lender or the preservation of or enforcement of any rights of the Lender under this Agreement or the Loan Documents or in respect of any of Obligors' other obligations to the Lender. 10. Partial Payment Not Waiver. Any partial payment amounts made by Borrower or Guarantor or any other party on Borrower or Guarantor's behalf and accepted by Lender will not constitute a waiver of any default, waiver of demand, or waiver of any other right held by Lender under the Loan Documents or this Agreement. Except as otherwise modified or amended by this Agreement, all of the terms of the Loan Documents shall remain in full force and effect and are expressly ratified and confirmed by the Borrower and the Guarantor. 11. Negative Pledge. Until such time as Lender has received payment in full of all obligations of Obligors to the Lender, Obligors agree, from and after the date of execution of this Agreement, that they will not, other than in the ordinary course of business, without the payment to Lender of any proceeds to which Lender would be entitled, sell, lease or otherwise dispose of any assets, now or hereafter existing, or permit or suffer to exist any lien, encumbrance, pledge, mortgage or security interest in or upon any assets now or hereafter existing. 12. Relief from Automatic Stay. In the event any Obligor shall: (i) file with any Bankruptcy court of competent jurisdiction or be the subject of any petition under the Bankruptcy Code; (ii) be the subject of any order for relief issued under the Bankruptcy Code; (iii) file or be the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to Bankruptcy, insolvency or other relief for debtors; (iv) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator; or (v) be the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to Bankruptcy, insolvency or other relief for debtors, then, subject to court approval, Lender shall thereupon be entitled and Obligors irrevocably consent to relief from automatic stay imposed by Section 362 of the Bankruptcy Code, or otherwise, on or against the exercise of the 6 7 rights and remedies otherwise available to Lender as provided in the Loan Documents and this Agreement and as otherwise provided by law, and Obligors hereby irrevocably waive their rights to object to such relief. 13. No Waiver. Except as otherwise expressly provided for in this Agreement, nothing in this Agreement shall extend to or affect in any way any of Obligors' obligations or any of the rights of the Lender and remedies of the Lender arising under the Loan Documents executed in connection therewith, and the Lender shall not be deemed to have waived any or all of such rights or remedies with respect to any Event of Default or event or condition which, with notice or the lapse of time, or both would become an Event of Default under the Loan Documents and which upon Obligors' execution and delivery of this Agreement might otherwise exist or which might hereafter occur. 14. Release of Lender. By execution of this Agreement, Borrower and Guarantor jointly and severally acknowledge and confirm that they do not have any offsets, defenses or claims against the Lender, or any of its officers, agents, directors, attorneys or employees whether asserted or unasserted. To the extent that they may have such offsets, defenses or claims, the Borrower and the Guarantor and each of their respective successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs, executors, as applicable, jointly and severally, release and forever discharge the Lender, its subsidiaries, affiliates, officers, directors, employees, agents, attorneys, successors and assigns, both present and former (collectively the "Lender Affiliates") of and from any and all manner of action and actions, cause and causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in law or in equity which against the Lender and/or Lender Affiliates they ever had, now have or which any of the Borrower's or Guarantor's successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs, executors, as applicable, both present and former ever had or now has, upon or by reason of any manner, cause, causes or thing whatsoever, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated. 15. Voluntary Agreement. Obligors represent and warrant that they are represented by legal counsel of their choice, are fully aware of the terms contained in this Agreement and have voluntarily and without coercion or duress of any kind, entered into this Agreement and the documents executed in connection with this Agreement. 7 8 16. Notices. Any notice, payment, demand or communication required or permitted to be given by any provision of this Agreement will be deemed to have been given when delivered personally to the party designated to receive such notice or, on the third business day after the same is sent by certified mail, postage and charges prepaid, directed to the following addresses or to such other or additional addresses as any party might designate by written notice to the other parties: To Lender: Litchfield Financial Corporation 430 Main Street Williamstown, Massachusetts 01267 Attention: Joseph S. Weingarten Executive Vice President To Borrower: Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Herbert Hirsch with a copy to: Mego Financial Corp. The PEC Building 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Jon A. Joseph To Guarantor: Mego Financial Corp. The PEC Building 4310 Paradise Road Las Vegas, Nevada 89109 Attention: Jon A. Joseph 17. Entire Agreement; Binding Affect. This Agreement constitutes the entire and final agreement among the parties and there are no agreements, understandings, warranties or representations among the parties except as set forth herein. This Agreement will inure to the benefit and bind the respective heirs, administrators, executors, representatives, successors and permitted assigns of the parties hereto. 8 9 18. Negation of Partnership. The relationship between the Borrower, Guarantor and Lender is that of debtor and creditor. Nothing contained in this Agreement will be deemed to create a partnership or joint venture between Borrower, Guarantor and Lender, or to cause Lender to be liable or responsible in any way for the actions, liabilities, debts, or obligations of Borrower and/or Guarantor. 19. Severability. If any clause or provision of this Agreement is determined to be illegal, invalid or unenforceable under any present or future law by the final judgment of a court of competent jurisdiction, the remainder of this Agreement will not be affected thereby. It is the intention of the parties that if any such provision is held to be invalid, illegal or unenforceable, there will be added in lieu thereof a provision as similar in terms to such provision as is possible, and that such added provision will be legal, valid and enforceable. 20. Headings. All headings contained in this Agreement are for reference purposes only and are not intended to affect in any way the meaning or interpretation of this Agreement. 21. Governing Law. This Agreement is executed and delivered in the Commonwealth of Massachusetts and it is the desire and intention of the parties that it be in all respects interpreted according to the laws of the Commonwealth of Massachusetts. Obligors specifically and irrevocably consent to the jurisdiction and venue of the federal and state courts of the Commonwealth of Massachusetts with respect to all matters concerning this Agreement or the Loan Documents or the enforcement of any of the foregoing. Obligors agree that the execution and performance of this Agreement shall have a Massachusetts situs and accordingly, Obligors consent to personal jurisdiction in the Commonwealth of Massachusetts. 22. Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original document, but all of which will constitute a single document. This document will not be binding on or constitute evidence of a contract between the parties until such time as a counterpart of this document has been executed by each of the parties and a copy thereof delivered to each party under this Agreement. 23. Amendment. Neither this Agreement nor any of the provisions hereof can be changed, waived, discharged or terminated, except by an instrument in writing signed by the parties against whom enforcement of the change, waiver, discharge or termination is sought. 24. WAIVER OF JURY TRIAL. OBLIGORS KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTIONS. OBLIGORS CERTIFY THAT NEITHER THE LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR 9 10 OTHERWISE, THAT THE LENDER WOULD NOT IN THE EVENT OF ANY SUCH SUIT, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY. 25. Restriction on Assignment. Neither the Borrower or any Guarantor may assign any of its obligations hereunder or under any related agreement to any person without the prior written consent of the Lender. The Lender may without notice to or consent of any person, sell, assign, grant a participation in or otherwise dispose of all or any portion of the Notes, the Agreement and the related agreements. In connection therewith, the Lender may disclose to a prospective purchaser, assignee, participant or transferee any information possessed by the Lender relating to the loan and the collateral securing the loan. 26. Nullification of Agreement. This Forebearance Agreement shall be null and void and the provisions contained herein shall be of no effect unless this Forebearance Agreement is fully executed by Borrower and Guarantor and returned to Lender on or before the close of business on August 27, 1999. LENDER Litchfield Financial Corporation ___________________________ By:____________________________________ Joseph S. Weingarten Its Executive Vice President ___________________________ Duly Authorized BORROWER Preferred Equities Corporation ___________________________ By:____________________________________ ___________________________ Its ___________________________________ Duly Authorized GUARANTOR Mego Financial Corp. ___________________________ By: ___________________________________ ___________________________ Its ___________________________________ Duly Authorized 10 11 STATE OF NEVADA ) ) ss. COUNTY OF ) On this ___ day of August, 1999, before me, the undersigned officer, personally appeared ________________, who acknowledged himself to be the ________ of Preferred Equities Corporation, a Nevada corporation, and that he, as such ___________, being authorized so to do, executed the foregoing instrument as his and its free act and deed for the purposes therein contained, by signing the name of the corporation by himself as such __________. In Witness Whereof, I hereunto set my hand. ____________________________________ Notary Public My Commission Expires: STATE OF NEVADA ) ) ss. COUNTY OF ) On this ___ day of August, 1999, before me, the undersigned officer, personally appeared ________________, who acknowledged himself to be the ________ of Mego Financial Corp., a New York corporation, and that he, as such ___________, being authorized so to do, executed the foregoing instrument as his and its free act and deed for the purposes therein contained, by signing the name of the corporation by himself as such __________. In Witness Whereof, I hereunto set my hand. ____________________________________ Notary Public My Commission Expires: 11 12 SCHEDULE 4 Assets and Property of Borrower in Which Liens and Security Interests Are To Be Granted Borrower acknowledges its obligation to grant a lien and security interest to Lender, on a continuing basis, in and to all Intervals which at any time were Encumbered Intervals and were released by Lender in connection with a sale where the Interval and/or Note Receivable previously released subsequently becomes available to be re-pledged to Lender as a result of a cancellation or default by the Purchaser thereof or for any other reason. 12 EX-10.174 4 PURCHASE AND SALE AGREEMENT 1 EXHIBIT 10.174 PURCHASE AND SALE AGREEMENT THIS AGREEMENT is made and entered into as of this ___ day of August, 1999, by and between THE VILLAS AT MONTEREY LIMITED PARTNERSHIP, a Florida limited partnership and TANGO BAY OF ORLANDO, LC., a Florida limited liability company (collectively, "SELLER"), and PREFERRED EQUITIES CORPORATION, a Nevada corporation (the "PURCHASER"). In consideration of the mutual covenants and promises herein set forth, the parties agree as follows: 1. PURCHASE AND SALE. Seller agrees to sell to Purchaser and Purchaser agrees to purchase from Seller those certain parcels of real property (the "LAND") located in Orange County, Florida, as more particularly depicted on the site plan attached hereto as EXHIBIT "A", which Land is a portion of the Project (as hereinafter defined) and includes one (1) building commonly known as Building L, containing 18 apartments (one of which is presently operated as a fitness facility), of the Ramada Suites at Tango Bay Orlando, together with the following property and rights: (a) All improvements located on the Land, including buildings, structures and other facilities (the "IMPROVEMENTS"). The Land and the Improvements are hereinafter collectively referred to as the "REALTY;" (b) All fixtures, equipment, furniture and items of personal property used exclusively in the operation of the Realty, and situated on the Realty, excluding, however, (i) any bed linens or phones or switchboard equipment (but including all phone wiring) and (ii) the fitness equipment presently contained in the apartment operated as the fitness facility (with the exception of the single piece of equipment already owned by Purchaser)(the "PERSONALTY"); (c) All licenses, permits, authorizations and approvals pertaining to ownership and/or operation of the Realty which are separable and transferable; and (d) All strips and gores of land lying adjacent to the Realty (but which are not otherwise part of the Project), together with all easements, privileges, rights-of-way, riparian and other water rights, lands underlying any adjacent streets or roads, and appurtenances pertaining to or accruing to the benefit of the Realty that are owned by Seller, if any. The Realty and all of the other property and rights described in this paragraph 1 are hereinafter collectively called the "PROPERTY". The Land is a portion of the overall Ramada Suites at Tango Bay project (the "PROJECT"), which Project consists of, among other things, a Reception Building and separate buildings lettered A (a/k/a 1) through S (a/k/a 19), inclusive (Buildings A through L still being owned by Sellers). Purchaser understands and agrees that Seller currently operates the Project under the name "Ramada Suites at Tango Bay", and Purchaser agrees not to object to Seller's continued use, after closing, of such name (or to the name "Ramada at Tango Bay" for 2 purposes of registration with RCI) with respect to Seller's operation of the balance of the Project being retained by Seller. Seller understands and agrees that, after closing, Purchaser intends to operate the Property under the name "Ramada Vacation Suites at Orlando", or such other name as Purchaser may determine. Purchaser understands and agrees that after closing it shall not use the name "Ramada Vacation Suites" with respect to any portion of the Project, nor the name "Ramada Suites" with respect to any permitted registrations with RCI. 2. PURCHASE PRICE. The purchase price to be paid by Purchaser to Seller for the Property is One Million Forty Four Thousand and No/100 ($1,044,000.00) Dollars (the "PURCHASE PRICE"). 3. DEPOSITS. To secure the performance by Purchaser of its obligations under this Agreement, within two (2) business days following receipt of written notice of execution of this Agreement by Seller, Purchaser shall deliver to Broad and Cassel, as escrow agent (the "ESCROW AGENT"), (i) the sum of Twenty Five Thousand and No/100 ($25,000.00) Dollars (the "INITIAL DEPOSIT"), and (ii) provided Purchaser does not exercise its right to cancel this Agreement during the Inspection Period (as defined in, and hereinafter provided for, in paragraph 7 below), within two (2) business days following the expiration of the Inspection Period, Purchaser shall deliver to the Escrow Agent the additional sum of Twenty Five Thousand and No/100 Dollars ($25,000.00), which shall be held as an additional earnest money deposit hereunder (the "ADDITIONAL DEPOSIT"). The Initial Deposit and Additional Deposit are hereinafter collectively referred to as the "DEPOSIT". . The Escrow Agent shall invest the Deposit in an interest-bearing account, certificate of deposit or repurchase agreement maintained with or issued by a commercial bank or savings and loan association doing business in Orange County, Florida. All interest accrued or earned on the Deposit shall be paid or credited to Purchaser except in the event of a default by Purchaser, without any default of Seller, in which event the interest shall be disbursed to Seller, together with the Deposit, as liquidated damages in accordance with paragraph 12 below. 4. TERMS OF PAYMENT. The Purchase Price shall be paid to Seller as follows: $ 25,000.00, being the total Deposit referred to in paragraph 3 of this Agreement, which sum shall be paid to Seller at closing. $1,019,000.00, approximately, in current funds at time of closing, subject to prorations and adjustments as hereinafter provided, to be paid by wire transfer of Federal Funds. $1,044,000.00 Total Purchase Price. ============= -2- 3 5. TITLE. Within fifteen (15) days following the date of this Agreement, Seller, at Seller's expense, shall deliver to Purchaser's attorneys, Greenberg, Traurig, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention: Gary A. Saul, Esq., a commitment (the "COMMITMENT") for an owner's ALTA Form B Marketability title insurance policy with respect to the Project from First American Title Insurance Corporation (or other national title company reasonably acceptable to Purchaser) in favor of Purchaser in the amount of the Purchase Price. The Commitment shall be endorsed and updated at Seller's expense: (i) within five (5) days following the delivery of the Survey (as hereinafter defined) to delete those matters reflected on the Commitment which are not applicable to the Realty, and (ii) within ten (10) days before closing. The Commitment and any endorsement or update thereof shall show Seller to be vested with good, marketable and insurable fee simple title to the Realty, free and clear of all liens, encumbrances and other matters, except only for those liens and encumbrances to be released and satisfied at closing and the following (the "PERMITTED EXCEPTIONS"): (a) Ad valorem real estate taxes for the year of closing, provided same are not then due and payable, and subsequent years. (b) All applicable zoning ordinances and regulations, none of which shall prohibit or otherwise interfere with all uses presently being made of the Property. (c) The Contracts (as hereinafter defined). (d) The matters described on EXHIBIT "B" attached hereto. Additionally, at Closing, Purchaser and Seller shall execute such documents as are necessary to: (i) amend that certain Declaration of Restrictions and Protective Covenants for Tango Bay (the "Declaration"), recorded April 9, 1996 in Official Records Book 5038, Page 3760 of the Public Records of Orange County, Florida, to transfer the Property from Village A to Village B (as defined in the Declaration)(the "DECLARATION AMENDMENT"), and (ii) cause the Property to be fully released and unencumbered by that certain Declaration of Restrictions (6 Year Covenant) recorded April 9, 1996 in Official Records Book 5038, Page 3850 of the Public Records of Orange County, Florida, and cause the 6 Year Covenant to be extended and to remain in effect as to the portions of the Project owned by Seller for a period expiring upon the earlier of: (i) December 31, 2003, or six (6) months following the date that Purchaser has closed on the sale of not less than ninety five percent (95%) of its inventory of timeshare units in the Project (the "6 YEAR AMENDMENT"). Within thirty (30) days following the date of this Agreement, Seller shall also deliver to Purchaser, a survey (the "SURVEY") of the Realty showing and certifying the exact location and -3- 4 legal description of the Realty and meeting the minimum technical standards of the Florida Board of Land Surveyors and the State of Florida Department of Professional Regulation, certified to Purchaser, Purchaser's title insurer, Seller and Broad and Cassel and prepared as of a date subsequent to the date of this Agreement. The Survey shall also show and certify: (i) the location of all improvements and easements and rights-of-way affecting the Realty, (ii) the location of all roadways adjacent to the Realty, (iii) the acreage of the Realty calculated to the second decimal place, and (iv) the perimeter boundaries of the Project, including, without limitation, the location of all streets, roads, accessways, entrance features and fountains located therein. Notwithstanding the fact that Seller shall be obligated to obtain and deliver the Survey to Purchaser, responsibility for the cost of the Survey shall be determined as follows: (1) in the event that Purchaser closes on title to the Property as contemplated hereunder, Purchaser shall be solely obligated for the cost of the Survey; (2) in the event that Purchaser elects to cancel this Agreement during the Inspection Period as provided in paragraph 7 below, Purchaser shall be solely obligated for the cost of the Survey; (3) in the event that the Agreement is cancelled as a result of the failure of any of Purchaser's Conditions Precedents (other than breach of a representation or warranty by Seller), then Purchaser and Seller shall equally share the cost of the Survey; (4) in the event that Seller elects to cancel this Agreement during the Contingency Period as provided in paragraph 9 below, Seller shall be solely obligated for the cost of the Survey; (5) in the event that the Agreement is cancelled as a result of a default by Seller or any breach of a representation or warranty by Seller, then Seller shall be solely obligated for the cost of the Survey; or (6) in the event that the Agreement is cancelled as a result of a default by Purchaser, then Purchaser shall be solely obligated for the cost of the Survey. Seller agrees to give Purchaser notice, promptly after placing the order for the Survey, of the name, address and phone number of the surveyor, and of the cost for the Survey. The provisions of this subparagraph shall survive Closing and any cancellation or termination of this Agreement. Title shall be deemed good, marketable and insurable only if the Commitment allows for issuance of an Owner's ALTA Form B Marketability Policy effective as of closing at minimum promulgated risk rate premiums, without any guarantees and without any exceptions, standard or otherwise, other than the Permitted Exceptions. Purchaser shall have fifteen (15) days from receipt of the Commitment and hard copies of all items noted as exceptions therein (the "TITLE REVIEW PERIOD"), within which to examine same. If Purchaser finds title to be defective or -4- 5 cannot determine the effect of the matter until located on the Survey, Purchaser shall, no later than the expiration of the Title Review Period, notify Seller in writing specifying the defect(s) (which defect(s) shall also include any UCC-1 Financing Statements filed with the Florida Secretary of State) or reserving the right to comment on same after receipt of the Survey; provided that if Purchaser fails to give Seller written notice before the expiration of the Title Review Period of defect(s) in title or of the need for the Survey to review the effect of the exception, then the defects shown in the Commitment (other than those to be evaluated upon receipt of the Survey) shall be deemed to be waived as title objections to closing this transaction. Purchaser may raise as additional objections, however, any matters first shown by the Survey, any endorsement of the Commitment and/or recertifications of Survey, provided that notice of objection to same must be given to Seller within fifteen (15) days from receipt of the Survey, endorsement or recertification, as applicable. If Purchaser has given Seller timely written notice of defect(s) and the defect(s) render the title other than as represented in this Agreement, Seller shall use its best efforts to cause such defects to be cured by the date of closing, provided, however, that Seller shall not be obligated to file suit or otherwise expend any monies with regard to curing title defects other than with regard to the payment of any liens or encumbrances which have voluntarily and intentionally been created by Seller. At Purchaser's option, the date of closing may be extended for a reasonable period (not to exceed ninety (90) days) for purposes of eliminating any title defects. In the event that Seller does not eliminate any defects as of the date of closing as the same may be extended under the preceding sentence, Purchaser shall have the option of either: (i) closing and accepting the title "as is", without reduction in the Purchase Price, or (ii) canceling this Agreement in which event the Escrow Agent shall return the Deposit and all interest earned thereon to Purchaser, whereupon both parties shall be released from all further obligations under this Agreement, except only for those obligations which are intended to survive closing and/or any earlier termination of this Agreement, unless such defects were caused by Seller's willful act or willful omission, in which event, Seller shall remain liable to Purchaser for damages caused thereby. Seller shall execute appropriate documents as required for "gap coverage" by the title insurer or the closing shall be held in escrow in accordance with customary escrow closings for Orange County, Florida. 6. DELIVERIES. Within seven (7) business days following the date hereof (and thereafter, as applicable), Seller shall deliver to Purchaser true, correct and complete copies of all of the following, to the extent in the possession of the Seller: -5- 6 (a) All permits, licenses, authorizations or approvals (other than those which are no longer in effect) issued by any governmental body or agency having jurisdiction over the Property, related to the ownership and/or operation of the Property (the "LICENSES"); and (b) The bill or bills issued for the year 1998 for real estate and personal property taxes and any subsequently issued notices pertaining to real estate or personal property taxes or assessments applicable to the Property. 7. PURCHASER'S CONDITIONS PRECEDENT. Purchaser's obligation to close the transaction provided for in this Agreement shall be subject to the following conditions precedent to closing: (a) Purchaser shall have until September 15, 1999 (the "INSPECTION PERIOD") to examine the Licenses, the Plans and the Studies and to decide whether they are satisfactory to Purchaser and to make such physical, zoning, land use, environmental, and other examinations, inspections and investigations of the Property or the use or operation thereof which Purchaser, in Purchaser's sole discretion, may determine to make, subject, however, to the provisions of Section 19 below. In the event Purchaser is not satisfied with any of the foregoing, in Purchaser's sole and absolute discretion, Purchaser may cancel this transaction as hereinafter provided. (b) Purchaser shall have until the expiration of the Inspection Period to make a physical inspection of the Property by architects, engineers and/or environmental specialists of Purchaser's choice, for the purpose of determining the condition and suitability of the Property, subject, however, to the provisions of Section 19 below. In the event that, based upon such inspection, Purchaser is not satisfied with the condition of the Property, in Purchaser's sole discretion, Purchaser may cancel this transaction as hereinafter provided. (c) Purchaser shall have a period of ninety (90) days following the date of this Agreement by both parties to obtain all appropriate final, non-appealable land use, zoning, environmental, and other governmental and utility approvals (collectively, the "APPROVALS"), whether by ordinance, variance, amendment, special use and/or otherwise, including, without limitation, any necessary amendments to the P.U.D. and the applicable comprehensive plan necessary to permit the operation and marketing of the Property as a timeshare, interval ownership or vacation club. Purchaser agrees to proceed diligently to obtain the Approvals, at Purchaser's expense, and Seller agrees to reasonably cooperate in that regard, including, without limitation, executing applications or other governmental submissions as the owner of the Property, provided, however, that said cooperation shall not require Seller to post any bonds and/or other financial assurances with any governmental authorities or incur any liability, cost or expense with regard to such cooperation. If Purchaser has not obtained the Approvals within the ninety (90) day period, Purchaser shall have the right to extend the said period for an additional thirty (30) day period, by giving Seller notice to such effect at any time prior to the expiration of the ninety (90) day period, together with notice from Purchaser's local counsel (if Purchaser is using local counsel, or if not, then the certification shall come from Purchaser directly) that the application for the Approvals is proceeding. Subsequent to the initial thirty (30) day extension period, Purchaser shall have the right to extend the time period for obtaining the Approvals for two additional thirty (30) day periods (i.e., the maximum period for Purchaser to obtain the Approvals shall be 180 days - the initial 90 day period and the three 30 day extension periods), in each case, Purchaser to exercise the right to extend the period by giving Seller notice, at any time prior to the expiration of the then applicable period, to such effect, together with notice from Purchaser's local counsel (if Purchaser is using local counsel, or if not, then the certification shall come from Purchaser directly) that the application for the Approvals is proceeding. In the event that Purchaser has not -6- 7 timely obtained the Approvals, Purchaser may cancel this transaction as hereinafter provided. In order for Seller to keep abreast of the status of the application for the Approvals, Purchaser hereby authorizes Seller to make direct inquiries of Purchaser's local counsel from time to time, and Purchaser shall authorize Purchaser's local counsel to communicate directly with Seller and/or Seller's counsel in this regard. (d) At all times during the term of this Agreement and as of closing, all of the representations and warranties by Seller contained in this Agreement shall be true and correct in all material respects. In the event any of the foregoing conditions precedent are not fulfilled as of closing (or earlier date if specified otherwise), then Purchaser shall have the option of either: (i) waiving the condition and closing "as is", without reduction in the Purchase Price or claim against Seller therefor, or (ii) canceling this Agreement by written notice to Seller given by closing (or earlier date if specified otherwise), in which event the Escrow Agent shall return the Deposit(s) and all interest thereon to Purchaser, whereupon both parties shall be released from all further obligations under this Agreement, except those obligations which are specifically stated to survive termination or closing of this transaction. In the event Purchaser timely elects to cancel this Agreement, and as consideration for Seller granting Purchaser the investigation and inspection condition precedent therein, Purchaser shall deliver to Seller within ten (10) days following any notice of cancellation, a copy of all written studies or reports obtained by or prepared for Purchaser by third parties in connection with the Inspection Period, without warranty or representation of any kind whatsoever on the part of Purchaser as to the content, accuracy or completeness thereof, and, in addition, Purchaser shall return any materials delivered to Purchaser by Seller under paragraph 6 above. 8. SELLER'S REPRESENTATIONS. Seller represents and warrants to Purchaser and agrees with Purchaser as follows: (a) At closing, there shall be no contracts, insurance policies, leases, tenancies, arrangements, licenses, concessions, easements, service arrangements, employment contracts or agreements, brokerage agreements, and any and all other contracts or agreements, either recorded or unrecorded, written or oral, affecting the Property or any portion thereof, or the use thereof, other than (i) that certain Contract with Safeguard Services Southeast, Inc. dated June 6, 1992, (ii) that certain Cable Television Installation and Service Agreement for Hotel with Time Warner Entertainment Advance/Newhouse Partnership and (iii) that certain Laundry Space Lease dated March 1, 1993 with Amerivend Corporation (the "Laundry Lease")(collectively, the "CONTRACTS", true correct and complete copies of which are attached hereto as Composite EXHIBIT "C"). Seller shall not permit any lease rights to extend beyond closing and shall deliver exclusive possession of the Property to Purchaser at closing, free of all tenancies, occupancy or possessory agreements or contracts (other than the Contracts) or arrangements, whether oral or written, including, without limitation, any transient hotel guests affecting the Property or any unfulfilled hotel or guest -7- 8 reservations affecting the Property. Seller understands and agrees that Purchaser does not desire to be bound by the terms of the Laundry Lease, however, in lieu of requiring Seller to terminate same prior to Closing, Seller agrees to indemnify Purchaser (and its officers, directors, shareholders, employees and agents) from and against any and all liability (including reasonable attorneys fees and costs at trial and all appellate levels) Purchaser (or its officers, directors, shareholders, employees and agents) may suffer, directly or indirectly, as a result of, or arising from, the Laundry Lease, including without limitation, any liability incurred subsequent to Closing. Notwithstanding anything to the contrary, the indemnification provisions contained in this subparagraph shall survive indefinitely after Closing. (b) Seller has not received any notice of: (i) any pending improvement liens to be made by any governmental authority with respect to the Property; (ii) any violations of building codes and/or zoning ordinances or other governmental regulations with respect to the Property; (iii) any pending or threatened lawsuits with respect to the Property; (iv) any pending or threatened condemnation proceedings with respect to the Property; or (v) any defects or inadequacies in the Property which would adversely affect the insurability of the Property or increase the cost thereof. (c) To the best of the actual knowledge of Seller, no fact or condition exists which would result in the termination or impairment of access to the Property or the discontinuation of necessary sewer, water, electric, gas, telephone or other utilities or services to the Property. (d) Seller has not received written notice from any applicable governmental entity or any insurance carrier of any material defect, latent or otherwise, in the Improvements on the Land, structural elements thereof, the mechanical systems (including, without limitation, all heating, ventilating, air conditioning, plumbing, electrical, utility and sprinkler systems) therein, the utility system servicing the Property and the roofs, which have not been disclosed to Purchaser in writing prior to the date of this Agreement. (e) To the best of Seller's actual knowledge, all Improvements on the Land were permitted conforming structures under applicable zoning and building laws and ordinances in effect when the Improvements were constructed and the present uses thereof are permitted uses under applicable zoning and building laws and ordinances. (f) During the period between the date of this Agreement and closing, Seller shall continue to operate and manage the Property in a prudent, businesslike and responsible manner consistent with its operation and management prior to the date of this Agreement and keep same clear of accumulations of trash, debris or overgrowth of vegetation. Seller shall: (i) continue to maintain all of the present services to the Property, (ii) make all repairs and replacements in the ordinary course of business to the Property (excluding capital expenditures in excess of $100.00 per unit), and (iii) not remove any of the personal property from the Property except in replacement of same (or as to the fitness equipment of Seller, which Seller is permitted to remove at any time). In addition, Seller shall make all payments due prior to closing in connection with the Property, including all utility payments and payments on any other obligations affecting the Property. Notwithstanding the foregoing, exclusive possession of the Property shall be conveyed to Purchaser at closing, and, accordingly, Seller shall not accept any reservations for hotel or transient guests at the Property which would affect the Property at the time of, or after, closing. (g) To the best of Seller's knowledge, Seller is vested with good, marketable and insurable fee simple title to the Realty subject only to the Permitted Exceptions as provided herein; and Seller is vested with good and marketable title, subject only to the Permitted Exceptions, to all fixtures, equipment, furnishings and items of personal property referred to in subparagraph (b) above free of all financing -8- 9 and other liens or encumbrances (except only for mortgage which are to be satisfied and released at closing). (h) Seller shall comply prior to closing with all laws, rules, regulations, and ordinances of all governmental authorities having jurisdiction over the Property, provided, only, however, that Seller shall have no obligation to adapt any units within the Property to comply with the requirements of the Americans with Disabilities Act. Seller shall be responsible for and shall promptly pay all amounts owed for labor, materials supplied, services rendered and/or any other bills or amounts related to Seller and Seller's ownership and/or operation of the Property prior to closing. (i) Prior to closing, no portion of the Property or any interest therein, beneficial or otherwise, shall be alienated, further encumbered, conveyed or otherwise transferred. In addition, Seller shall not discuss or negotiate any potential sale of the Property with any third party during the term hereof. (j) The execution, delivery and performance of this Agreement by Seller have been duly authorized and no consent of any other person or entity to such execution, delivery and performance is required to render this document a valid and binding instrument enforceable against Seller in accordance with its terms. Neither the execution of this Agreement or the consummation of the transactions contemplated hereby will: (i) result in a breach of, or default under, any agreement to which Seller (or any of the entities or persons comprising Seller) is a party or by which the Property is bound, or (ii) violate any restrictions to which Seller is subject. (k) Seller is not a "foreign person" within the meaning of the United States tax laws and to which reference is made in Internal Revenue Code Section 1445(b)(2). At closing, Seller shall deliver to Purchaser an affidavit to such effect, and also stating Seller's employer identification number and the state within the United States under which Seller was organized and exists. Seller acknowledges and agrees that Purchaser shall be entitled to fully comply with Internal Revenue Code Section 1445 and all related sections and regulations, as same may be modified and amended from time to time, and Seller shall act in accordance with all reasonable requirements of Purchaser to effect such full compliance by Purchaser. (l) To the best of Seller's actual knowledge, without any independent investigation or inquiry, there has not been and there is not now: (i) any Hazardous Substance (as hereinafter defined) present on the Realty, except for such materials as are normally and customarily used for household purposes or in the operation or maintenance or apartment complexes, and which are not in violation of any environmental law, (ii) any present or past generation, recycling, reuse, sale, storage, handling, transport and/or disposal of any Hazardous Substance on the Realty, except for such materials as are normally and customarily used for household purposes or in the operation or maintenance or apartment complexes, and which are not in violation of any environmental law,, or (iii) any failure to comply with any applicable local, state or federal environmental laws, regulations, ordinances or administrative or judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and/or disposal of any Hazardous Substance. Seller has not received any notice from any governmental authority regarding the presence of any Hazardous Substance, any present or past generation, recycling, reuse, sale, storage, handling, transport and/or disposal of any Hazardous Substance or any failure to comply with any applicable local, state or federal environmental laws, regulations, ordinances or administrative or judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and/or disposal of any Hazardous Substance. Seller shall at all times prior to closing comply with all applicable local, state or federal environmental laws, regulations, ordinances or administrative or judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and/or disposal of any Hazardous Substance and Seller shall not generate, recycle, reuse, sell, store, handle, transport and/or -9- 10 dispose of any Hazardous Substance on the Property without the prior written consent of Purchaser, except for such materials as are normally and customarily used for household purposes or in the operation or maintenance or apartment complexes, and which are not in violation of any environmental law. As used herein, the term "HAZARDOUS SUBSTANCE" means any substance or material defined or designated as a hazardous or toxic waste material or substance, or other similar term by any federal, state or local environmental statute, regulation or ordinance presently or hereinafter in effect, as such statute, regulation or ordinance may be amended from time to time. (m) As of the closing, there shall be no leases or other occupancy or possessory agreements or contracts affecting the Property, whether oral or written, including, without limitation, any hotel or transient guests on the Property or any unfulfilled hotel or guest reservations affecting the Property. The provisions of this paragraph shall survive the closing for a period of one (1) year. 9. SELLER'S CONDITION PRECEDENT. To the extent that the subject transaction does not close on or prior to December 31, 1999, then, in such event, Seller's obligation to subsequently close the transaction provided for in this Agreement shall be subject to Seller's obtaining, prior to Closing, the agreement of the present mortgage holder on the Property to release the Property from the lien of their mortgage, at a price and on terms satisfactory to Seller, in Seller's sole and absolute discretion. Promptly following the satisfaction of this condition precedent, or any portion thereof, Seller shall provide Purchaser with written evidence of same. In the event that the foregoing condition precedent is applicable and is not fulfilled prior to Closing, then Seller shall have the option of either: (i) waiving the condition, or (ii) canceling this Agreement by written notice to Purchaser given prior to the Closing, in which event the Escrow Agent shall return the Deposit(s) and all interest thereon to Purchaser, whereupon both parties shall be released from all further obligations under this Agreement, except those obligations which are specifically stated to survive termination or closing of this transaction. In addition, Seller shall use commercially reasonable efforts to obtain approval from the present mortgage holder on the Property to join in and subordinate the lien of their mortgage to the 6 Year Amendment. Promptly following Seller obtaining such joinder and consent, or any portion thereof, Seller shall provide Purchaser with written evidence of same. Purchaser understands and agrees, however, that obtaining the joinder and consent to the 6 Year Amendment is not a condition precedent to this Agreement, and accordingly, if despite the commercially reasonable efforts of Seller, Seller does not obtain such joinder and agreement, Purchaser shall nonetheless be obligated to conclude this transaction. This paragraph shall survive Closing or any earlier termination of this Agreement. -10- 11 10. PURCHASER'S REPRESENTATIONS. Purchaser represents to Seller as follows: (a) Purchaser has previously reviewed and considered the nature of this transaction and the Inspection Period will enable Purchaser to investigate the Property and all aspects of the transaction. In electing to proceed with this transaction, Purchaser shall have determined that the Property is satisfactory to Purchaser in all respects, and is purchasing the Property in "as is" physical condition, subject only to any representations of Seller expressly set forth in this Agreement. Purchaser has and will rely solely on Purchaser's own independent investigations and inspections, and Purchaser has not relied and will not rely on any representation of Seller other than as expressly set forth in this Agreement. It is expressly covenanted and agreed that, except as expressly provided in this Agreement, neither the Seller, nor any employee, agent, representative or any other person acting on behalf of the Seller has made or will make any representation or warranty of any kind or nature whatsoever, express or implied, concerning the physical condition of the Property, or any part or portion thereof, or its state of repair, or the presence or the absence of any latent or patent defects, or its income potential, expenses or uses, or its merchantability, or fitness for any use or purpose. Purchaser acknowledges and agrees that its agreement to accept the Property in "AS IS" condition, without representation or warranty, except as expressly provided in this Agreement, is a material part of the consideration being bargained for by Seller, without which consideration, Seller will not agree to sell the Property on the price and terms set forth herein. (b) The execution, delivery and performance of this Agreement by Purchaser have been duly authorized, and this Agreement is binding on Purchaser and enforceable against Purchaser in accordance with its terms. No consent of any other person or entity to such execution, delivery and performance is required. 11. UTILITIES. Purchaser understands and agrees that to the extent that the utilities for the Property are metered with the balance of the Project owned by Seller. Purchaser may elect, at its sole cost and expense, to cause all utility service and connections to the Property to be separated from those of the overall Project so that the Property's utilities are separately metered and independent from those of the overall Project (the "UTILITY SEPARATION"). In the event of such election, (i) Seller grants to Purchaser and Purchaser's contractors, and their respective employees, subcontractors, agents, representatives and designees, the right to enter upon the balance of the Project after closing for the purpose of effecting the Utility Separation, at all reasonable times and in a reasonable manner and (ii) Purchaser agrees to make reasonable efforts to minimize any disruption of utility service and connections to the balance of the Project. Purchaser agrees to indemnify Seller against any loss or damage to the balance of the Project resulting therefrom. In the event that Purchaser elects not to separate the utilities, Seller agrees to allow the utility service for the Property to continue as it presently exists and to bill Purchaser for the allocable portion thereof attributable to the Property. Seller agrees to make reasonable efforts to fairly allocate the portion of the utility expenses attributable to the Property (but Seller shall not be obligated to submeter the Property to make such determination). -11- 12 The provisions hereof shall survive closing. 12. DEFAULT PROVISIONS. In the event of the failure or refusal of the Purchaser to close this transaction, without fault on Seller's part and without failure of title or any conditions precedent to Purchaser's obligations hereunder, Seller shall receive the Deposit together with all interest earned thereon as agreed and liquidated damages for said breach, and as Seller's sole and exclusive remedy for default of Purchaser, whereupon the parties shall be relieved of all further obligations hereunder, except those obligations which are specifically stated herein to survive the termination or closing of this transaction. In the event of a default by Seller under this Agreement, Purchaser at its option shall have the right to: (i) receive the return of the Deposit together with all interest earned thereon, whereupon the parties shall be released from all further obligations under this Agreement, except those obligations which are specifically stated herein to survive the termination or closing of this transaction, unless the default was caused by the willful act, omission, or intentional material misrepresentation of Seller in which event Seller shall continue to be liable for damages caused thereby, anything to the contrary notwithstanding, or, alternatively, (ii) seek specific performance of the Seller's obligations hereunder and/or any other equitable remedies, thereby waiving damages. Notwithstanding the foregoing, in the event of a default by either party of any obligations which specifically survive closing, then the non-defaulting party shall be entitled to seek any legal redress permitted by law or equity. The provisions hereof shall survive closing. 13. PRORATIONS. Real estate and personal property taxes, utilities and all other proratable items shall be prorated as of the date of Closing. Seller shall pay all sales and/or use tax due on revenues received and purchases made prior to the Closing date and shall comply with all statutory provisions necessary for Purchaser to avoid transferee liability for same. In the event the taxes for the year of Closing are unknown, the tax proration will be based upon the taxes for the prior year, and at the request of either party, the taxes for the year of Closing shall be reprorated and adjusted when the tax bill for such year is received and the actual amount of taxes is known. The provisions of this paragraph shall survive the Closing. 14. IMPROVEMENT LIENS. Certified, confirmed or ratified liens for governmental improvements as of the date of Closing, if any, shall be paid in full by Seller, and pending liens for governmental improvements as of the date of Closing shall be assumed by the Purchaser, -12- 13 provided that where the improvement has been substantially completed as of the date of Closing, such pending lien shall be considered certified. 15. CLOSING COSTS. The parties shall bear the following costs: (a) The Purchaser shall be responsible for payment of the following: (i) the cost of examining the Commitment and Survey, (ii) the cost of the Survey, but only to the extent of its obligation for same pursuant to paragraph 5 above, (iii) any and all costs and expenses of architectural, engineering and other inspection and feasibility studies and reports incident to Purchaser's inspections, and (iv) clerk's recordation fees for recording the warranty deed. (b) The Seller shall be responsible for payment of the following: (i) any costs associated with issuance of the Commitment (including the premium for the owner's policy issued pursuant thereto), (ii) the cost of the Survey, but only to the extent of its obligation for same pursuant to paragraph 5 above, (iii) any transfer taxes in connection with the delivery of the deed and bill of sale including documentary stamp tax and surtax, and (iv) recording costs on the Declaration Amendment, the 30 Month Amendment, the 6 Year Amendment and on any documents necessary to clear title. (c) Each party shall pay its own legal fees except as provided in subparagraph (c) below. 16. CLOSING. Subject to other provisions of this Agreement for extension, the closing (the "CLOSING") shall be held thirty (30) days following the date that Purchaser obtains the Approvals, but in no event sooner than October 31, 1999 nor later than the date which is two hundred ten (210) days following the date of this Agreement by both parties. Closing shall be held at the office of Seller's counsel. At Closing, Seller shall execute and/or deliver to Purchaser the following closing documents: (a) a good and sufficient special warranty deed subject only to the Permitted Exceptions, (b) an appropriate mechanic's lien affidavit, sufficient in form and content for any title insurance company to delete the standard exceptions for mechanic's liens, and, to the extent of work performed in the ninety (90) days prior to closing, appropriate releases and indemnities to allow Purchaser to obtain title insurance coverage over any unfiled liens, (c) an affidavit of exclusive possession, (d) an appropriate bill of sale with warranty of title for claims by, through or under Seller for all personal property included in this transaction, (e) a non-foreign affidavit and/or certificate pursuant to subparagraph 8(k) above, (f) appropriate assignments of all licenses, easements, rights-of-way, contract rights, guarantees and warranties, and other property and rights included in this transaction, to the extent separable and transferable (g) appropriate evidence of Seller's formation, existence and authority to sell and convey the Property, (h) an appropriate "gap" affidavit and/or indemnity as required by the title insurer, -13- 14 (i) assignment of all Licenses, to the extent separable and transferable, and (j) a marked-up title insurance Commitment issued by a national title insurance company acceptable to Purchaser pursuant to paragraph 5 above. At closing, Seller and Purchaser shall each execute counterpart closing statements and such other documents as are reasonably necessary to consummate this transaction. Additionally, Purchaser and Seller shall execute the Declaration Amendment, 30 Month Amendment and 6 Year Amendment. 17. BROKERS. The parties each represent and warrant to the other that there are no real estate brokers, salesmen or finders involved in this transaction. If a claim for brokerage in connection with the transaction is made by any broker, salesman or finder, claiming to have dealt through or on behalf of one of the parties hereto ("INDEMNITOR"), Indemnitor shall indemnify, defend and hold harmless the other party hereunder ("INDEMNITEE"), and Indemnitee's officers, directors, agents and representatives, from all liabilities, damages, claims, costs, fees and expenses whatsoever (including reasonable attorney's fees and court costs at trial and all appellate levels) with respect to said claim for brokerage. The provisions of this paragraph shall survive the Closing and any cancellation or termination of this Agreement. 18. ASSIGNABILITY. Purchaser shall be entitled to assign its rights hereunder to any subsidiary or any other entity controlled by Purchaser. No other assignment of this Agreement shall be permitted without the prior written consent of Seller, which may be withheld or denied by Seller in its sole and absolute discretion. Notwithstanding the foregoing, no assignment shall be binding upon or effective against Seller unless such assignment is in writing, is executed by the assignor and assignee, with the assignor expressly acknowledging that the assignment in no way releases the assignor from any duties, liabilities or obligations under the Agreement, and with the assignee expressly assuming and agreeing to pay and perform all of the assignor's duties, liabilities or obligations under the Agreement, and a fully executed counterpart of the assignment delivered to Seller. 19. INSPECTIONS. Purchaser, and Purchaser's agents and contractors, shall have the right during the term of this Agreement to enter upon the Property at reasonable times and upon 24 hour advance notice by facsimile transmission to Holly Caracciolo, Fax No. (407) 239-0710, for purposes of inspection and making tests and studies thereon. Seller shall have the right to require Purchaser, and Purchaser's agents and contractors, to enter upon the Property only when accompanied by Seller or a representative of Seller. Throughout the term of this -14- 15 Agreement, Seller, its agents and employees shall at all times cooperate with Purchaser, its agents and contractors in connection with their performance of the inspections provided herein. All such inspections, tests and studies shall be undertaken by Purchaser in a manner and at such times and places so as to not unreasonably disturb or interfere with the quiet enjoyment of the Property by Seller's guests and/or tenants. Purchaser agrees to indemnify, defend and hold harmless Seller from and against all liabilities, damages, claims, costs, fees and expenses whatsoever (including reasonable attorney's fees and court costs at trial and all appellate levels) arising out of or resulting from any physical damage to the Property caused by Purchaser, or Purchaser's agents, contractors or employees, in connection with such inspection or investigation. 20. ESCROW AGENT. The Escrow Agent shall not be liable for any actions taken in good faith, but only for its gross or willful negligence. The parties hereby indemnify and hold the Escrow Agent harmless from and against any loss, liability, claim or damage whatsoever (including reasonable attorney's fees and court costs at trial and all appellate levels) the Escrow Agent may incur or be exposed to in its capacity as escrow agent hereunder except for gross negligence or willful misconduct. If there be any dispute as to disposition of any proceeds held by the Escrow Agent pursuant to the terms of this Agreement, the Escrow Agent is hereby authorized to interplead said amount or the entire proceeds with any court of competent jurisdiction and thereby be released from all obligations hereunder. The Escrow Agent shall not be liable for any failure of the depository. Purchaser acknowledges and agrees that Escrow Agent is acting as counsel to Seller in this transaction, and that this conflict of interest does not disqualify Escrow Agent from acting in such dual capacity. Purchaser further acknowledges and agrees that in the event of any dispute regarding this transaction or the Agreement (including, without limitation, a dispute regarding disbursement of amounts being held by Escrow Agent), Escrow Agent shall not be disqualified from representing Seller with regard to such dispute, notwithstanding its status as Escrow Agent. 21. NOTICES. Any notices required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if 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 follows: -15- 16 If to the Purchaser at: Preferred Equities Corporation 1125 N.E. 125th Street Suite 206 North Miami, Florida 33161 Attn: Jerome J. Cohen, President Fax No. (305) 899-1824 With a copy to: Greenberg, Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Attn: Gary A. Saul, Esq. Fax No. (305) 579-0717 If to the Seller at: Marc Wilkow, President M&J Wilkow, Ltd. 180 North Michigan Avenue Chicago, Illinois 60601 Fax No. (312) 726-0468 With a copy to: James E. Slater, Esq. Broad and Cassel Suite 1100 390 North Orange Avenue Orlando, Florida 32801 Fax No. (407) 425-8377 If to Escrow Agent at: James E. Slater, Esq. Broad and Cassel Suite 1100 390 North Orange Avenue Orlando, Florida 32801 Fax No. (407) 425-8377 Notices personally delivered or sent by overnight courier shall be deemed given on the date of delivery, notices transmitted by facsimile shall be deemed given on the date sent provided that the transmitting machine confirms transmission in writing (or otherwise, upon actual receipt by the other party) and notices mailed in accordance with the foregoing shall be deemed given three (3) days after deposit in the U.S. mails. 22. RISK OF LOSS. The Property shall be conveyed to Purchaser in the same condition as on the date of this Agreement, ordinary wear and tear excepted, free of all tenancies or occupancies, and Seller shall not remove any Personalty from the Property between now and Closing (other than the fitness equipment owned by Seller). In the event that the Property or any material portion thereof is taken by eminent domain prior to Closing, Purchaser shall have the option of either: (i) canceling this Agreement and receiving a refund of the Deposit and all interest earned thereon, whereupon both parties shall be relieved of all further obligations under this Agreement, except those obligations which are specifically stated herein to survive the termination or closing of this transaction, or (ii) Purchaser may proceed with closing in which case Purchaser shall be entitled to all condemnation awards and -16- 17 settlements. In the event that the Improvements are damaged or destroyed by fire or other casualty prior to Closing, Seller shall have the option to repair and restore the Property to the same condition as before the fire or casualty and closing shall be deferred for up to sixty (60) days to permit such repair and restoration. If Seller elects not to repair and restore or if Seller is unable to repair and restore within such sixty (60) day period, then Purchaser shall have the option of either: (i) canceling this Agreement and receiving a refund of the Deposit and all interest earned thereon, whereupon both parties shall be released from all further obligations under this Agreement, except those obligations which are specifically stated herein to survive the termination or closing of this transaction, or (ii) proceeding with closing without reduction in the Purchase Price in which case Purchaser shall be entitled to all insurance proceeds allocable to the Property. 23. INDEMNITY. Seller shall indemnify and hold Purchaser harmless from any and all liability, including costs and reasonable attorneys' fees (at trial and all appellate levels) for: (a) Any sales tax due on any rentals or sales prior to the closing of the transaction, to the State of Florida under Florida Statutes Section 212.10. (b) Any contracts for services to the property existing now or at any time prior to closing (other than obligations arising from the Contracts subsequent to Closing). (c) Any security deposits of tenants received by Seller prior to closing. (d) Any personal property taxes remaining unpaid for calendar years prior to the year of closing. The provisions of this paragraph shall survive the closing. 24. DISCLOSURES. Pursuant to the laws of the State of Florida, Seller is required to provide the following notice to Purchaser: (a) RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. (b) The prospective purchaser of real property with a building for occupancy located thereon is notified that the purchaser may have the building's energy efficiency rating determined. (c) Seller hereby represents and warrants that the Property is located in coastal areas partially or totally seaward of the coastal construction control line as defined in Chapters 161.053 of the Florida Statutes. Pursuant to Chapter 161.57 of the Florida Statutes, the Survey shall delineate the location of the coastal construction control line on the Property. 25. MISCELLANEOUS. -17- 18 (a) This Agreement shall be construed and governed in accordance with the laws of the State of Florida. All of the parties to this Agreement have participated fully in the negotiation and preparation hereof; and, accordingly, this Agreement shall not be more strictly construed against any one of the parties hereto. (b) In the event any term or provision of this Agreement be determined by appropriate judicial authority to be illegal or otherwise invalid, such provision shall be given its nearest legal meaning or be construed as deleted as such authority determines, and the remainder of this Agreement shall be construed to be in full force and effect. (c) In the event of any litigation between the parties under this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and court costs at all trial and appellate levels. The provisions of this subparagraph shall survive the closing coextensively with other surviving provisions of this Agreement. (d) If any date upon which, or by which, action required under this Agreement is a Saturday, Sunday or legal holiday recognized by the Federal government, then the date for such action shall be extended to the first day that is after such date and is not a Saturday, Sunday or legal holiday recognized by the Federal government. (e) In construing this Agreement, the singular shall be held to include the plural, the plural shall include the singular, the use of any gender shall include every other and all genders, and captions and paragraph headings shall be disregarded. (f) Time shall be of the essence for each and every provision of this Agreement. (g) All of the exhibits attached to this Agreement are incorporated in, and made a part of, this Agreement. 26. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and there are no other agreements, representations or warranties other than as set forth herein. This Agreement may not be changed, altered or modified except by an instrument in writing signed by the party against whom enforcement of such change would be sought. This Agreement shall be binding upon the parties hereto and their respective successors and assigns. -18- 19 EXECUTED as of the date first above written in several counterparts, each of which shall be deemed an original, but all constituting only one agreement. Witnessed by: SELLER: THE VILLAS AT MONTEREY LIMITED PARTNERSHIP, a Florida limited partnership By: M & J Wilkow of Florida, Inc., General Partner _____________________________ By: _________________________________ Marc Wilkow, President _____________________________ Tax ID No. _______________________________ TANGO BAY OF ORLANDO, LC, a Florida limited liability company _____________________________ By: ______________________________________ Name: ____________________________________ Title: ___________________________________ _____________________________ Tax ID No. _______________________________ PURCHASER: PREFERRED EQUITIES CORPORATION, a Nevada corporation _____________________________ By: _________________________________ Name: ___________________________ Title: __________________________ _____________________________ Tax ID No. _______________________________ -19- 20 RECEIPT The undersigned Escrow Agent hereby acknowledges receipt of a check, subject to clearance, in the amount of Twenty Five Thousand and No/100 Dollars ($25,000.00) from Purchaser to be held as the Initial Deposit pursuant to the foregoing Agreement. ESCROW AGENT: BROAD and CASSEL By: ____________________________________ 21 EXHIBIT "B" PERMITTED EXCEPTIONS 1. Decree Incorporating Drainage District recorded May 27, 1970 in Official Records Book 1948, Page 639 of the Public Records of Orange County, Florida, and Notice of Lien recorded October 26, 1993 in Official Records Book 4640, Page 4288 of the Public Records of Orange County, Florida. 2. Notice of Restrictions on Real Estate recorded June 30, 1972 in Official Records Book 2244, Page 736 of the Public Records of Orange County, Florida, as partially terminated by Termination of Restrictions recorded August 14, 1985 in Official Records Book 3676, Page 1019 of the Public Records of Orange County, Florida. 3. Declaration of Covenants, Conditions and Restrictions for "Westwood Lakes Subdivision" recorded May 28, 1986 in Official Records Book 3790, Page 2732, as amended by Amendment to Declaration of Covenants, Conditions and Restrictions for "Westwood Lakes Subdivision" recorded in Official Records Book 3827, Page 1018, and Second Amendment recorded in Official Records Book 4115, Page 4648, all of the Public Records of Orange County, Florida. 4. Grant of Easement recorded September 10, 1986 in Official Records Book 3819, Page 0439 of the Public Records of Orange County, Florida. 5. The following matters set forth on the Plat of Orangewood Neighborhood-2 recorded in Plat Book 17, Page 81 of the Public Records of Orange County, Florida: (a) 10.00 foot Utility and Lake Maintenance Easement reserved along side parcel lines; (b) 10.00 foot Utility Easement reserved along rear parcel lines; 6. Distribution Easement in favor of Florida Power Corporation recorded June 26, 1987 in Official Records Book 3898, Page 3699 of the Public Records of Orange County, Florida. 7. Declaration of Restrictions and Protective Covenants for Tango Bay recorded April 9, 1996 in Official Records Book 5038, Page 3760 of the Public Records of Orange County, Florida 8. Perpetual Non-Exclusive Easement recorded April 9, 1996 in Official Records Book 5038, Page 3819 of the Public Records of Orange County, Florida 9. Non-Exclusive Easement recorded April 9, 1996 in Official Records Book 5038, Page 3833 of the Public Records of Orange County, Florida 10. Declaration of Restrictions (30 Month Covenant) recorded April 9, 1996 in Official Records Book 5038, Page 3844 of the Public Records of Orange County, Florida EX-10.175 5 EXTENSION TO THE 2ND AM. TO FORBEARANCE AGRMNT 1 EXHIBIT 10.175 September 7, 1999 Mr. Jon Joseph Preferred Equities Corporation 4310 Paradise Road Las Vegas, Nevada 89109-6597 Re: Second Amendment to Forbearance Agreement and Amendment No.7 to Second Amended and Restated Consolidated Loan and Security Agreement (the "Agreement") dated as 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 Documents FINOVA has agreed to extend the Maturity Date of the Additional Advance Note to October 1, 1999. The terms of the Documents, as specifically supplemented by this letter, remain in full force and effect. All provisions of the documents, including without limitation, the time is of the essence provisions are hereby reiterated, and if ever waived, reinstated. 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. 2 Mr. Jon Joseph September 7, 1999 Page 2 FINOVA Capital Corporation, a Delaware corporation By: _____________________________ Its: ____________________________ The foregoing has been seen and agreed to this___day of September 1999. Preferred Equities Corporation By:____________________________ Its: __________________________ The undersigned, the Guarantor of the Borrower, hereby acknowledges receipt of the foregoing and consents to the same, this___ day of September, 1999. MEGO Financial Corp. By:____________________________ Its: _______________________ EX-10.176 6 PURCHASE AND SECURITY AGREEMENT 1 EXHIBIT 10.176 PURCHASE AND SECURITY AGREEMENT This PURCHASE AND SECURITY AGREEMENT ("Agreement") is made and entered into this ____ day of ________, 1999 by and between Preferred Equities Corporation, a Nevada corporation, with its principal offices located at 4310 Paradise Road, Las Vegas, Nevada 89109 ("PEC") and Preferred RV Resort Owners Association, a Nevada corporation, with its principal office located at 1801 Crawford Way, Pahrump, Nevada 89048 ("Association"). WITNESSETH WHEREAS, pursuant to that certain Public Offering Statement approved by the State of Nevada on October 9, 1985 as amended on March 4, 1998 ("POS"), PEC is the developer of that certain recreational vehicle campground located in Nye County, Nevada and commonly known as Preferred RV Resort ("Resort"), more particularly described as: Parcel 3 of Parcel Map of Calvada Valley Unit 6, Block 3, Lot 1, recorded April 26, 1994 as Document Number 351410 in the office of the County Recorder of Nye County, Nevada; and WHEREAS, by contract with the Association ("Management Contract"), PEC serves as manager of the Resort; and WHEREAS, for purposes of this Agreement only, the Association alleges and PEC acknowledges that it owes the Association assessments for 1231 interval interests owned by PEC at the Resort ("Remaining Inventory"); and WHEREAS, the Association wishes to purchase from PEC the Remaining Inventory. NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration acknowledged as received by the parties, the parties hereto agree as follows. 1. PURCHASE PRICE. PEC agrees to convey title, subject to the exceptions stated in the Preliminary Title Report, attached hereto as Exhibit D, to all of the Remaining Inventory to the Association in consideration of: A. Forgiveness of PEC's past and current debt owed to the Association in the amount of $433,687.00, including past assessments in the amount of $180,512.00, pursuant to the independent audit prepared by Main Gorman as of December 1998, and including assessments for 1999 in the amount of $253,175.00 ("PEC's Obligation"). B. The additional sum of One Hundred Forty-One Thousand, Six Hundred Seventy-Eight Dollars ($141,678.00), inclusive of interest at five percent (5%) ("Secured Obligation") evidenced by a purchase money promissory note ("Note") secured by a first deed of trust ("Deed of Trust") on the Remaining Inventory, executed in favor of PEC, said Note and Deed of Trust being attached hereto and incorporated herein as Exhibits "B" and "C" to this Agreement. The term of the Note shall be three (3) years 1 2 ("Note Term"), payable in increments of One Hundred Fifty-Three Dollars ($153.00) ("Release Fee") upon the sale of each of the first Nine-Hundred Twenty-Six (926) interests in the Remaining Inventory that are sold. The Association and PEC agree that the Note and Deed of Trust will be administered through a title company mutually agreed upon by the parties as trustee ("Trustee") and subject to the payment by the Association of the Release Fee and such fees as may be charged by the Trustee, the Trustee will release, from the lien of the Deed of Trust, the subject intervals as they are sold by the Association. All remaining intervals will be released when the Note is paid in full. Any balance due at the end of the term of the Note shall be due and payable in full on the Note maturity date. 2. ACTIONS TO BE TAKEN. A. PEC shall, by the Effective Date of this Agreement (as hereinafter defined) take the following actions. 1. Resign as the Association's management company pursuant to the existing Management Agreement between PEC and the Association. 2. Assure that all of its officers, employees and/or agents who now serve on the Association's Board of Directors ("Board") and/or hold officer positions with the Association resign from those positions following the election of Wanda Blohm, or such other person as may be designated by the Association, to the position of President of the Association. 3. Convey assets of the Resort and Association, as listed on Exhibit "A" attached hereto and incorporated herein by this reference ("Assets"), to the Association. 4. Record the Note and Deed of Trust in the office of the County Recorder of Nye County, Nevada. 5. Take all steps necessary to terminate that certain marketing agreement, by and between PEC and Great Outdoor Resorts of North America, LLC ("GORNA"), dated April 23, 1998, including any updated codicil or marketing agreement affecting the inventory. PEC will use its best efforts to remove GORNA from the office currently used by GORNA for sales activities located at the Resort. 6. Cooperate in and do all things necessary to facilitate the State of Nevada approval of a new public offering statement by the Association. 7. Cooperate in transferring all Association and Park documents, files, owner lists and all other Association and/or Park items in the possession of PEC, to the Association. B. The Association shall, by the Effective Date of this Agreement (as hereinafter defined) use its best efforts to take the following actions. 1. Through its president, Wanda Blohm, or other Association nominee(s), appoint other directors, satisfactory to the Association. 2 3 2. Through its newly constituted Board, unanimously vote, via action acceptable to PEC, to (i) accept the resignations of the Board members who represent PEC; (ii) ratify all of the terms and conditions of this Agreement, without modification and (iii) forgive PEC's Obligation subject to the purchase of remaining inventory, the Note and affirmative vote of a majority of non-Declarant owners (at the time this Agreement is entered into, a majority of non-Declarant owners equals six hundred seventy-one (671) votes), confirming the forgiveness of PEC's Obligation, PEC's resignation as the Association's management company and all other acts of the newly constituted Board as reasonably requested by PEC, including but not limited to the indemnifications discussed in Section 6. of this Agreement ("Owners' Vote"). 3. EFFECTIVE DATE OF THE AGREEMENT. The effective date of this Agreement shall occur upon a) the Association's presentation to PEC of satisfactory evidence of the Owners' Vote, said presentation to occur no more than sixty (60) days from the date this Agreement is entered into and b) termination of the agreement between PEC and Great Outdoor Resorts of North America ("GORNA") dated April 23, 1998, pursuant to terms therein ("Effective Date"). 4. COSTS. In the event of any litigation between the parties under this Agreement, the parties hereto agree to pay their own attorneys' fees and court costs at all trial and appellate levels. In addition, the parties agree as follows: A. Owners' Vote. The Association agrees to pay all costs associated with obtaining the Owners' Vote as required herein. B. Registration of Remaining Inventory with State of Nevada Real Estate Division in Name of Association. The Association agrees to pay all costs associated with the process of registering the Remaining Inventory with the Nevada Real Estate Division. C. Purchase of Interests in Default. The Association agrees to purchase from PEC all interests sold prior to the Effective Date of this Agreement in default for a price equaling the lesser of: i) the outstanding balance of the account or ii) 50% of the sales price at the time of default. The only purchasers to whom Paragraph 4.C. applies are those named in Exhibit D attached hereto and incorporated herein. D. Trustee Services. The Association agrees to pay all costs associated with Trustee's services as they apply to the administration of the Note secured by the Deed of Trust. All costs 3 4 charged by the Trustee associated with the closing of this purchase will be shared equally by PEC and the Association. 5. DEFAULT. In the event the Secured Obligation is not paid within the Note Term, an additional five percent (5%) interest shall be added to the remaining balance of the Note and PEC retains all rights and remedies provided to it as a secured priority lienholder (as evidenced by the Note and Deed of Trust), at law and in equity. 6. RELEASE AND INDEMNITY. In consideration of this Agreement and subject to its full implementation and transfer of Remaining Inventory and Assets, as provided for herein, the Association, on behalf of itself, officers, successors, subrogees, executors, administrators and assigns, does hereby forgive PEC's Obligation and, in that regard, does voluntarily and knowingly release and discharge PEC, its officers, directors, affiliates, subsidiaries, parent company, agents, contractors and employees, past, present and future, from any and all claims, liabilities, demands, rights, damages, costs, attorneys' fees (including but not limited to any claim of entitlement for attorneys' fees under any contract, statute, or rule of law allowing a prevailing party or plaintiff to recover attorneys' fees), expenses and controversies which Association may now have or have at anytime in the future relating to PEC's Obligation, as defined hereinabove. The Association agrees to fully exonerate, indemnify and hold PEC harmless from and against all claims, liabilities, demands, rights, damages, costs, attorney's fees (including but not limited to any claim of entitlement for attorneys' fees under any contract, statute or rule of law allowing a prevailing party or plaintiff to recover attorneys' fees), expenses and controversies, based upon or arising out of the Association's sales practices or damage or injury (including death) to persons or property caused by and/or sustained in connection with the Association's management, operation, development and/or sales of interest in the Resort upon the Effective Date of this Agreement; and further agrees, if requested by PEC, to assume without expense to PEC, the defense of any such claims or actions, unless such damage or injury was caused by PEC's negligence or willful misconduct. The parties agree and acknowledge that except as to forgiveness of PEC's Obligation and indemnification of PEC for the future actions of the Association, the Association does not intend and will not release, discharge or indemnify PEC for any claims, liabilities, demands, rights, damages, costs, attorney's fees, expenses and controversies which the Association, its members or any other person (natural or corporate) may have now or in the future against PEC relating to PEC's management, development or sale of interests in the Resort. PEC shall fully exonerate, indemnify and hold the Association, its officials, agents, contractors and employees, past, present and future, harmless from and against all claims, liabilities demands, rights, damages, costs, attorneys' fees (including but not limited to any claim of entitlement for attorney's fees under any contract, statute, or rule of law allowing a prevailing party or plaintiff to recover attorney's fees), expenses and controversies, based upon or arising 4 5 out of damage or injury (including death) to persons or property caused by and/or sustained in connection with PEC's management, operation, development and/or sales of interests in the Resort prior to the Effective Date of this Agreement; and further agrees, if requested by the Association, to assume without expense to the Association, the defense of any such claims or actions, unless such damage or injury was caused by the Association's negligence or willful misconduct. Each of the parties hereto shall secure and/or maintain such general, business, liability and/or errors and omissions insurance, with policy limits sufficient to fully carry out its obligations under the terms of this section. Neither party will allow such policies to lapse until such time as, by operation of law of the applicable statutes of limitation or to otherwise, the insured party no longer has any liability for its management, operation, development and/or sales of interests in the Resort. Notwithstanding the parties obligation to secure and maintain insurance, in no event shall the failure to secure or maintain sufficient insurance obviate the parties' mutual obligation to indemnify under this section, as provided in this section. Nothing contained herein, and no action taken by any party to this Agreement shall be construed as an admission by any party of liability in any respect, and no action taken by any party in effectuating this Agreement may be used in any future or pending litigation involving any of the parties to this Agreement, or any other party, nor shall any such action be deemed an admission of liability in any respect. 7. 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 proceedings 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; however, in the event the parties' waiver of litigation proceedings is considered invalid for any reason, venue for any litigation proceeding between the parties relating to this Purchase and Security Agreement shall be in the Fifth Judicial District Court, in and for Nye County, Nevada. 8. MISCELLANEOUS PROVISIONS. A. The parties hereto have read this Agreement and agree to the conditions and obligations set forth herein; and have freely and fully consulted with their legal counsel on the matters addressed herein; and voluntarily execute this Agreement after having had full opportunity to consult with legal counsel and/or other representation, and without being pressured or influenced by any statement or representation of any person acting on behalf of the parties; accordingly, there is to be no presumption against the draftsperson of this Agreement. B. Time is of the essence for each and every provision of this Agreement; 5 6 C. 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; D. In construing this Agreement, the singular shall be held to include the plural, the plural shall include the singular, the use of any gender shall include all genders, and captions and paragraph headings shall be disregarded. Headings are for convenience of reference only and are not to be considered in the interpretation of this Agreement; E. This Agreement shall be governed and interpreted in all respects by the laws of the State of Nevada; F. This Agreement may be executed in counterparts, each of which shall be fully effective as an original, and all of which together shall constitute one and the same instrument. G. This Agreement and all Exhibits hereto may be amended and/or supplemented, through addenda executed by both parties, up to the Effective Date, and the Agreement and all Exhibits hereto shall be amended to reflect updated information updated, if necessary, upon the Effective Date hereof. This Agreement may be terminated by either party up to the Effective Date for any reason, effective immediately upon receipt of written notice of termination to the other party. H. This Agreement, Note and Deed of Trust contain the entire agreement between PEC and Association and no promise, inducement or representation other than as set forth herein has been made, offered or agreed upon between the parties. I. This Agreement cannot be varied or modified orally and may only be varied or modified by a written instrument duly executed by the parties. J. If any provision of this Agreement is held to be invalid, such invalidity shall not affect the validity of any other provisions of this Agreement which can be given effect without the invalid provision, and to this end the provisions of this Agreement are declared to be severable. K. THIS AGREEMENT IS FOR PURPOSES OF THE PURCHASE OF THE REMAINING INVENTORY SUBJECT TO THE NOTE SECURED BY DEED OF TRUST ONLY AND IS NOT TO BE USED BY OR AGAINST ANY OF THE PARTIES HERETO AND/OR THE INTERVAL OWNERS OF THE RESORT, 6 7 COLLECTIVELY OR INDIVIDUALLY, IN ANY ACTION OR PROCEEDING BY, AGAINST OR BETWEEN THE PARTIES HERETO AND/OR THE INTERVAL OWNERS OF THE RESORT COLLECTIVELY OR INDIVIDUALLY. ENTERED INTO AS OF THE DATE FIRST APPEARING HEREIN. PREFERRED EQUITIES CORPORATION, A NEVADA CORPORATION By: ____________________________________ Name: Gregg A. McMurtrie Title: Executive Vice President and Chief Operating Officer PREFERRED RV RESORT OWNERS ASSOCIATION, A NEVADA CORPORATION By: ____________________________________ Name: Wanda Blohm Title: President 7 8 EXHIBIT A ASSETS 1. Office Building, consisting of three (3) mobile units joined together. 2. All Association assets, including cash, real and personal property, all accounting and tax records, all membership records, applicable insurance policies and other important documents necessary to operation of the Resort. 3. All accommodation units. 4. All vehicles leased-purchased by Owners' Assessments, including: (a) One 1989 Ford Van: Vehicle Identification Number 29385 (b) One 1994 Ford Econoline: Vehicle Identification Number 35546 (c) One 1994 Ford Ranger: Vehicle Identification Number 67416 5. All Equipment purchased by Owners' Assessments, including: (a) One 1996/1997 John Deere Gator tractor; (b) Two Easy-Go Golf Carts (c) Two Yamaha Golf Carts (d) All office equipment, including computers, furniture, copier, facsimile, etc. In the event the equipment is leased, PEC shall use its best efforts to transfer the lease to the Association. 8 EX-10.177 7 FORBEARANCE AGRMNT & AMEND. TO RESTATED & CONSOLID 1 EXHIBIT 10.177 FORBEARANCE AGREEMENT AND AMENDMENT NO. 5 TO SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND SECURITY AGREEMENT This Forbearance Agreement and Amendment No. 5 to Second Amended and Restated and Consolidated Loan and Security Agreement ("Amendment") dated as of December 23, 1998 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. FINOVA 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 FINOVA 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" and together with the Original Loan Agreement, the First Amendment, the Second Amendment and the Third Amendment, collectively the "Loan Agreement"). B. Borrower has advised FINOVA that Borrower may not have performed each and every term and condition of the Documents, which nonperformance may constitute an Event of Default. Such events of nonperformance (collectively the "Existing Events of Default") may allow FINOVA to exercise its rights under the Loan Agreement. Such events of nonperformance include, without limitation, Borrower's failure to meet the Sales, General and Administrative Expense to Net Sales covenant contained in Section 8.23(d) of the Loan Agreement as amended by the Fourth Amendment. C. In the event there exists an Existing Event of Default, Borrower has requested that FINOVA forbear from enforcing its rights and remedies under the Documents with respect thereto. Borrower has also requested that FINOVA lend to Borrower the amount of Five Million Six Hundred Sixty Two Thousand Dollars ($5,662,000) in addition to the amounts already loaned or agreed to be loaned to Borrower under the Documents. FINOVA has agreed to (i) fund a portion of such new loan, in the amount of Three Million Dollar ($3,000,000) (the "Tranche A Loan"), on the terms provided herein, (ii) fund a portion of the new loan, in the amount of Two Million Six Hundred Sixty Two Thousand Dollars ($2,662,000) (the "Tranche B Loan") on the terms provided herein, and (iii) forbear from enforcing its rights and remedies as provided herein. 2 D. Borrower has advised FINOVA that Borrower will be paying its debts as they mature in the ordinary course with the proceeds of the Additional Advances. Now, therefore, in consideration of the foregoing and for the good and valuable consideration provided herein, FINOVA, Borrower and Guarantor agree as follows: 1. LOAN AGREEMENT. Unless otherwise defined herein, all capitalized terms used herein shall have the same meaning set forth in the Loan Agreement. Provided the conditions precedent described in Section 4 of this Amendment are met to the satisfaction of FINOVA, which satisfaction will be evidenced by FINOVA's execution of this Amendment, the Loan Agreement is hereby further modified as follows: 1.1 The Loan Agreement is hereby amended by adding to Article I the following definitions: "Additional Advance Note": that certain Promissory Note (Additional Advances) of Borrower of even date with the Fifth Amendment, executed and delivered to FINOVA in the amount of Five Million Six Hundred Sixty Two Thousand Dollars ($5,662,000) evidencing the Additional Advances, together with any modifications, amendments, restatements or supplements from time to time made thereto whether now or hereafter existing. "Additional Advances": shall have the meaning set forth in the Fifth Amendment. "Affiliate": means any Person controlling, controlled by or under common control with Borrower. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of any Person, whether through ownership of common or preferred stock or other equity interests, by contract or otherwise. Without limiting the generality of the foregoing, each of the following shall be an Affiliate: Guarantor, any officer or director of Borrower, any shareholder, member or subsidiary of Borrower, and any other Person with whom or which Borrower has common shareholders, officers or directors. This definition shall be applicable only with respect to Section 3.1 of the Fifth Amendment. "Brigantine Inn": shall mean Ramada Vacation Suites on Brigantine Beach located in Brigantine, New Jersey and identified in the Business Plan as "Brigantine Inn". "Brigantine Villas": shall mean Ramada Vacation Suites on Brigantine Beach located in Brigantine, New Jersey and identified in the Business Plan as "Brigantine Villas". "Business Plan": shall mean that certain Revised Fiscal 1999 Business Plan (New Plan) submitted by Borrower to FINOVA on December 9, 1998. 2 3 "Calvada Eye": shall mean that parcel of real property described in the Business Plan as "Calvada Eye." "Calvada Land": shall mean all unsold residential Lots as of the date of this Amendment located in Borrower's Calvada Development in Pahrump, Nevada. "Calvada Meadows Unit 2 RV Park": shall mean that parcel of real property described in the Business Plan as "Proposed RV Park in Calvada Meadows Unit 2 along Highway 160". "Calvada RV Park": shall mean that certain RV Park timeshare project located in Pahrump, Nevada and identified in the Business Plan as "Calvada RV Park". "Calvada Unit 2 Raw Land": shall mean that parcel of real property described in the Business Plan as "Raw land bordering Calvada North Unit 2". "Calvada North Unit 5": shall mean that parcel of real property described in the Business Plan as "Proposed Calvada North Unit 5 (Kissam)." "CNUC/Cottonwood Park": shall mean that certain parcel of real property described in the Business Plan as "Old CNUC/Cottonwood Park area in Valley Unit 6." "Colorado Water Rights": shall mean those water rights located in Huerfano County, Colorado and described in the Business Plan as "Colorado Water Rights." "Fifth Amendment": shall mean 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. "Forbearance Collateral Release Conditions": shall mean the occurrence of all of the following: (i) the principal amount of the Additional Advances and all accrued interest shall have been paid in full, (ii) there shall then exist no Event of Default (including the Existing Events of Default) or Incipient Default and (iii) Borrower has been in compliance, in all material respects, with the Business Plan for the months of March 1999, April 1999, May 1999 and June 1999. "Former STP Site": shall mean that parcel of real property described in the Business Plan as "Former STP Site below Comstock Park." "Golf Courses": shall mean that certain golf course development described in the Business Plan as "Golf Courses." "Incipient Default": shall mean an act or event which with notice, passage of time or both would constitute an Event of Default. 3 4 "NWC Highway 160 Calvada": shall mean that parcel of real property described in the Business Plan as "Northwest corner of Highway 160 and Calvada Boulevard." "Stock Pledge Agreement": shall have the meaning set forth in Section 4.2(b) of the Fifth Amendment. "SWC Highway 160 Calvada": shall mean that parcel of real property described in the Business Plan as "Southwest corner of Highway 160 and Calvada Boulevard." "RV Park Remainder": shall mean that parcel of real property described in the Business Plan as "Remainder parcel of existing RV Park." "White Sands": shall mean that certain time share project known as Ramada Vacation Suites at White Sands located in Honolulu, Hawaii. 1.2. The definition of the following term in Article I of the Loan Agreement, including, to the extent applicable, the First Amendment, Second Amendment, Third Amendment and Fourth Amendment is hereby amended and restated in its entirety to read as follows: "Receivables Loan": shall mean that portion of the Loan not to exceed Seventy Five Million Dollars ($75,000,000), less the aggregate outstanding principal balance of (a) all Advances made under the Mortgage Loan Facility, (b) the Aloha Bay Note, (c) the Office Note, (d) the Biloxi Note and (e) the Additional Advance Note. 1.3 The provisions of Paragraph 2.1 of the Loan Agreement are hereby amended and restated in their entirety to read as follows: "2.1 The Loan. Subject to the terms and conditions of this Agreement, Lender hereby agrees to make a Loan to Borrower in the amounts and for the purposes hereinafter described. The Loan shall be constituted of the Receivables Loan, the Mortgage Loan Facility, a One Million Seven Thousand One Hundred Dollars ($1,007,100) nonrevolving mortgage loan made with respect to Aloha Bay (the "Aloha Bay Loan"), a Six Million Five Hundred Eighty Three Thousand Four Hundred Six and 43/100 Dollar ($6,583,406.43) nonrevolving mortgage loan previously made with respect to the Headquarters Building and the FCFC Property (the "Office Loan"), a One Million One Hundred Seventy Three Thousand Seven Hundred Fifty Dollar ($1,173,750) nonrevolving mortgage loan previously made with respect to the Biloxi Property and the Additional Advances." 4 5 1.4 The provisions of Paragraph 2.2 of the Loan Agreement are hereby amended and restated in their entirety to read as follows: "2.2 Receivables Loan. Upon Borrower's request, subject to the conditions precedent stated in ARTICLE V hereof and elsewhere in this Agreement, Lender hereby agrees that the Receivables Loan will be disbursed to Borrower, from time to time, in periodic advances, but in no event after the Receivables Borrowing Term has expired, in amounts not to exceed those determined by subtracting (a) the difference between the unpaid principal balance outstanding under the Loan at the time of each Advance over the outstanding principal balance of the aggregate of (i) Advances made under the Mortgage Loan Facility, (ii) the Aloha Bay Loan, (iii) the Office Loan, (iv) the Additional Advances and (v) the Biloxi Note from (b) the Borrowing Base, determined as of the date thereof after giving effect to all Eligible Receivables then assigned to (and not reassigned by) Lender; provided, however, that the outstanding principal amount of the Loan shall not exceed at any time the Maximum Loan Amount, and; provided, further, that the principal amount of any and all indebtedness of Borrower to Lender which is secured by Receivables Collateral encumbering Lots shall not exceed Thirty Five Million Dollars ($35,000,000)." 1.5 The provisions of Section 2.3.7.5 of the Loan Agreement are hereby amended to provide that the entire remaining balance of the Towers Note, together with all accrued and unpaid interest and all other sums due and owing thereon, shall be due and payable in full on June 30, 1999. 1.6 The provisions of Paragraph 2.6 of the Loan Agreement are hereby amended and restated in their entirety to read as follows: "2.6 All Advances of the Loan, whether made under the Receivables Loan and evidenced by the Receivables Note, or made under the Mortgage Loan Facility and evidenced by a Project Note, or made under the Aloha Bay Loan and evidenced by the Aloha Bay Note or made under the Office Loan and evidenced by the Office Note, and made with respect to the Biloxi Property and evidenced further by the Biloxi Note or made under the Fifth Amendment and evidenced by the Additional Advance Note shall be deemed to be a single Loan." 1.7 Paragraph 8.13.(c) of the Loan Agreement is hereby modified to require that interim financial statements for the Borrower and the Guarantor be supplied to FINOVA on a monthly basis, rather than a quarterly basis, within thirty (30) days following the end of each calendar month. 1.8 The Office Note is hereby amended to require the payment of interest only commencing with the payment due on January 1, 1999 and continuing for each subsequent payment due thereafter through and including the payment due June 1, 1999. Commencing on July 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. 5 6 Such deferred principal payments 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 thereof. 1.9 Paragraph (e) of Exhibit "I-C" of the Loan Agreement (i.e. Conditions of Eligible Receivables) shall be amended and restated in its entirety to read as follows: As of the time the original Advance against such Instrument or Contract is made, no payment is more than twenty-nine (29) days overdue or has been deferred. 2. ADDITIONAL ADVANCES. 2.1 FINOVA is willing to make the Tranche A Loan and the Tranche B Loan (collectively, the "Additional Advances") to Borrower on the terms and conditions provided herein. The proceeds of the Additional Advances shall be used solely for the payment of existing accounts payable and employees salaries and commissions in the ordinary course of business and for the purposes set forth in the Business Plan. The Documents are hereby modified as follows to provide for the Additional Advances. The Additional Advances shall reduce, dollar for dollar, the amount of borrowing availability under the Mortgage Loan Facility. In no event shall the outstanding principal balance of the Additional Advances and the outstanding principal balance of the Mortgage Loan Facility exceed, at any time, the sum of Fifteen Million Dollars ($15,000,000) and in the event such limitation is exceeded, Borrower shall immediately make a payment to FINOVA in an amount equal to such excess together with interest thereon. No prepayment premium shall be payable in connection with the payment of such excess. The Additional Advances are nonrevolving in nature. 2.2 The Tranche A Loan shall be advanced to Borrower in no more than two (2) Advances, on or before December 31, 1998. FINOVA's obligation to make any Advances of the Tranche A Loan are conditioned upon the satisfaction of both the General Conditions (as hereinafter defined) and the Conditions Precedent (as hereinafter defined). FINOVA shall have no obligation to make any Advance of the Tranche B Loan after January 31, 1999 and there shall be no more than two (2) Advances of the Tranche B Loan proceeds in any one (1) calendar month. FINOVA's obligation to make any Advances of the Tranche B Loan shall be subject to the continued satisfaction of the General Conditions and to the satisfaction of the Conditions Subsequent (as hereinafter defined). Subject to the foregoing conditions, Additional Advances shall be advanced to Borrower pursuant to the Request for Advance and Certification in the form attached hereto as Exhibit 2.2. 6 7 3. ASSIGNMENT OF SALES PROCEEDS. 3.1 As additional security for the payment and Performance of all the Obligations, Borrower hereby grants, transfers and assigns to FINOVA a Security Interest in and to the Excess Proceeds Collateral. FINOVA's Security Interest in the Excess Proceeds Collateral shall be absolute, continuing and applicable to all existing and future Advances and shall secure the repayment of the Loan (including without limitation the Additional Advances) and the Performance of all Obligations throughout the Term of the Loan. For purposes hereof, the term "Excess Proceeds Collateral" shall mean (a) ten percent (10%) of the gross sales price arising from the sale of a Unit in each of Project (Towers), Project (Villas) and White Sands and (b) all proceeds received by Borrower or any Affiliates of Borrower arising from a sale of each of (i) CNUC/Cottonwood Park, (ii) NWC Highway 160 Calvada, (iii) SWC Highway 160 Calvada, (iv) RV Park Remainder, (v) Calvada Eye, (vi) Calvada North Unit 5, and (vii) Golf Courses, net, in each instance, in the case of this clause (b), of the sum of an amount no greater than the following release price, reasonable brokerage commissions and closing costs:
Property Lien Holder Release Price -------- ----------- ------------- CNUC/Cottonwood Park Textron Financial Corp. $1,962,500.00 NWC Highway 160 Calvada Textron Financial Corp. $ 392,500.00 SWC Highway 160 Calvada Textron Financial Corp. $ 390,000.00 RV Park Remainder Textron Financial Corp. $1,525,000.00 Calvada Eye Textron Financial Corp. $1,880,000.00 Calvada North Unit 5 William Kissam $ 100,000.00 Golf Courses BancBoston $ 750,000.00
Excess Proceeds Collateral shall be paid to FINOVA immediately upon the closing of the sale of the applicable property. Borrower represents and warrants to FINOVA that the only persons holding liens against the properties in the columnar list above are as set forth above (together with real property taxes and assessments not yet due and payable) and that the above referenced lienholders will release their respective liens on the applicable parcel of property upon receipt of an amount no greater than the release price set forth above. Borrower covenants and agrees that prior to the occurrence of the Forbearance Collateral Release Conditions, Borrower will not further encumber the aforementioned properties. Borrower covenants and agrees to sell the aforementioned properties solely for terms which require payment to Borrower of the entire purchase price in cash. Furthermore, without the prior written consent of FINOVA, Borrower shall not sell any of the aforementioned properties or any of the other assets set forth in the Business Plan for an amount less than eighty percent (80%) of the "Asking Price" as set forth the Business Plan. 3.2 In the event any of the aforementioned lienholder's liens are satisfied prior to satisfaction of the Forbearance Collateral Release Conditions, Borrower agrees to grant to FINOVA a first mortgage or deed of trust lien on those properties which were previously encumbered by such lien, pursuant to a deed of trust or mortgage acceptable to 7 8 FINOVA, subject only to such matters as are acceptable to FINOVA, as additional security for the payment and Performance of the Obligations. Concurrently therewith, Borrower shall obtain a lender's policy of title insurance from a title insurance underwriter acceptable to FINOVA with respect to such mortgages or deeds of trust, in the amount of the Additional Advance Note and in form and substance and with such endorsements as are acceptable to FINOVA (or any irrevocable commitment issue such policy) all at the sole cost and expense of the Borrower. Such deeds of trust or mortgages shall be accompanied by an Environmental Certificate with Representations, Covenants and Warranties in a form acceptable to FINOVA with respect to the property encumbered by such mortgage or deed of trust. The security interest granted to FINOVA pursuant to the aforementioned mortgages or deeds of trust shall be absolute, continuing and applicable to all existing and future Advances and secure the repayment of the Loan (including without limitation the Additional Advances) and the Performance of all Obligations throughout the Term of the Loan. 4. CONDITIONS PRECEDENT: FINOVA's obligations under this Amendment are subject to the satisfaction of the General Conditions, the Conditions Precedent and the Conditions Subsequent, as defined below: 4.1 The General Conditions are as follows: (a) There shall exist 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. (b) This Amendment shall have been fully signed by Borrower and Guarantor. (c) Borrower shall have executed the Additional Advance Note and delivered the same to FINOVA. (d) Borrower shall have paid to FINOVA the full Additional Advance Fee, as defined below: (e) There shall have occurred 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 FINOVA. (f) FINOVA has received: (i) Current updates of the opinion letters received by FINOVA in connection with the Loan Agreement. (ii) Such resolutions and authorizations and such other documents as FINOVA may require relating to the existence and good standing of Borrower and 8 9 Guarantor, and the authority of any person executing this Amendment and other documents on behalf of Borrower and Guarantor. (iii) Evidence that Borrower has good and marketable title to the collateral pledged to FINOVA pursuant to this Amendment and that there are no other financing statements, liens, claims or encumbrances against Borrower or the property of Borrower except those that have been disclosed to FINOVA and are otherwise approved by FINOVA. (iv) Such other documents or instruments as required by FINOVA so as to fully perfect the liens and security interest of FINOVA granted hereunder. (g) Neither Borrower nor Guarantor shall have failed to disclose to FINOVA any material information and no material information supplied by Borrower or Guarantor shall be found to be misleading, misrepresented or incorrect in any material respect. (h) All representations and warranties by Borrower and Guarantor shall remain true and correct, in all material respects, and all agreements of Borrower and Guarantor that are to have been performed or complied with at such time shall have been performed or complied with. (i) Borrower shall have reimbursed FINOVA for all of FINOVA'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. (j) Borrower shall have obtained such public liability, casualty and other insurance policies as FINOVA may require, written by insurers and in an amount and form satisfactory to FINOVA. (k) Borrower shall have executed and delivered to FINOVA such UCC financing statements and amendments as FINOVA deems necessary and appropriate. 4.2 The Conditions Precedent are as follows: (a) Guarantor shall have granted to FINOVA a warrant to purchase One Hundred Fifty Thousand (150,000) shares of common stock of Guarantor pursuant to the form of agreement attached hereto as Exhibit 4.2(a). (b) Borrower shall have pledged to FINOVA as additional security for the payment and Performance of the Obligations, one hundred percent (100%) of the issued and outstanding stock of Central Nevada Utilities Company, a Nevada corporation ("CNUC") pursuant to a Stock Pledge Agreement in form and substance satisfactory to FINOVA (the 9 10 "Stock Pledge Agreement") and in connection therewith shall have delivered to FINOVA satisfactory opinions of counsel with respect to such pledge together with the original share certificates representing such ownership interest which shall have been endorsed to FINOVA "in blank" pursuant to an assignment apart from certificate. Such opinion of counsel shall indicate that no public utility commission approval is required in order for Borrower to pledge the shares of stock of CNUC as set forth above or in order for CNUC to grant to FINOVA the liens and security interests contemplated pursuant to Section 4.3(d) hereof and that public utility commission approval is only required in the event FINOVA desires to realize upon the aforementioned stock pledge from Borrower or the aforementioned assignments and security interest from CNUC. The security interest granted to FINOVA pursuant to the Stock Pledge Agreement shall be absolute, continuing and applicable to all existing and future Advances and shall secure the repayment of the Loan (including without limitation the Additional Advances) and the Performance of all Obligations throughout the term of the Loan. 4.3 The Conditions Subsequent are as follows: (a) Borrower has executed and recorded with the appropriate county recorders office a Notice of Assignment of Proceeds, in a form acceptable to FINOVA, against each of (i) the CNUC/Cottonwood Park, (ii) NWC Highway 160 Calvada, (iii) SWC Highway 160 Calvada, (iv) RV Park Remainder, (v) Calvada Eye, (vi) Calvada North Unit 5, (vii) Golf Courses, (viii) Project (Towers), (ix) Project (Villas) and (x) White Sands so as to place of public record Borrower's agreement with respect to such properties as more fully set forth in Section 3.1 hereof. (b) Borrower shall have granted to FINOVA, as additional security for the payment and Performance of the Obligations, a first deed of trust or mortgage lien, pursuant to a deed of trust or mortgage acceptable to FINOVA, and shall have delivered to FINOVA an Environmental Certificate and Indemnity and (subject to the provisions of Section 4.4 hereof) ALTA certified survey, in a form acceptable to FINOVA, on each of (i) Calvada Meadows Unit 2 RV Park, (ii) Calvada Unit 2 Raw Land, (iii) Former STP Site, (iv) Colorado Water Rights, (v) the unsold Units within Fountains, (vi) the unsold Units within Project (Terraces Phase 1), (vii) the unsold Units within Project (Terraces - Phase 2), (viii) the unsold Units within Winnick, (ix) the unsold Units within Brigantine Inn, (x) the unsold Units within Brigantine Villas, (xi) the unsold Units within Project (Reno), (xii) the unsold Lots and other land within Calvada RV Park and (xiii) the unsold Lots and other land within Calvada Land, subject, in each instance, to such exceptions to title as are acceptable to FINOVA. The security interest granted to FINOVA pursuant to the aforementioned deeds of trust and mortgages shall be absolute, continuing and applicable to all existing and future Advances and shall secure the repayment of the Loan (including without limitation the Additional Advances) and the Performance of all Obligations throughout the Term of the Loan. 10 11 (c) FINOVA shall have obtained a lender's policy of title insurance from a title insurance underwriter acceptable to FINOVA with respect to each of the mortgages and deeds of trust referenced in the immediately previous section (other than with respect to the mortgage or deed of trust encumbering the Colorado Water Rights) in the amount of the Additional Advance Note and in form and substance and with such endorsement as are acceptable to FINOVA (or an irrevocable commitment to issue such policy), all at the sole cost and expense of Borrower. (d) Borrower and Guarantor shall have caused CNUC to have assigned to FINOVA 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 FINOVA. In the alternative, Borrower and Guarantor shall have caused CNUC to have granted to FINOVA 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 FINOVA. In connection therewith, Borrower and Guarantor shall have caused CNUC to deliver to FINOVA 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 FINOVA with regard to such security interest. The aforementioned assignment and security granted to FINOVA by CNUC shall be absolute, continuing and applicable to all existing and future Advances and shall secure the 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. (e) Guarantor shall have granted to FINOVA a warrant, in the form of the attached Exhibit 4.3(e), to purchase the number of shares of common stock of Guarantor calculated pursuant to the formula set forth below, rounded to the next whole share. If the Tranche B Loan proceeds are advanced to Borrower in more than one (1) installment, such Advances shall be conditioned upon Guarantor granting to FINOVA an additional warrant in the form of attached Exhibit 4.3(e) to purchase additional shares of common stock of Guarantor calculated pursuant to the formula set forth below, rounded to the next whole share, in addition to the satisfaction of all other conditions precedent to the making of such Advance. [350,000 x A ] less B --------- 2,662,000 Where: A = Total aggregate advances of the Tranche B Loan proceeds made to Borrower B = Number of warrants previously issued to FINOVA as a result of a prior advance of Tranche B Loan proceeds 11 12 4.4 Even if no portion of the Tranche B Loan proceeds are borrowed by Borrower, Borrower shall cause each of the Conditions Subsequent to be satisfied, to FINOVA's satisfaction, no later than January 29, 1999, other than the Condition Subsequent set forth in Section 4.3(e) above which shall be satisfied only concurrently with advances of the Tranche B Loan proceeds and other than the Condition Subsequent set forth in Sections 4.3(a) which shall be satisfied no later than January 15, 1999 and except to the extent set forth below with regard to title insurance policies or commitments. Lender shall be entitled to the additional warrants set forth in Section 4.3 (e) above upon any advance of the Tranche B Loan proceeds, regardless of the unpaid balance of the Tranche A Loan and even if the Tranche A Loan has a zero balance. In the event Borrower obtains an agreement from its title insurer to delete the survey exception from a particular lender's policy of title insurance required to be obtained under this Amendment, FINOVA will waive the requirement that a survey be obtained as to the property which is the subject matter of such insurance policy. In the event Borrower is unable to obtain a waiver of the survey exception with regard to a particular parcel of property, then a survey shall be required as to such property as outlined above. In the event Borrower is unable to obtain a particular title policy (or irrevocable title commitment) which is a Condition Subsequent, by January 29, 1999, solely because of the fact that a survey was required and has not yet been obtained, despite Borrower's best efforts, such Condition Subsequent shall be satisfied no later than February 26, 1999. 5. APPLICATION OF PROCEEDS. In the absence of an Incipient Default or an Event of Default (excluding Existing Events of Default), Excess Proceeds Collateral, Project Release Fees and other release fees payable pursuant to Section 6 hereof, proceeds derived from the Stock Pledge Agreement, proceeds from the assignments and security interests granted by CNUC pursuant to Section 4.3(d) hereof and proceeds from the sale of the real properties which are subject to the deeds of trust or mortgage interests described in Sections 3.2 and 4.3(b) hereof, shall be applied first against fees, costs and expenses due to FINOVA and then against the unpaid principal balance of the Additional Advance Note and accrued interest. Thereafter any such proceeds shall be made available to Borrower for working capital purposes to be used strictly in accordance with the Business Plan. However, if there exists an Incipient Default or an Event of Default (in addition to the Existing Events of Default) at the time such proceeds are available, such proceeds shall be applied against the Obligations in such order and manner as FINOVA shall deem appropriate. 6. PROJECT RELEASE FEES. The Project Release Fees with respect to each of Fountains, Project (Terraces - Phase 1), Project (Terraces - Phase 2), Winnick, Project (Reno), Brigantine Inn, Brigantine Villas, Calvada RV Park and Calvada Land shall equal ten percent (10%) of the gross sales price of a Lot or Unit sold with such Project. Such Units or Lots shall be released from FINOVA's lien upon satisfaction of the Release Conditions. The Project Release Fees shall be paid to FINOVA concurrently with the closing of such sale. Project Release Fees and the release fees payable pursuant to the following sentence shall be applied in the manner set forth in Section 5. FINOVA agrees to release its lien on the stock 12 13 of CNUC granted pursuant to the Stock Pledge Agreement together with the assignment of sales proceeds and other security interests granted by CNUC pursuant to Section 4.3(d) provided that (i) FINOVA has received a release fee in an amount equal to the greater of Two Million Dollars ($2,000,000) or the then unpaid principal balance of the Tranche A Loan, together with interest on such payment at the rate set forth in the Additional Advance Note, (ii) there shall exist no Incipient Default or Event of Default (excluding the Existing Events of Default) and (iii) each of the Conditions Subsequent shall have been satisfied with the exception of the Condition Subsequent contained in Section 4.3(e) hereof which is to be satisfied only in connection with advances of the Tranche B Loan proceeds. 7. RELEASE OF FORBEARANCE COLLATERAL. FINOVA agrees to release and reconvey to Borrower, without warranty or representation, the assignments of sales proceeds and other liens granted pursuant to Sections 3 and 4.3(d) hereof, FINOVA's lien on the stock of CNUC as evidenced by the Stock Pledge Agreement and FINOVA's mortgage and deed of trust liens granted pursuant to Sections 3.2 and 4.3(b) hereof, upon and on the condition that all of the Forbearance Collateral Release Conditions have been satisfied. No release or satisfaction of any security interest granted to FINOVA shall impair or affect FINOVA's remaining security interest or any term or provision of the Loan Agreement. 8. EARLY RELEASE OF COLLATERAL. Notwithstanding any contrary provisions contained in the Documents, FINOVA shall not have the obligation of releasing its lien on any collateral pledged to FINOVA pursuant to the Documents, including this Amendment (other than the periodic release of Units and Lots upon a sale thereof pursuant to the provisions of the Documents as amended by this Amendment and other than as specifically provided in this Amendment ) until the later to occur of (i) the full satisfaction of the Forbearance Collateral Release Conditions or (ii) the full satisfaction of the events set forth in the particular Document that are conditions precedent to such collateral release. Prior to the full satisfaction of the Forbearance Collateral Release Conditions, any amount received by Borrower resulting from the sale of the Headquarters Building or the FCFC Property, in excess of the amounts set forth in paragraphs 3.10 and 3.11 of the Loan Agreement, shall be applied against the outstanding principal balance of the Additional Advance Note. 9. MINIMUM SALES PRICE. FINOVA agrees to release the deeds of trust or mortgages contemplated pursuant to Sections 3.2, 4.3(b) and 4.3(d) hereof upon a sale of the real property encumbering such mortgages or deeds of trust provided that there does not then exist an Event of Default or Incipient Default (other than the Existing Events of Default) and such properties are sold solely for cash at a purchase price acceptable to FINOVA. FINOVA agrees that a purchase price of no less than eighty percent (80%) of the "Asking Price" for such property as set forth in the Business Plan is an acceptable purchase price. Proceeds from such sales less reasonable closing costs shall be applied as set forth in Section 5 hereof. 10. READVANCE FEE. In consideration of FINOVA's covenants, agreements and promises under this Amendment, Borrower shall pay to FINOVA at the time of the first Advance made pursuant to this Amendment a fee in the amount of Fifty Six Thousand Six 13 14 Hundred Twenty Dollars ($56,620) (the "Additional Advance Fee") which may be withheld from the proceeds of the Advance made pursuant to this Amendment. 11. REPRESENTATIONS, WARRANTIES AND COVENANTS. 11.1 For all purposes under the Loan Agreement, the Additional Advances shall be deemed a "transaction made pursuant to this Agreement," as contemplated in Section 8.1 of the Loan Agreement, except that for purposes of the representations, covenants and warranties under Article VIII thereof, the current status of all litigation matters affecting the Borrower and Guarantor is as set forth on the attached Exhibit 11.1 and the current financial condition (including, without limitation, compliance with financial covenants) of the Borrower and Guarantor is reflected on the most recent financial statements delivered by Borrower and Guarantor to FINOVA prior to the date hereof. 11.2 Guarantor represents and warrants that all financial information and other documents provided to FINOVA by Guarantor in connection with this Amendment are true, complete and correct as of the date provided and the date hereof. Borrower represents and warrants that all financial information and other documents provided to FINOVA by Borrower in connection with this Amendment are true, complete and correct as of the date provided and the date hereof. 11.3 Borrower represents and warrants that the assets of CNUC are unencumbered other than liens for real property taxes and assessments not yet due and payable (and Borrower hereby covenants with FINOVA to cause such assets to remain unencumbered at all times while the Stock Pledge Agreement is in effect other than any liens granted in favor of FINOVA) and further represents and warrants that CNUC owes no indebtedness other than usual customary trade debt incurred in the ordinary course of its business (and Borrower hereby covenants with FINOVA that Borrower will cause CNUC to incur no other indebtedness while the Stock Pledge Agreement is in effect). 11.4 On or before January 29, 1999, the Loan Agreement shall be further amended in order to incorporate within its terms financial covenants acceptable to FINOVA and consistent with the Business Plan. 11.5 Promptly following request by FINOVA, Borrower will give FINOVA an update concerning the progress being made by Borrower in complying with the Business Plan. 12. GUARANTOR CONSENT. 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 Additional Advance Note, the Stock Pledge Agreement, any other documents and instruments executed 14 15 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 Additional Advance Note, the Stock Pledge Agreement, any other documents and instruments executed by Borrower in connection with this Amendment and each of the other Documents, as amended through the date hereof, are hereby ratified, approved and confirmed. 13. FORBEARANCE BY FINOVA. 13.1 Subject to the conditions set forth in this Amendment and the termination provisions of the following paragraph, during the period from the date this Amendment is fully executed and delivered by FINOVA, Borrower, and Guarantor to and including June 30, 1999 ("End Date") FINOVA shall forbear from exercising FINOVA's remedies under the Documents by reason of the Existing Events of Default described herein and during the period of forbearance, FINOVA shall make Advances of the Receivables Loan and Additional Advances, under the conditions set forth in the Loan Agreement and this Amendment and shall partially release Units and Lots from FINOVA's Security Interest, as more fully provided in the Documents and in this Amendment without requiring that the Existing Events of Default described herein be cured as a condition precedent to making any such Advances or to such partial releases. FINOVA is not however waiving such Existing Events of Default. During such period of forbearance, Borrower may operate its business in the ordinary course. However, during such period of forbearance, Borrower shall be prohibited from taking any of the following actions; (i) the repayment of indebtedness required to be subordinated, (ii) the making of distributions or loans to its shareholders other than to the extent contemplated in the tax sharing arrangement between Borrower and Guarantor, (iii) the payment of directors' fees, (iv) the payment of officers' salaries other than in accordance with previous practice or (v) the operation of its business other than in material accordance with the Business Plan. So long as Borrower is in compliance with this Amendment and the other Documents and FINOVA's forbearance as set forth above remains in effect, the Existing Events of Default shall not be deemed Events of Default. 13.2 FINOVA's agreement to so forbear and to make Advances under the Loan Agreement or this Amendment shall automatically terminate, without further act or instrument, upon the occurrence of any of the following events: (a) Borrower or Guarantor repudiates or asserts a defense to any obligation or liability under the Documents or makes or pursues a claim against FINOVA; (b) Borrower fails to timely perform any of its obligations (other than the Existing Events of Default) set forth in the Documents (after giving effect to the then applicable provisions of this Amendment), including, without limitation, this Amendment; (c) Borrower or Guarantor makes an assignment for the benefit of creditors, or generally admits its inability to pay its obligations as they come due or files a 15 16 petition in bankruptcy or an involuntary petition in bankruptcy is filed naming either Borrower or Guarantor as debtors; or (d) FINOVA hereafter becomes aware of (i) any fact or circumstance that FINOVA believes in good faith is reasonably likely to impair FINOVA's security or (ii) any Incipient Defaults (other than those described in this Amendment) or Event of Default under the Documents after giving effect to the then applicable provisions of this Amendment and other than Existing Events of Default, whether now or existing or hereafter occurring, which would give rise to a right by FINOVA to exercise any rights or remedies under the Documents. 14. PROTECTIONS AFFORDED TO FINOVA. 14.1 This Amendment is intended to be a further accommodation by FINOVA to Borrower. In consideration of all such accommodations, AND ACKNOWLEDGING THAT FINOVA WILL BE SPECIFICALLY RELYING ON THE FOLLOWING AGREEMENT AS A MATERIAL INDUCEMENT IN ENTERING INTO THIS AMENDMENT AND IN MAKING THE TRANCHE A LOAN AND TRANCHE B LOAN PROVIDED HEREIN, so that FINOVA will not be further delayed for an additional period of time under any circumstances, effective immediately upon (i) execution of this Amendment by Borrower and Guarantor and (ii) the funding of any portion of the Tranche A Loan by FINOVA, and provided that FINOVA makes Advances in accordance with the Documents as modified by the then applicable provisions of this Amendment and partially releases Units and Lots from its Security Interest in accordance with the Documents without requiring that the Existing Events of Default be cured above, Borrower and Guarantor hereby agree, in addition to and without limiting any of FINOVA's other rights or remedies under the Documents and related documents, to the following: (a) In connection with a bankruptcy or other similar proceeding initiated by or against Borrower or Guarantor, (i) FINOVA will be entitled to immediate relief from the automatic stay and all other stays and injunctions without further notice, hearing or order of court so that FINOVA will be able to immediately exercise all or any of its rights and remedies (A) as provided herein, (B) in the Documents, as modified by this Amendment, including, but not limited to, the commencement and consummation of a foreclosure on any and all of its collateral and the appointment of a receiver, or (C) under applicable law; (ii) neither Borrower nor Guarantor will seek or support an effort by any other party to obtain an injunction, judgment or any other type of order of any court staying or delaying FINOVA from proceeding with any one or more of its options or remedies under the Documents, as modified by this Amendment; (iii) neither Borrower nor Guarantor will contest any motion, application or other pleadings filed by or on behalf of FINOVA in any court of competent jurisdiction seeking enforcement of the terms of this Section 14 or otherwise seeking enforcement of this Amendment or termination of such automatic stay or other injunction; (iv) Borrower and Guarantor will cooperate with FINOVA so that FINOVA can promptly enforce its rights as set forth in the Documents, as modified by this Amendment; and (v) neither Borrower nor Guarantor will request or consent to (A) the imposition of any lien 16 17 superior to those of FINOVA in the collateral given to FINOVA under any of the Documents, as modified by this Amendment, whether pursuant to 11 U.S.C. Section 364 or otherwise, (B) a "cramdown" of the Loan pursuant to 11 U.S.C. Section 1129(b) or (C) the impairment of FINOVA's claims, liens, rights under the Documents or otherwise affect FINOVA's rights or any collateral given to FINOVA under any of the Documents. (b) Upon the occurrence of an Event of Default under the Documents, (after giving effect to the then applicable provisions of this Amendment and other than the Existing Events of Default), Borrower and Guarantor consent to the appointment of a receiver by FINOVA. Borrower or FINOVA shall execute a Stipulation for the Appointment of a receiver over any property and the operation and business of Borrower (the "Stipulation"), which allows the court, upon the conditions set forth below, and without notice to anyone, including notice to Borrower or Guarantor to enter an Order for Appointment of Receiver over any property of Borrower and the operation and business of Borrower ("Receivership Order"). The selection of the receiver and the amount of the receiver's fee shall be determined by FINOVA in its discretion. Only a nominal bond not more than Five Thousand Dollars ($5,000) will be required by FINOVA or the receiver. The original executed Stipulation and form of Receivership Order shall be delivered to FINOVA within the five (5) business days after the same are provided to Borrower for execution, and held by FINOVA's attorneys and not filed with the court, unless and until there is such an Event of Default (i.e., a default upon the occurrence of which a receiver may be appointed pursuant to the first sentence of this Section) by Borrower under this Amendment or the Documents. Borrower agrees that if Borrower fails to execute and deliver the Stipulation as required herein, Borrower hereby appoints FINOVA as its attorney-in-fact to execute the Stipulation for and on behalf of the Borrower. Such power of attorney is coupled with an interest and is irrevocable. The Stipulation and Receivership Order may be filed and the Receivership Order may be immediately signed and entered by the court, solely upon the declaration made to the Court by FINOVA or its counsel that an Event of Default has occurred. The failure by Borrower to execute and deliver the Stipulation and Receivership Order as required herein shall, at FINOVA's election without notice to Borrower, constitute an Event of Default under the Documents. (c) For the good and valuable consideration provided herein, Borrower and Guarantor hereby release and discharge FINOVA and FINOVA Portfolio Services, Inc. ("FPSI"), and each of their respective agents, servants, employees, directors, officers, attorneys, accountants, affiliates, representatives, receivers, trustees, subsidiaries, predecessors, successors and assigns (collectively, the "Released Parties") from all claims, damages, losses, demands, liabilities, obligations, actions and causes of action whatsoever (whether arising in contract or in tort, and whether at law or in equity), which Borrower and Guarantor may now have or claim to have against the Released Parties, whether known or unknown, matured or contingent, liquidated or unliquidated, arising from, in connection with, or in any way concerning or relating to the Loan or the Documents except acts first arising after the execution and delivery of this Amendment and which are caused solely by FINOVA's or FPSI's respective gross negligence or willful misconduct. FPSI is hereby made 17 18 a third party beneficiary of this Amendment and shall be entitled to enforce the same against Borrower and Guarantor in the same manner as if FPSI were a party hereto. 14.2 Borrower and Guarantor hereby acknowledge and agree that, notwithstanding anything contained in this Amendment or the other Documents to the contrary, the terms, provisions and agreements of Borrower and Guarantor set forth in this Section 14 shall be immediately in full force and effect upon its execution and delivery by FINOVA, Borrower and Guarantor and shall not be vacated, modified, released or its validity or binding nature subject to attack for any reason because of the failure of third party consents to be obtained. 15. DEFENSES. As of December 22, 1998 the unpaid principal balances of the Notes are as set forth below. Borrower and Guarantor acknowledge and agree that there are no defenses, counterclaims, setoffs, recoupments or other adverse claims or causes of action of any kind existing against FINOVA or with respect to the Documents, including without limitation, claims regarding the amount, validity, perfection, priority and enforceability of the Documents.
Note Unpaid Principal Balance ---- ------------------------ Receivables Note $34,321,481.00 Aloha Bay Note $ 786,675.00 Office Note $ 6,407,998.32 Ida Building Addition Note $ 2,050,970.80 Winnick Building Addition Note $ 2,360,000.00 Second Winnick Building Addition Note $ 1,742,383.04 Towers Note $ 730,676.00 Note executed in connection with the First Amendment (the so-called Hartsel Springs Note) $ 1,869,200.00 Biloxi Note $ 1,173,750.00
16. GENERAL. 16.1 Borrower shall pay all of FINOVA's fees, expenses and costs, including those of any attorneys, engineers and other consultants, in connection with the Existing Events of Default and the Documents, including this Amendment. 16.2 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. 16.3 Except as may be expressly provided herein, Borrower's obligations under the Documents shall remain in full force and effect and shall not be waived, modified, 18 19 superseded or otherwise affected by this Amendment. This Amendment is not a novation, nor is it be construed as a release, waiver, extension of forbearance or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in any of the Documents, except as expressly stated herein. 16.4 Borrower's failure to timely comply with any of the foregoing agreements, covenants, terms and conditions contained in this Amendment, without further notice or cure period, constitute an Event of Default under the Documents. Borrower and FINOVA agree that time is of the essence in all of its covenants and agreements under this Amendment and the Documents. 16.5 Neither the failure nor delay by FINOVA to exercise its remedies under (i) the Documents (whether before or after the date of this Amendment) or (ii) any provision of this Amendment, shall be deemed to amend, modify, supplement, extend, delay, renew, terminate, waive, release or otherwise limit or prejudice FINOVA's rights and remedies or Borrower's or Guarantor's obligations under the Documents (after giving effect to the then applicable provisions of this Amendment and other than Existing Events of Default) (including, but not limited to, FINOVA's right to receive full payment of principal and interest as well as late charges, delinquent interest), attorneys' fees and expenses and other charges to the extent provided in the Documents, except as specifically provided in a written agreement between the parties that is fully executed and delivered, nor shall it affect the relative priority of FINOVA's security interest in the collateral for the Obligations under the Documents. Borrower understands that, except to the extent that FINOVA has agreed to this Amendment to forbear with respect to an Existing Event of Default, nothing referred to above shall operate to prohibit, restrict or to otherwise inhibit FINOVA from exercising any right or remedy it may have under the Documents or constitute a cure of any existing Event of Default or Incipient Default and, without limitation, shall not extend any applicable reinstatement or redemption period. In the event that there is an Event of Default now existing or hereafter arising other than an Existing Event of Default, FINOVA shall not be obligated to forbear and may immediately enforce any and all of its rights and remedies. 16.6 Borrower and Guarantor acknowledge that FINOVA has performed, and is not in default of, its obligations under the Documents; that there are no offsets, defenses or counterclaims with respect to any of Borrower's or Guarantor's or other party's obligations under the Documents; and that FINOVA has not directed Borrower to pay or not pay any of Borrower's payables. 16.7 Borrower and Guarantor will execute and deliver such further instruments and do such things as in the judgment of FINOVA are necessary or desirable to effect the intent of this Amendment and to secure to FINOVA the benefits of all rights and remedies conferred upon FINOVA by the terms of this Amendment and any other documents executed in connection herewith. 19 20 16.8 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. 16.9 Any further discussions by and among Borrower, Guarantor and FINOVA, if any, and all such discussions in the past, together with any other actions or inactions taken by and among Borrower, Guarantor and FINOVA, shall not cause a modification of the Documents, establish a custom or waive (unless FINOVA made such express waiver in writing), limit or condition the rights and remedies of FINOVA 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 FINOVA made such express waiver in writing), except as expressly provided herein. 16.10 FINOVA acknowledges that it had access to the books and records of Borrower. There has been or will be delivered to FINOVA by Borrower in connection with this Amendment, the Business Plan and certain estimates of income and expense and related financial projections concerning the property owned by Borrower and repayment of the Loan. The Business Plan and such books, records, financial material and projections have been prepared solely by or under the direction of Borrower. Borrower and the Guarantor acknowledge and agree FINOVA will not be deemed, directly or indirectly, whether by any action, failure to respond thereto or otherwise, in any way to have approved, consented to, ratified or adopted said books, records, financial material or projections. 16.11 This Amendment shall not be binding upon FINOVA 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. FINOVA, 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 FINOVA a copy of this Amendment with an original signature. 16.12 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 20 21 Amendment after being fully aware and advised of the effect and significance of all of its terms, conditions, and provisions. 16.13 Unless otherwise specifically stipulated elsewhere in the Documents, if a matter is left in the Documents or this Amendment to the decision, right, requirement, request, determination, judgment, opinion, approval, consent, waiver, satisfaction, acceptance, agreement, option or discretion of FINOVA, its employees, FINOVA's counsel or any agent for or contractor of FINOVA, such action shall be deemed to be exercisable by FINOVA 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." 16.14 The Recitals in this Amendment are incorporated into the body hereof as fully set forth herein. 16.15 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 FINOVA: (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 FINOVA 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 FINOVA'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 FINOVA HEREBY WAIVE THE RIGHT TO COLLATERALLY ATTACH ANY JUDGMENT OR ACTION IN ANY OTHER FORUM. 21 22 FINOVA: 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: - ----------------------------------- 22 23 STATE OF NEVADA ) ) ss. County of ___________________ ) The foregoing instrument was acknowledged before me this ____ day of December ___, 1998 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 December ___, 1998 by ______________ as _______________ of MEGO FINANCIAL CORP., a New York corporation, on behalf of the corporation. ----------------------------------- Notary Public My Commission Expires: - ----------------------------------- 23 24 LIST OF EXHIBITS Exhibit 2.2 Request for Advance and Certification Exhibit 4.2(a) Form of Warrant Agreement - Tranche A Exhibit 4.3(e) Form of Warrant Agreement - Tranche B Exhibit 11.1 Litigation Schedule 24 25 EXHIBIT 2.2 FORM OF REQUEST FOR ADVANCE AND CERTIFICATION The undersigned ("Borrower") requests that FINOVA Capital Corporation ("Lender") advance the sum of _______________________ and ___/100 United States Dollars (U.S. $________________) upon receipt hereof, pursuant to the Second Amended and Restated and Consolidated Loan and Security Agreement between such parties dated effective as of May 15, 1997 (with any amendments, the "Agreement"). Advances made pursuant to this Request for Advance and Certification shall constitute Additional Advances. Borrower hereby certifies to Lender that (i) all representations and warranties contained in the Agreement are true and correct as of the date hereof; (ii) after giving effect to the Fifth Amendment there is no condition or event, which, after notice or lapse of time or both, would constitute an Event of Default (other than the Existing Events of Default); and (iii) Borrower has performed and complied with all agreements and conditions required by the Agreement to be performed and complied with prior to or at the date of the requested disbursement of the Additional Advance. Except as otherwise defined herein or the context otherwise requires, all capitalized terms used herein have the meaning given to them in the Agreement. "BORROWER" DATED: _____________, 199__. PREFERRED EQUITIES CORPORATION, a Nevada corporation, By: -------------------------------- Its: ---------------------------- 25 26 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 FINOVA 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 FINOVA'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 FINOVA HEREBY WAIVE THE RIGHT TO COLLATERALLY ATTACH ANY JUDGMENT OR ACTION IN ANY OTHER FORUM. FINOVA: FINOVA CAPITAL CORPORATION, a Delaware corporation By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------ Its: VICE PRESIDENT -------------------------------- BORROWER: PREFERRED EQUITIES CORPORATION, a Nevada corporation By: /s/ JON A. JOSEPH ------------------------------------ Its: VICE PRESIDENT -------------------------------- Signed in the presence of: /s/ [SIGNATURE ILLEGIBLE] - --------------------------------------- 26 27 GUARANTOR: MEGO FINANCIAL CORP., a New York corporation /s/ JON JOSEPH ------------------------------- By: JON A. JOSEPH ------------------------------- Its: VICE PRESIDENT ------------------------------- Signed in the presence of: /s/ [signature illegible] - ----------------------------------- 27 28 STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 23rd day of December 23, 1998 by Jon A. Joseph as Vice President of PREFERRED EQUITIES CORPORATION, a Nevada corporation, on behalf of the corporation. /s/ Sandra L. Irons -------------------------------- Notary Public My Commission Expires: 1-29-2002 NOTARY SEAL STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 23rd day of December 23, 1998 by Jon A. Joseph as Vice President of MEGA FINANCIAL CORP., a New York corporation, on behalf of the corporation. /s/ Sandra L. Irons -------------------------------- Notary Public My Commission Expires: 1-29-2002 NOTARY SEAL EX-10.178 8 LETTER AGREEMENT 1 EXHIBIT 10.178 February 8, 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. Notwithstanding the fact that all Conditions Subsequent have not been satisfied as of the date of this letter, FINOVA will allow a partial advance upon the Tranche B Loan in the amount of $500,000, provided that, except as set forth in paragraph 1 of this letter, all of the other General Conditions and Conditions Subsequent have been satisfied prior to the partial advance. The Borrower acknowledges that the foregoing partial advance by FINOVA shall not be deemed to be waiver by FINOVA of its rights under the Agreement and/or its right to insist on strict performance by the Borrower of its obligations under the Agreement. Further, the Borrower acknowledges that FINOVA's obligation to make any further Advance of the Tranche B Loan remains subject to the continued satisfaction of the General Conditions and to the satisfaction of the Conditions Subsequent. 2 Mr. Jon Joseph February 8, 1999 Page 2 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: 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 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. 3 Mr. Jon Joseph February 8, 1999 Page 3 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 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"). In the 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 (the "Adjusted Release Fee") equal to the positive difference, if any, between the Release Fee 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. As an illustration of the foregoing, assume that the Even Trade has the Purchaser reconveying to the Borrower one Unit in the Winnick Project and the Borrower has, in return for the Winnick Unit, conveyed to the Purchaser a Unit in the Fountains project. The Adjusted Release Fee due for the Fountains Unit that has been conveyed to the Purchaser shall be an amount equal to $611.00, which represents the result obtained by subtracting from the Release Fee for Fountains, the Release Fee for Winnick. This same method will be used if the Even Trade involves a multiple number of Units, however, for any Additional Units, the full Release Fee will be due and payable for each Additional Unit. 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 for 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, Burrower 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. 4 Mr. Jon Joseph February 8, 1999 Page 4 6. The terms of the Documents, as specifically supplemented by this letter, remain in full force and effect. All provisions of the Documents, including without limitation, the time is of the essence provisions re hereby reiterated, and if ever waived, reinstated. 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. FINOVA Capital Corporation, a Delaware corporation By: --------------------------------- Its: -------------------------------- The foregoing has been seen and agreed to this 10th day of February, 1999. Preferred Equities Corporation By: --------------------------------- Its: -------------------------------- The undersigned, the Guarantor of the Borrower, hereby acknowledges receipt of the foregoing and consents to the same, this 10th day of February, 1999. MEGO Financial Corp. By: --------------------------------- Its: -------------------------------- EX-10.179 9 AM. #3 TO SEVERANCE AGREEMENT & CONSULTING AGRMNT 1 EXHIBIT 10.179 AMENDMENT NO. 3 TO SEVERANCE AGREEMENT AND CONSULTING AGREEMENT It Is hereby agreed as of this 28th day of September, 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 $250,000.00 (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"), and Amendment No. 2 to Severance Agreement, and Consulting Agreement dated as of June 18, 1999 (the "Amendment No. 2") 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 and Amendment No. 2, the Company has paid monthly payments through the date hereof aggregating $90,000, leaving a balance due on the Payment of $160,000 as of the date hereof, and which amount is presently scheduled for payment on September 30, 1999; and 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 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 December, 1999. b. The balance of One Hundred Thirty Thousand Dollars ($130,000) on December 31, 1999. c. In the event the Company executes an agreement involving a "Change of Control" as hereinafter defined, any unpaid balance of Payment shall be immediately paid by the Company to the Employee at the closing of the transaction, if prior to December 31, 1999. This sub-paragraph shall not extend the final payment date of the Payment beyond December 31, 1999. d. The Payment shall be deemed to be in the nature of a non-qualified pension. 3. Except as modified above, all other terms and conditions of the Agreement, Amendment No. 1 and Amendment No. 2 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: /s/ JEROME J. COHEN --------------------------- JEROME J. COHEN, PRESIDENT DON A. MAYERSON (EMPLOYEE) /s/ DON A. MAYERSON - ------------------------------ EX-10.180 10 COMPENSATION AGREEMENT 1 EXHIBIT 10.180 COMPENSATION AGREEMENT THIS COMPENSATION AGREEMENT ("Agreement") is entered into by and between S. Duke Campbell, an individual residing at 2969 Bel Air Drive, Las Vegas, Nevada 89109, and 24831 164th Avenue, Kent, Washington 98042 ("Campbell") and Preferred Equities Corporation, a Nevada corporation with its principal address being 4310 Paradise Road, Las Vegas, Nevada 89109 ("PEC"). RECITAL Campbell currently is employed as the Senior Vice President ("SVP") of PEC's Marketing and Sales Division. In his role as SVP, Campbell is responsible for the supervision of all of the marketing and sales of PEC's timeshare and land products. Campbell reports to the Chairman of the Board and Chief Executive Officer of PEC, Jerome J. Cohen. Campbell and PEC desire to enter into this Agreement in order to reduce to writing Campbell's compensation arrangement with PEC for such period of time as Campbell is employed by PEC as SVP or until modified by mutual agreement of the parties. In consideration of the foregoing, the parties hereto agree as follows. 1. EMPLOYEE AT WILL. Campbell recognizes and acknowledges that he is an employee-at-will. PEC may terminate Campbell at any time with or without Cause as that term is hereinafter defined. 2. BASE SALARY. Campbell shall be paid a base salary of one hundred twenty five thousand dollars ($125,000.00) per annum payable bi-weekly as part of the regular PEC payroll. Base salary payments shall be subject to ordinary withholding for taxes and withholding for items designated by Campbell such as for 401(k) contributions. 3. SALES COMMISSIONS. In addition to his base salary Campbell shall be paid a sales commission of two tenths of one percent (0.2%) of Net Sales, as hereinafter defined, occurring on and after June 12, 1998 and during the period of Campbell's employment by PEC as SVP. (a) "Net Sales" shall mean the Net Contract Amount, as hereinafter defined, of all installment sales contracts, excluding sales contracts relating to R.V. timeshare interests, ("Contracts"), entered into between PEC (and its subsidiaries) and individual purchasers, in the ordinary course of business, during the period or periods being calculated, relating to sales of lots, parcels and timeshare interests, minus the aggregate sum of the following: (1) The Net Contract Amount of such Contracts which are rescinded by purchasers; and (2) The Net Contract Amount of any Contract entered into after June 12, 1998 which is canceled for any reason by PEC (or its subsidiaries) during the period or periods being calculated, provided the obligor of such Contract shall not have made a minimum of six regular 1 2 monthly payments; and, in the case of the calculation of the final payment following termination of Campbell's employment, any Contract that is canceled within six months following such termination, provided such Contract shall not have made a minimum of six regular monthly payments. (b) The "Net Contract Amount" of any Contract shall mean the gross contract price of such Contract minus: (1) Any credits or discounts; and (2) The balance of any note or contract canceled by PEC (or its subsidiaries) in connection with such Contract in any upgrade, downgrade or exchange transaction. (c) Campbell's commission schedule shall be prepared quarterly by PEC's Finance Department. Payment of sales commissions shall be made to Campbell pursuant to Section 4. of this Agreement. 4. ADVANCE AGAINST SALES COMMISSIONS. (a) Campbell shall be paid a biweekly advance of $2,885.00 against the sales commissions described in Section 3. of this Agreement. (b) As soon as practicable at the end of each quarter Campbell will be paid the amount by which the sales commission calculation exceeds the advance against sales commission paid in each said quarter. (c) All payments made pursuant to Section 4. (a) and (b) above shall be subject to normal withholding. 5. PROFIT CONTRIBUTION BONUS. In addition to his Base Salary and Sales Commissions due under this Agreement, Campbell shall be paid a bonus (the "Profit Contribution Bonus") for his success in reducing sales and marketing costs for fiscal year 1999 ("Fiscal 1999"), ending on August 31, 1999 and for the last quarter of fiscal year 1998 ("Fiscal 1998"), ending on August 31, 1998, as follows: (a) Provided that (i) Net Sales for Fiscal 1999 exceed the Net Sales for Fiscal 1998, and (ii) the percentage of Net Sales represented by the Total Selling Expenses (the "SE Percentage") for Fiscal 1999 is less than the SE Percentage for Fiscal 1998, all as shown on the Selling Expense Recap report prepared monthly by the PEC Finance Department (the "SE Report"), Campbell shall receive a Profit Contribution Bonus in an amount equal to two and one-half percent (2.5%) of the product of (x) a percentage equal to the SE Percentage for Fiscal 1999 subtracted from the SE Percentage for Fiscal 1998, multiplied by (y) the Net Sales for Fiscal 1999, which Profit Contribution Bonus, less any advances made thereon in accordance with the following subparagraphs (1), (2) and (3), shall be paid as soon after the end of Fiscal 1999 as 2 3 practicable; (1) Campbell shall receive an advance against such annual Profit Contribution Bonus for the first fiscal quarter of Fiscal 1999, provided that (i) Net Sales for such fiscal quarter exceed the Net Sales for the first fiscal quarter of Fiscal 1998, and (ii) the SE Percentage for such fiscal quarter is less than the SE Percentage for the first fiscal quarter of Fiscal 1998, as shown on the SE Report. The amount of such advance shall be equal to one and one-quarter per cent (1.25%) of the product of (x) a percentage equal to the SE Percentage for such fiscal quarter subtracted from the SE Percentage for the first quarter of Fiscal 1998, multiplied by (y) the Net Sales for Fiscal 1999's first quarter, which advance shall be paid as soon after the end of such fiscal quarter as practicable. (2) Campbell shall receive an advance against such annual Profit Contribution Bonus for the second fiscal quarter of Fiscal 1999, provided that (i) the aggregate Net Sales for the first two fiscal quarters of Fiscal 1999 exceed the aggregate Net Sales for the first two fiscal quarters of Fiscal 1998, and (ii) the combined SE Percentage for such two fiscal quarters is less than the combined SE Percentage for the same two fiscal quarters of Fiscal 1998, as shown on the SE Report. The amount of such advance shall be equal to one and one-quarter per cent (1.25%) of the product of (x) a percentage equal to the combined SE Percentage for such two fiscal quarters subtracted from the combined SE Percentage for the same two quarters of Fiscal 1998, multiplied by (y) the aggregate Net Sales for Fiscal 1999's first two fiscal quarters, which amount, less any advances made thereon for the first fiscal quarter of Fiscal 1999, shall be paid as soon after the end of such second fiscal quarter as practicable. (3) Campbell shall receive an advance against such annual Profit Contribution Bonus for the third fiscal quarter of Fiscal 1999, provided that (i) the aggregate Net Sales for the first three fiscal quarters of Fiscal 1999 exceed the aggregate Net Sales for the first three fiscal quarters of Fiscal 1998, and (ii) the combined SE Percentage for such three fiscal quarters is less than the combined SE Percentage for the same three fiscal quarters of Fiscal 1998, as shown on the SE Report. The amount of such advance shall be equal to one and one-quarter per cent (1.25%) of the product of (x) a percentage equal to the combined SE Percentage for such three fiscal quarters subtracted from the combined SE Percentage for the same three quarters of Fiscal 1998, multiplied by (y) the aggregate Net Sales for Fiscal 1999's first three quarters, which amount, less any advances made thereon for the first two fiscal quarters of Fiscal 1999, shall be paid as soon after the end of such third fiscal quarter as practicable. (b) Provided that (i) Net Sales for the last fiscal quarter of Fiscal 1998 exceed the Net Sales for the last fiscal quarter of Fiscal year 1997 ("Fiscal 1997"), and (ii) the SE Percentage for the last fiscal quarter of Fiscal 1998 is less than the SE Percentage for the last fiscal quarter of Fiscal 1997, both as shown on the SE Report, Campbell shall receive a Profit Contribution Bonus for such fiscal quarter calculated in the same manner as set forth above for Fiscal 1999, but relating only to the Net Sales during such fiscal quarter, which, Profit Contribution Bonus shall be paid as soon after the end of such fiscal quarter as practicable. 3 4 (c) In the event, during Fiscal 1999, Campbell's employment is terminated by PEC other than for Cause, as hereinafter defined, or in the event of Campbell's death or permanent disability, Campbell or his personal representative shall be entitled to the portion of his Profit Contribution Bonus for the part of Fiscal 1999 earned through the immediately preceding fiscal quarter prior to such termination, death or permanent disability, calculated in accordance with, and subject to, the above terms and conditions, at the 2-1/2% rate set forth above, less any prior quarterly advances. 6. EXECUTIVE BONUS POOL. Campbell shall be eligible to participate in the Executive Incentive Compensation Plan of Mego Financial Corp. at the discretion of the Board of Directors of Mego Financial Corp. 7. AUTOMOBILE ALLOWANCE. Campbell shall receive a monthly automobile allowance in the amount of seven hundred fifty dollars ($750.00). 8. STOCK OPTIONS. Campbell shall receive stock options under the Stock Option Plan of PEC's parent, Mego Financial Corp., at the discretion of the Board of Directors of Mego Financial Corp. 9. TRAVEL AND BUSINESS EXPENSE. Campbell shall be reimbursed for usual business and travel expenses. Campbell shall be entitled to fly first class on any flight or combination of flights longer than two hours in scheduled duration. 10. BENEFITS. Campbell shall be eligible for all benefits afforded to PEC executives from time to time provided Campbell meets any eligibility requirements set forth for employees participating therein. 11. VACATION. Campbell shall have three (3) weeks paid vacation during each PEC fiscal year. 12. SEVERANCE. (a) If Campbell's employment is terminated by PEC for any reason other than for Cause, Campbell shall receive base salary and sales commissions as set forth in Sections 2. and 3. to the date of termination, the portion of his Profit Contribution Bonus set forth in Section 5.(c), and if such termination occurs after May 31, 1999, a severance payment in an amount equal to his then current annual base salary. If Campbell resigns or terminates his employment by PEC (except as set forth in subparagraph (b) hereto) he will only be entitled to his base salary and sales commissions through the date of such termination. (b) It is contemplated by the parties that if Campbell is still employed by PEC after the end of Fiscal 1999, a new arrangement relating to profitability to take the place of the Profit Contribution Bonus set forth in Section 5. of this Agreement will be agreed upon by the parties and added to this Agreement by amendment. Provided that (i) the parties have not executed such 4 5 an amendment to this Agreement by November 30, 1999, and (ii) Campbell has met the conditions of Section 5. of this Agreement and is entitled to receive, or has received, a Profit Contribution Bonus for Fiscal 1999, should Campbell elect to resign or terminate his employment by PEC during the thirty (30) day period following November 30, 1999, he shall be entitled to a severance payment in an amount equal to his then current annual base salary, in addition to his base salary and sales commissions through the date of such termination. 13. DEFINITION OF CAUSE. "Cause" shall mean any one of the following acts of, or omissions by, or actions of others relating to, Campbell: (a) Conviction of a felony, whether or not such conviction is appealed. (b) Deliberate and premeditated acts against the best interests of PEC. (c) Campbell is found guilty of or is enjoined from violation of any state or federal security laws, state or federal laws governing the business of PEC, or rules or regulations of any state or federal agency regulating any of the business of PEC. (d) Misappropriation of PEC funds or property. (e) Habitual use of alcohol or drugs to a degree that such use interferes in any way with Campbell's performance of his duties. 13. COVENANT NOT TO SOLICIT. Campbell agrees that so long as he is employed by PEC and for a period of one year after termination of his employment by PEC with or without Cause, or resignation or termination of his employment by Campbell, Campbell will not solicit or encourage other employees or officers of PEC to terminate their employment by PEC for any purpose whatsoever. 14. MISCELLANEOUS. (a) This Agreement is personal to Campbell and the duties and responsibilities hereunder may not be assigned by Campbell. (b) This Agreement shall terminate except, to the extent applicable, for the provisions of Sections 3., 5.(c), 12. and 14. hereof, on the date of termination of Campbell's employment by PEC, or Campbell's resignation, his termination of employment, death or permanent disability. (c) This Agreement may only be modified by mutual written agreement of the parties. (d) The headings to this Agreement are for convenience of reference only and are not to be considered in the interpretation of this Agreement. (e) This Agreement shall be governed by the laws of the state of Nevada. 5 6 Entered into in Las Vegas, Nevada, on July 27, 1998. Preferred Equities Corporation - ----------------------------------- ----------------------------------- Frederick H. Conte S. Duke Campbell President 6 EX-10.181 11 AMENDMENT TO THE GENERAL LOAN & SECURITY AGRMNT 1 EXHIBIT 10.181 [TFC TEXTRON LOGO] TEXTRON FINANCIAL CORPORATION Commerce Center Subsidiary of Textron Inc. 333 East River Dr. Suite #305 E. Hartford, CT 06108 Telephone: (860) 282-7776 Fax: (860) 282-9053 October 15, 1999 Steamboat Suites, Inc. 4310 Paradise Road Las Vegas, Nevada 89109 RE: AMENDMENT TO GENERAL LOAN AND SECURITY AGREEMENT INVENTORY ADVANCE Gentlemen: Reference is made to that certain Inventory Loan in the original principal amount of Five Million Dollars ($5,000,000.00) (the "Inventory Loan") from Textron Financial Corporation (the "Lender") to Steamboat Suites, Inc. (the "Borrower"), pursuant to that certain General Loan and Security Agreement dated October 5, 1994, as amended on February 27, 1995, November 30, 1995 and November 29, 1996 (the "Loan Agreement"). Reference is further made to letter amendment dated September 23,1996 wherein a one time Inventory Advance was extended to Borrower and letter amendment dated December 10, 1997 wherein a second one-time Inventory Advance was extended to Borrower. Each capitalized term used herein, but not otherwise defined herein, shall have the meaning ascribed to such term in the Loan Agreement. Each of the documents executed and delivered in connection with the Loan is collectively referred to herein as the "Loan Documents". The Borrower has requested the Lender, and Lender has agreed, to amend the Inventory Loan under the Loan Agreement as hereinafter provided in this letter agreement. Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows: 1. Section 2.1(b) of the Loan Agreement, which presently provides Borrower may not re-borrow previously paid Inventory Advances and Section 1.1, Inventory 2 Termination Date in which no Inventory Advance was to be made after certain events including May 1, 1996 are hereby amended to provide that a third "one-time" Inventory Advance in the principal amount of $1,357,086 may be made by Lender to Borrower in accordance with the other terms and conditions of the Loan Agreement, such Advance to occur not later than October 20, 1999. Upon the issuance of such Advance, the principal balance outstanding under the Inventory Loan shall be $2,200,000. The Inventory Promissory Note, the Inventory Deed of Trust and other documents shall continue to secure the Inventory Loan. In addition, the undersigned hereby confirm and represent that the Collateral pledged for the Loan has a Fair Market Value sufficient to continue to secure and repay the Loan. 2. The "Inventory Maturity Date" as defined in the Loan Agreement shall be amended to be December 31, 1999 or upon execution of a new inventory loan as contemplated by a commitment letter dated October 12, 1999, whichever occurs sooner. All other terms of the Loan Agreement, Inventory Deed of Trust and Inventory Promissory Note shall remain in full force and effect. 3. Each of the other Loan Documents is hereby amended so that (i) all references in such Loan Document to the "Agreement" shall mean the Loan Agreement, as amended to date and (ii) all references in such Loan document, to that Loan Document or to any of the other Loan Documents shall mean the Loan Document or such other Loan Documents as amended to date. 4. Borrower shall pay to Lender the reasonable fees, expenses and disbursements of Lender preparing or reviewing this letter agreement or otherwise representing Lender in connection with any matters relating to the Loan Agreement or this letter agreement. 5. Borrower and the undersigned Guarantors hereby ratify and affirm in all respects each and every representation, warranty, covenant, condition, term and agreement set forth in the Loan Agreement, except as the Loan Agreement has been expressly amended by this letter agreement. Borrower hereby confirms that the Loan Agreement and each of the other Loan Documents are in full force and effect as of the date hereof. Each of the Guarantors hereby confirm that each respective Guaranty Agreement and Subordination Agreement is in full force and effect as of the date hereof. 6. The effective date of this letter agreement is October 15, 1999. 7. This letter agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original without the production of any other counterpart and all of which taken together shall constitute but one and the same instrument. This letter agreement shall also be effective upon exchange and receipt of facsimile signatures on such counterparts. 2 3 Kindly acknowledge your agreement with and acceptance of the terms and conditions of this letter agreement by signing in the appropriate space below. Very truly yours, TEXTRON FINANCIAL CORPORATION By: ----------------------------------- Its: ---------------------------------- EACH OF THE UNDERSIGNED HEREBY AGREES WITH AND ACCEPTS THE TERMS AND CONDITIONS OF THE LETTER AGREEMENT DATED AS OF OCTOBER 15, 1999 Witness: STEAMBOAT SUITES, INC. By: /s/ Charles G. Baltuskonis ----------------------------------- /s/ Kris Demman Its: Vice President - ------------------------------- ---------------------------------- GUARANTORS: PREFERRED EQUITIES CORPORATION By: /s/ Charles G. Baltuskonis ----------------------------------- /s/ Kris Demman Its: Vice President & CAO - ------------------------------- ---------------------------------- MEGO FINANCIAL CORP. By: /s/ Charles G. Baltuskonis ----------------------------------- /s/ Kris Demman Its: Vice President & CAO - ------------------------------- ---------------------------------- 3 EX-10.182 12 AMENDMENT TO THE AGREEMENT BETWEEN MEGO/KRASOW 1 EXHIBIT 10.182 AGREEMENT CONCERNING "SPLIT-DOLLAR" LIFE INSURANCE PLAN AMENDMENT made as of the 26th day of April, 1999 to the AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), HERBERT A. KRASOW, as Trustee (the "Trustee") of the HERBERT B. HIRSCH PROPERTY TRUST INSURANCE TRUST, dated October 22, 1990, (the "Trust"), HERBERT B. HIRSCH and ILANA HIRSCH. WHEREAS: 1. An Agreement was entered into as of the 1st day of January, 1995, between MEGO FINANCIAL CORP.,HERBERT A. KRASOW, as Trustee of the HERBERT B. HIRSCH PROPERTY TRUST INSURANCE TRUST, dated October 22, 1990, HERBERT B. HIRSCH and ILANA HIRSCH. 2. Paragraph 5 of said Agreement provided that the Agreement, or any of its provisions, could be amended, supplemented, modified or waived by a writing signed by the party to be bound thereby. 3. The parties hereto wish to amend said Agreement and restate it in its entirety. NOW, THEREFORE, the parties hereto amend said Agreement and restate it in its entirety as follows: AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), HERBERT A. KRASOW, as Trustee (the "Trustee") of the HERBERT B. HIRSCH PROPERTY TRUST INSURANCE TRUST, dated October 22, 1990, (the "Trust"), HERBERT B. HIRSCH and ILANA HIRSCH. WHEREAS: 1. The Trust owns a policy of insurance on the joint lives of HERBERT B. HIRSCH and his wife, ILANA HIRSCH (the "Insureds"). 2. The policy of insurance owned by the Trust and referred to in this Agreement was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001963L (the "Policy"). 3. HERBERT B. HIRSCH (the "Employee") is employed by the Employer. 2 4. The Employer has agreed to establish a split-dollar life insurance plan (the "Plan") to assist the Trust in paying premiums due on the Policy. 5. The Trust has agreed to assign to the Employer certain specific rights in and to the Policy in consideration of payment by the Employer of premiums due on the Policy. NOW, THEREFORE, the Employer, the Trust and the Insureds agree that: 1. Payment of Premiums: The Employer will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Employer's obligation to pay said premiums shall cease. 2. Policy Ownership and Collateral Assignment: The Trust will continue to own the Policy and shall assign to the Employer, subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Trust, an amount from the surrender proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3 (hereinafter "Employer's Interest in the Policy"). If, (1) the Trust borrows any amounts from the cash surrender value of the Policy pursuant to this Agreement and (2) upon a surrender of the Policy by the Trust, the amount of the Employer's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Employer by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Trust under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3, determined immediately prior to the death of the survivor of the Insureds. As owner of the Policy, the Trust will possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Employer by reason of this Agreement, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Employer's Interest in the Policy, the right to surrender 2 3 the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Employer on the Policy). In addition, the Trust shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Trust may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. The Employer agrees that it will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Trust of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Employer's Interest in the Policy. The Employer agrees that it will not assign its rights in and to the Policy to any person or entity other than the Trust without the prior consent of the Trustees. The Trust agrees to notify the Employer of any assignment of its rights in and to the Policy, in whole or in part. 3. Employer's Interest in the Policy: The amount of the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either or both of the Insureds and (b) the aggregate amount of premiums paid by the Employer on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Agreement is in effect, the Trust borrows any amounts from the cash surrender value of the Policy, the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. 4. Termination of Agreement: This Agreement will terminate upon whichever of the following is the first to occur: 3 4 (a) Surrender of the Policy by the Trust. (b) Payment by or on behalf of the Trust to the Employer of an amount equal to the Employer's Interest in the Policy. (c) The death of the survivor of the Insureds. Upon termination of this Agreement and receipt by the Employer of the Employer's Interest in the Policy, the Employer agrees to execute such documents as may be reasonably required by the Trust to release the Employer's rights in and to the Policy. 5. Amendment and Effect: This Agreement contains the entire understanding between the Trust, the Employer and the Insureds concerning the matters addressed herein. This Agreement, or any of its provisions, may not be amended, supplemented, modified or waived unless by a writing signed by the party to be bound thereby. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remaining provisions will not be affected, but will continue in effect as though such void, invalid or unenforceable provision were not originally a part of this Agreement. This Agreement will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties hereto. Notwithstanding the foregoing, the Trustees are entering into this Agreement solely in their capacity as Trustees and not individually. 6. Special Provisions: To the extent required by law, the following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: (a) The named fiduciary: The Employer. (b) The funding policy under this Plan is that premiums on the Policy shall be remitted by the Employer as provided in paragraph 1 of this Agreement. (c) Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. (d) For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Employer. 4 5 (1) If for any reason a claim for benefits under this plan is denied by the Employer, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (B) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (2) The claimant shall have 60 days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of the claim. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim shall be deemed denied on review. 5 6 7. Governing Law: This Agreement will be governed by and its validity, effect and interpretation determined by the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 10. Further Assurances: Each party, upon the other's request and without cost to the other, agrees to take any action, and to sign, acknowledge and deliver to the other party any additional document, necessary or expedient to effectuate the purposes of this Agreement. 11. Counterparts: This Agreement may be executed in counterparts, each of which will be an original, which together will constitute one Agreement. 12. This Agreement supercedes any prior arrangements, undertakings or agreements relating to the insurance policy referred to herein. IN WITNESS WHEREOF, the parties have signed this 6 7 Agreement as of the day and year first written above. ATTEST: MEGO FINANCIAL CORP. By: - -------------------------------- ----------------------------------- WITNESS: HERBERT B. HIRSCH PROPERTY TRUST UNDER AGREEMENT DATED October 22, 1990 By: - -------------------------------- ----------------------------------- HERBERT A. KRASOW, as Trustee and not individually - -------------------------------- -------------------------------------- HERBERT B. HIRSCH - -------------------------------- -------------------------------------- ILANA HIRSCH 7 EX-10.183 13 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INS 1 EXHIBIT 10.183 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INSURANCE AS COLLATERAL SECURITY AMENDMENT made as of the 26th day of April ,1999 to an ASSIGNMENT made as of January 1, 1995, by HERBERT A. KRASOW, as Trustee of the HERBERT B. HIRSCH PROPERTY TRUST INSURANCE TRUST, dated October 22, 1990 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). 1. Pursuant to an amended and restated Split-Dollar Life Insurance Plan, among the Assignor, the Assignee, the Trustees and HERBERT B. HIRSCH and ILANA HIRSCH, the parties thereto reserved the right to amend the Plan and said Collateral Assignment; and 2. The parties desire to amend said Collateral Assignment, and restate it in its entirety as follows: ASSIGNMENT made as of January 1, 1995, by HERBERT A. KRASOW, as Trustee of the HERBERT B. HIRSCH PROPERTY TRUST INSURANCE TRUST, dated October 22, 1990 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). WHEREAS: 1. The Assignor is the owner of a policy of insurance on the lives of HERBERT B. HIRSCH and his wife, ILANA HIRSCH (the "Insureds"). 2. The policy of insurance owned by the Assignor and referred to in this Assignment was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001963L (the "Policy"). 3. HERBERT B. HIRSCH is employed by the Assignee. 4. The Assignee has agreed to establish a split-dollar life insurance plan to assist the Assignor in paying premiums due on the Policy. 5. The Assignor has agreed to assign to the Assignee certain specific rights in and to the Policy in consideration of payment by the Assignee of premiums due on the Policy. 2 NOW, THEREFORE: 1. Subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the Assignor hereby assigns to the Assignee the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Assignor, an amount from the surrender proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy, (as defined below). If, (1) the Assignor borrows any amounts from the cash surrender value of the Policy and (2) upon a surrender of the Policy by the Assignor, the amount of the Assignee's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Assignee by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Assignor under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy (as defined below) determined immediately prior to the death of the survivor of the Insureds. The amount of the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either of both of the Insureds and (b) the aggregate amount of premiums paid by the Assignee on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Assignment is in effect, the Assignor borrows any amounts from the cash surrender value of the Policy, the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. 2. The Assignor will continue to possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Assignee by reason of this Assignment, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Assignee's Interest in the Policy, the right to surrender 2 3 the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Assignee on the Policy). In addition, the Assignor shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Assignor may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. The Assignor agrees to notify the Assignee of any assignment of its rights in and to the Policy, in whole or in part. 3. The Assignee will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Assignee's obligation to pay said premiums shall cease. 4. The Assignee will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Assignor of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Assignee's Interest in the Policy. The Assignee will not assign its rights in and to the Policy to any person other than the Assignor without the prior consent of the Assignor. 5. The Insurer is hereby authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee or giving any notice. If the Insurer deems that the sole signature of the Assignee is insufficient for the exercise of the Assignee's rights under the Policy assigned hereby, the Assignor agrees to execute any documents, papers or checks necessary to facilitate the Assignee's exercise of its rights under the Policy. 6. Upon receipt by the Assignee of an amount equal to the Assignee's Interest in the Policy, the Assignee will execute such documents as may be reasonably required by the Assignor to release the Assignee's rights in and to the Policy. 7. This Assignment will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 3 4 8. This Assignment will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties. Notwithstanding the foregoing, the Assignor is entering into this Agreement solely in his capacity as Trustee and not individually. 9. This Assignment may be executed in counterparts, each of which will be an original, which together will constitute one Assignment. IN WITNESS WHEREOF, the parties have caused this Assignment to be executed on the day first written above. ATTEST: MEGO FINANCIAL CORP. By: - -------------------------------- ----------------------------------- WITNESS: HERBERT B. HIRSCH PROPERTY TRUST UNDER AGREEMENT DATED October 22, 1990 By: - -------------------------------- ----------------------------------- HERBERT A. KRASOW, as Trustee and not individually RECORDED AND FILED BY THE INSURER THIS DAY OF , 1999. - --------------------------------- Registrar 4 EX-10.184 14 AMENDED AGRMNT CONCERNING "SPLIT-DOLLAR" LIFE INS. 1 EXHIBIT 10.184 AMENDED AGREEMENT CONCERNING "SPLIT-DOLLAR" LIFE INSURANCE PLAN AMENDMENT made as of the 26th day of April, 1999 to the AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), LAWRENCE J. COHEN and CLIFFORD A. SCHULMAN, as Trustees (the "Trustees") of the COHEN 1994 INSURANCE TRUST, dated December 21, 1994, (the "Trust"), JEROME J. COHEN and RITA COHEN. WHEREAS: 1. An Agreement was entered into as of the 1st day of January, 1995, between MEGO FINANCIAL CORP., LAWRENCE J. COHEN and CLIFFORD A. SCHULMAN, as Trustees of the COHEN 1994 INSURANCE TRUST, dated December 21, 1994, JEROME J. COHEN and RITA COHEN. 2. Paragraph 5 of said Agreement provided that the Agreement, or any of its provisions, could be amended, supplemented, modified or waived by a writing signed by the party to be bound thereby. 3. The parties hereto wish to amend said Agreement and restate it in its entirety. NOW, THEREFORE, the parties hereto amend said Agreement and restate it in its entirety as follows: AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), LAWRENCE J. COHEN and CLIFFORD A. SCHULMAN, as Trustees (the "Trustees") of the COHEN 1994 INSURANCE TRUST, dated December 21, 1994, (the "Trust"), JEROME J. COHEN and RITA COHEN. 1. The Trust owns a policy of insurance on the joint lives of JEROME J. COHEN and his wife, RITA COHEN (the "Insureds"). 2. The policy of insurance owned by the Trust and referred to in this Agreement was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001965L (the "Policy"). 3. JEROME J. COHEN (the "Employee") is employed by the Employer. 2 4. The Employer has agreed to establish a split-dollar life insurance plan (the "Plan") to assist the Trust in paying premiums due on the Policy. 5. The Trust has agreed to assign to the Employer certain specific rights in and to the Policy in consideration of payment by the Employer of premiums due on the Policy. NOW, THEREFORE, the Employer, the Trust and the Insureds agree that: 1. Payment of Premiums: The Employer will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Employer's obligation to pay said premiums shall cease. 2. Policy Ownership and Collateral Assignment: The Trust will continue to own the Policy and shall assign to the Employer, subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Trust, an amount from the surrender proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3 (hereinafter "Employer's Interest in the Policy"). If, (1) the Trust borrows any amounts from the cash surrender value of the Policy pursuant to this Agrement and (2) upon a surrender of the Policy by the Trust, the amount of the Employer's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Employer by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Trust under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3, determined immediately prior to the death of the survivor of the Insureds. As owner of the Policy, the Trust will possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Employer by reason of this Agreement, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Employer's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable 2 3 under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Employer on the Policy). In addition, the Trust shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Trust may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. The Employer agrees that it will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Trust of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Employer's Interest in the Policy. The Employer agrees that it will not assign its rights in and to the Policy to any person or entity other than the Trust without the prior consent of the Trustees. The Trust agrees to notify the Employer of any assignment of its rights in and to the Policy, in whole or in part. 3. Employer's Interest in the Policy: The amount of the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either or both of the Insureds and (b) the aggregate amount of premiums paid by the Employer on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Agreement is in effect, the Trust borrows any amounts from the cash surrender value of the Policy, the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. 4. Termination of Agreement: This Agreement will terminate upon whichever of the following is the first to occur: (a) Surrender of the Policy by the Trust. 3 4 (b) Payment by or on behalf of the Trust to the Employer of an amount equal to the Employer's Interest in the Policy. (c) The death of the survivor of the Insureds. Upon termination of this Agreement and receipt by the Employer of the Employer's Interest in the Policy, the Employer agrees to execute such documents as may be reasonably required by the Trust to release the Employer's rights in and to the Policy. 5. Amendment and Effect: This Agreement contains the entire understanding between the Trust, the Employer and the Insureds concerning the matters addressed herein. This Agreement, or any of its provisions, may not be amended, supplemented, modified or waived unless by a writing signed by the party to be bound thereby. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remaining provisions will not be affected, but will continue in effect as though such void, invalid or unenforceable provision were not originally a part of this Agreement. This Agreement will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties hereto. Notwithstanding the foregoing, the Trustees are entering into this Agreement solely in their capacity as Trustees and not individually. 6. Special Provisions: To the extent required by law, the following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: (a) The named fiduciary: The Employer. (b) The funding policy under this Plan is that premiums on the Policy shall be remitted by the Employer as provided in paragraph 1 of this Agreement. (c) Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. (d) For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Employer. 4 5 (1) If for any reason a claim for benefits under this plan is denied by the Employer, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (B) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (2) The claimant shall have 60 days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of the claim. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim shall be deemed denied on review. 5 6 7. Governing Law: This Agreement will be governed by and its validity, effect and interpretation determined by the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 10. Further Assurances: Each party, upon the other's request and without cost to the other, agrees to take any action, and to sign, acknowledge and deliver to the other party any additional document, necessary or expedient to effectuate the purposes of this Agreement. 11. Counterparts: This Agreement may be executed in counterparts, each of which will be an original, which together will constitute one Agreement. 12. This Agreement supercedes any prior arrangements, undertakings or agreements relating to the insurance policy referred to herein. IN WITNESS WHEREOF, the parties have signed this 6 7 Agreement as of the day and year first written above. ATTEST: MEGO FINANCIAL CORP. ______________________________ By:__________________________ WITNESS: COHEN 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 21, 1994 _____________________________ By:_________________________ LAWRENCE J. COHEN, as Trustee and not individually _____________________________ By:_________________________ CLIFFORD A. SCHULMAN, as Trustee and not individually ____________________________ JEROME J. COHEN ____________________________ RITA COHEN 7 EX-10.185 15 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INS 1 EXHIBIT 10.185 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INSURANCE AS COLLATERAL SECURITY AMENDMENT made as of the 26th day of April, 1999 to an ASSIGNMENT made as of January 1, 1995, by LAWRENCE J. COHEN and CLIFFORD A. SCHULMAN, as Trustees (the "Trustees") of the COHEN 1994 INSURANCE TRUST, dated December 21, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). 1. Pursuant to an amended and restated Split-Dollar Life Insurance Plan, among the Assignor, the Assignee, the Trustees and JEROME J. COHEN and RITA COHEN, the parties thereto reserved the right to amend the Plan and said Collateral Assignment; and 2. The parties desire to amend said Collateral Assignment, and restate it in its entirety as follows: ASSIGNMENT made as of January 1, 1995, by LAWRENCE J. COHEN and CLIFFORD A. SCHULMAN, as Trustees (the "Trustees") of the COHEN 1994 INSURANCE TRUST, dated December 21, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). WHEREAS: 1. The Assignor is the owner of a policy of insurance on the lives of JEROME J. COHEN and his wife, RITA COHEN (the "Insureds"). 2. The policy of insurance owned by the Assignor and referred to in this Assignment was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001965L (the "Policy"). 3. JEROME J. COHEN is employed by the Assignee. 4. The Assignee has agreed to establish a split-dollar life insurance plan to assist the Assignor in paying premiums due on the Policy. 5. The Assignor has agreed to assign to the Assignee certain specific rights in and to the Policy in consideration of payment by the Assignee of premiums due on the Policy. 2 NOW, THEREFORE: 1. Subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the Assignor hereby assigns to the Assignee the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Assignor, an amount from the surrender proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy, (as defined below). If, (1) the Assignor borrows any amounts from the cash surrender value of the Policy and (2) upon a surrender of the Policy by the Assignor, the amount of the Assignee's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Assignee by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Assignor under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy (as defined below) determined immediately prior to the death of the survivor of the Insureds. The amount of the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either of both of the Insureds and (b) the aggregate amount of premiums paid by the Assignee on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Assignment is in effect, the Assignor borrows any amounts from the cash surrender value of the Policy, the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. 2. The Assignor will continue to possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Assignee by reason of this Assignment, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of 3 the Assignee's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Assignee on the Policy). In addition, the Assignor shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Assignor may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. The Assignor agrees to notify the Assignee of any assignment of its rights in and to the Policy, in whole or in part. 3. The Assignee will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Assignee's obligation to pay said premiums shall cease. 4. The Assignee will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Assignor of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Assignee's Interest in the Policy. The Assignee will not assign its rights in and to the Policy to any person other than the Assignor without the prior consent of the Assignor. 5. The Insurer is hereby authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee or giving any notice. If the Insurer deems that the sole signature of the Assignee is insufficient for the exercise of the Assignee's rights under the Policy assigned hereby, the Assignor agrees to execute any documents, papers or checks necessary to facilitate the Assignee's exercise of its rights under the Policy. 6. Upon receipt by the Assignee of an amount equal to the Assignee's Interest in the Policy, the Assignee will execute such documents as may be reasonably required by the Assignor to release the Assignee's rights in and to the Policy. 3 4 7. This Assignment will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 8. This Assignment will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties. Notwithstanding the foregoing, the Assignor is entering into this Agreement solely in their capacity as Trustees and not individually. 9. This Assignment may be executed in counterparts, each of which will be an original, which together will constitute one Assignment. IN WITNESS WHEREOF, the parties have caused this Assignment to be executed on the day first written above. ATTEST: MEGO FINANCIAL CORP. By: - ---------------------------------- ------------------------------- WITNESS: COHEN 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 21, 1994 By: - ---------------------------------- ------------------------------- LAWRENCE J. COHEN, as Trustee and not individually By: - ---------------------------------- ------------------------------- CLIFFORD A. SCHULMAN, as Trustee and not individually RECORDED AND FILED BY THE INSURER THIS DAY OF , 1999. - --------------------------------- Registrar 4 EX-10.186 16 AMENDED AGRMNT CONCERNING "SPLIT-DOLLAR" LIFE INS. 1 EXHIBIT 10.186 AMENDED AGREEMENT CONCERNING "SPLIT-DOLLAR" LIFE INSURANCE PLAN AMENDMENT made as of the 23rd day of April, 1999 to the AGREEMENT made as of the 1st day of June, 1995, between MEGO FINANCIAL CORP. (the "Employer"), JOSEPH A. SCHUSTER, as Trustee (the "Trustee") of the EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, dated May 30, 1995, (the "Trust"), and EUGENE I. SCHUSTER. WHEREAS: 1. An Agreement was entered into as of the 1st day of June, 1995, between MEGO FINANCIAL CORP.,JOSEPH A. SCHUSTER, as Trustee of the EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, dated May 30, 1995, and EUGENE I. SCHUSTER. 2. Paragraph 5 of said Agreement provided that the Agreement, or any of its provisions, could be amended, supplemented, modified or waived by a writing signed by the party to be bound thereby. 3. The parties hereto wish to amend said Agreement and restate it in its entirety. NOW, THEREFORE, the parties hereto amend said Agreement and restate it in its entirety as follows: AGREEMENT made as of the 1st day of June, 1995, between MEGO FINANCIAL CORP. (the "Employer"), JOSEPH A. SCHUSTER, as Trustee (the "Trustee") of the EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, dated May 30, 1995, (the "Trust"), and EUGENE I. SCHUSTER. WHEREAS: 1. The Trust owns a policy of insurance on the life of EUGENE I. SCHUSTER (the "Insured"). 2. The policy of insurance owned by the Trust and referred to in this Agreement was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 1035768L (the "Policy"). 3. EUGENE I. SCHUSTER (the "Employee") is currently a Vice President of the Employer. 4. The Employer has agreed to establish a split-dollar life insurance plan (the "Plan") to assist the Trust in paying premiums due on the Policy. 2 5. The Trust has agreed to assign to the Employer certain specific rights in and to the Policy in consideration of payment by the Employer of premiums due on the Policy. NOW, THEREFORE, the Employer, the Trust and the Insured agree that: 1. Payment of Premiums: The Employer will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through June, 1997, at which time the Employer's obligation to pay said premiums shall cease. 2. Policy Ownership and Collateral Assignment: The Trust will continue to own the Policy and shall assign to the Employer, subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Trust, an amount from the surrender proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3 (hereinafter "Employer's Interest in the Policy"). If, (1) the Trust borrows any amounts from the cash surrender value of the Policy pursuant to this Agrement and (2) upon a surrender of the Policy by the Trust, the amount of the Employer's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Employer by the Insured. (b) The right to collect, upon a claim by the Trust under the Policy by reason of the death of the Insured, an amount from the proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3, determined immediately prior to the death of the Insured. As owner of the Policy, the Trust will possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Employer by reason of this Agreement, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Employer's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Employer on the Policy). In addition, the Trust shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Trust may borrow only to the extent that immediately after any such 2 3 borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. The Employer agrees that it will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Trust of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Employer's Interest in the Policy. The Employer agrees that it will not assign its rights in and to the Policy to any person or entity other than the Trust without the prior consent of the Trustee. The Trust agrees to notify the Employer of any assignment of its rights in and to the Policy, in whole or in part. 3. Employer's Interest in the Policy: The amount of the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by the Insured or by any trust created by the Insured and (b) the aggregate amount of premiums paid by the Employer on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Agreement is in effect, the Trust borrows any amounts from the cash surrender value of the Policy, the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. 4. Termination of Agreement: This Agreement will terminate upon whichever of the following is the first to occur: (a) Surrender of the Policy by the Trust. (b) Payment by or on behalf of the Trust to the Employer of an amount equal to the Employer's Interest in the Policy. (c) The death of the Insured. 3 4 Upon termination of this Agreement and receipt by the Employer of the Employer's Interest in the Policy, the Employer agrees to execute such documents as may be reasonably required by the Trust to release the Employer's rights in and to the Policy. 5. Amendment and Effect: This Agreement contains the entire understanding between the Trust, the Employer and the Insured concerning the matters addressed herein. This Agreement, or any of its provisions, may not be amended, supplemented, modified or waived unless by a writing signed by the party to be bound thereby. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remaining provisions will not be affected, but will continue in effect as though such void, invalid or unenforceable provision were not originally a part of this Agreement. This Agreement will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties hereto. Notwithstanding the foregoing, the Trustee is entering into this Agreement solely in his capacity as Trustee and not individually. 6. Special Provisions: To the extent required by law, the following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: (a) The named fiduciary: The Employer. (b) The funding policy under this Plan is that premiums on the Policy shall be remitted by the Employer as provided in paragraph 1 of this Agreement. (c) Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. (d) For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Employer. (1) If for any reason a claim for benefits under this plan is denied by the Employer, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as 4 5 may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (B) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (2) The claimant shall have 60 days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of the claim. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim shall be deemed denied on review. 7. Governing Law: This Agreement will be governed by and its validity, effect and interpretation determined by the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 10. Further Assurances: Each party, upon the other's request and without cost to the other, agrees to take any action, and to sign, acknowledge and deliver to the other party 5 6 any additional document, necessary or expedient to effectuate the purposes of this Agreement. 11. Counterparts: This Agreement may be executed in counterparts, each of which will be an original, which together will constitute one Agreement. 12. This Agreement supercedes any prior arrangements, undertakings or agreements relating to the insurance policy referred to herein. IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year first written above. ATTEST: MEGO FINANCIAL CORP. By: - ---------------------------------- ------------------------------- WITNESS: EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, DATED MAY 30, 1995 By: - ---------------------------------- ------------------------------- JOSEPH A. SCHUSTER, as Trustee and not individually - ---------------------------------- ------------------------------- EUGENE I. SCHUSTER 6 EX-10.187 17 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INS 1 EXHIBIT 10.187 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INSURANCE AS COLLATERAL SECURITY AMENDMENT made as of the 23rd day of April,1999 to an ASSIGNMENT made as of June 1, 1995, by JOSEPH A. SCHUSTER, as Trustee (the "Trustee") of the EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, dated May 30, 1995 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). 1. Pursuant to an amended and restated Split-Dollar Life Insurance Plan, among the Assignor, the Assignee, the Trustees and EUGENE I. SCHUSTER, the parties thereto reserved the right to amend the Plan and said Collateral Assignment; and 2. The parties desire to amend said Collateral Assignment, and restate it in its entirety as follows: ASSIGNMENT made as of June 1, 1995, by JOSEPH A. SCHUSTER, as Trustee (the "Trustee") of the EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, dated May 30, 1995 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). WHEREAS: 1. The Assignor is the owner of a policy of insurance on the life of EUGENE I. SCHUSTER (the "Insured"). 2. The policy of insurance owned by the Assignor and referred to in this Assignment was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 1035768L (the "Policy"). 3. EUGENE I. SCHUSTER is currently a Vice President of the Assignee. 4. The Assignee has agreed to establish a split-dollar life insurance plan to assist the Assignor in paying premiums due on the Policy. 5. The Assignor has agreed to assign to the Assignee certain specific rights in and to the Policy in consideration of payment by the Assignee of premiums due on the Policy. NOW, THEREFORE: 2 1. Subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the Assignor hereby assigns to the Assignee the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Assignor, an amount from the surrender proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy, (as defined below). If, (1) the Assignor borrows any amounts from the cash surrender value of the Policy and (2) upon a surrender of the Policy by the Assignor, the amount of the Assignee's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Assignee by the Insured. (b) The right to collect, upon a claim by the Assignor under the Policy by reason of the death of the Insured, an amount from the proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy (as defined below) determined immediately prior to the death of the Insured. The amount of the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by the Insured or by any trust created by the Insured and (b) the aggregate amount of premiums paid by the Assignee on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Assignment is in effect, the Assignor borrows any amounts from the cash surrender value of the Policy, the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. 2. The Assignor will continue to possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Assignee by reason of this Assignment, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Assignee's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Assignee on the Policy). In addition, the 2 3 Assignor shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Assignor may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. The Assignor agrees to notify the Assignee of any assignment of its rights in and to the Policy, in whole or in part. 3. The Assignee will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through June, 1997, at which time the Assignee's obligation to pay said premiums shall cease. 4. The Assignee will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Assignor of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Assignee's Interest in the Policy. The Assignee will not assign its rights in and to the Policy to any person other than the Assignor without the prior consent of the Assignor. 5. The Insurer is hereby authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee or giving any notice. If the Insurer deems that the sole signature of the Assignee is insufficient for the exercise of the Assignee's rights under the Policy assigned hereby, the Assignor agrees to execute any documents, papers or checks necessary to facilitate the Assignee's exercise of its rights under the Policy. 6. Upon receipt by the Assignee of an amount equal to the Assignee's Interest in the Policy, the Assignee will execute such documents as may be reasonably required by the Assignor to release the Assignee's rights in and to the Policy. 7. This Assignment will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 8. This Assignment will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties. Notwithstanding the 3 4 foregoing, the Assignor is entering into this Agreement solely in his capacity as Trustee and not individually. 9. This Assignment may be executed in counterparts, each of which will be an original, which together will constitute one Assignment. IN WITNESS WHEREOF, the parties have caused this Assignment to be executed on the day first written above. ATTEST: MEGO FINANCIAL CORP. By: - ---------------------------------- ------------------------------- WITNESS: EUGENE I. SCHUSTER IRREVOCABLE TRUST - MEGO, DATED MAY 30, 1995 By: - ---------------------------------- ------------------------------- JOSEPH A. SCHUSTER, as Trustee and not individually RECORDED AND FILED BY THE INSURER THIS DAY OF , 1995. - ------------------------------ Registrar 4 EX-10.188 18 AMENDED AGRMNT CONCERNING "SPLIT-DOLLAR" LIFE INS. 1 EXHIBIT 10.188 AMENDED AGREEMENT CONCERNING "SPLIT-DOLLAR" LIFE INSURANCE PLAN AMENDMENT made as of the 26th day of April, 1999 to the AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), TRACY ALLEN and JANE GERARD, as Trustees (the "Trustees") of the NEDERLANDER 1994 INSURANCE TRUST, dated December 19, 1994, (the "Trust"), ROBERT E. NEDERLANDER and GLADYS NEDERLANDER. WHEREAS: 1. An Agreement was entered into as of the 1st day of January, 1995, between MEGO FINANCIAL CORP., TRACY ALLEN and JANE GERARD, as Trustees of the NEDERLANDER 1994 INSURANCE TRUST, dated December 19, 1994, ROBERT E. NEDERLANDER and GLADYS NEDERLANDER. 2. Paragraph 5 of said Agreement provided that the Agreement, or any of its provisions, could be amended, supplemented, modified or waived by a writing signed by the party to be bound thereby. 3. The parties hereto wish to amend said Agreement and restate it in its entirety. NOW, THEREFORE, the parties hereto amend said Agreement and restate it in its entirety as follows: AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), TRACY ALLEN and JANE GERARD, as Trustees (the "Trustees") of the NEDERLANDER 1994 INSURANCE TRUST, dated December 19, 1994, (the "Trust"), ROBERT E. NEDERLANDER and GLADYS NEDERLANDER. WHEREAS: 1. The Trust owns a policy of insurance on the joint lives of ROBERT E. NEDERLANDER and his wife, GLADYS NEDERLANDER (the "Insureds"). 2. The policy of insurance owned by the Trust and referred to in this Agreement was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001964L (the "Policy"). 3. ROBERT E. NEDERLANDER (the "Employee") is currently the Chairman and Chief Executive Officer of the Employer. 2 4. The Employer has agreed to establish a split-dollar life insurance plan (the "Plan") to assist the Trust in paying premiums due on the Policy. 5. The Trust has agreed to assign to the Employer certain specific rights in and to the Policy in consideration of payment by the Employer of premiums due on the Policy. NOW, THEREFORE, the Employer, the Trust and the Insureds agree that: 1. Payment of Premiums: The Employer will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Employer's obligation to pay said premiums shall cease. 2. Policy Ownership and Collateral Assignment: The Trust will continue to own the Policy and shall assign to the Employer, subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Trust, an amount from the surrender proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3 (hereinafter "Employer's Interest in the Policy"). If, (1) the Trust borrows any amounts from the cash surrender value of the Policy pursuant to this Agrement and (2) upon a surrender of the Policy by the Trust, the amount of the Employer's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Employer by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Trust under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3, determined immediately prior to the death of the survivor of the Insureds. As owner of the Policy, the Trust will possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Employer by reason of this Agreement, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Employer's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may 2 3 not be reduced to an amount less than the aggregate amount of premiums paid by the Employer on the Policy). In addition, the Trust shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Trust may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. The Employer agrees that it will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Trust of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Employer's Interest in the Policy. The Employer agrees that it will not assign its rights in and to the Policy to any person or entity other than the Trust without the prior consent of the Trustees. The Trust agrees to notify the Employer of any assignment of its rights in and to the Policy, in whole or in part. 3. Employer's Interest in the Policy: The amount of the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either or both of the Insureds and (b) the aggregate amount of premiums paid by the Employer on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Agreement is in effect, the Trust borrows any amounts from the cash surrender value of the Policy, the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. 4. Termination of Agreement: This Agreement will terminate upon whichever of the following is the first to occur: (a) Surrender of the Policy by the Trust. 3 4 (b) Payment by or on behalf of the Trust to the Employer of an amount equal to the Employer's Interest in the Policy. (c) The death of the survivor of the Insureds. Upon termination of this Agreement and receipt by the Employer of the Employer's Interest in the Policy, the Employer agrees to execute such documents as may be reasonably required by the Trust to release the Employer's rights in and to the Policy. 5. Amendment and Effect: This Agreement contains the entire understanding between the Trust, the Employer and the Insureds concerning the matters addressed herein. This Agreement, or any of its provisions, may not be amended, supplemented, modified or waived unless by a writing signed by the party to be bound thereby. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remaining provisions will not be affected, but will continue in effect as though such void, invalid or unenforceable provision were not originally a part of this Agreement. This Agreement will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties hereto. Notwithstanding the foregoing, the Trustees are entering into this Agreement solely in their capacity as Trustees and not individually. 6. Special Provisions: To the extent required by law, the following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: (a) The named fiduciary: The Employer. (b) The funding policy under this Plan is that premiums on the Policy shall be remitted by the Employer as provided in paragraph 1 of this Agreement. (c) Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. (d) For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Employer. (1) If for any reason a claim for benefits under this plan is denied by the 4 5 Employer, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (B) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (2) The claimant shall have 60 days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of the claim. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim shall be deemed denied on review. 7. Governing Law: This Agreement will be governed by and its validity, effect and interpretation determined by the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 5 6 10. Further Assurances: Each party, upon the other's request and without cost to the other, agrees to take any action, and to sign, acknowledge and deliver to the other party any additional document, necessary or expedient to effectuate the purposes of this Agreement. 11. Counterparts: This Agreement may be executed in counterparts, each of which will be an original, which together will constitute one Agreement. 12. This Agreement supercedes any prior arrangements, undertakings or agreements relating to the insurance policy referred to herein. IN WITNESS WHEREOF, the parties have signed this 6 7 Agreement as of the day and year first written above. ATTEST: MEGO FINANCIAL CORP. ______________________________ By:__________________________ WITNESS: NEDERLANDER 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 19, 1994 _____________________________ By:_________________________ TRACY ALLEN, as Trustee and not individually _____________________________ By:_________________________ JANE GERARD, as Trustee and not individually ______________________________ ROBERT E. NEDERLANDER ______________________________ GLADYS NEDERLANDER 7 EX-10.189 19 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INS 1 EXHIBIT 10.189 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INSURANCE AS COLLATERAL SECURITY AMENDMENT made as of the 26th day of April ,1999 to an ASSIGNMENT made as of January 1, 1995, by TRACY ALLEN and JANE GERARD, as Trustees (the "Trustees") of the NEDERLANDER 1994 INSURANCE TRUST, dated December 19, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). 1. Pursuant to an amended and restated Split-Dollar Life Insurance Plan, among the Assignor, the Assignee, the Trustees and ROBERT E. NEDERLANDER and GLADYS NEDERLANDER, the parties thereto reserved the right to amend the Plan and said Collateral Assignment; and 2. The parties desire to amend said Collateral Assignment, and restate it in its entirety as follows: ASSIGNMENT made as of January 1, 1995, by TRACY ALLEN and JANE GERARD, as Trustees (the "Trustees") of the NEDERLANDER 1994 INSURANCE TRUST, dated December 19, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). WHEREAS: 1. The Assignor is the owner of a policy of insurance on the lives of ROBERT E. NEDERLANDER and his wife, GLADYS NEDERLANDER (the "Insureds"). 2. The policy of insurance owned by the Assignor and referred to in this Assignment was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001964L (the "Policy"). 3. ROBERT E. NEDERLANDER is currently the Chairman and Chief Executive Officer of the Assignee. 4. The Assignee has agreed to establish a split-dollar life insurance plan to assist the Assignor in paying premiums due on the Policy. 5. The Assignor has agreed to assign to the Assignee certain specific rights in and to the Policy in consideration of payment by the Assignee of premiums due on the Policy. 2 NOW, THEREFORE: 1. Subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the Assignor hereby assigns to the Assignee the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Assignor, an amount from the surrender proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy, (as defined below). If, (1) the Assignor borrows any amounts from the cash surrender value of the Policy and (2) upon a surrender of the Policy by the Assignor, the amount of the Assignee's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Assignee by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Assignor under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy (as defined below) determined immediately prior to the death of the survivor of the Insureds. The amount of the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either of both of the Insureds and (b) the aggregate amount of premiums paid by the Assignee on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Assignment is in effect, the Assignor borrows any amounts from the cash surrender value of the Policy, the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. 2. The Assignor will continue to possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Assignee by reason of this Assignment, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Assignee's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable 2 3 under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Assignee on the Policy). In addition, the Assignor shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Assignor may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. The Assignor agrees to notify the Assignee of any assignment of its rights in and to the Policy, in whole or in part. 3. The Assignee will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Assignee's obligation to pay said premiums shall cease. 4. The Assignee will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Assignor of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Assignee's Interest in the Policy. The Assignee will not assign its rights in and to the Policy to any person other than the Assignor without the prior consent of the Assignor. 5. The Insurer is hereby authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee or giving any notice. If the Insurer deems that the sole signature of the Assignee is insufficient for the exercise of the Assignee's rights under the Policy assigned hereby, the Assignor agrees to execute any documents, papers or checks necessary to facilitate the Assignee's exercise of its rights under the Policy. 6. Upon receipt by the Assignee of an amount equal to the Assignee's Interest in the Policy, the Assignee will execute such documents as may be reasonably required by the Assignor to release the Assignee's rights in and to the Policy. 7. This Assignment will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 3 4 8. This Assignment will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties. Notwithstanding the foregoing, the Assignor is entering into this Agreement solely in their capacity as Trustees and not individually. 9. This Assignment may be executed in counterparts, each of which will be an original, which together will constitute one Assignment. IN WITNESS WHEREOF, the parties have caused this Assignment to be executed on the day first written above. ATTEST: MEGO FINANCIAL CORP. ______________________________ By:__________________________ WITNESS: NEDERLANDER 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 19, 1994 _____________________________ By:_________________________ TRACY ALLEN, as Trustee and not individually _____________________________ By:_________________________ JANE GERARD, as Trustee and not individually RECORDED AND FILED BY THE INSURER THIS DAY OF , 1999. - ------------------------------ Registrar 4 EX-10.190 20 AMENDED AGRMNT CONCERNING "SPLIT-DOLLAR" LIFE INS. 1 EXHIBIT 10.190 AMENDED AGREEMENT CONCERNING "SPLIT-DOLLAR" LIFE INSURANCE PLAN AMENDMENT made as of the 26th day of April, 1999 to the AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), GARY STEVEN MAYERSON and ROBERT KEITH MAYERSON, as Trustees (the "Trustees") of the MAYERSON 1994 INSURANCE TRUST, dated December 21, 1994, (the "Trust"), DON A. MAYERSON and EVELYN W. MAYERSON. WHEREAS: 1. An Agreement was entered into as of the 1st day of January, 1995, between MEGO FINANCIAL CORP., GARY STEVEN MAYERSON and ROBERT KEITH MAYERSON, as Trustees of the MAYERSON 1994 INSURANCE TRUST, dated December 21, 1994, DON A. MAYERSON and EVELYN W. MAYERSON. 2. Paragraph 5 of said Agreement provided that the Agreement, or any of its provisions, could be amended, supplemented, modified or waived by a writing signed by the party to be bound thereby. 3. The parties hereto wish to amend said Agreement and restate it in its entirety. NOW, THEREFORE, the parties hereto amend said Agreement and restate it in its entirety as follows: AGREEMENT made as of the 1st day of January, 1995, between MEGO FINANCIAL CORP. (the "Employer"), GARY STEVEN MAYERSON and ROBERT KEITH MAYERSON, as Trustees (the "Trustees") of the MAYERSON 1994 INSURANCE TRUST, dated December 21, 1994, (the "Trust"), DON A. MAYERSON and EVELYN W. MAYERSON. WHEREAS: 1. The Trust owns a policy of insurance on the joint lives of DON A. MAYERSON and his wife, EVELYN W. MAYERSON (the "Insureds"). 2. The policy of insurance owned by the Trust and referred to in this Agreement was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001962L (the "Policy"). 3. DON A. MAYERSON (the "Employee") was formerly employed by the Employer. 2 4. The Employer has agreed to establish a split-dollar life insurance plan (the "Plan") to assist the Trust in paying premiums due on the Policy. 5. The Trust has agreed to assign to the Employer certain specific rights in and to the Policy in consideration of payment by the Employer of premiums due on the Policy. NOW, THEREFORE, the Employer, the Trust and the Insureds agree that: 1. Payment of Premiums: The Employer will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Employer's obligation to pay said premiums shall cease. 2. Policy Ownership and Collateral Assignment: The Trust will continue to own the Policy and shall assign to the Employer, subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Trust, an amount from the surrender proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3 (hereinafter "Employer's Interest in the Policy"). If, (1) the Trust borrows any amounts from the cash surrender value of the Policy pursuant to this Agrement and (2) upon a surrender of the Policy by the Trust, the amount of the Employer's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Employer by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Trust under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Employer's Interest in the Policy, as defined in paragraph 3, determined immediately prior to the death of the survivor of the Insureds. As owner of the Policy, the Trust will possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Employer by reason of this Agreement, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of the Employer's Interest in the Policy, the right to surrender 2 3 the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Employer on the Policy). In addition, the Trust shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Trust may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. The Employer agrees that it will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Trust of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Employer's Interest in the Policy. The Employer agrees that it will not assign its rights in and to the Policy to any person or entity other than the Trust without the prior consent of the Trustees. The Trust agrees to notify the Employer of any assignment of its rights in and to the Policy, in whole or in part. 3. Employer's Interest in the Policy: The amount of the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either or both of the Insureds and (b) the aggregate amount of premiums paid by the Employer on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Agreement is in effect, the Trust borrows any amounts from the cash surrender value of the Policy, the Employer's Interest in the Policy, wherever referred to in this Agreement, is an amount equal to the aggregate amount of premiums paid by the Employer on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Trust to the Employer in reimbursement of premiums paid by the Employer on the Policy. 4. Termination of Agreement: This Agreement will terminate upon whichever of the following is the first to occur: 3 4 (a) Surrender of the Policy by the Trust. (b) Payment by or on behalf of the Trust to the Employer of an amount equal to the Employer's Interest in the Policy. (c) The death of the survivor of the Insureds. Upon termination of this Agreement and receipt by the Employer of the Employer's Interest in the Policy, the Employer agrees to execute such documents as may be reasonably required by the Trust to release the Employer's rights in and to the Policy. 5. Amendment and Effect: This Agreement contains the entire understanding between the Trust, the Employer and the Insureds concerning the matters addressed herein. This Agreement, or any of its provisions, may not be amended, supplemented, modified or waived unless by a writing signed by the party to be bound thereby. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remaining provisions will not be affected, but will continue in effect as though such void, invalid or unenforceable provision were not originally a part of this Agreement. This Agreement will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties hereto. Notwithstanding the foregoing, the Trustees are entering into this Agreement solely in their capacity as Trustees and not individually. 6. Special Provisions: To the extent required by law, the following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: (a) The named fiduciary: The Employer. (b) The funding policy under this Plan is that premiums on the Policy shall be remitted by the Employer as provided in paragraph 1 of this Agreement. (c) Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. (d) For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Employer. 4 5 (1) If for any reason a claim for benefits under this plan is denied by the Employer, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (B) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (2) The claimant shall have 60 days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of the claim. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claim shall be deemed denied on review. 5 6 7. Governing Law: This Agreement will be governed by and its validity, effect and interpretation determined by the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 10. Further Assurances: Each party, upon the other's request and without cost to the other, agrees to take any action, and to sign, acknowledge and deliver to the other party any additional document, necessary or expedient to effectuate the purposes of this Agreement. 11. Counterparts: This Agreement may be executed in counterparts, each of which will be an original, which together will constitute one Agreement. 12. This Agreement supercedes any prior arrangements, undertakings or agreements relating to the insurance policy referred to herein. IN WITNESS WHEREOF, the parties have signed this 6 7 Agreement as of the day and year first written above.
ATTEST: MEGO FINANCIAL CORP. ______________________________ By:__________________________ WITNESS: MAYERSON 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 21, 1994 _____________________________ By:_________________________ GARY STEVEN MAYERSON, as Trustee and not individually _____________________________ By:_________________________ ROBERT KEITH MAYERSON, as Trustee and not individually _____________________________ __________________________ DON A. MAYERSON _____________________________ __________________________ EVELYN W. MAYERSON
7 EX-10.191 21 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INS 1 EXHIBIT 10.191 AMENDED ASSIGNMENT OF LIMITED INTEREST IN LIFE INSURANCE AS COLLATERAL SECURITY AMENDMENT made as of the 26th day of April ,1999 to an ASSIGNMENT made as of January 1, 1995, by GARY STEVEN MAYERSON and ROBERT KEITH MAYERSON, as Trustees (the "Trustees") of the MAYERSON 1994 INSURANCE TRUST, dated December 21, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). 1. Pursuant to an amended and restated Split-Dollar Life Insurance Plan, among the Assignor, the Assignee, the Trustees and DON A. MAYERSON and EVELYN W. MAYERSON, the parties thereto reserved the right to amend the Plan and said Collateral Assignment; and 2. The parties desire to amend said Collateral Assignment, and restate it in its entirety as follows: ASSIGNMENT made as of January 1, 1995, by GARY STEVEN MAYERSON and ROBERT KEITH MAYERSON, as Trustees (the "Trustees") of the MAYERSON 1994 INSURANCE TRUST, dated December 21, 1994 (the "Assignor") to MEGO FINANCIAL CORP. (the "Assignee"). WHEREAS: 1. The Assignor is the owner of a policy of insurance on the lives of DON A. MAYERSON and his wife, EVELYN W. MAYERSON (the "Insureds"). 2. The policy of insurance owned by the Assignor and referred to in this Assignment was issued by the UNITED STATES LIFE INSURANCE COMPANY (the "Insurer") as Policy No. 4001962L (the "Policy"). 3. DON A. MAYERSON was formerly employed by the Assignee. 4. The Assignee has agreed to establish a split-dollar life insurance plan to assist the Assignor in paying premiums due on the Policy. 5. The Assignor has agreed to assign to the Assignee certain specific rights in and to the Policy in consideration of payment by the Assignee of premiums due on the Policy. 2 NOW, THEREFORE: 1. Subject to the terms and conditions of the Policy and to any superior liens that the Insurer may have against the Policy, the Assignor hereby assigns to the Assignee the following specific rights in and to the Policy: (a) The right to obtain, upon surrender of the Policy by the Assignor, an amount from the surrender proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy, (as defined below). If, (1) the Assignor borrows any amounts from the cash surrender value of the Policy and (2) upon a surrender of the Policy by the Assignor, the amount of the Assignee's Interest in the Policy exceeds the surrender proceeds, any shortfall shall be paid to the Assignee by the Insureds (or either one of them). (b) The right to collect, upon a claim by the Assignor under the Policy by reason of the death of the Insureds, an amount from the proceeds equal to but not exceeding the amount of the Assignee's Interest in the Policy (as defined below) determined immediately prior to the death of the survivor of the Insureds. The amount of the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the lesser of (a) the net cash surrender value of the Policy as calculated without giving regard to any premium payments which may have been paid by either or both of the Insureds or by any trust created by either of both of the Insureds and (b) the aggregate amount of premiums paid by the Assignee on the Policy, and in each case reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Employer on the Policy. Notwithstanding the foregoing, if at any time this Assignment is in effect, the Assignor borrows any amounts from the cash surrender value of the Policy, the Assignee's Interest in the Policy, wherever referred to in this Assignment, is an amount equal to the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. 2. The Assignor will continue to possess and exercise exclusively all remaining rights in and to the Policy not otherwise assigned to the Assignee by reason of this Assignment, including, without limitation, the right to assign the Policy to a third party, the right to designate the beneficiary or beneficiaries of any death benefit in excess of 2 3 the Assignee's Interest in the Policy, the right to surrender the Policy and the right to reduce the death benefit payable under the Policy (provided, however, that the death benefit may not be reduced to an amount less than the aggregate amount of premiums paid by the Assignee on the Policy). In addition, the Assignor shall have the right to borrow from the cash surrender value of the policy; provided, however, that the Assignor may borrow only to the extent that immediately after any such borrowing the cash surrender value of the Policy shall be no less than the aggregate amount of premiums paid by the Assignee on the Policy reduced by the aggregate amount, if any, paid by or on behalf of the Assignor to the Assignee in reimbursement of premiums paid by the Assignee on the Policy. The Assignor agrees to notify the Assignee of any assignment of its rights in and to the Policy, in whole or in part. 3. The Assignee will pay all premiums due on the Policy to the Insurer on or before the date or dates on which they become due through January 31, 1998, at which time the Assignee's obligation to pay said premiums shall cease. 4. The Assignee will not exercise its rights in and to the Policy in any way that may conflict with the exercise by the Assignor of its rights in and to the Policy or that may delay or otherwise interfere with receipt by its designated beneficiary or beneficiaries of any death benefit under the Policy in excess of the Assignee's Interest in the Policy. The Assignee will not assign its rights in and to the Policy to any person other than the Assignor without the prior consent of the Assignor. 5. The Insurer is hereby authorized to recognize the Assignee's claim to rights hereunder without investigating the reason for any action taken by the Assignee or giving any notice. If the Insurer deems that the sole signature of the Assignee is insufficient for the exercise of the Assignee's rights under the Policy assigned hereby, the Assignor agrees to execute any documents, papers or checks necessary to facilitate the Assignee's exercise of its rights under the Policy. 6. Upon receipt by the Assignee of an amount equal to the Assignee's Interest in the Policy, the Assignee will execute such documents as may be reasonably required by the Assignor to release the Assignee's rights in and to the Policy. 3 4 7. This Assignment will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly in that state. 8. This Assignment will benefit and bind the heirs, executors, administrators, personal representatives, successors and assigns of each of the parties. Notwithstanding the foregoing, the Assignor is entering into this Agreement solely in their capacity as Trustees and not individually. 9. This Assignment may be executed in counterparts, each of which will be an original, which together will constitute one Assignment. IN WITNESS WHEREOF, the parties have caused this Assignment to be executed on the day first written above. ATTEST: MEGO FINANCIAL CORP. ______________________________ By:__________________________ WITNESS: MAYERSON 1994 INSURANCE TRUST UNDER AGREEMENT DATED December 21, 1994 _____________________________ By:_________________________ GARY STEVEN MAYERSON, as Trustee and not individually _____________________________ By:_________________________ ROBERT KEITH MAYERSON, as Trustee and not individually RECORDED AND FILED BY THE INSURER THIS DAY OF , 1999. _____________________________ Registrar 4 EX-10.192 22 7TH AMENDMENT TO ASSIGNMENT & ASSUMPTION AGRMNT 1 EXHIBIT 10.192 SEVENTH AMENDMENT TO ASSIGNMENT AND ASSUMPTION AGREEMENT This Seventh Amendment (the "Amendment") to Assignment and Assumption Agreement, by and between RER CORP., COMAY CORP., GROWTH REALTY INC. and H&H FINANCIAL, INC. (the "Assignors") and MEGO FINANCIAL CORP., formerly named Mego Corp., (the "Assignee") WITNESSETH: WHEREAS, the Assignors are parties to the Assignment Agreement dated October 25, 1987, with the Assignee, and the Assignment and Assumption Agreement, dated February 1, 1988, between the Assignors and the Assignee, which two agreements were amended by the Amendment to Assignment and Assumption Agreement dated July 29, 1988 and by the Second Amendment to Assignment and Assumption agreement dated as of March 2, 1995, the Third Amendment to Assignment and Assumption Agreement dated as of August 20, 1997 and the Fourth, Fifth, Sixth, and Seventh Amendments to Assignment and Assumption Agreement dated as of February 26, 1999, May 28, 1999, August 9, 1999, and November 20, 1999, respectively, between the Assignors and the Assignee (collectively, the described agreements as so amended are hereinafter referred to as the "Assignment"); and WHEREAS, the Assignment fixed the date of January 31, 1995 as the date on which the accrual of amounts due to the Assignors under the Assignment would terminate, except for interest on any of such amounts which remained unpaid; and WHEREAS, the amount due the Assignors as of January 31, 1995 was $13,328,742.25, plus interest from January 28, 1995, in the amount of $9,322.57, collectively, and with interest from January 31, 1995 to March 2, 1995 (the "Amount Due"); and WHEREAS, $10,000,000 of the Amount Due was agreed to be considered subordinated debt (the ""Subordinated Debt"), against which payments were made as follows: (i) $1,428,571.43 was paid on March 1, 1997 as scheduled, (ii) $4,250,000 was deemed paid by credit against the exercise price of certain warrants as is set forth in the Third Amendment, and (iii) $35,714.28 was paid on September 1, 1998, leaving a remaining balance of the Subordinated Debt of $4,285,714.29; and WHEREAS, the balance of the Subordinated Debt continues to be secured by a pledge of all of the issued and outstanding common stock of Preferred Equities Corporation (and any distributions in respect thereto) pursuant to a Pledge and 2 Security Agreement dated as of February 1, 1998 (the "Pledge Agreement") between the Assignee and the Assignors; and WHEREAS, interest on the Subordinated Debt has been paid through September 1, 1999; and WHEREAS, under the terms of the Assignment, a payment in the amount of $1,428,571.43, which was originally due on March 1, 1999, and a payment in the amount of $1,428,571.43, which was originally due September 1, 1999, were both deferred to December 1, 1999; and WHEREAS, the Assignee has requested that the Assignors further defer the payment of principal of the Subordinated Debt payable on December 1, 1999, in the total amount of $2,857,142.86, to February 1, 2000; NOW THEREFORE, in consideration of the mutual covenants herein contained it is hereby agreed as follows: 1. The statements in the foregoing preamble are true and correct. 2. The payments previously deferred to December 1, 1999, totaling in the aggregate $2,857,142.86, are hereby further deferred until February 1, 2000 hereof. 3. The Assignee and Assignors agree that all amounts due to Assignors pursuant to the Assignment as amended by this Amendment shall continue to be secured as set forth in the Pledge Agreement and that the Pledge Agreement remains in full force and effect. 4. The Assignee and Assignors agree that this Amendment is an amendment to the Assignment and not a novation, and that except as modified hereby, all terms and conditions of the Assignment, including but not limited to provisions with respect to the payment of interest and acceleration of the entire balance of principal and interest if any payment is not made within 30 days of its due date, shall remain in full force and effect. 5. It is agreed that this Amendment may be signed in counterparts, and all such counterparts in the aggregate shall constitute one agreement. 3 IN WITNESS WHEREOF, the parties have duly executed this Amendment as of November 1, 1999. MEGO FINANCIAL CORP. By: /s/ Jerome J. Cohen ------------------------------- Jerome J. Cohen, President RER CORP. By: /s/ Robert Nederlander ------------------------------- Title: President Comay Corp. By: /s/ Jerome J. Cohen ------------------------------- Title: President Growth Realty Inc. By: ------------------------------- Title: H&H Financial, Inc. By: /s/ Herbert Hirsch ------------------------------- Title: EX-27.1 23 FINANCIAL DATA SCHEDULE
5 1,000 YEAR AUG-31-1999 SEP-01-1998 AUG-31-1999 3,497 0 83,640 14,340 36,178 0 39,812 16,252 158,961 0 104,555 0 0 35 21,798 158,961 57,241 74,502 11,236 48,801 25,481 0 9,270 220 (830) 1,050 0 0 0 1,050 .30 .30
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