EXHIBIT 10.235
LOAN AND SECURITY AGREEMENT
by and between
PREFERRED EQUITIES CORPORATION
("BORROWER")
and
CAPITAL SOURCE FINANCE LLC
("LENDER")
Effective Date: August 8, 2001
TABLE OF CONTENTS
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SECTION 1 THE LOAN -1-
1.1 Loan. -1-
1.2 Maturity -1-
1.3 Interest Rate -2-
1.4 Payments -2-
1.5 Prepayments -2-
1.6 Commitment Fee -3-
1.7 Unused Line Fee -3-
SECTION 2 COLLATERAL -3-
2.1 Grant of Security Interest -3-
2.2 Upgraded Notes Receivable -4-
2.3 Security Agreement -4-
SECTION 3 CONDITIONS PRECEDENT TO ADVANCES -4-
3.1 Closing Deliveries -4-
3.2 Deliveries Prior to Each Advance -4-
3.3 Security Interests -4-
3.4 Representations and Warranties -4-
3.5 No Default -4-
3.6 Performance of Agreements -5-
SECTION 4 GENERAL REPRESENTATIONS AND WARRANTIES -5-
4.1 Existence -5-
4.2 Authorization and Enforceability -5-
4.3 Financial Statements and Business Condition -5-
4.4 Taxes -6-
4.5 Litigation and Proceedings -6-
4.6 Licenses and Permits -6-
4.7 Full Disclosure -6-
4.8 Employee Benefit Plans -6-
4.9 Representations as to the Resort -6-
4.10 Timeshare Interval Exchange Network -7-
4.11 Collateral -7-
SECTION 5 AFFIRMATIVE COVENANTS -8-
5.1 Payment and Performance of Indebtedness -8-
5.2 Maintenance of Insurance -8-
5.3 Condemnation -9-
5.4 Inspections and Audits -9-
5.5 Reporting Requirements -9-
5.6 Records -11-
5.7 Management -11-
5.8 Net Worth -11-
5.9 Legal Covenant -11-
5.10 Maintenance -11-
5.11 Proceeds -11-
5.12 Release and Bonding of Liens -11-
5.13 Claims -11-
5.14 Use of Lender Name -11-
5.15 Other Documents -11-
5.16 Subordinated Obligations -12-
5.17 Loan Servicing -12-
5.18 Custodian -12-
SECTION 6 NEGATIVE COVENANTS -12-
6.1 Consolidation and Merger -12-
6.2 Restrictions on Transfers -12-
6.3 Timeshare Regimen -13-
6.4 Collateral -13-
6.5 No Sales Outside of Certain States -13-
6.6 Contracts -13-
SECTION 7 EVENTS OF DEFAULT -14-
7.1 Payments -14-
7.2 Failure to Permit Inspections -14-
7.3 Covenant Defaults -14-
7.4 Warranties or Representations -14-
7.5 Bankruptcy -14-
7.6 Attachment, Judgment, Tax Liens -15-
7.7 Default by Borrower or Guarantor in Other Agreements -15-
7.8 Suspension of Sales -15-
SECTION 8 REMEDIES -15-
8.1 Remedies Upon Default -15-
8.2 Application of Collateral; Termination of Agreements -16-
8.3 Waivers -16-
8.4 Cumulative Rights -16-
8.5 Proceeds -16-
8.6 Marshalling Waiver -16-
SECTION 9 CERTAIN RIGHTS OF LENDER -17-
9.1 Protection of Collateral -17-
9.2 Performance by Lender -17-
9.3 Fees and Expenses -17-
9.4 Assignment of Lender's Interest -17-
9.5 Notice to Purchaser -17-
9.6 Collection of Notes -17-
9.7 Power of Attorney -18-
9.8 Indemnification of Lender -18-
SECTION 10 MISCELLANEOUS -18-
10.1 Notice -18-
10.2 Survival -19-
10.3 Governing Law -19-
10.4 Invalid Provisions -19-
10.5 Counterparts; Effectiveness -19-
10.6 Lender Not Fiduciary -20-
10.7 Entire Agreement -20-
10.8 Venue -20-
10.9 Jury Trial Waiver -20-
10.10 Consent to Advertising and Publicity -21-
10.11 Headings -21-
10.12 Broker's Fees -21-
APPENDIX Defined Terms -23-
SCHEDULE 3.2
Deliveries for all Advances
EXHIBITS
A Permitted Exceptions
B Description for the Resorts
C Requests for Advance
D Resort Amenities
E Lender Credit Standards
F Consumer Documents
G Allonge
LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated August 8, 2001,
is made by and between PREFERRED EQUITIES CORPORATION, a Nevada corporation,
("Borrower"), whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇,
CAPITAL SOURCE FINANCE LLC, a Delaware limited liability company ("Lender"),
whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ and MEGO FINANCIAL CORP., a New York corporation ("Guarantor"), whose
address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
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A. Borrower desires Lender to extend a secured credit facility to
Borrower in accordance with the terms of this Agreement.
B. Borrower's obligations under the Loan Documents will be secured inter
alia by, a security interest in certain Notes Receivable.
C. Guarantor shall guaranty all of the obligations of Borrower to Lender
under the Loan Documents.
D. All capitalized terms used herein shall have the meanings ascribed
thereto in the appendix attached hereto and made a part hereof by this
reference.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, provisions and covenants herein contained, Borrower and Lender agree
as follows:
SECTION 1
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THE LOAN
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1.1 Loan.
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(a) Availability. During the Revolving Period, Lender shall make
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Advances to Borrower not in excess of Availability provided that Borrower
satisfies all conditions set forth in Section 3 hereof and any other provisions
of the Loan Documents applicable thereto. Advances shall be made no more
frequently than four (4) times each month nor more than one (1) time each week.
Except in connection with a prepayment mandated under Section 1.5(b)(i) below,
any amounts repaid during the Revolving Period may be reborrowed during the
Revolving Period.
(b) Excess Availability. Lender shall make Advances of Excess
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Availability to Borrower not more often than once per month and within fifteen
(15) days of Borrower's delivery to Lender of written request therefor
accompanied by Monthly Reports evidencing such Excess Availability to Lender's
satisfaction.
1.2 Maturity. The Loan and Revolving Period shall be for a term of three
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(3) years and the Loan shall be payable in full, together with all other amounts
due and obligations owed under the Loan Documents on August 8, 2004. The Loan,
Revolving Period and Maturity Date may be extended for two (2) years upon the
payment of $150,000 to Lender at least ten (10) days before the end of the
initial term.
1.3 Interest Rate. The outstanding principal balance of
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the Loan together with all other Indebtedness shall bear interest at the
Interest Rate; provided, however, that after the occurrence of an Event of
Default the Loan will bear interest at the Default Rate until cured during the
time allowed for such cure in this Agreement or otherwise waived by Lender.
1.4 Payments.
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(a) Monthly Payments. All funds collected by the Lockbox Agent from
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the Financed Notes Receivable shall be paid to Lender at least weekly pursuant
to the Lockbox Agreement, and shall be applied by Lender once each week in the
following order: first, to the payment of costs or expenses incurred by Lender
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in collecting any amounts due in connection with the Loan; second, to the
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payment of accrued and unpaid interest; and third to the reduction of the
principal balance of the Loan. If the funds received by Lender from the Lockbox
Agent with respect to any month are insufficient to pay interest due and
outstanding for any such month in full, Borrower shall pay the difference to
Lender within five (5) business days of notice from Lender. Payments received
by Borrower directly from any Purchaser shall be delivered to the Lockbox Agent
within two (2) Business Days.
(b) Final Payment. The Indebtedness shall be payable in full on the
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Maturity Date.
1.5 Prepayments.
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(a) Voluntary Prepayments. Prepayments of the Loan may be made in
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whole, but not in part, upon five (5) days prior written notice to Lender at any
time upon payment of the applicable Prepayment Premium (whether such prepayment
results from voluntary payments by Borrower, acceleration, or otherwise);
provided, however, that payments or prepayments of Financed Notes Receivable
made by Purchasers shall not violate this Section 1.5(a), and no Prepayment
Premium shall be payable as a result of any such payment.
(b) Mandatory Prepayments.
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(i) Excess Outstandings. If at any time the outstanding
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principal balance of the Loan exceeds the Maximum Exposure, Borrower
shall, within ten (10) Business Days after notice, either (A) prepay
the Loan in an amount necessary to reduce the principal balance of the
Loan, or (B) deliver to Lender such additional or replacement Eligible
Notes Receivable, in either event such that the remaining outstanding
principal balance of the Loan is equal to or less than the Maximum
Exposure.
(ii) No Prepayment Premium. No Prepayment Premium shall be due
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in connection with any mandatory prepayment made in accordance with
Sections 1.5(b)(i) above.
(iii) Ineligible Financed Note Receivable. If at any time a
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Financed Note Receivable ceases to be an Eligible Note Receivable,
Borrower shall, within five (5) Business Days after notice, either (A)
prepay the Loan in an amount equal to the balance due under such
Financed Note Receivable; or (B) deliver to Lender one (1) or more
Eligible Notes Receivable having an outstanding aggregate principal
balance equal to, or no more than $1,000 in excess of, the outstanding
principal balance of such Financed Note Receivable. Thereafter,
Lender shall return such ineligible Note Receivable to Borrower and,
within five (5) days of Lender's receipt from Borrower of a completed
Allonge and Assignment of Deed of Trust relating to such Note
Receivable and the Deed
of Trust securing the same, in forms acceptable to Lender, Lender
shall execute such instruments and return them to Borrower.
1.6 Commitment Fee. The portion of the Commitment Fee of such payment. The
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previously paid by Borrower shall be deemed to have been earned as of the date
unpaid portion of the Commitment Fee, if any, shall be deemed fully earned as of
the date hereof, and Borrower shall pay $100,000.00 to Lender before or upon the
Initial Advance, and the balance in three (3) monthly installments of $28,333.33
each, by no later than December 15, 2001; Borrower hereby authorizes Lender to
advance the $100,000.00 to itself from the first Advance and to advance the
balance due out of subsequent Advances.
1.7 Unused Line Fee. Commencing on the first day of December, 2001 and
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continuing on the first day of each quarter thereafter, Borrower shall pay
Lender the Unused Line Fee.
SECTION 2
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COLLATERAL
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2.1 Grant of Security Interest. To secure the payment and performance of
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the Indebtedness, Borrower does hereby unconditionally and irrevocably assign,
pledge and grant to Lender a first priority, continuing security interest and
lien in and to all right, title and interest of Borrower in the following
property of Borrower, whether now owned or existing or hereafter acquired
regardless of where located (collectively, the "Collateral"):
(a) The Financed Notes Receivable;
(b) The Deeds of Trust and Purchase Documents;
(c) All deposits, accounts, accounts receivable, general intangibles
and other receivables arising under or in connection with the Pledged
Documents, together with all payments, privileges and benefits arising out
of the enforcement thereof, and all funds held in any deposit accounts
related to any of the Financed Notes Receivable;
(d) All policies of title insurance related to the Deeds of Trust;
(e) All documents, instruments, pledged assets and chattel paper
relating to the Pledged Documents and the other properties and rights
described as Collateral herein;
(f) All cash and other monies and property of Borrower in the
possession or under the control of Lender;
(g) All books, records, ledger cards, files, correspondence, computer
tapes, disks and software relating to the Pledged Documents or any other
Collateral described herein;
(h) All management, marketing, servicing, maintenance or other
similar contracts for the Resort; and
(i) All proceeds, extensions, amendments, additions, improvements,
betterments, renewals, substitutions and replacements of the foregoing.
2.2 Upgraded Notes Receivable. Notwithstanding anything to the contrary
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set forth in this Agreement, Borrower may supplement or replace Financed Notes
Receivables with Upgraded Notes Receivable without Lender's prior consent so
long as (i) no Event of Default exists and is continuing; and (ii) the Note
Receivable that is in default or otherwise not an Eligible Note Receivable has
not become an Upgraded Note Receivable through changes in its terms.
2.3 Security Agreement. This Agreement shall be deemed a security
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agreement as defined in the Code, and the remedies for any violation of the
covenants, terms and conditions of the agreements herein contained shall be
cumulative and be as prescribed (a) herein, or (b) by general law, or (c) as to
such part of the Collateral which is also reflected in any filed financing
statement, by the specific provisions of the Code now or hereafter enacted, all
at Lender's sole election. The Borrower hereby authorizes the Lender to execute
and file any financing statements on Borrower's behalf (including, without
limitation, any such financing statements filed prior to the making of any
Advance hereunder and/or prior to the execution and delivery of this Agreement).
Any deposit account held by the Lockbox Agent shall be in the name of Lender or
otherwise subject to a control agreement in form and substance satisfactory to
the Lender.
SECTION 3
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CONDITIONS PRECEDENT TO ADVANCES
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The obligation of Lender to make Advances is subject to satisfaction of all
of the conditions set forth below.
3.1 Closing Deliveries. Lender shall have received, in form and substance
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satisfactory to Lender, all documents, instruments and information identified on
the Closing Checklist heretofore delivered by Lender to Borrower.
3.2 Deliveries Prior to Each Advance. Prior to each Advance, Lender shall
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have received all documents, instruments and information identified on Schedule
3.2. Requests for Advance shall be made at least three (3) Business Days prior
to the requested date of disbursement and shall be in the form of Exhibit C
hereto.
3.3 Security Interests. Lender shall have received satisfactory evidence
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that all security interests and liens granted to Lender pursuant to this
Agreement or the other Loan Documents have been duly perfected and constitute
first priority liens on the Collateral, as described in the Master Escrow
Agreement.
3.4 Representations and Warranties. The representations and warranties
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contained herein and in the other Loan Documents shall be true, correct and
complete in all material respects on and as of the date of funding of the
Advance except for any representation or warranty limited by its terms to a
specific date and taking into account any amendments to the Schedules or
Exhibits attached hereto as a result of any disclosures made by Borrower to
Lender after the date hereof and approved by Lender.
3.5 No Default. No Incipient Event of Default shall have occurred and not
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been cured or waived by Lender.
3.6 Performance of Agreements. Borrower shall have performed in all
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material respects all agreements and satisfied all conditions to obtain an
Advance which any Loan Document provides shall be performed by it.
SECTION 4
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GENERAL REPRESENTATIONS AND WARRANTIES
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Borrower and Guarantor, for themselves and each other where applicable,
hereby represent and warrant to Lender as follows, which representations and
warranties shall remain true throughout the term of the Loan:
4.1 Existence.
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(a) Borrower is a corporation duly formed, validly existing and in
good standing under the laws of the State of Nevada with its principal
place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇. Borrower
is in good standing under the laws of the States of Nevada, Florida,
Colorado, Texas, New Jersey, Hawaii and California and is authorized to
transact business in the States where the law requires such qualifications
to do the customary business of Borrower.
(b) Guarantor is a corporation duly formed, validly existing and in
good standing under the laws of the State of New York with its principal
place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇.
Guarantor is in good standing under the laws of the State of New York and
is authorized to transact business in the State of Nevada.
4.2 Authorization and Enforceability.
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(a) Execution. The Loan Documents have been duly authorized,
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executed and delivered and constitute the duly authorized, valid and
legally binding obligations of Borrower and the other parties signatory
thereto (other than Lender) enforceable against such parties in accordance
with their respective terms.
(b) Other Agreements. The execution, delivery and compliance with
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the terms and provisions of the Loan Documents will not (i) to the best of
Borrower's knowledge, violate any provisions of law or any applicable
regulation, order or other decree of any court or governmental entity, or
(ii) conflict or be inconsistent with, or result in any default under, any
contract, agreement or commitment to which Borrower is bound.
4.3 Financial Statements and Business Condition. Borrower's and
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Guarantor's financial statements fairly present the respective financial
conditions and (if applicable) results of operations of Borrower and Guarantor
as of the date or dates thereof and for the periods covered thereby. All such
financial statements, other than those prepared on behalf of a natural person,
if any, were prepared in accordance with GAAP. Except for any such changes
heretofore expressly disclosed in writing to Lender, there has been no material
adverse change in the respective financial conditions of Borrower or Guarantor
from the financial conditions shown in their respective financial statements.
Borrower and Guarantor are able to pay all of their debts as they become due,
and each shall maintain such solvent financial condition, giving effect to all
obligations, absolute and contingent, of Borrower and Guarantor. Borrower's and
Guarantor's obligations under this Agreement and under the other Loan Documents
will not render Borrower and Guarantor unable to pay
their debts as they become due. The present fair market value of Borrower's
assets and Guarantor's assets is greater than the amount required to pay their
total liabilities.
4.4 Taxes. All ad valorem taxes and other taxes and assessments
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against the Resort and the Collateral that are due and payable have been paid
and Borrower knows of no basis for any additional taxes or assessments against
the Resort or the Collateral. Borrower has filed all required tax returns or
has made timely requests for extensions and has paid all taxes shown to be due
and payable on such returns, including interest and penalties, and all other
taxes which are payable by it, to the extent the same have become due and
payable. Borrower shall collect and pay any applicable sales or rental tax
respecting the sale or rental of any Intervals.
4.5 Litigation and Proceedings. There are no actions, suits, proceedings,
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orders or injunctions pending or, to the best of Borrower's or Guarantor's
knowledge, threatened against or affecting Borrower, Guarantor, the Resort, the
Loan or any Timeshare Association, at law or in equity, or before or by any
governmental authority, which could have a material adverse effect on Borrower
or Guarantor. Borrower has received no notice from any court or governmental
authority alleging that Borrower has violated the Timeshare Act, any of the
rules or regulations thereunder, or any other applicable laws.
4.6 Licenses and Permits. Borrower possesses all requisite franchises,
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certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
business as now being conducted.
4.7 Full Disclosure. No information, exhibit or written report furnished
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by or on behalf of Borrower and Guarantor to Lender in connection with the Loan
contains any material misstatement of fact or omits any material fact necessary
to make the statement contained herein or therein not misleading. Borrower knows
of no legal or contractual restriction which will prevent it from offering or
selling Intervals to Purchasers in any state where it is selling Intervals.
4.8 Employee Benefit Plans. Borrower is in compliance in all material
----------------------
respects with all applicable provisions of ERISA, the IRC and all other
applicable laws and the regulations and interpretations thereof with respect to
all Employee Benefit Plans. No material liability has been incurred by Borrower
which remains unsatisfied for any funding obligation, taxes or penalties with
respect to any Employee Benefit Plan.
4.9 Representations as to the Resort.
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(a) Title; Prior Liens. Borrower has good and marketable title to
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the Resort (excluding sold Intervals). Borrower is not in default under any
of the documents evidencing or securing any indebtedness which is secured,
wholly or in part, by the Resort, and no event has occurred which with the
giving of notice, the passage of time or both, would constitute a default
under any of the documents evidencing or securing any such indebtedness.
There are no liens or encumbrances against the Resort other than the
Permitted Exceptions.
(b) Access. The Resort has direct access to a publicly dedicated
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road over a recorded easement and all roadways, if any, inside the Resort
are common areas under the Declaration.
(c) Utilities. Electric, gas, sewer, water facilities and other
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necessary utilities are lawfully available in sufficient capacity to
service the Resort and any easements necessary to the furnishing of such
utility service have been obtained and duly recorded.
(d) Amenities. All amenities described in the sales prospectus and
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the Public Reports for the Resort are completed, or a bond insuring their
completion has been posted. Such amenities include those listed in Exhibit
D attached hereto. Each Purchaser of an Interval has access to and the
use of all of the amenities and public utilities of the Resort as and to
the extent provided in the Declaration and the Public Reports.
(e) Construction. All costs arising from the construction of any
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improvements and the purchase of any equipment, inventory, or furnishings
located in or on the Resort have been paid on any Units where a Purchaser
Deed of Trust is to be assigned to Lender.
(f) Resort Documents and Creation of Resort. Borrower has furnished
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to Lender true and correct copies of all Public Reports for the Resort,
approval letters from the states where Intervals have been offered for
sale, and all documents as recorded establishing the timeshare regime.
Borrower is in control of the Association (as defined in the Declaration)
of each of the Resorts (the "Timeshare Association").
4.10 Timeshare Interval Exchange Network. Borrower is a member and
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participant, pursuant to a validly executed and enforceable agreement in
writing, in Resorts Condominium International. Borrower has or caused to be paid
all fees and other amounts due and owing under such agreement and is not
otherwise in default thereunder.
4.11 Collateral.
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(a) Title. Borrower has good and marketable title to the Collateral,
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free and clear of any lien, security interest, charge or encumbrance except
for (i) the security interest created by this Agreement or otherwise
created in favor of Lender; and (ii) the Permitted Exceptions. No
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office, except such
as may have been filed in favor of Lender. Borrower shall defend Lender
against and save it harmless from all claims of any Persons other than
Lender with respect to the Collateral, and this indemnity shall include all
attorneys' fees and legal expenses.
(b) No Modification. There have been no modifications or amendments
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to the Pledged Documents. Borrower shall not grant extensions of time for
the payment of, compromise for less than the full face value, release in
whole or in part any Purchaser liable for the payment of, or allow any
credit whatsoever except for the amount of cash to be paid upon, any
Collateral or any instrument or document representing the Collateral.
Borrower may make non-material changes on three (3) business days notice to
Lender that do not change the term of the Note, forgive or extend any
payment or waive any default, subject, however, to Lender's discretion to
disallow any such change
(c) Binding Obligations. On the date of the assignment and delivery to
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Lender, each Financed Note Receivable and Upgraded Note Receivable
constitutes an Eligible Note Receivable and Borrower is not aware of any
facts or information which would cause such Financed Note Receivable to be
ineligible hereunder.
(d) Community Property. The Pledged Documents were executed by
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Purchasers in connection with the purchase of Intervals and, as to
individuals, bind the marital community of married individual partners.
SECTION 5
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AFFIRMATIVE COVENANTS
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So long as any portion of the Indebtedness remains unpaid, Borrower
covenants as follows:
5.1 Payment and Performance of Indebtedness. Borrower shall pay and
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promptly perform all of the obligations hereunder and under the Loan Documents.
5.2 Maintenance of Insurance.
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(a) Borrower further covenants that:
(i) Policies. The Resort shall at all times and for so long as
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any Indebtedness remains outstanding be kept insured with
such general liability coverage and such other coverages
acceptable to Lender, by carrier(s), in amounts and in form
at all times satisfactory to Lender, which carrier(s),
amounts and form shall not be changed without the prior
written consent of Lender. All required insurance may be
maintained by the Timeshare Association as required by the
Declaration, provided that in the event any Timeshare
Association fails to maintain any insurance required under
this Section 5.2(a), then Borrower shall be required to
obtain and maintain such insurance.
(ii) Proofs of Claim. In case of loss or damage or other
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casualty, Borrower shall give immediate written notice
thereof to the insurance carrier(s) and to Lender. Lender is
authorized and empowered, and Borrower hereby irrevocably
appoints Lender as its attorney-in-fact (such appointment is
coupled with an interest), at Lender's option, to make or
file proofs of loss or damage and to settle and adjust any
claim under insurance policies which insure against such
risks, or to direct Borrower, in writing, to agree with the
insurance carrier(s) on the amount to be paid in regard to
such loss.
(iii) Loss or Casualty. Provided no Event of Default then exists
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and Borrower certifies as to same, the net insurance
proceeds shall be made available for the restoration or
repair of the Resort if (i) in Lender's reasonable judgment:
(a) restoration or repair and the continued operation of the
Resort is economically feasible; (b) the value of Lender's
security is not reduced; and (c) the casualty loss is
$250,000 or less; and (ii) the loss does not occur in the
six (6) month period preceding the Maturity Date and
Lender's independent consultant certifies that the
restoration of the property can be completed at least ninety
(90) days prior to the Maturity Date. Borrower shall pay all
amounts, in addition to the net insurance proceeds,
necessary to pay in
full the cost of the restoration or repair and shall deposit
such amount with Lender or the Insurance Trustee if
established by the Declaration, all in the discretion of
Lender.
(b) Notwithstanding the foregoing, it shall be a condition precedent
to any disbursement of insurance proceeds held by Lender hereunder that
Lender shall have approved (x) all plans and specifications for any
proposed repair or restoration; (y) the construction schedule; and (z) the
architect's and general contractor's contracts for restoration exceeding
$250,000. Lender may establish other conditions it deems reasonably
necessary to assure the work is fully completed in a good and workmanlike
manner free of all liens or claims by reason thereof, and in compliance
with all applicable laws, rules and regulations. At Lender's option, the
net insurance proceeds shall be disbursed subject to the requirements of
the Timeshare Association documents. If an Event of Default then exists,
or any of the conditions set forth in this subsection have not been met or
satisfied, the net insurance proceeds shall be applied to the Loan in such
order and manner as Lender may elect, whether or not due and payable, with
any excess paid to Borrower.
5.3 Condemnation. The proceeds of any award, payment or claim for damages,
------------
direct or consequential, in connection with any condemnation or other taking of
any Unit or Interval which is the subject of a Financed Note Receivable or part
thereof, or for conveyances in lieu of condemnation, are hereby assigned to and
shall be paid to Lender. Lender is authorized (but is under no obligation) to
collect any such proceeds. Lender shall apply the net proceeds of any such
condemnation award (after deduction of Lender's reasonable costs and expenses,
if any, in collecting the same) subject to the requirements of the Timeshare
Association documents. Notwithstanding anything to the contrary contained
herein, for so long as any part of the Resorts are subject to the Declaration,
any and all awards and payment received by Lender arising from any condemnation
or conveyances in lieu thereof relating to the Resorts shall be delivered and
paid out by Lender to the insurance trustee under the Declaration, to be
distributed and used in accordance with the provisions of the Declaration.
5.4 Inspections and Audits. Borrower shall, at such reasonable times
----------------------
during normal business hours and as often as may be reasonably requested, permit
any agents or representatives of Lender to inspect the Resort and any of
Borrower's assets (including financial and accounting books and records), to
examine and make copies of and abstracts from the records and books of account
of Borrower or the Timeshare Association or servicer under the Servicing
Agreement and to discuss its affairs, finances and accounts with any of its
officers, employees or independent public accountants. Borrower acknowledges
that Lender intends to conduct such audits and inspections on at least a semi-
annual basis. Borrower shall make available to Lender all credit information in
Borrower's possession or under Borrower's control with respect to Purchasers as
Lender may request. For up to two (2) such inspections per year and for any
inspections made after an Event of Default, Borrower agrees to pay all of
Lender's reasonable expenses to conduct such inspections; provided, however,
that except with respect to any audits conducted after an Event of Default
hereunder, Borrower shall not be required to pay in excess of $7,500 in any
calendar year for audits performed during such year.
5.5 Reporting Requirements. So long as the Indebtedness remains unpaid,
----------------------
Borrower shall furnish the following to Lender:
(a) Every fourteen (14) days a report in a mutually acceptable form to
be agreed upon showing remaining Availability certified by the Chief
Financial Officer of Borrower as true and accurate.
(b) Monthly Reports. Within fifteen (15) days after the end of each
---------------
calendar month, reports showing through the end of the preceding month, (i)
the following information with respect to each Financed Note Receivable:
(a) the opening and closing balances, (b) all payments received allocated
to interest, principal, late charges, taxes or the like, (c) the rate of
interest, (d) an itemization of delinquencies, extensions, refinances,
prepayments, upgrades, payoffs, cancellations and other adjustments, (E)
the remaining term, and (f) the nature and status of any claims asserted or
legal action pending with respect thereto; and (ii) the weighted average
interest rate and the average remaining term of all Financed Notes
Receivable.
(c) Sales and Inventory Reports. Within fifteen (15) days after the
---------------------------
end of each month a monthly report showing all sales and cancellations of
sales of Intervals, in form and content satisfactory to Lender; and within
thirty (30) days after the end of each Fiscal Year, an annual sales and
inventory report for the Resort detailing the sales of all Intervals during
such Fiscal Year and the available inventory of Units and Intervals,
certified by Borrower to be true, correct and complete and otherwise in the
form approved by Lender.
(d) Monthly Financial Reports. Within forty-five (45) days after the
-------------------------
end of each month, unaudited financial statements of Borrower, Guarantor
and any owners' associations, certified by the chief financial officer of
the subject thereof.
(e) Year-End Financial Reports. As soon as available and in any
--------------------------
event within one hundred and twenty (120) days after the end of each Fiscal
Year: (i) the balance sheet[s] of Borrower, Guarantor and the Timeshare
Association as of the end of such year and the related statements of income
and cash flow for such Fiscal Year; (ii) a schedule of all outstanding
indebtedness of Borrower and Guarantor describing in reasonable detail each
such debt or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt or loan; and
(iii) with respect to the financial statements of Borrower, Guarantor and
the Timeshare Association, copies of reports from a firm of independent
certified public accountants selected by Borrower, which report shall be
unqualified as to going concern and scope of audit and shall state that
such financial statements present fairly the financial position of
Borrower, Guarantor and the Timeshare Association as of the dates indicated
and the results of its operations and cash flow for the periods indicated
in conformity with GAAP.
(f) Audit Reports. Promptly upon receipt thereof, one (1) copy of
-------------
each other report submitted to Borrower or Guarantor by independent public
accountants in connection with any annual, interim or special audit made by
them of the books of Borrower or Guarantor;
(g) Other Reports. Such other reports, statements, notices or written
-------------
communications relating to the Borrower, Guarantor, Timeshare Association
or the Resort as Lender may require, in its reasonable discretion.
(h) SEC Reports. Promptly upon their becoming available one (1) copy
-----------
of each financial statement, report, notice or proxy statement sent by
Guarantor to security holders generally, and of each regular or periodic
report and any registration statement, prospectus or written communication
(other than transmittal letters) in respect thereof filed by Guarantor
with, or received by Guarantor in connection therewith from, any securities
exchange or the Securities and Exchange Commission or any successor agency.
5.6 Records. Borrower shall keep adequate records and books of account
-------
reflecting all financial transactions of Borrower, including sales of Intervals,
in which complete entries will be made in accordance with GAAP.
5.7 Management. The manager and the management contracts for the Resort
----------
shall at all times be satisfactory to Lender. For so long as Borrower controls
the Timeshare Association for the Resort, Borrower shall not change the Resort
manager or amend, modify or waive any provision of or terminate the management
contract for the Resort without the prior written consent of Lender, which
consent shall not be unreasonably withheld. Three (3) out of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇▇▇ shall remain
the principal officers of Borrower and shall have the authority, subject to
necessary Board of Director approval, to make all material business decisions.
5.8 Net Worth. Borrower agrees to maintain a minimum net
---------
worth, determined in accordance with GAAP, of Twenty-Seven Million Five Hundred
Thousand and 00/100 Dollars ($27,500,000.00) at all time Indebtedness is
outstanding, or Lender is obligated to make Advances.
5.9 Legal Covenant. Borrower shall comply in all material respects with
--------------
any requirements of the Federal Trade Commission ("FTC") in whatever form
including ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and the Telemarketing Laws and rules
promulgated by the FTC and the various state governments.
5.10 Maintenance. Borrower shall maintain the Resort in good repair,
-----------
working order and condition and shall make or cause to be made all necessary
replacements to the Resort.
5.11 Proceeds. Immediately upon Borrower's receipt of proceeds from the
--------
sale of any of the Collateral, Borrower shall deliver such proceeds to Lender in
their original form and, pending delivery to Lender, Borrower will hold such
proceeds as agent for Lender and in trust for Lender.
5.12 Release and Bonding of Liens. In the event any lien attaches to any
----------------------------
Collateral, Borrower shall, within thirty (30) days after such attachment,
either (a) cause such lien to be released of record or (b) provide Lender with a
bond in accordance with the applicable laws of the state in which the Resort is
located, issued by a corporate surety acceptable to Lender, in an amount
acceptable to Lender and in form acceptable to Lender.
5.13 Claims. Borrower shall promptly notify Lender of any material
------
(including any action for more than $50,000) claim, action or proceeding
affecting the Collateral, or any part thereof, or any of the security interests
granted hereunder, and, at the request of Lender, appear in and defend, at
Borrower's expense, any such claim, action or proceeding.
5.14 Use of Lender Name. Borrower will not, and will not permit any
------------------
Affiliate to, without the prior written consent of Lender, use the name of
Lender or the name of any affiliates of Lender in connection with any of their
respective businesses or activities, except in connection with internal business
matters, administration of the Loan and as required in dealings with
governmental agencies.
5.15 Other Documents. Borrower will maintain accurate and complete files
---------------
relating to the Notes Receivable and other Collateral to the satisfaction of
Lender, and such files will contain copies of each Note Receivable together with
the purchase agreements, truth-in-lending statements, all relevant credit
memoranda and all collection information and correspondence relating to such
Notes Receivable.
5.16 Subordinated Obligations. Upon and during an Incipient Event of
------------------------
Default or Event of Default, Borrower will not, directly or indirectly, (a)
permit any payment to be made in respect of any indebtedness, liabilities or
obligations, direct or contingent, to Borrower or any Affiliate (excluding trade
payables incurred in the ordinary course of business), which payments shall be
and are hereby made subordinate to the payment of principal of, and interest on,
the Note, or (b) permit the amendment, rescission or other modification of any
of Borrower's subordinated obligations in such a manner as to affect adversely
the lien priority of the Collateral.
5.17 Loan Servicing.
--------------
(a) Borrower shall serve as the servicing agent without formal
agreement and shall continue in such capacity as long as its performance is
satisfactory to Lender in its sole discretion. Borrower's right to service
shall be cancelable by Lender upon the occurrence of any default under the
Loan Documents during the time Borrower or an Affiliate of Borrower is
servicer.
(b) Borrower agrees to hire Back Up Servicer and pay its fee for
standing by and becoming familiar with the servicing operations of Borrower
to the extent of reviewing Borrower's collection reports, in an amount not
to exceed $2,500 per year. Upon an Event of Default, or if Lender is
dissatisfied with the performance of Borrower as above stated, Lender may
replace Borrower with Back Up Servicer who shall then receive compensation
from Borrower at a market rate for a servicing agent and Borrower shall
enter into a customary servicing agreement with Back Up Servicer.
5.18 Custodian. Lender shall have the right at any time to utilize
---------
Custodian to maintain custody of the Collateral. Borrower agrees not to
interfere with Custodian's performance of its duties under the Custodial
Agreement or to take any action that would be inconsistent in any way with the
terms of the Custodial Agreement. All custodial fees, and the costs and expenses
of the Custodian, shall be paid by Borrower.
5.19 Compliance with Laws and Agreements. Borrower and any Affiliate shall
-----------------------------------
comply with, confirm to and obey each and every judgment, law, statute, rule and
governmental regulation applicable to it and each indenture, order, instrument,
agreement or document to which it is a party or by which it is bound. Each of
the Units in which Intervals are being sold shall be in compliance with each and
every law, statute, rule and governmental regulation applicable to it.
SECTION 6
---------
NEGATIVE COVENANTS
------------------
So long as any portion of the Indebtedness remains unpaid and until this
Agreement is terminated, Borrower hereby covenants and agrees with Lender as
follows:
6.1 Consolidation and Merger. Borrower will not consolidate with or merge
------------------------
into any other Person or permit any other Person to consolidate with or merge
into it.
6.2 Restrictions on Transfers. Borrower shall not, without obtaining the
-------------------------
prior written consent of Lender, which may be granted or withheld in Lender's
sole discretion, (a) transfer, sell, pledge, convey, assign or encumber all or
any portion of the Resort or the Collateral (or contract to do any of the
foregoing, including securitizations, options to purchase and so called
"installment sales contracts") except sales of Intervals to Purchasers in arms-
length transactions and sale of Units that are not underlying any Financed Note
Receivables; (b) permit any sale, assignment, encumbrance, dilution or other
disposition of any ownership interests in Borrower (including any right to
receive profits, losses or cash flow related to the Resort) now held by
Guarantor that would cause Guarantor to either (i) own less than less than a
fifty-one percent (51%) interest in Borrower; or (ii) cease to have a
controlling interest in Borrower; (c) permit any change of the President of
Borrower other than by voluntary retirement or natural causes; or (d) permit the
creation of any new ownership interests in Borrower, except to the extent such
new ownership interests are owned or controlled by Guarantor.
6.3 Timeshare Regimen. Without Lender's prior written consent, Borrower
-----------------
shall not amend, modify or terminate the Declaration or the covenants,
conditions, easements or restrictions against the Resort (or any portion
thereof), except that if any amendment or modification is required either (a) to
cause additional Units and Intervals to be annexed into the timeshare regimen of
the Resort, or (b) by law, Borrower shall implement the same and give prompt
written notice thereof to Lender.
6.4 Collateral. Borrower shall not take any action (nor permit or consent
----------
to the taking of any action) which might reasonably be anticipated to impair the
value of the Collateral or any of the rights of Lender in the Collateral.
6.5 No Sales Outside of Certain States. Borrower shall not market, attempt
----------------------------------
to sell or sell any Intervals outside of the States of Florida, Colorado, Texas,
New Jersey Hawaii, California, Nevada and Illinois unless, prior to taking any
such actions, Borrower delivers to Lender the applicable Compliance Documents.
6.6 Contracts. Borrower shall not materially amend, modify or assign to
---------
any other party any management, marketing, servicing, maintenance or other
similar contract for the Resort.
6.7 Restricted Transfer and Encumbrance of Units and Intervals. Except
----------------------------------------------------------
for the sale of a Unit or Interval to a Purchaser and the encumbrance of such
Unit or Interval as security for the Loan or allowed under Section 6.2 above,
Borrower shall not otherwise assign, convey, transfer or cause to be encumbered
any interest in any Unit or Interval. All easements, declarations of covenants,
conditions and restrictions and private and public dedications affecting such
unsold Units and Intervals shall be submitted to Lender for its approval and
such approval must be obtained prior to the execution or granting of any thereof
by Borrower.
6.8 Minimum Liquidity. Borrower agrees that during the term of the Loan
-----------------
and any extension, Borrower shall maintain minimum liquidity of $5,000,000 which
shall be defined for purposes of this Agreement as unrestricted cash plus
unpledged Eligible Receivables as of the last day of each fiscal quarter of
Borrower
6.9 Leverage. As of the last day of each fiscal quarter of Borrower and
--------
for so long as Indebtedness is outstanding or the Lender is obligated to make
Advances, Borrower and Guarantor each agree to maintain a liabilities to net
worth ratio of 4.5:1, as shown on the balance sheet of Borrower and Guarantor
prepared in accordance with GAAP.
6.10 Interest Coverage. As of the last day of each fiscal quarter of
-----------------
Borrower and for so long as Indebtedness is outstanding or the Lender is
obligated to made Advances, Borrower agrees to maintain a ratio of EBITDA to Net
Total Interest Expense of not less than 1.0:1 "EBITDA" means, as of the last
day of any fiscal quarter of the Borrower, Net Income (as defined below) for the
twelve (12) month period ending on such last day, plus all amounts deducted in
the computation of such Net Income on account of (a) depreciation expense and
amortization expense for Intangible Assets; (b) income taxes; (c) all non-cash
charges in respect of pension and retiree benefit expense; and (d) interest
expense (including imputed interest in respect of leases capitalized in
accordance with GAAP [both current and long-term portions of such imputed
interest expense], amortization of debt discount and the current and long-term
portion of interest expense for all long-term indebtedness of the Borrower) (the
amounts of interest in this subclause (d) are referred to herein as "Total
Interest Expense"). "Intangible Assets" means, as of any fiscal quarterly
determination date for this covenant, the amount of intangible assets of
Borrower, determined in conformity with GAAP, including, without limitation,
goodwill, patents, trademarks, tradenames, copyrights, licenses, organizational
costs, deferred amounts, prepaid expenses, covenants not to compete, franchises,
unearned income, and restricted funds. "Net Income" means, with respect to any
period, the net income of the Borrower for such period determined in accordance
with GAAP without giving effect to extraordinary gains or losses or gains or
losses arising from sales of assets other than inventory sold in the ordinary
course of business. "Subordinated Interest Expense" means, with respect to any
period, the interest expense accrued for such period in respect of Subordinated
Debt. "Net Total Interest Expense" means, for any period, Total Interest
Expense for such period minus Subordinated Interest Expense for such period.
SECTION 7
---------
EVENTS OF DEFAULT
-----------------
An "Event of Default" shall exist if any of the following shall occur:
7.1 Payments. Borrower shall fail to make any payment of the Indebtedness
--------
when such payment is due.
7.2 Failure to Permit Inspections. Borrower shall fail to strictly comply
-----------------------------
with the provisions of Section 5.4 of this Agreement.
7.3 Covenant Defaults. Borrower shall fail to perform or observe any
-----------------
covenant, agreement or obligation contained in this Agreement or in any of the
Loan Documents (other than any covenant or agreement obligating Borrower to pay
the Indebtedness), and such failure shall continue for fifteen (15) days after
Lender delivers notice thereof to Borrower, provided, however, if the failure is
incapable of cure within such period and Borrower shall be diligently pursuing a
cure, as determined by Lender in its sole discretion, such cure period shall be
extended by an additional period not to exceed fifteen (15) days.
7.4 Warranties or Representations. Any representation or other statement
-----------------------------
made by or on behalf of Borrower in this Agreement, in any of the other
Loan Documents or in any instrument furnished in compliance with or in reference
to the Loan Documents, shall be false, misleading or incorrect in any material
respect as of the date made.
7.5 Bankruptcy. A petition under any Chapter of Title 11 of the United
----------
States Code or any similar law or regulation is filed by or against Borrower or
Guarantor (and in the case of an involuntary petition in bankruptcy, such
petition is not discharged within sixty (60) days of its filing), or a
custodian, receiver or trustee for any of the Resort is appointed, or Borrower
or Guarantor makes an assignment for the benefit of creditors, or either of them
is adjudged insolvent by any state or federal court of competent jurisdiction,
or either of them admit its insolvency or inability to pay debts as they become
due or an attachment or execution is levied against any of the Resorts or any
part thereof.
7.6 Attachment, Judgment, Tax Liens. The issuance, filing or levy against
-------------------------------
Borrower or Guarantor of one or more attachments, injunctions, executions, tax
liens or judgments for the payment of money cumulatively in excess of $100,000,
which is not discharged in full or stayed within thirty (30) days after issuance
or filing.
7.7 Default by Borrower or Guarantor in Other Agreements. Any default by
----------------------------------------------------
Borrower or Guarantor in the payment of indebtedness for borrowed money after
the expiration of any applicable grace or cure period; any other default under
such indebtedness which accelerates or permits the acceleration (after the
giving of notice or passage of time, or both) of the maturity of such
indebtedness; or any default which permits the holders of such indebtedness to
elect a majority of the Board of Directors of Borrower or Guarantor.
7.8 Suspension of Sales. The issuance of any stay order, cease and desist
-------------------
order or similar judicial or non-judicial sanction that materially adversely
limits or otherwise affects any Interval sales activities, and, with respect to
any such sanction only, such sanction is not dismissed, terminated or rescinded
within thirty (30) days after issuance.
SECTION 8
---------
REMEDIES
---------
8.1 Remedies Upon Default. Upon the occurrence of an Event of Default,
---------------------
Lender may take any one or more of the following actions, all without notice to
Borrower:
(a) Acceleration. Declare the unpaid balance of the Indebtedness, or
------------
any part thereof, immediately due and payable, whereupon the same shall be
due and payable without further action.
(b) Termination of Further Borrowing. Terminate any commitment of
--------------------------------
Lender to lend under this Agreement in its entirety, or any portion of any
such commitment, to the extent Lender shall deem appropriate.
(c) Judgment. Reduce Lender's claim to judgment, foreclose or
--------
otherwise enforce Lender's security interest in all or any part of the
Collateral by any available judicial procedure or other procedure
authorized by the Loan Documents or otherwise available to Lender at law or
in equity.
(d) Sale of Collateral. Exercise all the rights and remedies of a
------------------
secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral) including (i) require Borrower to, and Borrower
hereby agrees that it will, at its expense and upon request of
Lender forthwith, assemble all or part of the Collateral as directed by
Lender and make it available to Lender at a place to be designated by
Lender which is reasonably convenient to both parties; (ii) enter upon any
premises of Borrower and take possession of the Collateral; and (iii) sell
the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Lender's offices or elsewhere, at such time or
times, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Lender may deem reasonable. Borrower
agrees that, to the extent notice of sale shall be required by law, ten
(10) days notice of the time and place of any sale shall constitute
reasonable notification. At any sale of the Collateral, if permitted by
law, Lender may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Lender. Borrower shall remain liable for
any deficiency. Lender shall not be required to proceed against any
Collateral but may proceed against Borrower directly. To the extent
permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted.
(e) Receiver. Apply by appropriate judicial proceedings for
--------
appointment of a receiver for the Collateral, or any part thereof, and
Borrower hereby consents to any such appointment and waives any defenses it
may have thereto.
(f) Exercise of Other Rights. Exercise any and all other rights or
------------------------
remedies afforded by law, in equity or by the Loan Documents as Lender
shall deem appropriate, including, but not limited to, the right to bring
suit or other proceeding, either for specific performance of any covenant
or condition contained in the Loan Documents or in aid of the exercise of
any right or remedy granted to Lender in the Loan Documents.
8.2 Application of Collateral; Termination of Agreements. Upon the
----------------------------------------------------
occurrence of an Event of Default, Lender may apply against the Indebtedness any
and all Collateral in its possession, any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to Borrower held
by Lender hereunder or under any other financing agreement or otherwise, whether
accrued or not.
8.3 Waivers. No waiver by Lender of any Event of Default shall be deemed
-------
to be a waiver of any other or subsequent Event of Default. No delay or omission
by Lender in exercising any right or remedy under the Loan Documents shall
impair such right or remedy or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such right
or remedy preclude other or further exercise thereof, or the exercise of any
other right or remedy under the Loan Documents or otherwise. Further, Borrower
and Guarantor severally waive notice of the occurrence of any Event of Default,
presentment and demand for payment, protest, and notice of protest, notice of
intention to accelerate, acceleration and nonpayment, and agree that their
liability shall not be affected by any renewal or extension in the time of
payment of the Indebtedness, or by any release or change in any security for the
payment or performance of the Indebtedness, regardless of the number of such
renewals, extensions, releases or changes. Borrower also hereby waives the right
to assert any statute of limitations as a bar to the enforcement of the lien
created by any of the Loan Documents or to any action brought to enforce the
Note or any other obligation secured by the Loan Documents.
8.4 Cumulative Rights. All rights and remedies available to Lender under
-----------------
the Loan Documents shall be cumulative and in addition to all other rights and
remedies granted to Lender at law or in equity, whether or not the Indebtedness
is due and payable and whether or not Lender shall have instituted any suit for
collection or other action in connection with the Loan Documents.
8.5 Proceeds. All proceeds in respect of the Collateral realized under
--------
this Section 8, net of all Costs and expenses in respect thereof, shall be
applied first to the accrued and unpaid interest in respect of the Indebtedness
and then to the Indebtedness. Any proceeds remaining thereafter shall be paid to
the Borrower or such other person legally entitled thereto.
8.6 Marshalling Waiver. Borrower waives any and all rights to require the
------------------
marshalling of assets in connection with the exercise of any of the remedies
hereunder.
SECTION 9
---------
CERTAIN RIGHTS OF LENDER
------------------------
9.1 Protection of Collateral. Lender may at any time and from time to time
------------------------
take such actions as Lender deems necessary or appropriate to protect Lender's
liens and security interests in and to preserve the Collateral. Borrower agrees
to cooperate fully with all of Lender's efforts to preserve the Collateral and
Lender's liens and security interests therein.
9.2 Performance by Lender. If Borrower fails to perform any agreement
---------------------
contained herein, Lender may, but shall not be obligated to, cause the
performance of, such agreement, and the expenses of Lender incurred in
connection therewith shall be payable by Borrower pursuant to Section 9.3 below.
9.3 Fees and Expenses. Borrower agrees to promptly pay all Costs and all
-----------------
such Costs shall be included as additional Indebtedness bearing interest at the
Default Rate until paid.
9.4 Assignment of Lender's Interest. Lender shall have the right to assign
-------------------------------
all or any portion of its rights in this Agreement to any subsequent holder or
holders of the Indebtedness provided they agree to be bound by the terms and
conditions of this Agreement.
9.5 Notice to Purchaser. Borrower authorizes both Lender and the
-------------------
Custodian (but neither Lender nor the Custodian shall be obligated) to
communicate at any time and from time to time, whether prior to or after a sale
of an Interval, with any Purchaser or any other Person primarily or secondarily
liable under a Financed Note Receivable with regard to the lien of Lender
thereon and any other matter relating thereto. Lender may perform, at Borrower's
expense, any and all credit investigations as Lender may deem necessary to
determine whether any such Purchaser meets the requirements to be an Eligible
Notes Receivable.
9.6 Collection of Notes
-------------------
(a) Borrower shall direct and authorize each party liable for the
payment of the Financed Notes Receivable to pay each installment thereon to
Lockbox Agent pursuant to the Lockbox Agreement, after which such parties
are directed to make all further payments on the Financed Notes Receivable
in accordance with the directions of Lender. Following the occurrence of
an Event of Default, Lender shall have the right to (a) require that all
payments due under the Financed Notes Receivable be paid directly to
Lender, and to receive, collect, hold and apply the same in accordance with
the provisions of this Agreement, and (b) take such remedial action
available to it for the enforcement of any defaulted Financed Note
Receivable including the foreclosure of any Deed of Trust securing the
payment thereof. Borrower hereby
further irrevocably authorizes, directs and empowers Lender to collect and
receive all checks and drafts evidencing such payments and to endorse such
checks or drafts in the name of Borrower and upon such endorsements, to
collect and receive the money therefor.
(b) Upon indefeasible payment and satisfaction in full of all
Indebtedness, Lender will, at Borrower's request and sole expense, give
written notice as necessary to redirect payment of the Financed Notes
Receivable as requested by Borrower.
9.7 Power of Attorney. Borrower does hereby irrevocably constitute and
------------------
appoint Lender as Borrower's true and lawful agent and attorney-in-fact, with
full power of substitution, for Borrower and in Borrower's name, place and
stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in
the name of Borrower and in favor of Lender as provided in Section 9.6 above;
(b) to demand and receive from time to time any and all property, rights,
titles, interests and liens hereby sold, assigned and transferred, or intended
so to be, and to give receipts for same; and (c) upon the occurrence and during
the continuance of any Event of Default hereunder, (i) to institute and
prosecute in the name of Borrower or otherwise, but for the benefit of Lender,
any and all proceedings at law, in equity, or otherwise, that Lender may deem
proper in order to collect, assert or enforce any claim, right or title, of any
kind, in and to the property, rights, titles, interests and liens hereby sold,
assigned or transferred, or intended so to be, and to defend and compromise any
and all actions, suits or proceedings in respect of any of the said property,
rights, titles, interests and liens, and (ii) generally to do all and any such
acts and things in relation to the Collateral as Lender shall in good ▇▇▇▇▇ ▇▇▇▇
advisable. Borrower hereby declares that the appointment made and the powers
granted pursuant to this Section are coupled with an interest and are and shall
be irrevocable by Borrower in any manner, or for any reason, unless and until
all obligations of Borrower to Lender have been indefeasibly satisfied.
9.8 Indemnification of Lender. Borrower shall indemnify Lender, its
-------------------------
agents, employees, attorneys, directors and assignees, administrators,
subsidiaries, partners, affiliates and affiliated entities (the "Indemnified
Parties") and hold the Indemnified Parties harmless from and against any and all
liabilities, indebtedness, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses, and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Indemnified Parties, in any way relating to or arising out of (a) this Agreement
and the Loan Documents and/or (b) any of the transactions contemplated therein
or thereby (including those in any way relating to or arising out of the
violation by Borrower of any federal or state laws including the Federal Trade
Commission Act, Interstate Land Sales Act or the Timeshare Act). Upon receiving
knowledge of any suit, claim or demand asserted by a third party that Lender
believes is covered by this indemnity, and subject to the condition that no
Event of Default under this Agreement shall then exist, the Indemnified Parties
shall give Borrower notice of the matter and an opportunity to defend it, at
Borrower's sole cost and expense, with legal counsel satisfactory to Lender.
Notwithstanding any defense by Borrower of any such suit, claim or demand,
Lender shall have the right to participate in any material decision affecting
the conduct or settlement of any dispute or proceeding for which indemnification
may be claimed.
SECTION 10
----------
MISCELLANEOUS
-------------
10.1 Notice. Any notice or other communication required or permitted to be
------
given shall be in writing addressed to the respective party as set forth below
and may be personally served, telecopied or sent by overnight courier or U.S.
Mail and shall be deemed given: (a) if served in person,
when served; (b) if telecopied, on the date of transmission, as evidenced by an
electronic confirmation report, if before 3:00 p.m. (East Coast time) on a
business day; provided that a hard copy of such notice is also sent pursuant to
--------
(c) or (d) below; (c) if by overnight courier, on the first business day after
delivery to the courier; or (d) if by U.S. Mail, certified or registered mail,
return receipt requested on the fourth (4th) day after deposit in the mail
postage prepaid.
Notices to Borrower: Preferred Equities Corporation
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 702/369-4398
With a copy to: Preferred Equities Corporation
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 702/369-4398
Notices to Lender: Capital Source Finance LLC
Attn: Loan Administration
Re: PEC Loan
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Facsimile: 202/862-3410
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fieldstone ▇▇▇▇▇▇ ▇▇▇▇▇ & Denberg
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: 305/357-5761
10.2 Survival. All representations, warranties, covenants and agreements
--------
made by Borrower herein, in the other Loan Documents or in any other agreement,
document, instrument or certificate delivered by or on behalf of Borrower or
Guarantor under or pursuant to the Loan Documents shall be considered to have
been relied upon by Lender and shall survive the delivery to Lender of such Loan
Documents and the extension of the Indebtedness (and each part thereof),
regardless of any investigation made by or on behalf of Lender.
10.3 Governing Law. This Agreement and the other Loan Documents (except as
-------------
may be expressly provided therein to the contrary) shall be governed by and
construed in accordance with the laws of the State of New York and applicable
laws of the United States.
10.4 Invalid Provisions. If any provision of this Agreement or any of the
------------------
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect.
10.5 Counterparts; Effectiveness. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Lender's receipt of one or more
counterparts hereof signed by Borrower and Lender.
10.6 Lender Not Fiduciary. The relationship between Borrower and Lender is
--------------------
solely that of debtor and creditor, and Lender has no fiduciary or other special
relationship with Borrower, and no term or provision of any of the Loan
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
10.7 Entire Agreement. This Agreement, including the Exhibits and other
----------------
Loan Documents and agreements referred to herein embody the entire agreement
between the parties hereto, supersedes all prior agreements and understandings
between the parties whether written or oral relating to the subject matter
hereof and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no oral agreements among
Lender, Borrower or Guarantor or between any two or more of them. This Agreement
may be modified or changed only in a writing executed by both Lender and
Borrower and/or the other affected parties.
10.8 Venue. BORROWER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
-----
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED, AT LENDER'S SOLE
DISCRETION AND ELECTION, ONLY IN COURTS HAVING A SITUS WITHIN THE STATE OF NEW
YORK. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURT LOCATED WITHIN SAID STATE. BORROWER HEREBY IRREVOCABLY
APPOINTS AND DESIGNATES CORPORATION SERVICE COMPANY, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ CITY, NEW YORK 10048-0203,AS ITS DULY AUTHORIZED AGENT FOR
SERVICE OF LEGAL PROCESS AND AGREES THAT SERVICE OF SUCH PROCESS UPON SUCH PARTY
SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON SUCH PARTY. IN THE EVENT
SERVICE IS UNDELIVERABLE BECAUSE SUCH AGENT MOVES OR CEASES TO DO BUSINESS IN
NEW YORK, NEW YORK, BORROWER SHALL, WITHIN TEN (10) DAYS AFTER LENDER'S REQUEST,
APPOINT A SUBSTITUTE AGENT (IN NEW YORK CITY) ON ITS BEHALF AND WITHIN SUCH
PERIOD NOTIFY LENDER OF SUCH APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT TIMELY
APPOINTED, LENDER SHALL, IN ITS SOLE DISCRETION, HAVE THE RIGHT TO DESIGNATE A
SUBSTITUTE AGENT UPON FIVE (5) DAYS NOTICE TO BORROWER. BORROWER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST IT BY LENDER ON THE LOAN DOCUMENTS IN ACCORDANCE WITH THIS PARAGRAPH. IN
THE EVENT SERVICE OF PROCESS IS MADE ON CORPORATION SERVICE COMPANY, LENDER WILL
SEND A COURTESY NOTICE (SERVICE SHALL NOT BE AFFECTED BY LENDER'S FAILURE TO
SEND SUCH NOTICE) TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 10.1 OF THIS
AGREEMENT.
10.9 Jury Trial Waiver. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE
-----------------
RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO,
THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER
ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF OF LENDER HAS
MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS
TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER AND
LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH OF THEM HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER
AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
10.10 Consent to Advertising and Publicity. Borrower hereby consents that
------------------------------------
Lender may issue and disseminate to the public information describing the credit
accommodation entered into pursuant to this Agreement.
10.11 Headings. Section headings have been inserted in the Agreement as a
--------
matter of convenience of reference only; such section headings are not a part of
the Agreement and shall not be used in the interpretation of this Agreement.
10.12 Broker's Fees. There are no brokers or other similar fees or
-------------
commitments due with respect to the transactions described in the Agreement,
except for a broker's fee due to The Resort Capital Group, Inc. Borrower shall
defend the Indemnified Parties and save and hold them harmless from all claims
of any Persons for any such fees which indemnity shall include reasonable
attorneys' fees and legal expenses.
The parties hereto have executed this Agreement or has caused the same to
be executed by their duly authorized representatives as of the date first above
written.
BORROWER:
PREFERRED EQUITIES CORPORATION,
a Nevada corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
Its: Sr. V.P.
-----------------------------------
LENDER:
CAPITAL SOURCE FINANCE LLC,
a Delaware limited liability company
By: s/s ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Its: Vice President
-----------------------------------
(EXECUTION BY GUARANTOR ON PAGE 22)
GUARANTOR:
MEGO FINANCIAL CORP,
a New York corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
----------------------------------
Its: Sr. V.P.
-------------------------
Defined Terms
-------------
The following terms used in this Agreement shall have the following
meanings:
Advance. Proceeds of the Loan advanced from time to time by Lender to
Borrower in accordance with this Agreement.
Affiliate. Any individual, trust, estate, partnership, limited liability
company, corporation or any other incorporated or unincorporated organization
(each, a "Person") that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Borrower or Guarantor; any officer, director, partner or shareholder of
Borrower, Guarantor or any relative of any of the foregoing. The term "control"
means possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Availability. At all times during the Revolving Period, the lesser of (a)
the remainder of [i] $15,000,000 minus [ii] the principal balance of all
Advances then outstanding (without giving effect to the currently requested
Advance); or (b) the remainder of (i) $15,000,000 minus (a) the sum of eighty-
five percent (85%) of the principal balance of New Eligible Note Receivable and
(b) ninety percent (90%) of the principal balance of Mature Eligible Notes
Receivable. After expiration of the Revolving Period, Availability shall be
zero ($0).
Back Up Servicer. A company with experience as a servicing agent
acceptable to Lender to be hired by Borrower to track Borrower's collections of
the Note Receivables and to substitute for Borrower acting as servicing agent
upon an Event of Default or as otherwise stated in this Agreement.
Business Day. Any day which is not a Saturday or Sunday or a day on which
banks in Washington, D.C. are required to close.
Code. The Uniform Commercial Code as adopted and in force in the State of
Nevada as the same may be amended from time to time.
Collateral. Has the meaning assigned in Section 3.1.
Compliance Documents. With respect to sales of Intervals in any state or
jurisdiction: (i) a memorandum in substance satisfactory to Lender from an
attorney licensed in such state or jurisdiction addressing the compliance of
Borrower's sales and financing documents and sales practices with the applicable
law of such state or jurisdiction, (ii) evidence satisfactory to Lender that the
governmental authority of such state or jurisdiction having jurisdiction over
sales of timeshare intervals has issued all
required approvals of Borrower's sales and financing documents and sales
practices, and (iii) copies of Borrower's sales and financing documents as
approved by such state.
Commitment Fee. A non-refundable loan commitment fee with respect to the
Loan equal to $187,500, which is payable as set forth in Section 1.6 above.
Borrower has deposited $25,000 with Lender which will be first applied to
Lender's cost of doing this transaction and if any funds remain after such cost
reimbursement, it shall be applied to the Commitment Fee.
Costs. All expenditures and expenses which may be paid or incurred by or
on behalf of Lender in connection with the documentation, modification, workout,
collection or enforcement of the Loan or any of the Loan Documents.
Notwithstanding the foregoing, Costs payable on the date of the initial Advance
shall be limited to (i) the fees and costs of Lender's attorneys (including
Lender's inside counsel) in connection with the documentation of the Loan and
the due diligence review of Borrower's deliveries including travel costs
incurred to make such review; (iii) all applicable title, filing and recording
fees and other closing costs; and (iv) the payment on behalf of borrower of the
broker's fees due under Section 10.12. During the term of the Loan, Costs
payable by Borrower shall include: payments to remove or protect against liens;
attorneys' fees (including fees of Lender's inside counsel); receivers' fees;
engineers' fees; accountants' fees; independent consultants' fees (including
environmental consultants); fees of the Custodian and the Back Up Servicer; all
costs and expenses incurred in connection with any of the foregoing; outlays for
documentary and expert evidence; stenographers' charges; stamp taxes; inspection
and audit costs as set forth in Section 5.4 above; publication costs; and costs
(which may be estimates as to items to be expended after entry of an order or
judgment) for procuring all such abstracts of title, title and UCC searches, and
examination, title insurance policies, and similar data and assurances with
respect to title as Lender may deem reasonably necessary either to prosecute any
action or to evidence to bidders at any foreclosure sale a true condition of the
title to, or the value of, the Collateral.
Current Ratio. As defined in Section 6.8 herein.
Custodial Agreement. An agency and custodial agreement, on Lender's form,
among Borrower, Lender and Custodian providing for the maintenance of the
Pledged Documents.
Custodian. Chicago Title Insurance Company or such other Person designated
by Lender and approved by Borrower to maintain physical possession of the
Pledged Documents.
Declaration. The Grand Flamingo Plaza Declaration of Timeshare Ownership
Covenants, Conditions and Restrictions recorded May 23, 1997 in Book 970523 as
Document Number 01649 in the Office of the County Recorder of ▇▇▇▇▇ County,
Nevada, as now or hereafter amended or restated; and
The Grand Flamingo Fountains Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded May 26, 1993 in Book 930526 as Document
Number 00566 in the Office of the County Recorder of ▇▇▇▇▇ County, Nevada, as
now or hereafter amended or restated; and
The Grand Flamingo Terraces Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded December 12, 1989 in Book 891212 as
Document Number 00188 in the Office of the County Recorder of ▇▇▇▇▇ County,
Nevada, as now or hereafter amended or restated; and
The Grand Flamingo Suites Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded November 8, 1991 in Book 911108 as Document
Number 00235 in the Office of the County Recorder of ▇▇▇▇▇ County, Nevada, as
now or hereafter amended or restated; and
The Grand Flamingo Towers Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded August 23, 1984 in Book 1978 as Document
Number 1937487 in the Office of the County Recorder of ▇▇▇▇▇ County, Nevada, as
now or hereafter amended or restated; and
The Grand Flamingo Villas Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded November 10, 1983 in Book 1832 as Document
Number 1791580 in the Office of the County Recorder of ▇▇▇▇▇ County, Nevada, as
now or hereafter amended or restated; and
The Grand Flamingo ▇▇▇▇▇▇▇ Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded March 19, 1993 in Book 930319 as Document
Number 00051 in the Office of the County Recorder of ▇▇▇▇▇ County, Nevada, as
now or hereafter amended or restated; and
The Reno Spa Resort Club Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded April 18, 1984 in Book 2002 as Document
Number 919447 in the Office of the County Recorder of Washoe County, Nevada, as
now or hereafter amended or restated.
Deed of Trust. Any deed of trust or mortgage executed and delivered by a
Purchaser, encumbering all of the right, title and interest of each such
Purchaser in and to its purchased Interval as security for such Purchaser's
obligations under any Financed Note Receivable.
Default Rate. A per annum rate of interest equal to the Interest Rate plus
four percent (4%).
EBITDA. As described in Section 6.10 hereof.
Eligible Note Receivable. Each Note Receivable satisfying all of the
following criteria:
(a) Payments due under the Note Receivable shall be self-amortizing and
payable in equal installments of principal and interest; and the
original term of a Financed Note Receivable shall not exceed 120
months; the weighted average of the remaining term of all Financed
Note Receivables shall not exceed 110 months;
(b) Purchaser has made a cash down payment of at least ten percent (10%)
of the actual purchase price of the Interval and no part of such
payment has been made or loaned to Purchaser by Borrower or a
Affiliate;
(c) No installment is more than thirty (30) days past due on a contractual
basis at the time of assignment to Lender, nor becomes more than sixty
(60) days past due on a contractual basis thereafter;
(d) The weighted average interest rate of all Financed Notes Receivable
shall be 12.5%. Each Note Receivable where there has been a 10% down
payment, but not more than 50%, shall bear interest at a minimum of
11% per annum and where the down payment is 50% or more, the interest
rate may be at a minimum of 0% for the first two (2) years and at
least 5% per annum thereafter. Note Receivables meeting the foregoing
qualifications for 0% interest rate may not exceed 20% of all Financed
Note Receivables at any one time outstanding.
(e) The Unit with respect to the Interval purchased has been completed in
accordance with the Purchase Documents;
(f) All amenities for the Resort have been completed and are available for
use by all Purchasers;
(g) The Purchaser is not an Affiliate of, related to or employed by
Borrower or Guarantor;
(h) The Note Receivable is free and clear of adverse claims, liens and
encumbrances and subject to no claims of rescission, invalidity,
unenforceability, illegality, defense, offset or counterclaim;
(i) Purchaser is personally liable for payment of the Note Receivable;
(j) The Note Receivable is secured by a first priority mortgage or deed of
trust on the purchased Interval and Lender's interest in same will be
insurable as to title in a manner acceptable to Lender;
(k) The Purchaser meets credit standards of Lender as set forth in Exhibit
E;
(l) The aggregate outstanding principal balance of all Notes Receivable
made by any one Purchaser shall not exceed $40,000, and any one Note
Receivable made by any one Purchaser shall not exceed $25,000, unless
prior approval in writing is given by Lender. The average principal
balance associated with all Financed Note Receivables shall not exceed
$17,000.
(m) The Deed of Trust securing the Note Receivable is insured under a
mortgagee title insurance policy acceptable to Lender subject only to
those exceptions to title as Lender approves;
(n) Payments are to be in legal tender of the United States;
(o) The Note Receivable and the Purchase Documents are valid, genuine and
enforceable against the obligor thereunder, and such obligor has not
assigned his or her interest thereunder;
(p) One Hundred Percent (100%) of the outstanding principal balance of all
Notes Receivable arises from purchasers who are U.S. or Canadian
residents unless otherwise approved by Lender in writing; and
(q) Payments have been made by the obligor thereunder and not by Borrower
or any Affiliate of Borrower on the obligor's behalf.
Event of Default. Has the meaning set forth in Section 7 of this
Agreement.
Excess Availability. At all times during the Revolving Period, the amount
by which the Maximum Exposure exceeds Advances then outstanding. After
expiration of the Revolving Period, Excess Availability shall be zero ($0).
Extension Fee. A payment to Lender of a fee as set forth in Section 1.2
above.
Financed Note Receivable. Any Eligible Note Receivable as to which an
Advance has been made and which has been assigned and delivered to Lender as
security for the Loan.
Gaap. Generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board which are applicable in the circumstances as of the
date in question; and the requisite that such principles be applied on a
consistent basis means that the accounting principles in a current period are
comparable in all material respects to those applied in a preceding period, with
any exceptions thereto noted.
Guarantor. MEGO Financial Corp.
Guaranty. A guaranty agreement, on Lender's form, executed by Guarantor
guarantying all of the obligations of Borrower to Lender under the Loan
Documents.
Hazardous Materials. Any hazardous, dangerous or toxic substance or
material within the meaning of any federal, state or local law, regulation or
ordinance.
Incipient Event of Default. An event which would be an Event of Default
but for the delivery of notice or the passage of time.
Indebtedness. All payment obligations of Borrower to Lender (under the
Loan Documents or otherwise).
Intangible Assets. As described in Section 6.10 hereof.
Interest Rate. A floating rate per annum equal to the Prime Rate plus two
and one-half percent (2.50%) (the aggregate rate referred to as the "Interest
Rate"). "Prime Rate" shall mean the interest rate published each day in the
Wall Street Journal as the "Prime Rate", the base rate on corporate loans posted
by at least 75% of the nations's thirty (30) largest banks. Interest shall be
calculated based on a 360 day year and charged for the actual number of days
elapsed. In no event shall the Interest Rate be less than ten percent (10%) per
annum.
Interval. An undivided fee simple ownership interest as tenants in common
with all other Purchasers with respect to any Unit, with a right to use such
Unit for one week annually, together with all appurtenant rights and interests
as more particularly described in the Timeshare Documents.
Loan. The Fifteen Million and 00/100 Dollars ($15,000,000.00) credit
facility described in this Agreement.
Loan Documents. Collectively, this Agreement, the Note, and any and all
other agreements, documents, instruments and certificates delivered or
contemplated to be delivered in connection with this Agreement, as such may be
amended, renewed, extended, restated or supplemented from time to time.
Loan Year. Each successive twelve (12) month period commencing on the date
of this Agreement.
Lockbox Agent. Such banking institution selected by Borrower and approved
by Lender to act as the depositary of payments on the Financed Notes Receivable
under the Lockbox Agreement.
Lockbox Agreement. An agreement among Borrower, Lender and Lockbox Agent
providing for the receipt by Lockbox Agent of payments on the Financed Notes
Receivable and disbursement of such payments to Lender.
Mandatory Prepayment. Any prepayment required by Section 1.5(b) of this
Agreement.
Mature Eligible Note Receivable. An Eligible Note Receivable where the
Purchaser has made the initial three (3), or more, monthly payments on the Note
Receivable.
Mature Financed Note Receivable. A Mature Eligible Note Receivable that
has become a Financed Note Receivable.
Maturity Date. August 8, 2004. Maturity Date may be extended for a period
of two years upon payment of the Extension Fee.
Maximum Exposure. The lesser of (a) $15,000,000; or (b) the sum of (A) 90%
of the principal balance of all Mature Financed Note Receivables and (B) 85% of
the principal balance of all New Financed Note Receivables.
Monthly Reports. The monthly reports required pursuant to Section 5.5(a)
of this Agreement.
Net Income. As described in Section 6.10 hereof.
Net Total Interest Expense. As described in Section 6.10 hereof.
New Eligible Note Receivables. An Eligible Note Receivable where the
Purchaser has made less than the initial three (3) monthly payments on the Note
Receivable.
New Financed Note Receivables. A New Eligible Note Receivable that has
become a Financed Note Receivable.
Note. The promissory note evidencing the Loan executed and delivered by
Borrower to Lender concurrently herewith.
Note Receivable(s). A promissory note executed by a Purchaser in favor of
Borrower in connection with Purchaser's acquisition of an Interval.
Permitted Exceptions. The exceptions to title listed on Exhibit A.
Person. Natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
Pledged Documents. The Financed Notes Receivable, the Deeds of Trust and
the Purchase Documents.
Prepayment Premium. The percentage set forth below multiplied by the
amount prepaid, payable in connection with a voluntary prepayment of the Loan in
accordance with the provisions of Section 1.5(a) of this Agreement:
Loan Year Percentage
--------- ----------
First Loan Year Two percent (2%)
Second Loan Year One percent (1%)
Thereafter None
Public Reports. Any public reports now or hereafter filed with and
approved by any jurisdiction having control over the sale of Intervals for the
Resort.
Purchase Documents. Any purchase agreement and related sale and escrow
documents executed and delivered by a Purchaser to Borrower with respect to the
purchase of an Interval.
Purchaser. Any Person who purchases one or more Intervals.
Resorts. Those certain timeshare vacation resorts located in ▇▇▇▇▇ County,
Nevada, commonly known as and with addresses as more particularly described in
Exhibit B, including all related common elements, limited common elements,
parking areas and other amenities, as established by the Declaration.
Revolving Period. The period commencing on the date hereof and ending on
the last day of the thirty-sixth (36th) month after the date hereof.
Servicing Agreement. In Lender's sole discretion, an agreement to be made
among Lender, Borrower and Back Up Servicer, which provides for Back Up
Servicer to perform for the benefit of Lender accounting, reporting and other
servicing functions with respect to the Note Receivables constituting part of
the Collateral, as it may be from time to time renewed, amended, restated or
replaced.
Subordinated Interest Expense. As described in Section 6.9 hereof.
Timeshare Act. Nevada Revised Statutes (NRS) 119A.
Timeshare Association. As described in Section 4.9(f) hereof.
Timeshare Documents. Any and all documents evidencing or relating to the
sale of Intervals by Borrower.
Total Interest Expense. As described in Section 6.10 hereof.
Unit. One individual air-space unit within the Resort, together with all
furniture, fixtures and furnishings therein, and together with any and all
interest in common elements appurtenant thereto, as provided in the Declaration.
Unused Line Fee. A fee payable quarterly by Borrower to Lender equal to
one-half of one percent (50 basis points) per annum on the difference between
the Loan and the average of the principal amount of all Advances made to
Borrower during such quarter.
Upgraded Note Receivable. An Eligible Note Receivable made by the maker of
an existing Financed Note Receivable which is assigned to Lender in replacement
of or as a supplement to such Financed Note Receivable and which satisfies the
criteria established in Section 2.2 of this Agreement. Each Upgraded Note
Receivable shall also be considered to be a Financed Note Receivable, and shall
be subject to the security interest granted to Lender pursuant to Section 2.1 of
this Agreement and shall be Collateral as defined herein.
SCHEDULE 3.2
------------
Deliveries For All Advances
---------------------------
Pursuant to Section 3.2 of the Agreement, Lender shall not be obligated to fund
any Advance unless Lender and Custodian shall have received, in form and
substance satisfactory to Lender, all documents, instruments and information as
follows and the other conditions set forth below have been satisfied; fundings
shall be as provided below:
To Lender At Least Five (5)
---------------------------
days prior to the requested funding date:
-----------------------------------------
1. A Request for Advance (in the Form of Exhibit C) listing all Intervals to
be financed.
2. All information pertaining to the creditworthiness of any such Purchaser
available to Borrower and reasonably requested by Lender.
3. A copy of the vehicle for down payment.
4. A current aging report for the Notes Receivable to be pledged in connection
with the requested Advance.
5. Such additional information as Lender may reasonably require.
6. A Supplemental Escrow Agreement as contemplated in the Master Escrow
Agreement referred to below, executed by Chicago Title Insurance Company
("CTIC"). the Master Escrow Agreement dated as of July 31, 2001 among Borrower,
Lender and CTIC shall have been executed by all parties thereto and shall be in
full force and effect.
To Custodian at least five (5)
------------------------------
days prior to the requested funding date:
-----------------------------------------
1. A Request for Advance in the form of Exhibit C to the Agreement listing all
Intervals to be financed.
2. Originals of all Pledged Documents and the Assignment of Contracts, Notes
Receivable, and Purchase Money Mortgages, on the form of that attached hereto as
Exhibit F (with only such modifications to such form as are necessary to
properly identify the collateral and to cause the document to be properly
recorded), covering all of the Pledged Documents to be pledged in relation with
such Receivables Advance (except that copies of the recordable Purchase Money
Mortgages and Assignment of Contracts, Notes Receivable, and Purchase Money
Mortgages shall be satisfactory provided that originals are delivered to CTIC
contemporaneously with the delivery of the copies thereof to the Lender (or CTIC
confirms in writing, in the case of the Purchaser Deeds of Trust, that such
Purchaser Deeds of Trust have been delivered to the land records office in ▇▇▇▇▇
County, Nevada and have not yet been returned) and the Custodian obtains the
recorded original documents with respect thereto within sixty (60) days after
the Advance date, all in forms approved by Lender, with each Note Receivable
endorsed with an allonge in the form attached hereto as Exhibit G. Borrower
shall, at the same time that it shall deliver copies of the aforesaid Purchaser
Deeds of Trust and Assignment of Purchase Documents, Notes Receivable, and
Purchaser Deeds of Trust to the Lender, also deliver to the Lender a copy of
each of the warranty deeds with respect to the Intervals then being conveyed by
the Borrower to the Purchasers of the above referenced Purchaser Deeds of Trust
(the originals of all such documents being delivered to CTIC. If Custodian or
Lender shall receive a photocopy of the Assignment of Purchase Documents,
Notes Receivable, and Purchaser Deeds of Trust, it shall fax the same to CTIC
and shall state that such faxed document is what it received from the Borrower.
3. In the case of the first Advance, a commitment for title insurance insuring
each individual Purchaser Deed of Trust to be assigned to Lender by Borrower in
respect of such first Receivable Advance as a valid first lien subject only to
the Permitted Exceptions, provided that a title policy shall be delivered within
sixty (60) days after the date of such first Advance. Such title insurance
policy will be in the form attached to the Master Escrow Agreement referred to
above. With respect to any subsequent Receivables Advance, a fully executed
(original) endorsement shall be delivered within sixty (60) days after the date
of such subsequent Advance increasing the title insurance policy by the
aggregate amount of the Purchaser Deeds of Trust then assigned.
All documents to be delivered to Lender and the Custodian should be sent to:
Chicago Title Insurance Company
National Resort Development Division
Attn: ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With respect to any Advance, when Lender and Custodian (or CTIC) shall have
received all of the above-referenced documents and agreements as to such Advance
and when all other conditions precedent set forth herein with respect thereto
shall have been satisfied, Lender agrees to wire transfer the proceeds of such
Advance (net of all offsets or deductions provided for herein) as follows:
Bank Name: Union Bank of California
Account Name: Chicago Title Trust Account/PEC
Account No.: 910281101
ABA No.: ▇▇▇▇▇▇▇▇▇
Reference: Preferred Equities Corporation Loan Advance
The moneys so wired shall remain in escrow until all conditions set forth in the
Master Escrow Agreement and the Supplemental Escrow Letter in respect of such
Advance have been satisfied. Borrower agrees that any Advance funded into the
escrow account of CTIC by Lender, as set forth above, will accrue interest at
the Interest Rate provided for herein from the date so wired by Lender to CTIC
and all risk of loss in respect thereof shall be borne solely by Borrower in the
event of the insolvency, non-feasance or malfeasance of CTIC in respect thereof
or any financial institution with which CTIC deposits all or any portion of any
Advance.
The aforesaid title insurance company is Chicago Title Insurance Company. If
any other title insurance company is to provide title insurance, as contemplated
herein, Borrower will first obtain Lender's prior written consent thereto.
EXHIBIT A
---------
Permitted Exceptions
--------------------
AS SET FORTH IN THE PROFORMA TITLE INSURANCE POLICIES ATTACHED TO THE
MASTER ESCROW AGREEMENT.
EXHIBIT B
---------
Descriptions for the Resorts
----------------------------
GRAND FLAMINGO TERRACES GRAND FLAMINGO TERRACE IV
▇▇▇-▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇-▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
GRAND FLAMINGO WINNICK GRAND FLAMINGO FOUNTAINS
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇-▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
GRAND FLAMINGO SUITES GRAND FLAMINGO PLAZA
▇▇▇-▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
& ▇▇▇▇/▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇-▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
RENO SPA RESORT
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
EXHIBIT C
---------
Requests For Advance
--------------------
DATE:________________
Capital Source Finance LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
RE: PEC Loan
$________________ credit facility described in
that certain Loan and Security Agreement (the "Loan
Agreement") between Preferred Equities Corporation ("Borrower")
and Capital Source Finance, LLC ("Lender")
Dear Sir or Madam:
In accordance with the terms of the Loan Agreement, Borrower wishes to
obtain an advance of $_______________________ on ___________________, 200__.
All terms used herein, unless otherwise specified, shall have the meaning
assigned in the Loan Agreement. In order to induce Lender to make such Advance,
Borrower hereby represents and warrants to Lender:
1. No Event of Default and no event has occurred which, with the passage
of time or notice or both, would constitute an Event of Default has occurred or
will as a result of the Advance requested for herein.
2. Borrower shall grant Lender a security interest in and lien upon those
certain Notes Receivable, Deeds of Trust and other documents executed in
connection with the sale of Intervals as set forth in Exhibit A attached hereto.
3. All of the documents described in A above meet all of the requirements
of Eligible Notes Receivable.
4. The representations and warranties contained in the Loan Agreement are
true, correct and complete in all material respects to the same extent as though
made on the date of the Loan Agreement except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the schedules or exhibits as a result of any subsequent disclosures made by
Borrower in writing to and approved by Lender.
5. Borrower is in compliance with each and every one of its covenants,
agreements and obligations under the Loan Agreement.
6. No obligor has any asserted or threatened defense, offset,
counterclaim, discount or allowance in respect of each Note Receivable to be
pledged in connection with this Advance. Borrower has no knowledge of any facts
which would lead a reasonable person to conclude that any such Note Receivable
shall not be paid in accordance with its terms.
7. Borrower has no defenses or offsets with respect to the payment of any
amounts due Lender.
8. Lender has performed all of its obligations to Borrower.
9. The following information is true and correct as of the date hereof
and shall be true and correct on the date of the requested Advance:
A. The principal balance of the Loan as of
the end of the immediately preceding
calendar month: $________________
B. All Advances made this calendar month: $________________
C. Availability as of the end of the
immediately preceding calendar month: $________________
D. Additional Availability created during
the current calendar month (as supported
by the attached Borrowing Base Report): $________________
TOTAL AVAILABILITY {(C + D) - (A + 00B)} $________________
BORROWER:
PREFERRED EQUITIES CORPORATION
By: _____________________________
Name:______________________________
Its: _____________________________
BORROWING BASE REPORT
---------------------
AS OF _______________________
Beginning Receivable Balance $____________________
ADD: New collateral $____________________
LESS: Principal Collections $____________________
LESS: Prepayments $____________________
LESS: Cancellations $____________________
ADD/LESS: Adjustments $____________________
Ending Receivable Balance $____________________
LESS: Ineligible Receivables $____________________
TOTAL Eligible Receivables $____________________
Multiplied by ________% x ______________
ADVANCE AMOUNT $____________________
Total Credit Facility Amount $____________________
LESS: Outstanding Principal Balance: $____________________
AVAILABILITY $____________________
EXHIBIT D
---------
RESORT AMENITIES
----------------
AS DESCRIBED IN THE PUBLIC REPORTS FOR THE RESORTS APPROVED ACCORDING TO THE
PROVISIONS OF THE ACT.
EXHIBIT E
CAPITAL SOURCE FINANCE LLC
CREDIT STANDARDS
----------------
Lender reserves the right to reject any consumer that has one or more of the
following items on their credit report:
Bankruptcy - Within the past twelve (12) months
----------
Foreclosure - Within the past twelve (12) months
-----------
Automobile Repossession - Within the past twelve (12) months
-----------------------
Collections/charge-Offs/Judgments/Tax Liens greater than $5,000 - Within the
---------------------------------------------------------------
past twelve (12) months
Lender reserves the right to amend or deviate from these guidelines at anytime
upon written notice to Borrower.
EXHIBIT F
---------
CONSUMER DOCUMENTS
------------------
PREFERRED EQUITIES CORP.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇
CUSTODIAL DOCUMENT CHECKLIST
Agreement No:
----------------------------------------------------------
Trust:
----------------------------------------------------------
Account:
----------------------------------------------------------
Name:
----------------------------------------------------------
Note Amount:
----------------------------------------------------------
[_] New Purchase [_] Exchange Agreement [_] Refinance/ADP
NEVADA LAND NEVADA TIMESHARE
----------------------------------------------------------------------------------------------
Original Note Secured by Deed of Original Note Secured by Deed of
Trust Trust
----------------------------------------------------------------------------------------------
Original Short Form Deed of Trust Original Short Form Deed of Trust
----------------------------------------------------------------------------------------------
Original Declaration of Value Original Declaration of Value
----------------------------------------------------------------------------------------------
Original Grant Bargain Sale Deed Original Grant Bargain Sale Deed
----------------------------------------------------------------------------------------------
Copy Additional Down Payment Copy Additional Down Payment or
or Refinance Addendum Refinance Addendum
----------------------------------------------------------------------------------------------
Copy Purchase Agreement or Copy Purchase Agreement or
Exchange Agreement Exchange Agreement
Including addendums Including addendums
----------------------------------------------------------------------------------------------
Copy Down Payment Receipts (if Copy Down Payment Receipts (if
applicable) applicable)
----------------------------------------------------------------------------------------------
Copy Receipt of Nevada Copy Receipt of Nevada Property
Property Report Report (if purchased in a
Nevada Sales Office)
----------------------------------------------------------------------------------------------
Copy Receipt, Agent Copy RECEIPTS or Receipt, Agent
Certification and Certification and
Cancellation Page Cancellation Page Purchase
Purchase Receipt Receipt (if purchased in a
sales office outside Nevada)
----------------------------------------------------------------------------------------------
Copy Understanding and Copy Buyer's Understanding and
Acknowledgment of Calvada Acknowledgment of Timeshare
Property Purchase Interest Purchased
----------------------------------------------------------------------------------------------
Copy Buyers Understanding and Copy Buyers Understanding and
Declaration of Intention Declaration of Intention
----------------------------------------------------------------------------------------------
Copy Application Copy Application
----------------------------------------------------------------------------------------------
-----------------------------------------------
Verified By:
-----------------------------------------------
Date:
-----------------------------------------------
EXHIBIT G
---------
FORM OF ALLONGE
---------------
ALLONGE
-------
Pay to the order of CAPITAL SOURCE FINANCE, LLC
PREFERRED EQUITIES CORPORATION
By:___________________________________
Name:________________________________
Its:___________________________________
PREFERRED EQUITIES CORPORATION hereby authorizes CAPITAL SOURCE FINANCE LLC to
affix copies of this Allonge on any and all notes and other evidence of
indebtedness assigned by PREFERRED EQUITIES CORPORATION, to CAPITAL SOURCE
FINANCE LLC, pursuant to Assignment dated ________________________________ and
such copies shall be deemed originals for all purposes of negotiating or
otherwise dealing with such notes and other evidence of indebtedness.
PREFERRED EQUITIES CORPORATION
By:___________________________________
Name:________________________________
Its:___________________________________