As filed with the Securities and Exchange Commission on June 7, 1996
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
WESTMARK GROUP HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
COLORADO* 6531 84-1055077
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
355 N.E. FIFTH AVENUE NORMAN J. BIRMINGHAM
DELRAY BEACH, FLORIDA 33483 WESTMARK GROUP HOLDINGS,INC.
(407) 243-8010 355 N.E. FIFTH AVENUE
(Address, including zip code, and DELRAY BEACH, FLORIDA 33483
telephone number, including (407) 243-8010
area code, of registrant's (Name, address, including zip code,
principal executive offices) and telephone number, including
area code, of agent for service)
COPIES TO:
THOMAS C. PRITCHARD
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 659-1744
FAX (713) 659-2430
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
-----------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================
Title of Each Class of Proposed Proposed Amount of
Securities To Be Amount Maximum Maximum Registration
Registered Being Offering Price Aggregate Fee
Registered Per Share(1) Offering
Price(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock to be Issued........ 495,334 1.75 866,835 $299
- ----------------------------------------------------------------------------------------------
Shares Underlying Preferred 1.75 1,240,208 $428
Stock (3)........................ 708,690 1.75 1,166,666 $402
Shares Underlying Warrants (3)... 666,666 1.75 580,835 $200
Shares Underlying Options (3).... 331,905
- ----------------------------------------------------------------------------------------------
Common Stock to be Resold........ 666,526 1.75 1,166,421 $402
- ----------------------------------------------------------------------------------------------
TOTAL 2,869,121 - - $1,734
==============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Based on the average of the high and low price per share of Common Stock as
reported by Nasdaq on May 30, 1996.
(3) This registration statement also covers any additional securities which may
become issuable pursuant to anti-dilution and adjustment provisions.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- ------------
* As set forth on page 3 of the Registration Statement, all information in
the Prospectus assumes the reincorporation in Delaware to be voted upon by
the shareholders in the June 1996 annual shareholders meeting.
ii
WESTMARK GROUP HOLDINGS, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- --------------------------------- ----------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus............. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus........................... Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information and Risk Factors.......... Prospectus Summary; Risk
Factors; The Company
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Outside Front Cover Page;
Risk Factors; Plan of
Distribution and Selling
Stockholders
6. Dilution...................................... *
7. Selling Security-Holders...................... Plan of Distribution and
Selling Stockholders
8. Plan of Distribution.......................... Outside Front Cover Page;
Risk Factors; Plan of
Distribution and Selling
Stockholders
9. Legal Proceedings............................. Business
10. Directors, Executive Officers, Promoters
and Control Persons........................... The Company; Management --
Executive Officers and
Directors
11. Security Ownership of Certain Beneficial
Owners and Management......................... Principal Stockholders
12. Description of Securities..................... Description of Capital
Stock
13. Interest of Named Experts and Counsel......... Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... *
15. Organization Within Last Five Years........... The Company
16. Description of Business....................... Business
ii
17. Management's Discussion and Analysis
or Plan of Operation.......................... Management's Discussion
and Analysis of Financial
Condition and Results of
Operations
18. Description of Property....................... Business
19. Certain Relationships and Related
Transactions.................................. Management -- Certain
Transactions
20. Market for Common Equity and Related
Stockholder Matters........................... Risk Factors; Description
of Capital Stock; Shares
Eligible for Future Sale;
Price Range of Common
Stock and Dividend Policy
21. Executive Compensation........................ Management -- Executive
Compensation
22. Financial Statements.......................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................... Experts
- ------------
(*) None or Not Applicable
iii
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED JUNE 7, 1996
WESTMARK GROUP HOLDINGS, INC.
ISSUANCE OF 495,334 SHARES OF COMMON STOCK
RESALE OF 2,373,787 SHARES OF COMMON STOCK
This Prospectus relates to the issuance by Westmark Group Holdings,
Inc. ("Company" or "Westmark") of up to 495,334 shares of Company Common Stock,
$.001 par value ("Common Stock"), to fund debt settlements, 245,334 shares to be
issued upon the date of this Prospectus and up to 250,000 shares to be issued to
(1) cover any short-fall in funding certain debt settlements and (ii) fund any
outstanding debt obligations or settlements that may be negotiated in the
future. See "Use of Proceeds" and "Plan of Distribution and Selling
Stockholders". This Prospectus also relates to the resale of 2,373,787 shares of
Common Stock which may be sold by the holders thereof ("Selling Stockholders")
from time to time as market conditions permit in the market, or otherwise, at
prices and terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. The shares of Common Stock to be resold
include 666,526 shares currently issued and outstanding and up to 1,707,261
shares to be issued upon (i) exercise of warrants outstanding to purchase an
aggregate of 666,666 shares ("Warrants"), (ii) exercise of options outstanding
to purchase an aggregate of 331,905 shares ("Options"), and (iii) conversion of
418,750 outstanding shares of the Company's Series A and Series B Preferred
Stock (collectively, "Preferred Stock") presently convertible to purchase an
aggregate of 708,690 shares, subject to adjustment. Shares offered by the
Selling Stockholders may be sold by one or more of the following methods without
limitation: (i) ordinary brokerage transactions in which a broker solicits
purchases; and (ii) face to face transactions between the Selling Stockholders
and purchasers without a broker-dealer. A current prospectus must be in effect
at the time of the sale of the shares of Common Stock to which this Prospectus
relates. Each Selling Stockholder or dealer effecting a transaction in the
registered securities, whether or not participating in a distribution, is
required to deliver a current prospectus upon such sale. See "Management-Stock
Options," "-Certain Transactions," "Description of Capital Stock Preferred
Stock" and "Plan of Distribution and Selling Stockholders." The shares to be
issued by the Company to cover any short-fall in funding certain debt
settlements or to fund debt obligations or additional debt settlements will be
offered on a negotiated "best-efforts, no minimum" basis. The Company will
retain all proceeds from the exercise of the Warrants and Options, regardless of
the number exercised. Such proceeds (a maximum amount of approximately
$2,248,865) will be used for working capital and general corporate purposes. The
Company will not receive any proceeds from the resale of Common Stock by the
Selling Stockholders or upon conversion of the Preferred Stock. The Company's
Common Stock is traded on the Nasdaq SmallCap Market under the symbol "WGHI." On
May 30, 1996, the last sales price of the Common Stock as reported by Nasdaq was
$1.75.
--------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE
INVESTMENT. THE MARKET FOR THE COMMON STOCK
IS LIMITED, SPORADIC AND HIGHLY VOLATILE.
SEE "RISK FACTORS."
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is ____________, 1996
TABLE OF CONTENTS
PAGE
Available Information........................................................ 2
Prospectus Summary........................................................... 3
The Company.................................................................. 5
Risk Factors................................................................. 6
Use of Proceeds............................................................. 12
Price Range of Common Stock and Dividend Policy............................. 12
Capitalization.............................................................. 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 14
Business.................................................................... 20
Management................................................................... 25
Principal Stockholders....................................................... 30
Description of Capital Stock................................................. 31
Plan of Distribution and Selling Stockholders................................ 32
Legal Matters................................................................ 41
Experts...................................................................... 41
Index to Financial Statements.............................................. F-1
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS
FURNISHED.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files periodic reports, proxy materials and other information with
the Securities and Exchange Commission ("Commission"). Such reports, proxy
materials and other information are available for inspection at, and copies of
such materials may be obtained upon payment of the fees prescribed therefor by
the Commission from, the Commission at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the following regional offices: 7 World Trade Center, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Company has filed a registration statement on Form SB-2
("Registration Statement") under the Act with respect to the securities being
registered. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Copies of the Registration Statement and its exhibits
are on file at the offices of the Commission and may be obtained upon payment of
the fees prescribed by the Commission or may be examined, without charge, at the
public reference facilities of the Commission. The Company will provide without
charge to each person who receives a copy of this Prospectus, upon written or
oral request of such person, a copy of any of the information that is
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such request should be directed to the
Company, attention Mr.
Birmingham, at 355 N.E. Fifth Avenue, Delray Beach, Florida 33483.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA (INCLUDING FINANCIAL STATEMENTS AND NOTES
THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO (I) A
1-FOR-30 REVERSE STOCK SPLIT EFFECTED IN JULY 1995 AND (II) THE ANTICIPATED
REINCORPORATION OF THE COMPANY IN DELAWARE IN JUNE 1996, WHICH WILL RESULT IN
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK INCREASING TO 50,000,000, $.001
PAR VALUE, AND THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK INCREASING TO
10,000,000, $.001 PAR VALUE.
THE COMPANY
The Company is a mortgage banking company that, through its
wholly-owned subsidiary Westmark Mortgage Corporation ("Westmark Mortgage"), is
engaged in the business of originating, purchasing and selling mortgage loans
secured primarily by single family, multi-family and condominium residences.
Westmark Mortgage is registered and/or licensed to originate, purchase closed
loans, underwrite, fund or sell residential mortgage loans in the states of
Alabama, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho,
Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio, Oregon,
Utah, Washington, and Wyoming. The Company pools and sells loans to third-party
investors including the Federal National Mortgage Association ("FNMA" or "Fannie
Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the
Department of Housing and Urban Development ("HUD"), its lending agency the
Government National Mortgage Association ("Ginnie Mae"), and various
non-conforming mortgage conduits.
THE OFFERING
Common Stock Outstanding
Prior to Offering........... 2,971,882(1)
Common Stock to be Issued..... 495,334(2)
Common Stock to be Resold..... 2,373,787(3)
Use of Proceeds............... Working capital. See "Use of Proceeds."
Risk Factors.................. Prospective purchasers are urged to carefully
review the factors set forth in "Risk Factors."
Nasdaq Symbol................. WGHI
- -------------
3
(1) Does not include (i) 331,905 shares issuable upon exercise of outstanding
Options, (ii) 666,666 shares underlying the Warrants, (iii) 708,690 shares
underlying outstanding shares of Preferred Stock, and (iv) any additional
shares that may be required to be issued to Heart Labs of America, Inc.,
an affiliate of the Company ("Heart Labs") pursuant to anti-dilution
rights. See "Management -- Stock Options," "-Certain Transactions,"
"Description of Capital Stock - Warrants," and "-Preferred Stock."
(2) Includes (i) 245,334 shares to be issued, and (ii) up to 250,000 shares to
be issued pursuant to this Prospectus to fund any short-fall in debt
settlements and to fund additional debt settlements or obligations. See
"Plan of Distribution and Selling Stockholders."
(3) Includes the (i) 331,905 shares issuable upon exercise of outstanding
Options, (ii) 666,666 shares underlying the Warrants, and (iii) 708,690
shares underlying outstanding shares of Preferred Stock. See "Management
-- Stock Options," "Description of Capital Stock - Warrants," and
"Preferred Stock."
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------
STATEMENTS OF INCOME DATA: 1996 1995 1995 1994
---- ---- ---- ----
Total revenues..................... $991 672 3,082 2,938
Total expenses..................... 1,267 1,793 10,570 6,994
Loss from Continuing Operations.... (275) (1,121) (7,488) (4,056)
Provision for income tax benefit... - - 180 376
Gain on extinguishment of debt (1). - - 270 561
Net loss........................... (275) (1,121) (7,038) (3,119)
Net loss per share ................ (0.10) (1.80) (6.50) (6.28)
Weighted average
shares outstanding............... 2,638 622 1,082 497
March December
BALANCE SHEET DATA: 31, 1996 31, 1995
-------- ---------
Working capital deficit.................... (2,231) (2,044)
Total assets (2)........................... 12,864 25,510
Long-term obligations (3).................. 1,698 1,698
Stockholders' equity....................... 1,326 1,591
- ------------
(1) Net of tax of $180,000 at December 31, 1995 and $376,000 at December 31,
1994. (2) Includes investment in loans in process of $19,480,029 at December 31,
1995 and $7,266,724 at March 31, 1996. (3) Includes short-term debt expected to
be refinanced on a long-term basis of $698,323 at December 31, 1995 and March
31, 1996.
4
THE COMPANY
The Company was incorporated in Colorado during 1986 under the name
Eagle Venture Acquisitions, Inc. From inception until May 1990, the Company was
engaged in business operations unrelated to its current business strategy. In
May 1990, the Company changed its name to Network Real Estate of California,
Inc. and commenced providing a variety of real estate services through its
wholly-owned subsidiary, Network Real Estate, Inc. ("Network Real Estate"),
including real estate brokerage, mortgage banking services and insurance
services. In July 1992, the Company changed its name to Network Financial
Services, Inc. From May 1990 through August 1993, the Company conducted
substantially all of its business operations through its subsidiary, Network
Real Estate.
In August 1993, the Company acquired Westmark Mortgage from Primark
Corporation, an unaffiliated third party ("Primark"), by issuing a promissory
note in the principal amount of approximately $2.5 million, secured by the
acquired mortgage servicing portfolio. Upon such acquisition, Westmark Mortgage
was engaged in essentially the same business as it is today, except that the
Company serviced certain originated mortgage loans. During the third quarter of
fiscal 1994, the Company, Primark and Crown Bank engaged in various negotiations
with respect to the sale to Crown Bank of the mortgage servicing portfolio
acquired from Primark and the restructuring of the Primark purchase price. The
Company reached an agreement with Primark to accept the issuance of 13,333
shares of Company Common Stock and the cash payment of $500,000 as payment in
full of the $2.5 million promissory note, pending the sale of the mortgage
servicing portfolio. The modification in the purchase price resulted in a
$561,413 gain on the elimination of debt in 1994. In August 1994, Freddie Mac
agreed to the sale by the Company of the mortgage servicing portfolio. In
September 1994, the Company sold its entire mortgage servicing portfolio to
Crown Bank, consisting of approximately 2,500 loans with an aggregate unpaid
principal balance of approximately $287 million, for an aggregate sales price of
approximately $1.77 million. Of the $1.77 million sales price, $500,000 was
utilized to discharge its obligations in full to Primark, $300,000 was remitted
to Freddie Mac for the repurchase of loans, and $840,000 was utilized to
establish two reserve accounts, one with Freddie Mac in the amount of $480,000
as a repurchase reserve and the other with Crown Bank in the amount of $360,000
as a performance reserve. The balance of $130,000 was utilized for general
operations and costs associated with the sale. In 1995, foreclosure losses were
charged against the repurchase reverse account, resulting in repurchase losses
of $480,000, and performance losses were charged against the performance reverse
account, resulting in performance losses of $179,663. It is likely that the
balance of the performance reserve will be written off in fiscal 1996. The
Company has already established a reserve for this loss.
In 1993, the Company ceased operating Network Capital Group, a
wholly-owned mortgage banking subsidiary, in a transaction that had no
significant impact on the Company's financial condition. In an April 1994
agreement, effective December 31, 1993, the Company sold Network Real Estate to
a former president of the Company in consideration for releasing the Company
from a $500,000 obligation with respect to the former president's employment
agreement, which included salary, expenses, severances and buy-out provisions.
There were no material revenues from Network Real Estate in fiscal 1994. In July
1994, the Company sold Network Home Services, Inc., an inoperative wholly-owned
subsidiary that owned certain software, in a transaction that had no material
impact in the Company's financial statements.
In June 1994, the Company changed its name to Westmark Group Holdings,
Inc. Currently, the Company conducts substantially all of its business through
Westmark Mortgage, its operating subsidiary, and references to the Company or
Westmark include Westmark Mortgage, unless otherwise indicated. The principal
executive office of the Company is located at 355 N.E. Fifth Avenue, Delray
Beach, Florida 33483 and its telephone number is (407) 243-8010.
5
RISK FACTORS
AN INVESTMENT IN THE COMPANY COMMON STOCK INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING FACTORS TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO MAKING AN
INVESTMENT DECISION.
CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT
The Company had losses from continuing operations before provision for
income tax and other extraordinary items of $7,488,060 and $4,056,366 for the
years ended December 31, 1995 and 1994, respectively, and $275,306 for the three
months ended March 31, 1996. At March 31, 1996, the Company had an accumulated
deficit of $23,003,727. The Company's prospects, therefore, must be considered
in light of the risks, expenses and difficulties frequently encountered in
operating a business in a highly competitive industry. There can be no assurance
that the Company will experience profitability in the future, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CAPITAL REQUIREMENT; LIMITED SOURCES OF LIQUIDITY; NEED FOR ADDITIONAL CAPITAL
The Company requires substantial capital to pursue its operating
strategy. To date, the Company has relied primarily upon net cash provided by
financing activities to fund its capital requirements. Net cash provided by
financing activities, exclusive of transactions on its line of credit, was
$3,431,298 and $1,046,124 for the years ended December 31, 1995 and 1994,
respectively. Net cash used by operating activities before working capital
changes was $5,198,712 and $3,068,184 for the years ended December 31, 1995 and
1994, respectively. Net cash provided by financing activities, exclusive of
transactions on its line of credit, was $463,722 and $371,666 for the three
months ended March 31, 1996 and 1995, respectively. Net cash used by operating
activities before working capital changes was $226,765 and $691,963 for three
months ended March 31, 1996 and 1995, respectively. The Company expects that
operations before working capital changes will not generate significant cash
flow until the Company has net income. These results will continue to impact the
Company's capital position and cause continued reliance upon external sources of
liquidity for at least the near future. There can be no assurance the Company
will generate sufficient cash in future periods to satisfy the Company's capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
At March 31, 1996, the Company had a working capital deficit of
$2,230,725, and its debt-to-equity ratio was approximately 9 to 1. The Company
maintains a $15 million warehouse line of credit with Princap Mortgage, Inc.,
secured by the mortgages purchased by the Company from this warehouse line of
credit ("Warehouse Facility"). At March 31, 1996, the Company had $7,057,297
outstanding under the Warehouse Facility. At December 31, 1995, the Company had
an outstanding balance of $3,333,763 on a separate warehouse line-of-credit with
Pacific Southwest Bank F.S.B. ("PSB"), which amount was collateralized by loans
sold during the first quarter of 1996 and the warehouse line with PSB was
subsequently closed in the first quarter of 1996. At March 31, 1996, the Company
had additional short-term indebtedness of $707,318 in the form of convertible
debentures and other notes payable (of which $600,000 was repaid in the second
quarter of 1996), and $1,698,323 of long-term liabilities comprised of a
$1,000,000 note secured by Company real estate and $698,323 of indebtedness that
the Company has reached settlements to be funded through cash payments and
Common Stock issuance. The Company funds substantially all of the loans which it
originates and purchases through borrowings under its Warehouse Facility. These
borrowings are in turn repaid with the proceeds received by the Company from
selling such loans either through whole loan sales or bulk sales. Any failure to
renew or obtain adequate funding under this Warehouse Facility, or other
borrowings, or any substantial reduction in the size of or pricing in the
markets for the Company's loans, could have a material adverse effect on the
Company's
6
operations. To the extent that the Company is not successful in maintaining or
replacing its Warehouse Facility, it would have to curtail its loan production
activities or sell loans earlier than is optimal, thereby having a material
adverse effect on the Company's results of operations and financial conditions.
The Company will need additional capital to satisfy future capital requirements,
and to date management has no specific plans with respect to debt or equity
financings. There can be no assurance that the Company will be able to raise
needed capital on terms favorable to the Company, if at all. If the Company is
unable to secure sufficient capital in the future, its ability to pursue its
business strategy and result of operations for future periods may be impaired.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
RELATIONSHIP WITH HEART LABS
In November 1995, Heart Labs purchased 1,298,388 shares of Common Stock
in exchange for $1,210,000 cash and cash equivalents, and the issuance of
200,000 shares of Heart Labs series B convertible preferred stock with a stated
value $10 per share. The stock purchase agreement provides that Heart Labs
ownership position, equal to 49% of the shares of Company Common Stock actually
outstanding, shall not be diluted below 49%, with additional shares to be issued
to Heart Labs to maintain such ownership position. In May 1996, an additional
154,404 shares of Common Stock were issued to Heart Labs to maintain such
percentage ownership. As additional shares of the Company Common Stock are
issued and shares underlying currently exercisable Warrants and Options and
convertible Preferred Stock are issued, additional adjustments will be required
to be effected. Subsequent to such investment, Heart Labs has loaned the Company
a total of $2,293,000 through June 4, 1996, which amounts bear interest at the
rate 10% per annum and are evidenced by one-year notes. In March 1996, Heart
Labs and the Company agreed to convert $700,000 of indebtedness into 200,000
shares of series C preferred stock with a stated value of $3.50 per share. The
Company is dependant upon Heart Labs in order to satisfy certain debt
obligations and working capital needs for the remainder of fiscal 1996. The
failure of Heart Labs to assist the Company in satisfying its financial needs
may have a material adverse impact upon the financial condition of the Company.
See "Management - Certain Transactions."
ECONOMIC CONDITIONS
GENERAL
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support borrowings
and increases the loan-to-value ratios of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on borrowers who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources, the actual rates of delinquencies,
foreclosures and losses on such loans could be higher under adverse economic
conditions than those currently experienced in the mortgage lending industry in
general. Any sustained period of such increased delinquencies, foreclosures or
losses could adversely affect the pricing of the Company's loan sales. While the
Company believes the underwriting criteria and collection methods it employs
enable it to mitigate the higher risks inherent in loans made to these
borrowers, no assurance can be given that such criteria or methods will afford
adequate protection against such risks.
The success of Company's business is predicated upon the use of its
services in connection with the purchase or refinancing of residential real
estate. In 1994, the mortgage industry experienced a sluggish market. In
addition, the mortgage origination market and real estate market are often
adversely effected, usually on a short-term basis, by unusual climatic events in
any single geographic area such as
7
hurricanes, earthquakes and tornadoes. The happening of such events or
recurrence of such events in a particular area may increase the rates for
mortgage and homeowners insurance causing a decline in the number of home
purchasers and mortgage borrowers. Since 1994, the Company has undertaken a
geographic expansion to avoid concentration in any single geographic location.
EFFECT OF FLUCTUATING INTEREST RATES
Fluctuations in interest rates and increases and decreases of the prime
rate may directly impact the mortgage market and the ability of the Company to
attract "A" or "B/C" or other classes of mortgage loans. If interest rates
should rise, the number of applications for new mortgages may fall. Management
believes that the "B/C" mortgage market is not as particularly interest-rate
sensitive as is the "A" mortgage market. The "A" mortgage market is primarily
composed of borrowers who are interest-rate-driven with a use of the mortgage
loan as part of an investment strategy; that is, "A" mortgage borrowers
refinance current mortgages for ones with lower interest rates and terms. As
interest rates increase, such refinancing diminishes and the number of loan
applications in that "A" market decreases. The "B/C" market is primarily
composed of borrowers who are payment-driven with a use of the mortgage loan as
a source of equity. Often a common goal of the "B/C" borrower is to leverage
available equity for immediate use, and a despite increases in interest rates,
the "B/C" borrower focuses primarily on the monthly payment. Thus, the decrease
in loan applications in the "B/C" market which may occur when interest rates
increase, is typically not as significant as in the "A" mortgage market.
However, there can be no assurances that interest rates will not rise and
negatively impact the Company's financial position.
B/C MORTGAGE MARKET
The Company has diversified its mortgage banking strategy to include
lending to additional categories of loans, such as the "B/C" mortgage market, a
nationally growing segment of the mortgage industry. The "B/C" mortgage market
serves borrowers whose credit history or amount of debt increases the risk
associated with mortgage loans and puts such loans outside the guidelines
established by Fannie Mae and Freddie Mac. Thus, the "B/C" mortgage loans cannot
be resold to those institutions and the Company must locate buyers outside that
established market. The Company's strategy in reducing its risk associated with
funding "B/C" loans is to obtain commitments from outside investors for the
resale to them of such "B/C" loan mortgages before the Company funds such
mortgages. The "B/C" mortgage loan is particularly dependent on the accuracy of
the appraisal of the underlying property because of the higher risk of lack of
repayment and the consequent mortgage originator's increased reliance on such
underlying mortgage assets. Because of such risk in funding, "B/C" mortgages
require the borrower to place a larger down payment on the purchased property
which permits a higher-debt-to-income ratio. In addition, because of the
inherent risks, the "B/C" loan originator charges greater loan origination fees
and mortgage rates generating a higher yield than those of the "A" mortgage
market. Consequently, the profit margins that can be realized by the Company on
the resale of such "B/C" loans is greater than those realizable from the "A"
loan mortgage market. There is no assurance that the Company will be able to
continue to achieve a higher profit margin from the resale of its loans or will
be able to continue to locate buyers from such "B/C" loan packages.
Occasionally, as part of such resale of the mortgages, the Company issues
certain representations to repurchase defective loans, but only as to defective
loans arising from an incidence of fraud. While there can be no assurance that
the Company will not be required to repurchase a significant amount of such
loans, this has not traditionally been a serious consideration for the Company.
In fiscal 1994, the Company paid a total of $103,000 for repurchased defective
loans or .0664% of its total loan originations. In fiscal 1995, the Company paid
a total of $480,000 for repurchased defective loans, or .3038% of its total loan
originations, which amount related to loans originated prior to the purchase of
Westmark Mortgage by the Company.
CONTINGENT RISKS
8
Although the Company sells substantially all loans which it originates
and purchases on a nonrecourse basis, the Company retains some degree of risk on
substantially all loans sold. During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers.
In the ordinary course of its business, the Company is subject to
claims made against it by borrowers and private investors arising from, among
other things, losses that are claimed to have been incurred as a result of
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions of employees, officers and agents of the Company (including its
appraisers), incomplete documentation and failures by the Company to comply with
various laws and regulations applicable to its business. The Company believes
that liability with respect to any currently asserted claims or legal actions is
not likely to be material to the Company's consolidated results of operation or
financial condition; however, any claims asserted in the future may result in
legal expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends, in part, upon a number of key managerial
personnel and employees, including Norman Birmingham and Mark Schaftlein, the
loss of whom could adversely affect the Company. The Company believes that its
future success depends in part on its ability to continue to attract and retain
highly skilled employees. The Company has entered into employment agreements
with Messrs. Birmingham and Schaftlein, but does not maintain life insurance
policies on these officers. See "Management - Executive Officers and Directors."
REGULATORY COMPLIANCE
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
The Company's domestic business is subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities
and is subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on part or all of its operations. The
Company is subject to the rules and regulations of, and examinations by HUD and
state regulatory authorities with respect to originating, processing,
underwriting and selling loans. These rules and regulations, among other things,
impose licensing obligations on the Company, establish eligibility criteria for
mortgage loans, prohibit discrimination, provide for inspections and appraisals
of properties, require credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to demands for
indemnifications or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
9
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive.
COMPETITION
As a marketer of mortgage loans, the Company faces intense competition,
primarily from mortgage banking companies, commercial banks, credit unions,
thrift institutions, and finance companies. Many of these competitors are
substantially larger and have more capital and other resources than the Company.
Competition can take many forms, including convenience in obtaining a loan,
customer service, marketing and distribution channels and interest rates.
Furthermore, the current level of gains realized by the Company and its
competitors on the sale of the type of loans they originate and purchase is
attracting additional competitors into this market with the possible effect of
lowering gains that may be realized on the Company's future loan sales.
Competition may be affected by fluctuations in interest rates and general
economic conditions. During periods of rising rates, competitors which have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit the Company's customers to refinance
their loans. During economic slowdowns or recessions, the Company's borrowers
may have new financial difficulties and may be receptive to offers by the
Company's competitors.
The Company depends largely on independent mortgage brokers and
financial institutions and other mortgage bankers for its originations and
purchases of new loans. The Company's competitors also seek to establish
relationships with the Company's independent mortgage brokers and financial
institutions and other mortgage bankers, none of whom is obligated by contract
or otherwise to continue to do business with the Company. In addition, the
Company expects the volume of wholesale loans purchased by the Company to
increase and the relative proportion of wholesale loans to total loans
originated and purchased by the Company to expand. The Company's future results
may become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other purchasers of such loans, market
conditions and other factors.
NASDAQ LISTING AND PUBLIC MARKET
The Company Common Stock is currently listed for quotation on the
Nasdaq SmallCap Market. The trading market for the Common Stock is sporadic,
limited and highly volatile. In order for the Common Stock to be eligible for
continued listing on the Nasdaq SmallCap Market, the Company must (i) have total
assets of at least $2 million, (ii) total capital and surplus of at least $1
million, and (iii) maintain a minimum bid price of $1.00 or, if the minimum bid
price is less than $1.00, the Company must maintain capital and surplus of $2
million and a market value of the public float of its securities of not less
than $1 million. If the Company becomes unable to satisfy the requirements for
continued quotation on the Nasdaq SmallCap Market, trading, if any, in the
securities listed thereon would be conducted in the over-the-counter market of
the National Quotation Bureau, Inc., or on the OTC Electronic Bulletin Board.
There can be no assurance that any trading market will continue to exist for the
Common Stock. See "Price Range of Common Stock and Dividend Policy."
POSSIBLE VOLATILITY OF STOCK PRICE; SHARES ELIGIBLE FOR SALE
The market price of the Common Stock may experience fluctuations that
are unrelated to the operating performance of the Company. In particular, the
price of the Common Stock may be affected by general market price movements as
well as developments specifically related to the consumer finance industry such
as, among other things, interest rate movements. In addition, the Company's
revenues on a quarterly basis is significantly dependent upon the successful
completion of the Company's loan sales in the market, and the inability of the
Company to complete significant loan sale transactions in a particular
10
quarter may have a material adverse impact on the Company's results of
operations for that quarter and could, therefore, negatively impact the price of
the Common Stock. Except for the 1,298,388 shares owned by Heart Labs,
substantially all of the Company shares of Common Stock will be immediately
freely tradeable in the public market pursuant to Rule 144, resales pursuant to
this Prospectus or otherwise, and to the extent that these or other additional
shares of Common Stock enter the public market, the trading price and value of
the previously outstanding Common Stock may be reduced and holders of such
Common Stock may find it increasingly difficult to sell the shares held by them
at a price satisfactory to them, if at all.
SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED PREFERRED STOCK; POSSIBLE
ANTI-TAKEOVER EFFECT
The Board of Directors has total discretion in the issuance and the
determination of the rights and privileges of any shares of preferred stock
which may be issued in the future, which rights and privileges may be
detrimental to the holders of the Common Stock of the Company. The Board of
Directors could issue shares of preferred stock with such rights and preferences
that could discourage attempts by others to obtain control of the Company
through merger, tender offer, proxy contest or otherwise by making such attempts
more difficult to achieve or more costly. The Company is authorized to issue 10
million shares of its preferred stock, and only 418,750 shares of which are
presently issued and outstanding. Additionally, the Board of Directors has been
authorized to issue up to 50 million shares of Common Stock, of which only
2,659,478 shares are issued and outstanding as of the date of this Prospectus.
See "Description of Capital Stock." In November 1995, Heart Labs purchased 49%
of the Company Common Stock, which purchase agreement afforded Heart Labs
anti-dilution protection that requires the Company to issue additional shares of
Common Stock to Heart Labs to maintain such 49% ownership interest. This
arrangement discourages attempts by others to obtain control of the Company. See
"Management Certain Transactions."
NECESSITY FOR CONTINUING REGISTRATION
The resale of the registered shares hereby, as well as the resale of
the shares issuable upon exercise of the Warrants, Options and Preferred Stock
registered hereby, can be publicly sold only pursuant to an effective
registration statement and a current Prospectus under the Act. There is no
assurance that the Company will be able to keep the registration statement of
which this Prospectus is a part current or pay the legal and related costs of
doing so. In addition, it is a condition to the Company's ability to issue
free-trading shares of Common Stock upon such resale that such securities remain
qualified for resale under the securities laws of the states in which holders of
such securities reside, and there is no assurance that such securities will
remain so qualified. If a holder moves, or subsequent purchaser resides, in a
jurisdiction in which the Company has not registered the transactions set forth
in this Prospectus, the benefits of this Prospectus may not be available. If the
Prospectus ceases to be current with respect to such securities, the Company may
be precluded from issuing free-trading shares of Common Stock upon resale.
11
USE OF PROCEEDS
Assuming exercise of all the Warrants and Options, the Company will
receive aggregate proceeds of approximately $2,248,865 ($870,536 from the
Options and $1,378,329 from the Warrants), prior to deducting estimated offering
expenses of approximately $200,000. The Company will use these proceeds for
working capital and will have broad discretion in the application of such
proceeds. As there are no commitments from the holders of the Warrants and
Options to exercise such securities, there can be no assurance that the Warrants
and Options will be exercised. The Company will receive no proceeds from the
resale of shares by the Selling Stockholders or upon conversion of the Preferred
Stock. The Company will issue 245,334 shares of Common Stock to fund debt
settlements and the Company has registered under the Act the issuance of up to
250,000 additional shares to (i) cover any short-fall in funding these debt
settlements and (ii) fund any outstanding debt obligations or negotiated
settlements. The Company will not receive any cash proceeds from the issuance of
these shares. See "Plan of Distribution and Selling Stockholders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the Nasdaq SmallCap Market
under the symbol "WGHI." The following table sets forth the high and low last
sales prices of the Common Stock for the periods indicated:
PRICE RANGE
---------------------
FISCAL YEAR HIGH LOW
---- ---
1994
First Quarter........................... $36.60 $26.40
Second Quarter ......................... 30.00 12.30
Third Quarter........................... 18.90 12.30
Fourth Quarter.......................... 18.90 11.40
1995
First Quarter........................... $11.40 $3.60
Second Quarter.......................... 8.40 3.60
Third Quarter........................... 8.50 5.40
Fourth Quarter.......................... 6.50 1.62
1996
First Quarter.......................... $3.23 $2.13
On May 30, 1996, the last sales price for the Common Stock was $1.75,
and the Company believes there were approximately 3,200 beneficial owners of its
Common Stock.
The Company has not paid, and the Company does not currently intend to
pay, cash dividends on its Common Stock. The current policy of the Company's
Board of Directors is to retain earnings, if any, to provide funds for operation
and expansion of the Company's business. Such policy will be reviewed by the
Board of Directors of the Company from time to time in light of, among other
things, the Company's earnings and financial position.
12
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1996. This table should be read in conjunction with the Company's
financial statements and notes thereto that are included elsewhere in this
Prospectus.
MARCH 31, 1996
--------------
Liabilities:
Current Liabilities.................... $9,839,860
Long-Term Debt, Less
Current Portions..................... 1,698,323
Stockholders' equity:
Preferred stock (1)(2)................. 700,000
Common stock (3)(4).................... 22,475,937
Additional Paid-In Capital............. 1,153,688
Accumulated deficit.................... (23,003,727)
Total stockholders' equity............. 1,325,898
------------
Total capitalization........................ $ 12,864,081
============
- -----------
(1) Consists of 200,000 shares of series C preferred stock issued to Heart
Labs effective March 29, 1996. See "Description of Capital Stock -
Preferred Stock."
(2) Does not include the 418,750 shares of Preferred Stock issued in April
1996. See "Description of Capital Stock - Preferred Stock."
(3) Does not include 311,706 shares of Common Stock issued subsequent to
March 31, 1996.
(4) Does not include (i) 331,905 shares issuable upon exercise of
outstanding Options, (ii) 666,666 shares issuable upon exercise of the
Warrants, and (iii) 708,690 shares issuable upon conversion of
outstanding shares of Preferred Stock. See "Management -- Stock
Options," "Description of Capital Stock - Warrants," and "-Preferred
Stock."
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying Notes to the
Consolidated Financial Statements.
GENERAL
The Company is a mortgage banking company engaged in the business of
originating, purchasing and selling mortgage loans secured primarily by
one-to-four family residences. The Company primarily generates income from (i)
gains recognized from premiums on loans sold through whole loan sales to
institutional purchasers, (ii) investment income earned on loans held for sale,
and (iii) origination fees and related revenue received as part of loan
closings. Gain on sale of loans, which represents the sales price in excess of
loan acquisition and related costs from whole loan sales, constituted 50% and
19% of total revenues in 1995 and 1994, respectively, and 68% of the total
revenues for the three months ended March 31, 1996. Investment income earned on
loans held for sale constituted 30% and 19% of total revenues in 1995 and 1994,
respectively, and 23% of the total revenues for the three months ended March 31,
1996. Loan origination fees and related revenue represented 18% and 30% of total
revenues in 1995 and 1994, respectively, and 9% of the total revenues for the
three months ended March 31, 1996. In 1994, loan service fees accounted for 28%
of total revenues.
The Company currently has purchase agreements with BancBoston Mortgage
Corporation, Countrywide Funding Corporation, Household Financial Services,
Imperial Credit Industries, Industry Mortgage Company, Life Savings Bank, The
Money Store, Fannie Mae, Freddie Mac, HUD, Ginnie Mae and various non-conforming
mortgage conduits, whereby the Company originates and sells loans to them. The
Company sells virtually all of the loans it originates. These agreements are for
specific terms or are open ended, and require the loans to satisfy the
underwriting criteria described therein. During 1995 and 1994, the Company sold
loans totaling $158 million and $155 million, respectively. During the three
months ended March 31, 1996, the Company sold loans totalling approximately
$28.4. The Company does not service any of the loans it originates and sells all
loans primarily in whole loan sales. The gain on sale of loans was $1,544,559
and $556,436 in 1995 and 1994, respectively, and $667,620 during the three
months ended March 31, 1996.
Loans held for sale were comprised of 78% "A" (conforming) loans and
22% "B/C" (non-conforming) loans at December 31, 1995 and 55% "A" loans and 45%
"B/C" loans at March 31, 1996. At December 31, 1994, loans held for sale
consisted entirely of "A" loans. When the Company commits to fund loans, the
parties agree upon an interest rate. Until the Company obtains a commitment to
sell the loan to an investor, the Company is subject to interest-rate
fluctuations. Typically, the Company obtains commitments for the sale of "A"
loans to investors concurrently with making such loan commitment to the
borrower. In connection with commitments on "B/C" loans, typically such
commitment to sell the loan to an investor occurs at a later date. In order to
mitigate interest-rate fluctuations, the Company's strategy in committing to
make "B/C" loans is subject to satisfying guidelines generally established by
the ultimate investor along with a forward commitment to purchase for 30 days.
Investment income earned on loans held for sale is derived primarily
from interest payments on loans in inventory. Certain fixed rate "B/C" loans
generally carry a note rate in excess of the cost to borrow. This results in a
positive revenue differential between cost to borrow (at the time the loan
funds) and the loan sale. Management's strategy is to sell those loans in whole
loan sales and in bulk sales as quickly as practicable in order to optimize cash
flow from the sale of the loans. In addition, the Company realizes revenue from
loan origination fees and certain loan discount fees.
14
In September of 1994, the Company sold its loan servicing portfolio to
Crown Bank. Subsequent to the sale, the Company has not serviced any mortgages.
In connection with the 1994 sale to Crown Bank, the Company recognized a $14,781
loss on the sale of such servicing rights. See "--Results of Operations" for a
discussion of certain expense items in connection with the Crown Bank sale.
SIGNIFICANT ACCOUNTING POLICIES
Mortgage loans are originated to be sold to investors and are reported
at the lower of cost or market. Loans covered by commitments are valued as
specified in the commitment. Loans not covered by commitments are valued at
market, as determined by reference to the Company's normal market outlets. Loan
origination fees and certain direct costs are deferred and reflected in
operations when the underlying loan is sold. Investment income on loans held for
sale is recognized as earned.
INVESTMENT IN REAL ESTATE AND PREFERRED STOCK
In July 1995, the Company settled certain pending litigation arising
out of a claim by Dolan Development Partners, Ltd. and related parties ("Dolan")
that the Company defaulted on certain promissory notes. The settlement reduced
the amount of principal and interest payable by the Company to Dolan pursuant to
two promissory notes from $1.5 million to approximately $1 million. The Company
owns a 50% interest in the property securing the payment of the notes and Dolan,
the payee, owns the remaining 50% undivided interest in the property. The
Company's interest in this real estate at December 31, 1995 is valued at
$2,115,000. The balance on the note payable to Dolan, secured by such property,
was $1 million as of December 31, 1995. This notes bears interest at the rate of
9.75% per annum and matures, with principal payable in one lump sum, on June 1,
1998. The modifications of the amount owed to Dolan resulted in a pre-tax gain
of extinguishment of debt of $450,000 in 1995.
In November 1995, Heart Labs purchased 1,298,388 shares of Company
Common Stock in exchange for, among other considerations, the issuance of
200,000 shares of Heart Labs Series B Convertible Preferred Stock with a stated
value of $10 per share, representing a $2 million investment at December 31,
1995.
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995
On a consolidated basis, total revenues increased to $991,392 in the
quarter ended March 31, 1996 ("1996 First Quarter") from $671,719 in the quarter
ended March 31, 1995 ("1995 First Quarter"), an increase of 48%. The increase is
a result of greater profit margins on the bulk sale of B/C paper along with the
flow sales on "A" paper. This increase in revenue is a combination of the
increased marketing efforts in the B/C loan area along with investor commitments
to buy bulk loan packages.
Expenses for the 1996 First Quarter decreased 29% to $1,266,698 from
$1,792,840 for the 1995 First Quarter, primarily due to a decrease in general
and administrative costs. Loan origination costs decreased 2% to $373,224 for
the 1996 First Quarter from $381,090 in the 1995 First Quarter. General and
administrative expenses decreased 31% to $916,090 in the 1996 First Quarter from
$1,324,547 for the 1995 First Quarter, the result of management's cost
containment strategy. Marketing and advertisement expense decreased 64% to
$22,656 in the 1996 First Quarter from $62,474 for the 1995 First Quarter, the
result of the cost containment strategy.
The Company incurred a net loss for the 1996 First Quarter of $275,306
or $0.10 per share as compared to a net loss of $1,121,121 or $1.80 per share
for the 1995 First Quarter. This decreased loss
15
is due to significant cost cutting efforts by management in areas of general and
administrative and increased operating margins on sale of loans.
FISCAL 1995 COMPARED TO FISCAL 1994
Total revenues increased 5% to $3,081,900 in 1995 from $2,937,646 in
1994. This was primarily due to a combined increase in gain on sale of loans and
investment income, both of which offset the lack of loan servicing fees in 1995
due to management's decision to sell its servicing portfolio in 1994.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 277% to $1,544,559 from $556,439 in 1994. This increase
was due as a result of management's decision to originate and sell "B/C" loans
along with increased premiums on "A" whole loan sales. Management intends to
continue to originate and sell "B/C" loans as part of its overall strategy. The
volume of "B/C" loans sold during 1995 was approximately $25 million compared to
$0 in 1994.
Loan origination fees decreased 39% to $544,386 in 1995 from $883,399
in 1994. This decrease is primarily due to originating fewer government-backed
loans, resulting in less loan origination fees. Traditionally, conforming "A"
and non-conforming "B/C" loans, at the wholesale level, do not contain loan
origination fees. Management has adjusted the loan origination pricing structure
to provide for an increase in per loan origination fees on non-conforming "B/C"
product. Initially, this change could reduce the cash requirements at the time
of loan funding, thereby possibly reducing gain on sale of these loans; however,
management's goal is to increase the volume of loans, creating larger pools of
loans to sell to investors, which should allow the Company to maintain its
current premium rate on ultimate gain on sale of loans.
Investment income, comprised primarily of interest earned on loans held
for sale, increased 62% to $938,657 in 1995 from $581,066 in 1994. This increase
is due primarily to a larger principal amount of mortgage loans held for sale in
1995 compared with 1994.
Total expenses increased 49% to $10,569,960 from $6,994,012 for the
periods ended December 31, 1995 and 1994, respectively. This increase is
primarily due to (i) an increase in interest expense, (ii) an increase in
general and administrative expense, (iii) a $225,000 loss in an investment
relating to the failed acquisition of Greentree, (iv) a $480,000 repurchase loss
and $179,663 write down with respect to the sale of the Company's servicing
portfolio to Crown Bank, and (v) a $1,099,000 non-cash, non-recurring expense
consisting of equity-related incentives ("cheap stock expense") incurred in 1995
financial transactions.
Direct loan fee expenses increased 48% to $187,309 in 1995 from
$123,182 in 1994, due primarily to the Company's increased volume of whole loan
sales in 1995.
Interest expense increased 86% to $1,223,875 in 1995 from $657,025 in
1994, due primarily to the increased volume of whole loan sales and the
borrowing cost associated with the Company's Warehouse Facility.
General and administrative expense increased 27% to $6,775,395 in 1995
from $5,337,097 in 1994, due primarily to (i) the hiring of additional personnel
necessary in order to initiate the origination and sale of "B/C" loans, (ii)
cheap stock expenses associated with below market equity issuances to
consultants and employees, and (iii) other increased operating expenses,
including facilities and equipment. Management has adopted a cost containment
strategy to reduce salary and related expenses in 1996. In March 1996, the
Company consolidated its operations to Delray Beach, Florida. In connection with
this consolidation, the Company sublet excess rental space in Costa Mesa,
California and in Hawaii and negotiated the termination of its San Jose,
California lease. This reduction of space also resulted in the reduction of
employees.
16
In July 1995, the Company entered into a letter of intent to acquire
certain assets of Greentree. The aggregate purchase price was $1,575,000 payable
in installments with the remaining unpaid purchase price payable from the
proceeds of the Company's proposed offering of convertible debentures. The
Company paid $100,000 cash and issued 16,667 shares of its Common Stock valued
at $125,000 in anticipation of the acquisition. In November 1995, the Company
abandoned the proposed convertible debenture offering and terminated the
Greentree acquisition. The Company's $225,000 investment in Greentree was
charged to expense in 1995. The acquisition agreement provided for Greentree to
retain all sums previously paid and required the Company to register the resale
of the 16,667 shares of Company Common Stock. The Company failed to register the
resale of such shares, providing Greentree with the option of retaining such
shares or demanding an additional $125,000 payment. The parties agreed to settle
the $125,000 obligation for $35,000, payable through the issuance of shares
which, when sold by Greentree, will net $35,000, and a three-year warrant to
purchase 150,000 shares of Company Common Stock at $2.62 a share.
In connection with the Company's September 1994 sale of its entire
mortgage servicing portfolio to Crown Bank, the Company established two reserve
accounts, one with FHLMC in the amount of $480,000 as a repurchase reserve and
the other with Crown Bank in the amount of $360,000 as a performance reserve.
Due to delinquencies in the servicing portfolio sold to Crown Bank, the terms of
the $480,000 repurchase reserve provided that such funds were to be paid to
Freddie Mac in 1995, and that $179,663 of the performance reserve was paid to
Crown Bank in 1995 which amount was reserved in 1994. It is likely that the
balance of this performance reserve will be paid to Crown Bank in 1996, and such
amount was reserved in 1995.
Depreciation and amortization expenses decreased to $194,543 in 1995
from $486,739 in 1994, primarily due to 1994 one-time charges to operations from
(i) expenses associated with purchased mortgage servicing rights of $186,000,
and (ii) Florida office start up expenses of $130,000.
Net loss increased to $7,038,060 in 1995 from $3,118,953 in 1994,
resulting in a net loss per share of $6.50 in 1995 compared with $6.28 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash flow from whole loan sales, loan origination
fees, net interest income and borrowings under its Warehouse Facility to meet
its working capital needs. The Company's cash requirements include the funding
of loan originations, purchases, payment of interest expenses, operating
expenses, taxes and capital expenditures.
On December 31, 1995, the Company had a working capital deficit of
$2,044,258, total stockholders equity of $1,591,204, and its debt-to-equity
ratio was 15 to 1. On March 31, 1996, the Company had a working capital deficit
of $2,230,725, total stockholders equity of $1,325,898, and its debt-to-equity
ratio was approximately 9 to 1. Net cash used by operating activities was
$16,665,858 for 1995 and net cash provided by operating activities was
$17,346,602 in 1994. The reason for the significant change is that the Company
increased the amount of mortgage loans held for sale by approximately $14
million in 1995, versus a decrease in mortgage loans of approximately $20
million in 1994, which substantially equates to the difference in the amount of
cash used in 1995 and provided in 1994 by operating activities. The use of
operating cash is offset by funds provided by the Warehouse Facility. Net cash
provided by financing activities was $16,971,281 in 1995 compared with net cash
used in financing activities of $18,378,329 in 1994, which relates to the amount
outstanding pursuant to the Warehouse Facility at the respective year ends. Net
cash used in investing activities was $101,080 in 1995 compared with $1,062,690
of net cash provided by investing activities in 1994, primarily due to the
proceeds received in 1994 from the sale of the mortgage servicing portfolio to
Crown Bank, and liquidation of certain properties received in loan foreclosures.
Net cash provided by operating activities was $11,056,878 for the 1996 First
Quarter and
17
net cash used by operating activities was $6,335,986 for the 1995 First Quarter.
The reason for this significant change is volume on the line of credit. Net cash
used in operations before working capital changes in the 1996 First Quarter and
1995 First Quarter was $226,765 and $691,963, respectively, which decrease was
primarily due to a decrease in losses from operations. Net cash used by
financing activities was $11,104,847 in the 1996 First Quarter compared to net
cash provided by financing activities of $6,264,784 in the 1995 First Quarter,
which relates to the amount outstanding pursuant to the Warehouse Facility at
the respective period ends. Net cash used in investing activities was $0 in the
1996 First Quarter compared to $14,704 of net cash used by investing activities
in the 1995 First Quarter.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans, are essential to the continuation of the
Company's ability to originate and purchase loans. The Company borrows funds on
a short term basis to support the accumulation of loans prior to sale. These
short-term borrowings are made under the Warehouse Facility with Princap
Mortgage, Inc. Pursuant to the Warehouse Facility, the Company has available a
secured revolving credit line of $15 million to finance the Company's
origination or purchase of loans, pending sale to investors. The line of credit,
pursuant to the Warehouse Facility, has collateral of the assignment and pledge
of eligible mortgage loans, bears interest at an annual rate of 2% above prime,
payable at the time of purchase by the permanent investor. This arrangement
allows the Company to utilize interest received from the borrower during the
period prior to the sale of the loan. The Warehouse Facility provides for a
transaction charge of $140 per loan and requires the Company to possess a
minimum net worth of $250,000 and a compensating cash balance on deposit in the
amount of $5,000. At March 31, 1996, the balance outstanding, pursuant to this
Warehouse Facility, totalled $7,057,297. The Company does not have any other
external lines of credit for financing.
From December 31, 1994 through November 22, 1995, the Company had a
warehouse agreement with Lomas Mortgage USA, Inc. ("Lomas") in the amount of $15
million. In August 1995, Lomas gave notice of the termination of its commitment
with the Company and subsequently declared bankruptcy under Chapter 11 of the
United States Bankruptcy Code. Prior to filing for protection, Lomas notified
the Company of its assignment of its repurchase agreement with the Company to
PSB. Shortly thereafter, the Company obtained its current Warehouse Facility. At
December 31, 1995, the outstanding balance on the line of credit with PSB was
$3,333,763, which line was closed in the first quarter of 1996 when all
remaining loans, that collateralized this line of credit, were sold.
Historically, the Company has obtained financing through the issuance
of its Common Stock and borrowings on a negotiated basis. During the 1996 First
Quarter, the Company issued a total of 5,000 shares for services rendered and
converted $700,000 of indebtedness owed to Heart Labs into 200,000 shares of
series C preferred stock with a stated value of $3.50 per share. During 1995,
the Company issued 1,958,167 shares of Common Stock for cash and for other
consideration as follows: (i) 1,298,388 of Company Common Stock was issued for
$1,210,000 of cash and Heart Labs preferred stock; (ii) an aggregate of 338,000
shares of Common Stock were issued in private placements grossing approximately
$875,000; and (iii) 322,167 shares of Common Stock were issued for general
corporate purposes and for services rendered. In May and June 1995, the Company
raised $600,000 cash through the issuance of convertible promissory notes in the
principal amount of $600,000 and warrants entitling holders to purchase the
securities contemplated to have been issued in the failed 1995 convertible
debenture offering ("Bridge Financing"). In April 1996, the Company and all
these investors agreed to restructure the investment and the Company paid such
investors an aggregate amount of $600,000 and issued such investors 300,000
shares of Series B Preferred Stock with a stated value of $600,000. See
"Description of Capital Stock - Preferred Stock" for a description of the Series
B Preferred Stock.
In addition, Heart Labs advanced the Company an aggregate amount of
$790,000 during the 1996 First Quarter (of which $700,000 was converted into
200,000 shares of series C preferred stock with a stated value of $3.50 per
share) and $1,503,000 in the second quarter of 1996, primarily to fund
18
outstanding obligations and working capital needs. The Company is dependant on
Heart Labs in order to satisfy certain debt obligations and working capital
needs for the remainder of fiscal 1996. During 1996, the Company reached
agreements to settle $848,095 of outstanding indebtedness through cash payments
and the issuance of Common Stock. Approximately $625,571 of debt is to be
discharged through the issuance of Common Stock, to be sold quarterly in the
following amounts; (i) 14,750 shares in the second quarter of 1996, (ii) 142,850
shares in the third quarter of 1996, (iii) 104,900 shares in the fourth quarter
1996, (iv) 20,100 shares in the first quarter 1997, and (v) 6,000 shares in the
second quarter 1997. In the event that the sale of shares is insufficient to
reach $591,000, the Company is obligated to issue additional shares in order to
net the required cash payments, and the Company has registered under the Act an
additional 100,000 shares to be issued in order to net any remaining balance.
The creditors are obligated to return any excess shares which are not required
to be sold once they have received their full payment. In connection with the
debt settlements, the Company is required to effect cash payments of $201,442 as
follows: (i) $20,885 in the first quarter of 1996, (ii) $90,886 in the second
quarter of 1996, (iii) $59,986 in the third quarter of 1996, and (iv) $47,685 in
the fourth quarter of 1996. The Company is issuing an additional 5,334 shares of
Common Stock to settle certain claims with a third party. The Company's goal is
to reach an accommodation with Saxon Mortgage to settle a $419,348 liability in
1996. In addition, in April 1996, $165,000 indebtedness was converted into
138,656 shares of Common Stock. The Company's internally generated cash flows
from operations has historically been and continues to be insufficient for its
cash needs. It is expected that internal sources of liquidity will improve
during 1996. However, until such time as the Company achieves positive cash flow
before working capital changes, the Company will continue to rely on external
sources for liquidity. The Company has not established any other lines of credit
or other similar financial arrangements with any lenders, and it continues to
rely on Heart Labs for assistance to meet immediate working capital needs. If it
appears at any time in the future that the Company is again approaching a
condition of cash deficiency, the Company will be required to seek additional
debt or equity financing or bring cash flow in balance. Management does not
anticipate the need for any such action and, therefore, has no specific plans or
commitments with respect thereto for the Company. However, if such action was
required, there is no assurance that the Company will be successful in any such
effort.
INFLATION
Although the Company believes that inflation has not had any material
effect on operating results, it cannot be assured that its business will not be
affected by inflation in the future.
19
BUSINESS
The Company is a mortgage banking company that, through its
wholly-owned subsidiary Westmark Mortgage, is engaged in the business of
originating, purchasing and selling mortgage loans secured primarily by single
family, multi-family and condominium residences. Westmark Mortgage is registered
and/or licensed to originate, purchase closed loans, underwrite, fund or sell
residential mortgage loans in the states of Alabama, Arizona, California,
Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky,
Mississippi, Missouri, Montana, Nevada, Ohio, Oregon, Utah, Washington, and
Wyoming. The Company pools and sells loans to third-party investors including
Fannie Mae, Freddie Mac, HUD, its lending agency Ginnie Mae, and various
non-conforming mortgage conduits.
BUSINESS STRATEGY
The Company has historically been a wholesale mortgage lender providing
a full range of mortgage lending services which include conventional,
governmental, jumbo (large loan amounts) and non-conforming ("B/C") home
mortgage loans. The majority of the Company's loans are made to owners of single
family, multi-family and condominium residences who use the loan proceeds for
purchasing new homes or refinancing existing home mortgages. Westmark provides
funds to approved mortgage brokers and correspondent lenders who originate the
mortgage for the consumer. Westmark closes and funds the loan through approved
correspondent mortgage lenders. Westmark solicits these brokers for business,
competing with other wholesale lenders.
Westmark provides products to its approved mortgage broker customers
related to home loans. In general, Westmark offers brokers products for their
clients who have credit from "A" (perfect and good credit) to "C" (below
average) and who desire conventional loans, government loans, conforming loans,
and non-conforming loans. All mortgage products are secured by the property the
borrower used as collateral for the mortgage.
Mortgage brokers submit loan packages to a Westmark representative for
review and approval. After the mortgage loan is closed, Westmark packages the
loans into groups and sells the loans to mortgage lending conduits. These
conduits include institutional investors as well as Fannie Mae, Freddie Mac and
the HUD. Westmark determines to whom it will sell the loans based on the
conduits price and service at the time the specific loans are sold. Westmark
does not retain the rights to service the mortgage loans it closes or loans
purchased from approved correspondent lenders.
PRODUCTION
Westmark's 1995 closed loan production was $158 million. Of this,
approximately $133 million was conforming conventional mortgage home loans
(otherwise referred to as "A" product) and approximately $25 million in
non-conforming mortgage home loans (otherwise referred to as "B/C" product).
Westmark's 1994 production was $155 million all in conforming conventional
mortgage home loans. Total loan dollar amount originated in 1995 reflected a 2%
increase over 1994. However, the total number of loans originated increased 30%
from 1,095 to 1,432 loans. The increase resulted primarily from B/C production.
Of the total production, approximately 91% was originated from Florida and
California. The 1995 average loan amount for conforming "A" production was
$114,272 compared to $141,701 for 1994. The 1995 average loan amount for
non-conforming "B/C" production was $92,551. Westmark expects these average 1995
amounts to be similar in 1996.
Management's strategy is to expand its geographical production to
additional states, while intensifying sales efforts in its home state of
Florida. Management's strategy is to expand both the "A" and "B/C" business in
California, Florida, Georgia, Hawaii, Missouri, Oregon, Washington, and
developing
20
new markets by utilizing Westmark's inside sales representatives. Recently,
Westmark has hired an experienced regional manager for Southern California and
five account executives in Florida, focusing on the "B/C" business. In addition,
Westmark has hired a new Southeast regional sales manager, and two of Westmark's
inside sales managers have been promoted to outside sales positions. Westmark's
goal is to build upon its existing sales force every sixty to ninety days with
growth into the states where it is currently licensed or approved to conduct
business.
"B/C" MORTGAGES
In January 1995, the Company began marketing its non-conforming ("B/C")
mortgage loan products. These mortgages are available for borrowers with credit
histories that fall below the guidelines of conforming "A" mortgage loans. The
Company believes that the "B/C" mortgage market is a growing segment of the
mortgage industry for two reasons: (i) because of the weaker credit ratings,
banks and savings and loans typically have not entered this arena; and (ii) the
secondary market for securities and selling "B/C" mortgages has become more
prevalent. As demand increases, Westmark believes it can take advantage of this
opportunity. Typically, these loans generate a greater gain on sale compared to
their conforming "A" loan counterparts. In 1995, "B/C" loans accounted for
approximately 15% of the Company's production as compared to 1994 when the
Company did not originate "B/C" loans. This percentage is expected to increase
in 1996 and management expects the "B/C" loans to account for a higher
percentage of the Company's 1996 revenue.
PIPELINE
The loan pipeline ("Pipeline") is the volume of loans ("A" and "B/C")
in the Company's system that have met all of the Company's preliminary
qualification criteria and are consequently eligible for funding. These loans
have been preapproved and are awaiting final review. Generally, between 65% to
70% of the loans in the Pipeline successfully pass the final review and are
funded. The majority of loans that fund will do so within 60 days from entrance
into the Pipeline. The Company had interest rate commitments on loans totaling
$1.6 million and $2.5 million at December 31, 1995 and 1994, respectively, and
$1.3 million at March 31, 1996. The total loan Pipeline at those dates was
$33,718,000, $24,482,000, and $32,947,560, respectively. It is impractical to
estimate market value of the portfolio at December 31, 1995, since its value is
dependent on interest rates, time of closing, turndown ratio, and other
variables which cannot be determined with any reasonable certainty at this time.
The loans generated by the Company can be sold on an individual loan
basis (flow) or sold in package form (bulk). A bulk package contains as little
as $500,000 in mortgage loans up to an unlimited amount. The Company can form
one package or several packages in any given month, depending on the best
execution (highest price). Loans sold on a flow (i.e., one at a time) can be
sold rapidly and loans sold in bulk generally require more time to assemble,
often 30 to 45 days from funding.
OPERATIONS
Westmark's operations are centralized in the Delray Beach office. In
January 1995, Westmark had two operation centers, one in Florida and one in
California. In 1996, Westmark centralized its operations to Florida, creating
more efficiency and lowering overhead. With this centralization, management
initiated a new program to create greater profits from the sale of loans.
Historically, closed loans have been sold one by one to institutional investors.
Westmark began to participate in the "bulk sale" loan process whereby loans are
packaged into a group and sold in one transaction. This results in expanded
revenue opportunities over typical loan by loan sales and has created greater
economies of scale in the operations delivery of closed loans.
MARKETING
21
Traditionally, Westmark has marketed its products and services through
field sales representatives ("account executives") who are responsible for
building relations with brokers in a geographical region. A typical account
executive visits prospective clients in a particular territory and reviews
specific loans. If the loan can be funded or purchased by Westmark, the account
executive obtains the mortgage documentation and provides this to the
underwriters.
In addition to field representatives, Westmark has an inside sales
group. These employees usually cover less densely populated states and
territories, utilizing telemarketing to prospect for Westmark business. If an
opportunity exists, the broker will send the loan application into the
operations division directly. Management believes this process is more cost
effective for sparsely populated areas.
Westmark also markets its products at national and regional industry
trade shows, utilizing a sales booth and sending representatives to meet new and
existing clients. This effort provides continued market recognition for the
Westmark account executives and inside sales representatives, as well as the
Company. Westmark obtains this information and inputs the data in its computers
for marketing use. These new contacts are distributed to the appropriate sales
representatives who make sales calls while at the same time the central
marketing department sends out marketing literature by mail or facsimile to
enhance market recognition of the Company and its products. This process assists
the sales representatives in developing new prospects.
COMPETITION
The Company competes against savings and loan associations, thrifts,
commercial banks, consumer finance companies and other mortgage bankers in the
origination of single-family, multi-family and condominium residential mortgage
loans. Even though some of the competition is large and operates on a nationwide
scope, management believes that no single firm controls more than 5% of this
market. Furthermore, management believes that mortgage bankers, in general,
control more than 55% of the national market. The Company competes on the basis
of quality of services along with the relationships established by the sales and
operations staff.
REGULATION
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and is
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. The Company is
subject to the rules and regulations of, and examinations by, HUD and state
regulatory authorities with respect to originating, processing, underwriting and
selling loans. These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investments and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to demands for
indemnifications or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
The Company believes that it is in compliance in all material respects
with applicable federal and state laws and regulations.
EMPLOYEES
As of March 29, 1996, the Company employed 10 full time administrative
employees and 35 full time production and operations employees. To date, the
Company has been able to recruit and retain
22
sufficient qualified personnel. None of the Company's employees are represented
by a labor union. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.
FACILITIES
The Company maintains its executive offices and a production branch at
355 N.E. Fifth Avenue, Suite #4, Delray Beach, Florida 33483. Suite 4 is
comprised of Units 2,3, and 4. This total space consists of 7,800 square feet
and is leased through April 30, 1998 at an average monthly net rental of $2,300
per month over the term of the lease, which lease amount is considered
consistent with the surrounding market rates. Suite 4 is in a building owned by
a consultant and former officer and director of the Company. In 1994, the
Company acquired from an unaffiliated third party ownership of Unit #7 (1,100
square feet) in the same complex which is occupied primarily by the loan
production department. In 1995, Unit 5 was acquired by the Company from an
unaffiliated third party for use by the operations staff, and the mortgage
payment is $2,807 per month until maturity in 1998. The Company also operates a
1,500 square foot satellite office in California, leased for a term of 84 months
at a monthly rate of $5,000.
The Company has also entered into an agreement to acquire Unit #1,
approximately 1,200 square feet, which is located in the same complex for
$150,000, which amount is believed to be consistent with the surrounding market
rates. To date, the Company has not closed on this building.
LEGAL PROCEEDINGS
The Company is a defendant in Robert J. Conover vs. Greentree Mortgage
Co., L.P. and Greentree Management Corporation (collectively, "Greentree"),
Westmark Group Holdings, Inc., Westmark Mortgage Corporation and Michael F.
Morrell, Superior Court of New Jersey, Chancery Division, Burlington County,
filed September 29, 1995. The plaintiff served as president and chief financial
officer of Greentree pursuant to an employment agreement between the plaintiff
and Greentree. Plaintiff was discharged from those positions in September 1995.
Plaintiff brought this action for compensatory damages based upon an alleged
breach of such employment agreement. Plaintiff seeks, among other things,
damages against Westmark and Mr. Morrell based upon an allegation of intentional
interference with contractual obligations and a third party beneficiary claim
with respect to the Company. Mr. Morrell is indemnified by the Company.
On October 27, 1995, the plaintiff sought a temporary restraining order
and preliminary injunction enjoining the Company from acquiring Greentree. Such
request was denied as the Court found that, among other things, the applicable
test requiring plaintiff to show a likelihood of success on the merits was not
met. The Company has terminated negotiations with Greentree. Greentree has
agreed to maintain a minimum net worth of $1,000,000. Management believes that
this obligation does not transfer in any way to the Company in connection with
its attempted purchase of certain assets of Greentree. Greentree disputes the
allegations of the complaint. The Company believes that there is no legal
justification for the joinder of the Company and Mr. Morrell as defendants in
the pending dispute between the plaintiff and Greentree, and intends to
vigorously defend this allegation.
In the matter of Saxon Mortgage v. Westmark, Saxon Mortgage obtained a
judgment in the amount of $469,348, in connection with various repurchase
obligations. An amount of $50,000 has been paid, and the remaining liability of
$419,348 is accrued at December 31, 1995. Negotiations are continuing between
the two parties to settle this matter.
The Company is a defendant in Conway et al v. Danna, Network Financial
Services, Inc., et al. The suit alleges Unfair Practices; Fraud (Negligent
Misrepresentations; Intentional Misrepresentations; Concealment); Breach of
Written Contract; Breach of Implied Covenant of Good Faith and Fair Dealing;
23
Common Count; and Breach of California Securities Statutes against Network
Financial Services, Inc. (aka Westmark Group Holdings, Inc.) and others. The
Company considers the risk of loss in this matter to be remote and,
consequently, no amount has been accrued as of December 31, 1995.
The Company is plaintiff in Network Financial Services, Inc. v.
McCurdy, Raiche, Ryals, Nash & Moss Land Company, filed March 1993 in Monterey
County, California Superior Court. The plaintiff alleges fraud, negligent
misrepresentation, breach of fiduciary duty, negligence, quiet title, RICO
violations and conversion. Defendant McCurdy initiated a cross-complaint naming,
among others, the Company as a cross-defendant. The cross-complaint seeks
damages for breach of a stock option agreement, breach of contract and
declaratory relief. The Company has finalized a settlement with defendants
Raiche and Ryals. The balance of the pending litigation involving defendant and
cross-complainant McCurdy and others is unaffected by the Raiche/Ryals
settlement. Management intents to vigorously defend this cross-complaint.
The Company is defendent in Knight v. Lomas Mortgage U.S.A. and
Westmark Mortgage Corporation. The complaint is based upon a contention by the
Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully impaired
the credit rating of Plaintiff and breached the written agreement between the
parties. A preliminary determination indicates that the basis for the dispute is
between Lomas U.S.A. and the Plaintiff, but the Company has been named as a
party defendant in view of the original contractual relationship between the
Plaintiff and Westmark. The Company considers the risk of loss in this matter to
be remote, and consequently, no amount has been accrued as of December 31, 1995.
From time to time the Company is a defendant (actual or threatened) in
certain lawsuits encountered in the ordinary course of its business, the
resolution of which, in the opinion of management, should not have a material
adverse affect on the Company's financial position.
24
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Norman J. Birmingham 41 President, Chief Executive Officer and Director
Mark Schaftlein 38 President and Chief Executive Officer of Westmark
Mortgage and Director of the Company
Dawn Drella 28 Secretary and Chief Financial Officer
Todd Walker 37 Director
- ---------------------
Mr. Birmingham has served as president since November 1995, chief
executive officer since January 1996, and as a director since April 1996. Mr.
Birmingham has been engaged in the accounting and tax practice since 1986.
Since July 1995, Mr. Birmingham has served as chief operating officer,
president, and as a director of Heart Labs, whose securities are registered
under Section 12 of the Exchange Act. Mr. Birmingham spends one-half of his
business time on Company affairs and one-half of his business time on Heart Labs
affairs.
Mr Schaftlein has served as president and chief executive officer of
Westmark Mortgage since February 1995. Prior thereto, Mr. Schaftlein was a
senior vice president with National Lending Center, Inc., from September 1993
until February 1995. From January 1993 until September 1993, Mr. Schaftlein
served as vice president of Fleet Finance. From 1984 to January 1993, Mr.
Schaftlein served as vice president at Citicorp.
Mr. Walker has served as a director since January, 1996. In 1987, Mr.
Walker founded, and presently serves as president of Southern Import
Distributors, Inc. ("SIDI") On behalf of SIDI, Mr Walker co-founded Tampa
Convention Hotel Associates, Inc., Divot Devlopment Corporation, Herr Damm,
Inc., and Mad Dogs & Englishmen. Prior to forming SIDI, Mr. Walker was a tax
consultant with Arthur Anderson & Company for two years. Mr Walker is a graduate
of Tulane University (1981) and received his Masters of Business Administration
degree (1985) and Juris Doctorate degree (1985) from the Tulane Graduate
Business School and Tulane Law School, respectively.
Ms. Drella has served as the secretary and chief financial officer of
the Company since February 1996. Ms. Drella has served as an officer with Heart
Labs since June 1993. From August 1992 to January 1993, Ms. Drella was a staff
accountant with Jones & Hall. From June 1991 to August 1992, Ms. Drella served
as the controller for RCC Associates. Ms. Drella is a certified public
accountant. Ms. Drella spends one-fourth of her business time on Company
affairs and three-fourths of her business time on Heart Labs affairs.
Directors serve until the expiration of their term at the annual
meeting of stockholders. All officers serve at the discretion of the Board of
Directors, subject to employment agreements. Effective February 1996, each
non-employee director is entitled to receive $500 per month, and all directors
are entitled to reimbursement of out-of-pocket expenses to attend Board
meetings.
25
BOARD COMMITTEES
The Board of Directors has appointed a compensation committee and an
audit committee. The members of the compensation committee are Messrs.
Schaftlein and Walker. The compensation committee reviews and recommends to the
Board of Directors all forms of remuneration for directors and management of the
Company and has the authority to administer the Company's 1994 stock option
plan. The members of the audit committee are Messrs. Birmingham and Walker. The
audit committee reviews and reports to the Board on the financial results of the
Company's operations and the results of the audit services provided by the
Company's independent accountants, including the fees and costs for such
services.
EXECUTIVE COMPENSATION
Michael Morrell served as the chief executive officer of the Company
from January 1995 through November 1995. Rodger Stubbs served as chief executive
officer of the Company from November 1995 through January 1996, and was replaced
by Mr. Birmingham in January 1996. The following table sets forth the
information with respect to the chief executive officers during fiscal 1995. No
other executive officer of the Company received total annual salary and bonus
for the 1995 fiscal year in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- -----------------------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK ALL OTHER
POSITION YEAR SALARY COMPENSATION (1) ISSUANCES OPTIONS (2) COMPENSATION (3)
- -------------- ----- ------ ---------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Morrell, ................. 1995 $55,518 $14,220 16,204(4) 69,000 $148,167
Chief Executive ................... 1994 $90,000 $14,220 -- 60,000 $ 80,833
Officer ........................... 1993 -- -- -- -- --
Rodger Stubbs, ...................... 1995 $90,000 $14,628 6,482(5) 21,333 --
Chief Executive ................... 1994 $66,664 $14,628 -- 8,333 --
Officer ........................... 1993 -- -- -- -- --
</TABLE>
1. Car allowance payments.
2. Each option is fully vested and currently exercisable during its ten year
term at an exercise price of $2 per share. The original exercise price was
the fair market value upon the date of issuance, and the current price of $2
per share was the fair market value on December 11, 1995, the date of such
repricing.
3. Accrued salary which was converted to a $229,000 convertible promissory note
in November 1995. See "-Certain Transactions."
4. These shares were issued in lieu of $25,000 accrued salary in 1995.
5. These shares were issued in lieu of $17,500 accrued salary in 1995.
In January 1996, Mr. Stubbs and the Company entered into a termination
agreement in which the Company paid Mr. Stubbs $46,450 ($10,000 of which was
utilized by Mr. Stubbs to exercise a currently exercisable option to purchase
5,000 shares, the resale of which is being registered under the Act hereby) and
issued Mr. Stubbs a $35,000 non-interest bearing promissory note maturing in
1996.
EMPLOYMENT AGREEMENTS
26
In April 1996, Messrs. Birmingham and Schaftlein entered into
three-year employment agreements with the Company which provide for an annual
base salary of $87,500 and $140,000, respectively. Additionally, Messrs.
Birmingham and Schaftlein were issued warrants to purchase 90,000 shares, 45,000
of which are currently exercisable over a five year term at $2.25 per share, and
45,000 of which vest in full if the Company's net income in 1996, 1997 or 1998
is $480,000 (and vest on a pro-rata basis if a lesser amount of net income is
earned in those periods), exercisable during a five year term from the date of
vesting in full. In the event an employment agreement is terminated other than
for "just cause," such terminated employee would be entitled to receive
one-year's salary. In April 1996, the Company entered into a one-year employment
agreement with Ms. Drella which provided for an annual base salary of $20,000,
plus the issuance of 10,000 shares of Company Common Stock.
STOCK OPTIONS
The following table provides information on options granted under the
Company's 1994 Stock Option Plan in fiscal 1995 to Messrs. Morrell and Stubbs:
INDIVIDUAL GRANTS
--------------------------------
PERCENT OF
SHARES TOTAL
UNDERLYING OPTIONS OPTIONS EXERCISE OR
GRANTED GRANTED TO BASE PRICE
------------------ EMPLOYEES IN PER EXPIRATION
NAME FISCAL YEAR SHARE DATE
- --------------- ------------ ----------- ----------
Michael Morrell 69,000(1) 40% $2.00 3/05
Rodger Stubbs 21,333(2) 12.3% $2.00 3/05
- -----------
(1) These options were granted in March 1995 and were re-priced in December 1995
at the reduced then market price. Does not include a ten year option to purchase
60,000 shares granted in March 1994, repriced in December 1995 to the then
market price of $2 per share.
(2) These options were granted in March 1995 and were re-priced in December 1995
at the reduced then market price. Does not include a ten year option to purchase
8,333 shares granted in March 1994, repriced in December 1995 to the then market
price of $2 per share.
The following table provides information regarding option exercises in
fiscal 1995 Messrs. Morrell and Stubbs and the value of such unexercised options
at December 31, 1995:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options
Acquired on Value Options at at
NAME EXERCISE REALIZED DECEMBER 31, 1995 DECEMBER 31, 1995
- ----------------- -------- -------- ------------------- ------------------
<S> <C> <C> <C> <C>
Michael Morrell ... -- -- 129,000 (1)
Rodger Stubbs ..... -- -- 29,666 (1)
</TABLE>
- ------------
27
(1) Based on the last sales price on December 31, 1995 of 1 3/16, the options
were not in-the-money at December 31, 1995.
Additionally, as of March 31, 1996, non-executive officers held options
to purchase an aggregate of 173,239 shares of Common Stock at exercise prices
ranging from $2 to $45 per share. See "Employment Agreements" for a discussion
of warrants issued to current executive officers in April 1996.
The Company has not established, nor does it provide for, long-term
incentive plans or defined benefit or actuarial plans. The Company does not
grant any stock appreciation rights.
CERTAIN TRANSACTIONS
Effective November 1995, Heart Labs purchased 1,298,388 shares of
Common Stock for a purchase price of $3,210,000, comprised of $1,210,000 cash
and cash equivalents, and the issuance of 200,000 shares of Heart Labs series B
convertible preferred stock with a stated value of $10 per share. The stock
purchase agreement provides that Heart Labs ownership position, equal to 49% of
the shares of Company Common Stock actually outstanding, shall not be diluted
below 49%, with additional shares to be issued to Heart Labs to maintain such
ownership position. In May 1996, the Company issued Heart Labs 154,404 shares of
Common Stock in order to maintain such percentage ownership. As additional
shares of Common Stock are issued by the Company, out of the new issuances or on
exercise of outstanding warrants and options and conversion of outstanding
Preferred Stock, additional adjustments will be made resulting in additional
shares issued to Heart Lab in order to maintain such 49% ownership interest.
Subsequent to the November 1995 purchase agreement, Heart Labs has loaned the
Company an aggregate of $2,293,000 pursuant to one-year notes, bearing interest
at the rate of 10% per annum. Effective March 1996, Heart Labs converted
$700,000 of this indebtedness into 200,000 shares of series C preferred stock
with a stated value of $3.50 per share.
The then officers of the Company, Messrs. Morrell and Gardner and Linda
Moore resigned as officers and Mr. Morrell resigned as a director. Mr. Morrell
was issued a Heart Labs note in the principal amount of $415,000, bearing
interest at a rate of 12% per annum, to repay a $415,000 advance previously made
to the Company. Mr. Morrell has the right to convert all or a portion of this
loan into shares of Common Stock at a rate equal to 50% of the closing bid price
on the day preceding such conversion. The Company also agreed to pay Mr. Morrell
accrued salary of $229,000 by issuance of a promissory note in such amount,
bearing interest at the rate of 12% per annum, which amount can be converted
into shares of Common Stock at the rate of 50% of the closing bid price on the
day preceding such conversion. The conversion is being registered under the Act
hereby. For a three year period, the Company agreed to pay Mr. Morrell a
consulting fee of $7,500 per month, plus certain perquisites. The Company leases
certain of its facilities from Mr. Morrell at rates it believes reflect fair
market value. See "Business - Facilities." Mr. Gardner was issued 25,000 shares
of Common Stock (the resale of which is being registered under the Act hereby)
and severance compensation in the amount of $54,000. Ms. Moore was issued a
Heart Labs note in the principal amount of $60,000, bearing interest at the rate
of 12% per annum, to repay a $60,000 advance previously made to the Company. The
Company agreed to pay Ms. Moore accrued salary of $80,000 by issuance of a
promissory note in such amount, bearing interest at the rate of 12% per annum,
which amount can be converted into shares of Common Stock at the rate of 50% of
the closing bid price on the day preceding such conversion. This conversion is
being registered under the Act hereby. For an 18 month period, the Company
agreed to pay Ms. Moore a consulting fee of $4,000 per month.
LIMITATION ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation eliminates, subject to
certain exceptions, the personal liability of directors of the Company or its
stockholders for monetary damages for breaches of fiduciary duty of such
directors. The Certificate of Incorporation does not provide for the elimination
of or any
28
limitation on the personal liability of a director for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions, or (iv) any
transaction from which such director derives an improper personal benefit. This
provision of the Certificate of Incorporation will limit the remedies available
to the stockholder who is dissatisfied with a decision of the Board of Directors
protected by this provision; such stockholder's only remedy may be to bring a
suit to prevent the action of the Board. This remedy may not be effective in
many situations, because stockholders are often unaware of a transaction or an
event prior to Board action in respect of such transaction or event. In these
cases, the stockholders and the Company could be injured by a Board's decision
and have no effective remedy.
DELAWARE ANTI-TAKEOVER LAW
The Company is not subject to Section 203 of The Delaware General
Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combinations with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) before such date the
Board of Directors of the Company approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the Company outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares that are owned (x) by persons who are directors
and also officers and (y) by employee stock plans in which employee participants
do not have a right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, or (iii) on or after
such date the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
Section 203 defines "combination" to include (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, lease, exchange, mortgage, transfer pledge or other disposition involving
the interested stockholder of 10% or more of assets of the Company, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the Company of any stock of the Company to the interested
stockholder, (iv) any transaction involving the Company that has the effect of
increasing the proportionate share of the stock of any class or series of the
Company beneficially owned by the interested stockholder, or (v) the receipt by
the interested stockholder of the benefit of any loans, advances guarantees,
pledges or other financial benefits provided by or through the Company. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the Company
and any entity or person affiliated with or controlling or controlled by such an
entity or person. Accordingly, transactions with Heart Labs will not be subject
to Section 203.
29
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the
beneficial ownership of all shares of Common Stock at May 20, 1996 by (i) each
person who owns beneficially more than five percent of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each named executive
officer and (iv) all directors and officers as a group.
PERCENT OF VOTING POWER
-----------------------
SHARES OF BEFORE AFTER
NAME AND ADDRESS(1) COMMON STOCK OFFERING OFFERING(2)
------------------- ------------ ---------- -----------
Heart Labs of America ................ 1,465,922 49% 49%
Ocean Marketing Corp. ................ 300,0003 9% 4%
Drew Hollenbeck ...................... 266,6674 8% 4%
Michael Morrell ...................... 145,2045 5% 2%
Mark Schaftlein ...................... 47,1676 2% *
Norman Birmingham .................... 45,0007 2% *
Rodger Stubbs ........................ 41,4878 1% *
Todd Walker .......................... -- --
All officers and directors as a ...... 102,1679 3% 1%
group (four persons)
- ------------
* Less than one percent.
1 The address for the above referenced stockholders is 355 N.E. Fifth Avenue,
Delray Beach, FL 334831, except for Heart Labs and Michael Morrell, which is
2650 N. Military Trail, Suite 230, Boca Raton, FL 33431, and Ocean Marketing
Corp., which is 2901 Hill Street, New Smyrna, Florida 32169.
2 Assumes the issuance of (i) 495,433 shares of Common Stock and the issuance
of 1,707,261 shares upon exercise of all Warrants and Options and conversion
of all shares of Preferred Stock, and (ii) 1,465,922 shares to Heart Labs to
maintain its 49% interest in the Company.
3 Consists of a five-year warrant to purchase 300,000 shares of Common Stock
at $1.00 per share.
4 In March 1996, Mr. Hollenbeck agreed with the Company to provide for the
redemption of his 290,000 shares of Common Stock based on the then market
price in exchange for, among other considerations, a two-year consulting
agreement providing for the payment of $75,000 in the first year and $90,000
in the second year, $400,000 cash, and the issuance of 100,000 shares of
Series A Preferred Stock in April 1996. See "Description of Capital Stock -
Preferred Stock."
5 Includes an option currently exercisable to purchase 129,000 shares of
common stock.
6 Includes an option and warrant currently exercisable to purchase an
aggregate of 46,500 shares of
Common Stock.
7 Includes an option presently exercisable to purchase 45,000 shares of Common
Stock.
8 Includes options currently exercisable to purchase 29,666 shares of
Common Stock.
9 Includes options and warrants to purchase an aggregate of 91,500
shares of Common Stock.
30
DESCRIPTION OF CAPITAL STOCK
Under the Company's Certificate of Incorporation, the authorized capital
stock of the Company consists of 60 million shares, of which 50 million shares
are Common Stock and 10 million shares are preferred stock. As of the date of
this Prospectus, the Company had outstanding shares of Common Stock and 118,750
shares of Series A Preferred Stock, 300,000 shares of Series B Preferred Stock,
and 200,000 shares of Series C Preferred Stock held of record by 14 persons. The
Company has reserved 495,433 shares to be issued hereby, 331,905 shares for
issuance upon exercise of outstanding Options, 666,666 shares for issuance upon
exercise of Warrants, and 708,690 shares for issuance upon conversion of the
Preferred Stock.
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Certificate of Incorporation, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share with respect
to all matters required by law to be submitted to stockholders of the Company.
The holders of Common Stock have the sole right to vote, except as otherwise
provided by law or by the Company's Certificate, including provisions governing
any preferred stock. The Common Stock does not have any cumulative voting,
preemptive, subscription or conversion rights. Election of directors and other
general shareholder action requires the affirmative vote of a majority of shares
represented at a meeting in which a quorum is represented. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, upon payment therefor as contemplated herein, validly issued, fully paid and
non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the affairs of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment or provision for all
liabilities and any preferential liquidation rights of any preferred stock then
outstanding.
PREFERRED STOCK
The Board of Directors is authorized, without action by the holders of the
Common Stock, to provide for the issuance of the preferred stock in one or more
series, to establish the number of shares to be included in each series and to
fix the designations, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights which
shall be superior to the Common Stock. The issuance of one or more series of the
preferred stock could adversely affect the voting power of the holders of the
Common Stock and could have the effect of discouraging or making more difficult
any attempt by a person or group to attain control of the Company. The Company
has no present plans to issue any additional shares of preferred stock.
SERIES A PREFERRED STOCK. In April 1996, the Board of Directors established
a series of shares setting forth the preferences, rights and limitations and
authorizing the issuance of up to 200,000 shares of series A cumulative
preferred stock ("Series A Preferred Stock"). In April 1996, an aggregate of
100,000 shares of Series A Preferred Stock were issued with an aggregate stated
value of $400,000 to Mr. Hollenbeck and an aggregate of 18,750 shares of Series
A Preferred Stock were issued to an unaffiliated third party. The Series A
Preferred Stock has a liquidation preference of $4 per share, plus any accrued
unpaid dividends,
31
is redeemable by the Company at a redemption price of $4 per share, plus accrued
unpaid dividends to the date of redemption, after October 1, 1996 the holder can
force redemption by the Company upon the same redemption terms that the Company
possesses, and does not have any voting rights. The shares of Series A Preferred
Stock are convertible into shares of Common Stock at the lessor or (i) $1.50 or
(ii) 84% of the closing bid price on the day prior to conversion (subject to
adjustment).
SERIES B PREFERRED STOCK. In April 1996, the Board of Directors established
a series of shares setting forth the preferences, rights and limitations and
authorizing the issuance of up to 300,000 shares of series B cumulative
preferred stock ("Series B Preferred Stock"). In April 1996, an aggregate of
300,000 shares of Series B Preferred Stock were issued with an aggregate stated
value of $600,000. The Series B Preferred Stock has a liquidation preference of
$2 per share, plus any accrued unpaid dividends, is redeemable by the Company at
a redemption price of $2 per share, plus accrued unpaid dividends to the date of
redemption, and does not have any voting rights. The shares of Series B
Preferred Stock are convertible by the holders in shares of Common Stock at the
lesser of (i) $2.00 or (ii) 84% of the closing bid price on the day prior to
conversion (subject to adjustment). The shares of Series B Preferred Stock
automatically convert, at the above referenced conversion rate, into shares of
Common Stock in April 1998.
SERIES C PREFERRED STOCK. In March 1996, the Board of Directors established
a series of shares setting forth the preferences, rights and limitations and
authorizing the issuance of up to 500,000 shares of series C cumulative
preferred stock ("Series C Preferred Stock"). Effective March 1996, an aggregate
of 200,000 shares of Series C Preferred Stock were issued with an aggregate
stated value of $700,000. The Series C Preferred Stock has a liquidation
preference of $3.50 per share, plus any accrued unpaid dividends, is redeemable
by the Company at a redemption price of $3.50 per share, plus accrued unpaid
dividends to the date of redemption, and does not have any voting rights. After
December 15, 1997, the shares of Series C Preferred Stock are convertible by the
holders in shares of Common Stock at the rate of 84% of the closing bid price on
the day prior to conversion (subject to adjustment).
WARRANTS
As discussed in "Management-Employment Agreements," warrants were issued to
Messrs. Birmingham and Schaftlein providing for the issuance of up to 180,000
shares of Common Stock. Additionally, there are warrants outstanding authorizing
the holders to purchase an aggregate of 666,666 shares of Common Stock,
currently exercisable and expiring between one and eight years from the date of
this Prospectus at exercise prices between $1.00 and $9.00.
TRANSFER AGENT
The Company's transfer agent for the Common Stock is Corporate Stock
Transfer, Inc., Republic Plaza, 370 17th Street, Suite 2340, Denver, Colorado
80202.
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS
This Prospectus relates to the issuance of up to 471,500 shares of Common
Stock and the resale of 2,373,787 shares by the Selling Stockholders, of which
666,526 are currently issued and outstanding and 1,707,261 will be issued upon
(i) exercise of Warrants to purchase 666,666 shares, (ii) exercise of Options to
purchase 331,905 shares, and (iii) conversion of Preferred Stock to purchase
708,690 shares, subject to adjustment.
The first table sets forth information with respect to the issuance by the
Company of shares of Common Stock to be issued to fund debt settlements and to
be issued to fund debt obligations and settlements to be negotiated. The second
table sets forth information with respect to the resale of
32
Common Stock by the Selling Stockholders, including the resale of shares of
Common Stock issued upon exercise of outstanding Warrants and Options, and upon
conversion of the outstanding Preferred Stock. The Company will not receive any
cash proceeds upon issuance of shares to fund debt settlements or obligations
nor will it receive any proceeds from the resale of Common Stock by the Selling
Stockholders for shares currently outstanding or upon conversion of Preferred
Stock; however, the Company will receive the exercise price per share upon
issuance of shares underlying the Warrants and Options.
ISSUANCE OF COMMON STOCK
BY THE COMPANY
NUMBER
OF SHARES
NAME TO BE ISSUED
---- ------------
Jackson, Tufts, Cole & Black 75,000 (1)
Cassidy & Associates 35,000 (2)
Greentree Mortgage 17,500 (3)
Brentwood Computers 16,000 (4)
Cohen, Brame and Smith 12,000 (5)
William Tetsworth 10,000 (6)
Teletrend Communications 9,500 (7)
Republic Indemnity 8,000 (8)
Flood Data 7,500 (9)
Hakman & Company 7,000 (10)
Foster Ousley Conley 6,000 (11)
Nationwide Computer 5,000 (12)
Prentice Hall 3,000 (13)
Howard Rice 10,000 (14)
M.S. Farrell & Company, Inc. 2,667 (15)
Richard L. Klass 1,333 (15)
Alan H. Adelson 1,334 (15)
James D. Tucker 1,000 (16)
Lomas Mortgage USA, Inc. 12,000 (17)
Kenny the Printer 2,000 (18)
Steve Jizmagian 3,500 (19)
Short-fall Shares 100,000 (20)
Additional Shares 150,000 (21)
------- ----
TOTAL 495,334
- ------------
(1) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $170,000 in the aggregate, to be paid over a period of 10
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(2) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $70,308 in the aggregate, to be paid over a period of 12
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
33
(3) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $35,000 in the aggregate, to be paid over a period of 7
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(4) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $33,996 in the aggregate, to be paid over a period of 6
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(5) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $24,720 in the aggregate, to be paid over a period of 6
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(6) These shares will be issued in lieu of a cash payment for services
rendered.
(7) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross
to the creditor $22,584 in the aggregate, to be paid over a period of 6
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(8) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $17,500 in the aggregate, to be paid over a period of 7
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(9) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $132,000 in the aggregate, to be paid over a period of 7
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(10) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $18,652.84 in the aggregate, to be paid over a period of 3
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(11) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $11,520 in the aggregate, to be paid over a period of 6
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(12) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $7,866 in the aggregate, to be paid over a period of 3
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(13) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $6,935 in the aggregate, to be paid over a period of three
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(14) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $20,000 in the aggregate, to be paid over a period of two
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(15) These shares of Common Stock will be issued pursuant to a settlement
agreement.
(16) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross
to the creditor $1,838.49 no later than sixty days after the effective
date of the Registration Statement. In the event the number of shares is
insufficien to gross that amount the Company may be obligated to issue
additional shares.
34
(17) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $22,232 in the aggregate, to be paid over a period of four
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(18) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $4,500 in the aggregate, to be paid over a period of four
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(19) These shares of Common Stock will be issued pursuant to a settlement
agreement. The Company has agreed that the shares will be sold to gross to
the creditor $6,000 plus accrued interest, to be paid over a period of
three months. In the event the number of shares is insufficient to gross
that amount, the Company may be obligated to issue additional shares.
(20) These shares will be issued, if necessary, to cover short-falls in the
settlement agreement obligations presented in this table.
(21) These shares may be issued to fund debt settlements to be negotiated or
current outstanding debt obligations. If these shares are utilized in this
manner, they will be issued on a negotiated, "best efforts, no minimum"
basis.
35
RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS
FOR SHARES CURRENTLY OUTSTANDING ("S"),
SHARES TO BE ISSUED UPON EXERCISE OF WARRANTS
("W") AND OPTIONS ("O") AND CONVERSION OF PREFERRED
STOCK ("P")
<TABLE>
<CAPTION>
SHARES AMOUNT SHARES
BENEFICIALLY OFFERED BENEFICIALLY
OWNED (ASSUMING ALL OWNED
BEFORE SHARES IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------------ ------------------ --------- ----------
<S> <C> <C> <C> <C>
D. Blair Adams .................... 371 371 S 0 0.0
Alan Adelson ...................... 945 945 S 0 0.0
1,223 1,223 S 0 0.0
Affiliated Services, Inc. ......... 104,000 104,000 S 0 0.0
Sharon Aitken ..................... 1,000 1,000 S 0 0.0
Amber Capital Corporation ......... 51,741 51,741 S 0 0.0
Anacapa Venture Partners .......... 45,745 45,745 P(1) 0 0.0
Richard Anderson .................. 1,191 1,191 S 0 0.0
596 596 S 0 0.0
596 596 S 0 0.0
Aqumulate, Ltd. ................... 327 327 S 0 0.0
340 340 S 0 0.0
2,500 2,500 S 0 0.0
Atlantic Bottled Gas .............. 2,075 2,075 S 0 0.0
Tom Baldwin ....................... 596 596 S 0 0.0
Robert Banner ..................... 833 833 O(2) 0 0.0
Vincent Barras .................... 1,334 1,334 S 0 0.0
Charlotte Barrett-White ........... 1,160 1,160 O(3) 0 0.0
Norman J. Birmingham(*) ........... 45,000 45,000 W(4) 0 0.0
45,000 45,000 W(5) 0 0.0
David Blackman .................... 334 334 S 0 0.0
John Blausey ...................... 1,667 1,667 S 0 0.0
6,667 6,667 S 0 0.0
1,334 1,334 S 0 0.0
Thomas Burd ....................... 667 667 S 0 0.0
R. Bushey ......................... 2,000 2,000 S 0 0.0
Virginia C. Butler ................ 2,000 2,000 S 0 0.0
1,000 1,000 S 0 0.0
Capitol Ventures International .... 33,334 33,334 S 0 0.0
Caribou Bridge Fund ............... 22,873 22,873 P(1) 0 0.0
Jeannie Caron ..................... 926 926 S 0 0.0
Darren Cassey ..................... 1,067 1,067 S 0 0.0
James Cassidy ..................... 3,333 3,333 O(6) 0 0.0
Valerie Cawley .................... 336 336 S 0 0.0
Harry Coolidge .................... 2,218 2,218 S 0 0.0
3,704 3,704 S 0 0.0
21,350 21,350 S 0 0.0
3,334 3,334 O(2) 0 0.0
6,666 6,666 O(2) 0 0.0
36
12,500 12,500 O(6) 0 0.0
John S. Copeland .................. 334 334 S 0 0.0
Corbin Trust ...................... 1,067 1,067 S 0 0.0
F. Barbara Covington .............. 374 374 S 0 0.0
Roy Cox ........................... 3,333 3,333 O(2) 0 0.0
834 834 O(7) 0 0.0
400 400 O(8) 0 0.0
9,100 9,100 O(6) 0 0.0
Griffin Dickerman ................. 1,700 1,700 S 0 0.0
Ilaine Dickerman .................. 1,000 1,000 S 0 0.0
John J. Dickerman ................. 1,834 1,834 S 0 0.0
2,000 2,000 S 0 0.0
Mario DiFilippo ................... 3,852 3,852 S 0 0.0
2,000 2,000 S 0 0.0
Louis DiFilippo ................... 1,852 1,852 S 0 0.0
Richard Dillion ................... 1,800 1,800 S 0 0.0
581 581 S 0 0.0
1,784 1,784 S 0 0.0
Joseph Divilio .................... 536 536 S 0 0.0
Dawn Drella (*) ................... 10,000 10,000 S 0 0.0
Chuck Everill ..................... 32,675 32,675 P(1) 0 0.0
Kathryn Fabian .................... 1,000 1,000 S 0 0.0
Bevan Farber ...................... 2,000 2,000 S 0 0.0
M.S. Farrell ...................... 1,630 1,630 S 0 0.0
1,261 1,261 S 0 0.0
33,333 33,333 W(9) 0 0.0
William Field ..................... 1,191 1,191 S 0 0.0
667 667 S 0 0.0
334 334 S 0 0.0
Charles G. Fink ................... 3,334 3,334 S 0 0.0
Thomas and Marisa Flint ........... 2,593 2,593 S 0 0.0
Ellen Friedman .................... 596 596 S 0 0.0
G4, Inc. .......................... 1,457 1,457 S 0 0.0
Albert Gardner .................... 3,025 3,025 S 0 0.0
6,000 6,000 O(10) 0 0.0
10,000 10,000 O(2) 0 0.0
22,000 22,000 O(6) 0 0.0
David Gardner ..................... 1,167 1,167 S 0 0.0
Generation Capital Associates ..... 101,293 101,293 P(1) 0 0.0
Tarek Ghalwash .................... 741 741 S 0 0.0
Joseph Giglio ..................... 1,191 1,191 S 0 0.0
Barry Goodin ...................... 871 871 S 0 0.0
Leslie Gough ...................... 3,333 3,333 O(11) 0 0.0
Greentree Mortgage ................ 150,000 150,000 W(12) 0 0.0
GS Seagrass ....................... 167 167 S 0 0.0
Gerard and Harriet Guitard ........ 1,000 1,000 S 0 0.0
Lonnie F. Hall .................... 167 167 S 0 0.0
James Hamlet ...................... 712 712 S 0 0.0
Charles Hanney .................... 667 667 S 0 0.0
Robert Hanney ..................... 3,333 3,333 O(6) 0 0.0
13,333 13,333 O(13) 0 0.0
Bradley Hanson .................... 1,334 1,334 S 0 0.0
37
1,134 1,134 S 0 0.0
Boyd Harden ....................... 84,034 84,034 S 0 0.0
Gail Harden ....................... 16,807 16,807 S 0 0.0
Graham Harden ..................... 12,605 12,605 S 0 0.0
Holmes Harden, Jr ................. 12,605 12,605 S 0 0.0
Katherine Harris .................. 10,000 10,000 O(14)
Martin Heilbraun .................. 2,000 2,000 S 0 0.0
James Hill Trust
Darol M. Hoffman .................. 7,223 7,223 S 0 0.0
Richard Hofmann ................... 667 667 S 0 0.0
Drew Hollenbeck ................... 266,667 266,667 P(15) 0 0.0
Sheldon Honig ..................... 1,000 1,000 S 0 0.0
1,852 1,852 S 0 0.0
Abe Huberman ...................... 584 584 S 0 0.0
Jackson, Tufts, Cole & Black ...... 3,333 3,333 W(16) 0 0.0
James S. Hull ..................... 49,988 49,988 P 0 0.0
James S. Hull, Trustee ............ 2,000 2,000 S 0 0.0
Nuge Johnson ...................... 1,191 1,191 S 0 0.0
Ajit Kahaduwe ..................... 596 596 S 0 0.0
Richard Klass ..................... 945 945 S 0 0.0
1,223 1,223 S 0 0.0
Jakob Krommenhock ................. 1,067 1,067 S 0 0.0
Kevin Lam ......................... 1,675 1,675 S 0 0.0
Lebanon Valley Auto Racing ........ 16,338 16,338 P(1) 0 0.0
Corporation
Malcolm Lee ....................... 3,704 3,704 S 0 0.0
833 833 O(2) 0 0.0
J. Lamar Lessor ................... 1,068 1,068 S 0 0.0
Mary C. Lessor .................... 1,067 1,067 S 0 0.0
Anna Liselli ...................... 334 334 S 0 0.0
Sam Lockwood ...................... 596 596 S 0 0.0
Harold Lowell ..................... 834 834 S 0 0.0
Thomas E. Lynch ................... 1,387 1,387 S 0 0.0
Magnum Financial Corporation ...... 31,482 31,482 S 0 0.0
Shirley Mann ...................... 1,191 1,191 S 0 0.0
Lorrie McClintock ................. 3,334 3,334 S 0 0.0
Ron McTighe ....................... 741 741 S 0 0.0
David Mihlroth .................... 741 741 S 0 0.0
Christopher Miller ................ 2,000 2,000 S 0 0.0
4,000 4,000 O(10) 0 0.0
Danny Mills Profit Sharing ........ 1,067 1,067 S 0 0.0
James Mitchell .................... 186 186 S 0 0.0
1,500 1,500 O(13) 0 0.0
Richard Molinsky .................. 1,786 1,786 S 0 0.0
1,191 1,191 S 0 0.0
Linda Moore ....................... 4,815 4,815 S 0 0.0
6,000 6,000 O(10) 0 0.0
8,334 8,334 O(2) 0 0.0
21,583 21,583 O(6) 0 0.0
Ahmad Moradi ...................... 2,223 2,223 S 0 0.0
Harold and Dolores Morrell ........ 2,000 2,000 S 0 0.0
Michael Morrell ................... 16,204 16,204 S 0 0.0
38
60,000 60,000 O(10) 0 0.0
69,000 69,000 O(6) 0 0.0
Patrick Morton .................... 65,350 65,350 P(1) 0 0.0
John Murtha ....................... 2,000 2,000 S 0 0.0
John and Ann Murtha ............... 2,000 2,000 S 0 0.0
Edward and Terri Myers ............ 712 712 S 0 0.0
Sharon M. Myers ................... 186 186 S 0 0.0
Shea Harden Naproano .............. 12,605 12,605 S 0 0.0
James Noonan ...................... 6,535 6,535 P(1) 0 0.0
Gerald R. Novich .................. 32,675 32,675 P(1) 0 0.0
Ocean Marketing ................... 300,000 300,000 W(17) 0 0.0
Theodore J. Orlando ............... 2,667 2,667 S 0 0.0
George Paez ....................... 1,191 1,191 S 0 0.0
2,917 2,917 S 0 0.0
William Papola .................... 3,333 3,333 O(18) 0 0.0
William and Kathleen Papola ....... 1,067 1,067 S 0 0.0
Richard Paull ..................... 167 167 S 0 0.0
3,333 3,333 O(11) 0 0.0
Dan Pearl ......................... 5,000 5,000 O(11) 0 0.0
Petros Petrides ................... 838 838 S 0 0.0
Chris Phelan ...................... 2,500 2,500 S 0 0.0
Michael S. Pomerantz .............. 2,000 2,000 S 0 0.0
Piere Pype ........................ 2,977 2,977 S 0 0.0
Pyramid Holdings, Inc. ............ 37,037 37,037 S 0 0.0
Ted Ralston ....................... 7,408 7,408 S 0 0.0
Jackie Rankin ..................... 334 334 S 0 0.0
Bradley Ray ....................... 2,500 2,500 O(2) 0 0.0
David Rittmueller ................. 596 596 S 0 0.0
Donald and Joan Rose .............. 1,556 1,556 S 0 0.0
Edward and Martina Russell ........ 712 712 S 0 0.0
Thomas Sauthoff ................... 1,000 1,000 S 0 0.0
Mark Schaftlein (*) ............... 667 667 S 0 0.0
1,500 1,500 O(13) 0 0.0
45,000 45,000 W(4) 0 0.0
45,000 45,000 W(5) 0 0.0
William Schneider ................. 1,191 1,191 S 0 0.0
Christine and Richard Schreier .... 593 593 S 0 0.0
Marcelo Scigiliano ................ 149 149 S 0 0.0
James Scordo ...................... 4,167 4,167 S 0 0.0
Michael Sherry .................... 16,000 16,000 S 0 0.0
Frank and Barbara Sirico .......... 5,556 5,556 S 0 0.0
John M. Soldati ................... 596 596 S 0 0.0
Robert Stubbs ..................... 1,666 1,666 O(19) 0 0.0
Rodger Stubbs ..................... 11,482 11,482 S 0 0.0
8,333 8,333 O(2) 0 0.0
21,333 21,333 O(6) 0 0.0
Susan L. Suminski ................. 19 19 S 0 0.0
Tissera Overseas Fund, NV ......... 16,338 16,338 P(1) 0 0.0
Gaye Tosi ......................... 596 596 S 0 0.0
Perry Vitale ...................... 1,666 1,666 O(19) 0 0.0
Westport Capital Partners ......... 32,675 32,675 P 0 0.0
William Vitello ................... 596 596 S 0 0.0
39
Arthur Vorel ...................... 926 926 S 0 0.0
Kevin Walsh ....................... 596 596 S 0 0.0
Eleanoe and Hubert Watson ......... 34 34 S 0 0.0
Jack Webber ....................... 1,000 1,000 S 0 0.0
Larry Wells ....................... 19,605 19,605 P(1) 0 0.0
Norman Wieselberg ................. 1,191 1,191 S 0 0.0
Barbara D. Wilt ................... 167 167 S 0 0.0
Richard C. Wilt III ............... 667 667 S 0 0.0
833 833 O(20) 0 0.0
Shelia B. Williamson .............. 260 260 S 0 0.0
Kevin Wrenne ...................... 833 833 O(2) 0 0.0
833 833 O(19) 0 0.0
Kevin and Susan Wrenne ............ 5,186 5,186 S 0 0.0
</TABLE>
- ------------------
(*) Is an officer or director of the Company. See "Management - Executive
Officers and Directors."
(1) The Preferred Stock is currently convertible at a conversion price equal
to the lesser of (i) $1.50 or (ii) 84% of the closing bid price per share
of Common Stock as quoted by Nasdaq. For purposes of this table, the
closing price was $1.825 on May 7, 1996, resulting in a conversion price
of $1.50. This Prospectus covers additional shares that may be issued
based on adjustments to the conversion price. See "Description of Capital
Stock - Preferred Stock."
(2) Option expires July 6, 2004.
(3) Option expires June 1, 1997.
(4) Warrant expires April 1, 2004.
(5) Warrant expires, depending upon any vesting, on the earlier of April 1,
2002 or April 1, 2004.
(6) Option expires March 22, 2005.
(7) Option expires May 27, 2003.
(8) Option expires July 1, 2003.
(9) Warrant expires November 30, 1997.
(10) Option expires March 10, 2004.
(11) Option expires July 7, 2005.
(12) Warrant expires April 19, 1999.
(13) Option expires January 5, 2006.
(14) Option expires May 1, 2006.
(15) The Preferred Stock is currently convertible at a conversion price equal
to the lesser of (i) $2.00 or (ii) 84% of the closing bid price per share
of Common Stock as quoted by Nasdaq. For purposes of this table, the
closing price was $1.825 on May 7, 1996, resulting in a conversion price
of $1.53. This Prospectus covers additional shares that may be issued
based on adjustments to the conversion price.
See "Description of Capital Stock - Preferred Stock."
(16) Warrant expires December 31, 1996.
(17) Warrant expires one year from the date of this Prospectus.
(18) Option expires June 21, 1999.
(19) Option expires December 1, 2004.
(20) Option expires November 1, 2004
40
The 2,373,787 shares offered by the Selling Stockholders may be sold
by one or more of the following methods, without limitation: (i) ordinary
brokerage transactions and transactions in which the broker solicits purchases;
and (ii) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated. Such brokers and dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Act, in connection with such sales. The Selling Stockholder or
dealer effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a Prospectus.
LEGAL MATTERS
Certain legal matters relating to the issuance and resale of shares
hereby will be passed upon for the Company by Brewer & Pritchard, P.C., Houston,
Texas.
EXPERTS
The financial statements of the Company as of December 31, 1994 and
1995 have been audited by Comiskey & Company, P.C., independent certified public
accountants, for the periods and to the extent as set forth in the reports and
have been included herein in reliance upon such reports of said firm given on
their authority as experts in accounting and auditing.
In May 1994, Ernst & Young LLP ("E & Y") resigned as auditors. There
were no disagreements with E & Y on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedures, and
reports issued by E & Y on the Company's financial statements did not contain an
adverse opinion, or were modified as to uncertainty, audit scope or accounting
principles. In October 1993, E & Y informed the Company that it needed to
strengthen its internal controls, and management believed that it adequately
addressed this matter in 1993. The Company's current auditors were engaged,
based on the Board of Directors approval, in May 1994.
41
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
CONTENTS PAGE
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEET F-2 TO F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 TO F-25
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Westmark Group Holdings, Inc.
Delray Beach, Florida
We have audited the accompanying consolidated balance sheet of Westmark Group
Holdings, Inc. as of December 31, 1995, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 1995 and 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westmark Group
Holdings, Inc. as of December 31, 1995, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As more fully described in Notes 2 and 6, the Company has sold 49% of its
outstanding common stock to Heart Labs of America, Inc., and in connection
therewith, has obtained commitments for additional financing, has restructured
certain of its debt and trade payables to equity, and obtained extended payment
terms for amounts formerly in default.
Aurora, Colorado
March 20, 1996
Except for note 15 which is dated April 19, 1996.
PROFESSIONAL CORPORATION
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
December 31,
1995
ASSETS ------------
CURRENT ASSETS
Cash and cash equivalents ............................... $ 311,916
Note receivable - stock sale ............................ 374,222
Accounts receivable (net of allowance of $179,663) ...... 8,004
Mortgage loans held for sale ............................ 19,480,029
Other current assets .................................... 2,202
------------
TOTAL CURRENT ASSETS ........................... 20,176,373
FIXED ASSETS
Property and equipment .................................. 820,588
Equipment under capital leases .......................... 16,477
837,065
Less accumulated depreciation ........................... (434,411)
402,654
OTHER ASSETS
Investment in real estate ............................... 2,115,000
Goodwill, net of amortization ........................... 785,833
Investment in preferred stock ........................... 2,000,000
Deposits and other assets ............................... 30,298
------------
4,931,131
TOTAL ASSETS ................................... $ 25,510,158
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-2
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
December 31,
1995
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................................ $ 1,234,199
Warehouse line-of-credit ................................ 18,625,866
Interest payable ........................................ 227,619
Other notes payable and convertible
debentures .......................................... 717,818
Payroll taxes payable ................................... 141,329
Settlement liability .................................... 419,348
Other current liabilities ............................... 854,452
------------
TOTAL CURRENT LIABILITIES ...................... 22,220,631
LONG-TERM LIABILITIES
Note payable ............................................ 1,000,000
Short-term debt expected to be refinanced
on a long-term basis ................................ 698,323
TOTAL LONG-TERM LIABILITIES .................... 1,698,323
COMMITMENTS AND CONTINGENCIES ................................ --
STOCKHOLDERS' EQUITY
Common stock, no par value,
3,333,333 shares authorized;
2,632,772 shares issued and
outstanding at December 31, 1995, ................... 23,165,937
Additional paid-in capital from outstanding
options and warrants ................................ 1,153,688
Accumulated deficit ..................................... (22,728,421)
TOTAL STOCKHOLDERS' EQUITY ..................... 1,591,204
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 25,510,158
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-3
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
REVENUES
Loan origination fees .................................... $ 544,386 $ 883,399
Gain on sale of loans .................................... 1,544,559 556,436
Investment income - mortgages ............................ 938,657 581,066
Loan servicing fees, net ................................. -- 836,437
Gain (loss) on sale of servicing rights .................. -- (14,781)
Other .................................................... 54,298 95,089
------------ -----------
TOTAL REVENUES .................................. 3,081,900 2,937,646
EXPENSES
Direct loan fees ......................................... 187,309 123,182
Interest expense ......................................... 1,223,875 657,025
General and administrative ............................... 6,775,395 5,337,097
Non-cash compensation .................................... 1,099,000 --
Litigation expense ....................................... -- 289,898
Loss on writedown of real estate owned ................... 124,654 100,071
Loss on writedown of servicing sale receivable ........... 179,663 --
Depreciation ............................................. 95,627 81,925
Amortization ............................................. 98,916 404,814
Bad debt ................................................. 80,521 --
Loss on investment in Greentree .......................... 225,000 --
Repurchase losses ........................................ 480,000 --
------------ -----------
TOTAL EXPENSES .................................. 10,569,960 6,994,012
------------ -----------
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAX (7,488,060) (4,056,366)
Provision for income tax benefit .............................. 180,000 376,000
------------ -----------
Net loss before extraordinary item ............................ (7,308,060) (3,680,366)
Gain on extinguishment of debt (net of tax of $180,000
in 1995 and $376,000 in 1994) ............................ 270,000 561,413
------------ -----------
NET LOSS ........................................ $ (7,038,060) $(3,118,953)
============ ===========
PER SHARE AMOUNTS
Loss from continuing operations .......................... $ (6.75) $ (7.41)
Gain on extinguishment of debt ........................... .25 1.13
------------ -----------
Net loss per share ....................................... $ (6.50) $ (6.28)
============ ===========
Weighted average number of shares outstanding ............ 1,082,371 496,867
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-4
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Common Paid-In Accumulated Stockholders'
Shares Stock Capital Deficit Equity
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ............... 12,574,769 $14,529,129 $ 54,688 $(12,571,408) $ 2,012,409
Retroactive restatement for
1 for 30 stock split .................. (12,155,610) -- -- -- --
Issuance of common stock ................ 255,446 2,742,854 -- -- 2,742,854
Net loss .......................... -- -- -- (3,118,953) (3,118,953)
----------- ----------- ---------- ------------ -----------
Balance at December 31, 1994 ............... 674,605 17,271,983 54,688 (15,690,361) 1,636,310
Issuance of common stock ................ 1,958,167 5,893,954 -- -- 5,893,954
Paid-in capital from option
arrangements .......................... -- -- 1,099,000 -- 1,099,000
Net loss .......................... -- -- -- (7,038,060) (7,038,060)
----------- ----------- ---------- ------------ -----------
Balance at December 31, 1995 ............... 2,632,772 $23,165,937 $1,153,688 $(22,728,421) $ 1,591,204
=========== =========== ========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-5
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Year Ended Year ended
December 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net loss ......................................................... $ (7,038,060) $ (3,118,953)
Adjustments to reconcile consolidated net loss to
net cash used by operating activities:
Depreciation and amortization ........................................... 194,543 486,739
Non-cash compensation and stock for services ............................ 1,745,151 405,361
(Gain) loss on disposal of assets ....................................... 124,654 6,347
Loss on investment in Greentree ......................................... 225,000 --
Provision for bad debt and REO reserves ................................. -- 385,403
Repurchase of loans ..................................................... -- (295,938)
Pre-tax gain on extinguishment of debt .................................. (450,000) (937,413)
------------- -------------
Net cash used by operations before working
capital changes ................................................... (5,198,712) (3,068,184)
Net (increase) decrease in accounts receivable .......................... 466,498 (55,638)
(Increase) decrease in other current assets ............................. 368,693 74,686
(Increase) decrease in mortgage loans held for sale ..................... (14,208,495) 19,868,454
(Increase) decrease in other assets ..................................... 1,020,004 --
Increase (decrease) in accounts payable ................................. 860,895 473
Increase in current liabilities ......................................... 25,259 526,811
------------- -------------
Net cash provided (used) by operating activities ..................... (16,665,858) 17,346,602
CASH FLOWS FROM INVESTING ACTIVITIES
Cash invested in Greentree Mortgage ........................................... (100,000) --
Net cash received in servicing sale ........................................... -- 1,275,938
Repurchase deposit ............................................................ -- (480,000)
Purchase of fixed assets and improvements ..................................... (50,133) (138,231)
Startup costs - new offices ................................................... -- (136,487)
Proceeds from sale of real estate ............................................. 49,053 541,470
------------- -------------
Net cash provided (used) by investing activities ..................... (101,080) 1,062,690
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on warehouse lines-of-credit ....................................... $ 158,020,868 $ 151,404,256
Repayments of warehouse lines-of-credit ....................................... (144,480,885) (170,828,709)
Sale of stock for cash ........................................................ 1,725,081 1,849,723
Issuance of notes payable ..................................................... 1,808,500 --
Payments on line-of-credit and other notes payable ............................ (94 182 (800,000)
Net increase (decrease) on capital leases ..................................... (8,101) (3,599)
------------- -------------
Net cash provided (used) by financing activities ..................... 16,971,281 (18,378,329)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 204,343 30,963
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..................................... 107,573 76,610
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................... $ 311,916 $ 107,573
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-6
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Westmark Group Holdings, Inc. ("the Company") was incorporated in 1986 in
the state of Colorado. Through its wholly owned subsidiary, Westmark
Mortgage Corporation, the Company is principally engaged as a full service
mortgage banking business that originates, underwrites, funds, and, until
1994, serviced mortgage loans in the states of California, Florida,
Hawaii, and in other parts of the country. Loans are originated through
independent mortgage brokers for sale to third party investors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Westmark Mortgage Corporation, and
Network Capital Group (inactive since 1993). Intercompany transactions
have been eliminated in consolidation.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans are originated to be sold to investors and are reported at
the lower of cost or market. Loans covered by commitments are valued as
specified in the commitment. Loans not covered by commitments are valued
at market, as determined by reference to the Company's normal market
outlets. At December 31, 1995, loans held for sale were valued at market,
which was lower than cost. Anticipated prepayments on principal amounts of
loans are not considered significant, since all loans are held for resale
and are sold with servicing released.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS REPURCHASED
Real estate acquired in settlement of loans repurchased is recorded at the
lower of cost or market.
REVENUE RECOGNITION
Loan origination fees are deferred and recognized as revenue when the
underlying loan is sold.
Loan servicing fees are recorded when the services are performed. Gain on
sale of servicing is recorded when the related servicing right is sold.
Service release fees are recognized when the related loan is sold. The
Company sells all of its originated mortgage loans service released.
RECEIVABLES AND RESERVES FOR COLLECTIBILITY
A reserve for collectibility of accounts receivable is established by
management evaluation to reflect those receivables which are currently
uncollectible or likely to become uncollectible in the future.
Collateralized loans, such as long-term notes receivable, portfolio loans,
and REO's are carried at cost. A reserve is established to adjust the
carrying amount of collateralized loans to their net realizable value
determined in reference to outside appraisal on a note-by-note basis.
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has not elected early adoption of SFAS NO. 122 - ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS, which requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans
for others, however those servicing rights are acquired. Adoption of this
standard is required for fiscal years beginning after December 15, 1995.
The Company anticipates adoption of this standard will have no material
effect on the financial statements.
FURNITURE AND EQUIPMENT
Furniture and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated
useful lives ranging from four to five years.
INVESTMENT IN REAL ESTATE
The Company's investment in real estate is carried at the lower of cost or
appraised value.
COMPENSATED ABSENCES
Compensated absences are accrued as earned.
EARNINGS PER SHARE
Primary earnings per share were computed using the weighted average number
of shares outstanding. Fully diluted earnings per share is not presented,
as outstanding option exercises would have an antidilutive effect on loss
per share.
GOODWILL
Goodwill is being amortized over 10 years using the straight-line method.
Goodwill is evaluated periodically in accordance with the provisions of
SFAS 121 - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF.
INCOME TAXES
Income taxes are allocated among subsidiaries in the ratio that each
subsidiary contributes to the consolidated liability. Deferred taxes
result from temporary differences in the recognition of income and expense
for financial and income tax reporting purposes and as a result of
non-benefited net operating loss carryforwards.
CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 consolidated
financial statements to conform to the 1995 presentation.
F-8
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
2. COMMITMENTS AND CONTINGENCIES
CLASSIFICATION AS A GOING CONCERN
The Company has incurred significant and recurring operating losses,
including $7,000,000 in 1995, and has historically supplemented its
operating cash flows with financing from outside sources. At December 31,
1995, the Company had negative working capital of ($2,044,258), and was in
default of or facing payment demands for approximately $1.8 million in
trade accounts payable and debt obligations. The Company's assets were
pledged to secure at least $600,000 of these debt obligations, creating
the potential for foreclosure of assets and the possible discontinuance of
operations. In response to its increasing working capital deficiencies,
the Company arranged a sale, effective November 1995, of 49% of its
outstanding common shares to Heart Labs of America, Inc. for $1,210,000 in
cash, and $2,000,000 in preferred stock. A commitment by HLOA for an
additional $1,600,000 was obtained after year end, including $700,000 for
post-year end obligations. (See Note 15). Concurrently with this sale,
certain officers and directors of WGHI resigned and new management was put
in place.
Subsequent to year end, the Company has effected additional post-year end
reductions, either through payment or conversion to equity, of
approximately $675,000 in debt obligations and accounts payable, of which
$165,000 has been included in short-term debt expected to be refinanced.
Current management has also restructured payment terms for $700,000 in
accounts payable, including planned conversions to equity for which
written agreements are in place totaling $533,000, which amount is
included in short-term debt expected to be refinanced. As part of the
restructuring, WGHI is obligated to register a total of 600,000 equity
shares issued or issuable in these refinancing arrangements. The extended
payment terms will require monthly cash flows as follows:
March ................................................. $14,605
April ................................................. $33,782
May ................................................... $29,782
June .................................................. $21,782
July .................................................. $17,582
August ................................................ $17,582
September ............................................. $17,582
October ............................................... $13,605
November .............................................. $10,000
Management anticipates sufficient cash flows from operations to satisfy
these cash requirements due to cutbacks and revenue enhancements as
discussed on the following page.
F-9
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CLASSIFICATION AS A GOING CONCERN (CONTINUED)
Management considers 1995 operating losses to be due to a combination of
operational inefficiencies and non-recurring items.
MANAGEMENT'S PLANS WITH RESPECT TO OPERATIONAL INEFFICIENCIES
Management is in the process of implementing a program of cost reduction
and revenue enhancement beginning in the first quarter of 1996. Of 27
employees terminated in January and February 1996, 11 have been replaced
for a projected net monthly savings of $80,000 in salaries and associated
costs. Subleases have been established for the Company's Costa Mesa and
Honolulu offices, and a buyout has been reached for the San Jose office,
resulting in projected occupancy savings of $15,000 per month. Management
plans certain administrative policy changes resulting in savings on
communications, documents, equipment, and insurance. Interest savings is
expected concurrently with the conversion of debt to equity, as well as
with increased concentration on improved warehouse line turnover.
Management has reworked loan pricing to increase up front cash flows and
reduce costs, and has instituted a program for the bulk sale of loans at a
higher margin. As described above, management has established payment
schedules for delinquent accounts payable with several of the Company's
vendors in order to preserve sources of supply.
MANAGEMENT'S CONSIDERATION OF NON-RECURRING ITEMS
Management considers a portion of the 1995 operating loss to be
non-recurring. The writedown of REO's, and charge off's of the servicing
receivable and related deposit, can be considered costs related to
servicing portfolio activity. These amounts, coupled with the loss on
investment in Greentree, total $1,000,000 in the aggregate. Likewise,
non-cash compensation of $1,099,000 was specific to the failed offering of
debentures and to the change in management and is, therefore, not likely
to occur with the same magnitude in future periods.
OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments represent commitments to fund loans
and involve, to varying degrees, elements of interest-rate risk and credit
risk in excess of the amount recognized in the balance sheet. The
interest-rate risk is mitigated by the Company's commitments to sell loans
to investors. The credit risk is mitigated by the Company's evaluation of
the creditworthiness of potential borrowers on a case-by-case basis.
The Company had interest rate commitments on loans totaling $1.6 million
and $2.5 million at December 31, 1995 and 1994, respectively. The total
loan pipeline at those dates was $33,718,000 and $24,482,000 respectively.
It is impractical to estimate market value of the portfolio at December
31, 1995, since its value is dependent on interest rates, time of closing,
turndown ratio, and other variables which cannot be determined with any
reasonable certainty at this time.
F-10
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OFF-BALANCE-SHEET RISK (CONTINUED)
At December 31, 1995, the Company had cash deposits in excess of federally
insured limits of $116,000.
Loans held for sale was comprised of 78% "A" loans and 22% "B" loans at
December 31, 1995. At December 31, 1994, loans held for sale consisted
entirely of "A" loans.
GREENTREE ACQUISITION
On July 2, 1995, the Company entered into an agreement to acquire certain
assets of Greentree Mortgage Corporation. The aggregate purchase price was
$1,575,000 payable in installments with the remaining unpaid purchase
price payable from the proceeds of the Company's proposed offering of
convertible debentures. Pursuant to the agreement, The Company paid
$100,000 cash and issued 16,667 shares of the Company's stock valued at
$125,000. In November 1995, the Company abandoned the registration filing
with respect to the proposed offering. In December 1995, Greentree
exercised its option to exchange the shares of the Company's stock in the
name of Greentree for $125,000 in certified funds. In April 1996, the
Company and Greentree entered into a written settlement agreement
terminating the prior agreement of purchase of assets in consideration for
which Greentree is entitled to retain the total proceeds previously paid
in the sum of $100,000 and additionally, the Company has agreed to provide
Greentree with 150,000 warrants to purchase shares of the Company's common
stock, exercisable over a period of three (3) years at a price of $2.62
per share. Pursuant to the settlement, Greentree will also receive
registered shares of the Company's stock with a total value of $35,000.
LITIGATION IN PROCESS
The Company is a defendant in Conway et al. v. Danna, Network Financial
Services, Inc. et al. The suit alleges damages for Racketeering (RICO);
Unfair Practices; Fraud (Negligent Misrepresentations; Intentional
Misrepresentations; Concealment); Breach of Written Contract; Breach of
Implied Covenant of Good Faith and Fair Dealing; Common Count; and Breach
of California Securities Statutes, against Network Financial Services,
Inc. (nka Westmark Group Holdings, Inc.) and others. The RICO count has
been dismissed by Federal Court, and Plaintiffs have done little or
nothing on the case for the past two years. On February 29, 1996, the
Court ordered the Plaintiffs to file an amended complaint within 60 days,
or the case would be dismissed. There is currently no operative complaint
on file in this matter. The Company considers the risk of loss in this
matter to be remote and, consequently, no amount has been accrued as of
December 31, 1995.
F-11
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION IN PROCESS (CONTINUED)
The Company is a defendant in Conover v. Greentree Mortgage Company,
Westmark Group Holdings, Inc. and Westmark Mortgage Corporation. The
matter relates to an employment agreement between the Plaintiff and
Greentree. Plaintiff was discharged from his position as President and CEO
of Greentree Mortgage Company, L.P. on September 14, 1995. Plaintiff
brought this action for compensatory damages based upon an alleged breach
of such employment agreement. Plaintiff seeks damages against Westmark
Group Holdings, Inc., Westmark Mortgage Corporation and Michael F. Morrell
based upon an allegation of intentional interference with contractual
obligations and a third party beneficiary claim with respect to the
Company. Both the Company and counsel believe there is no legal
justification for the joinder of the Company and Michael F. Morrell as
defendants, and considers the risk of loss in this matter to be remote.
Consequently, no amount has been accrued as of December 31, 1995.
The Company is a defendant in Knight v. Lomas Mortgage U.S.A. and Westmark
Mortgage Corporation. The complaint is based upon a contention by the
Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully
impaired the credit rating of Plaintiff and breached the written agreement
between the parties. A preliminary determination indicates that the basis
for the dispute is between Lomas U.S.A. and the Plaintiff, but the Company
has been named as a party defendant in view of the original contractual
relationship between the Plaintiff and Westmark. The Company considers the
risk of loss in this matter to be remote, and consequently, no amount has
been accrued as of December 31, 1995.
The Company is a Plaintiff in Network Financial Services, Inc. v. McCurdy,
Raiche, Ryals, Nash & Moss Land Company. The suit alleges fraud, negligent
misrepresentation, breach of fiduciary duty, negligence, quiet title,
violations of RICO and conversion. Defendant McCurdy initiated a cross
complaint naming among others, Winchester Mortgage Company, the Company
and Lee Danna (former Chairman of the Company) as cross defendants. The
cross complaint seeks damages for breach of a Stock Option Agreement,
breach of contract and declaratory relief. The Company has finalized a
settlement with defendants Raiche and Ryals wherein defendants Raiche and
Ryals transferred 7,166 shares of the Company's stock to the Company in
addition to a one-half (1/2) interest in parcels B & D, Dolan property,
Moss Landing, California. The balance of the pending litigation involving
defendant and cross complainant McCurdy and others is unaffected by the
Raiche/Ryals settlement. The Company considers risk of loss in this
cross-complaint to be remote, and no amount has been accrued.
MATERIAL LITIGATION - SETTLED The Company is a defendant in the matter of
Hopkins & Patenaude v. Westmark Group Holdings, Inc. and Westmark Mortgage
Corporation. The suit relates to an action by the Plaintiffs to collect
attorneys fees incurred by the Plaintiffs in representing the Company. The
matter was settled on March 5, 1996, with the Company agreeing to pay
$3,000 per month for seven months. Accordingly, $21,000 is included in
accounts payable.
F-12
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
MATERIAL LITIGATION - SETTLED (CONTINUED)
The Company is a defendant in Strock v. Westmark Group Holdings, Inc. The
action filed December 22, 1995 seeks to foreclose a mortgage on Unit 5,
355 N.E. 5th Avenue, Delray Beach, Florida. The carrying value of this
asset on the books of the Company at December 31, 1995 is $122,000.
Settlement negotiations are in process and the Company expects the matter
to be resolved without foreclosure. Consequently, no allowance has been
accrued for loss in this matter. (This amount was settled after year end -
See Note 15 - Subsequent Events.)
The Company is a defendant in Hakman v. Westmark Group Holdings, Inc. The
action relates to the collection of approximately $18,600 resulting from
the Company's failure to comply with terms of the prior settlement
agreement with the Plaintiff. A new settlement was executed in March 1996
which requires the Company to pay $1,000 per month for three months, and
allows for conversion of the balance of the obligation to common stock of
the Company. The full amount of the unpaid original settlement is included
in accounts payable at December 31, 1995.
In the case of B.A. Properties, Inc. v. Winchester Mortgage Corporation,
on October 11, 1995, a settlement was negotiated wherein the Company
agreed to pay a total of $5,000 to Plaintiff in full and final settlement
of all claims.
In the case of Schneider v. Westmark, a settlement was reached on July 28,
1995, providing for the payment by the Company of $60,000, including
$20,000 which was paid on July 31, 1995. The remaining unpaid amount of
$40,000 was included in accounts payable at December 31, 1995.
In the matter of Saxon Mortgage v. Westmark, a Second Amendment to
Settlement Agreement was reached on August 2, 1995, providing for the
Company to pay $469,348 to Saxon for various repurchase obligations. The
initial sum of $50,000 has been paid, and the remaining liability of
$419,348 is accrued at December 31, 1995.
A settlement was negotiated on July 14, 1995 resolving the pending
litigation between Dolan Development Partners, Ltd. and Winchester
Mortgage Company (nka Network Capital Group). The litigation originally
arose out of a claim by Dolan Development partners that Winchester
Mortgage Company, a wholly owned subsidiary of the Company, defaulted on
two promissory notes with a principal and accrued interest balance of $1.5
million. The settlement provides for a note modification wherein the total
obligation of the subsidiary to Dolan Development Partners was established
at $1,000,000 as of July 1, 1994, and a reduced interest rate of 9.75% per
year. The reduction of accrued interest is primarily due to the
recognition of certain rental income credits accruing to the 1/2 interest
in the property securing the note. Network Capital Group will be obligated
for monthly interest only payments with the balance of principal due June
1, 1998 or the earlier sale of the property securing this note ("the Dolan
property").
F-13
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
MATERIAL LITIGATION - SETTLED (CONTINUED) On November 14, 1995, the
Company acquired title to the stock of Rairyl, Inc. on November 14, 1995.
The sole asset of Rairyl, Inc. is a 1/2 interest in the Dolan property.
In April 1995, the claim of Dickinson v. Corporate Stock Transfer, Inc.
involving the disposition of all or a portion of 7,500 shares of Company
stock was settled. Settlement provides for the sale of said shares at no
less than $7.50 per share. From the proceeds of the sale, Dickinson will
receive the first $55,000 and any proceeds in excess of $55,000 will be
divided equally between Dickinson and the Company.
3. GAIN ON EXTINGUISHMENT OF DEBT
In 1995, the Company settled its litigation with Dolan Development
Partners, Inc., effectively reducing the amount of principal and interest
payable on two promissory notes from $1,500,000 to $1,050,000. These
notes, which were originally accounted for as an offset of $1,500,000
against collateral of $2,200,000 which served as security on a promissory
note owed to the Company, were recorded on the books of the Company
beginning July 1, 1995, the date at which the right of offset against the
underlying property securing the note was released. These modifications
have resulted in a reduction of the outstanding value of the note, and an
extraordinary gain of $450,000 ($0.42 per share) before income tax
provision of $180,000 in 1995.
In 1994, the Company modified the terms of its notes payable to the former
parent Company of Westmark Mortgage Corporation. The modifications
included a reduction in the principal amount outstanding from $2,195,250
to $500,000 and the issuance of 13,333 shares of the Company's common
stock valued at $163,500. In addition, the Company agreed to assume a
$594,350 settlement liability with a loan investor for loss mitigation and
loan repurchases. These modifications have resulted in a reduction of the
outstanding value of the note, and an extraordinary gain of $937,400,
($1.89 per share) before income tax provision of $376,000 in 1995.
4. NOTES PAYABLE
WAREHOUSE LINES
As of December 31, 1995, Westmark Mortgage Corporation has a warehouse
agreement with Princap Mortgage Warehouse, Inc. totaling $15,000,000
through November 16, 1996. The line is fully collateralized by the
assignment and pledge of eligible mortgage loans. Interest on the line is
payable at the time of purchase by the permanent investor at an annual
rate of 2.0% above the prime rate of interest (10.5% at December 31,
1995). There is a transaction charge of $140 per loan. In addition, the
warehouse agreement requires Westmark to possess minimum net worth of
$250,000, and maintain a compensating cash balance on deposit with a
designated financial institution totaling $5,000. At December 31, 1995,
the balance outstanding on this line-of-credit totaled $15,292,103.
Although this amount is in excess of the overall warehouse commitment,
this condition was cured in January 1996.
F-14
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. NOTES PAYABLE (CONTINUED)
WAREHOUSE LINES (CONTINUED)
As of December 31, 1994, Westmark Mortgage Corporation had a warehouse
agreement totaling $15,000,000 through November 22, 1995. The line is
fully collateralized by the assignment and pledge of eligible mortgage
loans. Interest on the line was payable monthly at an annual rate of 0.75%
above the prime rate of interest. In addition, the line called for an
annual commitment fee of 0.125% of the commitment amount, as well as
requiring Westmark to possess minimum tangible net worth of $2,500,000. On
August 25, 1995, the warehouse lender, Lomas Mortgage USA, Inc. ("Lomas"),
gave notice of the termination of its commitment to purchase loans
effective September 29, 1995. Shortly thereafter, Lomas declared
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. On September 18,
1995, Lomas notified the Company of its intent to assign the repurchase
agreement with Westmark to Pacific Southwest Bank F.S.B. ("PSB") and
extended its commitment to purchase loans until October 31, 1995. In
response, the Company obtained its current warehouse line with Princap
Mortgage, Inc. and began funding its loans thereon effective October 31,
1995. On November 13, 1995, PSB notified the Company of its decision to
stop purchasing loans from Westmark effective November 15, 1995. The
outstanding balance on this line-of-credit totaled $3,333,763 at December
31, 1995. All remaining loans collateralizing this line-of-credit were
sold in the first quarter of 1996, and the line was closed.
OTHER NOTES PAYABLE
Other debt of the Company consists of the following:
10% convertible promissory notes, face amount $250,000, secured by all
assets of Westmark Group Holdings, Inc. and subsidiaries, due January 1,
1996 with provision for six (6) one-month extensions at the option of the
lender. The notes were issued in units, each unit consisting of one $5,000
note and one warrant to receive underwritten securities totaling $2,500.
The underwritten securities are defined as securities identical to the
securities issuable in the Company's public offering of convertible
debentures. This offering was terminated in November 1995. The
subscription agreement for these notes specifies that, in the event that
the offering of debentures is not effective or terminated, the units may
be converted into equity securities of the Company at 50% of the average
closing bid price for the two week period prior to the conversion. The
Company may elect to redeem the unit warrants for $5,000 cash. In the
event that the Company elects to redeem the unit warrants for cash, the
notes themselves may be converted to equity at 100% of the average bid
price for the previous two weeks. All equity securities issued have
registration rights. (These notes are the subject of post-year end
settlement negotiations. See Note 15, Subsequent Events). Balance at
December 31, 1995: $250,000.
10% convertible promissory notes, face amount $350,000, secured by all
assets of Westmark Group Holdings, Inc. and subsidiaries, due October 31,
1995 with provision for six (6) one-month extensions at the option of the
lender. The notes were issued in units, each unit consisting of one $5,000
note and one warrant to receive underwritten securities totaling $5,000.
The underwritten securities are defined as securities identical to the
securities issuable in the
F-15
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. NOTES PAYABLE (CONTINUED)
OTHER NOTES PAYABLC (CONTINUED)
Company's public offering of convertible debentures. This offering was
terminated in November 1995. The subscription agreement for these notes
specifies that, in the event that the offering of debentures is not
effective or terminated, the units may be converted into equity securities
of the Company at 50% of the average closing bid price for the two week
period prior to the conversion. The Company may elect to redeem the unit
warrants for $5,000 cash. In the event that the Company elects to redeem
the unit warrants for cash, the notes themselves may be converted to
equity at 100% of the average bid price for the previous two weeks. All
equity securities issued have registration rights. (These notes are the
subject of post-year end settlement negotiations. See Note 15, Subsequent
Events). Balance at December 31, 1995: $350,000.
10% convertible unsecured promissory note, face amount $10,000, due
December 21, 1995. This note is one of a series of similar notes with a
total face value of $83,500, of which $73,500 were converted to equity
prior to December 31, 1995. The unpaid principal amount is convertible to
equity at $5.00 per share. All equity securities issued or issuable have
registration rights. Balance at December 31, 1995: $10,000.
10% unsecured promissory notes, face value $165,000, due dates ranging
from March 15, 1996 to April 15, 1996. The Company shall have the option
to repay the notes in cash or in unregistered stock at a conversion ratio
equal to the lesser of $2.50 per share or 50% of the bid on the due date
of the loan. In the event that the Company elects to repay these loans
early, it agrees to issue options to purchase stock equal to the lesser of
$2.50 per share or 50% of the bid price on the date of issuance. All
equity shares to be issued upon conversion of these loans are to be
registered. In the event that the shares are not registered within 180
days from the due date of the note, then WGHI shall issue, as a penalty,
10% of the shares or options for each month for a maximum of six months.
If the shares are still not registered, then the lenders may "put" the
shares back to the Company at a value equal to the greater of the market
value or the original investment plus interest totaling 12%. In April
1996, these loans were converted to equity at the option of the holders.
Balance at December 31, 1995: $165,000 (classified as "expected to be
refinanced on a long-term basis").
10% mortgage note, secured by building, face amount $87,000, calling for
installment payments of $2,807, due June 1, 1998. This note is in default
and foreclosure actions were initiated by the lender on December 21, 1995.
The carrying value of assets subject to foreclosure was $122,000 at
December 31, 1995. The Company has negotiated an alternative to
foreclosure - see Note 15 - Subsequent Events. While in default, the note
carries an interest rate of 18%. Balance at December 31, 1995: $82,818
(classified as current).
12.5% unsecured demand note, face amount $25,000, payable in shares of the
Company at $4.57 per share. Renegotiated after year end to require
payments of $3,500 per month over 8 months. Balance at December 31, 1995:
$25,000.
F-16
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. NOTES PAYABLE (CONTINUED)
OTHER NOTES PAYABLE (CONTINUED)
9.75% promissory note, secured by land, face amount $1,000,000, interest
only payments until the earlier of June 1, 1998 or the sale of the
underlying collateral. Balance at December 31, 1995: $1,000,000
(classified as long-term).
In addition, a unsecured demand note issued in July 1995 in the amount of
$250,000 was converted to equity in October, 1995.
Total interest expense for all notes outstanding during the periods
amounted to $1,223,875 and $511,545 for the years ended December 31, 1995
and 1994, respectively.
Maturities on long-term debt for each of the next five years are as
follows:
December 31, 1996 ..................................... $ 717,818
December 31, 1997 ..................................... $ --
December 31, 1998 ..................................... $1,000,000
December 31, 1999 ..................................... $ --
December 31, 2000 ..................................... $ --
5. SERVICING SALES AND ACTIVITY
In September 1994, the Company sold its entire servicing portfolio,
consisting of approximately 2,500 loans with unpaid principal balances of
approximately $303,000,000. These loans were primarily serviced on behalf
of FNMA and FHLMC. The Company recorded a net loss of $14,781 in 1994 from
the sale of the portfolio, and recorded additional servicing sale related
losses totaling $659,663 in 1995.
The sales price totaled .6172% of the eligible balance of loans
(determined to be $287,000,000), with a .0125% holdback payable .0625% in
September 1995 and .0625% in September 1996 if the portfolio 60+
delinquency rating falls below 4%. In 1994, the Company reserved $179,663
for non-receipt of the September 1995 holdback payment, and in 1995, it
reserved an additional $179,663 for the September 1996 payment. The sale
proceeds were paid at closing as follows:
$500,000 to Primark Corporation
$295,938 to FHLMC for repurchase of loans
$480,000 to FHLMC for repurchase reserve
The repurchase reserve held by FHLMC until October 1996 is applicable to
losses, if any, incurred by FHLMC as a result of loan repurchases or
foreclosure losses resulting from misrepresentations on the part of the
Company's brokers and/or correspondents for which the Company is liable to
FLHMC on corresponding representations and warranties, or for any
potential breach of other selling or servicing covenants and warranties
made by the Company. In the months of April through July of 1995,
foreclosure losses were charged against this deposit, reducing it to zero.
The Company is seeking an accounting of these losses to evaluate their
propriety within the terms of the agreement, and has established an
allowance in 1995 for repurchase losses for the full amount of $480,000.
Prior to the sale of its servicing portfolio, the Company recorded
amortization of mortgage servicing rights of $185,897 for the year ended
December 31, 1994.
F-17
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
6. INVESTMENT BY HEART LABS OF AMERICA, INC.
NOTES RECEIVABLE - HLOA
Effective November 21, 1995, an agreement was entered into between the
Company and Heart Labs of America, Inc., a Florida Corporation, ("HLOA"),
whereby HLOA agreed to purchase 1,298,388 shares of unregistered common
stock of WGHI, representing 49% of the then outstanding common shares of
the Company for a total of $3,210,000 cash. The purchase price was paid as
follows:
Cash and debt repayments to creditors of WGHI .......... $ 675,778
Preferred Series B convertible stock of
HLOA - 200,000 shares at $10 per share .............. 2,000,000
Assumption of notes payable to WGHI officers ........... 160,000
Promissory note payable to WGHI ........................ 374,222
----------
Total purchase price ........................................... $3,210,000
==========
The promissory note was repaid in the first quarter of 1996 through direct
cash transfers and payments to WGHI creditors. Imputed interest on this
amount is not material to these financial statements.
In addition, HLOA has since agreed to pay $600,000 in WGHI indebtedness
and to advance $1,000,000 for working capital and post year end settlement
obligations - See Note 15 - Subsequent Events.
PREFERRED STOCK - HLOA
As part of the consideration for the sale of its stock, WGHI received
200,000 shares of HLOA convertible, redeemable, non-voting preferred
stock, series B. The stock carries a 7% cumulative dividend, a $10 per
share liquidation preference, and is convertible, for a period of ten
years from the date of issuance, into registered shares of HLOA common
stock at the average of the bid and asked price of the HLOA stock for the
thirty days prior to conversion. HLOA may redeem the stock at any time for
$10 per share.
This investment is classified as available for sale under the criteria
established by SFAS NO. 115 ACCOUNTING FOR INVESTMENTS IN MARKETABLE
SECURITIES. Its market value is deemed to be $2,000,000, which has been
determined in reference to the common stock into which it is convertible.
There were no unrealized holding gains or losses attributable to this
investment in 1995.
7. OTHER CURRENT LIABILITIES
The following are the components of other current liabilities:
BALANCE
Accrued salaries and compensation .......................... $487,540
Accrued rent ............................................... 92,717
Accrued loan fees and costs ................................ 56,910
Accrued compensated absences ............................... 63,252
Accrued accounts payable ................................... 198,706
--------
Total other current liabilities ............................ $899,125
========
F-18
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
7. OTHER CURRENT LIABILITIES (CONTINUED)
Accrued salaries and compensation relates to unpaid amounts contractually
owed to four officers and a consultant at December 31, 1995. This entire
amount has been recorded in general and administrative expense for the
year ended December 31, 1995. Certain of these accrued salaries, totaling
$309,000 are convertible to equity at 50% of the bid price of shares on
the day prior to conversion. Consequently, an additional $309,000 in
compensation cost, along with other equity incentives described more fully
in footnote 10, is included in non-cash compensation for the year ended
December 31, 1995.
8. LEASES
OPERATING LEASES
Beginning in March 1995, the Company is leasing its headquarters in Delray
Beach, Florida from a consultant and the former president of WGHI for
$2,300 average monthly rental. The lease extends through April 1998.
Future minimum rental payments on operating leases, exclusive of abandoned
leases are as follows:
For the year ended
DECEMBER 31, AMOUNT
1996....................................................... $ 336,271
1997....................................................... 282,864
1998....................................................... 225,885
1999....................................................... 210,505
2000....................................................... 205,296
2001 and thereafter ....................................... 256,620
----------
Total future minimum rentals .............................. 1,517,441
Less amount to be received under
non-cancellable subleases ............................... 920,199
Net future minimum cash flows ............................. $ 597,242
==========
Rent expense for the years ended December 31, 1995 and 1994 was $462,117
and $502,231, respectively, including payments made on cancellable and
non-cancellable leases. Sublease rentals did not begin until 1996.
CAPITAL LEASES
The Company has leased and continues to lease equipment under capital
leases. The Company's active capital lease expires in 1997. The assets and
liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the asset.
Depreciation of assets under capital leases of $270 and $3,570 is included
in depreciation expense for the years ended December 31, 1995 and 1994,
respectively. Accumulated amortization of capital leases totaled $6,865 at
December 31, 1995.
F-19
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
8. LEASES (CONTINUED)
CAPITAL LEASES (CONTINUED)
Future minimum lease payments under capital leases at December 31, 1995
through maturity and in the aggregate are:
For the year ended
December 31, Amount
1996........................................................ $4,788
1997........................................................ 3,990
------
subtotal .................................................. 8,778
Less amount representing interest ............................. 677
Present value of minimum lease payments ....................... $8,101
======
Interest rate implicit in the lease was 8.5% at December 31, 1995.
The aforementioned payments do not include leases in default on assets
which the Company has abandoned. These leases are recorded on the books at
their estimated settlement amounts.
9. INCOME TAXES
The Company's net operating and capital loss carryforwards are estimated
to be $18 million for federal income tax purposes at December 31, 1995.
The carryforwards expire in various years from 2003 to 2010, with the
majority expiring in 2007 and 2008. These carryforwards are on a
consolidated return basis for the members of the consolidated group and,
thus, the loss carryforwards may have certain separate return limitations.
Use of the Company's net operating and capital loss carryforwards may be
limited under Internal Revenue Code Section 382.
Deferred taxes result from temporary differences in the recognition of
income and expenses for the financial and income tax reporting purposes
and as a result of non-benefited net operating and capital loss
carryforwards. The approximate effect of temporary differences that gave
rise to deferred tax balances at December 31, 1995 were as follows:
Deferred tax assets:
Accounts and notes receivable ........................... $ 61,200
Land investment ......................................... 496,400
Other reserves .......................................... 134,600
Non-benefited losses .................................... 6,071,400
-----------
Total deferred tax assets ............................ 6,763,600
Valuation allowance for deferred tax assets ................ (6,763,600)
Net deferred tax assets .................................... --
Deferred tax liabilities:
Other, net .............................................. --
Net deferred tax asset ..................................... $ --
===========
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
9. INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets increased $2,108,600
during the year ended December 31, 1995.
The effective tax rate on income before provision for the income taxes and
extraordinary item varies from the current statutory federal income tax
rate as follows:
December 31,
1995 1994
------ -----
Statutory rate......................... 34.00% 34.00%
Non-benefited losses and
temporary differences............... (34.00%) (34.00%)
Gain on extinguishment of debt......... 2.40% 7.80%
Other, net............................. -- --
------ -----
Effective tax rate..................... 2.40% 7.80%
====== ======
10. SHAREHOLDERS' EQUITY
STOCK AND WARRANT ACTIVITY
On July 7, 1995, the Company effected a 1 for 30 reverse stock split of
its common stock. Concurrently, the number of authorized common shares was
reduced to 3,333,333. Unless otherwise indicated, all share and per share
amounts in these financial statements have been restated to reflect the
stock split.
STOCK OPTION PLANS
1994 STOCK OPTION PLAN
In May 1994, the shareholders approved the Network Financial Services,
Inc. 1994 Stock Option Plan. The plan is established as a compensatory
plan to attract, retain, and provide equity incentives to selected persons
to promote the financial success of the Company. A total of 333,333 common
shares have been reserved for grants under the plan. The options may be
granted as either incentive stock options (ISO's) or Non-Qualified Stock
Options (NQSO's).
1993 OMNIBUS STOCK OPTION PLAN
On May 26, 1993, the shareholders approved the 1993 Omnibus Stock Plan for
the purpose of providing a long-term incentive vehicle to promote the
Company's success under which a variety of stock-based incentives and
other awards may be granted to employees, Directors of the Company and its
subsidiaries, and to selected consultants. The maximum number of 83,333
common shares are available for grants under this plan. Of this total,
16,667 shares may be awarded as restricted stock.
1990 NONQUALIFIED STOCK OPTION PLAN
In October 1990, the shareholders adopted a Nonqualified Stock Option Plan
(1990 NSOP). The 1990 NSOP was adopted in order to permit the exchange of
prior options held by option holders of the Company for the new options of
the Company. The 1990 NSOP is administered by the Compensation Committee
of the Board of Directors. The 1990 NSOP provides that options may be
granted at exercise prices
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
F-22
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
10. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
1990 NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
equal to or less than the fair market value of the common shares of the
Company on the date of grant.
OPTION PLAN ACTIVITY
The following summarizes the stock option plan activity for the year ended
December 31, 1995:
1990 NSOP 1993 OMNIBUS
---------------------- ---------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
Beginning Balance ..... 5,387 $14.898 to $112.50 51,682 $45.00 to $70.50
Options granted ....... -- --
Options exercised ..... -- --
Options cancelled ..... -- --
------------------ ------ ----------------
Ending Balance ........ 5,387 $14.898 to $112.50 51,682 $45.00 to $70.50
================== ====== ================
1995 STOCK OPTION PLAN
SHARES OPTION PRICE
Beginning Balance........................ 157,327 $2.00 to $45.00
Options granted.......................... 182,243 $2.00 to $3.75
Options exercised........................ --
Options cancelled........................ 15,664 $3.75 TO $12.00
-------- ---------------
Ending Balance........................... 323,906 $2.00 to $45.00
======== ===============
For the years ended December 31, 1995 and 1994, the options under all
applicable plans were granted at a price which equaled or exceeded fair
market value for the stock on the date of the grant. Consequently, no
compensation has been recorded in these years.
Certain financing activities conducted by the Company in 1995 contained
equity incentives which have been accounted for as flexible options.
Options to convert loans with a face amount of $765,000 and accrued
salaries totaling $309,000 into common shares of the Company at 50% of the
average bid were outstanding at December 31, 1995. These incentives are
exercisable immediately and for periods of two years and up. Non-cash
compensation cost of $1,071,000 has been recognized with respect to the
grant of these conversion privileges. In addition, options to purchase
8,571 shares at $7 per share were granted in July 1995, for which non-cash
compensation was recognized in the amount of $25,000. All equity shares
issuable upon exercise of these conversion privileges and options contain
registration rights.
F-22
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
10. SHAREHOLDERS' EQUITY (CONTINUED)
OPTION PLAN ACTIVITY (CONTINUED)
Also outstanding at December 31, 1995 are options to purchase 33,333
shares of the Company's common stock at $9.00 per share. The underlying
stock is to be registered when the option is exercised. The option is
freely transferable and divisible and valid until October 1997. The
options were granted with an exercise price lower than fair market value
of the stock on the date of the grant. Compensation cost of $158,750 was
recorded in the year ended December 31, 1994.
11. RELATED PARTY TRANSACTIONS
The Company is leasing its executive offices from a consultant and former
officer of the Company on a month-to-month basis for an average net
monthly rental of $2,300 per month.
During the year ended December 31, 1995, the Company's former president
and another officer provided short-term loans to the Company totaling
$565,000, of which $90,000 was repaid in cash and $475,000 was assumed by
HLOA in the transaction more fully described in Note 6.
12. INTANGIBLE ASSETS
The Company recorded $989,160 in goodwill for the purchase of Westmark
Mortgage Corporation in August 1993. The amount recorded represents the
difference between the total purchase price of the business and the fair
market values of identifiable assets purchased.
The Company has adopted SFAS 121 - ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS TO BE DISPOSED OF which is effective for fiscal years
beginning after December 15, 1995. Management projects that future cash
flows from the origination and sale of mortgage loans to be higher than
the carrying value of the asset. Consequently, no impairment loss has been
recognized in these financial statements.
13. NON-CASH INVESTING AND FINANCING AND OTHER CASH INFORMATION
Material non-cash investing and financing activities for 1995:
Issuance of common shares for preferred stock ................... $ 2,000,000
Issuance of common shares for debt retirement ................... 1,053,000
Finance building purchase ....................................... 87,000
Material non-cash investing and financing activities for 1994:
Sale of servicing - total proceeds .............................. $ 1,700,780
Amount due in more than one year ................................ (359,326)
Other offsets ................................................... (65,516)
-----------
Amount received in cash ......................................... $ 1,275,938
===========
F-23
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
13. NON-CASH INVESTING AND FINANCING AND OTHER CASH INFORMATION (CONTINUED)
1995 1994
------------ --------
Cash paid for interest .................... $ 1,044,360 $752,370
=========== ========
Cash paid for income taxes ................ $ -- $ --
=========== ========
14 EFFECT OF YEAR END ADJUSTMENTS WHICH ARE MATERIAL TO FOURTH QUARTER RESULTS
Significant year end adjustments which affect the fourth quarter's results
of operations are summarized as follows:
Unrecorded liabilities ...................................... $ 307,000
Non-cash compensation ....................................... 1,343,000
Income recognition on loans ................................. 238,000
Improperly deferred costs and receivables ................... 1,753,000
Total net reductions in fourth
quarter results ........................................... $3,641,000
==========
15. SUBSEQUENT EVENTS
ADDITIONAL FINANCING COMMITMENTS BY HEART LABS OF AMERICA, INC. Heart Labs
of America, Inc. has committed additional financing of $1.6 million to be
used for WGHI operations and financing activities as follows:
Settlement of Bridge Notes (see below) ...................... $ 600,000
Settlement of stock repurchase obligations .................. 700,000
Operating capital ........................................... 300,000
----------
Total additional financing .................................. $1,600,000
==========
The financing is provided in the form of short-term advances which may be
converted to equity.
F-24
WESTMARK GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
15. SUBSEQUENT EVENTS (CONTINUED)
RESTRUCTURING OF OUTSTANDING BRIDGE FINANCING
On or about March 6, 1996, the Company deposited $600,000 in an escrow
account to be applied to the satisfaction of certain bridge financing
received by the Company in May and June 1995. As mentioned above, the
funds were provided to the Company by HLOA.
AGREEMENT TO REPURCHASE COMMON SHARES PREVIOUSLY ISSUED
Effective March 15, 1996, the Company agreed to redeem a total of 365,000
shares of previously issued common stock for total consideration of
$700,000 cash and the issuance of non-voting convertible preferred stock.
The preferred stock is callable by the holder for $400,000 and is
convertible into 266,667 shares of common stock based on the lesser of
$1.50 per share of 84% of the closing bid price of the common stock on
March 26, 1996. There were no outstanding put options associated with
these redemptions or on any other securities at December 31, 1995. As
mentioned above, Heart Labs of America, Inc. has committed a total of
$700,000 to be applied to the repurchase of these shares, as necessary.
SETTLEMENT OF FORECLOSURE ACTION
In April 1996, the Company reached an agreement to modify its $87,000
mortgage note. The interest rate was increased to 12% per year, and the
Company agreed to a one time payment of $24,000 with modified monthly
installments of $2,807.
SUBLEASE CONTRACTS AND MODIFICATION OF RENTAL AGREEMENT
In March and April 1996, the Company entered into sublease agreements for
its Costa Mesa and Hawaii offices, with minimum sublease rentals to be
received under these agreements totaling $920,199.
CONVERSION OF DEBT TO EQUITY
In April 1996, holders of $165,000 in debt obligations converted these
notes to 148,739 shares of the Company's common stock at an average price
of $1.11 per share.
GREENTREE SETTLEMENT
In April 1996, the Company settled its negotiations with Greentree
Mortgage Corporation, L.P., with an agreement to pay $35,000 in stock plus
3 year warrants to purchase 150,000 shares at $2.62.
16. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT
HEART LABS FINANCING
In addition to the $1,600,000 discussed in footnote 15 to the financial
statements, Heart Labs has advanced an additional $543,000 for a total of
$2,293,000. Of this amount, $700,000 was converted to 200,000 shares of
series C preferred stock with a stated value of $3.50 per share.
F-25
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
---------------------------
ASSETS
Current Assets:
Cash and cash equivalents $263,947 $311,916
Accounts receivable, net of reserve 8,664 8,004
Note receivable-stock sale 0 374,222
Mortgage loans held for sale 7,266,724 19,480,029
Other current assets 69,800 2,202
---------- ----------
Total current assets 7,609,135 20,176,373
---------- ----------
Fixed Assets:
Property and equipment 820,588 820,588
Equipment under capital leases 16,477 16,477
---------- ----------
837,065 837,065
Less Accumulated Depreciation (458,223) (434,411)
---------- ----------
Total fixed assets 378,842 402,654
---------- ----------
Other Assets:
Investment in real estate 2,115,000 2,115,000
Investment in preferred stock 2,000,000 2,000,000
Goodwill, net of amortization 761,104 785,833
Deposits and other assets 0 30,298
---------- ----------
Total other assets 4,876,104 4,931,131
TOTAL ASSETS 12,864,081 25,510,158
========== ==========
(SEE ACCOMPANYING NOTES.)
F-26
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $773,226 $1,234,199
Warehouse line of credit 7,057,297 18,625,866
Interest payable 141,783 227,619
Settlement liability 419,348 419,348
Other notes payable and convertible debentures 707,318 717,818
Payroll taxes payable 90,000 141,329
Other current liabilities 650,888 854,452
---------- ----------
Total current liabilities 9,839,860 22,220,631
---------- ----------
Long-Term Liabilities:
Notes payable 1,000,000 1,000,000
Short term debt expected to be refinanced
on a long-term basis 698,323 698,323
---------- ----------
Total long-term liabilities 1,698,323 1,698,323
---------- ----------
TOTAL LIABILITIES 11,538,183 23,918,954
---------- ----------
STOCKHOLDER'S EQUITY:
Preferred stock, no par value, 1,000,000 shares
authorized; 200,000 shares issued and
outstanding at March 31, 1996 700,000 0
Common stock, no par value, 3,333,333 shares
authorized; 2,637,772 shares issued and
outstanding at March 31, 1996, 2,632,772
shares issued and outstanding as of
December 31, 1995. 22,475,937 23,165,937
Additional Paid in capital from outstanding
options and warrants 1,153,688 1,153,688
Accumulated deficit (23,003,727) (22,728,421)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,325,898 1,591,204
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,864,081 $25,510,158
========== ==========
(SEE ACCOMPANYING NOTES.)
F-27
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
----------------------------
March 31, March 31,
1996 1995
(Unaudited) (Unaudited)
----------------------------
REVENUES:
Loan origination and gain from sale
of servicing 987,222 662,894
Other 4,170 8,825
----------------------------
TOTAL REVENUES 991,392 671,719
----------------------------
EXPENSES:
Loan origination costs 373,224 381,090
Servicing sale adjustments (70,000) 0
General and administration 892,277 1,324,547
Marketing and advertising 22,656 62,474
Goodwill amortization 24,729 24,729
Depreciation 23,812 0
----------------------------
1,266,698 1,792,840
TOTAL EXPENSES
----------------------------
Loss before income taxes (275,306) (1,121,121)
Provision for income taxes
----------------------------
NET LOSS (275,306) (1,121,121)
============================
NET LOSS PER SHARE (0.10) (1.80)
============================
(See accompanying notes)
F-28
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1996 1995
(UNAUDITED) (UNAUDITED)
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Consolidated net loss ................................. $ (275,306) $(1,121,121)
Adjustments to reconcile consolidated net (loss)
to net cash used by operating activities:
Depreciation and amortization ..................... 23,812 26,754
Stock issued for services ......................... 0 203,425
Stock issued for settlement of litigation ......... 0 174,250
Goodwill amortization ............................. 24,729 24,729
------------ -----------
Cash used in operations before working capital changes (226,765) (691,963)
------------ -----------
(Increase)/Decrease in accounts receivable ........ (660) 426,085
(Increase)/Decrease in other current assets ....... (37,300) (200,740)
(Increase)/Decrease in mortgage loans held for sale 12,213,305 (5,960,691)
(Increase)/Decrease in REO loans .................. 0 62,050
(Increase)/Decrease in other long term assets ..... 0 200,792
(Increase)/Decrease in capital lease .............. (2,345) 0
Increase/(Decrease) in accounts payable ........... (460,973) (53,518)
Increase/(Decrease) in interest payable ........... (85,836) 56,196
Increase/(Decrease) in other notes payable ........ 0 (105,000)
Increase/(Decrease) in other current liabilities .. (342,548) (69,197)
------------ -----------
Net cash used after working capital changes ........... 11,283,643 (5,644,023)
------------ -----------
Cash (used) in operating activities ................... 11,056,878 (6,335,986)
INVESTING ACTIVITIES
Purchase of fixed assets and improvements ......... 0 (14,704)
------------ -----------
Cash used in investing activities ..................... 0 (14,704)
FINANCING ACTIVITIES
Net Increase/(Decrease) in warehouse line of credit (11,568,569) 5,893,118
Allowances from related party ..................... 790,000 0
Payment of note receivable-sale of stock .......... 374,222 0
Repayments of notes payable ....................... (10,500) 0
Repurchase of stock ............................... (700,000) 0
Sale of stock for cash ............................ 10,000 371,666
------------ -----------
Cash provided/(used) by financing activities .......... (11,104,847) 6,264,784
------------ -----------
Net decrease in cash .................................. (47,969) (85,906)
Cash and cash equivalents, beginning of period ........ 311,916 107,573
Cash and cash equivalents, end of period .............. 263,947 21,667
============ ===========
Cash Paid for interest ................................ $ 309,770 $ 113,432
============ ===========
Cash paid for income taxes ............................ $ 0 $ 0
============ ===========
</TABLE>
(SEE ACCOMPANYING NOTES.)
F-29
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310b of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's audited annual report on Form 10-KSB for the year ended December 31,
1995.
NOTE 2: FIRST QUARTER FINANCING ACTIVITY
The Company received $790,000 in advances from Heart Labs of America, Inc.
("HLOA") which were used to fund a stock repurchase commitment of $700,000, as
well as for working capital purposes. A total of $700,000 of these advances were
converted to 10% convertible preferred stock, with the remainder in the form of
one-year 10% promissory notes totaling $90,000.
NOTE 3: EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 1995 take into
effect a reverse of 1 to 30 recorded in July 1995.
F-30
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
B. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (A) and (B), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under subsections (A) and (B) (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (A) and (B). Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
E. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized by the Certificate of Incorporation. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
II-1
F. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
G. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the Certificate of Incorporation.
H. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be
incurred in connection with the distribution of the securities being registered.
The expenses shall be paid by the Registrant.
SEC Registration Fee................................. $ 1,734
Printing and Engraving Expenses...................... 25,000
Legal Fees and Expenses.............................. 60,000
Accounting Fees and Expenses......................... 75,000
Blue Sky Fees and Expenses........................... 25,000
Transfer Agent Fees.................................. 2,000
Miscellaneous........................................ 11,266
------
TOTAL........................................... $200,000
- --------------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In August 1993, the Company issued 61,796 shares of Common Stock to
eight investors for an aggregate purchase price of approximately $61,796. The
Company believes that the transaction herein is exempt from registration
pursuant to Regulation S of the Act as a transaction sold only to non-United
States resident investors.
Between January and December 1994, the Company issued a total of
84,821 shares of Common Stock to eight investors for an aggregate purchase price
of approximately $700,000. The Company believes that the transaction herein is
exempt from registration pursuant to Regulation S of the Act as a transaction
sold only to non-United States resident investors.
In March 1994, the Company issued options to purchase a total of
81,095 shares of Common Stock at an exercise price of $2.00 per share to
employees in consideration for services rendered. The Company believes that the
transactions herein are exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
Between March and April 1994, the Company issued options to
purchase a total of 13,333 shares of Common Stock at an exercise price of $3.75
per share to employees in consideration for services rendered. The Company
believes that the transactions herein are exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
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Between April and August of 1994, the Company raised approximately
$2,000,000 in a private placement of its securities through the sale of 77,477
units, each unit consisting of one share of the Company's Common Stock and one
warrant which has expired. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
Between June and July 1994, the Company issued options to purchase
a total of 46,560 shares of Common Stock at exercise prices of between $2.00 and
$45.00 per share to employees in consideration for services rendered. The
Company believes that the transactions herein are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In July 1994, the Company issued 13,334 shares of Common Stock to
Primark Corporation in addition to a $500,000 cash payment for the acquisition
of Westmark Mortgage. The Company believes that the transaction herein is exempt
from registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
In August 1994, the Company issued 8,067 shares of Common Stock to
two individuals in consideration for converting $50,000 of indebtedness into
equity. The Company believes that the transaction herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In August through December 1994, the Company issued an aggregate of
71,747 shares of Common Stock to employees and consultants for services rendered
valued at nominal consideration. The Company believes that the transactions
herein is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In November 1994, the Company issued M.S. Farrell a warrant to
purchase 33,333 shares of Common Stock at a purchase price of $9.00 per share in
consideration for services rendered. The Company believes that the transaction
herein is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In December 1994, the Company issued options to purchase a total of
3,332 shares of Common Stock at an exercise price of $15 per share to employees
in consideration for services rendered. The Company believes that the
transactions herein are exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
Between January and May 1995, the Company raised approximately
$700,000 in a private placement of its securities through the sale of 220,032
shares of Common Stock. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In March 1995, the Company issued 42,968 shares of Common Stock to
three individuals and/or entities for an aggregate consideration of
approximately $100,000. The Company believes that the transaction herein is
exempt from registration pursuant to Regulation S of the Act as a transaction by
an issuer only to non-resident United States investors.
In March 1995, the Company issued 47,190 shares of Common Stock to
various employees and consultants for services rendered valued at a nominal
amount. The Company believes that the transactions herein are exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
Between March and June 1995, the Company issued four former
officers an aggregate of 9,891 shares of Common Stock for accrued salary of
approximately $62,500. The Company believes that the transactions herein are
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
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Between March and July 1995, the Company issued an option to
purchase a total of 173,848 shares of Common Stock at an exercise price of
between $2.00 and $3.75 per share to employees in consideration for services
rendered. The Company believes that the transactions herein are exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In May 1995, the Company issued 16,667 shares of Common Stock to
Greentree Mortgage Company as a portion of the aggregate sales price for the
acquisition of certain of the production assets of Greentree Mortgage. The
Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In June 1995, the Company issued three individuals an aggregate of
11,000 shares of Common Stock for services rendered valued at a nominal amount.
The Company believes that the transactions herein are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In August 1995, the Company issued 75,000 shares of Common Stock to
an entity for an aggregate consideration of $75,000. The Company believes that
the transaction herein is exempt from registration pursuant to Regulation S of
the Act as a transaction by an issuer only to non-resident United States
investors.
In September 1995, the Company issued 125,000 share of Common Stock
to an individual in connection with converting a promissory note in the amount
of $250,000 for such shares. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In November 1995, the Company issued an aggregate of 112,419 shares
of Common Stock to five individuals in consideration for consultant services
rendered. The Company believes that the transactions herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In November 1995, the Company issued 1,298,000 shares of Common
Stock to Heart Labs of America, Inc., pursuant to a stock purchase agreement.
The Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In November 1995, the Company issued a warrant to purchase 300,000
shares of Common Stock at $1.00 per share to Ocean Marketing Corp. in
consideration for consulting services rendered. The Company believes that the
transaction herein is exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
Between January and April 1996, the Company issued an option to
purchase a total of 3,332 shares of Common Stock at an exercise price of $2.00
per share to employees in consideration for services rendered. The Company
believes that the transactions herein are exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In March 1996, an individual exercised an option to purchase 5,000
shares of Common Stock in satisfaction of accrued debt of $10,000. The Company
believes that the transaction herein is exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In April 1996, the Company issued warrants to purchase 90,000 of
Common Stock at a price of $2.25 per share to Norman J. Birmingham in connection
with his employment agreement. The Company believes that the transaction herein
is exempt from registration pursuant to Section 4(2) of the Act as a transaction
by an issuer not involving any public offering.
II-4
In April 1996, the Company issued warrants to purchase 90,000 of
Common Stock at a price of $2.25 per share to Mark Schaftlein in connection with
his employment agreement. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In April 1996, the Company issued a warrant to purchase 150,000
shares of Common Stock at a price of $2.375 per share to Greentree Mortgage in
consideration of restructuring a $100,000 debt owed by the Company to Greentree
Mortgage. The Company believes that the transaction herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In April 1996, an aggregate of 151,350 shares of Common Stock were
issued in consideration for services rendered valued at nominal consideration.
The Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In April 1996, an aggregate of 138,656 shares of Common Stock were
issued to five individuals in consideration for converting $165,000 of
indebtedness into equity. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In April 1996, an aggregate of 21,700 shares of Common Stock were
issued to ten individuals in consideration for converting $60,500 of
indebtedness into equity. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In May 1996, an option to purchase 10,000 shares of Common Stock
was issued to a third party, at a purchase price of $2.00 per share, for
services rendered. The Company believes that the transaction herein is exempt
from registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
In May 1996, 154,404 shares of Common Stock were issued to Heart
Labs of America, Inc. pursuant to the November 1995 Stock Purchase Agreement.
The Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
II-5
ITEM 27. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
TO BE FILED BY PAPER
IN ORIGINAL FORM
PURSUANT TO 202(D)
HARDSHIP EXEMPTION
TO BE FILED AND ELECTRONICALLY
ELECTRONICALLY IN FIRST AMENDMENT EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- -------------- ------------------ ----------- -------------------------
<S> <C> <C>
X 2.1(3) Form of Merger between Colorado and Delaware
Companies
3.1(1) Articles of Incorporation of the Company and
(2) Amendments thereto
X 3.2(3) Certificate of Incorporation of the Company, filed in the
office of the Secretary of State of Delaware on May 10,
1996, and incorporated herein by reference
3.3(1) By-Laws of the Company
X 4.1(4) Form of specimen Common Stock
X 4.2(3) Series A Preferred Stock Designation
X 4.3(3) Series B Preferred Stock Designation
X 4.4(3) Series C Preferred Stock Designation
X 5.1(3) Opinion Regarding Legality
X 10.1(4) Westmark Mortgage Acquisition Agreement
X 10.2(3) Purchase and Sale Agreement between the Company and
Crown Bank
X 10.3(3) Mortgage Warehouse and Security Agreement between
the Company and Princap Mortgage Warehouse, Inc.
dated October 26, 1995
X 10.4(3) Purchase and Sale Agreement between the Company and
Heart Labs of America, inc. dated November 1995, as
amended.
X 10.5(3) Lease Agreement for Corporate Offices in Delray Beach,
Florida
X 10.6((3) Rodger Stubbs Termination Agreement
X 10.7((3) Michael Morrell Termination Agreement
X 10.8(3) Linda Moore Termination Agreement
X 10.9(3) Norman J. Birmingham Employment Agreement
II-6
X 10.10(3) Mark Schaftlein Employment Agreement
X 10.11(3) Dawn Drella Employment Agreement
X 10.12(3) Norman J. Birmingham Warrant
X 10.13(3) Mark Schaftlein Warrant
X 10.14(3) 1990 Non-Qualified Stock Option Plan
X 10.15(3) 1993 Non-Qualified Stock Option Plan
X 10.16(3) 1994 Non-Qualified Stock Option Plan
X 10.17(3) Settlement Agreement between the Company and Arthur
Strock dated April 17, 1996
X 10.18(3) Settlement Agreement between the Company and
Greentree Mortgage Company dated April 19, 1996
X 10.19(3) Settlement Agreement between the Company and First
American Flood Data, Inc. dated March 29, 1996
X 10.20(3) Note Modification Agreement between the Company and
Dolan Development Partners, Inc. dated July 12, 1995
X 10.21(3) Form of Settlement Agreement between the Company
and Each Party to the Bridge Financing dated April 1,
1996
X 10.22(3) Settlement Agreement between the Company and James
S. Hull dated April 25, 1996
X 10.23(3) Settlement Agreement between the Company and Svarna
Offshore Fund dated March 21, 1996
X 10.24(3) Settlement Agreement between the Company and Drew
Hollenbeck dated March 21, 1996
X 10.25(3) Settlement Agreement between the Company and
Nationwide Computer Corporation dated March 26, 1996
X 10.26(3) Settlement Agreement between the Company and
Teletrend Communications dated March 27, 1996
X 10.27(3) Settlement Agreement between the Company and Cohen,
Brahme and Smith dated March 15, 1996
X 10.28(3) Settlement Agreement between the Company and
Mortgage Quality Management, Inc. dated March 27,
1996
X 10.29(3) Settlement Agreement between the Company and
Hakman & Company dated March 27, 1996
II-7
X 10.30(3) Settlement Agreement between the Company and
Republic Indemnity dated February, 1996
X 10.31(3) Settlement Agreement between the Company and
Brentwood Computers dated February 27, 1996
X 10.32(3) Settlement Agreement between the Company and
Jackson, Tufts, Cole & Black dated February 22, 1196
X 10.33(3) Settlement Agreement between the Company and
Cassidy & Associates
X 10.34(3) Settlement Agreement between the Company and
Howard Rice dated March 26, 1996
X 10.35(3) Settlement Agreement between the Company and Jehu
Hand dated March 28, 1996
X 10.36(3) Settlement Agreement between the Company and Mucci
Associates
X 10.37(3) Settlement Agreement between the Company and
Prentice Hall dated April 20, 1996
X 10.38(3) Settlement Agreement between the Company and
American Pacific Printers College, Inc. d/b/a Kenny the
Printer dated May 24, 1996
X 10.39(3) Settlement Agreement between the Company and Lomas
Mortgage USA, Inc. dated May 24, 1996
X 10.40(4) Settlement Agreement between the Company and
Deloitte & Touche, LLP dated May 1996
X 10.41(3) Settlement Agreement between the Company and Steve
Jizmagian dated May 30, 1996
X 10.42(3) Settlement Agreement between the Company and James
D. Tucker dated May 17, 1996
X 10.43(3) Settlement Agreement between the Company and M.S.
Farrell & Company, Inc. dated May 29, 1996
X 21.1(3) List of Subsidiaries
X 24.1(3) Consent of Comiskey & Company, P.C.
X 24.2(3) Consent of Brewer & Pritchard, P.C. (Contained in
Exhibit 5.1)
</TABLE>
- ---------------------
(1) The information required by this exhibit is incorporated by reference
to the exhibits filed in connection with the Company's prior
Registration Statement on Form S-18 (Commission File No.
33-16715-D)
(2) The Articles of Amendment to the Articles of Incorporation dated July
11, 1994, were attached to the December 31, 1994 Form 10-K8B.
II-8
(3) Filed herewith, either electronically or by paper pursuant to 202(d)
hardship exemption.
(4) To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
i. To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
ii. To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement; and
iii. To include any additional or changed
material information with respect to the
plan of distribution.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a
new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(4) i. That, for the purpose of determining
liability under the Securities Act of
1933, the information omitted from the
form of prospectus filed as part of this
registration statement in reliance upon
Rule 430A and contained in a form of
prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933
shall be deemed to be part of this
registration statement as of the time it
was declared effective.
ii. That, for the purpose of determining
liability under the Securities Act of
1933, each post-effective amendment that
contains a form of prospectus shall be
deemed to be a new registration statement
relating to the securities offered
therein, and the offering of such
securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate
II-9
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Delray, State of Florida, on the 6 day of June, 1996.
Westmark Group Holdings, Inc.
By /s/ NORMAN J. BIRMINGHAM
Norman J. Birmingham,
President, Chief Executive
Officer and Director
----------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ NORMAN J. BIRMINGHAM President, Chief Executive Officer June 6, 1996
Norman J. Birmingham and Director
/s/ DAWN DRELLA Chief Financial Officer (Principal June 6, 1996
Dawn Drella Financial and Accounting Officer)
/s/ MARK SCHAFTLEIN Director June 6, 1996
Mark Schaftlein
/s/ TODD WALKER Director June 6, 1996
Todd Walker
II-11
EXHIBIT 2.1
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER ("Agreement"), dated as of the ________
day of _______, 1996, is made and entered into by and between Westmark Group
Holdings, Inc., a Colorado corporation (the "Company"), and Westmark Group
Holdings, Inc.-Delaware, a Delaware corporation ("Westmark-Delaware").
W I T N E S S E T H:
WHEREAS, the Company is a corporation organized and existing under the
laws of the State of Colorado, having been incorporated on first day of
December, 1986; and
WHEREAS, Westmark-Delaware is a wholly-owned subsidiary corporation of the
Company, having been incorporated on the _____ day of ______, 1996; and
WHEREAS, the respective Boards of Directors of the Company and
WestmarkDelaware determined that it is desirable to merge the Company into
Westmark-Delaware ("Merger").
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Company shall be merged into Westmark-Delaware upon the terms and conditions
hereinafter set forth.
ARTICLE I
MERGER
On the effective date of the Merger ("Effective Date") as provided herein,
the Company shall be merged into Westmark-Delaware, the separate existence of
the Company shall cease, and Westmark-Delaware ("Surviving Corporation") shall
continue to exist under the name of Westmark Group Holdings, Inc. by virtue of,
and shall be governed by, the laws of the State of Delaware. The filing of this
Agreement with the Delaware Secretary of State shall effect the name change of
Westmark Group Holdings, Inc.-Delaware to Westmark Group Holdings, Inc., and
this shall be in lieu of filing an amendment to the WestmarkDelaware Certificate
of Incorporation. The address of The Prentice-Hall Corporation System, Inc., the
registered office of the Surviving Corporation in the State of Delaware, is 32
Loockerman Square, Suite L100, Dover, Kent County, Delaware 19901. The Company
appoints the Colorado Secretary of State to be the Company's registered agent in
the State of Colorado.
A-1
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Westmark-Delaware ("Delaware Charter") as in
effect on the date hereof without change unless and until amended in accordance
with applicable law.
ARTICLE III
BYLAWS OF THE SURVIVING CORPORATION
The Bylaws of the Surviving Corporation shall be the Bylaws of
Westmark-Delaware ("Delaware Bylaws") as in effect on the date hereof without
change unless and until amended in accordance with applicable law.
ARTICLE IV
EFFECT OF MERGER ON STOCK OF CONSTITUENT CORPORATIONS
4.01. On the Effective Date, each outstanding share of common stock of the
Company, no par value ("Common Stock"), shall be converted into one share of
WestmarkDelaware common stock, par value .001 ("Delaware Common Stock"), except
for those shares with respect to which the holders thereto duly exercise their
dissenters' rights pursuant to Title 7, Article 113 of the Colorado Revised
Statutes Annotated ("CRSA"), and each outstanding share of Delaware Common Stock
held by the Company shall be retired and cancelled.
4.02. On the Effective Date, each outstanding share of preferred stock of
the Company ("Preferred Stock") shall be converted into one share of Delaware
preferred stock, par value .001 ("Delaware Preferred Stock"), except for those
shares with respect to which the holders thereto duly exercise their dissenters'
rights pursuant to Title 7, Article 113 of the CRSA, and each outstanding share
of Delaware Preferred Stock held by the Company shall be retired and cancelled.
4.03. After the Effective Date, certificates representing shares of the
Common Stock will represent shares of Delaware Common Stock. Each holder of a
certificate or certificates representing one or more shares of Common Stock,
upon surrender of the same to the transfer agent or the Company, shall be
entitled to receive in exchange therefor a certificate or certificates
representing one or more shares of Delaware Common Stock.
4.04. After the Effective Date, certificates representing shares of the
Preferred Stock will represent shares of Delaware Preferred Stock. Each holder
of a certificate or certificates representing one or more shares of Preferred
Stock, upon surrender of the same to the transfer agent or the Company, shall be
entitled to receive in exchange therefor a certificate or certificates
representing one or more shares of Delaware Preferred Stock.
A-2
ARTICLE V
CORPORATE EXISTENCE, POWERS AND
LIABILITIES OF SURVIVING CORPORATIONS
5.01. On the Effective Date, the separate existence of the Company shall
cease. The Company shall be merged with and into Westmark-Delaware, the
Surviving Corporation, in accordance with the provisions of this Agreement.
Thereafter, WestmarkDelaware shall possess all the rights, privileges, powers,
and franchises of a public as well as of a private nature, and shall be subject
to all the restrictions, disabilities, and duties of each of the parties to this
Agreement; and all and singular, the rights, privileges, powers, and franchises
of the Company and Westmark-Delaware, and all property, real, personal, and
mixed, and all debts due to each of them on whatever account, shall be vested in
WestmarkDelaware; and all property, rights, privileges, powers, and franchises,
and all and every other interest shall be thereafter as effectually the property
of Westmark-Delaware, the Surviving Corporation, as they were of the respective
constituent entities, and the title to any real estate, whether by deed or
otherwise, vested in the Company and Westmark-Delaware or either of them, shall
not revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon the property of the parties hereto, shall be
preserved unimpaired, and all debts, liabilities and duties of the Company,
shall thenceforth attach to Westmark-Delaware, and may be enforced against it to
the same extent as if said debts, liabilities, and duties had been incurred or
contracted by it.
5.02. The Company agrees that it will execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken such further or other action as the Surviving Corporation may
deem necessary in order to vest in and confirm to the Surviving Corporation
title to and possession of all the property, rights, privileges, immunities,
powers, purposes and franchises, and all and every other interest, of the
Company and otherwise to carry out the intent and purposes of this Agreement.
ARTICLE VI
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
6.01. Upon the Effective Date, the officers and/or directors of the
Surviving Corporation shall be the officers and/or directors of
Westmark-Delaware in office at such date, and such persons shall hold office in
accordance with the Delaware Bylaws until their respective successors shall have
been appointed or elected.
6.02. If, upon the Effective Date, a vacancy shall exist in the Board of
Directors of the Surviving Corporation, such vacancy shall be filled in the
manner provided by the Delaware Bylaws.
A-3
ARTICLE VII
APPROVAL BY SHAREHOLDERS; EFFECTIVE DATE;
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE
7.01. Soon after the approval of this Agreement by the requisite number of
shareholders of the Company, the respective Boards of Directors of the Company
and Westmark-Delaware will cause their duly authorized officers to make and
execute Articles of Merger effecting this Agreement and shall cause the same to
be filed with the Secretaries of State of Colorado and Delaware, respectively,
in accordance with the CRSA and Delaware General Corporation Law ("DGCL"). The
Effective Date shall be the date on which the Merger becomes effective under the
DGCL.
7.02. The Boards of Directors of the Company and Westmark-Delaware may
amend this Agreement and the Delaware Charter at any time prior to the Effective
Date, provided that an amendment made subsequent to the approval of the Merger
by the shareholders of the Company may not (i) change the amount or type of
shares to be received in exchange for or on conversion of the shares of the
capital stock, (ii) change any term of the Delaware Charter, or (iii) change any
of the terms and conditions of this Agreement if such change would adversely
affect the holders on the capital stock.
ARTICLE VIII
TERMINATION OF MERGER
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, whether before or after shareholder approval of
this Agreement, by the consent of the Board of Directors of the Company and
Westmark-Delaware.
ARTICLE IX
MISCELLANEOUS
In order to facilitate the filing and recording of this Agreement, this
Agreement may be executed in counterparts, each of which when so executed shall
be deemed to be an original and all such counterparts shall together constitute
one and the same instrument.
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IN WITNESS WHEREOF, (i) Westmark-Delaware has caused this Agreement to be
signed by the President of Westmark-Delaware and attested by the Secretary of
WestmarkDelaware pursuant to authorization contained in a resolution adopted by
the Board of Directors of Westmark-Delaware approving this Agreement and (ii)
the Company has caused this Agreement to be signed by the President of the
Company and attested by the Secretary of the Company pursuant to authorization
contained in a resolution adopted by the Board of Directors of the Company
approving this Agreement.
WESTMARK GROUP HOLDINGS, INC.-
DELAWARE, a Delaware corporation
ATTEST: By__________________________________________
________________, President
- ---------------------------------
_______________, Secretary
WESTMARK GROUP HOLDINGS, INC.,
a Colorado corporation
ATTEST: By__________________________________________
_________________, President
- ---------------------------------
_______________, Secretary
The undersigned, Dawn Drella, as Secretary of Westmark Group Holdings,
Inc.Delaware, a Delaware corporation, hereby certifies (i) that the foregoing
Merger was duly approved by the affirmative vote of the sole holder of all
outstanding shares of Delaware Common Stock (ii) that the Delaware Common Stock
was the only classes of shares of said corporation outstanding at the time of
such approval.
WITNESS my hand this the _______ day of __________________________, 1996.
--------------------------------------------
Secretary
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The undersigned, __________________, as Secretary of Westmark Group
Holdings, Inc., a Colorado corporation, hereby certifies (i) that the foregoing
Merger was duly adopted by _______% of the holders of all outstanding shares of
Common Stock and (ii) that the Common Stock was the only class of voting shares
of said corporation's capital stock outstanding at the time of such adoption.
WITNESS my hand this the _________ day of __________________________,
1996.
--------------------------------------------
Secretary
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EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
WESTMARK GROUP HOLDINGS, INC.- DELAWARE
The undersigned, a natural person for the purpose of organizing a for
profit corporation under the provisions and subject to the requirements of the
Delaware General Corporation Law, hereby certifies that:
ARTICLE I
The name of the Corporation is Westmark Group Holdings, Inc.-Delaware
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801,
and the name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
The Corporation shall have authority to issue a total 50,000,000 shares
of common stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share.
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall have
such distinctive designation or title as shall be determined by the Board of
Directors of the Corporation ("Board of Directors") prior to the issuance of any
shares thereof. Each such class or series of Preferred Stock shall have such
voting powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, shall be stated in such
resolution or resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
Subject to all of the rights of the Preferred Stock or any series
thereof described in appropriate certificates of designation, the holders of the
Common Stock shall be entitled
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to receive, when, as, and if declared by the Board of Directors, out of funds
legally available therefore, the dividends payable in cash, common stock, or
otherwise.
No stockholder of the Corporation shall have the right of cumulative
voting at any election of Directors of the Corporation.
ARTICLE V
The name and mailing address of the incorporator is Norman J.
Birmingham, 355 N.E. Fifth Avenue, Delray Beach, FL 33483.
ARTICLE VI
The name and mailing address of the person who is to serve as the
initial directors until the first annual meeting of stockholders or until their
successors are elected and qualified are:
NAME ADDRESS
---- -------
Norman J. Birmingham 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
Todd Walker 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
Mark Schaftlein 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
ARTICLE VII
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than three
nor more than nine directors, the exact number of directors to be determined
from time to time by resolution adopted by the Board of Directors. The number of
directors may be increased or decreased, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until his successor is elected and qualified, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors howsoever resulting, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
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ARTICLE VIII
Elections of directors at an annual or special meeting of stockholders
shall be by written ballot unless the Bylaws of the Corporation shall otherwise
provide.
ARTICLE IX
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or a committee
thereof, the Chairman of the Board, President, or by the holders of at least 30%
of all the shares entitled to vote at the proposed special meeting.
ARTICLE X
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which such
director derived an improper personal benefit. No amendment to or repeal of this
Article X shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE XI
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Article. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized by this Article. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise,
B-4
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under this Article.
(h) For purposes of this Article, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) No amendment or repeal of this Article XI shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
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ARTICLE XII
The Corporation hereby expressly opts out of ss.203 of the Delaware
General Corporation Law, regarding business combinations with interested
shareholders.
ARTICLE XIII
Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at any meeting of stockholders. Whenever the Corporation shall
be authorized to issue more than one class of stock, no outstanding share of any
class of stock which is denied voting power under the provisions of the
Certificate of Incorporation, or a designation thereunder, shall entitle the
holder thereof to the right to vote at any meeting of stockholders, except as
the provisions of the law shall otherwise require.
Notwithstanding the foregoing and except as otherwise provided by law
or in the resolution or resolutions of the Board of Directors providing for the
issuance of any particular class or series of Preferred Stock, the holders of
Common Stock shall have the exclusive right to vote for the election of
Directors and for all other purposes except that, with respect to any amendment
of any provision of the Certificate of Incorporation which consists of a series
designation, or portion thereof, for any series of Preferred Stock, the holders
of Common Stock shall not be entitled to any vote. Except as otherwise provided
by law or in the resolution or resolutions of the Board of Directors providing
for the issuance of any particular class or series of Preferred Stock, the
holders of Common Stock and any other capital stock of the Corporation at the
time entitled thereto shall vote together as one class.
ARTICLE XIV
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
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reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class or creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE XV
In furtherance of, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation.
ARTICLE XVI
The Corporation reserves the right to repeal, alter, amend, or rescind
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Incorporation to be signed this the ______ day of ____________, 1996.
INCORPORATOR:
NORMAN J. BIRMINGHAM, President
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EXHIBIT 4.2
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation,"
a corporation organized and existing under the laws of the State of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
effective April 1, 1996 adopted a resolution providing for the issuance of a
series of 200,000 shares of Series A Convertible Preferred Stock, $4.00 stated
value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series A Convertible Preferred
Stock, $4.00 stated value per share ("Series A Preferred Stock"), is hereby
authorized and created, said series to consist of up to 200,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES A PREFERRED STOCK.
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of 8% per share, payable
quarterly, in arrears, commencing on the 30th day of June 1996. Dividends
on each share of Series A Preferred Stock shall begin to accrue and shall
cumulate from the date of original issue of such share ("Issue Date"),
whether or not declared, and shall be payable to the holder of such share
on the record date (as defined in Section 1(b) below). Dividends on
account of arrears for any past dividend periods may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on a record date fixed for such payment by the Board of
Directors of the Corporation or by a committee of such Board duly
authorized to fix such date by resolution designating such committee.
(b) Dividends on the Series A Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for the payment of dividends. The
record dates for payment of dividends shall be the 15th day of December,
March, June and September.
(c) Dividends payable on the Conversion Date (as defined in Section
2(b) below) of the Series A Preferred Stock shall be calculated on the
basis of the actual number of days elapsed (including the Conversion Date)
over a 365-day year.
2. CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK.
(a) At any time on or after the Issue Date, each holder of shares of
Series A Preferred Stock may, at his option, convert any or all such
shares, plus all dividends accrued and unpaid on such Series A Preferred
Stock up to the Conversion Date, on the terms and conditions set forth in
this Section 2, into fully paid and non-assessable shares of the
Corporation's common stock, no par value ("Common Stock"). The number of
shares of Common Stock into which each share of Series A Preferred Stock
may be converted shall be determined by dividing $4.00 by the Conversion
Price (as defined herein) in effect at the time of conversion. The
"Conversion Price" per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of Series A Preferred
Stock shall be the lesser of (i) $1.50 or (ii) 84% of the closing bid
price per share of Common Stock as quoted by the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automatic Quotations System, or, if the Common stock is not listed or
admitted to trading on any national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotations System, in
the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose, on the trading day immediately preceding the Conversion Date.
(b) To exercise his conversion privilege, the holder of any shares of
Series A Preferred Stock shall surrender to the Corporation during regular
business hours at the principal executive offices of the Corporation or
the offices of the transfer agent for the Series A Preferred Stock or at
such other place as may be designated by the Corporation, the certificate
or certificates for the shares to be converted, duly endorsed for transfer
to the Corporation (if required by it), accompanied by written notice
stating that the holder irrevocably elects to convert such shares.
Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the "Conversion
Date." Within three (3) business days after the date on which such
delivery is made, the Corporation shall issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which the holder is entitled as a
result of such conversion, and cash with respect to any fractional
interest of a share of Common Stock as provided in paragraph (c) of this
Section 2. The holder shall be deemed to have become a stockholder of
record of the number of shares of Common Stock into which the shares of
Series A Preferred Stock have been converted on the
2
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have become
a stockholder of record of such shares on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. Upon conversion of only a portion of the
number of shares of Series A Preferred Stock represented by a certificate
or certificates surrendered for conversion, the Corporation shall within
three (3) business days after the date on which such delivery is made,
issue and send (with receipt to be acknowledged) to the holder thereof or
the holder's designee, at the address designated by such holder, a new
certificate covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate or certificates so
surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation for
that purpose.
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(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series A
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series A
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series A Preferred Stock from time to time
outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of
the State of its incorporation, increase the authorized number of shares
of its Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series A Preferred Stock at the time
outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series A Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will in good
faith and as expeditiously as possible meet such registration, listing or
approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion of
the shares of Series A Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that
the Corporation shall at any time subdivide the outstanding shares of
Common Stock, or shall pay or make a dividend or distribution on any
class of capital stock of the Corporation in Common Stock, the
Conversion Price in effect immediately prior to such subdivision or
the issuance of such dividend shall be proportionately decreased, and
in case the Corporation shall at any time
4
combine the outstanding shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may
be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive
a dividend, or any other distribution, payable otherwise than in
cash; or
(B) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or
other securities, or to receive any other rights; or
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with
or into another corporation, share exchange for all outstanding
shares of Common Stock under a plan of exchange to which the
Corporation is a party, or conveyance of all or substantially
all of the assets of the Corporation to another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in such case, the Corporation shall cause to be mailed to
the holders of record of the outstanding Series A Preferred stock, at
least ten days prior to the date hereinafter specified, a notice
stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up is to
take place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to exchange
their shares of Corporation securities for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding up.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid
5
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all time
in good faith assist in the carrying out of all the provisions of
paragraph 2(h) and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of
the Series A Preferred Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series A Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series A Preferred Stock shall be converted
pursuant to Section 2(a) hereof, the shares so converted shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to class or series, and may thereafter be reissued,
but not as shares of Series A Preferred Stock.
3. REDEMPTION OF SERIES A PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series A
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share, plus all dividends accrued
and unpaid on such Series A Preferred Stock up to the date fixed for
redemption, upon giving the notice hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series A Preferred Stock, a notice in writing
shall be given by mail to the holders of record of the Series A Preferred
Stock at their respective addresses as the same shall appear on the stock
books of the Corporation. Such notice shall state: (i) the redemption
date; (ii) the redemption price, and the amount of dividends on the Series
A Preferred Stock that will be accrued and unpaid to the date fixed for
redemption; (iii) the place or places where certificates for shares are to
be surrendered for payment of the redemption price; (iv) that the
dividends on shares to be redeemed will cease to accrue on such redemption
dates; (v) the conversion rights of the shares to be redeemed; (vi) the
period within which the conversion rights may be exercised; and (vii) the
Conversion Price, and the number of shares of Common Stock issuable upon
conversion of a share of Series A Preferred Stock at the time.
6
(c) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series A
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series A Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to outstanding as of the redemption date. In the
event a holder of Series A Preferred Stock provides the Corporation with
notice of conversion of all or a portion of such Series A Preferred Stock
into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series A Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(d) After October 1, 1996, the holder of the Series A Preferred Stock
shall have the right to cause the Company to redeem, in whole or in part,
the shares of Series A Preferred Stock at the stated value per share, plus
all dividends accrued and unpaid on such Series A Preferred Stock, upon
providing written notice to the Corporation at its record office. Upon
receipt of such written notice, the Corporation shall have twenty business
days within which to effectuate the redemption.
(e) The Series A Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series A
Preferred Stock unless full dividends of on all outstanding shares of
Series A Preferred Stock shall have been paid in full for all past
dividend periods.
(f) All shares of Series A Preferred Stock so redeemed shall have the
status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series A Preferred Stock.
(g) No holder of shares of Series A Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
7
4. VOTING.
(a) Except as otherwise required by law, the shares of Series A
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series A Preferred Stock then outstanding shall be entitled or receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to liquidation, an amount equal to $4.00 per
share, plus accumulated and unpaid dividends thereon to the date fixed for
distribution. It is understood that the Series A Preferred Stock shall be
junior in rank to the Series B Preferred Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the Series A Preferred Stock and any other
shares of stock of the Corporation ranking as to any such distribution on
a parity with the Series A Preferred Stock are not paid in full, the
holders of the Series A Preferred Stock and of such other shares shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series A Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series A
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such
8
proposed action, including a description of the stock, cash, and property
to be received by the holders of shares of Series A Preferred Stock upon
consummation of the proposed action and the date of delivery thereof. If
any material change in the facts set forth in the initial notice shall
occur, the Corporation shall promptly give written notice to each holder
of shares of Series A Preferred Stock of such material change. The
Corporation shall not consummate any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation before the expiration of 30
days after the mailing of the initial notice or 10 days after the mailing
of any subsequent written notice, whichever is later; provided that any
such 30-day or 10-day period may be shortened upon the written consent of
the holders of all of the outstanding shares of Series A Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series A Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(a) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the outstanding
shares of Series A Preferred Stock, voting separately as a class:
(i) Amend, alter or repeal any provision of the Certification of
Incorporation or Bylaws of the Corporation so as to affect adversely
the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock.
(b) The provisions of this paragraph 6 shall not in any way limit the
right and power of the Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and preferred
stock ranking senior to the terms of the Series A Preferred Stock and
other obligations, and to incur indebtedness to banks and to other
lenders.
9
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by NORMAN J.
BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its
secretary, this ____ day of ________________, 1996.
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM
Chief Executive Officer
ATTEST:
By DAWN DRELLA, Secretary
STATE OF __________ |
|
COUNTY OF _________ |
BE IT REMEMBERED that on this _______ day of ___________, 1996, personally
came before me, a Notary Public in and for the County and State aforesaid,
NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc.,
a Colorado corporation, and he duly executed said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said Corporation and the facts stated therein are true; and that the seal
affixed to said certificate and attested by the Secretary of said corporation is
the corporate seal of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
NOTARY PUBLIC, IN AND FOR
THE STATE OF _____________
10
EXHIBIT 4.3
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation,"
a corporation organized and existing under the laws of the State of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
and effective as of April 1, 1996 adopted a resolution providing for the
issuance of a series of 300,000 shares of Series B Convertible Preferred Stock,
$2.00 stated value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series B Convertible Preferred
Stock, $2.00 stated value per share ("Series B Preferred Stock"), is hereby
authorized and created, said series to consist of up to 300,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES B PREFERRED STOCK.
(a) The holders of the Series B Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of 10% per share, payable
monthly, in arrears on the last day of each month, commencing on the 30th
day of April, 1996. Dividends on each share of Series B Preferred Stock
shall begin to accrue and shall cumulate from April 1, 1996 (the "Issue
Date"), whether or not declared, and shall be payable to the holder of
such share on the record date (as defined in Section 1(b) below).
Dividends on account of arrears for any past dividend periods may be
declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on a record date fixed for such payment
by the Board of Directors of the Corporation or by a committee of such
Board duly authorized to fix such date by resolution designating such
committee.
(b) Dividends on the Series B Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for the payment of dividends. The
record dates for payment of dividends shall be the 20th day of each month.
(c) Dividends payable on the Conversion Date (as defined in Section
2(b) below) of the Series B Preferred Stock shall be calculated on the
basis of the actual number of days elapsed (including the Conversion Date)
over a 365-day year.
2. CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK.
(a) At any time on or after the Issue Date, each holder of shares of
Series B Preferred Stock may, at his or her option, at any time or from
time to time, convert any or all such shares, plus all dividends accrued
and unpaid on such Series B Preferred Stock up to the Conversion Date, on
the terms and conditions set forth in this Section 2, into fully paid and
non-assessable shares of the Corporation's common stock, no par value
("Common Stock"). Each share of Series B Preferred Stock plus all
dividends accrued and unpaid on such Series B Preferred Stock, shall be
automatically converted into fully paid and nonassessable shares of Common
Stock of the Corporation, unless previously converted, thirty-seven months
after the Issue Date thereof. The number of shares of Common Stock into
which each share of Series B Preferred Stock may be converted shall be
determined by dividing $2.00 by the Conversion Price (as defined herein)
in effect at the time of conversion. The "Conversion Price" per share at
which shares of Common Stock shall be initially issuable upon conversion
of any shares of Series B Preferred Stock shall be 84% of the closing bid
price per share of Common Stock as quoted by the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automatic Quotations System (including the OTC electronic bulletin board),
or, if the Common stock is not listed or admitted to trading on any
national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System (including the OTC
electronic bulletin board), in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Corporation for that purpose, on the trading day immediately preceding the
Conversion Date.
(b) To exercise his or her conversion privilege, the holder of any
shares of Series B Preferred Stock shall deliver via facsimile or
overnight mail, notice of intent to convert and shall within five business
days surrender to the Corporation during regular business hours at the
principal executive offices of the Corporation located at 355 N. E. Fifth
Avenue, Suite 4, Delray Beach, Florida 33483, or the offices of the
transfer agent for the Series B Preferred Stock, the certificate or
certificates for the shares to be converted, duly endorsed for transfer to
the Corporation (if required by it). Conversion shall be deemed to have
been effected on the date when delivery of the notice of conversion is
made, and such date is referred to herein as the "Conversion Date." Within
three (3) business days after the date on which such delivery is made, the
Corporation shall issue and send (with receipt to be acknowledged) to the
holder thereof or the holder's designee, at the address designated by such
holder, a certificate or certificates for the number of full shares
2
of Common Stock to which the holder is entitled as a result of such
conversion, and cash with respect to any fractional interest of a share of
Common Stock as provided in paragraph (c) of this Section 2. The holder
shall be deemed to have become a stockholder of record of the number of
shares of Common Stock into which the shares of Series B Preferred Stock
have been converted on the applicable Conversion Date. Upon conversion of
only a portion of the number of shares of Series B Preferred Stock
represented by a certificate or certificates surrendered for conversion,
the Corporation shall within three (3) business days after the date on
which such delivery is made, issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a new certificate covering the number
of shares of Series B Preferred Stock representing the unconverted portion
of the certificate or certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series B Preferred Stock. If more than one
share of Series B Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series B Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series B Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of Directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
3
Exchange member firm selected from time to time by the Corporation for
that purpose.
(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series B
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series B
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series B Preferred Stock from time to time
outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of
the State of its incorporation, increase the authorized number of shares
of its Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series B Preferred Stock at the time
outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series B Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will at all
times subsequent to the date of this Designation use its best efforts to
meet such registration, listing or approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion of
the shares of Series B Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event
that the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall pay or make a dividend or
distribution on any class of capital
4
stock of the Corporation in Common Stock, the Conversion Price in
effect immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased, effective at the
close of business on the date of such subdivision, dividend or
combination, as the case may be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive
a dividend, or any other distribution, payable otherwise than in
cash; or
(B) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or
other securities, or to receive any other rights; or
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with
or into another corporation, share exchange for all outstanding
shares of Common Stock under a plan of exchange to which the
Corporation is a party, or conveyance of all or substantially
all of the assets of the Corporation to another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in such case, the Corporation shall cause to be mailed to
the holders of record of the outstanding Series B Preferred stock, at
least ten days prior to the date hereinafter specified, a notice
stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up is to
take place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to exchange
their shares of Corporation securities for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding up. In the event of a reorganization,
consolidation, merger, or share exchange, the Corporation shall
5
require that the transactional documents provide for the rights
listed in this paragraph 2(h)(ii).
(iii) FAILURE TO OBTAIN EFFECTIVENESS OF A REGISTRATION
STATEMENT. The Corporation will immediately file a registration
statement on Form SB-2 or other appropriate form with the Securities
and Exchange Commission to register, among other issuances, the
issuance of the Common Stock to be issued upon the conversion of the
Series B Preferred Stock. The Corporation will use its best efforts
to obtain effectiveness of such registration statement, although
there is no assurance that this registration statement will be deemed
effective, nor is there any assurance as to the length of time such
registration statement will remain effective if such event occurs. If
the Corporation's registration statement is not rendered effective on
or before June 30, 1996, the Conversion Price shall be decreased by
2% during each month (or portion thereof) that such registration
statement fails to become effective (i.e., reduced from 84% to 82%,
82% to 80%, etc.); provided, however, that the Conversion Price shall
never be less than 42% of the closing bid price per share of Common
Stock.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
the carrying out of all the provisions of paragraph 2(h) and in the taking
of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series B Preferred Stock
against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series B Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series B Preferred Stock shall be converted
pursuant to Section 2(a) hereof, the shares so converted shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to class or series, and may thereafter be reissued,
but not as shares of Series B Preferred Stock.
6
3. REDEMPTION OF SERIES B PREFERRED STOCK AT OPTION OF CORPORATION.
(a) Subject to the provisions of this Section 3, the Series B
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share, plus all dividends accrued
and unpaid on such Series B Preferred Stock up to the date fixed for
redemption, upon giving the notice hereinafter provided.
(b) In the event the Corporation exercises its redemption right at a
time when the Corporation has not obtained, or has failed to maintain, the
effectiveness of a registration statement filed under the Act registering
the issuance of the shares of Common Stock upon conversion of the Series B
Preferred Stock (or the resale of the Common Stock if such Common Stock
has been issued upon conversion of the Series B Preferred Stock)
("Effectiveness of a Registration Statement"), the redemption price shall
be the sum of (i) the stated value of the Series B Preferred Stock divided
by the Conversion Price as adjusted pursuant to Section 2(h) and (ii) the
dividends accrued and unpaid on such Series B Preferred Stock. The holders
of Series B Preferred Stock acknowledge that there is no guarantee that
the Corporation will be able to obtain effectiveness of such a
registration statement as set forth in this Section 3(b), or if such
registration statement is deemed effective, that the Corporation will be
able to maintain the effectiveness of such registration statement for any
period of time.
(c) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series B Preferred Stock, a notice in writing
shall be given by mail or by facsimile to the holders of record of the
Series B Preferred Stock at their respective addresses as the same shall
appear on the stock books of the Corporation. Such notice shall state: (i)
the redemption date; (ii) the redemption price, and the amount of
dividends on the Series B Preferred Stock that will be accrued and unpaid
to the date fixed for redemption; (iii) the place or places where
certificates for shares are to be surrendered for payment of the
redemption price; (iv) that the dividends on shares to be redeemed will
cease to accrue on such redemption dates; (v) the conversion rights of the
shares to be redeemed; (vi) the period within which the conversion rights
may be exercised; and (vii) the Conversion Price, and the number of shares
of Common Stock issuable upon conversion of a share of Series B Preferred
Stock at the time.
(d) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series B
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series B Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall
7
default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to be outstanding as of the redemption date. In
the event a holder of Series B Preferred Stock provides the Corporation
with notice of conversion of all or a portion of such Series B Preferred
Stock into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series B Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(e) The Series B Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series B
Preferred Stock unless full dividends of on all outstanding shares of
Series B Preferred Stock shall have been paid in full for all past
dividend periods.
(f) All shares of Series B Preferred Stock so redeemed shall have the
status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series B Preferred Stock.
(g) No holder of shares of Series B Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
4. VOTING.
(a) Except as otherwise required by law, the shares of Series B
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
(b) Notwithstanding the foregoing, if the Corporation has not
obtained or has failed to maintain the Effectiveness of a Registration
Statement as described in Section 3(b) on or before December 31, 1996 and
the closing bid price of the Common Stock of the Corporation is at or
below $1.00 for any five consecutive trading days subsequent to December
31, 1996, then the holders of the Series B Preferred Stock, voting
separately as a class, shall be entitled to elect a majority of the Board
of Directors at any meeting of the stockholders of the Corporation at
which directors are to be elected, or held, as the case may be. The right
of the holders of the Series B Preferred Stock to elect such directors
shall cease when
8
Effectiveness of a Registration Statement as described in Section 3(b)
occurs. At any time after such voting power shall have so vested in the
holders of the Series B Preferred Stock, upon the written request of a
holder of record of Series B Preferred Stock, addressed to the Secretary
of the Corporation at the principal office of the Corporation, and to the
other holders of the Series B Preferred Stock, the Secretary shall, at the
election of such requesting holder: (i) call a special meeting of the
holders of the Series B Preferred Stock for the election of the directors
to be elected by them as hereinafter provided, such meeting to be held
within 45 days after delivery of such request at the place and upon the
notice provided by law and in the Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not be required
to call such special meeting in the case of any such request received less
than 45 days before the date fixed for the next ensuing annual meeting of
the stockholders; or (ii) obtain written consents from holders of the
Series B Preferred Stock for the election of the directors to be elected
by them in an amount sufficient to satisfy applicable state law
requirements and comply with applicable federal securities law
requirements with respect to this consent provision.
(c) The holders of the Series B Preferred Stock voting as a class
will have the right to remove without cause at any time and replace any
director such holders have elected pursuant to this Section 4.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series B Preferred Stock then outstanding shall be entitled or receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series B Preferred Stock as to liquidation, an amount equal to $2.00 per
share, plus accumulated and unpaid dividends thereon to the date fixed for
distribution. It is understood that the Series A Preferred Stock ranks
junior to the Series B Preferred Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the Series B Preferred Stock and any other
shares of stock of the Corporation ranking as to any such distribution on
a parity with the Series B Preferred Stock are not paid in full, the
holders of the Series B Preferred Stock and of such other shares shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series B Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
9
(b) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series B
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of Series B Preferred
Stock upon consummation of the proposed action and the date of delivery
thereof. If any material change in the facts set forth in the initial
notice shall occur, the Corporation shall promptly give written notice to
each holder of shares of Series B Preferred Stock of such material change.
The Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation before the
expiration of 30 days after the mailing of the initial notice or 10 days
after the mailing of any subsequent written notice, whichever is later;
provided that any such 30-day or 10-day period may be shortened upon the
written consent of the holders of all of the outstanding shares of Series
B Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series B Preferred
Stock and the holders of shares of Common Stock. If a majority of the
holders of the Series B Preferred Stock objects to the appraiser or to the
valuation of shares, the Corporation shall engage such appraiser as shall
be approved by the holders of a majority of shares of the Corporation's
Series B Preferred Stock. The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice to each holder of shares
of Series B Preferred Stock of the appraiser's valuation.
6. CORPORATION LIMITATIONS.
(a) So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the unanimous affirmative
vote or the written consent of the holders of the outstanding shares of
Series B Preferred Stock, voting separately as a class:
10
(i) Amend, alter or repeal any provision of the Certification of
Incorporation or Bylaws of the Corporation so as to affect adversely
the relative rights, preferences, qualifications, limitations or
restrictions of the Series B Preferred Stock.
(b) Unless otherwise contractually restricted, the provisions of this
paragraph 6 shall not in any way limit the right and power of the
Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, preferred stock
ranking junior to the terms of the Series B Preferred Stock and other
obligations, and to incur indebtedness to banks and to other lenders.
7. HOLDERS OF SERIES B PREFERRED STOCK LIMITATIONS.
(a) For a period of thirty-seven months from the Issue Date, no
holders of Series B Preferred Stock shall be required or permitted,
through conversion, exercise or receipt upon foreclosure, to obtain more
than 5% at any one time of the outstanding voting equity of the
Corporation as computed in accordance with Section 13 of the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder.
(b) Notwithstanding the foregoing, if the Corporation fails to obtain
or has failed to maintain the Effectiveness of a Registration Statement as
described in Section 3(b) prior to December 31, 1996 and the closing bid
price per share of the Common Stock of the Corporation for any five
consecutive trading days subsequent to December 31, 1996 is at or below
$1.00, the limitations set forth in Section 7(a) above shall be rendered
inapplicable ninety (90) days after written notice has been given by a
holder of the Series B Preferred Stock to the Corporation with respect to
such holder giving notice.
8. TRANSFERABILITY. The Series B Preferred Stock shall be transferable
by the holders, provided such transfer is in compliance with applicable federal
and state securities laws.
11
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by NORMAN J.
BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its
secretary, this ____ day of ________________, 1996.
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM
Chief Executive Officer
ATTEST:
By DAWN DRELLA, Secretary
STATE OF __________ |
|
COUNTY OF _________ |
BE IT REMEMBERED that on this _______ day of ___________, 1996, personally
came before me, a Notary Public in and for the County and State aforesaid,
NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc.,
a Colorado corporation, and he duly executed said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said Corporation and the facts stated therein are true; and that the seal
affixed to said certificate and attested by the Secretary of said corporation is
the corporate seal of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
NOTARY PUBLIC, IN AND FOR
THE STATE OF _____________
12
EXHIBIT 4.4
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the
"Corporation," a corporation organized and existing under the laws of the State
of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation of the Corporation, and pursuant to the provisions
of Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
effective March 29, 1996 adopted a resolution providing for the issuance of a
series of 500,000 shares of Series C Convertible Preferred Stock, $3.50 stated
value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series C Convertible Preferred
Stock, $3.50 stated value per share ("Series C Preferred Stock"), is hereby
authorized and created, said series to consist of up to 500,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES C PREFERRED STOCK.
(a) The holders of the Series C Preferred Stock shall be
entitled to receive, out of the funds of the Corporation legally
available therefor, cumulative cash dividends at the annual rate of 10%
per share, payable quarterly, in arrears, commencing on the 30th day of
June 1996. Dividends on each share of Series C Preferred Stock shall
begin to accrue and shall cumulate from the date of original issue of
such share ("Issue Date"), whether or not declared, and shall be
payable to the holder of such share on the record date (as defined in
Section 1(b) below). Dividends on account of arrears for any past
dividend periods may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on
a record date fixed for such payment by the Board of Directors of the
Corporation or by a committee of such Board duly authorized to fix such
date by resolution designating such committee.
(b) Dividends on the Series C Preferred Stock shall be payable
to holders of record as they appear on the books of the Corporation as
of the close of business on any record date for the payment of
dividends. The record dates for payment of dividends shall be the 15th
day of December, March, June and September.
<PAGE>
(c) Dividends payable on the Conversion Date (as defined in
Section 2(b) below) of the Series C Preferred Stock shall be calculated
on the basis of the actual number of days elapsed (including the
Conversion Date) over a 365-day year.
2. CONVERSION OF SERIES C PREFERRED STOCK INTO COMMON STOCK.
(a) At any time on or after December 15, 1997, each holder of
shares of Series C Preferred Stock may, at his option, convert any or
all such shares, plus all dividends accrued and unpaid on such Series C
Preferred Stock up to the Conversion Date, on the terms and conditions
set forth in this Section 2, into fully paid and non-assessable shares
of the Corporation's common stock, no par value ("Common Stock"). The
number of shares of Common Stock into which each share of Series C
Preferred Stock may be converted shall be determined by dividing $3.50
by the Conversion Price (as defined herein) in effect at the time of
conversion. The "Conversion Price" per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of
Series C Preferred Stock shall be the lesser of (i) $1.50 or (ii) 84%
of the closing bid price per share of Common Stock as quoted by the
principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on the National Association of
Securities Dealers Automatic Quotations System, or, if the Common stock
is not listed or admitted to trading on any national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotations System, in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time
to time by the Corporation for that purpose, on the trading day
immediately preceding the Conversion Date.
(b) To exercise his conversion privilege, the holder of any
shares of Series C Preferred Stock shall surrender to the Corporation
during regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Series C
Preferred Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required
by it), accompanied by written notice stating that the holder
irrevocably elects to convert such shares. Conversion shall be deemed
to have been effected on the date when such delivery is made, and such
date is referred to herein as the "Conversion Date." Within three (3)
business days after the date on which such delivery is made, the
Corporation shall issue and send (with receipt to be acknowledged) to
the holder thereof or the holder's designee, at the address designated
by such holder, a certificate or certificates for the number of full
shares of Common Stock to which the holder is entitled as a result of
such conversion, and cash with respect to any fractional interest of a
share of Common Stock as provided in paragraph (c) of this Section 2.
The holder shall be deemed to have become a stockholder of record of
the number of shares of Common Stock into which the shares of Series C
Preferred Stock have been converted on the
2
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have
become a stockholder of record of such shares on the next succeeding
date on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. Upon conversion of only
a portion of the number of shares of Series C Preferred Stock
represented by a certificate or certificates surrendered for
conversion, the Corporation shall within three (3) business days after
the date on which such delivery is made, issue and send (with receipt
to be acknowledged) to the holder thereof or the holder's designee, at
the address designated by such holder, a new certificate covering the
number of shares of Series C Preferred Stock representing the
unconverted portion of the certificate or certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series C Preferred Stock. If more
than one share of Series C Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series C Preferred Stock, the Corporation shall make an
adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest, to the nearest 1/100th of a
share of Common Stock, in cash at the Current Market Price (as defined
below) on the business day preceding the effective date of the
conversion. The "Current Market Price" of publicly traded shares of
Common Stock or any other class of Common Stock or other security of
the Corporation or any other issuer for any day shall be deemed to be
the daily "Closing Price" for the trading day immediately preceding the
Conversion Date. The "Current Market Price" of the Common Stock or
other class of capital stock or securities of the Corporation or any
other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors
of the Corporation or such committee, available to make such
determination, as determined in good faith judgment of the Board of
Directors or such committee. The "Closing Price" shall mean the last
reported sales price on the principal securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automatic Quotations System,
or, if the Common stock is not listed or admitted to trading on any
national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System, in the over-the-counter
market as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for that purpose.
3
(d) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of Series C Preferred Stock pursuant
hereto. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in
which the Series C Preferred Stock so converted were registered, and no
such issue and delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(e) The Corporation shall at all times reserve for issuance
and maintain available, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the Series
C Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all Series C Preferred Stock from
time to time outstanding. The Corporation shall from time to time
(subject to obtaining necessary director and stockholder action), in
accordance with the laws of the State of its incorporation, increase
the authorized number of shares of its Common Stock if at any time the
authorized number of shares of its Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the shares
of Series C Preferred Stock at the time outstanding.
(f) If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series C Preferred Stock require
registration or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under any federal or
state law or regulation or otherwise, including registration under the
Securities Act of 1933, as amended, and appropriate state securities
laws, before such shares may be validly issued or delivered upon
conversion, the Corporation will in good faith and as expeditiously as
possible meet such registration, listing or approval, as the case may
be.
(g) All shares of Common Stock which may be issued upon
conversion of the shares of Series C Preferred Stock will upon issuance
by the Corporation be validly issued, fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issuance
thereof.
(h) The Conversion Price in effect shall be subject to
adjustment from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the
event that the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall pay or make a
dividend or distribution on any class of capital stock of the
Corporation in Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time
4
combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS,
CAPITAL REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record
of the holders of its Common Stock for the purpose of
entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash; or
(B) that the Corporation shall take a record
of the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase any
shares of stock of any class or other securities, or
to receive any other rights; or
(C) of any capital reorganization of the
Corporation, reclassification of the capital stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of Common
Stock), consolidation or merger of the Corporation
with or into another corporation, share exchange for
all outstanding shares of Common Stock under a plan
of exchange to which the Corporation is a party, or
conveyance of all or substantially all of the assets
of the Corporation to another corporation; or
(D) of the voluntary of involuntary
dissolution, liquidation or winding up of the
Corporation;
then, and in such case, the Corporation shall cause to be
mailed to the holders of record of the outstanding Series C
Preferred stock, at least ten days prior to the date
hereinafter specified, a notice stating the date on which (x)
a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding up is to take
place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to
exchange their shares of Corporation securities for securities
or other property deliverable upon such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding up.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid
5
or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation, but will at all
time in good faith assist in the carrying out of all the provisions of
paragraph 2(h) and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of the holders
of the Series C Preferred Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each
holder of Series C Preferred Stock a certificate signed by the chief
financial officer of the Corporation setting forth (i) such adjustment
or readjustment, (ii) the Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion
of his shares.
(k) In case any shares of Series C Preferred Stock shall be
converted pursuant to Section 2(a) hereof, the shares so converted
shall be restored to the status of authorized but unissued shares of
preferred stock, without designation as to class or series, and may
thereafter be reissued, but not as shares of Series C Preferred Stock.
3. REDEMPTION OF SERIES C PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series C
Preferred Stock shall be redeemable in whole, or in part, at the option
of the Corporation by resolution of the Board of Directors at any time
after the Issue Date, at the stated value per share, plus all dividends
accrued and unpaid on such Series C Preferred Stock up to the date
fixed for redemption, upon giving the notice hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the
date fixed for redemption of the Series C Preferred Stock, a notice in
writing shall be given by mail to the holders of record of the Series C
Preferred Stock at their respective addresses as the same shall appear
on the stock books of the Corporation. Such notice shall state: (i) the
redemption date; (ii) the redemption price, and the amount of dividends
on the Series C Preferred Stock that will be accrued and unpaid to the
date fixed for redemption; (iii) the place or places where certificates
for shares are to be surrendered for payment of the redemption price;
(iv) that the dividends on shares to be redeemed will cease to accrue
on such redemption dates; (v) the conversion rights of the shares to be
redeemed; (vi) the period within which the conversion rights may be
exercised; and (vii) the Conversion Price, and the number of shares of
Common Stock issuable upon conversion of a share of Series C Preferred
Stock at the time.
6
(c) After giving notice and prior to the close of business on
the business day prior to the redemption date, the holders of the
Series C Preferred Stock so called for redemption may convert such
stock into Common Stock in accordance with the conversion privileges
set forth in Section 2 hereof. Unless (i) the holder of shares of
Series C Preferred Stock to whom notice has been duly given shall have
exercised its rights to convert in accordance with Section 2 hereof; or
(ii) the Corporation shall default in the payment of the redemption
price as set forth in such notice, upon such redemption date such
holder shall no longer have any voting or other rights with respect to
such shares, except the right to receive the moneys payable upon such
redemption from the Corporation without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of the
certificates, and the shares represented thereby shall no longer be
deemed to outstanding as of the redemption date. In the event a holder
of Series C Preferred Stock provides the Corporation with notice of
conversion of all or a portion of such Series C Preferred Stock into
shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation
shall default in the payment of the redemption price as set forth in
such redemption notice, the conversion shall not be effective unless
the holder of the Series C Preferred Stock electing to convert provides
written notice to the Corporation within 20 days of the purported
redemption date of his desire to effect such conversion.
(d) The Series C Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series
C Preferred Stock unless full dividends of on all outstanding shares of
Series C Preferred Stock shall have been paid in full for all past
dividend periods.
7
(e) All shares of Series C Preferred Stock so redeemed shall
have the status of authorized but unissued preferred stock, but such
shares so redeemed shall not be reissued as shares of Series C
Preferred Stock.
(f) No holder of shares of Series C Preferred Stock shall have
the right to require the Corporation to redeem all or any portion of
such shares.
4. VOTING.
(a) Except as otherwise required by law, the shares of Series
C Preferred Stock shall not be entitled to vote on any matters
presented at any annual or special meeting of stockholders of the
Corporation or to be taken by written consent of the stockholders of
the Corporation.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series C Preferred Stock then outstanding shall be entitled or receive
out of assets of the Corporation available for distribution to
stockholders, after payment in full of the liquidation distribution to
which holders of the preferred stock with a liquidation preference are
entitled, but before any distribution of assets is made to holders of
Common Stock or of any other class of capital stock of the Corporation
ranking junior to the Series C Preferred Stock as to liquidation, an
amount equal to $3.50 per share, plus accumulated and unpaid dividends
thereon to the date fixed for distribution. It is understood that the
Series C Preferred Stock shall be junior in rank to the Series B
Preferred Stock and shall rank senior to the Series A Preferred Stock.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the
Series C Preferred Stock and any other shares of stock of the
Corporation ranking as to any such distribution on a parity with the
Series C Preferred Stock are not paid in full, the holders of the
Series C Preferred Stock and of such other shares shall share ratably
in any such distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Series C Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the
Corporation with or into any other corporation or corporations, nor the
sale or lease of all or substantially all of the assets of the
Corporation shall be deemed to be a liquidation, dissolution or a
winding up of the Corporation within the meaning of any of the
provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such
action, or within 20 days prior to any stockholders' meeting called to
approve such action, or within 20 days after the commencement of any
involuntary proceeding, whichever is earlier, give each holder of
shares of Series C Preferred Stock initial written notice of the
proposed action. Such initial written notice shall describe the
material terms and conditions of such proposed action, including a
description of the stock, cash, and property to be received by the
holders of shares of Series C Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of shares
of Series C Preferred Stock of such material change. The Corporation
shall not consummate any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation before the expiration of
30 days after the mailing of the initial notice or 10 days after the
mailing of any subsequent
8
written notice, whichever is later; provided that any such 30-day or
10-day period may be shortened upon the written consent of the holders
of all of the outstanding shares of Series C Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series C Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice
to each holder of shares of Series C Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(a) So long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the
outstanding shares of Series C Preferred Stock, voting separately as a
class:
(i) Amend, alter or repeal any provision of the
Certification of Incorporation or Bylaws of the Corporation so
as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the Series C
Preferred Stock.
(b) The provisions of this paragraph 6 shall not in any way
limit the right and power of the Corporation to:
(i) Increase the total number of authorized shares of
Common Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and
preferred stock ranking senior to the terms of the Series C
Preferred Stock and other obligations, and to incur
indebtedness to banks and to other lenders.
9
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
NORMAN J. BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA,
its secretary, this 23 day of May, 1996.
WESTMARK GROUP HOLDINGS, INC.
By /s/ NORMAN J. BIRMINGHAM
NORMAN J. BIRMINGHAM
Chief Executive Officer
ATTEST:
By /s/ DAWN DRELLA
DAWN DRELLA, Secretary
10
EXHIBIT 5.1
June 6, 1996
Mr. Norman J. Birmingham
Westmark Group Holdings, Inc.
355 N.E. Fifth Avenue
Delray, Florida 33483
Dear Mr. Birmingham:
As counsel for Westmark Group Holdings, Inc., a Colorado corporation
("Company"), you have requested our firm to render this opinion in connection
with the Registration Statement of the Company on Form SB-2 filed under the
Securities Act of 1933, as amended ("Act"), with the Securities and Exchange
Commission relating to the registration of the issuance of (i) up to 495,334
shares of common stock ("Common Stock"), (ii) 666,666 shares of Common Stock
underlying currently exercisable warrants ("Warrants"), (iii) 331,905 shares of
Common Stock underlying currently exercisable options granted under the
Company's stock option plan ("Options"), and (iv) 708,690 shares of Common Stock
issuable upon conversion of preferred stock ("Preferred Stock"). The
Registration Statement also relates to the resale of 666,526 shares of Common
Stock.
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado.
2. The shares of Common Stock to be issued will be validly issued,
fully paid and non-assessable.
Mr. Norman J. Birmingham
May 17, 1996
Page 2
3. The shares of Common Stock underlying the Warrants to be issued upon
exercise of such Warrants are validly authorized and, upon exercise
of the Warrants in accordance with their terms, will be validly
issued, fully paid and nonassessable.
4. The shares of Common Stock underlying the Options to be issued upon
exercise of such Options are validly authorized and, upon exercise
of the Options in accordance with their terms, will be validly
issued, fully paid and nonassessable.
5. The shares of Common Stock underlying the Preferred Stock to be
issued upon conversion of such Preferred Stock are validly
authorized and, upon conversion of the Preferred Stock in accordance
with their terms, will be validly issued, fully paid and
nonassessable.
We consent to the use in the registration statement of the reference to
Brewer & Pritchard, P.C. under the heading "Legal Matters."
This opinion is conditioned upon the registration statement being declared
effective and upon compliance by the Company with all applicable provisions of
the Act and such state securities rules, regulations and laws as may be
applicable.
Very truly yours,
BREWER & PRITCHARD, P.C.
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), entered into as of the 31st
day of March, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a Colorado
corporation, and WESTMARK MORTGAGE CORPORATION, a California corporation
(collectively referred to as "Employer"), and NORMAN J. BIRMINGHAM ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Westmark Group Holdings, Inc. as
its President and Chief Executive Officer and will faithfully and diligently
perform the services and functions relating to such offices or otherwise
reasonably incident to such offices, provided that all such services and
functions will be reasonable and within Employee's area of expertise. Employee
will, during the term of this Agreement (or any extension thereof), devote
one-half of his full business time, attention and skills and best efforts to the
promotion of the business of Employer. The foregoing will not be construed as
preventing Employee from making investments in other businesses or enterprises
provided that (a) Employee agrees not to become engaged in any other business
activity that interferes with his ability to discharge his duties and
responsibilities to Employer and (b) Employee does not violate any other
provision of this Agreement. The parties acknowledge that Employee shall spend
the other half of his business time and efforts as an officer of Heart Labs of
America, Inc.
3. TERM. The term of this Agreement will commence as of the date hereof
and will end on that date in the year, 1999, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred to
herein as the "Term." Assuming all conditions of this Agreement have been
satisfied and there has been no breach of the Agreement during its initial term,
Employee may extend the term for additional one (1) year terms at his election
("Extended Term"), written notice of which must be given at least sixty (60)
days prior to the end of such preceding term.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) SALARY. Commencing upon the date of this Agreement, Employee
will be paid a minimum annual salary of $87,500.00, payable in accordance with
the then current payroll policies of Employer or as otherwise agreed to by the
parties (the "Salary"). At any time and from time to time the Salary may be
increased for the remaining portion of the term if so determined by the Board of
Directors of Employer after a review of Employee's performance of his duties
hereunder.
(b) OPTIONS. Commencing on the date of this Agreement, Employee
shall be issued a five year option to purchase 45,000 shares of common stock of
the Company, all of which shares shall vest immediately and will be exercisable
throughout the term at a price of $2.25 per share. Employee shall be issued an
option to purchase an additional 45,000 shares at a price of $2.25 per share
which shall vest in the following manner: if the Company reaches or exceeds
$480,000.00 of net income, after tax, for fiscal year 1996, all of the options
vest, and become exercisable on April 15, 1997. If the Company fails to meet the
earnings threshold, the options will vest on a pro rata basis (for example, if
the Company earns $240,000.00 only 22,500 options shall vest). Any unvested
options will carry over to the succeeding year. The options shall expire on the
earlier of April 1, 2004 or five years from the date they become fully vested.
(c) EXPENSES. Upon submission of a detailed statement and reasonable
documentation, Employer will reimburse Employee in the same manner as other
executive officers for all reasonable and necessary or appropriate out-of-pocket
travel and other expenses incurred by Employee in rendering services required
under this Agreement.
(d) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitled to receive such
group medical, dental and vision benefits as Employer may provide to its
other employees, provided such coverage is reasonably available, or be
reimbursed if Employee is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may
currently be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be
entitled to receive, in addition to and not in lieu of base salary, bonus
or other compensation, such other benefits and normal perquisites as
Employer currently provides or such additional benefits as Employer may
provide for its executive officers in the future.
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(e) VACATION. Employee will be entitled to ________ weeks of paid
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Employee's duties
hereunder, Employee recognizes and acknowledges that Employee may have access to
certain confidential and proprietary information of Employer or any of its
affiliates. Without the prior written consent of Employer, Employee shall not
disclose any such confidential or proprietary information to any person or firm,
corporation, association, or other entity for any reason or purpose whatsoever,
and shall not use such information, directly or indirectly, for Employee's own
behalf or on behalf of any other party. Employee agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this Agreement, at Employer's written request, Employee
shall promptly return to Employer any and all such information so requested by
Employer.
The provisions of this Section 5 shall not, however, prohibit
Employee from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties
(other than those acting directly or indirectly for or on behalf of Employee) as
a matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted by
law indemnify, defend and hold harmless Employee from and against any and all
claims, demands, liabilities, damages, loses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by him of his duties hereunder except in the case of his willful misconduct.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement without cause by
written notice to the Employee. Such termination will become effective upon the
date specified in such notice, provided that such date is at least 60 days from
the date of such notice. In the
-3-
event of such termination, the Company shall pay the Employee an amount equal to
twelve months salary and all stock options shall vest immediately.
B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement at any time for
cause by giving written notice of termination, and termination will become
effective upon the giving of such notice. However, Employee will not be deemed
to have been terminated "for cause" unless at least two-thirds of the members of
the Board of Directors of Westmark Group Holdings, Inc. so determine. Upon any
such termination for cause for any period subsequent to the effective date of
termination, the Employee shall have no right to compensation or stock options
under Section 4 or participate in any employee benefit programs which may then
be in effect.
For purposes of Section 7(B), "Just Cause" means (i) Employee has
willfully, intentionally and continuously failed to substantially perform his
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed has duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer; (iii) the Employee
commits acts of dishonesty or disloyalty to Employer or misappropriates Company
funds or otherwise defrauds the Company: (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply with applicable laws or government regulations; or (vi) Employee's
criminal conviction by any state or federal court of a felony.
In the case of termination for items (i), (ii) or (iii) of the preceding
paragraph, Employee shall be given at least one (1) written notice describing in
reasonable detail the perceived deficiencies in Employee's performance, and
Employee shall be given at least thirty (30) days' opportunity to correct such
perceived deficiencies prior to any termination.
C. DEATH OR DISABILITY. This Agreement and the obligations hereunder will
terminate upon the death or disability of the Employee. For purposes of this
Section 7C, "Disability" shall mean for a period of three months in any twelve
month period the Employee is incapable of substantially fulfilling the duties
set forth in Section 2 of this Agreement because of physical, mental or
emotional incapacity resulting from injury, sickness or disease. Upon any such
termination upon death or disability, the Company will pay the Employee or his
legal representative, as the case may be, his annual salary at such time
pursuant to Section 4 through the date of such termination of employment.
D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's
employment as provided in this Section 7, the provisions of Section 5 shall
remain in full force and effect.
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E. CONSIDERATION. The payments (if any) required to be paid by the Company
to Employee pursuant to Section 7 shall be in full and complete satisfaction of
any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or within two days if sent by mail, registered or certified, postage
prepaid with return receipt requested, as follows:
If to Employer: Westmark Group Holdings, Inc.
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Board of Directors
If to Employee: Norman J. Birmingham
355 N.E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore,
-5-
in lieu of such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. GOVERNING LAW. This Agreement and the rights and obligations of the
parties will be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the state of
Florida.
14. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all words
used herein will include the masculine, feminine and neuter and the number of
all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
WESTMARK GROUP HOLDINGS, INC.
By__________________________________________
Name:
Title:
EMPLOYEE:
NORMAN J. BIRMINGHAM
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), entered into as of the 31st
day of March, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a Colorado
corporation, and WESTMARK MORTGAGE CORPORATION, a California corporation
(collectively referred to as "Employer"), and MARK SCHAFTLEIN ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Westmark Mortgage Corporation as
its President and Chief Executive Officer and will faithfully and diligently
perform the services and functions relating to such offices or otherwise
reasonably incident to such offices, provided that all such services and
functions will be reasonable and within Employee's area of expertise. Employee
will, during the term of this Agreement (or any extension thereof), devote
one-half of his full business time, attention and skills and best efforts to the
promotion of the business of Employer. The foregoing will not be construed as
preventing Employee from making investments in other businesses or enterprises
provided that (a) Employee agrees not to become engaged in any other business
activity that interferes with his ability to discharge his duties and
responsibilities to Employer and (b) Employee does not violate any other
provision of this Agreement. The parties acknowledge that Employee shall spend
the other half of his business time and efforts as an officer of Heart Labs of
America, Inc.
3. TERM. The term of this Agreement will commence as of the date hereof and
will end on that date in the year, 1999, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred to
herein as the "Term." Assuming all conditions of this Agreement have been
satisfied and there has been no breach of the Agreement during its initial term,
Employee may extend the term for additional one (1) year terms at his election
("Extended Term"), written notice of which must be given at least sixty (60)
days prior to the end of such preceding term.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) SALARY. Commencing upon the date of this Agreement, Employee
will be paid a minimum annual salary of $140,000.00, payable in accordance with
the then current payroll policies of Employer or as otherwise agreed to by the
parties (the "Salary"). At any time and from time to time the Salary may be
increased for the remaining portion of the term if so determined by the Board of
Directors of Employer after a review of Employee's performance of his duties
hereunder. Employee is not entitled to receive sales commisssions.
(b) OPTIONS. Commencing on the date of this Agreement, Employee
shall be issued a five year option to purchase 45,000 shares of common stock of
the Company, all of which shares shall vest immediately and will be exercisable
throughout the term at a price of $2.25 per share. Employee shall be issued an
option to purchase an additional 45,000 shares at a price of $2.25 per share
which shall vest in the following manner: if the Company reaches or exceeds
$480,000.00 of net income, after tax, for fiscal year 1996, all of the options
vest, and become exercisable on April 15, 1997. If the Company fails to meet the
earnings threshold, the options will vest on a pro rata basis (for example, if
the Company earns $240,000.00 only 22,500 options shall vest). Any unvested
options will carry over to the succeeding year. The options shall expire on the
earlier of April 1, 2004 or five years from the date they become fully vested.
(c) EXPENSES. Upon submission of a detailed statement and reasonable
documentation, Employer will reimburse Employee in the same manner as other
executive officers for all reasonable and necessary or appropriate out-of-pocket
travel and other expenses incurred by Employee in rendering services required
under this Agreement.
(d) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitled to receive such
group medical, dental and vision benefits as Employer may provide to its
other employees, provided such coverage is reasonably available, or be
reimbursed if Employee is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may
currently be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be
entitled to receive, in addition to and not in lieu of base salary, bonus
or other compensation, such other benefits and normal perquisites as
Employer currently provides or such additional benefits as Employer may
provide for its executive officers in the future.
-2-
<PAGE>
(e) VACATION. Employee will be entitled to ________ weeks of paid
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Employee's duties
hereunder, Employee recognizes and acknowledges that Employee may have access to
certain confidential and proprietary information of Employer or any of its
affiliates. Without the prior written consent of Employer, Employee shall not
disclose any such confidential or proprietary information to any person or firm,
corporation, association, or other entity for any reason or purpose whatsoever,
and shall not use such information, directly or indirectly, for Employee's own
behalf or on behalf of any other party. Employee agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this Agreement, at Employer's written request, Employee
shall promptly return to Employer any and all such information so requested by
Employer.
The provisions of this Section 5 shall not, however, prohibit
Employee from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties
(other than those acting directly or indirectly for or on behalf of Employee) as
a matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted by
law indemnify, defend and hold harmless Employee from and against any and all
claims, demands, liabilities, damages, loses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by him of his duties hereunder except in the case of his willful misconduct.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement without cause by
written notice to the Employee. Such termination will become effective upon the
date specified in such notice, provided that such date is at least 60 days from
the date of such notice. In the
-3-
event of such termination, the Company shall pay the Employee an amount equal to
twelve months salary and all stock options shall vest immediately.
B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement at any time for
cause by giving written notice of termination, and termination will become
effective upon the giving of such notice. However, Employee will not be deemed
to have been terminated "for cause" unless at least two-thirds of the members of
the Board of Directors of Westmark Group Holdings, Inc. so determine. Upon any
such termination for cause for any period subsequent to the effective date of
termination, the Employee shall have no right to compensation or stock options
under Section 4 or participate in any employee benefit programs which may then
be in effect.
For purposes of Section 7(B), "Just Cause" means (i) Employee has
willfully, intentionally and continuously failed to substantially perform his
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed has duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer; (iii) the Employee
commits acts of dishonesty or disloyalty to Employer or misappropriates Company
funds or otherwise defrauds the Company: (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply with applicable laws or government regulations; or (vi) Employee's
criminal conviction by any state or federal court of a felony.
In the case of termination for items (i), (ii) or (iii) of the preceding
paragraph, Employee shall be given at least one (1) written notice describing in
reasonable detail the perceived deficiencies in Employee's performance, and
Employee shall be given at least thirty (30) days' opportunity to correct such
perceived deficiencies prior to any termination.
C. DEATH OR DISABILITY. This Agreement and the obligations hereunder will
terminate upon the death or disability of the Employee. For purposes of this
Section 7C, "Disability" shall mean for a period of three months in any twelve
month period the Employee is incapable of substantially fulfilling the duties
set forth in Section 2 of this Agreement because of physical, mental or
emotional incapacity resulting from injury, sickness or disease. Upon any such
termination upon death or disability, the Company will pay the Employee or his
legal representative, as the case may be, his annual salary at such time
pursuant to Section 4 through the date of such termination of employment.
D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's
employment as provided in this Section 7, the provisions of Section 5 shall
remain in full force and effect.
-4-
E. CONSIDERATION. The payments (if any) required to be paid by the Company
to Employee pursuant to Section 7 shall be in full and complete satisfaction of
any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or within two days if sent by mail, registered or certified, postage
prepaid with return receipt requested, as follows:
If to Employer: Westmark Group Holdings, Inc.
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Board of Directors
If to Employee: Mark Schaftlein
355 N.E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject matter
hereof, and supersede all prior agreements and understanding, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during this
Agreement, such provision will be fully severable and this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore,
-5-
in lieu of such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. GOVERNING LAW. This Agreement and the rights and obligations of the
parties will be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the state of
Florida.
14. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all words
used herein will include the masculine, feminine and neuter and the number of
all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
EMPLOYER:
WESTMARK GROUP HOLDINGS, INC.
By__________________________________________
Name:
Title:
EMPLOYEE: MARK SCHAFTLEIN
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), entered into as of the
______ day of ________, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a
Colorado corporation ("Employer"), and DAWN DRELLA ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Employer as its Chief Financial
Officer and will faithfully and diligently perform the services and functions
relating to such office(s) or otherwise reasonably incident to such office,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will, during the term of this Agreement
(or any extension thereof), devote one-fourth of her full time, attention and
skills and best efforts to the promotion of the business of Employer; such
parties acknowledging that Employee is an officer of Heart Labs, where she
devotes the balance of her efforts. The foregoing will not be construed as
preventing Employee from making investments in other businesses or enterprises
provided that (a) Employee agrees not to become engaged in any other business
activity that interferes with her ability to discharge her duties and
responsibilities to Employer, and (b) Employee does not violate any other
provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date hereof
and will end on that date in the year 1997, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred to
herein as the "Term."
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) SALARY. Commencing upon the date of this Agreement, Employee will
be paid a minimum annual salary of Twenty Thousand and no/100 Dollars
($20,000.00), payable in accordance with the then current payroll policies of
Employer or as otherwise agreed to by the parties (the "Salary"). At any time
and from time to time the Salary may be increased for the remaining portion of
the term if so determined by the Board of Directors of Employer after a review
of Employee's performance of her duties hereunder.
(b) STOCK. Commencing on the date of this Agreement, Employee shall
be issued 10,000 shares of common stock of the Company.
(c) EXPENSES. Upon submission of a detailed statement and reasonable
documentation, Employer will reimburse Employee in the same manner as other
executive officers for all reasonable and necessary or appropriate out-of-pocket
travel and other expenses incurred by Employee in rendering services required
under this Agreement.
(d) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this Agreement,
Employee and her dependents will be entitled to receive such group
medical, dental and vision benefits as Employer may provide to its other
employees, provided such coverage is reasonably available, or be
reimbursed if Employee is carrying her own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may
currently be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be entitled
to receive, in addition to and not in lieu of base salary, bonus or other
compensation, such other benefits and normal perquisites as Employer
currently provides or such additional benefits as Employer may provide for
its executive officers in the future.
(e) VACATION. Employee will be entitled to ____ weeks of vacation
per year.
5. CONFIDENTIALITY. In the course of the performance of Employee's duties
hereunder, Employee recognizes and acknowledges that Employee may have access to
certain confidential and proprietary information of Employer or any of its
affiliates. Without the prior written consent of Employer, Employee shall not
disclose any such confidential or proprietary information to any person or firm,
corporation, association, or other entity for any reason or purpose whatsoever,
and shall not use such information, directly or indirectly, for Employee's own
behalf or on behalf of any other party. Employee agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this Agreement, at Employer's written request, Employee
shall promptly return to Employer any and all such information so requested by
Employer.
-2-
The provisions of this Section 5 shall not, however, prohibit
Employee from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties
(other than those acting directly or indirectly for or on behalf of Employee) as
a matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted
by law indemnify, defend and hold harmless Employee from and against any and all
claims, demands, liabilities, damages, loses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by her of her duties hereunder except in the case of her willful misconduct.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
A. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement at any time for
cause by giving written notice of termination, and termination will become
effective upon the giving of such notice.
For purposes of Section 7(A), "Just Cause" means (i) Employee has
willfully, intentionally and continuously failed to substantially perform her
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed has duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer; (iii) the Employee
commits acts of dishonesty or disloyalty to Employer or misappropriates Company
funds or otherwise defrauds the Company: (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply with applicable laws or government regulations; or (vi) Employee's
criminal conviction by any state or federal court of a felony.
B. DEATH OR DISABILITY. This Agreement and the obligations hereunder
will terminate upon the death or disability of the Employee. For purposes of
this Section 6C, "Disability" shall mean for a period of three months in any
twelve month period the Employee is
-3-
incapable of substantially fulfilling the duties set forth in Section 2 of this
Agreement because of physical, mental or emotional incapacity resulting from
injury, sickness or disease. Upon any such termination upon death or disability,
the Company will pay the Employee or her legal representative, as the case may
be, her annual salary at such time pursuant to Section 4 through the date of
such termination of employment.
C. CONTINUING EFFECT. Notwithstanding any termination of the Employee's
employment as provided in this Section 7, the provisions of Section 5 shall
remain in full force and effect.
D. CONSIDERATION. The payments (if any) required to be paid by the
Company to Employee pursuant to Section 7 shall be in full and complete
satisfaction of any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or within two days if sent by mail, registered or certified, postage
prepaid with return receipt requested, as follows:
If to Employer: Westmark Group Holdings, Inc.
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Norman Birmingham
If to Employee: Dawn Drella
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and
-4-
supersede all prior agreements and understanding, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. GOVERNING LAW. This Agreement and the rights and obligations of the
parties will be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the state of
Florida.
14. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter and the number
of all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
WESTMARK GROUP HOLDINGS, INC.
By
Name:
Title:
EMPLOYEE:
DAWN DRELLA
-5-
EXHIBIT 10.12
WESTMARK GROUP HOLDINGS, INC.
WARRANT AGREEMENT
April 1, 1996
To the Person Named on
the Signature Page Hereof
Gentlemen:
Westmark Group Holdings, Inc., a Colorado corporation (the "Company"), for
value received, hereby agrees to issue stock purchase warrants entitling the
person whose name appears on the signature page of this Agreement to purchase an
aggregate of 45,000 shares of the Company's common stock (the "Common Stock").
Such warrants are evidenced by warrant certificates in the form attached hereto
as EXHIBIT A (each such instrument being hereinafter referred to as a "Warrant,"
and each Warrant and all instruments hereafter issued in replacement,
substitution, combination or subdivision thereof being hereinafter collectively
referred to as the "Warrants"). The Warrants will be issued in consideration of
service to the Company by the person whose name appears on the signature page of
this Agreement. The number of shares of Common Stock purchasable upon exercise
of the Warrants is subject to adjustment as provided in Section 5 below. The
Warrants will be exercisable by each you or any other Warrant holder (as defined
below) as to all or any lesser number of shares of Common Stock covered thereby,
at an initial Purchase Price of $2.25 per share, subject to adjustment as
provided in Section 5 below, for the exercise period defined in Section 3(a)
below. The term "Warrant holder" refers to each person whose name appears on the
signature page of this agreement and any transferee or transferees of any of
them permitted by Section 2(a) below. Such term, when used in this Warrant
Agreement in reference to or in the context of a person who holds or owns shares
of Common Stock issued upon exercise of a Warrant, refers where appropriate to
such person who holds or owns such shares of Common Stock.
1. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to you as follows:
(a) CORPORATE AND OTHER ACTION. The Company has all requisite power and
authority (corporate and other), and has taken all necessary corporate action,
to authorize, execute, deliver and perform this Warrant Agreement, to execute,
issue, sell and deliver the Warrants and a certificate or certificates
evidencing the Warrants, to authorize and reserve for issue and, upon payment
from time to time of the Purchase Price, to issue, sell and deliver, the shares
of the Common Stock issuable upon exercise of the Warrants (the "Shares"), and
to perform all of its obligations under this Warrant Agreement and the Warrants.
The Shares, when issued in accordance with this Agreement, will be duly
authorized and validly issued and outstanding, fully paid and nonassessable and
free of all liens, claims, encumbrances and preemptive rights. This Warrant
Agreement and, when issued, each Warrant issued pursuant hereto, has been or
will be duly executed and delivered by the Company and is or will be a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms. No authorization, approval, consent or other order of any governmental
entity, regulatory authority or other third party is required for such
authorization, execution, delivery, performance, issue or sale.
(b) NO VIOLATION. The execution and delivery of this Warrant Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms and provisions of this Warrant Agreement and of the Warrants will not
conflict with, or result in a breach of, or constitute a default or an event
permitting acceleration under, any statute, the Articles of Incorporation or
Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank
loan, credit agreement, franchise, license, lease, permit, or any other
agreement, understanding, instrument, judgment, decree, order, statute, rule or
regulation to which the Company is a party or by which it is or may be bound.
2. TRANSFER.
(a) TRANSFERABILITY OF WARRANTS. You agree that the Warrants are being
acquired as an investment and not with a view to distribution thereof and that
the Warrants may not be transferred, sold, assigned or hypothecated except as
provided herein and in compliance with all applicable securities and other laws.
(b) REGISTRATION OF SHARES. You agree not to make any sale or other
disposition of the Shares except pursuant to a registration statement which has
become effective under the Securities Act of 1933, as amended (the "Act"),
setting forth the terms of such offering, the underwriting discount and
commissions and any other pertinent data with respect thereto, unless you have
provided the Company with an opinion of counsel reasonably acceptable to the
Company that such registration is not required. Certificates representing the
Shares, which are not registered as provided in Section 2, shall bear an
appropriate legend and be subject to a "stop-transfer" order.
3. EXERCISE OF WARRANTS, PARTIAL EXERCISE.
(a) EXERCISE PERIOD. Subject to the terms of this Section 3(a), each
Warrant is exercisable at any time after April 17, 1997 provided that the
Company reaches or exceeds $480,000.00 of net income, after tax for fiscal year
1996, 1997 or 1998. If the Company fails to meet the earnings threshold, the
warrants will vest on a pro rata basis (for example, if the Company earns
$240,000.00 only 22,500 of the warrants shall vest). Any unvested warrants shall
carry over to the succeeding year, however the unvested options shall be subject
to the succeeding year's earning threshold which shall remain $480,000.00 for
the exercise period. The warrants shall expire on the earlier of April 1, 2004
or five years from the date they become fully vested.
WARRANT AGREEMENT PAGE 2
(b) EXERCISE IN FULL. Subject to Section 3(a), Warrants may be exercised
in full by the Warrant holder by surrender of the Warrants, with the form of
subscription at the end thereof duly executed by such Warrant holder, to the
Company at its principal office at 355 N.E. Fifth Avenue, Delray Beach, Florida
33483, Attention: Chief Executive Officer, accompanied by payment, in cash or by
certified or bank cashier's check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of the Common Stock
represented by the respective Warrant or Warrants by the Purchase Price per
share (after giving effect to any adjustments as provided in Section 5 below).
(c) PARTIAL EXERCISE. Subject to Section 3(a), each Warrant may be
exercised in part by the Warrant holder by surrender of the Warrant, with the
form of subscription at the end thereof duly executed by such Warrant holder, in
the manner and at the place provided in Section 3(b) above, accompanied by
payment, in cash or by certified or bank cashier's check payable to the order of
the Company, in amount obtained by multiplying the number of shares of the
Common Stock designated by the Warrant holder in the form of subscription
attached to the Warrant by the Purchase Price per share (after giving effect to
any adjustments as provided in Section 5 below). Upon any such partial exercise,
the Company at its expense will forthwith issue and deliver to or upon the order
of the Warrant holder a new Warrant of like tenor, in the name of the Warrant
holder thereof or as the Warrant holder (upon payment by such Warrant holder of
any applicable transfer taxes) may request, subject to Section 2(a), calling in
the aggregate for the purchase of the number of shares of the Common Stock equal
to the number of such shares called for on the face of the respective Warrant
(after giving effect to any adjustment herein as provided in Section 5 below)
minus the number of such shares designated by the Warrant holder in the
aforementioned form of subscription.
(d) COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of any
exercise of any Warrant, upon the request of the Warrant holder, acknowledge in
writing its continuing obligation to afford to such Warrant holder any rights to
which such Warrant holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant Agreement; PROVIDED, HOWEVER,
that if the Warrant holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
Warrant holder any such right.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
Any exercise of the Warrants pursuant to Section 3 shall be deemed to have
been effected immediately prior to the close of business on the date on which
the Warrants together with the subscription form and the payment for the
aggregate Purchase Price shall have been received by the Company. At such time,
the person or persons in whose name or names any certificate or certificates
representing the Shares or Other Securities (as defined below) shall be issuable
upon such exercise shall be deemed to have become the holder or holders of
record of the Shares or Other Securities so purchased. As soon as practicable
after the exercise of any Warrant in full or in part, and in any event within 10
WARRANT AGREEMENT PAGE 3
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of, and delivered to
the purchasing Warrant holder, a certificate or certificates representing the
number of fully paid and nonassessable shares of Common Stock or Other
Securities to which such Warrant holder shall be entitled upon such exercise,
plus in lieu of any fractional share to which such Warrant holder would
otherwise be entitled, cash in an amount determined pursuant to Section 6(h),
together with any other stock or other securities and property (including cash,
where applicable). The term "Other Securities" refers to any stock (other than
Common Stock), other securities or assets (including cash) of the Company or any
other person (corporate or otherwise) which the holders of the Warrants at any
time shall be entitled to receive, or shall have received, upon the exercise of
the Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 below or otherwise.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE.
The Purchase Price and the number of Shares are subject to adjustment from
time to time as set forth in this Section 5.
(a) In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock in shares of its capital stock, (ii)
subdivide the outstanding Shares, (iii) combine the outstanding Common Stock
into a smaller number of Common Stock, or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each case the Purchase Price,
and the number and kind of Shares receivable upon exercise, in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of Shares which, if such Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) No adjustment in the Purchase Price shall be required if such
adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by
reason of this subsection (h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(c) Upon each adjustment of the Purchase Price as a result of the
calculations made in any of subsection (a) of this Section 5, each Warrant
outstanding prior to the making of the adjustment in the Purchase Price shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of Shares (calculated to the nearest
WARRANT AGREEMENT PAGE 4
thousandth) obtained by (i) multiplying the number of Shares purchasable upon
exercise of a Warrant immediately prior to adjustment of the number of Shares by
the Purchase Price in effect prior to adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(d) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a reclassification of the
Common Stock referred to in subsection (a) of this Section 5), or in the case of
the consolidation of the Company with or the merger of the Company into any
other corporation or of the sale, transfer, or lease of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation, each Warrant shall after such capital reorganization,
reclassification of the Common Stock, consolidation, merger, sale, transfer, or
lease be exercisable, upon the terms and conditions specified in this Agreement,
for the number of shares of stock or other securities, assets, or cash to which
a holder of the number of shares of Common Stock purchasable (at the time of
such capital reorganization, reclassification of shares, consolidation, merger,
sale, transfer, or lease) upon exercise of such Warrant would have been entitled
upon such capital reorganization, reclassification of the Common Stock,
consolidation, merger, sale, transfer, or lease; and in any such case, if
necessary, the provisions set forth in this Section 5 with respect to the rights
and interests thereafter of the holders of the Warrants shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock or other securities, assets, or cash thereafter deliverable upon the
exercise of the Warrants. The subdivision or combination of the Common Stock at
any time outstanding into a greater or lesser number of shares shall not be
deemed to be a reclassification of the Common Stock for the purposes of this
paragraph. The Company shall not effect any such consolidation, merger,
transfer, or lease, unless prior to or simultaneously with the consummation
thereof, the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing, receiving, or
leasing such assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant holder, the obligation
to deliver to the Warrant holder such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holders may be entitled to
purchase, and to perform the other obligations of the Company under this Warrant
Agreement.
6. FURTHER COVENANTS OF THE COMPANY.
(a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its
certificate or articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants or of this Warrant Agreement, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrant holders against dilution or other impairment.
Without limiting the generality of the foregoing, the Company:
WARRANT AGREEMENT PAGE 5
(i) shall at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
exercise of the Warrants and shall take all necessary actions to ensure
that the par value per share, if any, of the Common Stock (or Other
Securities) is at all times equal to or less than the then effective
Purchase Price per share;
(ii) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock or Other Securities upon the exercise
of the Warrants from time to time outstanding;
(iii) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary dissolution, liquidation or winding-up, unless
the rights of the holders thereof shall be limited to a fixed sum or
percentage of par value in respect of participation in dividends and in
any such distribution of assets; and
(iv) will not transfer all or substantially all of its properties
and assets to any person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to consolidate with
or merge into the Company (if the Company is not the surviving
corporation), unless such other person shall expressly assume in writing
and will be bound by all the terms of this Warrant Agreement and the
Warrants.
(b) TITLE TO STOCK. All shares of Common Stock delivered upon the exercise
of the Warrants shall be validly issued, fully paid and nonassessable; each
Warrant holder shall, upon such delivery, receive good and marketable title to
the Shares, free and clear of all voting and other trust arrangements, liens,
encumbrances, equities and claims whatsoever; and the Company shall have paid
all taxes, if any, in respect of the issuance thereof.
(c) REMEDIES. The Company stipulates that the remedies at law of the
Warrant holder or any holder of Shares in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant Agreement or the Warrants are not and will not be adequate and
that such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or in the Warrants or by an
injunction against a violation of any of the terms hereof or thereof or
otherwise.
(d) EXCHANGE OF WARRANTS. Subject to Section 2(a) hereof, upon surrender
for exchange of any Warrant to the Company, the Company at its expense will
promptly issue and deliver to or upon the order of the holder thereof a new
Warrant or like tenor, in the name of such holder or as such holder (upon
payment by such Warrant holder of any applicable transfer taxes) may direct,
calling in the aggregate for the purchase of the number
WARRANT AGREEMENT PAGE 6
of shares of the Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered. The Warrants and all rights thereunder are transferable
in whole or in part upon the books of the Company by the registered holder
thereof, subject to the provisions of Section 2(a), in person or by duly
authorized attorney, upon surrender of the Warrant, duly endorsed, at the
principal office of the Company.
(e) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company, at the expense of the Warrant holder, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(f) REPORTING BY THE COMPANY. The Company agrees that during the term of
the Warrants it will use its best efforts to keep current in the filing of all
forms and other materials, if any, which it may be required to file with the
appropriate regulatory authority pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) FRACTIONAL SHARES. No fractional Shares are to be issued upon the
exercise of any Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to such fraction multiplied by the closing price which shall be the last
reported sales price regular way or, in case no such reported sales takes place
on such day, the average of the closing bid and asked prices regular way, on the
principal national securities exchange in the United States on which the Common
Stock is listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any such national securities exchange, the average of the
highest reported bid and lowest reported asked price as furnished by the
National Association of Securities Dealers, Inc. through its automated quotation
system ("Nasdaq") or a similar organization if Nasdaq is no longer reporting
such information.
7. OTHER WARRANT HOLDERS: HOLDERS OF SHARES.
The Warrants are issued upon the following terms, to all of which each
Warrant holder by the taking thereof consents and agrees: (a) any person who
shall become a transferee, within the limitations on transfer imposed by Section
2(a) hereof, of a Warrant properly endorsed shall take such Warrant subject to
the provisions of Section 2(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Warrant Agreement, shall be empowered to transfer absolute
title by endorsement and delivery thereof to a permitted BONA FIDE purchaser for
value; (b) any person who shall become a holder or owner of Shares shall take
such shares subject to the provisions of Section 2(b) hereof; (c) each prior
taker or owner waives and renounces all of his equities or rights in such
Warrant in favor of each such
WARRANT AGREEMENT PAGE 7
permitted BONA FIDE purchaser, and each such permitted BONA FIDE purchaser shall
acquire absolute title thereto and to all rights presented thereby; and (d)
until such time as the respective Warrant is transferred on the books of the
Company, the Company may treat the registered holder thereof as the absolute
owner thereof for all purposes, notwithstanding any notice to the contrary.
8. MISCELLANEOUS.
All notices, certificates and other communications from or at the request
of the Company to any Warrant holder shall be mailed by first class, registered
or certified mail, postage prepaid, to such address as may have been furnished
to the Company in writing by such Warrant holder, or, until an address is so
furnished, to the address of the last holder of such Warrant who has so
furnished an address to the Company, except as otherwise provided herein. This
Warrant Agreement and any of the terms hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Florida. The headings in this Warrant
Agreement are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. This Warrant Agreement, together with the forms
of instruments annexed hereto as exhibits, constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
executed on this the 1st day of April, 1996, in Delray Beach, Florida, by its
proper corporate officers, thereunto duly authorized.
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM,
Chief Executive Officer
The above Warrant Agreement is confirmed
as of this 1st day of April, 1996
MARK SCHAFTLEIN
WARRANT AGREEMENT PAGE 8
EXHIBIT A
WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933,
AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN
SECTIONS 3 AND 4 OF SUCH ACT AND REGULATION D PROMULGATED THEREUNDER; OR (B) ANY
STATE SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
WARRANTS MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR,
AND NEITHER THE WARRANTS NOR THE UNDERLYING STOCK MAY BE TRANSFERRED OR
EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES AND OTHER LAWS.
Warrant No. ___ To Purchase
45,000 Shares of
Common Stock
WESTMARK GROUP HOLDINGS, INC.
Incorporated Under the Laws of Colorado
This certifies that, for value received, the hereafter named registered
owner is entitled, subject to the terms and conditions of this Warrant, until
the expiration date, to purchase the number of shares set forth above of the
common stock (the "Common Stock"), of Westmark Group Holdings, Inc. (the
"Corporation") from the Corporation at the purchase price per share hereafter
set forth, on delivery of this Warrant to the Corporation with the exercise form
duly executed and payment of the purchase price (in cash or by certified or bank
cashier's check payable to the order of the Corporation) for each share
purchased. This Warrant is subject to the terms of the Warrant Agreement between
the parties thereto dated as of April 1, 1996, the terms of which are hereby
incorporated herein. Reference is hereby made to such Warrant Agreement for a
further statement of the rights of the holder of this Warrant.
Registered Owner: Mark Schaftlein Date: April 1, 1996
Purchase Price
Per Share: $2.25
Expiration Date: Subject to Section 3(a) of the Warrant Agreement, 5:00 p.m.
Delray Beach, Florida time on April 31, 1999.
WITNESS the signature of the Corporation's authorized officer:
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM,
Chief Executive Officer
A-1
FORM OF SUBSCRIPTION
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
To Westmark Group Holdings, Inc.:
The undersigned, the holder of the enclosed Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________* shares of Common Stock of Westmark Group
Holdings, Inc. and herewith makes payment of $_______________ therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:______________
--------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
--------------------------------------------
(Address)
- ---------------------------
(*) Insert here the number of shares called for on the face of the Warrant or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised, in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant Agreement pursuant to which the Warrant was granted, may be
delivered upon exercise.
A-2
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto __________________________________ the right represented by the enclosed
Warrant to purchase _________________ shares of Common Stock of Westmark Group
Holdings, Inc. to which the enclosed Warrant relates, and appoints
_____________________ Attorney to transfer such right on the books of Westmark
Group Holdings, Inc. with full power of substitution in the premises.
The undersigned represents and warrants that the transfer of the enclosed
Warrant is permitted by the terms of the Warrant Agreement pursuant to which the
enclosed Warrant has been issued, and the transferee hereof, by his acceptance
of this Agreement, represents and warrants that he is familiar with the terms of
said Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Dated:_________________________
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the enclosed
Warrant)
--------------------------------------
(Address)
Signed in the presence of:
- ------------------------------------
A-3
EXHIBIT 10.13
WESTMARK GROUP HOLDINGS, INC.
WARRANT AGREEMENT
April 1, 1996
To the Person Named on
the Signature Page Hereof
Gentlemen:
Westmark Group Holdings, Inc., a Colorado corporation (the "Company"), for
value received, hereby agrees to issue stock purchase warrants entitling the
person whose name appears on the signature page of this Agreement to purchase an
aggregate of 45,000 shares of the Company's common stock (the "Common Stock").
Such warrants are evidenced by warrant certificates in the form attached hereto
as EXHIBIT A (each such instrument being hereinafter referred to as a "Warrant,"
and each Warrant and all instruments hereafter issued in replacement,
substitution, combination or subdivision thereof being hereinafter collectively
referred to as the "Warrants"). The Warrants will be issued in consideration of
service to the Company by the person whose name appears on the signature page of
this Agreement. The number of shares of Common Stock purchasable upon exercise
of the Warrants is subject to adjustment as provided in Section 5 below. The
Warrants will be exercisable by each you or any other Warrant holder (as defined
below) as to all or any lesser number of shares of Common Stock covered thereby,
at an initial Purchase Price of $2.25 per share, subject to adjustment as
provided in Section 5 below, for the exercise period defined in Section 3(a)
below. The term "Warrant holder" refers to each person whose name appears on the
signature page of this agreement and any transferee or transferees of any of
them permitted by Section 2(a) below. Such term, when used in this Warrant
Agreement in reference to or in the context of a person who holds or owns shares
of Common Stock issued upon exercise of a Warrant, refers where appropriate to
such person who holds or owns such shares of Common Stock.
1. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to you as follows:
(a) CORPORATE AND OTHER ACTION. The Company has all requisite power and
authority (corporate and other), and has taken all necessary corporate action,
to authorize, execute, deliver and perform this Warrant Agreement, to execute,
issue, sell and deliver the Warrants and a certificate or certificates
evidencing the Warrants, to authorize and reserve for issue and, upon payment
from time to time of the Purchase Price, to issue, sell and deliver, the shares
of the Common Stock issuable upon exercise of the Warrants (the "Shares"), and
to perform all of its obligations under this Warrant Agreement and the Warrants.
The Shares, when issued in accordance with this Agreement, will be duly
authorized and validly issued and outstanding, fully paid and nonassessable and
free of all liens, claims, encumbrances and preemptive rights. This Warrant
Agreement and, when issued, each Warrant issued pursuant hereto, has been or
will be duly executed and delivered by the Company and is or will be a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms. No authorization, approval, consent or other order of any governmental
entity, regulatory authority or other third party is required for such
authorization, execution, delivery, performance, issue or sale.
(b) NO VIOLATION. The execution and delivery of this Warrant Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms and provisions of this Warrant Agreement and of the Warrants will not
conflict with, or result in a breach of, or constitute a default or an event
permitting acceleration under, any statute, the Articles of Incorporation or
Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank
loan, credit agreement, franchise, license, lease, permit, or any other
agreement, understanding, instrument, judgment, decree, order, statute, rule or
regulation to which the Company is a party or by which it is or may be bound.
2. TRANSFER.
(a) TRANSFERABILITY OF WARRANTS. You agree that the Warrants are being
acquired as an investment and not with a view to distribution thereof and that
the Warrants may not be transferred, sold, assigned or hypothecated except as
provided herein and in compliance with all applicable securities and other laws.
(b) REGISTRATION OF SHARES. You agree not to make any sale or other
disposition of the Shares except pursuant to a registration statement which has
become effective under the Securities Act of 1933, as amended (the "Act"),
setting forth the terms of such offering, the underwriting discount and
commissions and any other pertinent data with respect thereto, unless you have
provided the Company with an opinion of counsel reasonably acceptable to the
Company that such registration is not required. Certificates representing the
Shares, which are not registered as provided in Section 2, shall bear an
appropriate legend and be subject to a "stop-transfer" order.
3. EXERCISE OF WARRANTS, PARTIAL EXERCISE.
(a) EXERCISE PERIOD. Subject to the terms of this Section 3(a), each
Warrant is exercisable at any time after April 17, 1997 provided that the
Company reaches or exceeds $480,000.00 of net income, after tax for fiscal year
1996, 1997 or 1998. If the Company fails to meet the earnings threshold, the
warrants will vest on a pro rata basis (for example, if the Company earns
$240,000.00 only 22,500 of the warrants shall vest). Any unvested warrants shall
carry over to the succeeding year, however the unvested options shall be subject
to the succeeding year's earning threshold which shall remain $480,000.00 for
the exercise period. The warrants shall expire on the earlier of April 1, 2004
or five years from the date they become fully vested.
WARRANT AGREEMENT PAGE 2
(b) EXERCISE IN FULL. Subject to Section 3(a), Warrants may be exercised
in full by the Warrant holder by surrender of the Warrants, with the form of
subscription at the end thereof duly executed by such Warrant holder, to the
Company at its principal office at 355 N.E. Fifth Avenue, Delray Beach, Florida
33483, Attention: Chief Executive Officer, accompanied by payment, in cash or by
certified or bank cashier's check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of the Common Stock
represented by the respective Warrant or Warrants by the Purchase Price per
share (after giving effect to any adjustments as provided in Section 5 below).
(c) PARTIAL EXERCISE. Subject to Section 3(a), each Warrant may be
exercised in part by the Warrant holder by surrender of the Warrant, with the
form of subscription at the end thereof duly executed by such Warrant holder, in
the manner and at the place provided in Section 3(b) above, accompanied by
payment, in cash or by certified or bank cashier's check payable to the order of
the Company, in amount obtained by multiplying the number of shares of the
Common Stock designated by the Warrant holder in the form of subscription
attached to the Warrant by the Purchase Price per share (after giving effect to
any adjustments as provided in Section 5 below). Upon any such partial exercise,
the Company at its expense will forthwith issue and deliver to or upon the order
of the Warrant holder a new Warrant of like tenor, in the name of the Warrant
holder thereof or as the Warrant holder (upon payment by such Warrant holder of
any applicable transfer taxes) may request, subject to Section 2(a), calling in
the aggregate for the purchase of the number of shares of the Common Stock equal
to the number of such shares called for on the face of the respective Warrant
(after giving effect to any adjustment herein as provided in Section 5 below)
minus the number of such shares designated by the Warrant holder in the
aforementioned form of subscription.
(d) COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of any
exercise of any Warrant, upon the request of the Warrant holder, acknowledge in
writing its continuing obligation to afford to such Warrant holder any rights to
which such Warrant holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant Agreement; PROVIDED, HOWEVER,
that if the Warrant holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
Warrant holder any such right.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
Any exercise of the Warrants pursuant to Section 3 shall be deemed to have
been effected immediately prior to the close of business on the date on which
the Warrants together with the subscription form and the payment for the
aggregate Purchase Price shall have been received by the Company. At such time,
the person or persons in whose name or names any certificate or certificates
representing the Shares or Other Securities (as defined below) shall be issuable
upon such exercise shall be deemed to have become the holder or holders of
record of the Shares or Other Securities so purchased. As soon as practicable
after the exercise of any Warrant in full or in part, and in any event within 10
WARRANT AGREEMENT PAGE 3
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of, and delivered to
the purchasing Warrant holder, a certificate or certificates representing the
number of fully paid and nonassessable shares of Common Stock or Other
Securities to which such Warrant holder shall be entitled upon such exercise,
plus in lieu of any fractional share to which such Warrant holder would
otherwise be entitled, cash in an amount determined pursuant to Section 6(h),
together with any other stock or other securities and property (including cash,
where applicable). The term "Other Securities" refers to any stock (other than
Common Stock), other securities or assets (including cash) of the Company or any
other person (corporate or otherwise) which the holders of the Warrants at any
time shall be entitled to receive, or shall have received, upon the exercise of
the Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 below or otherwise.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE.
The Purchase Price and the number of Shares are subject to adjustment from
time to time as set forth in this Section 5.
(a) In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock in shares of its capital stock, (ii)
subdivide the outstanding Shares, (iii) combine the outstanding Common Stock
into a smaller number of Common Stock, or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each case the Purchase Price,
and the number and kind of Shares receivable upon exercise, in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of Shares which, if such Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) No adjustment in the Purchase Price shall be required if such
adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by
reason of this subsection (h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(c) Upon each adjustment of the Purchase Price as a result of the
calculations made in any of subsection (a) of this Section 5, each Warrant
outstanding prior to the making of the adjustment in the Purchase Price shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of Shares (calculated to the nearest
WARRANT AGREEMENT PAGE 4
thousandth) obtained by (i) multiplying the number of Shares purchasable upon
exercise of a Warrant immediately prior to adjustment of the number of Shares by
the Purchase Price in effect prior to adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(d) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a reclassification of the
Common Stock referred to in subsection (a) of this Section 5), or in the case of
the consolidation of the Company with or the merger of the Company into any
other corporation or of the sale, transfer, or lease of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation, each Warrant shall after such capital reorganization,
reclassification of the Common Stock, consolidation, merger, sale, transfer, or
lease be exercisable, upon the terms and conditions specified in this Agreement,
for the number of shares of stock or other securities, assets, or cash to which
a holder of the number of shares of Common Stock purchasable (at the time of
such capital reorganization, reclassification of shares, consolidation, merger,
sale, transfer, or lease) upon exercise of such Warrant would have been entitled
upon such capital reorganization, reclassification of the Common Stock,
consolidation, merger, sale, transfer, or lease; and in any such case, if
necessary, the provisions set forth in this Section 5 with respect to the rights
and interests thereafter of the holders of the Warrants shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock or other securities, assets, or cash thereafter deliverable upon the
exercise of the Warrants. The subdivision or combination of the Common Stock at
any time outstanding into a greater or lesser number of shares shall not be
deemed to be a reclassification of the Common Stock for the purposes of this
paragraph. The Company shall not effect any such consolidation, merger,
transfer, or lease, unless prior to or simultaneously with the consummation
thereof, the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing, receiving, or
leasing such assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant holder, the obligation
to deliver to the Warrant holder such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holders may be entitled to
purchase, and to perform the other obligations of the Company under this Warrant
Agreement.
6. FURTHER COVENANTS OF THE COMPANY.
(a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its
certificate or articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants or of this Warrant Agreement, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrant holders against dilution or other impairment.
Without limiting the generality of the foregoing, the Company:
WARRANT AGREEMENT PAGE 5
(i) shall at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
exercise of the Warrants and shall take all necessary actions to ensure
that the par value per share, if any, of the Common Stock (or Other
Securities) is at all times equal to or less than the then effective
Purchase Price per share;
(ii) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock or Other Securities upon the exercise
of the Warrants from time to time outstanding;
(iii) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary dissolution, liquidation or winding-up, unless
the rights of the holders thereof shall be limited to a fixed sum or
percentage of par value in respect of participation in dividends and in
any such distribution of assets; and
(iv) will not transfer all or substantially all of its properties
and assets to any person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to consolidate with
or merge into the Company (if the Company is not the surviving
corporation), unless such other person shall expressly assume in writing
and will be bound by all the terms of this Warrant Agreement and the
Warrants.
(b) TITLE TO STOCK. All shares of Common Stock delivered upon the exercise
of the Warrants shall be validly issued, fully paid and nonassessable; each
Warrant holder shall, upon such delivery, receive good and marketable title to
the Shares, free and clear of all voting and other trust arrangements, liens,
encumbrances, equities and claims whatsoever; and the Company shall have paid
all taxes, if any, in respect of the issuance thereof.
(c) REMEDIES. The Company stipulates that the remedies at law of the
Warrant holder or any holder of Shares in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant Agreement or the Warrants are not and will not be adequate and
that such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or in the Warrants or by an
injunction against a violation of any of the terms hereof or thereof or
otherwise.
(d) EXCHANGE OF WARRANTS. Subject to Section 2(a) hereof, upon surrender
for exchange of any Warrant to the Company, the Company at its expense will
promptly issue and deliver to or upon the order of the holder thereof a new
Warrant or like tenor, in the name of such holder or as such holder (upon
payment by such Warrant holder of any applicable transfer taxes) may direct,
calling in the aggregate for the purchase of the number
WARRANT AGREEMENT PAGE 6
of shares of the Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered. The Warrants and all rights thereunder are transferable
in whole or in part upon the books of the Company by the registered holder
thereof, subject to the provisions of Section 2(a), in person or by duly
authorized attorney, upon surrender of the Warrant, duly endorsed, at the
principal office of the Company.
(e) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company, at the expense of the Warrant holder, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(f) REPORTING BY THE COMPANY. The Company agrees that during the term of
the Warrants it will use its best efforts to keep current in the filing of all
forms and other materials, if any, which it may be required to file with the
appropriate regulatory authority pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) FRACTIONAL SHARES. No fractional Shares are to be issued upon the
exercise of any Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to such fraction multiplied by the closing price which shall be the last
reported sales price regular way or, in case no such reported sales takes place
on such day, the average of the closing bid and asked prices regular way, on the
principal national securities exchange in the United States on which the Common
Stock is listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any such national securities exchange, the average of the
highest reported bid and lowest reported asked price as furnished by the
National Association of Securities Dealers, Inc. through its automated quotation
system ("Nasdaq") or a similar organization if Nasdaq is no longer reporting
such information.
7. OTHER WARRANT HOLDERS: HOLDERS OF SHARES.
The Warrants are issued upon the following terms, to all of which each
Warrant holder by the taking thereof consents and agrees: (a) any person who
shall become a transferee, within the limitations on transfer imposed by Section
2(a) hereof, of a Warrant properly endorsed shall take such Warrant subject to
the provisions of Section 2(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Warrant Agreement, shall be empowered to transfer absolute
title by endorsement and delivery thereof to a permitted BONA FIDE purchaser for
value; (b) any person who shall become a holder or owner of Shares shall take
such shares subject to the provisions of Section 2(b) hereof; (c) each prior
taker or owner waives and renounces all of his equities or rights in such
Warrant in favor of each such
WARRANT AGREEMENT PAGE 7
permitted BONA FIDE purchaser, and each such permitted BONA FIDE purchaser shall
acquire absolute title thereto and to all rights presented thereby; and (d)
until such time as the respective Warrant is transferred on the books of the
Company, the Company may treat the registered holder thereof as the absolute
owner thereof for all purposes, notwithstanding any notice to the contrary.
8. MISCELLANEOUS.
All notices, certificates and other communications from or at the request
of the Company to any Warrant holder shall be mailed by first class, registered
or certified mail, postage prepaid, to such address as may have been furnished
to the Company in writing by such Warrant holder, or, until an address is so
furnished, to the address of the last holder of such Warrant who has so
furnished an address to the Company, except as otherwise provided herein. This
Warrant Agreement and any of the terms hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Florida. The headings in this Warrant
Agreement are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. This Warrant Agreement, together with the forms
of instruments annexed hereto as exhibits, constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
executed on this the 1st day of April, 1996, in Delray Beach, Florida, by its
proper corporate officers, thereunto duly authorized.
WESTMARK GROUP HOLDINGS, INC.
By DAWN DRELLA,
Chief Financial Officer
The above Warrant Agreement is confirmed
as of this 1st day of April, 1996
NORMAN J. BIRMINGHAM
WARRANT AGREEMENT PAGE 8
EXHIBIT A
WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933,
AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN
SECTIONS 3 AND 4 OF SUCH ACT AND REGULATION D PROMULGATED THEREUNDER; OR (B) ANY
STATE SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
WARRANTS MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR,
AND NEITHER THE WARRANTS NOR THE UNDERLYING STOCK MAY BE TRANSFERRED OR
EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES AND OTHER LAWS.
Warrant No. ___ To Purchase
45,000 Shares of
Common Stock
WESTMARK GROUP HOLDINGS, INC.
Incorporated Under the Laws of Colorado
This certifies that, for value received, the hereafter named registered
owner is entitled, subject to the terms and conditions of this Warrant, until
the expiration date, to purchase the number of shares set forth above of the
common stock (the "Common Stock"), of Westmark Group Holdings, Inc. (the
"Corporation") from the Corporation at the purchase price per share hereafter
set forth, on delivery of this Warrant to the Corporation with the exercise form
duly executed and payment of the purchase price (in cash or by certified or bank
cashier's check payable to the order of the Corporation) for each share
purchased. This Warrant is subject to the terms of the Warrant Agreement between
the parties thereto dated as of April 1, 1996, the terms of which are hereby
incorporated herein. Reference is hereby made to such Warrant Agreement for a
further statement of the rights of the holder of this Warrant.
Registered Owner: Norman J. Birmingham Date: April 1, 1996
Purchase Price
Per Share: $2.25
Expiration Date: Subject to Section 3(a) of the Warrant Agreement, 5:00 p.m.
Delray Beach, Florida time on April 31, 1999.
WITNESS the signature of the Corporation's authorized officer:
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM,
Chief Executive Officer
A-1
FORM OF SUBSCRIPTION
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
To Westmark Group Holdings, Inc.:
The undersigned, the holder of the enclosed Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________* shares of Common Stock of Westmark Group
Holdings, Inc. and herewith makes payment of $_______________ therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:______________
--------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the enclosed Warrant)
--------------------------------------------
(Address)
- ---------------------------
(*) Insert here the number of shares called for on the face of the Warrant or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised, in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant Agreement pursuant to which the Warrant was granted, may be
delivered upon exercise.
A-2
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto __________________________________ the right represented by the enclosed
Warrant to purchase _________________ shares of Common Stock of Westmark Group
Holdings, Inc. to which the enclosed Warrant relates, and appoints
_____________________ Attorney to transfer such right on the books of Westmark
Group Holdings, Inc. with full power of substitution in the premises.
The undersigned represents and warrants that the transfer of the enclosed
Warrant is permitted by the terms of the Warrant Agreement pursuant to which the
enclosed Warrant has been issued, and the transferee hereof, by his acceptance
of this Agreement, represents and warrants that he is familiar with the terms of
said Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Dated:_________________________
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the enclosed
Warrant)
--------------------------------------
(Address)
Signed in the presence of:
- ------------------------------------
A-3
EXHIBIT 10.18
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated , 1996, is executed by and between Westmark Group Holdings,
Inc., a Colorado corporation and Westmark Mortgage Corporation, a California
corporation, hereinafter collectively referred to as "WGHI," and Greentree
Mortgage Company, L.P., a Delaware limited partnership, hereinafter referred to
as "Greentree," and is made with reference to the following:
RECITALS
WHEREAS, WGHI and Greentree entered into an Agreement of Purchase and
Sale of Assets on July 2, 1995 and a subsequent Restated Amendment to Agreement
of Purchase and Sale of Assets on September 1, 1995, hereinafter collectively
referred to as "the Agreement" and;
WHEREAS, WGHI and Greentree have agreed to terminate the Agreement
subject to the terms and conditions herein contained and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising out of or pertaining to the aforementioned Agreement.
NOW, THEREFOR, in consideration of the terms set forth below, and other
covenants and conditions herein contained, WGHI and Greentree mutually agree as
follows:
1. Within ten (10) days from the date of execution of this agreement,
WGHI shall deliver to Greentree 150,000 warrants to purchase shares of WGHI's
unregistered common stock on the basis of one (1) share for each warrant. Each
warrant shall be exercisable for a period of three (3) years from the date of
issue and the exercise price for each share shall be _____________. All of such
shares shall be included in the next Registration Statement to be filed by WGHI
with the U.S. Securities and Exchange Commission no later than May 31, 1996.
2. On or before May 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Greentree of such number of shares of WGHI common stock as calculated
pursuant to the terms of this agreement.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Greentree 17,500 shares. All such
WGHI shares shall be
1
fully paid, nonassessable, duly authorized and validly issued and will be free
and clear of all preemptive rights, rights of first refusal, liens, charges,
restrictions, claims and encumbrances. WGHI agrees that it will cause the sale
of the Greentree shares in an orderly manner through the brokerage firm
designated by WGHI, or such other brokerage firm as agreed to by the parties.
Westmark shall cause the registration, issuance and sale of sufficient shares to
enable Greentree to receive no less than $5,000 per month commencing August 15,
1996 and continuing on the 15th day of each thereafter until the sum of $35,000
has been paid in full. WGHI agrees to register, qualify and issue to Greentree
additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $5,000 per month
commencing August 15, 1996. Once Greentree has netted $35,000, any remaining
WGHI shares will be returned to WGHI and shall be retired.
4. If at any time WGHI fails to perform its obligations as set forth
hereinabove, WGHI shall be in default of this agreement and Greentree shall be
entitled to proceed with any and all remedies provided at law or in equity. In
the event of default, Greentree shall be entitled to file the Confession of
Judgment executed by WGHI, a copy which is attached hereto marked Exhibit "A" or
shall be promptly provided by Greentree, and by this reference made a part
hereof.
5. Greentree hereby releases and forever discharges WGHI, and all of
its past, present and future attorneys, officers, shareholders, directors,
employees, agents, insurers, successors and assigns from any and all claims,
demands, obligations or causes of action of any nature whatsoever, whether in
law or in equity, or whether for contractual, compensatory or punitive damages,
which have arisen or may arise out of the aforementioned Agreement; provided
however, that the release set forth herein does not pertain to WGHI's
obligations to Greentree created by this agreement or any claims or assertions
raised by Greentree in the Conover litigation hereinafter described in paragraph
6. In addition, a separate form of release with regard to the foregoing shall be
executed by Greentree contemporaneously with the execution of this agreement.
6. WGHI hereby releases and forever discharges Greentree, and all of
its past, present and future attorneys, partners, officers, directors,
employees, agents, insurers, successors and assigns, from any and all claims,
demands, obligations or causes of action of any nature whatsoever, whether in
law or in equity, or whether for contractual, compensatory or punitive damages,
which have or may arise out of the aforementioned Agreement and Restated
Amendment thereto; provided however, that the release set forth herein does not
pertain to any of the claims or assertions raised by WGHI in the civil action in
the Superior Court of New Jersey, docket number C155-95, entitled "Robert J.
Conover, plaintiff v. Greentree Mortgage Company, L.P.; Greentree Management
Corporation; Westmark Group Holdings, Inc.; Westmark Mortgage Corporation; and
Michael F. Morrell, defendants." In addition, a separate form of release with
regard to the foregoing shall be executed by WGHI contemporaneously with the
execution of this agreement.
7. Subject to satisfaction of the terms set forth herein all parties
hereto
2
acknowledge that they execute and agree to this agreement, and accept the terms
set forth herein, as a complete compromise of all matters involving disputed
issues of law and fact and fully assume, thereby, the risk that the facts or law
may be other than they believe.
8. The parties hereto acknowledge and understand that this agreement
creates new obligations and rights between them. Except as otherwise provided
for in this agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Greentree or to WGHI, would materially affect their
decision to enter into this agreement. Each party further assumes the risk that
it may suffer damages in the future which it does not now anticipate nor
suspect.
9. Each party warrants and represents to the other that it has not
assigned, conveyed or transferred any of the claims or possible claims against
any of the parties hereto (or any interest therein) which are released or
referred to herein and that the releases herein are what they purport to be.
In the event of an adjudication that either party is in breach of
this section, the party in breach agrees to indemnify and hold harmless the
other party from any resulting liability, claim, demand, damage, cost, expense
and/or attorney's fees incurred by the other party as a result of the breach.
10. Greentree agrees and acknowledges that it will accept the warrants
and the registration, issuance and sale of the WGHI shares specified hereinabove
as a full and complete compromise of matters involving disputed issues as to the
Agreement hereinabove set forth. Each of Greentree and WGHI agrees and
acknowledges that neither this agreement, nor delivery of the WGHI shares by
WGHI herein, or any event occurring during the negotiations for this agreement
(nor any statement or communication made in connection therewith) by either
party, or their attorneys or representatives, shall be considered an admission
by any party of any act or omission to act, or of any responsibility or
liability for any claims, suits, actions or any facts, representations or
misrepresentations regarding any of the parties, and that no past nor present
wrongdoing on the part of either party shall be implied therefrom.
11. Each party represents and warrants that it has full authority to
enter into this agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
12. This agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, employees,
investors, agents, representatives, partners, predecessors, successors and
assigns.
13. This agreement contains the entire agreement between the parties
and
3
supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this agreement.
14. This agreement has been negotiated, and is entered into, in the
State of New Jersey. The validity, interpretation, construction and enforcement
of this agreement shall be construed, interpreted and governed pursuant to New
Jersey law.
15. In entering into this agreement, each party represents that:
(a) It has read the agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this agreement.
(b) It fully understands and is aware of the terms of
this agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this agreement.
16. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this agreement. Each party further warrants and represents
that the individuals executing this agreement are duly authorized by the
respective parties to bind the parties to the terms of this agreement.
17. Failure by either party at any time to require performance of any
provision of this agreement shall not limit the right of that party to enforce
such performance or provision at any time, nor shall either party's waiver of
any breach by the other party of any provision of this agreement by a waiver of
any succeeding breach by that other party of that same provision, or of any
other provision of this agreement.
18. The parties agree that any notices to be provided pursuant to this
agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Greentree Mortgage Company, L.P.
4
355 N.E. Fifth Ave., Suite 4 10005 Atriums at Greentree
Delray Beach, Florida 33483 P.O. Box 830
Marlton, New Jersey 08053
and
and
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N Andrew D. Stone, Esq.
Capitola, California 59010 McMahan Financial Center
591 West Putnam Avenue
Greenich, Connecticut 06830
Each party shall notify the other party by certified mail of any
change of address or change of the person designated herein to receive notices
to be provided pursuant to this agreement. Once a party has received notice of a
change of address or designated person, that party shall send all future notices
to be provided in this agreement to that address and designated person.
19. This agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this agreement, to
produce or account for more than one counterpart.
20. The aforementioned Agreement of Purchase of Sale of Assets and
Restated Amendment to Agreement of Purchase of Sale of Assets is hereby
terminated and each party waives any and all rights, claims or entitlements
pursuant to said Agreement and Restated Amendment except as hereinabove set
forth.
IN WITNESS WHEREOF, the parties have duly executed this agreement on
the dates set forth below.
DATED: DATED:
GREENTREE MORTGAGE CO., L.P. WESTMARK GROUP HOLDINGS, INC.
By: By:
Its: Its:
WESTMARK MORTGAGE CORP.
5
By:
Its:
6
GREENTREE MORTGAGE COMPANY, ) Case No.:
L.P., a Delaware corporation )
) CONFESSION OF JUDGMENT
Plaintiff, ) STATEMENT
) [CCP 1133]
vs. )
)
WESTMARK GROUP HOLDINGS, )
INC., WESTMARK MORTGAGE )
CORPORATION, )
)
Defendant. )
)
______________________________)
WESTMARK GROUP HOLDINGS, INC., a Colorado corporation and WESTMARK
MORTGAGE CORPORATION, a California corporation hereinafter collectively "WGHI"
hereby confesses judgment in the above-entitled action in favor of GREENTREE
MORTGAGE COMPANY, L.P., a Delaware Limited Partnership, ("GREENTREE"), in the
principal amount of $35,000, plus costs, and interest on said principal amount
at ten percent (10%) per annum from the date of this Confession of Judgment
Statement to the date of entry of judgment herein, less any amounts received by
GREENTREE pursuant to that certain Settlement Agreement and Mutual Release of
all Claims dated _________, 1996, and authorizes entry of judgment against it in
that total amount.
This confession of judgment is for a debt justly due that arises out of
a contractual relationship between Plaintiff and Defendant and subsequent
Settlement Agreement with respect to said contractual relationship. WGHI owes
GREENTREE the sum of $35,000 as
1
a result of said settlement. By the terms of a settlement agreement between WGHI
and GREENTREE dated the_____ day of April, 1996, WGHI agreed that, if it
defaulted on its obligations thereunder, GREENTREE could obtain judgment against
it pursuant to this Confession of Judgment Statement.
DATED: WGHI GROUP HOLDINGS, INC.
By:
Norman Birmingham, President
VERIFICATION
I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS,
INC., ("WGHI") Defendant in the above-entitled action, and I make this
Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT
STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of
my own knowledge.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
Dated:
Norman Birmingham
2
EXHIBIT 10.19
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated March , 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation and First American Flood Data
Services, Inc., ("Flood Data"), a Texas corporation, and is made with reference
to the following:
RECITALS
WHEREAS, WGHI retained Flood Data to represent it in various matters
and to provide certain services to WGHI and;
WHEREAS, Flood Data performed certain services on behalf of WGHI and
billed it for such services and;
WHEREAS, WGHI has informed Flood Data that it is unable to pay in cash
the amounts owed to Flood Data for such services and has requested that Flood
Data accept the form of payment as set forth herein and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from the relationship between WGHI and Flood Data and claims for
payments owed by WGHI to Flood Data.
NOW, THEREFOR, in consideration of the terms set forth below and other
covenants and conditions contained herein, WGHI and Flood Data mutually agree as
follows:
1. WGHI agrees to pay to Flood Data $2,200 on April 5, 1996 and a like
amount on May 5, 1996 and June 5, 1996.
2. On or before April 10, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Flood Data of such number of shares of WGHI common stock as calculated
pursuant to the terms of Section 3 hereof.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Flood Data, 7,500 shares. All such
WGHI shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and encumbrances.
1
WGHI will cause the sale of the Flood Data shares in an orderly manner through a
brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI
shares registered in the name of Flood Data shall be sold each month to net
$2,200 per month payable to Flood Data no later than the 10th day of each month
commencing July 5, 1996 through and including January 5, 1997. WGHI further
agrees to register, qualify and issue to Flood Data additional WGHI shares to
the extent the number of WGHI shares originally registered, qualified and issued
are insufficient to net $2,200 per month commencing July 5, 1996. Once Flood
Data has received a total of $22,210 as a result of monthly payments commencing
April 5, 1996, any remaining WGHI shares will be returned to WGHI and shall be
retired.
4. If at any time WGHI fails to pay or cause the payment of the sum of
$2,200 per month commencing April 5, 1996, WGHI shall be in default of this
agreement. In the event of default, Flood Data shall be entitled to proceed with
any and all remedies available at law or in equity.
5. Flood Data hereby releases and forever discharges WGHI, and all of
its past, present and future attorneys, agents, officers, directors, employees,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services rendered on its behalf
by Flood Data. Provided, however, that this release does not in any way pertain
to WGHI's obligations to Flood Data set forth herein.
6. WGHI hereby releases and forever discharges Flood Data, and all of
its past, present and future employees, partners, agents, officers, directors,
employees, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of Flood Data's performance of services on behalf of WGHI, or
failure thereof, and any and all other claims or causes of action WGHI may have
against Flood Data, whether real or imaginary or known or unknown at this time.
7. Subject to satisfaction of the terms set forth herein, all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Flood Data or to WGHI, would materially affect their
decision to enter into this Agreement. Each party further
2
assumes the risk that it may suffer damages in the future which it does not now
anticipate nor suspect. Each party waives all rights under California Civil Code
Section 1542, which states as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. Flood Data agrees and acknowledges that it will accept the payments
set forth above together with delivery of the WGHI shares and proceeds of sale
thereof, as a full and complete compromise of matters involving disputed issues
as to WGHI. Flood Data and WGHI agree and acknowledge that neither this
Agreement nor delivery of the WGHI shares herein, or any event occurring during
the negotiations for this Agreement (nor any statement or communication made in
connection therewith) by either party, or their attorneys or representatives,
shall be considered an admission by any party of any act or omission to act, or
of any responsibility or liability for any claims, suits, actions or any facts,
representations or misrepresentations regarding any of the parties, and that no
past nor present wrongdoing on the part of either party shall be implied
therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
13. This Agreement has been negotiated, and is entered into, in the
State of California, County of Santa Cruz. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
14. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this Agreement.
3
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
15. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
16. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
FIRST AMERICAN FLOOD DATA WESTMARK GROUP HOLDINGS, INC.
SERVICES, INC.
By: By:
Its: Its:
4
EXHIBIT 10.20
NOTE MODIFICATION AGREEMENT
This agreement is entered into by and between Network Capital Group
Inc., a California Corporation ("Network"), formerly known as Winchester
Mortgage Company and Dolan Development Partners Limited, a California Limited
Partnership, ("Dolan Partners"). The parties mutually agree as follows:
1. On or about January 23, 1991, Network executed a promissory note in
the sum of $750,000 as a co-maker payable to Nathan Land Company, a Nevada
Corporation. Pursuant to the terms and conditions of the note, Network was
obligated to pay $375,000 of the total principal. Said note was secured by Deed
of Trust recorded February 6, 1991 in reel 2604 page 574, official records in
Monterey County, California. A copy of said promissory note is attached hereto,
marked Exhibit "A" and by this reference made a part hereof.
2. On or about January 24, 1991 Network executed a promissory note in
the sum of $800,000 as a co-maker payable to Nathan Land Company, a Nevada
Corporation. Said note was secured by Deed of Trust recorded February 6, 1991 in
reel 2604 page 582, official records in Monterey County, California. Pursuant to
the terms and conditions of the note, Network was obligated to pay $600,000 of
the total principal. A copy of said promissory note is attached hereto, marked
Exhibit "B" and by this reference made a part hereof.
3. Dolan Partners represent that they are the owners of most of the
legal and equitable interests owed by Network in the aforementioned promissory
notes.
4. Dolan Partners covenant and agree that to the extent that any other
person, firm or entity claims any right, title or interest in and to any
obligation by Network in either or both of the aforementioned promissory notes,
Dolan Partners will make a reasonable effort to obtain the written consents to
this Note Modification Agreement. Dolan Partners will hold Network harmless from
any and all claims by third parties against Network with respect to the
aforementioned promissory notes provided Network is not in default with respect
to the terms and conditions of this note modification agreement.
5. The parties mutually agree that a dispute exists between the parties
regarding the amount of indebtedness due by Network with respect to the
aforementioned promissory notes. Dolan Partners have instituted foreclosure
proceedings against Network. The parties have agreed to settle and compromise
said dispute based upon the following terms and conditions:
a) The total principal obligation due and owing by Network with respect
to the aforementioned promissory notes through July 1, 1995 is
$1,000,000 together with interest from July 1, 1994 as set forth below.
b) Network's total obligation in the sum of $1,000,000 will be
allocated by Dolan Partners between the two aforementioned promissory
notes subject to the hold harmless provisions as hereinabove set forth.
c) Commencing July 1, 1994, interest will accrue on the unpaid balance
of $1,000,000 at the rate of 9.75% per year and Network covenants and
agrees
1
to make monthly interest only payments to Dolan Partners commencing
July 1, 1995 and continuing on the 1st day of each month thereafter.
Network shall be entitled to a credit each month of one-half of the
monthly rental actually received from the tenants on Parcel D for
rents paid from the previous month. Dolan Partners will provide a
written accounting to Network with respect to all rental income
received from and after July 1, 1994 with respect to Parcels B & D,
Dolan Property, Moss Landing, California. Each party shall be
responsible for the payment of one-half of any reasonable and
necessary expenses incurred for the maintenance and development of
subject property. Each party will make a reasonable effort to notify
the other party of the necessity for incurring expenses for
maintenance and development until such time as a Tenants In Common
Agreement shall have been executed by the parties.
d) Network agrees to reimburse Dolan Partners for one-half of the
expenses paid by Dolan Partners for maintenance of Dolan Property and
processing of a use permit application including but not limited to
engineering, surveying and the like through the County of Monterey
since July 1, 1994 to June 30, 1995. Dolan Partners represents that the
total expenses incurred for such period are $26,780. Network agrees to
be responsible for the sum of $13,390. The parties mutually agree that
the interest arrearage for the period July 1, 1994 to June 1, 1995 is
$89,375. Network's total obligation for accrued interest through June
1, 1995 and monthly expenses through June 30, 1995 is $102,765. Dolan
Partners covenant and agree that Network shall be entitled to a credit
in the sum of $52,051 which represents one-half of the rental income
received by Dolan Partners with respect to Parcel "D" and $7,500 on
Parcel "B." Network covenants and agrees that the net balance due Dolan
Partners in sum of $50,714 shall be paid in four (4) equal installments
in the sum of $12,678.50 with the first payment due no later than five
(5) days after the date of execution of this agreement by the parties
and the subsequent payments due on August 1st, September 1st and
October 1st, 1995.
In the event of a dispute between Network and Dolan Partners regarding
either the rental income received or the maintenance expenses incurred
for the period July 1, 1994 through June 30, 1995, the parties agree
that payment of the October 1, 1995 arrearage obligation shall be
suspended up to the amount in controversy, not to exceed the total
arrearage payment until such time as the parties have resolved the
dispute by arbitration.
e) Dolan Partners shall cooperate with Network with regard to the
registration and sale of shares of common stock of Westmark Group
Holdings, Inc. provided, however, that the registration and sale of
shares shall not extend the payment dates set forth above.
f) Network covenants and agrees that the balance of principal and any
unpaid accrued interest shall be payable in full no later than June 1,
1998 or upon the sale of Parcel D of the Dolan Property, whichever
event shall first occur. Network reserves the right to prepay all or
any portion of said principal, without penalty.
2
6. The parties mutually agree to enter into a new Tenants In Common
Agreement prior to August 14, 1995, providing for the ownership, management,
development and marketing of Parcel D, Dolan Property located in Moss Landing,
California. The terms and conditions of the Tenants In Common Agreement shall
include an agreement by Dolan Partners to subordinate the Deeds of Trust
hereinabove referred to, with respect to a refinance of the subject property by
Dolan Partners and Network for the purposes of satisfying the existing first
mortgage or developing, maintaining or subdividing the subject Dolan Property.
Dolan Partners make no representations or warranties whatsoever that any other
lienholder will agree to subordinate its deed of trust. Dolan Partners and
Network shall be equally responsible for the ownership, management, development
and marketing of Parcel D, Dolan Property. For management services rendered by
William Wright between July 1, 1994 and June 1, 1995, Network covenant and agree
to pay to William Wright the sum of $15,000 no later than July 31, 1995.
7. Upon execution of this agreement, Dolan Partners shall immediately
continue the existing foreclosure proceedings and trustee sale with First
Nationwide Reconveyance Company to October 1, 1995. Provided Network has
complied with the terms and conditions of this Note Modification Agreement,
Dolan Partners shall terminate, cancel and rescind the pending foreclosure
proceedings and trustee sale on October 1, 1995. Furthermore, upon execution of
this Note Modification Agreement and receipt of the first installment payment as
hereinabove set forth in the sum of $12,678.50, Dolan Partners shall dismiss
without prejudice defendants Rairyl Inc. and Winchester Mortgage Company as
defendants in the existing litigation pending in the County of Monterey, State
of California, case #M26895.
8. Network shall be responsible for any increase in real property taxes
resulting from any prior conveyance by Network to Rairyl, Inc.
9. In the event of any dispute arising out of or pertaining to this
agreement, the prevailing party shall be entitled to reasonable attorneys fees
in addition to any other relief provided by law.
10. Each of the parties has entered into this note modification
agreement voluntarily, of its own free will, without coercion or duress, and
with benefit of counsel.
11. This agreement shall inure to the benefit of and be binding upon
the heirs, executors, personal representatives and assigns of the parties
hereto.
Date Date
Network Capital Group, Inc., Dolan Development Partners, Ltd.,
a California Corporation a California Limited Partnership
By: By:
3
EXHIBIT 10.21
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
1. PARTIES. This settlement agreement and mutual release (" Settlement
Agreement and Mutual Release") is effective as of April 1, 1996, by and between
Westmark Group Holdings, Inc. ("Westmark" or the "Company") and the Investors
set forth on the signature page hereto (the "Investors"), collectively referred
to as the parties ("Parties").
2. FACTS.
2.1 In June and December 1995, the Investors entered into
Subscription Agreements with Westmark pursuant to which loans
were made in the aggregate sum of six hundred thousand dollars
($600,000.00) (the "Subscription Agreements"). The terms of the
Subscription Agreements provided for the issuance of notes (the
"Notes") and warrants (the "Warrants") corresponding with the
amount lent to the Company. The Subscription Agreement, Notes
and Warrants entered into by each Investor and the Company are
hereinafter referred to as the "Financing Documents." Each
investor and the corresponding loan amount is set forth in
Exhibit A hereto.
2.2 In March 1996, Westmark placed into escrow Six hundred thousand
dollars ($600,000) (the "Escrowed Funds") at the law firm of
Orrick, Herrington & Sufcliffe. A copy of the Escrow Agreement
is attached hereto as Exhibit B. Westmark desires to pay the
Investors the amount set forth in Exhibit A, from the Escrow
Funds, in satisfaction of the principal amount of the Notes,
plus accrued interest.
2.3 In April 1996, Westmark agreed to issue an aggregate of 300,000
shares of Series B Convertible Preferred Stock ("Preferred
Stock") pursuant to a Certificate of Designation, Preferences,
Rights and Limitations of Series B Convertible Preferred Stock
of Westmark Group Holdings, Inc., a copy of which is attached
hereto as Exhibit C (the "Designation"). Westmark desires to
issue shares of Preferred Stock to each Investor, in the
denomination set forth in Exhibit D, in exchange for cancelling
the Warrants issued pursuant to the Subscription Agreements.
2.4 The Company acknowledges that the full purchase price for the
Preferred Stock was received by the Company on April 1, 1996 and
the Company hereby agrees to cause its counsel to rely upon this
fact for purposes of rendering a Rule 144 opinion, if
applicable.
2.5 The Parties have agreed to compromise and settle all obligations
arising from the Financing Documents, including any disputes or
claims arising therefrom, on the basis and in consideration of
the recitals set forth herein and as further set forth in the
Designation.
3. MUTUAL RELEASE
3.1 In consideration of the release of the Escrowed Funds to the
Investors to be distributed to each Investor in the amount set
forth in Exhibit A, and the issuance of 300,000 shares of
Preferred Stock to the Investors in the denominations set forth
in Exhibit D, and the agreements and covenants set forth
hereinbelow, the sufficiency of which the Investors hereby
acknowledge and confess, the Investors, for themselves, their
officers, directors, shareholders, partners, attorneys, agents,
servants, representatives, successors, employees and assigns, TO
THE EXTENT LEGALLY ALLOWED, hereby covenant and agree as
follows:
3.1.1 That they hereby release, acquit, and forever
discharge Westmark, its officers, directors,
shareholders, partners, attorneys, agents,
servants, representatives, successors, employees
and assigns, from any and all rights,
obligations, claims, demands and causes of
action, whether in contract or in tort, arising
from or relating to the Financing Documents,
including all obligations arising therefrom, and
omissions and/or conduct of Westmark and/or its
officers, directors, shareholders, partners,
attorneys, agents, servants, representatives,
successors, employees and assigns, relating to
the Investors.
3.2 In consideration of the release of the Escrowed Funds to be
distributed to each Investor in the amount set forth in Exhibit
A, and the issuance of 300,000 shares of Preferred Stock to the
Investors in the denominations set forth in Exhibit D, and the
agreements and covenants set forth hereinabove, the sufficiency
of which is hereby acknowledged and confessed, Westmark, for
itself and its officers, directors, shareholders, partners,
attorneys, agents, servants, representatives, successors,
employees and assigns, TO THE EXTENT LEGALLY ALLOWED, hereby
covenants and agrees as follows:
3.2.1 That it hereby releases, acquits and forever
discharges the Investors, their officers,
directors, shareholders, partners, attorneys,
agents, servants, representatives, successors,
employees and assigns, from any and all rights,
obligations, claims, demands and causes of
action, whether in contract or in tort, arising
from or relating to the Financing Documents,
including obligations arising therefrom, and
omissions, and/or conduct of the Investors
relating to Westmark.
Page 2 of 7
4. AUTHORIZATION. As long as the Preferred Stock of Westmark remains
outstanding, Westmark may not issue additional securities or incur additional
indebtedness without the prior written consent of Generation Capital Associates
("GCA"). In the event that Westmark intends to issue securities or incur
indebtedness, it shall give GCA written notice via facsimile number (404)
255-2218 of such intent. If GCA does not respond within five business days of
the facsimile transmission, such securities or debt issuance shall be deemed
approved. Notwithstanding the foregoing, Westmark may issue securities or incur
indebtedness, upon written notice to GCA not less than five days prior to the
consummation of such transaction, as follows; (i) issuance of securities upon
the exercise or conversion of existing warrants, options, convertible
securities, or pursuant to presently existing employee stock option plans, and
(ii) indebtedness may be incurred in the ordinary course of the mortgage-lending
business (provided, however, that "the mortgage-lending business" for purposes
hereof shall mean the origination of mortgage loans and the incurrence of
indebtedness in connection therewith pursuant to the existing lines of credit of
the Company and shall not include additional indebtedness incurred in the form
of new lines of credit or other indebtedness to be used to originate mortgage
loans or other mortgage business or the expansion of existing lines of credit of
the Company beyond presently stated limitations in the existing loan
documentation). A list of total shares granted under the various stock option
plans is attached hereto as Exhibit "E."
5. CAPACITY. Westmark and the Investors represent that they are lawfully
authorized to execute this Mutual Release. The Parties to this Mutual Release
further represent that they have read it in full before its execution, and that
they fully understand the meaning, operation and effect of its terms.
6. PRIOR ASSIGNMENTS. The Investors represent that they have not assigned,
in whole or in part, any claims, demands and/or causes of action relating to
Westmark to any person or entity prior to their execution of this Mutual
Release. Westmark represents that is has not assigned, in whole or in part, any
claim, demand and/or causes of action relating to the Investors to any person or
entity prior to its execution of this Mutual Release.
7. RELEASE OF FUNDS. Once Investors representing 51% of the Preferred
Stock to be issued hereunder have executed this Agreement, the Company shall
issue such Preferred Stock as set forth in Exhibit D to such Investors and pay
such Investors the amounts set forth in Exhibit A. As additional Investors
execute this Agreement, such additional shares of Preferred Stock shall be
issued and such additional escrowed monies shall be paid within three business
days of each such execution.
8. LEGAL FEES. Upon the first release of Preferred Stock and escrowed
funds, as described in Section 7 above, Westmark shall pay to Horwitz, Cutler &
Beam legal fees in the amount of fifteen hundred dollars, provided an invoice
has been delivered to the Company. Any additional sums up to fifteen hundred
dollars shall be payable thirty days later, provided an invoice has been
delivered to the Company.
Page 3 of 7
9. BINDING EFFECT. This Mutual Release shall be binding on and inure
to the benefit of the Parties and their respective heirs, successors, assigns,
agents, employees, and personal representatives.
10. MODIFICATION. No modification or amendment of this Mutual Release
shall be effective unless such modification or amendment shall be in writing and
signed by all Parties hereto.
11. ENTIRE AGREEMENT. This Mutual Release constitutes the entire agreement
between the Parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations, and
discussions, whether oral or written, of the Parties in connection with the
subject matter hereof.
12. INTERPRETATION. The interpretation, construction, and performance of
this Mutual Release shall be governed by the laws of the State of New York.
Whenever used herein, the singular number shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders. All legal action or proceeding with respect to this Agreement shall be
brought in the federal courts located in the Borough of Manhattan or in the New
York State Courts located in the Borough of Manhattan, State of New York.
13. EXECUTION. This Mutual Release may be executed in several
counterparts, each of which shall be deemed an original, and such counterparts,
taken together, shall constitute but one and the same Mutual Release. This
Mutual Release shall be effective on the day and year first above written.
14. GENERAL. Upon execution of this Mutual Release, each Investor and the
Company hereof agrees and acknowledges that the Subscription Agreement, Notes
and Warrants are hereby null and void and of no further force and effect, and
except as set forth herein and in the Designation, all representations,
warranties and other obligations set forth in the Financing Documents are
waived, released and discharged in full.
15. COMPANY COVENANTS. The Company hereby covenants, at its own expense,
and without any expense to the Investors, as follows:
15.1 To provide and continue to provide for the period the Series B
Preferred Stock is outstanding, copies of all quarterly and annual financial
statements and reports by or on behalf of the Company or its subsidiaries for
public disclosure.
15.2 To provide to the Investors for the period the Series B
Preferred Stock is outstanding, by facsimile transmission, the full text of any
written release of information to the public regarding the Company, or a written
summary of any such information released to the public other than in writing.
Such information shall be provided to the Investors concurrently with its
release to the public.
Page 4 of 7
16. LIMITATIONS.
16.1 For a period of thirty-seven months from the Issue Date, no
Investor shall be required or permitted, through conversion,
exercise or receipt upon foreclosure, to obtain more than 5% at
any one time of the outstanding voting equity of the Company as
computed in accordance with Section 13 of the Securities
Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
16.2 Without limiting the foregoing, if the Company fails to obtain
or has failed to maintain the effectiveness with the Securities
Act of 1933, as amended ("Act"), of a registration statement
filed under the Securities and Exchange Commission registering
the issuance of the shares of Common Stock underlying the Series
B Preferred Stock (or registering the resale of the shares of
Common Stock issued upon conversion of the Series B Preferred
Stock) prior to December 31, 1996 and the closing bid price per
share of the Common Stock of the Company for any five
consecutive trading days subsequent to December 31, 1996 is at
or below $1.00, the limitations set forth in 16.1 above shall be
rendered inapplicable ninety (90) days after written notice has
been given by a holder of the Series B Preferred Stock to the
Company with respect to the holder giving such notice. The
Investors hereby acknowledge that the Company makes no
representation that it will be able to obtain effectiveness
under the Act of a registration statement referred to in this
Section 16.2 or if such registration statement is deemed
effective under the Act, that the Company will be able to
maintain effectiveness of such registration statement for any
period of time.
17. EFFECT OF CIVIL CODE 1542. Each of the parties hereto certifies that
it has read Section 1542 of the California Civil Code, set out below:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
Each party hereby waives the benefits of Section 1542 and/or any similar
provision under any applicable federal or state statute.
Page 5 of 7
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
executed this Settlement Agreement and Mutual Release as of the first day of
April, 1996.
WESTMARK GROUP HOLDINGS, INC.
By:
Its: Norman J. Birmingham, President
INVESTORS:
Generation Capital Associates
By:
Its: Frank Hart, General Partner
Tissera Overseas Fund, NV
By:
Its:
Lebanon Valley Auto Racing Corp.
By:
Its:
Caribou Bridge Fund
By:
Its:
Anacapa Venture Partners
By:
Its:
Westport Capital Partners
By:
Its:
James Noonan
Page 6 of 7
Patrick Morton
Larry Wells
Chuck Everill
Gerald R. Novich, DDS
Page 7 of 7
Exhibit A
INVESTORS
NAME AMOUNT
Generation Capital Associates $155,000
Tissera Overseas Fund, NV $25,000
Lebanon Valley Auto Racing Corp. $25,000
Caribou Bridge Fund $35,000
Anacapa Venture Partners $70,000
Westport Capital Partners $50,000
James Noonan $10,000
Patrick Morton $100,000
Larry Wells $30,000
Chuck Everill $50,000
Gerald R. Novich, DDS $50,000
Exhibit D
INVESTORS
NAME NUMBER OF SHARES
Generation Capital Associates 77,500
Tissera Overseas Fund, NV 12,500
Lebanon Valley Auto Racing Corp. 12,500
Caribou Bridge Fund 17,500
Anacapa Venture Partners 35,000
Westport Capital Partners 25,000
James Noonan 5,000
Patrick Morton 50,000
Larry Wells 15,000
Chuck Everill 25,000
Gerald R. Novich, DDS 25,000
EXHIBIT 10.22
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
1. PARTIES. This settlement agreement and mutual release ("Agreement" or
"Mutual Release") is effective as of April 25, 1996, by and between Westmark
Group Holdings, Inc. ("Westmark" or the "Company") and James S. Hull, including
any trusts or entities affiliated with him (collectively, "Hull"), collectively
referred to as the parties ("Parties").
2. FACTS.
2.1 In 1995, Hull loaned the Company One Hundred Fifty Thousand
Dollars ($150,000.00) (the "Loan"), which has matured and is
owed by the Company.
2.2 In April 1996, The Company agreed to repay Seventy Five
Thousand Dollars ($75,000.00) of the Loan in the following
installments:
a. $27,000.00 payable on April 25, 1996.
b. $19,000.00 payable on June 5, 1996.
c. $19,000.00 payable on June 24, 1996.
d. $10,000.00 payable on July 9, 1996.
2.3 In April 1996, the Company filed with the Colorado Secretary
of State a Certificate of Designation, Preferences, Rights and
Limitations of Series A Convertible Preferred Stock of
Westmark, a copy of which is attached hereto as Exhibit A (the
"Designation") and incorporated herein by reference. Westmark
desires to issue 18,750 shares of Preferred Stock ("Preferred
Stock") to Hull, with a stated value of $75,000, in
consideration for the payment of the outstanding balance
(including principal and interest) of the Loan. Hull, may at
his sole election, by written notice to Westmark, and the
surrender of the convertible preferred stock, convert the
convertible preferred stock into that number of shares of
common stock by the lessor of $1.50 or 84% of the closing bid
price of Westmark common stock for the trading day immediately
proceeding the date on which Westmark receives the surrendered
convertible preferred stock.
2.4 The Parties have agreed to compromise and settle all
obligations arising from the Loan, including any disputes or
claims arising therefrom, on the basis and in consideration of
the recitals set forth herein and as further set forth in the
Designation.
3. MUTUAL RELEASE
3.1 In consideration of the payments set forth in Section 2.2
hereof, and the issuance of 18,750 shares of Preferred Stock
to Hull, and the agreements and covenants set forth
hereinbelow, the sufficiency of which Hull hereby acknowledges
and confesses, Hull, for himself, his affiliates, attorneys,
agents, servants, representatives, successors, and assigns, TO
THE EXTENT LEGALLY ALLOWED, hereby covenants and agrees as
follows:
3.1.1 That he hereby releases, acquits, and forever discharges
Westmark, its officers, directors, shareholders,
partners, attorneys, agents, servants, representatives,
successors, employees and assigns, from any and all
rights, obligations, claims, demands and causes of
action, whether in contract or in tort, arising from or
relating to the Loan, including all obligations arising
therefrom, and omissions and/or conduct of Westmark
and/or its officers, directors, shareholders, partners,
attorneys, agents, servants, representatives,
successors, employees and assigns, relating to Hull.
This Section 3.1.1 becomes effective upon completion of
2.2 a, b, c, and d, along with the receipt of stock and
completion of the shelf registration.
3.2 In consideration of the payments set forth in Section 2.2
hereof, and the issuance of 18,750 shares of Preferred Stock
to Hull, and the agreements and covenants set forth
hereinabove, the sufficiency of which is hereby acknowledged
and confessed, Westmark, for itself and its officers,
directors, shareholders, partners, attorneys, agents,
servants, representatives, successors, employees and assigns,
TO THE EXTENT LEGALLY ALLOWED, hereby covenants and agrees as
follows:
3.2.1 That it hereby releases, acquits and forever discharges
Hull, his affiliates, attorneys, agents, servants,
representatives, successors, and assigns, from any and
all rights, obligations, claims, demands and causes of
action, whether in contract or in tort, arising from or
relating to the Loan, including obligations arising
therefrom, and omissions, and/or conduct of Hull
relating to Westmark.
4. CAPACITY. Westmark and Hull represent that they are lawfully authorized
to execute this Mutual Release. The Parties to this Mutual Release further
represent that they have read it in full before its execution, and that they
fully understand the meaning, operation and effect of its terms.
5. PRIOR ASSIGNMENTS. Hull represents that he has not assigned, in whole
or in part, any claims, demands and/or causes of action relating to Westmark to
any person or
Page 2 of 3
entity prior to his execution of this Mutual Release. Westmark represents that
it has not assigned, in whole or in part, any claim, demand and/or causes of
action relating to the Hull to any person or entity prior to its execution of
this Mutual Release.
6. BINDING EFFECT. This Mutual Release shall be binding on and inure to
the benefit of the Parties and their respective heirs, successors, assigns,
agents, employees, and personal representatives.
7. MODIFICATION. No modification or amendment of this Mutual Release shall
be effective unless such modification or amendment shall be in writing and
signed by all Parties hereto.
8. ENTIRE AGREEMENT. This Mutual Release constitutes the entire agreement
between the Parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations, and
discussions, whether oral or written, of the Parties in connection with the
subject matter hereof.
9. INTERPRETATION. The interpretation, construction, and performance of
this Mutual Release shall be governed by the laws of the State of Florida.
Whenever used herein, the singular number shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders.
10. EXECUTION. This Mutual Release may be executed in several
counterparts, each of which shall be deemed an original, and such counterparts,
taken together, shall constitute but one and the same Mutual Release. This
Mutual Release shall be effective on the day and year first above written.
11. GENERAL. Upon execution of this Mutual Release, Hull and the Company
hereby agree and acknowledge that the Loan is hereby null and void and of no
further force and effect, and all representations, warranties and other
obligations set forth in the Loan documents are waived, released and discharged
in full.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
executed this Settlement Agreement and Mutual Release as of the 25th day of
April, 1996.
WESTMARK GROUP HOLDINGS, INC.
By: Norman J. Birmingham, President
James B. Hull, Individually and as Trustee
Page 3 of 4
EXHIBIT 10.25
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated February , 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation and Nationwide Computer
Corporation, ("Nationwide"), a corporation, and is made with reference to the
following:
RECITALS
WHEREAS, WGHI retained Nationwide to represent it in various matters
and to provide certain services and products to WGHI and;
WHEREAS, Nationwide provided certain services and products on behalf of
WGHI and billed it for such services and products and;
WHEREAS, WGHI has informed Nationwide that it is unable to pay in cash
the amounts owed to Nationwide for such services and products and has requested
that Nationwide accept the form of payment as set forth herein and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from the relationship between WGHI and Nationwide and claims for
payments owed by WGHI to Nationwide.
NOW, THEREFOR, in consideration of the terms set forth below and other
covenants and conditions contained herein, WGHI and Nationwide mutually agree as
follows:
1. WGHI agrees to pay to Nationwide the sum of $1,000 on April 1, 1996,
$2,000 on May 1, 1996 and $2,000 on June 1, 1996.
2. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Nationwide of such number of shares of WGHI common stock as calculated
pursuant to the terms of Section 3 hereof.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Nationwide, 5,000 shares. All such
WGHI shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and encumbrances.
1
WGHI will cause the sale of the Nationwide shares in an orderly manner through a
brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI
shares registered in the name of Nationwide shall be sold each month commencing
June 25, 1996 to net Nationwide $2,622 per month through and including August
30, 1996. WGHI further agrees to register, qualify and issue to Nationwide
additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $2,622 per month
commencing June 30, 1996. Once Nationwide has received a total of $12,866 as a
result of monthly payments commencing April 1, 1996, any remaining WGHI shares
will be returned to WGHI and shall be retired.
4. If at any time WGHI fails to pay or cause the payments to be made to
Nationwide as set forth above commencing April 1, 1996, WGHI shall be in default
of this Agreement. In the event of default, Nationwide shall be entitled to
proceed with any and all remedies available at law or in equity.
5. Nationwide hereby releases and forever discharges WGHI, and all of
its past, present and future attorneys, agents, officers, directors, employees,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services and products provided
on its behalf by Nationwide. Provided, however, that this release does not in
any way pertain to WGHI's obligations to Nationwide set forth herein.
6. WGHI hereby releases and forever discharges Nationwide, and all of
its past, present and future employees, partners, agents, officers, directors,
employees, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of Nationwide's performance of services and products provided
to WGHI, or failure thereof, and any and all other claims or causes of action
WGHI may have against Nationwide, whether real or imaginary or known or unknown
at this time.
7. Subject to satisfaction of the terms set forth herein, all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Nationwide or to WGHI, would materially affect their
decision to enter into this Agreement. Each party further assumes the risk that
it may suffer damages in the future which it does not now anticipate
2
nor suspect. Each party waives all rights under California Civil Code Section
1542, which states as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. Nationwide agrees and acknowledges that it will accept the payments
set forth above together with delivery of the WGHI shares and proceeds of sale
thereof, as a full and complete compromise of matters involving disputed issues
as to WGHI. Nationwide and WGHI agree and acknowledge that neither this
Agreement nor delivery of the WGHI shares herein, or any event occurring during
the negotiations for this Agreement (nor any statement or communication made in
connection therewith) by either party, or their attorneys or representatives,
shall be considered an admission by any party of any act or omission to act, or
of any responsibility or liability for any claims, suits, actions or any facts,
representations or misrepresentations regarding any of the parties, and that no
past nor present wrongdoing on the part of either party shall be implied
therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
13. This Agreement has been negotiated, and is entered into, in the
State of Florida, County of Palm Beach. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to Florida law.
14. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this Agreement.
(b) It fully understands and is aware of the terms of
3
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
15. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
16. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
17. In the event of any litigation arising out of or pertaining to this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees
in addition to any other relief provided by law.
18. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Nationwide Computer Corp.
355 N.E. Fifth Ave., Suite 4 2011 N.W. 33rd Street
Delray Beach, Florida 33483 Pompano Beach, Florida 33064
and
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N
Capitola, California 59010
In the event of default by WGHI, Nationwide agrees to provide ten (10)
days written notice of default to WGHI on no more than two (2) separate
occasions during the term of this Agreement. After the expiration of either ten
(10) day written notice, Nationwide shall be entitled to proceed as hereinabove
set forth.
Each party shall notify the other party by certified mail of any change
of address or
4
change of the person designated herein to receive notices to be provided
pursuant to this Agreement. Once a party has received notice of a change of
address or designated person, that party shall send all future notices to be
provided in this Agreement to that address and designated person.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
NATIONWIDE COMPUTER WESTMARK GROUP HOLDINGS, INC.
CORPORATION
By: By:
Its: Its:
5
EXHIBIT 10.26
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated February , 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation and Tele-Trend Communications,
("Tele-Trend"), a Colorado Limited Liability Company, and is made with reference
to the following:
RECITALS
WHEREAS, WGHI retained Tele-Trend to represent it in various matters
and to provide certain services to WGHI and;
WHEREAS, Tele-Trend has provided certain services to WGHI and billed
WGHI for such services and;
WHEREAS, WGHI has informed Tele-Trend that it is unable to pay in cash
the amounts owed to Tele-Trend for such services and has requested that
Tele-Trend accept the form of payment as set forth herein and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from the relationship between WGHI and Tele-Trend and claims for
payments owed by WGHI to Tele-Trend.
NOW, THEREFOR, in consideration of the terms set forth below and other
covenants and conditions contained herein, WGHI and Tele-Trend mutually agree as
follows:
1. WGHI agrees to pay to Tele-Trend the sum of $1,000 on March 30,
1996, $1,000 on April 30, 1996 and $1,000 on May 30, 1996.
2. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Tele-Trend of such number of shares of WGHI common stock as calculated
pursuant to the terms of Section 3 hereof.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Tele-Trend, 9,500 shares. All such
WGHI shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and encumbrances.
1
WGHI will cause the sale of the Tele-Trend shares in an orderly manner through a
brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI
shares registered in the name of Tele-Trend shall be sold each month commencing
June, 1996 to net $3,764 per month payable to Tele-Trend no later than the 30th
day of each month commencing June 30, 1996 through and including November 30,
1996. WGHI further agrees to register, qualify and issue to Tele-Trend
additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $3,764 per month
commencing June 30, 1996. Once Tele-Trend has received a total of $25,580 as a
result of monthly payments commencing March 30, 1996, any remaining Tele-Trend
shares will be returned to WGHI and shall be retired.
4. In the event WGHI fails to pay Tele-Trend in accordance with the
schedule set forth above or in the further event WGHI fails to cause the sale of
sufficient shares to enable Tele-Trend to receive $3,764 per month commencing
June 30, 1996, WGHI shall be in default of this agreement. In the event of
default, Tele-Trend shall be entitled to proceed with all remedies available at
law or in equity. In the event of default, Tele-Trend shall be entitled to file
the Confession of Judgment executed by WGHI, a copy which is attached hereto
marked Exhibit "A" and by this reference made a part hereof.
5. Tele-Trend hereby releases and forever discharges WGHI, and all of
its past, present and future attorneys, agents, officers, directors, employees,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services provided by
Tele-Trend. Provided, however, that this release does not in any way pertain to
WGHI's obligations to Tele-Trend set forth herein.
6. WGHI hereby releases and forever discharges Tele-Trend, and all of
its past, present and future employees, partners, agents, officers, directors,
employees, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of Tele-Trend's providing of services to WGHI, or failure
thereof, and any and all other claims or causes of action WGHI may have against
Tele-Trend, whether real or imaginary or known or unknown at this time.
7. Subject to satisfaction of the terms set forth herein, all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance,
2
oversight, error, negligence or otherwise, and which, if known to Tele-Trend or
to WGHI, would materially affect their decision to enter into this Agreement.
Each party further assumes the risk that it may suffer damages in the future
which it does not now anticipate nor suspect. Each party waives all rights under
California Civil Code Section 1542, which states as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. Tele-Trend agrees and acknowledges that it will accept the payments
set forth above together with delivery of the WGHI shares and proceeds of sale
thereof, as a full and complete compromise of matters involving disputed issues
as to WGHI. Tele-Trend and WGHI agree and acknowledge that neither this
Agreement nor delivery of the WGHI shares herein, or any event occurring during
the negotiations for this Agreement (nor any statement or communication made in
connection therewith) by either party, or their attorneys or representatives,
shall be considered an admission by any party of any act or omission to act, or
of any responsibility or liability for any claims, suits, actions or any facts,
representations or misrepresentations regarding any of the parties, and that no
past nor present wrongdoing on the part of either party shall be implied
therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
13. This Agreement has been negotiated, and is entered into, in the
State of California, County of Santa Cruz. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
14. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the
3
negotiation and preparation of this Agreement.
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
15. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
16. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
17. In the event of any litigation arising out of or pertaining to this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees
in addition to any other relief provided by law.
18. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Tele-Trend Communications
355 N.E. Fifth Ave., Suite 4 c/o Freeborn & Peters
Delray Beach, Florida 33483 Attn: Mark T. Barnes, Esq.
950 17th Street, Suite 2600
and Denver, Colorado 80202-2826
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N
Capitola, California 59010
In the event of default by WGHI, Tele-Trend agrees to provide ten (10)
days written notice of default to WGHI. After the expiration of said ten (10)
day written notice, Tele-
4
Trend shall be entitled to proceed as hereinabove set forth.
Each party shall notify the other party by certified mail of any change
of address or change of the person designated herein to receive notices to be
provided pursuant to this Agreement. Once a party has received notice of a
change of address or designated person, that party shall send all future notices
to be provided in this Agreement to that address and designated person.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
TELE-TREND COMMUNICATIONS WESTMARK GROUP HOLDINGS, INC.
By: By:
Its: Its:
5
EXHIBIT "A"
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SANTA CRUZ
TELETREND COMMUNICATIONS, ) Case No.:
)
Plaintiff, ) CONFESSION OF JUDGMENT
) STATEMENT
vs. ) [CCP 1133]
)
WESTMARK GROUP HOLDINGS, )
INC., )
)
Defendant. )
)
____________________________)
WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby
confesses judgment in the above-entitled action in favor of Tele-Trend
Communications, ("Tele- Trend"), a Colorado Limited Liability Company, in the
principal amount of $25,580, plus costs, and interest on said principal amount
at ten percent (10%) per annum from the date of this Confession of Judgment
Statement to the date of entry of judgment herein, less any payments received by
Tele-Trend from the date of the execution of the Settlement Agreement set forth
below, and authorizes entry of judgment against it in that total amount.
This confession of judgment is for a debt justly due that arises out of
a contractual relationship wherein Tele-Trend provided services to WGHI. By the
terms of a settlement agreement between WGHI and Tele-Trend dated the_____day of
March, 1996, WGHI agreed
1
that, if it defaulted on its obligations thereunder, Tele-Trend could obtain
judgment against it pursuant to this Confession of Judgment Statement and the
procedures of California Code of Civil Procedures Section 1132 ET SEQ.
DATED: WGHI GROUP HOLDINGS, INC.
By:
Norman Birmingham, President
VERIFICATION
I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS,
INC., ("WGHI") Defendant in the above-entitled action, and I make this
Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT
STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of
my own knowledge.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
Dated: _____________________
Norman Birmingham
2
EXHIBIT 10.28
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated February , 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation and Mortgage Quality Management,
Inc., dba Foster Ousley Conley, ("F.O.C."), a California corporation and is made
with reference to the following:
RECITALS
WHEREAS, WGHI retained F.O.C. to represent it in various matters and to
provide certain services to WGHI and;
WHEREAS, F.O.C. has provided certain services to WGHI and billed WGHI
for such services and;
WHEREAS, WGHI has informed F.O.C. that it is unable to pay in cash the
amounts owed to F.O.C. for such services and has requested that F.O.C. accept
the form of payment as set forth herein and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from the relationship between WGHI and F.O.C. and claims for payments
owed by WGHI to F.O.C..
NOW, THEREFOR, in consideration of the terms set forth below and other
covenants and conditions contained herein, WGHI and F.O.C. mutually agree as
follows:
1. WGHI agrees to pay to F.O.C. the sum of $2,000 on March 15, 1996,
$2,000 on April 15, 1996 and $2,000 on May 15, 1996.
2. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to F.O.C. of such number of shares of WGHI common stock as calculated pursuant
to the terms of Section 3 hereof.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to F.O.C., 6,000 shares. All such WGHI
shares shall be fully paid, nonassessable, duly authorized and validly issued
and will be free and clear of all preemptive rights, rights of first refusal,
liens, charges, restrictions, claims and encumbrances. WGHI will cause the sale
of the F.O.C. shares in an orderly manner through a brokerage firm designated by
WGHI. WGHI agrees that a sufficient number of WGHI shares
1
registered in the name of F.O.C. shall be sold each month commencing June, 1996
to net $2,304 per month payable to F.O.C. no later than the 15th day of each
month commencing June 15, 1996 through and including November 15, 1996. WGHI
further agrees to register, qualify and issue to F.O.C. additional WGHI shares
to the extent the number of WGHI shares originally registered, qualified and
issued are insufficient to net $2,304 per month commencing June 15, 1996. Once
F.O.C. has received a total of $19,821 as a result of monthly payments
commencing March 15, 1996, any remaining F.O.C. shares will be returned to WGHI
and shall be retired.
4. In the event WGHI fails to pay F.O.C. in accordance with the
schedule set forth above or in the further event WGHI fails to cause the sale of
sufficient shares to enable F.O.C. to receive $2,304 per month commencing June
15, 1996, WGHI shall be in default of this agreement. In the event of default,
F.O.C. shall be entitled to file the Confession of Judgment which is attached
hereto marked Exhibit "A" and by this reference made a part hereof and proceed
with any and all remedies available at law or in equity. In the event of
default, F.O.C. shall have no obligation to liquidate the WGHI shares and in the
absence of liquidation, said shares shall be returned to WGHI. In the absence of
default, said Confession of Judgment Statement shall be held by F.O.C., unfiled.
5. F.O.C. hereby releases and forever discharges WGHI, and all of its
past, present and future attorneys, agents, officers, directors, employees,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services provided by F.O.C..
Provided, however, that this release does not in any way pertain to WGHI's
obligations to F.O.C. set forth herein and in the event of default by WGHI, this
release shall be null and void.
6. WGHI hereby releases and forever discharges F.O.C., and all of its
past, present and future employees, partners, agents, officers, directors,
employees, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of F.O.C.'s services rendered on behalf of WGHI, or failure
thereof, and any and all other claims or causes of action WGHI may have against
F.O.C., whether real or imaginary or known or unknown at this time.
7. Subject to satisfaction of the terms set forth herein, all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for
2
damages which exist as of this date, but of which it is unaware, whether through
ignorance, oversight, error, negligence or otherwise, and which, if known to
F.O.C. or to WGHI, would materially affect their decision to enter into this
Agreement. Each party further assumes the risk that it may suffer damages in the
future which it does not now anticipate nor suspect. Each party waives all
rights under California Civil Code Section 1542, which states as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. F.O.C. agrees and acknowledges that it will accept the payments set
forth above together with delivery of the WGHI shares and proceeds of sale
thereof, as a full and complete compromise of matters involving disputed issues
as to WGHI. F.O.C. and WGHI agree and acknowledge that neither this Agreement
nor delivery of the WGHI shares herein, or any event occurring during the
negotiations for this Agreement (nor any statement or communication made in
connection therewith) by either party, or their attorneys or representatives,
shall be considered an admission by any party of any act or omission to act, or
of any responsibility or liability for any claims, suits, actions or any facts,
representations or misrepresentations regarding any of the parties, and that no
past nor present wrongdoing on the part of either party shall be implied
therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
13. This Agreement has been negotiated, and is entered into, in the
State of California, County of Contra Costa. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
14. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the
3
opportunity to consult with its attorneys, who are
the attorneys of its own choice, during the
negotiation and preparation of this Agreement.
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
15. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
16. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
17. In the event of any litigation arising out of or pertaining to this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees
in addition to any other relief provided by law.
18. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Mortgage Quality Management, Inc.,
355 N.E. Fifth Ave., Suite 4 dba Foster Ousley Conley
Delray Beach, Florida 33483 c/o Ed Vegliante
Commercial Lawyers' Network, Inc.
and 45 Polk Street
San Francisco, California 94102
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N and
Capitola, California 59010
Peter Hass, Esq.
4
WATSON, HOFFE & HASS
P.O. Box 5001
Richmond, California 94805
In the event of default by WGHI, F.O.C. agrees to provide ten (10) days
written notice of default to WGHI on no more than two (2) separate occasions
during the term of this Agreement. After the expiration of either ten (10) day
written notice, F.O.C. shall be entitled to proceed as hereinabove set forth.
Each party shall notify the other party by certified mail of any change
of address or change of the person designated herein to receive notices to be
provided pursuant to this Agreement. Once a party has received notice of a
change of address or designated person, that party shall send all future notices
to be provided in this Agreement to that address and designated person.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
MORTGAGE QUALITY MANAGEMENT, WESTMARK GROUP HOLDINGS, INC.
INC., dba FOSTER OUSLEY CONLEY
By: By:
Its: Its:
5
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF CONTRA COSTA
MORTGAGE QUALITY ) Case No.:
MANAGEMENT, INC., dba )
FOSTER OUSLEY CONLEY, ) ATTORNEY'S DECLARATION IN
) SUPPORT OF CONFESSION OF
Plaintiff, ) JUDGMENT STATEMENT
)
vs. ) [CCP 1132(b)]
)
WESTMARK GROUP HOLDINGS, )
INC., )
)
Defendant. )
)
__________________________)
I, Harry C. Coolidge, declare as follows:
1. I am an attorney at law, licensed to practice in the courts of the
State of California. I am outside counsel for WESTMARK GROUP HOLDINGS, INC.
("WGHI"), the party confessing judgment in the above-entitled action. I have
personal knowledge of the facts set forth in this Declaration, and I could and
would testify competently to these facts if called as a witness.
2. I have examined the Judgment attached hereto as Exhibit "A," and I
have advised WGHI with respect to the waiver of rights and defenses under the
confession of judgment procedure, California Code of Civil Procedure Section
1132 ET SEQ. I have advised WGHI to utilize the confession of judgment procedure
in this matter.
1
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
DATED:__________ _______________________
Harry C. Coolidge
2
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF CONTRA COSTA
MORTGAGE QUALITY ) Case No.:
MANAGEMENT, INC., dba )
FOSTER OUSLEY CONLEY, ) CONFESSION OF JUDGMENT
) STATEMENT
Plaintiff, ) [CCP 1133]
)
vs. )
)
WESTMARK GROUP HOLDINGS, )
INC., )
)
Defendant. )
)
_______________________________)
WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby
confesses judgment in the above-entitled action in favor of MORTGAGE QUALITY
MANAGEMENT, INC., dba FOSTER OUSLEY CONLEY, ("F.O.C."), a California corporation
in the principal amount of $19,821, plus costs, and interest on said principal
amount at ten percent (10%) per annum from the date of this Confession of
Judgment Statement to the date of entry of judgment herein, less any amounts
received by F.O.C. pursuant to that certain Settlement Agreement and Mutual
Release of all Claims dated ,______ 1996, and authorizes entry of judgment
against it in that total amount.
This confession of judgment is for a debt justly due that arises out of
a contractual relationship between Plaintiff and Defendant wherein and whereby
Plaintiff provided the services to Defendant. WGHI owes F.O.C. the sum of
$19,821 for such services. By the
1
terms of a settlement agreement between WGHI and F.O.C. dated the day_____ of
March, 1996, WGHI agreed that, if it defaulted on its obligations thereunder,
F.O.C. could obtain judgment against it pursuant to this Confession of Judgment
Statement and the procedures of California Code of Civil Procedures Section 1132
ET SEQ.
DATED: WGHI GROUP HOLDINGS, INC.
By:
Norman Birmingham, President
VERIFICATION
I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS,
INC., ("WGHI") Defendant in the above-entitled action, and I make this
Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT
STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of
my own knowledge.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
Dated:
Norman Birmingham
2
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF CONTRA COSTA
MORTGAGE QUALITY ) Case No.:
MANAGEMENT, INC., dba )
FOSTER OUSLEY CONLEY, ) JUDGMENT
) [CCP 1134]
Plaintiff, )
)
vs. )
)
WESTMARK GROUP HOLDINGS, )
INC., )
)
Defendant. )
)
___________________________)
Pursuant to the Confession of Judgment Statement on file herein, the
above-entitled court ordered the following judgment to be entered in the
above-entitled action:
IT IS ADJUDGED that Plaintiff MORTGAGE QUALITY MANAGEMENT, INC., dba
FOSTER OUSLEY CONLEY recover from Defendant WESTMARK GROUP HOLDINGS,
INC., the following:
1. Principal in the amount of $19,821 less any amounts recovered by
WGHI pursuant to that certain Settlement Agreement and Mutual Release of All
Claims dated ________________ , 1996.
2. Interest from __________, 199_, to date at ten percent (10%) per
annum in the amount of ____________ ; and
3. Costs in the amount of __________.
4. Reasonable attorney's fees in the sum of __________.
Dated:
Judge of the Superior Court
1
EXHIBIT 10.29
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated , 1996, is executed by and between Westmark Group Holdings,
Inc. ("WGHI"), a Colorado corporation, and Hakman & Company, Inc. ("Hakman"), a
California corporation, and is made with reference to the following:
RECITALS
WHEREAS, WGHI and Hakman previously entered into a contractual
agreement wherein Hakman represented WGHI with respect to the prospective
acquisition of Westmark Mortgage Corporation by WGHI and;
WHEREAS, WGHI is obligated to Hakman in the sum of $18,652.84 and is
unable to pay in cash the amount owed to Hakman and has requested that Hakman
accept the form of payment as set forth herein and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims of demands whatsoever between them.
NOW, THEREFOR, in consideration of the terms set forth below and the
other covenants and conditions contained herein, WGHI and Hakman mutually agree
as follows:
1. WGHI agrees to pay to Hakman the sum of $1,000 on March 15, 1996,
$1,000 on April 15, 1996 and $1,000 May 15, 1996.
2. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Hakman of such number of shares of WGHI common stock as calculated pursuant
to the terms of Section 2 hereof. WGHI will use its best efforts to cause the
SEC to declare the Registration Statement effective under Section 5 of the
Securities Act of 1993 on or before June 1, 1996. The issuance of such WGHI
shares shall also be qualified under the California Corporation Securities Laws
of 1968 or exempt from such qualification.
3. Immediately upon the effectiveness and qualification of the
1
Registration Statement, WGHI will issue to Hakman 7,000 shares. All such
WGHI shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and encumbrances. WGHI agrees that
it will sell the Hakman shares in an orderly manner through the brokerage firm
designated by WGHI, or such other brokerage firm as agree to by the parties. The
sale of the WGHI shares by WGHI shall conclude on or before September 15, 1996,
provided that sufficient WGHI shares are registered and qualified under the
terms of Section 1 hereof and issued by WGHI to Hakman in sufficient time to
allow Hakman to net $3,913.21 per month commencing June 15, 1996 through the
sale of such shares as contemplated hereunder. WGHI agrees that the number of
WGHI shares registered and issued to Hakman shall equal the number necessary to
net $3,913.21 per month commencing June 15, 1996 upon the sale thereof (after
payment of all brokerage fees). WGHI agrees to register, qualify and issue to
Hakman additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $3,913.21 per month.
Once Hakman has received a total of $18,652.84 from WGHI or from the sale of
shares as set forth above, any remaining WGHI shares will be returned to WGHI
and shall be retired.
4. If at any time WGHI fails to perform its obligations as set forth
hereinabove, WGHI shall be in default of this Agreement. In the event of
default, Hakman shall be entitled to file the Stipulation for Entry of Judgment
which is attached hereto marked Exhibit "A" and by this reference made a part
hereof. Said stipulation shall be held by Hakman, unfiled, pending the
compliance by WGHI with the terms and conditions of this Settlement Agreement.
Upon filing of the Stipulation for Entry of Judgment, Hakman shall be entitled
of all remedies available at law or in equity.
5. Hakman hereby releases and forever discharges WGHI, and all of its
past, present and future attorneys, officers, directors, employees, agents,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services rendered on its behalf
by Hakman, and any past, present or future partners or employees; provided,
however, that the release, set forth herein does not in any way pertain to
WGHI's obligations to Hakman set forth herein, including without limitation, the
obligations set forth in Sections 1 or 2 hereof.
6. WGHI hereby releases and forever discharges Hakman, and all of its
past, present and future partners, attorneys, officers, directors,
2
employees, agents, insurers, successors and assigns, from any and all claims,
demands, obligations or causes of action of any nature whatsoever, whether in
law or in equity, or whether for contractual, compensatory or punitive damages,
which have or may arise out of Hakman's performance of services on behalf of
WGHI, or failure thereof, and any and all other claims or causes of action WGHI
may have against Hakman, whether real or imaginary or known or unknown at this
time.
7. Subject to satisfaction of the terms set forth in Sections 1 and 2
all parties hereto acknowledge that they execute and agree to this Agreement,
and accept the terms set forth herein, as a complete compromise of all matters
involving disputed issues of law and fact and fully assume, thereby, the risk
that the facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Hakman or to WGHI, would materially affect their decision
to enter into this Agreement. Each party further assumes the risk that it may
suffer damages in the future which it does not now anticipate nor suspect. Each
party waives all rights under California Civil Code Section 1542, which states
as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. Each party warrants and represents to the other that it has not
assigned, conveyed or transferred any of the claims or possible claims against
any of the parties hereto (or any interest therein) which are released or
referred to herein and that the releases herein are what they purport to be.
In the event of an adjudication that either party is in breach
of this Section, the party in breach agrees to indemnify and hold harmless the
other party from any resulting liability, claim, demand, damage, cost, expense
and/or attorney's fees incurred by the other party as a result of the breach.
10. Hakman agrees and acknowledges that it will accept delivery of the
WGHI shares and receipt of the payments specified in Sections 1 and 2 of this
Agreement as a full and complete compromise of matters involving disputed issues
as to Hakman. Each of Hakman and WGHI agrees and
3
acknowledges that neither this Agreement, nor delivery of the WGHI shares by
WGHI herein, or any event occurring during the negotiations for this Agreement
(nor any statement or communication made in connection therewith) by either
party, or their attorneys or representatives, shall be considered an admission
by any party of any act or omission to act, or of any responsibility or
liability for any claims, suits, actions or any facts, representations or
misrepresentations regarding any of the parties, and that no past nor present
wrongdoing on the part of either party shall be implied therefrom.
11. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
12. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
13. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
14. This Agreement has been negotiated, and is entered into, in the
State of California, County of San Francisco. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
15. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has
had the opportunity to consult with
its attorneys, who are the attorneys
of its own choice, during the
negotiation and preparation of this
Agreement.
(b) It fully understands and is aware of
the terms of this Agreement, and the
legal consequences thereof, and
voluntarily accepts them; and
4
(c) Its counsel has reviewed and revised,
or has had the opportunity to review
and revise this Agreement, and
accordingly the normal rule of
construction, which states to the
effect that any ambiguities are to
resolved against the drafting party,
shall not be employed in the
interpretation of this Agreement.
16. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
17. Failure by either party at any time to require performance of any
provision of this Agreement shall not limit the right of that party to enforce
such performance or provision at any time, nor shall either party's waiver of
any breach by the other party of any provision of this Agreement by a waiver of
any succeeding breach by that other party of that same provision, or of any
other provision of this Agreement.
18. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Hakman & Company
355 N.E. Fifth Avenue, Suite 4 c/o Leonard Steinberg, Esq.
Delray Beach, Florida 33483 HOSIE, WES, MCLAUGHLIN
One Sansome Street, 14th Floor
and San Francisco, California 94104
Harry C. Coolidge, Esq.
1260 41st Avenue, Suite N
Capitola, California 95010
Each party shall notify the other party by certified mail of any change
of address or change of the person designated herein to receive notices to be
provided pursuant to this Agreement. Once a party has received notice of a
change of address or designated person, that party shall send all future notices
to be provided to this Agreement to that address and designated person.
5
19. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
HAKMAN & COMPANY, INC. WESTMARK GROUP HOLDINGS, INC.
By: By:
Its: Its:
6
<PAGE>
EXHIBIT 10.30
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated February , 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation and Republic Indemnity Company
of America, ("Republic Indemnity"), a California corporation, and is made with
reference to the following:
RECITALS
WHEREAS, WGHI retained Republic Indemnity to represent it in various
matters and to provide certain services to WGHI and;
WHEREAS, Republic Indemnity has provided certain worker's compensation
insurance coverage on behalf of WGHI and billed WGHI for such insurance and;
WHEREAS, WGHI has informed Republic Indemnity that it is unable to pay
in cash the amounts owed to Republic Indemnity for such insurance and has
requested that Republic Indemnity accept the form of payment as set forth herein
and;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from the relationship between WGHI and Republic Indemnity and claims for
payments owed by WGHI to Republic Indemnity.
NOW, THEREFOR, in consideration of the terms set forth below and other
covenants and conditions contained herein, WGHI and Republic Indemnity mutually
agree as follows:
1. WGHI agrees to pay to Republic Indemnity the sum of $1,000 on March
15, 1996, $ on April 15, 1996 and $ on May 15, 1996.
2. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Republic Indemnity of such number of shares of WGHI common stock as
calculated pursuant to the terms of Section 3 hereof.
3. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Republic Indemnity, 8,000 shares. All
such WGHI shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and
1
clear of all preemptive rights, rights of first refusal, liens, charges,
restrictions, claims and encumbrances. WGHI will cause the sale of the Republic
Indemnity shares in an orderly manner through a brokerage firm designated by
WGHI. WGHI agrees that a sufficient number of WGHI shares registered in the name
of Republic Indemnity shall be sold each month commencing June, 1996 to net
$2,556 per month payable to Republic Indemnity no later than the 15th day of
each month commencing June 15, 1996 through and including December 15, 1996.
WGHI further agrees to register, qualify and issue to Republic Indemnity
additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $2,556 per month
commencing June 15, 1996. Once Republic Indemnity has received a total of
$20,890 as a result of monthly payments commencing March 15, 1996, any remaining
Republic Indemnity shares will be returned to WGHI and shall be retired.
4. In the event WGHI fails to pay Republic Indemnity in accordance with
the schedule set forth above or in the further event WGHI fails to cause the
sale of sufficient shares to enable Republic Indemnity to receive $2,556 per
month commencing June 15, 1996, WGHI shall be in default of this agreement. In
the event of default, Republic Indemnity shall be entitled to file the
Confession of Judgment which is attached hereto marked Exhibit "A" and by this
reference made a part hereof and proceed with any and all remedies available at
law or in equity. In the absence of default, said Confession of Judgment
Statement shall be held by F.O.C., unfiled.
5. Republic Indemnity hereby releases and forever discharges WGHI, and
all of its past, present and future attorneys, agents, officers, directors,
employees, insurers, successors and assigns from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
arisen or may arise out of WGHI alleged failure to pay for insurance provided by
Republic Indemnity. Provided, however, that this release does not in any way
pertain to WGHI's obligations to Republic Indemnity set forth herein.
6. WGHI hereby releases and forever discharges Republic Indemnity, and
all of its past, present and future employees, partners, agents, officers,
directors, employees, insurers, successors and assigns, from any and all claims,
demands, obligations or causes of action of any nature whatsoever, whether in
law or in equity, or whether for contractual, compensatory or punitive damages,
which have or may arise out of Republic Indemnity's acquisition of worker's
compensation insurance on behalf of WGHI, or failure thereof, and any and all
other claims or causes of action WGHI may have against Republic Indemnity,
whether real or imaginary or known or unknown at this time.
7. Subject to satisfaction of the terms set forth herein, all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
2
8. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Republic Indemnity or to WGHI, would materially affect
their decision to enter into this Agreement. Each party further assumes the risk
that it may suffer damages in the future which it does not now anticipate nor
suspect. Each party waives all rights under California Civil Code Section 1542,
which states as follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
9. Republic Indemnity agrees and acknowledges that it will accept the
payments set forth above together with delivery of the WGHI shares and proceeds
of sale thereof, as a full and complete compromise of matters involving disputed
issues as to WGHI. Republic Indemnity and WGHI agree and acknowledge that
neither this Agreement nor delivery of the WGHI shares herein, or any event
occurring during the negotiations for this Agreement (nor any statement or
communication made in connection therewith) by either party, or their attorneys
or representatives, shall be considered an admission by any party of any act or
omission to act, or of any responsibility or liability for any claims, suits,
actions or any facts, representations or misrepresentations regarding any of the
parties, and that no past nor present wrongdoing on the part of either party
shall be implied therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
13. This Agreement has been negotiated, and is entered into, in the
State of California, County of Santa Cruz. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
14. In entering into this Agreement, each party represents that:
3
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this Agreement.
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
15. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
16. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
REPUBLIC INDEMNITY COMPANY WESTMARK GROUP HOLDINGS, INC.
OF AMERICA
By: By:
Its: Its:
4
EXHIBIT "A"
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SANTA CRUZ
REPUBLIC INDEMNITY COMPANY ) Case No.:
OF AMERICA, )
) CONFESSION OF JUDGMENT
Plaintiff, ) STATEMENT
) [CCP 1133]
v. )
)
WESTMARK GROUP HOLDINGS, )
INC., )
)
Defendant. )
)
______________________________)
WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby
confesses judgment in the above-entitled action in favor of REPUBLIC INDEMNITY
COMPANY OF AMERICA, ("REPUBLIC INDEMNITY"), Plaintiff, in the principal amount
of $20,890, plus costs, and interest on said principal amount at ten percent
(10%) per annum from the date of this Confession of Judgment Statement to the
date of entry of judgment herein, less any amounts paid by WGHI to REPUBLIC
INDEMNITY up to and including the date of filing of this Confession of Judgment
Statement, and authorizes entry of judgment against it in that total amount.
This Confession of Judgment Statement shall be held by Plaintiff, unfiled,
pending Defendant's compliance with that certain Settlement Agreement and Mutual
Release of all Claims executed by the parties.
This Confession of Judgment Statement is for a debt justly due that
arises out of the following circumstances: REPUBLIC INDEMNITY provided worker's
compensation
1
insurance to WGHI and WGHI owes $20,890 for said insurance policies. By the
terms of a Settlement Agreement between WGHI and REPUBLIC INDEMNITY dated the
day of________ , 1996, WGHI agreed that if it defaulted on its obligations
thereunder, REPUBLIC INDEMNITY could obtain judgment against and pursuant to
this Confession of Judgment Statement and the procedures of California Code of
Civil Procedures Section 1132 ET SEQ.
DATED: WGHI GROUP HOLDINGS, INC.
By:
Norman Birmingham, President
VERIFICATION
I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS,
INC., ("WGHI") Defendant in the above-entitled action, and I make this
Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT
STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of
my own knowledge.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
Dated: ___________________
Norman Birmingham
2
EXHIBIT 10.33
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), _______________ dated , 1996, is executed by and between Westmark
Group Holdings, Inc. ("WGHI"), a Colorado corporation, and James Cassidy
("Cassidy"), and is made with reference to the following:
RECITALS
WHEREAS, WGHI retained Cassidy beginning in 1994 and continuing into
1995, and agreed to pay Cassidy for services provided; and
WHEREAS, Cassidy performed services on behalf of WGHI and billed it for
such services on an hourly basis;
WHEREAS, WGHI has informed Cassidy that it is unable to pay in cash the
amounts owed to Cassidy for such services and has requested that Cassidy accept
the form of payment as set forth herein;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from Cassidy's representation of WGHI and Cassidy's claims for payments
owed by WGHI to Cassidy for legal representation of WGHI.
NOW, THEREFOR, in consideration of the terms set forth below in
Sections 1 and 2 of this Agreement, and the other covenants and conditions
contained herein, WGHI and Cassidy mutually agree as follows:
1. On or before March 31, 1996, WGHI at its own cost and expense will
file with the U.S. Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance
to Cassidy of such number of shares of WGHI common stock as calculated pursuant
to the terms of Section 2 hereof. WGHI will use its best efforts to cause the
SEC to declare the Registration Statement effective under Section 5 of the
Securities Act of 1993 on or before June 1, 1996.
2. Immediately upon the effectiveness and qualification of the
Registration Statement, WGHI will issue to Cassidy 35,000 shares. All such WGHI
shares shall be fully paid, nonassessable, duly authorized and validly issued
and will be free and clear of all preemptive rights, rights of first refusal,
liens, charges, restrictions, claims and encumbrances. WGHI agrees that it will
sell the Cassidy shares in an orderly manner through the brokerage firm
designated by WGHI, or such other brokerage firm as agreed to by the parties.
1
Westmark shall cause the registration issuance and sale of sufficient shares to
enable Cassidy to receive no less than $5,859 per month commencing June 15, 1996
and continuing on the 15th day of each thereafter until the entire balance shall
have been paid in full. WGHI agrees to register, qualify and issue to Cassidy
additional WGHI shares to the extent the number of WGHI shares originally
registered, qualified and issued are insufficient to net $5,859 per month
commencing June 15, 1996. Once Cassidy has netted $70,300, any remaining WGHI
shares will be returned to WGHI and shall be retired.
3. If at any time WGHI fails to perform its obligations as set forth
hereinabove, WGHI shall be in default of this Agreement and Cassidy shall be
entitled to proceed with any and all remedies provided at law or in equity.
4. Cassidy hereby releases and forever discharges WGHI, and all of its
past, present and future attorneys, officers, directors, employees, agents,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services rendered on its behalf
by Cassidy, and any past, present or future partners or employees; provided,
however, that the release, set forth herein does not in any way pertain to
WGHI's obligations to Cassidy set forth herein, including without limitation,
the obligations set forth in Sections 1 or 2 hereof.
5. WGHI hereby releases and forever discharges Cassidy, and all of its
past, present and future partners, attorneys, officers, directors, employees,
agents, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of Cassidy performance of services on behalf of WGHI, or
failure thereof, and any and all other claims or causes of action WGHI may have
against Cassidy, whether real or imaginary or known or unknown at this time.
6. Subject to satisfaction of the terms set forth in Sections 1 and 2
all parties hereto acknowledge that they execute and agree to this Agreement,
and accept the terms set forth herein, as a complete compromise of all matters
involving disputed issues of law and fact and fully assume, thereby, the risk
that the facts or law may be other than they believe.
7. The parties hereto acknowledge and understand that this Agreement
creates new obligations and rights between them. Except as otherwise provided
for in this Agreement, each party expressly waives and assumes the risk of any
and all claims for damages which exist as of this date, but of which it is
unaware, whether through ignorance, oversight, error, negligence or otherwise,
and which, if known to Cassidy or to WGHI, would materially affect their
decision to enter into this Agreement. Each party further assumes the risk that
it may suffer damages in the future which it does not now anticipate nor
suspect. Each party waives all rights under California Civil Code Section 1542,
which states as
2
follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
8. Each party warrants and represents to the other that it has not
assigned, conveyed or transferred any of the claims or possible claims against
any of the parties hereto (or any interest therein) which are released or
referred to herein and that the releases herein are what they purport to be.
In the event of an adjudication that either party is in breach
of this Section, the party in breach agrees to indemnify and hold harmless the
other party from any resulting liability, claim, demand, damage, cost, expense
and/or attorney's fees incurred by the other party as a result of the breach.
9. Cassidy agrees and acknowledges that it will accept the payments and
the registration, issuance and sale of the WGHI shares specified hereinabove as
a full and complete compromise of matters involving disputed issues as to
Cassidy. Each of Cassidy and WGHI agrees and acknowledges that neither this
Agreement, nor delivery of the WGHI shares by WGHI herein, or any event
occurring during the negotiations for this Agreement (nor any statement or
communication made in connection therewith) by either party, or their attorneys
or representatives, shall be considered an admission by any party of any act or
omission to act, or of any responsibility or liability for any claims, suits,
actions or any facts, representations or misrepresentations regarding any of the
parties, and that no past nor present wrongdoing on the part of either party
shall be implied therefrom.
10. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
11. This Agreement is binding upon, and shall inure to the benefit of,
each of the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
12. WGHI hereby represents and warrants that as of the date of its
execution of this Agreement it has sufficient shares of common stock duly
authorized and available in order to comply with the terms of Sections 1 and 2
hereof. WGHI agrees that it will reserve and keep available for issuance
sufficient shares of its common stock so that it can comply with its obligations
set forth in Sections 1 and 2 hereof.
13. This Agreement contains the entire agreement between the parties
and supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This
3
Agreement may be amended or modified in whole or in part at any time, but only
by a written agreement executed by both parties in the same manner as this
Agreement.
14. This Agreement has been negotiated, and is entered into, in the
State of Florida, County of Palm Beach. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to Florida law.
15. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this Agreement.
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
16. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
17. Failure by either party at any time to require performance of any
provision of this Agreement shall not limit the right of that party to enforce
such performance or provision at any time, nor shall either party's waiver of
any breach by the other party of any provision of this Agreement by a waiver of
any succeeding breach by that other party of that same provision, or of any
other provision of this Agreement.
18. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Cassidy & Associates
355 N.E. Fifth Ave., Suite 4 1504 "R" Street N.W.
Delray Beach, Florida 33483 Washington, D.C. 20009
4
and
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N
Capitola, California 59010
Each party shall notify the other party by certified mail of
any change of address or change of the person designated herein to receive
notices to be provided pursuant to this Agreement. Once a party has received
notice of a change of address or designated person, that party shall send all
future notices to be provided in this Agreement to that address and designated
person.
19. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
20. The exercise date for any stock options previously granted to
Cassidy shall be extended up to and including the date of final payment of the
obligation hereinabove set forth.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
CASSIDY & ASSOCIATES WESTMARK GROUP HOLDINGS, INC.
By: By:
Its: Its:
5
EXHIBIT 10.35
SETTLEMENT AGREEMENT AND
MUTUAL RELEASE OF ALL CLAIMS
This settlement Agreement and Mutual Release of All Claims
("Agreement"), dated March 28, 1996, is executed by and between Westmark Group
Holdings, Inc. ("WGHI"), a Colorado corporation, and Jehu Hand ("Hand"), and is
made with reference to the following:
RECITALS
WHEREAS, WGHI retained Hand to provide certain services to WGHI; and
WHEREAS, Hand performed services on behalf of WGHI and billed it for
such services on an hourly basis;
WHEREAS, WGHI has informed Hand that it is unable to pay in cash the
amounts owed to Hand for such services and has requested that Hand accept the
form of payment as set forth herein;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from Hand representation of WGHI and Hand claims for payments owed by
WGHI to Hand for services rendered by Hand to WGHI.
NOW, THEREFOR, in consideration of the terms set forth below, and the
other covenants and conditions contained herein, WGHI and Hand mutually agree as
follows:
1. WGHI covenants and agrees to pay to Hand the sum of $5,000 and Hand
agrees to accept said sum in full and final settlement of any and all claims by
Hand against WGHI. Payment shall be made by WGHI, in full, no later than April
15, 1996.
2. If at any time WGHI fails to perform its obligations as set forth
hereinabove, WGHI shall be in default of this Agreement and Hand shall be
entitled to proceed with any and all remedies available at law or in equity.
3. Hand hereby releases and forever discharges WGHI, and all of its
past, present and future attorneys, officers, directors, employees, agents,
insurers, successors and assigns from any and all claims, demands, obligations
or causes of action of any nature whatsoever, whether in law or in equity, or
whether for contractual, compensatory or punitive damages, which have arisen or
may arise out of WGHI alleged failure to pay for services rendered on its behalf
by Hand provided, however, that the release set forth herein is subject to the
payment by WGHI as set forth in paragraph 1.
1
4. WGHI hereby releases and forever discharges Hand, and all of its
past, present and future partners, attorneys, officers, directors, employees,
agents, insurers, successors and assigns, from any and all claims, demands,
obligations or causes of action of any nature whatsoever, whether in law or in
equity, or whether for contractual, compensatory or punitive damages, which have
or may arise out of Hand performance of services on behalf of WGHI, or failure
thereof, and any and all other claims or causes of action WGHI may have against
Hand whether real or imaginary or known or unknown at this time.
5. Subject to satisfaction of the terms set forth herein all parties
hereto acknowledge that they execute and agree to this Agreement, and accept the
terms set forth herein, as a complete compromise of all matters involving
disputed issues of law and fact and fully assume, thereby, the risk that the
facts or law may be other than they believe.
6. Each party warrants and represents to the other that it has not
assigned, conveyed or transferred any of the claims or possible claims against
any of the parties hereto (or any interest therein) which are released or
referred to herein and that the releases herein are what they purport to be.
In the event of an adjudication that either party is in breach of
this Section, the party in breach agrees to indemnify and hold harmless the
other party from any resulting liability, claim, demand, damage, cost, expense
and/or attorney's fees incurred by the other party as a result of the breach.
7. Each party represents and warrants that it has full authority to
enter into this Agreement and to release all of the claims, known or unknown,
which are the subject matter of the releases herein.
8. This Agreement contains the entire agreement between the parties and
supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
9. This Agreement has been negotiated, and is entered into, in the
State of California, County of Orange. The validity, interpretation,
construction and enforcement of this Agreement shall be construed, interpreted
and governed pursuant to California law.
10. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity
to consult with its attorneys, who are the attorneys
of its own choice, during the negotiation and
preparation of this Agreement.
2
(b) It fully understands and is aware of the terms of
this Agreement, and the legal consequences thereof,
and voluntarily accepts them; and
(c) Its counsel has reviewed and revised, or has had the
opportunity to review and revise this Agreement, and
accordingly the normal rule of construction, which
states to the effect that any ambiguities are to
resolved against the drafting party, shall not be
employed in the interpretation of this Agreement.
11. Each party represents and warrants that no other person or entity
has or has had any interest in the claims, demands, obligations or causes of
action referred to in this Agreement. Each party further warrants and represents
that the individuals executing this Agreement are duly authorized by the
respective parties to bind the parties to the terms of this Agreement.
12. Failure by either party at any time to require performance of any
provision of this Agreement shall not limit the right of that party to enforce
such performance or provision at any time, nor shall either party's waiver of
any breach by the other party of any provision of this Agreement by a waiver of
any succeeding breach by that other party of that same provision, or of any
other provision of this Agreement.
13. The parties agree that any notices to be provided pursuant to this
Agreement shall be addressed to the respective parties as follows:
Westmark Group Holdings, Inc. Jehu Hand
355 N.E. Fifth Ave., Suite 4 HAND & HAND
Delray Beach, Florida 33483 24901 Dana Point Harbor Drive
Suite 200
and Dana Point, California 92629
Harry C. Coolidge, Esq.
1260 41st Ave., Suite N
Capitola, California 59010
Each party shall notify the other party by certified mail of
any change of address or change of the person designated herein to receive
notices to be provided pursuant to this Agreement. Once a party has received
notice of a change of address or designated person, that party shall send all
future notices to be provided in this Agreement to that address and designated
person.
14. The parties hereto acknowledge and understand that this Agreement
creates
3
new obligations and rights between them. Except as otherwise provided for in
this Agreement, each party expressly waives and assumes the risk of any and all
claims for damages which exist as of this date, but of which it is unaware,
whether through ignorance, oversight, error, negligence or otherwise, and which,
if known to Hand or to WGHI, would materially affect their decision to enter
into this Agreement. Each party further assumes the risk that it may suffer
damages in the future which it does not now anticipate nor suspect. Each party
waives all rights under California Civil Code Section 1542, which states as
follows:
"A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
15. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which shall together constitute one and the
same document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
16. Upon receipt of the consideration hereinabove set forth in
Paragraph 1, Hand covenants and agrees to dismiss, with prejudice, any actions
now pending including, but not limited to, the action entitled Hand & Hand, a
law corporation v. Westmark Group Holdings, Inc. filed in the Superior Court of
the State of California, County of Orange, action number 752444.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the dates set forth below.
DATED: DATED:
WESTMARK GROUP HOLDINGS, INC.
By: By:
JEHU HAND
Its:
4
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. Westmark Group Holdings, Inc.
1.1 Westmark Mortgage Corporation
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this registration statement of our report dual dated
March 20, 1996 and April 19, 1996 on the financial statements of Westmark Group
Holdings, Inc., and to reference to our firm under the caption "experts" in the
prospectus.
Aurora, Colorado
June 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 311,916
<SECURITIES> 0
<RECEIVABLES> 19,667,696
<ALLOWANCES> 179,663
<INVENTORY> 0
<CURRENT-ASSETS> 20,176,373
<PP&E> 837,065
<DEPRECIATION> 434,411
<TOTAL-ASSETS> 25,510,158
<CURRENT-LIABILITIES> 22,220,631
<BONDS> 10,000,000
0
0
<COMMON> 23,165,937
<OTHER-SE> 1,153,688
<TOTAL-LIABILITY-AND-EQUITY> 25,510,158
<SALES> 0
<TOTAL-REVENUES> 3,081,900
<CGS> 0
<TOTAL-COSTS> 10,569,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,488,060)
<INCOME-TAX> (180,000)
<INCOME-CONTINUING> (7,308,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 270,000
<CHANGES> 0
<NET-INCOME> (7,038,060)
<EPS-PRIMARY> (6.50)
<EPS-DILUTED> (6.50)
</TABLE>
