LOAN AGREEMENT
between
PREFERRED EQUITIES CORPORATION
and
HSBC BANK USA
DATED: FEBRUARY 6, 2001
TABLE OF CONTENTS
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Page
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ARTICLE I. The Credit......................................... 1
1.1 The Credit.................................... 1
1.2 The Note...................................... 1
1.3 Interest...................................... 1
1.4 Definitions................................... 2
ARTICLE II. Loans and Payments................................ 5
2.1 Loans......................................... 5
2.2 Loan Requests................................. 5
2.3 Conditions to Each Loan....................... 6
2.4 Disbursement of Loans......................... 6
2.5 Proceeds--Mandatory Prepayments............... 6
2.6 Voluntary Prepayments......................... 6
2.7 Loans Without Additional Collateral........... 7
ARTICLE III. Conditions to this Agreement..................... 7
3.1 Corporate Action.............................. 7
3.2 Guarantor Action.............................. 8
3.3 Corporate Documents........................... 8
3.4 Opinion....................................... 8
3.5 Guaranty...................................... 8
3.6 Security Agreement............................ 8
3.7 Certificate of Occupancy...................... 8
3.8 Interval Exchange Organization................ 8
3.9 Insurance..................................... 9
3.10 Environmental Questionnaire................... 9
3.11 Other Matters................................. 9
ARTICLE IV. Representations and Warranties ................... 9
4.1 Company's Good Standing and Authority......... 9
4.2 Guarantor's Good Standing and Authority....... 9
4.3 Valid and Binding Obligations................. 9
4.4 Good Title.................................... 10
4.5 No Pending Litigation......................... 10
4.6 No Consent or Filing.......................... 10
4.7 Laws and Regulations.......................... 10
4.8 Permits, Licenses and Approvals............... 11
i
4.9 No Violations................................. 11
4.10 Interval Exchange Organization................ 11
4.11 Financial Statements.......................... 11
4.12 Tax Returns................................... 12
4.13 Promissory Notes and Mortgages and Contracts.. 12
4.14 Environmental Matters......................... 12
ARTICLE V. Affirmative Covenants......................... 12
5.1 Payments...................................... 12
5.2 Financial Information......................... 13
5.3 Notice........................................ 13
5.4 Taxes......................................... 14
5.5 Insurance..................................... 14
5.6 Litigation.................................... 14
5.7 Standing...................................... 14
5.8 Net Worth..................................... 14
5.9 Books and Records - Right of Inspection....... 15
5.10 Compliance with Law........................... 15
5.11 Continue Business............................. 15
5.12 Maintenance of the Project.................... 15
5.13 Lock Box Agreement............................ 15
5.14 Promissory Notes and Mortgages and Contracts.. 15
5.15 Environmental Matters......................... 15
5.16 Other Acts.................................... 16
ARTICLE VI. Negative Covenants............................ 16
6.1 Encumbrances.................................. 16
6.2 Guaranties.................................... 16
6.3 Sale of Assets................................ 16
6.4 Investments and Loans......................... 16
6.5 Communication with Obligors................... 17
6.6 Promissory Notes and Mortgages or Contracts... 17
6.7 Hazardous Substances.......................... 17
ARTICLE VII. Default....................................... 17
7.1 Events of Default............................. 17
7.2 Effects of an Event of Default................ 19
ARTICLE VIII. Expenses...................................... 20
8.1 Counsel Fees and Taxes........................ 20
8.2 Other Costs and Expenses...................... 20
ARTICLE IX. Miscellaneous................................. 20
9.1 Amendments and Waivers........................ 20
9.2 Delays and Omissions.......................... 20
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9.3 Successors and Assigns........................ 21
9.4 Notices....................................... 21
9.5 Governing Law................................. 21
9.6 Counterparts.................................. 21
9.7 Titles........................................ 21
9.8 Inconsistent Provisions....................... 22
9.9 Course of Dealing............................. 22
9.10 Indemnification............................... 22
9.11 Environmental Indemnification................. 22
9.12 No Liability.................................. 22
9.13 CONSENT TO JURISDICTION....................... 22
iii
Exhibit A - Secured Term Note
Exhibit B - Borrower's Certificate and Loan Request
Exhibit C - Counsel's Opinion
iv
LOAN AGREEMENT
AGREEMENT between PREFERRED EQUITIES CORPORATION, a Nevada corporation
(the "Company"), and HSBC BANK USA, a New York bank (the "Bank").
Recitals
A. The Company and the Bank are parties to a Purchase and Sale
Agreement dated as of August 30, 1993, as amended by Amendment to Purchase and
Sale Agreement dated as of May 10, 1994, Second Amendment to Purchase and Sale
Agreement dated as of February 8, 1996, and Third Amendment to Purchase and Sale
Agreement dated as of February 20, 1998, and as supplemented by a letter-
agreement dated February 3, 1999 (together, the "Purchase Agreement"). Pursuant
to the Purchase Agreement, the Company sells to the Bank promissory notes and
deeds of trust, or installment sales contracts, evidencing the financing of the
purchase of Intervals (as defined in Section 1.4(j) of this Agreement) in the
Project (as defined in Section 1.4(o) of this Agreement).
B. The Company and the Bank wish to enter into this Agreement, under
which the Bank may make loans to the Company on the collateral security of
promissory notes and deeds of trust, and installment sales contracts, evidencing
the financing of purchases of Intervals in the Project.
Agreement
ARTICLE I. The Credit
1.1 The Credit. The Bank, relying on the representations and
warranties in this Agreement, may in its sole and absolute discretion lend to
the Company from time to time such sums ("Loan" or, collectively, "Loans") not
exceeding $5,000,000.00 (the "Credit") as the Company may request from time to
time on or before the first anniversary of the date of this Agreement and during
such additional periods as a supplement or amendment to this Agreement or a
separate agreement between the parties may provide.
1.2 The Note. The Credit shall be evidenced by a note of the Company
bearing a variable rate of interest and substantially in the form of Exhibit A
to this Agreement and any amendment, modification, replacement or extension
thereof (the "Note").
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1.3 Interest. Each Loan shall accrue interest before maturity from
the date the Loan is made, on the balance of principal from time to time unpaid,
at an annual rate (the "Rate") equal to the Prime Rate plus one percent (1%).
After maturity, whether by acceleration or otherwise, the Note shall bear
interest at an annual rate equal to three percent (3%) in excess of the Rate.
The Rate shall change simultaneously with each change in the Prime Rate. In no
event shall the Rate on the Note exceed the maximum rate allowed by law.
Interest shall be calculated on the basis of one three hundred sixtieth
(1/360th) of the Rate in effect for each calendar day the balance of principal
is unpaid. Accrued interest shall be payable monthly on the tenth day of each
month beginning the month after the month in which this Agreement is executed
and when the principal of the Note is paid in full.
1.4 Definitions. The following terms have the following meanings:
(a) "Contract" - an installment sales agreement between the
Company as seller and a Timeshare Purchaser as buyer.
(b) "Disposal" - the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing, burning,
thermal destruction or placing of any substance so that it or any of its
constituents may enter the Environment.
(c) "Environment" - any water, including but not limited to
surface water, ground water and water vapor; any land, including land surface or
subsurface; stream sediments; air; fish, wildlife and plants; and all other
natural resources or environmental media.
(d) "Environmental Laws" - all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances, regulations, codes and rules relating to the
protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances and the policies, guidelines, procedures, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
(e) "Environmental Permits" - all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with the ownership, lease, purchase, transfer, closure, use and/or
operation of the Property and/or as may be required for the storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances.
(f) "Environmental Questionnaire" - a questionnaire concerning
(i) activities and conditions affecting the Environment at any property of the
Company
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comprising the Project or (ii) the enforcement or possible enforcement of any
Environmental Law against the Company.
(g) "Environmental Report" - a written report prepared for the
Bank by an environmental consulting or environmental engineering firm.
(h) "Guarantor" - Mego Financial Corp.
(i) "Hazardous Substances" - without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and any other
material defined as a hazardous substance in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S) 9601(14)).
(j) "Interval" - the portion of a Unit purchased by a Timeshare
Purchaser.
(k) "Lock Box Agent" - Bank of America, N.A., who, pursuant to
the Lock Box Agreement, will process payments on the Promissory Notes and
Contracts pledged to the Bank and perform any other services specified in the
Lock Box Agreement.
(l) "Lock Box Agreement" - the separate agreement among the
Company, the Bank and the Lock Box Agent pursuant to which the Lock Box Agent
will process payments on the Promissory Notes and Contracts pledged to the Bank.
(m) "Mortgage" - a mortgage or deed of trust that secures a
Promissory Note and encumbers an Interval and that is given to the Company by a
Timeshare Purchaser.
(n) "Prime Rate" - the rate of interest publicly announced by
the Bank from time to time as its prime rate and is a base rate for calculating
interest on certain loans.
(o) "Project" - the timeshare developments commonly known as
Reno Spa Resort Club, Reno, Nevada; Grand Flamingo Resort Club, Las Vegas,
Nevada (which includes Grand Flamingo Towers, Grand Flamingo Villas, Grand
Flamingo Terraces, Grand Flamingo Suites, Grand Flamingo Xxxxxxx, Grand Flamingo
Fountains and The Grand Flamingo Plaza); and The Suites at Steamboat, Steamboat
Springs, Colorado.
(p) "Promissory Note" - a note given to the Company by a
Timeshare Purchaser to finance the purchase of an Interval (a "Purchase") and
secured by a Mortgage.
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(q) "Qualified Promissory Note and Mortgage" or "Qualified
Contract"- a Promissory Note and the Mortgage securing it, or a Contract, that
meet all of the following criteria:
(i) The credit of the Timeshare Purchaser who executed
the Promissory Note and Mortgage or Contract is acceptable to the Bank in its
sole discretion.
(ii) All terms of the Purchase are acceptable to the Bank.
The down payment shall not be less than ten percent of the total sale price.
(iii) The forms of Promissory Note and Mortgage or Contract
are acceptable to the Bank and comply with all applicable laws and regulations.
(iv) All other documents relating to the Purchase,
including without limitation disclosure statements, purchase contracts and
deeds, are acceptable to the Bank and comply with all applicable laws and
regulations.
(v) The Promissory Note and Mortgage or the Contract are
genuine and enforceable according to their terms and are the only such
instruments executed with respect to the financing of the Purchase.
(vi) The Mortgage evidences a valid first lien on and
security interest in the Interval described in the Mortgage.
(vii) The Timeshare Purchaser who executed the Promissory
Note and Mortgage or the Contract had full and unimpaired capacity to contract.
(viii) The Company has no knowledge of, or reason to believe
in the existence of, any fact or circumstance that might render the Promissory
Note or Mortgage or the Contract less valuable than it appears on its face to
be.
(ix) Before the Promissory Note or the Contract was
pledged to the Bank, no more than two payments on the Promissory Note or the
Contract were 30 or more days delinquent in any 12-month period. When the
Promissory Note or the Contract is pledged to the Bank and at all times while
pledged to the Bank, no payment is 60 or more days delinquent. Nothing in this
subsection shall be construed to require that any Promissory Note or Contract be
in existence for any specified period of time in order to be considered a
Qualified Promissory Note or a Qualified Contract.
(x) A policy of title insurance in form and content
satisfactory to the Bank that insures the holder of the Mortgage to the full
Unpaid Principal Balance of the Promissory Note secured by the Mortgage and
shows that the Mortgage is a first lien
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on the Interval described in the Mortgage has been issued or, with the prior
approval of the Bank, a commitment to issue such a policy has been issued.
(s) "Release" - the same meaning as that given to the term in
Section 101(22) of the Comprehensive, Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. (S) 9601(22)) and the regulations promulgated
thereunder.
(t) "Security Agreement" - the Pledge Security Agreement between
the Company and the Bank dated the date of this Agreement.
(u) "Timeshare Purchaser" - a person who purchases an Interval
in the Project.
(v) "Unit" - a residential unit in the Project.
(w) "Unpaid Principal Balance" - the amount of the principal of
a Promissory Note or a Contract that remains unpaid.
ARTICLE II. Loans and Payments.
2.1 Loans.
(a) Minimum Amount: No Loan shall be in an amount less than
$100,000.00, except that no Loan under Section 2.7 of this Agreement shall be
less than $500,000.00.
(b) Collateral Ratio: No Loan shall at the time it is made
exceed ninety percent (90%) of the aggregate Unpaid Principal Balance of the
Qualified Promissory Notes or the Qualified Contracts, or both, to be pledged to
the Bank in conjunction with the Loan or cause the Unpaid Principal Balance of
all Loans or other extensions of credit made by the Bank to the Company under
this Agreement or under any other loan agreement or arrangement to exceed ninety
percent (90%) of the aggregate Unpaid Principal Balance of all Qualified
Promissory Notes and Qualified Contracts pledged by the Company to the Bank to
secure indebtedness.
2.2 Loan Requests. On or before the first anniversary of the date of
this Agreement and during such additional periods as a supplement or amendment
to this Agreement or a separate agreement between the parties may provide, the
Company may request a Loan under the Credit by delivering to the Bank a
Borrower's Certificate and Loan Request in the form of
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Exhibit B to this Agreement ("Borrower's Certificate"), accompanied by (a)
copies of the Qualified Promissory Notes and Mortgages or the Qualified
Contracts proposed to be pledged and assigned to the Bank and (b) copies of such
other documents related to the transactions evidenced by the Qualified
Promissory Notes and Mortgages or the Qualified Contracts as the Bank may
require, including without limitation credit applications, credit reports,
purchase contracts, disclosure statements, a copy of the title insurance policy
or commitment referred to in Section 1.4(q)(x) of this Agreement and RESPA
statements.
2.3 Conditions to Each Loan. The Bank will review the Company's
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Borrower's Certificate and the accompanying documents. The Bank will notify the
Company that the request is approved or that the request is not approved. If the
request is approved, the Company shall (a) endorse the Promissory Notes to the
order of the Bank, or assign the Contracts to the Bank, without restrictions or
limitations and deliver the Promissory Notes or the Contracts to the Bank; (b)
deliver to the Bank recorded assignments, or satisfactory evidence of the
recording of assignments, of all Mortgages; and (c) furnish the Bank with a
policy or commitment of title insurance insuring for the benefit of the Bank
each Mortgage submitted to the Bank to the full Unpaid Principal Balance of the
Promissory Note secured by the Mortgage and showing that each Mortgage is a
first lien upon the Interval described in the Mortgage. Qualified Promissory
Notes and Mortgages evidencing the financing of the purchase of Intervals in the
Suites at Steamboat will first be endorsed and assigned by Steamboat Suites,
Inc., to the Company and then by the Company to the Bank.
2.4 Disbursement of Loans. The Bank shall advance the requested Loan
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on (a) approval of the Loan by the Bank; (b) receipt of all of the items
described in Section 2.3, in form and content satisfactory to the Bank in its
sole discretion; (c) the facts stated in the Borrower's Certificate being true;
and (d) receipt of a fee in the amount of one percent (1%) of the amount of the
Loan. Without limiting the requirement that the fee be paid at the time of the
Loan, unless the Company has advised the Bank that it will pay the fee directly
with other funds, the Bank may in its sole discretion deduct the fee from the
proceeds of the Loan.
2.5 Proceeds--Mandatory Prepayments. All payments of every kind on
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the Promissory Notes and the Contracts securing the Credit shall be remitted
directly by the obligors of the Promissory Notes or the Contracts to the Lock
Box Agent for the account of the Bank pursuant to the Lock Box Agreement. Any
remittances received by the Bank from the Lock Box Agent shall be applied first
to accrued interest on the Note, then to any costs or expenses owed to the Bank
and then to the principal of the Loans as the Bank may determine in its sole
discretion, as a mandatory prepayment. If as of any monthly interest payment
date the remittances received by the Bank from the Lock Box Agent, after any
deductions pursuant to the Lock Box Agreement, are less than the amount of
accrued interest on the Note due on that date, the Company shall pay the
difference to the Bank within five calendar days of receiving notice of the
shortfall from the Bank. On payment in full of the Note, the Company may
request from the Bank, and the Bank shall deliver to the Company, written notice
authorizing the Company to
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notify Timeshare Purchasers to make payments on the Promissory Notes or the
Contracts directly to the Company, and the Company shall be permitted to receive
such payments subject to the terms of the Security Agreement.
2.6 Voluntary Prepayments. The Company shall not be permitted to
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prepay all or any portion of its principal indebtedness evidenced by the Note
from the date of this Agreement until the first anniversary of that date;
provided, however, the foregoing does not apply to mandatory prepayments
received and applied as described in Section 2.8 of this Agreement. On and
after the first anniversary of the date of this Agreement, prepayment in full
shall be permitted on any interest payment date, provided that the Company also
pays to the Bank at the same time any unpaid accrued interest and a prepayment
premium determined as follows:
Prepayment Period Premium
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First Anniversary through 3% of the then-outstanding
day before Second principal indebtedness on the
Anniversary Note
Second Anniversary through 2% of the then-outstanding
day before Third Anniversary principal indebtedness on the
Note
Third Anniversary through 1% of the then-outstanding
day before Fourth principal indebtedness on the
Anniversary Note
Fourth Anniversary and 0
thereafter
2.7 Loans Without Additional Collateral.
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(a) If at any time the aggregate unpaid principal balance of the
Note falls below ninety percent (90%) of the aggregate Unpaid Principal Balance
of all Qualified Promissory Notes and all Qualified Contracts held by the Bank
to secure repayment of the Credit, the Company, no more than once each calendar
quarter, may request a Loan of no more than the amount of the excess (the
"Excess") without pledging and assigning additional Qualified Promissory Notes
and Mortgages or Contracts to the Bank.
(b) Except for the requirement that the Company provide
additional Qualified Promissory Notes and Mortgages or Contracts in the amount
of a requested Loan, the requirements of Sections 2.2, 2.3 and 2.4 of this
Agreement shall apply to requests for Loans under this Section 2.7, including
the requirement for payment of the fee described in Section 2.4.
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ARTICLE III. Conditions to this Agreement
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This Agreement shall take effect only if the following conditions are
satisfied at or before the date of this Agreement.
3.1 Corporate Action. The Company shall have taken all necessary and
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appropriate corporate action, and the Board of Directors of the Company shall
have adopted resolutions, authorizing the Credit, the execution and delivery of
this Agreement and the Note and the taking of all action required of the Company
by this Agreement; and the Company shall have furnished to the Bank certified
copies of those resolutions and such other corporate documents as the Bank may
reasonably request.
3.2 Guarantor Action. The Guarantor shall have taken all necessary
----------------
and appropriate corporate action, and its Board of Directors shall have adopted
resolutions, authorizing the execution and delivery of the Guaranty; and the
Guarantor shall have furnished to the Bank certified copies of those resolutions
and such other corporate documents as the Bank may reasonably request.
3.3 Corporate Documents. There shall have been furnished to the Bank
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(a) copies of the Company's and the Guarantor's articles of incorporation and
by-laws certified by its Secretary as of the date of this Agreement; (b)
certificates of incumbency specifying the officers of the Company and the
Guarantor and containing and certifying to their specimen signatures; (c)
certificates of corporate status issued by the Secretary of State of the State
of Nevada; and (d) such other corporate documents as the Bank may reasonably
request.
3.4 Opinion. General counsel for the Company, Xxx X. Xxxxxx, shall
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have furnished to the Bank his favorable opinion dated the date of this
Agreement and in the form of Exhibit C.
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3.5 Guaranty. There shall have been furnished to the Bank the
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written continuing guaranty of the Guarantor in form and content satisfactory to
the Bank, guaranteeing the payment of all indebtedness of the Company to the
Bank under this Agreement, whether now existing or hereafter incurred
("Guaranty").
3.6 Security Agreement. The Company shall have furnished to the
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Bank, all in form and content satisfactory to the Bank, the Security Agreement
granting to the Bank a security interest in all of the Promissory Notes and the
Contracts it pledges to the Bank pursuant to Section 2.3 of this Agreement and
such UCC-1 financing statements as the Bank may reasonably require.
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3.7 Certificate of Occupancy. There shall have been furnished to the
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Bank a copy of a certificate or certificates of occupancy with respect to those
portions of the Project that are completed, or similar documentation acceptable
to the Bank in its sole discretion.
3.8 Interval Exchange Organization. There shall have been furnished
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to the Bank a copy of the contract or contracts affiliating the Project with
either Resort Condominiums International, Inc., or Interval International, Inc.
3.9 Insurance. There shall have furnished to the Bank currently-
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effective property and liability, workers compensation and flood insurance
policies or certificates, with endorsements and cancellation notice provisions
deemed necessary by the Bank, in form and content satisfactory to the Bank,
insuring the Project and, in the case of the property insurance, naming the Bank
as mortgagee on the Project as its interests may appear.
3.10 Environmental Questionnaire. The Company shall have furnished to
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the Bank an Environmental Questionnaire in form acceptable to the Bank.
3.11 Other Matters. All matters incidental to the execution and
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delivery of this Agreement and the Note and all action required by this
Agreement shall be satisfactory to the Bank and its counsel, and this Agreement
shall then be in effect.
ARTICLE IV. Representations and Warranties
------------------------------
The Company makes the following representations and warranties, which
shall be deemed to be continuing representations and warranties so long as any
indebtedness of the Company to the Bank, including indebtedness for fees and
expenses, remains unpaid:
4.1 Company's Good Standing and Authority. The Company is a
-------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada; has powers and authority to transact the business in
which it is engaged; is duly licensed or qualified and in good standing in each
jurisdiction in which the conduct of its business requires licensing or
qualification; and has all necessary power and authority to enter into, execute,
deliver and perform this Agreement, the Note, the Security Agreement and any
other document executed by it in connection with this Agreement, all of which
have been duly authorized by all proper and necessary corporate and shareholder
action.
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4.2 Guarantor's Good Standing and Authority. The Guarantor is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of New York [?]; has powers and authority to transact the business
in which it is engaged; is duly licensed or qualified and in good standing in
each jurisdiction in which the conduct of its business requires licensing or
qualification; and has all necessary power and authority to enter into, execute,
deliver and perform its Guaranty and any other document executed by it in
connection with this Agreement, all of which have been duly authorized by all
proper and necessary corporate and shareholder action.
4.3 Valid and Binding Obligations. This Agreement and the Note,
-----------------------------
Security Agreement, Mortgage and Contract assignments and Promissory Note
endorsements and any other document executed by the Company in connection with
this Agreement, when executed, delivered or both, will constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their terms, except as enforcement may be limited by state or federal
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally. The Guaranty, and any other
documents executed and delivered by the Guarantor in connection with this
Agreement, when executed, delivered on both, will constitute the legal, valid
and binding obligation of the Guarantor, enforceable in accordance with its
terms, except as enforcement may be limited by state or federal bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors generally.
4.4 Good Title. Each of the Company and the Guarantor has good and
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marketable title to all of its assets, none of which is subject to any mortgage,
indenture, pledge, lien, conditional sale contract, security interest,
encumbrance, claim, trust or charge except as referred to in the financial
statements described in this Agreement or as may be set forth in a schedule to
this Agreement, or in favor of the Bank. At the time the Company pledges
Promissory Notes to the Bank and assigns Mortgages and Contracts to the Bank,
the Company has absolute title to those Promissory Notes and Mortgages and
Contracts, free and clear of all liens and encumbrances, and no other person or
entity has any interest in them.
4.5 No Pending Litigation. There are no actions, suits or
---------------------
proceedings (whether or not purportedly on behalf of the Company or the
Guarantor) or investigations pending or to the knowledge of the Company
threatened, against the Company or the Guarantor or any basis therefor, which if
adversely determined would in any case or in the aggregate materially adversely
affect the property, assets (including without limitation all Promissory Notes,
Mortgages and Contracts pledged and assigned to the Bank), financial condition
or business of the Company or the Guarantor or materially impair the right or
ability of the Company or the Guarantor to carry on its operations substantially
as now conducted or anticipated to be conducted in the future, or which question
the validity of this Agreement, the Note, the Promissory Notes, Mortgages and
Contracts pledged and assigned to the Bank, the Security Agreement, the Guaranty
or any other documents required by this Agreement or any action taken or to be
taken pursuant to any of the foregoing.
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4.6 No Consent or Filing. No consent, license, approval or
--------------------
authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other person or entity is required in
connection with (a) the valid execution, delivery or performance of this
Agreement, the Note, the Security Agreement, the Guaranty or any other documents
required by this Agreement; (b) the endorsement of Promissory Notes to the Bank
and the assignment of Mortgages and Contracts to the Bank; or (c) any of the
transactions contemplated thereby, other than the recording of the Mortgages
assigned to the Bank, the recording of the assignments of those Mortgages and
any filings made pursuant to the Nevada Uniform Commercial Code.
4.7 Laws and Regulations. Each of the Company and the Guarantor has
--------------------
been and will continue to be in full compliance with all applicable laws and
regulations, including, without limitation those providing for or requiring
disclosure of terms, charges or fees of any kind, respecting the offering,
advertising and promotion of the Intervals in the Project, the construction or
conversion of the Units in the Project and the development of the timeshare plan
in the Project or the negotiation, sale and financing of the Intervals.
4.8 Permits, Licenses and Approvals. The Company has obtained all
-------------------------------
necessary governmental permits, licenses and approvals with respect to the
Project, the timeshare plan and the Intervals to be sold, all of which are
current and in force.
4.9 No Violations. Each of the Company and the Guarantor is not in
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violation of any term of its articles of incorporation or by-laws or of any
mortgage, borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money. Each of the Company and the Guarantor is not
in violation of any term of any other indenture, instrument or agreement to
which it is a party or by which it may be bound, resulting or which might
reasonably be expected to result in a material and adverse effect on its
business or assets. Each of the Company and the Guarantor is not in violation
of any order, writ, judgment, injunction or decree of any court of competent
jurisdiction or of any statute or rule or regulation of any competent
governmental authority. The execution and delivery of this Agreement, the
Notes, the Security Agreement, the Guaranty and other documents required by this
Agreement and the performance of all of them is and will be in compliance with
the foregoing and will not result in any violation or result in the creation of
any mortgage, lien, security interest, charge or encumbrance on any properties
or assets except in favor of the Bank. There exists no fact or circumstance not
disclosed in this Agreement or in the documents furnished in connection with
this Agreement that materially adversely affects or in the future (so far as the
Company can now reasonably foresee) may materially adversely affect the
condition, business or operations of the Company or the Guarantor.
4.10 Interval Exchange Organization. The Project is affiliated and in
------------------------------
good standing with Resort Condominiums International, Inc.
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4.11 Financial Statements. The Company has furnished to the Bank an
--------------------
audited financial statement showing the Company's condition as of August 21,
2000, prepared by Deloitt & Touche LLP, which statement represents correctly and
fairly the results of its operations and transactions as of the dates and for
the period referred to and which has been prepared in accordance with generally
accepted accounting principles consistently applied throughout the time periods
involved. From the date of the financial statement to the date of this
Agreement, there have not been any materially adverse changes in the financial
condition disclosed in the financial statement. None of the property or assets
shown in financial statements delivered to the Bank has been materially
adversely affected as the result of any fire, explosion, accident, flood,
drought, storm, earthquake, condemnation, requisition, statutory or regulatory
change, act of God or act of public enemy or other casualty, whether or not
insured.
4.12 Tax Returns. Each of the Company and the Guarantor has filed all
-----------
federal and other tax returns required to be filed and has paid all taxes
required by those returns through its fiscal year ending August 31, 2000. The
Company has not received any assessments by the Internal Revenue Service or
other taxing authority for additional unpaid taxes.
4.13 Promissory Notes and Mortgages and Contracts. All Promissory
--------------------------------------------
Notes the Company pledges to the Bank and all Mortgages the Company assigns to
the Bank are Qualified Promissory Notes and Mortgages, and all Contracts the
Company assigns to the Bank are Qualified Contracts.
4.14 Environmental Matters.
---------------------
(a) Any Environmental Questionnaire provided to the Bank was and
is accurate and complete and does not omit any material fact the omission of
which would make the information in the Environmental Questionnaire materially
misleading.
(b) No above-ground or underground storage tanks containing
Hazardous Substances are or have been located on any property comprising the
Project.
(c) No property owned, leased or operated by the Company is or
has been used for the Disposal of any Hazardous Substance or for the treatment,
storage or Disposal of Hazardous Substances.
(d) No Release of a Hazardous Substance has occurred or is
threatened on, at, from or near any property owned, leased or operated by the
Company.
(e) The Company is not subject to any existing, pending or
threatened suit, claim, notice of violation or request for information under any
Environmental Law.
(f) The Company is in compliance with all Environmental Laws.
-13-
ARTICLE V. Affirmative Covenants
---------------------
During the term of this Agreement, and so long thereafter as any
indebtedness of the Company to the Bank, including any indebtedness for fees
and expenses, remains unpaid, the Company will:
5.1 Payments. Duly and punctually pay (a) the principal of and
--------
interest on all indebtedness incurred by it under this Agreement in the manner
set forth in this Agreement and (b) all costs and expenses required by this
Agreement to be paid or reimbursed by the Company. Without limiting Section 2.8
of this Agreement, any payments the Company receives on or with respect to the
Promissory Notes and Mortgages or the Contracts pledged and assigned to the Bank
(x) shall be held by the Company in trust for the Bank in the same medium in
which received; (y) shall not be commingled with any assets of the Company; and
(z) shall be delivered to the Bank in the form received, properly indorsed to
permit collection, not later than the next business day following the day of
their receipt.
5.2 Financial Information. Furnish to the Bank (a) within 60 days
---------------------
after the end of each quarter of each of its fiscal years an unaudited financial
statement of the Company as of the end of that quarter, which statement shall
consist of a balance sheet (which may be prepared using tax basis figures), an
operating statement and surplus reconciliation covering the period from the end
of the Company's immediately preceding fiscal year to the end of such quarter,
all in such detail as the Bank may request and certified to be correct by the
President or Chief Financial Officer of the Company, who shall also certify that
(i) the Company has complied with and is in compliance with all the terms,
covenants and conditions of this Agreement that are binding upon it, (ii) there
exists no Event of Default and no event which with the giving of notice or lapse
of time, or both would constitute an Event of Default or, if this is not the
case, that one or more specified Events of Default have occurred, and (iii) the
representations and warranties in Article IV of this Agreement are true with the
same effect as though made on the date of such certificate ("Compliance
Certificate"); (b) within 120 days after the end of each of its fiscal years and
as of the end of each such year, an audited financial statement of the Company,
which shall consist of a balance sheet and an operating statement and surplus
reconciliation covering the period of the Company's immediately preceding fiscal
year, prepared and certified by Deloitt & Touche LLP, or other independent
certified public accountants satisfactory to the Bank, together with a
Compliance Certificate; (c) within ten days after the end of each calendar
month, a statement in form and content satisfactory to the Bank that sets forth
for each obligor on a Promissory Note or a Contract pledged to the Bank the
original face amount of the Promissory Note or the Contract, the present
outstanding balance of the Promissory Note or the Contract as of the immediately
preceding month, a designation of those Promissory Notes or those Contracts on
which there is any default and such other information concerning the obligor's
account as the Bank may request in its sole discretion; and (d) such additional
information, reports or statements as the Bank may reasonably request regarding
the financial and business affairs of the Company.
-14-
5.3 Notice. Promptly notify the Bank in writing of (a) any pending
------
or future audits of the Company's or the Guarantor's federal income tax returns
by the Internal Revenue Service as soon as the Company has knowledge thereof and
the results of each such audit after its completion and (b) any default by the
Company or the Guarantor in the performance of, or any modifications to, any
agreement, mortgage, indenture or instrument to which the Company or the
Guarantor is a party or which is binding on the Company or the Guarantor and of
any default by the Company or the Guarantor in the payment of any of its
indebtedness. The Company shall not, however, be required to notify the Bank of
modifications of those documents or agreements pertaining to its or the
Guarantor's transactions in the ordinary course of business (not concerning its
indebtedness for borrowed money) which do not materially and adversely affect
the business or assets of the Company or the Guarantor.
5.4 Taxes. Promptly pay and discharge all its taxes, assessments and
-----
other governmental charges (including any charged or assessed on the issuance of
the Note) before the date on which penalties attach, establish adequate reserves
for the payment of taxes and assessments and make all required withholding and
other tax deposits; provided, however, that nothing in this Agreement shall be
interpreted to require the payment of any tax, assessment or charge so long as
its validity is being contested in good faith and by appropriate proceedings
diligently conducted.
5.5 Insurance. (a) Keep all its property so insurable insured at all
---------
times with responsible insurance carriers against fire, theft and other risks
(including flood, if required) in coverage, form and amount satisfactory to the
Bank and (b) keep adequately insured at all times in reasonable amounts with
responsible insurance carriers against liability on account of damage to persons
or property and under all applicable worker's compensation laws.
5.6 Litigation. Promptly notify the Bank in writing as soon as the
----------
Company has knowledge thereof of the institution or filing of any litigation,
action, suit, claim, counterclaim or administrative proceeding against or
investigation of the Company to which the Company or the Guarantor is a party by
or before any regulatory body or governmental agency (a) the outcome of which
may materially and adversely affect the finances or operations of the Company or
the Guarantor or the Company's ability to fulfill its obligations under this
Agreement or which involves more than $50,000.00 unless adequately covered by
insurance; (b) which questions the validity of this Agreement, the Note, the
Security Agreement, the Qualified Promissory Notes and Mortgages, the Contracts,
the Guaranty or any action taken or to be taken pursuant to the foregoing; or
(c) which is related to the Project in any way; and furnish or cause to be
furnished to the Bank such information regarding the same as the Bank may
request.
-15-
5.7 Standing. Maintain its corporate existence in good standing and
--------
remain or become licensed or qualified and in good standing in each jurisdiction
in which the conduct of its business requires qualification or licensing.
5.8 Net Worth. Maintain at all times a consolidated tangible net
---------
worth of the Company and all of its subsidiaries of not less than
$20,000,000.00, such consolidated tangible net worth to be determined in
accordance with generally accepted accounting principles consistently applied in
conformity with the audited financial statements of the Company furnished to the
Bank, subject to the deductions described in Section 3(a)(xi) of the Purchase
Agreement.
5.9 Books and Records - Right of Inspection. Keep proper books and
---------------------------------------
records in accordance with generally accepted accounting principles consistently
applied and notify the Bank promptly in writing of any proposed change in the
location of those books and records and permit the Bank at all times to inspect
the Project and the books and records of the Company.
5.10 Compliance with Law. Comply with all applicable laws, including
-------------------
without limitation all Environmental Laws, and all applicable governmental rules
and regulations.
5.11 Continue Business. Engage primarily in the business conducted by
-----------------
it on the date of this Agreement.
5.12 Maintenance of the Project. So long as it is in control of the
--------------------------
association responsible for the management, upkeep and repair of the Project,
cause the association to keep the Project properly maintained and repaired,
suffer no waste, impairment or deterioration of the land or improvements
constituting the Project, pay all taxes, assessments and other charges levied on
the Project and keep the Project fully insured in a sum not less than the full
insurable value and with an insurer or insurers acceptable to the Bank.
5.13 Lock Box Agreement. Comply at all times with the Lock Box
------------------
Agreement.
5.14 Promissory Notes and Mortgages and Contracts. Notify the Bank
--------------------------------------------
within five days after learning that any Promissory Note and Mortgage pledged
and assigned to the Bank has ceased to be a Qualified Promissory Note and
Mortgage or that any Contract pledged and assigned to the Bank has ceased to be
a Qualified Contract.
5.15 Environmental Matters.
---------------------
-16-
(a) Promptly notify the Bank of the Disposal of any Hazardous
Substance at any property comprising the Project or of any Release or threatened
Release of a Hazardous Substance from any such property.
(b) At the Bank's request, provide at the Company's expense
updated Environmental Questionnaires and/or Environmental Reports concerning the
Project.
(c) Deliver promptly to the Bank (i) copies of any documents
received from the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency concerning Company's
operations and (ii) copies of any documents submitted by Company to the United
States Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning its operations.
5.16 Other Acts. Execute and deliver, or cause to be executed and
----------
delivered, to the Bank all further documents and perform all other acts and
things the Bank deems necessary or appropriate to protect or perfect any
mortgage or security interests in any property directly or indirectly securing
payment of any indebtedness of the Company to the Bank.
ARTICLE VI. Negative Covenants
------------------
During the term of this Agreement and so long thereafter as any of the
indebtedness of the Company to the Bank, including any indebtedness for fees and
expenses, remains unpaid, the Company will not, without the prior written
consent of the Bank:
6.1 Encumbrances. Create, incur, assume or suffer to exist any
------------
mortgage, lien, security interest, pledge or other encumbrance on any of the
Promissory Notes and Mortgages or Contracts pledged and assigned to the Bank,
whether now or hereafter pledged or assigned, except in favor of the Bank or as
listed on a schedule to this Agreement.
6.2 Guaranties. Become a guarantor, surety or otherwise liable for
----------
the debts or other obligations of any other person, whether by agreement to
purchase the indebtedness of any other person, or by agreement for the
furnishing of funds to any other person, through the purchase of goods, supplies
or services (or by way of stock purchase, capital contribution, advance or loan)
for the purpose of paying or discharging the indebtedness of any other person,
-17-
or otherwise, except as an endorser of instruments for the payment of money
deposited to its bank account for collection in the ordinary course of business
and except as set forth in Section 3(a)(xii) of the Purchase Agreement. This
provision will not limit the Company's ability to guaranty obligations of its
subsidiary companies, provided that such obligations arise in connection with
the conduct of business reasonably associated or connected with the timeshare
and land development, sales and marketing businesses.
6.3 Sale of Assets. Convey, sell, transfer, lease or sell and lease
--------------
back (a) all or any substantial portion of its property, assets or business to
any other person or (b) all or substantially all of its interest in any of the
resorts comprising the Project with respect to which the Bank has purchased
Promissory Notes and Mortgages or Contracts, except in the ordinary course of
business, which shall not include the sale of all or substantially all of any
such resort in a single transaction.
6.4 Investments and Loans. Make or suffer to exist any investments
---------------------
in, or loans or advances to, any other person (including, without limitation,
loans or advances to its shareholders, directors, officers or employees) except
as set forth in Section 3(a)(xiv) of the Purchase Agreement.
6.5 Communication with Obligors. Communicate with obligors on the
---------------------------
Promissory Notes and Mortgages pledged and assigned to the Bank if either (a)
the Bank instructs the Company not to so communicate or (b) there exists an
Event of Default or an event which with the giving of notice or lapse of time or
both would constitute an Event of Default; provided, however, that the Company
shall have no right at any time to collect payments from obligors.
6.6 Promissory Notes and Mortgages or Contracts. Except as set forth
-------------------------------------------
below, agree to any extension, deferral, modification, waiver or any other
change in the terms of any Promissory Note and Mortgage or any Contract pledged
and assigned to the Bank unless authorized in writing by the Bank.
Notwithstanding the foregoing, the Company may, without first obtaining the
Bank's prior written consent, agree to extend, defer, modify, waive or otherwise
change the terms of any Promissory Note or Mortgage (except that the Company may
not release or discharge any collateral therefor), provided that (a) the Company
promptly notifies the Bank (and in no event later than five business days after
the action taken by the Company) and provides it with originals of any documents
executed by the Obligor or the Company or both that effect the extension,
deferral, modification, waiver or other change and (b) if the Bank so requests,
pay for or replace the affected Promissory Note and Mortgage or Contract in
accordance with Section 7.1(d) of this Agreement, which Promissory Note and
Mortgage or Contract shall no longer be deemed to be a Qualified Promissory Note
and Mortgage or a Qualified Contract. The Company shall not take any of the
actions described above with respect to Qualified Promissory Notes and Mortgages
and Qualified Contracts that would cause the aggregate outstanding principal
amount of all affected Qualified Promissory Notes and Mortgages or
-18-
Qualified Contracts to exceed at any time ten percent of the aggregate
outstanding principal amount of all Qualified Promissory Notes and Mortgages and
Qualified Contracts held by the Bank.
6.7 Hazardous Substances. Suffer, cause or permit the Disposal of
--------------------
Hazardous Substances at any property comprising the Project.
ARTICLE VII. Default
-------
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an event of default ("Event of Default"):
(a) Nonpayment. Nonpayment after the same becomes due whether by
----------
acceleration or otherwise of principal of or interest on the Note, any costs and
expenses or any other fee or premium provided for under this Agreement.
(b) Negative Covenants. Default in the observance of any of the
------------------
covenants of the Company in Article VI of this Agreement.
(c) Other Covenants. Default in the observance of any of the
---------------
covenants of the Company in this Agreement other than in Article VI, or in any
other agreement with the Bank, which is not remedied within 30 days after notice
by the Bank to the Company.
(d) Promissory Notes and Mortgages or Contracts. Any Promissory
-------------------------------------------
Note and Mortgage or any Contract which the Company has pledged and assigned to
the Bank to secure the Credit ceases to be a Qualified Promissory Note and
Mortgage or a Qualified Contract and the Company fails within 30 days after the
Bank sends notice thereof, at the Company's option, either to (i) pay the Bank
an amount equal to the unpaid principal balance on the subject Promissory Note
or Contract or (ii) submit to the Bank one or more Qualified Promissory Notes or
Qualified Contracts not previously pledged to the Bank, the Unpaid Principal
Balance of which is not less than the Unpaid Principal Balance of the Promissory
Notes or Contracts it replaces, together with the Mortgages associated with
replacement Qualified Promissory Notes.
(e) Voluntary Insolvency Proceedings. If the Company or the
--------------------------------
Guarantor (i) files a petition for liquidation, adjudication as a bankrupt or
relief as a debtor; (ii) files a petition or answer seeking reorganization or an
arrangement or similar relief under any bankruptcy, insolvency or similar laws
of the United States or any state thereof or of any foreign jurisdiction; (iii)
consents to the filing of a petition in any liquidation, bankruptcy or
reorganization proceeding; (iv) consents to the appointment of a receiver or
trustee or officer performing similar functions with respect to any substantial
part of its property; (v) makes a
-19-
general assignment for the benefit of its creditors; or (vi) executes a consent
to any other type of insolvency proceeding (under the Bankruptcy Code or
otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, the settlement of claims against, or the winding up of the
affairs of, the Company or the Guarantor.
(f) Involuntary Insolvency Proceedings. The appointment of a
----------------------------------
receiver, trustee, custodian or officer performing similar functions for the
Company or the Guarantor or for any of its assets, the filing against the
Company or the Guarantor of a petition for liquidation or adjudication as a
bankrupt or insolvent or for reorganization under any bankruptcy or similar laws
of the United States or of any state thereof or of any foreign jurisdiction or
the institution against the Company or the Guarantor of any other type of
insolvency proceeding (under the Bankruptcy Code or otherwise) or of any formal
or informal proceeding for the dissolution or liquidation of, the settlement of
claims against, or the winding up of the affairs of, the Company or the
Guarantor, and the failure to have the appointment vacated or the petition or
proceeding dismissed within 30 days after the appointment, filing or
institution.
(g) Representations. If any certificate, statement, representation,
---------------
warranty or financial statement furnished by or on behalf of the Company or the
Guarantor pursuant to or in connection with this Agreement (including without
limitation representations and warranties contained in this Agreement) or as an
inducement to the Bank to enter into this Agreement or any other lending
agreement with the Company shall prove to have been false in any material
respect at the time as of which the facts set forth were certified or to have
omitted any substantial contingent or unliquidated liability or claim against
the Company or the Guarantor, or if on the date of this Agreement there shall
have been any materially adverse change in any of the facts disclosed by any
such statement or certificate, that was not disclosed by the Company to the Bank
at or before the time of execution.
(h) Other Indebtedness and Agreements. Nonpayment by the Company of
---------------------------------
any indebtedness for borrowed money (other than the indebtedness evidenced by
the Note) owing by the Company when due (or, if permitted by the applicable
document, within any applicable grace period), whether the indebtedness becomes
due by scheduled maturity, required prepayment, acceleration, demand or
otherwise, or failure to perform any term, covenant or agreement to be performed
by the Company under any agreement or instrument (other than this Agreement)
evidencing, securing or relating to any indebtedness owing by the Company when
required to be performed if the effect of the failure is to permit the holder to
accelerate the maturity of the indebtedness.
(i) Judgments. If any judgment or judgments (other than any judgment
---------
for which the Company is fully insured) against the Company remains unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of 30
days.
-20-
7.2 Effects of an Event of Default.
------------------------------
(a) On the happening of one or more Events of Default (except a
default under Section 7.1(e) or 7.1(f) of this Agreement), the Bank may declare
any obligations it may have under this Agreement, including without limitation
any obligation to make Loans, to be canceled and the principal of the Note to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Agreement. Upon such declaration, the Bank's
obligations under this Agreement shall be immediately canceled, and the Note
shall become immediately due and payable without presentation, demand or further
notice of any kind to the Company.
(b) On the happening of one or more Events of Default under
Section 7.1(e) or 7.1(f) of this Agreement, the Bank's obligations under this
Agreement, including without limitation any obligation to make Loans, shall be
canceled immediately, automatically and without notice, and the Note shall
become immediately due and payable without presentation, demand or notice of any
kind to the Company.
(c) Before or after the happening of any Event of Default, the
Bank may notify the obligors on the Promissory Notes and Mortgages and the
Contracts securing the Credit that they have been assigned to the Bank and that
all payments are to be made directly to the Bank or the Designee. The Bank may
foreclose any Mortgages in default in its own name. If any applicable law
requires that the Company foreclose a Mortgage, the Company appoints the Bank
its attorney in fact to foreclose the Mortgage. If the Bank forecloses a
Mortgage, it may, but is not obligated to, obtain an appraisal of the subject
Interval and bid the appraised amount at any public sale of the Interval. If the
Bank obtains an appraisal and bids the amount of the appraisal, the Company
shall only be credited with the appraised amount.
-21-
ARTICLE VIII. Expenses
--------
8.1 Counsel Fees and Taxes. To reimburse the Bank for its counsel
----------------------
fees and other expenses for the preparation of this Agreement and related
documentation, the Company will pay the Bank $5,000.00. The Company will also
reimburse the Bank for any taxes the Bank may be required to pay in connection
with the execution and delivery of this Agreement and any other documents
executed in connection with this Agreement.
8.2 Other Costs and Expenses. The Company will pay on demand to the
------------------------
Bank all of the costs and expenses, including without limitation actual counsel
fees and disbursements, incurred by the Bank (a) in connection with the
performance of this Agreement and all related agreements and other documents;
(b) in connection with all amendments, releases, consents and waivers related to
this Agreement and all related agreements and other documents; and (c) in
collecting any amount owing under this Agreement or other documents or in
realizing on or protecting any collateral securing the Company's performance
under this Agreement or any related agreement or other documents, including
without limitation, if the Bank retains counsel for any advice, suit, appeal,
insolvency or other proceeding under the Federal Bankruptcy Code or otherwise or
for any purpose relating to this Agreement, counsel fees and disbursements.
ARTICLE IX. Miscellaneous
-------------
9.1 Amendments and Waivers. This Agreement represents the entire
----------------------
understanding between the parties with respect to the subject matter of this
Agreement and supersedes all prior negotiations between the parties. No
modification, rescission, waiver,
-22-
release or amendment of any provision of this Agreement shall be made except by
a written agreement signed by authorized officers of the Company and the Bank.
9.2 Delays and Omissions. No course of dealing and no delay or
--------------------
omission by the Bank in exercising any right or remedy under this Agreement or
with respect to any indebtedness of the Company to the Bank shall operate as a
waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The Bank may (but shall not be obligated
to) remedy any default by the Company under this Agreement or with respect to
any other person in any reasonable manner without waiving the default remedied
and without waiving any other prior or subsequent default by the Company and
shall be reimbursed for its expenses in remedying the default. All rights and
remedies of the Bank under this Agreement are cumulative.
9.3 Successors and Assigns. The Company and the Bank as used in this
----------------------
Agreement includes their legal representatives, successors and assigns.
9.4 Notices. Any notice or demand required or permitted to be given
-------
under this Agreement must be in writing and shall be duly given if (i) if
personally delivered, upon delivery, (ii) if sent by registered or certified
mail, return receipt requested, upon receipt, (iii) if delivered by overnight
courier, upon receipt, and (iv) if sent by facsimile, upon receipt, provided the
notice is followed by a copy of the notice delivered or sent by one of the
methods specified in clauses (i), (ii) or (iii), in each case to the address set
forth below or to such other address as the receiving party may have designated
in a notice sent or delivered in accordance with this section. U.S. Postal
Service return receipts, courier service receipts or the sender's facsimile
transmission records, as the case may be, shall be conclusive proof of delivery.
To the Company - Preferred Equities Corporation
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxx 00000-0000
Attention: Xxx X. Xxxxxx, General Counsel
Facsimile Number: (000) 000-0000
To the Bank - HSBC Bank USA
Timeshare Department
Xxx XXXX Xxxxxx
00xx Xxxxx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxxx
Facsimile Number: (000) 000-0000
9.5 Governing Law. This Agreement, the transactions described in
-------------
this Agreement and the obligations of the Bank and the Company shall be
construed under and
-23-
governed by the internal laws of the State of New York without regard to
principles of conflicts of laws, except to the extent that the laws of another
state apply to the real estate law aspects of the assignment of Mortgages by the
Company to the Bank.
9.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the Bank and the Company on separate counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same Agreement.
9.7 Titles. Titles to the sections of this Agreement are solely for
------
the convenience of the Bank and the Company and are not an aid in the
interpretation of this Agreement or any part of this Agreement.
9.8 Inconsistent Provisions. The terms of this Agreement and any
-----------------------
related agreements, instruments or other documents shall be cumulative except to
the extent they are specifically inconsistent with each other, in which case the
terms of this Agreement shall prevail.
9.9 Course of Dealing. Without limitation of the foregoing, the Bank
-----------------
shall have the right at all times to enforce the provisions of this Agreement
and all other documents executed in connection with this Agreement in strict
accordance with their terms, notwithstanding any course of dealing or
performance by the Bank in refraining from so doing at any time and
notwithstanding any custom in the banking trade. Any delay or failure by the
Bank at any time or times in enforcing its rights under such provisions in
strict accordance with their terms shall not be construed as having created a
course of dealing or performance modifying or waiving the specific provisions of
this Agreement.
9.10 Indemnification. The Company shall indemnify the Bank against,
---------------
and hold the Bank harmless from, any and all claims, losses, judgments, costs
and expenses (including, without limitation, attorney's fees and disbursements)
resulting from the Bank's entering into this Agreement or from any action or
inaction pertaining to the Project or the Promissory Notes and Mortgages pledged
and assigned to the Bank.
9.11 Environmental Indemnification. The Company shall indemnify,
-----------------------------
defend and hold harmless the Bank from and against any and all liabilities,
claims, damages, penalties, expenditures, losses or charges, including but not
limited to all costs of investigation, monitoring, legal representation,
remedial response, removal, restoration or permit acquisition, which may now or
in the future be undertaken, suffered, paid, awarded, assessed or otherwise
incurred by the Bank or any other person or entity as a result of the presence,
Release or threatened Release of Hazardous Substances on, in, under or near any
property. The liability of the Company under this section is not limited by any
exculpatory provisions in this Agreement or any other documents securing the
Loans and shall survive repayment of the Loans or any transfer or termination of
this Agreement regardless of the means of transfer or termination.
-24-
9.12 No Liability. The Bank shall not be liable in any way for the
------------
completeness or accuracy of any Environmental Report or the information
contained in it. The Bank has no duty to warn the Company or any other person
about any actual or potential environmental contamination or other problem that
may have become apparent or will become apparent to the Bank.
9.13 CONSENT TO JURISDICTION. ANY ACTION OR PROCEEDING TO ENFORCE OR
-----------------------
ARISING OUT OF THIS AGREEMENT, THE NOTE, THE SECURITY AGREEMENT OR ANY DOCUMENT
EXECUTED IN CONNECTION WITH THIS AGREEMENT MAY BE COMMENCED IN THE SUPREME COURT
OF NEW YORK IN THE COUNTY, OR IN THE DISTRICT COURT OF THE UNITED STATES IN THE
DISTRICT, IN WHICH THE BANK HAS AN OFFICE, AND A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED
AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY REGISTERED
MAIL TO THE COMPANY OR AS OTHERWISE PROVIDED BY THE LAWS OF THE STATE OF NEW
YORK OR THE UNITED STATES.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their authorized officers as of February 6, 2001.
PREFERRED EQUITIES CORPORATION
By /s/ Xxxxx X. XxXxxxxxx
--------------------------------------------
Executive Vice President
HSBC BANK USA
By /s/ Xxxx X. Xxxxxxxxxx
--------------------------------------------
Xxxx X. Xxxxxxxxxx, Vice President
EXHIBIT A
---------
SECURED TERM NOTE
$5,000,000.00 February 6, 2001
FOR VALUE RECEIVED, the undersigned promises to pay to HSBC BANK USA
(the "Bank") or its order, on February 6, 2006, at its office at One HSBC
Center, Buffalo, New York, the principal sum of Five Million Dollars
($5,000,000.00) or the aggregate unpaid principal amount of all Loans made by
the Bank to the undersigned from time to time pursuant to a Loan Agreement
between the undersigned and the Bank dated the date of this Note ("Loan
Agreement"), whichever is less, together with interest on the balance of the
principal of this Note from time to time unpaid at an annual rate ("Rate") equal
to the Bank's Prime Rate plus one percent (1%). "Prime Rate" means the rate of
interest publicly announced by the Bank from time to time as its prime rate and
is a base for calculating interest on certain loans.
All Loans may be inscribed by the Bank on the attached schedule or any
continuations of the schedule (the "Schedule"). Each entry on the Schedule shall
be prima facie evidence of the facts set forth. No failure by the Bank to make,
and no error by the Bank in making, any entry on the Schedule shall affect the
undersigned's obligation to repay the full principal amount advanced by the Bank
to or for the account of the undersigned or the undersigned's obligation to pay
interest.
After maturity (whether by acceleration or otherwise), this Note shall
bear interest at an annual rate equal to three percent (3%) in excess of the
Rate. In no event shall the Rate exceed the maximum rate allowed by law. The
Rate shall change simultaneously with each change in the Prime Rate. Interest
shall be calculated on the basis of 1/360th of the Rate in effect for each
calendar day the balance of principal is unpaid. Accrued interest shall be
payable monthly on the tenth day of each month, beginning March 10, 2001, and
when the principal of this Note is paid in full.
No failure by the holder of this Note to exercise, and no delay in
exercising, any right or remedy under this Note shall operate as a waiver
thereof, and no single or partial exercise by the holder of any right or remedy
under this Note shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the holder are
cumulative and not exclusive of any other rights or remedies the holder may
otherwise have.
Reference is made to the Loan Agreement for provisions as to
prepayment, collateral and acceleration. The undersigned expressly waives any
requirements of presentment, protest or notice of dishonor.
-2-
This Note shall be governed by the internal laws of the State of New
York without regard to principles of conflicts of laws. The undersigned shall
pay all costs and expenses incurred by the holder in enforcing this Note,
including, without limitation, actual attorneys' fees and legal expenses.
PREFERRED EQUITIES CORPORATION
By/s/ Xxxxx X. XxXxxxxxx
----------------------
Executive Vice President
SCHEDULE
TO
SECURED TERM NOTE
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DATE OF AMOUNT OF DATE OF AMOUNT OF
LOAN LOAN LOAN LOAN
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EXHIBIT B
---------
BORROWER'S CERTIFICATE
AND LOAN REQUEST
TO HSBC BANK USA (the "Bank"):
The undersigned certifies that he is the _____________ of Preferred
Equities Corporation (the "Company") and that he has read and knows the contents
of the Loan Agreement dated February 6, 2001, between the Company and the Bank
(the "Loan Agreement"); that the Company has complied with and is now in
compliance with all of the terms, covenants and conditions of the Loan Agreement
that are binding on the Company; that there has been no materially adverse
change in the Company's financial condition since the date of the Loan
Agreement; that there exists no Event of Default under the Loan Agreement and no
event that, with the giving of notice or lapse of time or both would constitute
an Event of Default; and that the representations and warranties of the Company
in the Loan Agreement are true on the date of this certificate.
The Company acknowledges that the principal balance owed the Bank
under the Loan Agreement, as of the date of this certificate is $______________.
The undersigned requests, pursuant to the Loan Agreement, that the
Bank make a Loan to the Company in the principal amount of $_____________, of
which $_______________ is the amount of the loan fee provided for in the Loan
Agreement and $__________________ is the amount to be advanced to the Company
pursuant to the Loan Agreement.
Date: ___________________
By ___________________________
[ACKNOWLEDGMENT]
EXHIBIT C
---------
[COUNSEL'S LETTERHEAD]
____________________, 2001
HSBC Bank USA
Timeshare Department
Xxx XXXX Xxxxxx -- 00/xx/ Xxxxx
Xxxxxxx, Xxx Xxxx 00000
Re: Loan to Preferred Equities Corporation
Ladies and Gentlemen:
We have acted as counsel to Preferred Equities Corporation (the "Company") in
connection with its execution and delivery of a loan agreement (the "Loan
Agreement") between HSBC Bank USA (the "Bank") and the Company dated the date of
this letter and of the Note. Capitalized terms used in this letter have the
meanings indicated in the Agreement.
We are also counsel to Mego Financial Corp. ("Guarantor") in connection with its
execution and delivery of a Guaranty.
We are of the following opinions:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada; has powers and authority
to transact the business in which it is engaged; is duly licensed or qualified
and in good standing in each jurisdiction in which the conduct of such business
requires licensing or qualification; and has all necessary power and authority
to enter into, execute, deliver and perform the Agreement, the Note, the
Security Agreement and any other document executed by it in connection with the
Agreement, all of which have been duly authorized by all proper and necessary
corporate and shareholder action.
2. The Agreement, Note, Security Agreement, Mortgage and Contract
assignments and Promissory Note endorsements and any other documents executed by
the Company in connection with this Agreement, when executed, delivered or both,
will constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their
HSBC Bank USA
Page 2
terms, except as such enforcement may be limited by state or federal bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors generally.
3. There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Company or the Guarantor) or investigations pending
or to the knowledge of the Company threatened, against the Company or the
Guarantor or any basis therefor, which if adversely determined would in any case
or in the aggregate materially adversely affect the property, assets (including
without limitation all Promissory Notes and Mortgages and Contracts pledged and
assigned to the Bank), financial condition or business of the Company or the
Guarantor or materially impair the right or ability of the Company or the
Guarantor to carry on its operations substantially as now conducted or
anticipated to be conducted in the future, or which question the validity of the
Agreement, the Note, the Promissory Notes and Mortgages and Contracts pledged
and assigned to the Bank, the Security Agreement, the Guaranty or any other
documents required by the Agreement or any action taken or to be taken pursuant
to any of the foregoing.
4. No consent, license, approval or authorization of, or
registration, declaration or filing with, any court, governmental body or
authority or other person or entity is required in connection with (a) the valid
execution, delivery or performance of the Agreement, the Note, the Security
Agreement, the Guaranty or any other documents required by the Agreement; (b)
the endorsement of Promissory Notes to the Bank and the assignment of Mortgages
and Contracts to the Bank; or (c) any of the transactions contemplated thereby,
other than the recording of the Mortgages assigned to the Bank, the recording of
the assignments of those Mortgages and any filings made pursuant to the Nevada
Uniform Commercial Code.
5. Each of the documents used by the Company to sell and finance the
sale of Intervals, including without limitation any purchase contracts, deeds,
credit applications, promissory notes, disclosure statements and mortgages,
comply with all applicable local, state and federal laws and regulations.
6. The rate and amount of interest the Company has charged those
Timeshare Purchasers whose Promissory Notes the Company has offered to pledge to
the Bank do not violate the usury laws of the State of Nevada or any other state
whose usury laws apply.
7. The requirements of all Federal, state and local environmental
and land use statutes, ordinances and regulations have been fully complied with,
and all required permits and approvals have been issued except as otherwise
disclosed to the Bank in writing. With respect to any permits and approvals not
obtained as of the date of this opinion, counsel does not know of any reason why
the permits and approvals will not be issued in a timely manner after that date.
HSBC Bank USA
Page 3
8. The requirements of the Interstate Land Sales Full Disclosure Act
have been fully complied with, or such Act is not applicable to sales of
Intervals in the Project, and, if such Act applies, all future sales of any part
of the Project or improvements to the Project or Units will be in full
compliance with these requirements.
9. The requirements of the securities laws of Nevada and each other
state having jurisdiction over the sale of any part of the Project or
improvements have been fully complied with, and all future sales will be in full
compliance with those requirements.
10. The offering to sell and sale of any part of the Project or
improvements to the Project or Units are exempt from the registration
requirements of the Securities Act of 1933, and the Securities and Exchange Act
of 1934.
11. The Project is currently zoned to allow development and use
consistent with the description in plans, proposals and projections submitted by
the Company to the Bank, and all utility services necessary or appropriate to
that development and use are available to the Project.
12. All roads necessary for the full use of the improvements to the
Project and the Units for their intended purposes have been completed, the
necessary rights-of-way have been acquired or dedicated and accepted by the
appropriate governmental authority and the Company has taken all necessary steps
to assure completion of those roads.
13. The Company has obtained all other necessary governmental
permits, licenses and approvals with respect to the Project, the timeshare plan
and the Intervals to be sold, all of which are current and in force.
14. Each of the Company and the Guarantor is not in violation of any
material term of its certificate of incorporation or by-laws, or of any
mortgage, borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money. Each of the Company and the Guarantor is not
in violation of any term of any other indenture, instrument or agreement to
which it is a party or by which it may be bound, resulting or which might
reasonably be expected to result in a material and adverse effect upon its
business or assets. Each of the Company and the Guarantor is not in violation
of any order, writ, judgment, injunction or decree of any court of competent
jurisdiction or of any statute or rule or regulation of any competent
governmental authority. The execution and delivery of the Agreement, the Note,
the Security Agreement, the Guaranty and other documents required by this
Agreement and the performance of all of them is and will be in compliance with
the foregoing and will not result in any violation or result in the creation of
any mortgage, lien, security interest, charge or encumbrance on any properties
or assets except in favor of the Bank. To our knowledge, there exists no fact
or circumstance not disclosed in the Agreement or in the documents furnished in
HSBC Bank USA
Page 4
connection with the Agreement that materially adversely affects or in the future
(so far as the Company can now foresee) may materially adversely affect the
condition, business or operations of the Company or the Guarantor.
15. The Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York [?]; has powers and
authority to transact the business in which it is engaged; is duly licensed or
qualified and in good standing in each jurisdiction in which the conduct of such
business requires licensing or qualification; and has all necessary power and
authority to execute, deliver and perform its Guaranty, which has been duly
authorized by all proper and necessary corporate and shareholder action.
16. The Guaranty will, when executed, delivered or both, constitute
the legal, valid and binding obligations of the Guarantor, enforceable in
accordance with their terms, except as such enforcement may be limited by state
or federal bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally.
Very truly yours,
PLEDGE SECURITY AGREEMENT
AGREEMENT made on February 6, 2001, by and between PREFERRED EQUITIES
CORPORATION, 0000 Xxxxxxxx Xxxx, Xxx Xxxxx, Xxxxxx 00000 ("Pledgor"), and HSBC
BANK USA, Xxx XXXX Xxxxxx, 00/xx/ Xxxxx, Xxxxxxx, Xxx Xxxx 00000 ("Secured
Party").
The parties agree as follows:
1. Security Interest.
In consideration of any extension of credit heretofore or
hereafter made by Secured Party to Pledgor, Pledgor hereby pledges, transfers
and assigns to Secured Party and grants to Secured Party a security interest
("Security Interest") in the promissory notes ("Promissory Notes") now or
hereafter delivered to Secured Party and all related mortgages or deeds of trust
now or hereafter assigned to Secured Party ("Mortgages") and in all installment
sales contracts ("Contracts") now or hereafter delivered to Secured Party, in
all increases or profits received therefrom, in all substitutions therefor, and
in all proceeds thereof in any form, including, without limitation, any and all
Promissory Notes and Mortgages and all Contracts described in any schedule
executed by Pledgor for the benefit of Secured Party ("Collateral").
2. Indebtedness Secured.
The Security Interest secures payment of any and all indebtedness
("Indebtedness") of Pledgor to Secured Party, whether now existing or hereafter
incurred, of every kind and character, direct or indirect, and whether such
Indebtedness is from time to time reduced and thereafter increased, or entirely
extinguished and thereafter reincurred (unless Pledgor has indicated in writing
to Secured Party that it will not incur any further Indebtedness), including,
without limitation: (a) all Indebtedness of Pledgor to Secured Party arising
under a loan agreement between Pledgor and Secured Party dated the date of this
Security Agreement ("Loan Agreement"); (b) Indebtedness not yet outstanding, but
contracted for, or with respect to which any other commitment by Secured Party
exists; (c) all interest provided in any instrument, document, or agreement
(including this Security Agreement) which accrues on any Indebtedness until
payment of such Indebtedness in full; (d) any moneys payable as hereinafter
provided; and (e) any debts owed or to be owed to others by Pledgor which
Secured Party has obtained, or may obtain, by assignment or otherwise.
-2-
3. Representations and Warranties of Pledgor.
Pledgor represents and warrants and, so long as this Security
Agreement is in effect, shall be deemed continuously to represent and warrant
that: (a) each Promissory Note and each Contract constituting Collateral is
genuine and in all respects what it purports to be; (b) Pledgor is the owner of
the Collateral free of all security interests or other encumbrances, except the
Security Interest; and (c) Pledgor's entering into this Security Agreement has
been authorized by all proper and necessary corporate and shareholder action.
4. Covenants of Pledgor.
(a) So long as this Security Agreement is in effect, Pledgor:
(i) will endorse the Promissory Notes, without restriction, to the order of
Secured Party and deliver the Promissory Notes to Secured Party; will assign any
Mortgages securing the Promissory Notes to Secured Party and deliver such
assignments to Secured Party; will assign the Contracts to Secured Party and
deliver such assignments to Secured Party; will deliver to Secured Party any
other documents or information in Pledgor's possession or control related to the
Promissory Notes or the Contracts; (ii) will defend the Collateral against the
claims and demands of all other parties; will keep the Collateral free from all
security interests or other encumbrances, except the Security Interest; and will
not sell, transfer, assign, deliver or otherwise dispose of any Collateral or
any interest therein without the prior written consent of Secured Party; (iii)
will notify Secured Party promptly in writing of any change in Pledgor's
address, specified above; (iv) in connection herewith, will execute and deliver
to Secured Party such financing statements, assignments and other documents and
do such other things relating to the Collateral and the Security Interest as
Secured Party may request, and pay all costs of title searches and filing
financing statements, assignments and other documents in all public offices
requested by Secured Party; and (v) will pay all taxes, assessments and other
charges of every nature which may be imposed, levied or assessed against the
Collateral.
(b) In addition to the foregoing covenants, so long as this
Security Agreement is in effect Pledgor: (i) will notify Secured Party promptly
in writing of any change in Pledgor's name, identity or corporate or other
structure; (ii) will furnish to Secured Party financial statements in such form
and at such intervals as Secured Party shall request; will keep, in accordance
with generally accepted accounting principles consistently applied, accurate and
complete books and records, including, without limitation, records concerning
the Collateral; at Secured Party's request, will xxxx any and all such books and
records to indicate the Security Interest; will permit Secured Party or its
agents to audit and make extracts from or copies of such books and records and
any of Pledgor's ledgers, reports, correspondence or other books and records
pertaining to the Collateral; and will duly account to Secured Party's
satisfaction, at such time or times as Secured Party may require, for any of the
Collateral; (iii) will not, without the prior written consent of Secured Party,
file or authorize or permit to be filed in any public office any financing
statement that relates to the Collateral and names Pledgor as debtor but does
not name Secured Party as secured party; (iv) will pay all taxes, assessments
and other charges of every nature which may be imposed, levied or assessed
against Pledgor or any of Pledgor's
-3-
assets, prior to the date of attachment of any penalties or liens with respect
thereto (other than liens attaching prior to payment becoming due, if payment is
made when due), provided, however, Pledgor shall not be required to pay any such
tax, assessment or other charge so long as its validity is being contested in
good faith by appropriate proceedings diligently conducted; (v) if at any time
any Promissory Note and Mortgage ceases to be a Qualified Promissory Note and
Mortgage or any Contract ceases to be a Qualified Contract (as defined in the
Loan Agreement), will comply with the requirements of Section 7.1(d) of the Loan
Agreement; and (vi) will notify Secured Party promptly in writing of any
material adverse change in connection with the Collateral.
5. Events of Default.
(a) Any of the following events or conditions shall constitute
an event of default hereunder: (i) default by Pledgor in the performance of any
obligation, term or condition of this Security Agreement or any other agreement
relating to the Indebtedness between Pledgor and Secured Party that is not cured
within 30 days after Pledgor receives written notice of the default from Secured
Party or (ii) an Event of Default as defined in the Loan Agreement.
(b) Secured Party, at its sole election, may declare all or any
part of any Indebtedness not payable on demand to be immediately due and payable
without demand or notice of any kind upon the happening of any event of default
(other than an Event of Default under Section 7.1(e) or 7.1(f) of the Loan
Agreement). All or any part of any Indebtedness not payable on demand shall be
immediately due and payable without demand or notice of any kind upon the
happening of one or more Events of Default under Section 7.1(e) or 7.1(f) of the
Loan Agreement. The provisions of this paragraph are not intended in any way to
affect any rights of Secured Party with respect to any Indebtedness which may
now or hereafter be payable on demand.
(c) Secured Party's rights and remedies with respect to the
Collateral shall be those of a Secured Party under the Uniform Commercial Code
and under any applicable law, as the same may from time to time be in effect, in
addition to those rights granted herein and in any other agreement now or
hereafter in effect between Pledgor and Secured Party.
(d) Without in any way requiring notice to be given in the
following time and manner, Pledgor agrees that any notice by Secured Party of
sale, disposition or other intended action hereunder or in connection herewith,
whether required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Pledgor if such notice is mailed by regular or certified
mail, postage prepaid, at least ten (10) days prior to such action, to Pledgor's
address specified above or to any other address which Pledgor has specified in
writing to Secured Party as the address to which notices hereunder shall be
given to Pledgor.
-4-
(e) Pledgor agrees to pay on demand all reasonable costs and
expenses incurred by Secured Party in enforcing this Security Agreement, in
realizing upon or protecting any Collateral and in enforcing and collecting any
Indebtedness or any guaranty thereof, including, without limitation, if Secured
Party retains counsel for advice, suit, appeal, insolvency or other proceedings
under the Federal Bankruptcy Code or otherwise, or for any of the above
purposes, the actual attorney's fees incurred by Secured Party. Payment of all
moneys hereunder shall be secured by the Collateral.
6. Miscellaneous.
(a) Pledgor authorizes Secured Party, without notice or demand
and without affecting Pledgor's obligations hereunder, (i) to take from any
party and hold collateral (other than the Collateral) for the payment of the
Indebtedness or any part thereof, and to exchange, enforce or release such
collateral or any part hereof; (ii) to accept and hold any indorsement or
guaranty of payment of the Indebtedness or any part thereof and to release,
substitute or modify any obligation of any such indorser or guarantor, or any
party who has given any security, mortgage or other interest in any other
collateral as security for the payment of the Indebtedness or any part thereof,
or any other party in any way obligated to pay the Indebtedness or any part
thereof; and (iii) upon the occurrence of any event of default as hereinabove
provided, to direct the order or manner of the disposition of any and all other
collateral and the enforcement of any and all indorsements, guaranties and other
obligations relating to the Indebtedness or any part thereof as Secured Party,
in its sole discretion, may determine.
(b) Pledgor hereby appoints Secured Party as Pledgor's attorney-
in-fact (without requiring Secured Party) to perform all acts which Secured
Party deems appropriate to perfect and continue the Security Interest and to
protect, preserve and realize upon the Collateral. This power of attorney shall
not be affected by the subsequent disability or incompetence of Pledgor. A
carbon, photographic or other reproduction of this Security Agreement or of a
financing statement shall be sufficient as a financing statement.
(c) (i) As further security for payment of the Indebtedness,
Pledgor hereby grants to Secured Party a Security Interest in and lien on any
and all property of Pledgor which is or may hereafter be in the possession or
control of Secured Party in any capacity or, with respect only to proceeds of
the Collateral or other property related to the Collateral or to the
transactions contemplated by the Loan Agreement, of any third party acting on
its behalf, including, without limitation, all deposit and other accounts and
all moneys owed or to be owed by Secured Party to Pledgor or by the Lock Box
Agent (as defined in the Loan Agreement) to Pledgor; and with respect to all of
such property, Secured Party shall have the same rights hereunder as it has with
respect to the Collateral; (ii) without limiting any other right of Secured
Party, whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured Party
at its sole election, may set off against the Indebtedness any and all moneys
then or thereafter owed to Pledgor by Secured Party in any capacity, whether or
not the Indebtedness or the obligation to pay such moneys owed by
-5-
Secured Party is then due, and Secured Party shall be deemed to have exercised
such right of set off immediately at the time of such election though any charge
therefor is made or entered on Secured Party's records subsequent thereto.
(d) Upon Pledgor's failure to perform any of its duties
hereunder, Secured Party may, but shall not be obligated to, perform any or all
such duties, including, without limitation, payment of taxes, assessments,
insurance and other charges and expenses as herein provided, and Pledgor shall
pay an amount equal to the cost thereof to Secured Party on demand of Secured
Party. Payment of all moneys hereunder shall be secured by the Collateral.
(e) No course of dealing between Pledgor and Secured Party and
no delay or omission by Secured Party in exercising any right or remedy
hereunder or with respect to any Indebtedness shall operate as a waiver thereof
or of any other right or remedy, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. Secured Party may remedy any default by Pledgor hereunder or
with respect to any Indebtedness in any reasonable manner without waiving the
default remedied and without waiving any other prior or subsequent default by
Pledgor. All rights and remedies of Secured Party hereunder are cumulative.
(f) Secured Party shall have no obligation to take, and Pledgor
shall have the sole responsibility for taking, any and all steps to preserve
rights against any and all prior parties to any Promissory Note or other
Instrument constituting Collateral, whether or not in Secured Party's
possession. Secured Party shall not be responsible to Pledgor for loss or
damage resulting from Secured Party's failure to enforce or collect any such
Collateral or to collect any moneys due or to become due thereunder. Pledgor
waives protest of any Instrument constituting Collateral at any time held by
Secured Party on which Pledgor is in any way liable and waives notice of any
other action taken by Secured Party.
(g) The rights and benefits of Secured Party hereunder shall, if
Secured Party so directs, inure to any party acquiring any interest in the
Indebtedness or any part thereof.
(h) Secured Party and Pledgor as used herein shall include the
successors or assigns of those parties.
(i) This Security Agreement represents the entire understanding
between the parties hereto with respect to the subject matter hereto and
supersedes all prior negotiations between the parties. No modification,
rescission, waiver, release or amendment of any provision of this Security
Agreement shall be made except by a written agreement subscribed by Pledgor and
by a duly authorized officer of Secured Party.
(j) This Security Agreement and the transaction evidenced hereby
shall be construed under the internal laws of New York State, as the same may
from time to time be in effect, without regard to principles of conflicts of
laws, except to the extent that the laws of
-6-
another state apply to the real estate law aspects of the assignment of
Mortgages by Pledgor to Secured Party.
(k) All terms, unless otherwise defined in this Security
Agreement, shall have the definitions set forth in the Uniform Commercial Code
adopted in New York State, as the same may from time to time be in effect.
(l) PLEDGOR AGREES THAT ANY ACTION OR PROCEEDING TO ENFORCE, OR
ARISING OUT OF, THIS SECURITY AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION
WITH THIS SECURITY AGREEMENT MAY BE COMMENCED IN THE SUPREME COURT OF NEW YORK
IN ERIE COUNTY, OR IN THE UNITED STATES DISTRICT COURT OF THE WESTERN DISTRICT
OF NEW YORK, AND PLEDGOR AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN
ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER
PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY REGISTERED MAIL TO IT, OR AS
OTHERWISE PROVIDED BY THE LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES.
(m) This Security Agreement is and is intended to be a
continuing Security Agreement and shall remain in full force and effect until
all of the Indebtedness outstanding has been paid in full, including without
limitation all principal, interests, costs, expenses or other sums of any kind
owed Secured Party. If, after receipt of any payment of all or any part of the
Indebtedness, Secured Party is for any reason compelled to surrender such
payment to any person or entity, because such payment is determined to be void
or voidable as a preference, impermissible set off, or a diversion of trust
funds, or for any other reason, this Security Agreement shall continue in full
force notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken shall
be without prejudice to Secured Party's rights under this Security Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.
PREFERRED EQUITIES CORPORATION
By /s/ Xxxxx X. XxXxxxxxx
----------------------------------
Xxxxx X. XxXxxxxxx
Executive Vice President
SCHEDULE TO
PLEDGE SECURITY AGREEMENT
______, 200__
1. Security Agreement. I, the Debtor/Pledgor, have signed a Pledge
------------------
Security Agreement dated February 6, 2001, with you, HSBC Bank USA, the
Secured Party. The Pledge Security Agreement gives you a Security
Interest in Collateral which is listed in any Schedule referring to that
Security Agreement. This is a Schedule to that Security Agreement and
the following is Collateral subject to that Security Agreement.
================================================================================
LIST OR DESCRIPTION OF COLLATERAL
================================================================================
SEE ATTACHED SCHEDULE "A" LIST OF COLLATERAL
================================================================================
================================================================================
2. Receipt. Secured party agrees that it has received all of the above
-------
Collateral.
Debtor/Pledgor: Secured Party:
PREFERRED EQUITIES HSBC BANK USA
CORPORATION
By ______________________________ By ____________________________
SECURED TERM NOTE
$5,000,000.00 February 6, 2001
FOR VALUE RECEIVED, the undersigned promises to pay to HSBC BANK USA
(the "Bank") or its order, on February 6, 2006, at its office at One HSBC
Center, Buffalo, New York, the principal sum of Five Million Dollars
($5,000,000.00) or the aggregate unpaid principal amount of all Loans made by
the Bank to the undersigned from time to time pursuant to a Loan Agreement
between the undersigned and the Bank dated the date of this Note ("Loan
Agreement"), whichever is less, together with interest on the balance of the
principal of this Note from time to time unpaid at an annual rate ("Rate") equal
to the Bank's Prime Rate plus one percent (1%). "Prime Rate" means the rate of
interest publicly announced by the Bank from time to time as its prime rate and
is a base for calculating interest on certain loans.
All Loans may be inscribed by the Bank on the attached schedule or any
continuations of the schedule (the "Schedule"). Each entry on the Schedule
shall be prima facie evidence of the facts set forth. No failure by the Bank to
make, and no error by the Bank in making, any entry on the Schedule shall affect
the undersigned's obligation to repay the full principal amount advanced by the
Bank to or for the account of the undersigned or the undersigned's obligation to
pay interest.
After maturity (whether by acceleration or otherwise), this Note shall
bear interest at an annual rate equal to three percent (3%) in excess of the
Rate. In no event shall the Rate exceed the maximum rate allowed by law. The
Rate shall change simultaneously with each change in the Prime Rate. Interest
shall be calculated on the basis of 1/360th of the Rate in effect for each
calendar day the balance of principal is unpaid. Accrued interest shall be
payable monthly on the tenth day of each month, beginning March 10, 2001, and
when the principal of this Note is paid in full.
No failure by the holder of this Note to exercise, and no delay in
exercising, any right or remedy under this Note shall operate as a waiver
thereof, and no single or partial exercise by the holder of any right or remedy
under this Note shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the holder
are cumulative and not exclusive of any other rights or remedies the holder may
otherwise have.
Reference is made to the Loan Agreement for provisions as to
prepayment, collateral and acceleration. The undersigned expressly waives any
requirements of presentment, protest or notice of dishonor.
This Note shall be governed by the internal laws of the State of New
York without regard to principles of conflicts of laws. The undersigned shall
pay all costs and expenses
-2-
incurred by the holder in enforcing this Note, including, without limitation,
actual attorneys' fees and legal expenses.
PREFERRED EQUITIES CORPORATION
By /s/ Xxxxx X. XxXxxxxxx
-----------------------------------
Executive Vice President
SCHEDULE
TO
SECURED TERM NOTE
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DATE OF AMOUNT OF DATE OF AMOUNT OF
LOAN LOAN LOAN LOAN
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