UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 0-18945
WESTMARK GROUP HOLDINGS, INC.
(name of small business issuer in its charter)
DELAWARE 84-1055077
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
355 N.E. FIFTH AVENUE, SUITE 4
DELRAY BEACH, FLORIDA 33483
(Address of principal executive offices)(Zip Code)
(561) 243-8010
(Issuer's telephone number, including area code)
---------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [XX] No [ ]
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 1998: 2,866,186 (one class).
Transitional Small Business Disclosure Format: Yes [ ] No [XX]
1
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WESTMARK GROUP HOLDINGS, INC.
FORM 10-QSB REPORT INDEX
10-QSB Part and Item No.
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Part I-Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheet as of
March 31, 1998 and December 31, 1997 ................3
Consolidated statement of operations for the three
months ended March 31, 1998 and 1997 ................4
Consolidated statement of cash flows for the three
months ended March 31, 1998 and 1997 ................5
Condensed notes to consolidated financial statements ..6 and 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................8 - 10
Part II-Other Information
Item 1. Legal Proceedings......................................11
Item 2. Changes in Securities....... ..........................12
Item 3. Defaults Upon Senior Securities. ......................12
Item 4. Submission of Matters to a Vote of Security Holders....12
Item 5. Other Information......................................12
Item 6. Exhibits and Reports on Form 8-K.......................13
Signatures...............................................................14
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
--------------------
Westmark Group Holdings, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 1998 with comparative figures for December 31, 1997
---------------------------------------------------------------
UNAUDITED
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<CAPTION>
ASSETS 1998 1997
---------------------------------
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Current assets:
Cash and cash equivalents $ 99,824 $ 100,010
Mortgage loans held for sale 8,717,601 7,788,374
---------------------------------
Total current assets 8,817,425 7,888,384
---------------------------------
Property and equipment:
Office buildings 533,866 535,991
Furniture, fixtures and equipment 505,279 463,226
---------------------------------
1,039,145 999,217
Accumulated depreciation 371,986 354,654
---------------------------------
Net property and equipment 667,159 644,563
---------------------------------
Other assets:
Investment in preferred stock 2,876,528 2,876,528
Investment in real estate 500,000 500,000
Cost in excess of assets purchased, net 606,403 631,132
Dividends receivable 315,000 280,000
Deposits and other assets 5,920 -
---------------------------------
Total other assets 4,303,851 4,287,660
---------------------------------
TOTAL ASSETS $13,788,435 $12,820,607
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 515,913 $ 485,621
Accrued expenses 139,375 359,287
Warehouse line payable 8,630,860 7,733,492
Current portion of long term debt 1,498,988 1,539,379
Settlements payable 531,957 733,979
Dividends payable 150,000 132,500
---------------------------------
Total current liabilities 11,467,092 10,984,258
---------------------------------
Long term debt 1,431,916 1,774,044
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
319,577 (250,005 at 1997) shares issued and outstanding 1,147,870 800,010
Common stock, $0.005 par value, 15,000,000 shares authorized,
2,852,584 (2,389,655 at 1997) shares issued and outstanding 14,263 11,948
Capital in excess of par value 28,387,359 27,496,031
Accumulated deficit (27,810,065) (28,245,684)
---------------------------------
Total stockholders' equity 1,739,427 62,305
---------------------------------
Stock subscription receivable (850,000) -
---------------------------------
Net stockholders' equity 889,427 62,305
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,788,435 $12,820,607
=================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
Westmark Group Holdings, Inc. and Subsidiary
Consolidated Statement of Operations
For the three months ended March 31, 1998 with
comparative figures for 1997
-------------------------------------------------------
UNAUDITED
REVENUES: 1998 1997
-------------------------------
<S> <C> <C>
Loan origination and gain on sale of loans $2,802,605 $1,030,782
Interest income 237,787 230,739
Other income 15,750 18,031
-------------------------------
Total Revenue 3,056,142 1,279,552
-------------------------------
COST AND EXPENSES:
Loan origination costs 303,037 45,395
General and administrative 1,916,330 1,059,029
Professional fees 56,538 118,103
Interest 304,571 201,174
Marketing and advertising 32,988
5,866
Depreciation and amortization 42,059 39,910
-------------------------------
Total Cost and Expenses 2,655,523 1,469,477
-------------------------------
OTHER INCOME (EXPENSES):
Dividend income 35,000 35,000
-------------------------------
Total Other Income (Expenses) 35,000 35,000
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NET INCOME (LOSS) FROM CONTINUING OPERATIONS
-------------------------------
BEFORE INCOME TAXES 435,619 (154,925)
-------------------------------
Income tax 152,467 -
-------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS AFTER TAX 283,152 (154,925)
-------------------------------
Tax benefit of net operating loss carryforward 152,467 -
-------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 435,619 (154,925)
-------------------------------
Loss of discontinued operation - (112,057)
===============================
NET INCOME (LOSS) $ 435,619 $ (266,982)
===============================
EARNINGS PER SHARE:
Basic:
Income (loss) from continuing operations
0.17 (0.16)
Income (loss) from discontinued operations
- (0.11)
===============================
Basic Net Income (Loss) per share $ 0.17 $ (0.27)
===============================
Fully diluted:.
Income (loss) from continuing operations
0.10 -
Income (loss) from discontinued operations
- -
===============================
Fully Diluted Net Income (Loss) per share $ 0.10 $ -
===============================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,573,768 997,779
Fully diluted 4,505,608 -
</TABLE>
See accompanying condensed notes to consolidated financial statements.
4
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Westmark Group Holdings, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the three months ended March 31, 1998 with comparative figures for 1997
---------------------------------------------------------------------------
UNAUDITED
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss) $435,619 $ (266,982)
Adjustments to reconcile consolidated net income (loss)
to net cash provided (used) by operating activities:
Depreciation 17,331 17,846
Stock issued for bonus and services 237,500 324,238
Amortization of excess purchase cost 24,729 51,681
Changes in operating assets and liabilities:
(Increase) decrease in:
Mortgage loans held for sale (929,227) 3,782,590
Other assets (40,920) (7,077)
Accounts receivable - (34,781)
Increase (decrease) in:
Accounts payable 30,292 430,794
Accrued expenses (219,912) (141,066)
Warehouse lines of credit 897,368 (3,831,032)
Settlements payable (202,022) -
----------- -----------
Cash provided for (used) in operating activities 250,758 326,211
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITES:
----------- -----------
(Purchase) sale of fixed assets and improvements (39,928) 5,489
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of preferred stock 154,003 -
Dividends 17,500 -
Proceeds from issuance of note payable - 262,586
Payments on notes payable (382,519) (562,982)
----------- -----------
Cash provided for (used) in financing activities (211,016) (300,396)
----------- -----------
----------- -----------
Net increase/(decrease) in cash $ (186) $ 31,304
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
5
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Westmark Group Holdings, Inc. and subsidiaries
Condensed Consolidated Notes to Financial Statements
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited 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, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
NOTE 2: FINANCING ACTIVITY
During the first quarter of 1998, Westmark Group Holdings, Inc. ("WGHI"
or the "Company"), in exchange for $154,004 and 38,771 shares of common stock,
provided for the issuance of 69,572 shares of Series G preferred stock to MCA
Financial Corporation (MCA") pursuant to a Stock Purchase Agreement entered into
in September 1997 in connection with the sale of mortgage loan packages to MCA .
All monies received were used for funding operating activities.
In February 1998, certain executives of the Company agreed with the
Company to purchase 400,000 shares of common stock at $2.125 per share (the
closing bid price of the Company's common stock on the date prior to the date of
such agreement). The terms of the purchase provides for a payment of
approximately 46% of the purchase price with the remainder being evidenced by
promissory notes to the Company with full recourse to the makers. The promissory
notes, in the aggregate principal amount of $460,000, bear interest at the rate
of 10% per annum and are to be paid in quarterly installments over a three-year
period.
In the quarter ending March 31, 1998, the Company also issued 111,553
shares of restricted common stock in satisfaction of $287,500 of management
bonuses and consulting fees.
The Company secured lines of credit, on favorable terms from First
Union National Bank for $20 million, Household Financial Services, Inc. for $7
million, The Money Store for $7 million and MCA for $2 million. The current line
with Princap Mortgage Warehouse, Inc. is $10 million. The funding warehouse
lines total $46 million. The Company believes this increase and improvement of
terms positions the Company to meet its budgetary targets for loan growth.
6
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Westmark Group Holdings, Inc. and subsidiaries
Condensed Consolidated Notes to Financial Statements
NOTE 3: REVERSE STOCK SPLIT
On August 28, 1997, the stockholders of the Company approved a reverse
stock split in the range of 1 for 3 to 1 for 5 to be determined by the Board of
Directors. The Board of Directors approved a 1 for 5 reverse stock split on
August 29, 1997 with an effective date of September 3, 1997. The stockholders
also approved a change in the authorized common stock from 50,000,000 shares to
15,000,000 shares.
NOTE 4: EARNINGS PER SHARE
Basic earning (loss) per common share has been computed using the net
income (loss) adjusted for preferred dividends over the weighted average shares
outstanding. Diluted loss per common share for the quarter ended March 31, 1997
has not been presented since the effect of common stock equivalents would be
anti-dilutive. Diluted earnings per common share for the quarter ended March 31,
1998 has been computed using the net income adjusted for preferred dividends
over the weighted average shares outstanding including as outstanding all common
shares underlying all warrants, options, convertible debt and convertible
preferred stock.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Forward Looking Statement
This Quarterly Report on Form 10-QSB contains forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, the
Company's ability to generate mortgage loans and/or acquire them on favorable
terms, interest rate fluctuations and those set forth in the Company's 1997
Annual Report on Form 10-KSB under the caption "Certain Factors That May Affect
Future Results."
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's condensed
consolidated unaudited Financial Statements listed in Part I, Item 1 and the
Notes thereto appearing elsewhere in this Form 10-QSB, and the Company's audited
Financial Statements listed in Item 7 and the Notes thereto appearing in the
Company's 1997 Annual Report on Form 10-KSB.
FINANCIAL RESULTS OF OPERATIONS
- -------------------------------
On a consolidated basis, total revenues increased to $3,056,142 in the
quarter ended March 31, 1998 from $1,279,552 in the quarter ended March 31,
1997, an increase of 139%. This continues to reflect the implementation of
Westmark's strategic plan to concentrate its efforts on its non-conforming
(subprime) mortgage lending business. Expenses for the quarter ended March 31,
1998 increased to $2,655,524 from $1,469,477 for the period ended March 31,
1997, an 81% increase. The primary reason for the increase was expected expenses
associated with the planned growth of the non-conforming (subprime) business.
This increase is the primary reason for the increase in general and
administrative expenses from $1,059,029 in the period ended March 31, 1997 to
$1,916,330 in the period ended March 31, 1998 (an 81% increase). The increase in
loan origination costs from $45,395 in the period ended March 31, 1997 to
$303,037 in the period ended March 31, 1998 (a 568% increase), as well as
marketing and advertising and interest expense is primarily the result of the
addition of new staff to support the growing loan volume and new account
executives to further increase loan production and an increase in expenditures
on advanced technology. The reduction in professional fees from $116,000 in the
quarter ended March 31, 1997 to $56,532 in the quarter ended March 31, 1998 is
primarily due to reduction in legal fees.
Net income for the current quarter was $435,619 or $0.17 per share as
compared to a net loss of $266,982 or ($0.27) per share for the quarter ended
March 31, 1997, primarily based on increased loan production and more favorable
margins on the sale of loans.
8
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BUSINESS OPERATIONS
- -------------------
During the first quarter of 1998, the Company continued to focus its
business on funding non-conforming (subprime) paper, with approximately 99% of
all closed loan volume being non-conforming (subprime) loan fundings. Total
non-conforming (subprime) loan fundings by the Company increased from $19.8
million in the three months ending March 31, 1997 to $46.2 million for the three
months ended March 31, 1998, an increase of 133%.
In the first quarter of 1998, the Company continued to expand its
non-conforming (subprime) lending program through bulk sales, and as a result,
experienced record revenue in the first three months of 1998 from this
expansion. The Company is focusing its marketing efforts in the non-conforming
(subprime) loan market due to the enhanced returns. The increase in the
non-conforming (subprime) loans has come primarily from an increased market
share in Florida, Illinois, California and Georgia. Management intends to
continue its marketing strategy in additional states throughout the Southeast,
Midwest and West Coast, where licensing and/or sales activities began or
expanded this period.
The Company continues to sell loan originations on a
"servicing-released" basis to investors in the normal course of business. The
Company's bulk sales program for non-conforming (subprime) paper in which loans
are pooled and sold in packages generally ranging from $1-8 million remains an
integral key to future growth. During the first quarter, total loan sales to
third party investors in the secondary market equaled $45.5 million, an increase
of 135% from $19.4 million in the first quarter ended March 31, 1997.
Bulk sales
- ----------
During the quarter ended March 31, 1998, bulk sales deliveries were
completed successfully with institutional investors, such as Household Financial
Services, Inc., The Money Store, and MCA Financial Corporation.
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 lines of credit to
meet its working capital needs. The Company's cash requirements include the
funding of loan originations, purchases, payment of interest expenses,
operations expenses, taxes and capital expenditures, along with settlement
agreements negotiated though March 31, 1998.
On March 31, 1998, total stockholders equity was $889,427. 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 a warehouse line of credit with various lenders
including Household Financial Services, Inc., The Money Store, Princap Mortgage
Warehouse, Inc., MCA Financial Corporation and most recently, First Union
National Bank. (collectively the "Warehouse Facilities"). Pursuant to the
Warehouse Facilities, the Company has available total secured revolving credit
lines of $46 million, an increase of $20 million since December 31, 1997, to
finance the Company's origination or purchase of loans, pending sale to
investors. The lines of credit pursuant to the Warehouse Facilities are
collateralized by the assignment and pledge of eligible mortgage loans. The
various
9
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lines making up the Warehouse Facilities bear interest at annual rates
ranging from Libor plus 1 1/8 to 1 1/2 - 2% above prime, payable at the time of
purchase by the permanent investor. The Warehouse Facilities provide for a
transaction charge from $100 per loan to as low as $25 per loan and require the
Company to possess a minimum net worth of $3.6 million, a current ratio of 1.1
and a compensating cash balance on deposit in the amount of $5,000 under the
more restrictive covenants. The Company was not in compliance with these
covenants at March 31, 1998 or December 31, 1997 and received a waiver from the
warehouse lender. On March 31, 1998, the balance outstanding, pursuant to this
Warehouse Facilities, totaled $8,630,860. The company does not currently have
any other external lines of credit for financing.
Historically, the Company has obtained financing through the issuance
of its common stock and borrowings on a negotiated basis. However, as the
Company has become cash-flow positive, the necessity to utilize this type of
financing has been reduced, allowing the Company to decrease both the size and
the frequency of its share issuances.
The Company's internally generated cash flows from operations have
historically been insufficient for its cash needs. As noted earlier, the Company
reached a level of cash flow to support its monthly expenses and to negotiate
and pay restructured past debts and continued to operate on a cash-flow positive
basis in the first quarter of this year. Although no assurance can be given, it
is expected that internal sources of liquidity will improve as net cash is
provided by operating activities.
10
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is a defendant in BLACK V. MCCORKINDALE, ET AL. filed on
February 18, 1998 in Baldwin County, Alabama, Circuit Court Case #98-147. The
Plaintiff alleges fraud and breach of contract and seeks unspecified
compensatory and punitive damages. The Complaint is based on alleged
misrepresentations by an individual the Company believes to be an independent
mortgage broker regarding the interest rate on the Plaintiff's $200,000
mortgage. The Company does not anticipate any liability with regard to this
matter.
11
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
During the first quarter of 1998, the Company issued 511,553 shares of
unregistered Common Stock to certain executives, directors and consultants of
the Company, pursuant to Section 4(2) of the Securities Act of 1933, for cash,
promissory notes, and in satisfaction of $237,500 of performance bonuses. The
Company also provided for the issuance of 69,572 shares of Series G Preferred
Stock to MCA Financial Corp., pursuant to Section 4(2) of the Securities Act of
1933, in exchange for cash and Company Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS
------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
-----------------
In April 1998, the Company's wholly owned subsidiary, Westmark Mortgage
Corporation ("Westmark Mortgage"), entered into an agreement with First Union
National Bank ("First Union") for a secured $20,000,000 revolving warehouse line
of credit with First Union the ("warehouse line"). The term is one year,
renewable annually for two years subject to the Company's Common Stock price
attaining a certain minimum, or the Company obtaining minimum net income. The
Company is a guarantor of Westmark Mortgage's obligations to First Union arising
from the warehouse line. As additional consideration for the warehouse line, the
Company issued 146,979 warrants to First Union to purchase Company Common Stock
at $2.50 per share. The Company has agreed to issue additional warrants to First
Union to purchase approximately 93,021 shares of Company Common Stock, subject
to resolution of certain regulatory matters relating to First Union's ownership
of the Company's voting stock. First Union earns a $50.00 fee for each mortgage
loan submitted pursuant to the warehouse line. The interest rate charged by
First Union pursuant to the warehouse line is, at the Company's option, either
the Corporate Base Rate, defined as a function of the "weighted average of the
rates on overnight Federal Funds transactions with members of the Federal
Reserve System or the Applicable Eurodollar Rate, defined as a function of the
relationship between the rates on U.S. dollar deposits in the the London
interbank market and the reserve requirement imposed by the Federal Reserve
Board of Governors on eurocurrency liabilities. The Company and First Union are
also negotiating the terms of a separate agreement pursuant to which First Union
will provide Westmark Mortgage with an additional $10,000,000 credit facility
for bulk loan acquisition.
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(a) EXHIBITS
Exhibit Description
- ------- -----------
10.1 Mortgage Loan Warehousing Agreement between the Company's
wholly owned subsidiary, Westmark Mortgage Corporation, and
First Union National Bank entered into in April 1998.
10.2 Security Agreement between the Company's wholly owned
subsidiary, Westmark Mortgage Corporation, and First Union
National Bank entered into in April 1998.
10.3 Promissory Note between the Company's wholly owned subsidiary,
Westmark Mortgage Corporation, and First Union National Bank
entered into in April 1998.
10.4 Guaranty between the Company and First Union National Bank
entered into in April 1998.
(b) REPORTS ON FORM 8-K
Form 8-K filed on January 6, 1998 reported a change in the Company's
independent certified public accountants.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTMARK GROUP HOLDINGS, INC.
By: /c/ Irving H. Bowen
--------------------------------------------------------------
Irving H. Bowen, Executive Vice President, Treasurer
& Chief Financial Officer, Director (Principal Accounting
Officer & Duly Authorized Director & Officer of the Registrant)
By: /c/ Mark D. Schaftlein
--------------------------------------------------------------
Mark D. Schaftlein, President & Chief Executive
Officer, Director (Duly Authorized Director & Officer
of the Registrant)
Dated: May 14, 1998
14
MORTGAGE LOAN WAREHOUSING AGREEMENT
-----------------------------------
THIS MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Agreement") is made as
of the _____ day of ___________, 1998, by and between WESTMARK MORTGAGE
CORPORATION, a California corporation (the "Company") and FIRST UNION NATIONAL
BANK, a national banking corporation (the "Lender").
STATEMENT OF PURPOSE
--------------------
The Company has requested the Lender to extend to the Company a
mortgage warehousing line of credit, and the Lender has agreed to do so on the
terms and subject to the conditions set forth herein. All capitalized terms not
otherwise defined herein are defined in Paragraph 10 hereof.
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
---------
1. Credit Facility.
1(a) Lending Limit. Subject to the conditions set forth
herein, the Lender agrees that it shall from time to time up to and including
the Business Day immediately preceding the Maturity Date, advance loans (the
"Loans" or a "Loan") to the Company in amounts not to exceed, in the aggregate
at any one time outstanding (determined after giving effect to the other
transactions contemplated by the Loan Request pursuant to which said Loan was
requested), the lesser of:
(1) The Credit Limit; and
(2) The Collateral Value of the Borrowing Base.
1(b) Interest Rate. All Loans shall bear interest at the
Applicable Interest Rate.
1(c) Payment of Interest. The Company shall pay to the Lender
interest on Loans outstanding hereunder from the date disbursed to but not
including the date of payment. Interest on Loans shall be payable monthly, in
arrears, as provided in Paragraph 2(d) below.
1(d) Inability to Determine Rate. If the Lender determines
(which determination shall be conclusive and binding upon the Company) that by
reason of circumstances affecting the London interbank eurodollar market
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
at any time, the Lender shall forthwith give facsimile notice of such
determination, confirmed in writing, to the Company. If such notice is given:
(1) no Loan may be funded as a Eurodollar Loan and (2) any outstanding
Eurodollar Loan shall be converted at such time to a Corporate Base Rate Loan.
Until such notice has been
<PAGE>
withdrawn by the Lender, the Company shall not have the right to fund any Loan
as a Eurodollar Loan or to continue a Eurodollar Loan as such. The Lender shall
withdraw such notice in the event that the circumstances giving rise thereto no
longer obtain and that adequate and reasonable means exist for ascertaining the
Eurodollar Rate, and following withdrawal of such notice by the Lender, the
Company shall have the right to fund any Loan as a Eurodollar Loan or to
continue a Eurodollar Loan in accordance with the terms and conditions of this
Agreement.
1(e) Illegality. Notwithstanding any other provisions herein,
if any law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for the Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement: (1) the
commitment of the Lender hereunder to continue Eurodollar Loans shall forthwith
be canceled and (2) all Loans then outstanding as Eurodollar Loans, if any,
shall be converted automatically to Corporate Base Rate Loans at such time.
1(f) Requirements of Law; Increased Costs. In the event that
any change subsequent to the date hereof in any applicable law, order,
regulation, treaty or directive issued by any central bank or other Governmental
Authority, or in the governmental or judicial interpretation or application
thereof, or compliance by the Lender with any request or directive (whether or
not having the force of law) by any central bank or other Governmental
Authority:
(1) subjects the Lender to any tax of any kind
whatsoever with respect to this Agreement or any Loans made hereunder,
or changes the basis of taxation of payments to the Lender of
principal, fee, interest or any other amount payable hereunder (except
for changes in the rate of tax on the overall net income of the
Lender);
(2) imposes, modifies or holds applicable any
reserve, capital requirement, special deposit, compulsory loan or
similar requirements against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
the Lender which are not otherwise included in the determination of the
Applicable Interest Rate or any component thereof; or
(3) imposes on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining any Loan or to reduce any amount receivable in
respect thereof or to reduce the rate of return on the capital of the Lender or
any Person controlling the Lender, then, in any such case, the Company shall
promptly pay to the Lender, upon its written demand, any additional amounts
necessary to compensate the Lender for such additional cost or reduced amounts
receivable or rate of return as determined by the Lender with respect to this
Agreement or Loans made hereunder. If the Lender becomes entitled to claim any
additional amounts pursuant to this Paragraph 1(f), it shall promptly notify the
Company of the event by reason of which it has become so entitled. A certificate
as to any additional amounts payable pursuant to the foregoing sentence
containing the calculation thereof in reasonable detail submitted by the Lender
to the Company shall be conclusive in the absence of manifest error. The
provisions hereof shall
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survive the termination of this Agreement and payment of the outstanding Loans
and all other amounts payable hereunder.
1(g) Funding. The Lender shall be entitled to fund all or any
portion of the Loans in any manner it may determine in its sole discretion, but
all calculations and transactions hereunder shall be conducted as though the
Lender actually funds all Eurodollar Loans through the purchase in London of
offshore dollar deposits in the amount of the relevant Eurodollar Loan in
maturities of one month.
2. Miscellaneous Lending Provisions.
2(a) Use of Proceeds. The proceeds of all Loans shall be used
by the Company solely for the purpose of originating and acquiring Mortgage
Loans.
2(b) Request For Loans; Making of Loans. If the Company
desires to borrow a Loan hereunder, the Company shall make a Loan Request to the
Lender no later than 2:00 p.m. (Charlotte, North Carolina time) on the proposed
funding date and shall specify that rate per annum (i.e. the Corporate Base Rate
or the Eurodollar Rate) on which the Company elects to base the Applicable
Interest Rate. The Lender shall make available the proposed Loan by crediting
the amount thereof in immediately available same day funds to the Funding
Account no later than 3:30 p.m. (Charlotte, North Carolina time) on such date.
2(c) Notes. The obligation of the Company to repay the Loans
shall be evidenced by a note payable to the order of the Lender in the form
attached hereto as Exhibit A (the "Note").
2(d) Interest and Fee Billing and Payment. The Lender shall,
on or before the fifth Business Day of each month, deliver to the Company an
interest and fee billing for the immediately preceding month, which billing
shall set forth interest accrued and payable on Loans and fees payable hereunder
for such month and which billing shall be payable no later than the second
Business Day following receipt thereof by the Company.
2(e) Repayment of Principal. Subject to the prepayment
requirements of Paragraph 2(j) below and the required application of proceeds
from the sale or other disposition of Mortgage Loans as provided in the Security
Agreement, the Company shall pay the principal amount of all Loans on the
Maturity Date.
2(f) Borrowing Base Conformity.
(1) The Company shall cause to be maintained with the
Lender a Borrowing Base such that the Collateral Value of the Borrowing
Base is not less than, at any date, the sum of the aggregate dollar
amount of outstanding Loans.
(2) The Company shall prepay Loans to the Lender,
upon telephonic or facsimile demand by the Lender, on any day in the
amount by which the aggregate principal amount of outstanding Loans
exceeds the Collateral Value of the Borrowing
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Base, said prepayment to be made on the date on which demand is made by
the Lender if made prior to 4:00 p.m. (Charlotte, North Carolina time)
or, if made later than 4:00 p.m. (Charlotte, North Carolina time),
before 9:00 a.m. (Charlotte, North Carolina time) on the next Business
Day.
(3) If at such time as the Company shall be required
to prepay Loans under this Paragraph 2(f) there shall not have occurred
and be continuing an Event of Default or Potential Default hereunder,
in lieu of prepaying the Loans as required, the Company may deliver to
the Lender additional Eligible Mortgage Loans such that the Collateral
Value of the Borrowing Base, after giving effect to the inclusion of
such Eligible Mortgage Loans in the Borrowing Base, shall be in
compliance with the requirements of subparagraphs (1) and (2) above.
2(g) Nature and Place of Payments. All payments made on
account of the Obligations shall be made to the Lender and the Lender is hereby
irrevocably authorized to debit the Settlement Account on account thereof. All
payments made on account of the Obligations shall be made without setoff or
counterclaim in lawful money of the United States of America in immediately
available same day funds, free and clear of and without deduction for any taxes,
fees or other charges of any nature whatsoever imposed by any taxing authority
and if received by the Lender by 4:00 p.m. (Charlotte, North Carolina time) such
payment will be credited on the Business Day received. If a payment is received
after 4:00 p.m. (Charlotte, North Carolina time) by the Lender, such payment
will be credited on the next succeeding Business Day and interest thereon shall
be payable at the then applicable rate until credited. If any payment required
to be made by the Company hereunder becomes due and payable on a day other than
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension.
2(h) Post-Maturity Interest. Any Obligations not paid when due
(whether at stated maturity, upon acceleration or otherwise) shall bear interest
from the date due until paid in full at a per annum rate equal to four percent
(4%) above the interest rate otherwise applicable thereto, or, if such
Obligations do not otherwise bear interest, four percent (4%) above the Prime
Rate.
2(i) Computations. All computations of interest and fees
payable hereunder shall be based upon a year of 360 days for the actual number
of days elapsed.
2(j) Prepayments.
(1) The Company may voluntarily prepay Loans
hereunder in whole or in part at any time.
(2) Loans hereunder are subject to mandatory
prepayment pursuant to Paragraph 2(f) above and, in addition, by
application of proceeds of the sale or other disposition of Collateral
as provided in the Security Agreement.
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(3) The Company shall pay in connection with any
prepayment hereunder all interest accrued but unpaid on Loans to which
such prepayment is applied concurrently with payment to the Lender of
any principal amounts.
2(k) Allocation of Payments Received.
(1) Prior to the occurrence of an Event of Default
and acceleration of all Loans outstanding hereunder or termination of
the commitment of the Lender to advance Loans hereunder, all amounts
received by the Lender shall be applied against the outstanding
Obligations.
(2) Following the occurrence of an Event of Default
and acceleration of all Loans outstanding hereunder or termination of
the commitments of the Lender to advance Loans hereunder, all amounts
received by the Lender on account of the Obligations shall be applied
by the Lender as follows:
(i) First, to the payment of reasonable costs and
expenses incurred by the Lender in the enforcement of its
rights under the Credit Documents, including, without
limitation, all costs and expenses of collection, attorneys'
fees, court costs and foreclosure expenses;
(ii) Second, to the Lender to be applied against the
Obligations until the Obligations shall have been paid in
full; and
(iii) Third, to such Persons as may be legally
entitled thereto.
2(l) Fees. The Company shall pay the following fees to the
Lender:
(1) A collateral handling fee of $50.00 with respect
to each Mortgage Loan (and related Required Documents) submitted to the Lender
for inclusion in the Borrowing Base, such fee to be payable monthly in arrears
on the applicable date specified in Paragraph 2(d) hereof.
3. Security Agreement; Guaranty; Additional Documents.
3(a) Security Agreement and Financing Statements. On or before
the date hereof, the Company shall execute and deliver to the Lender: (1) a
security agreement in the form of that attached hereto as Exhibit B (the
"Security Agreement"), pursuant to which the Company shall pledge, assign and
grant to the Lender a perfected, first priority security interest in and lien
upon the Collateral, and (2) such UCC financing statements as the Lender may
request.
3(b) Guaranty. On or before the date hereof, the Company shall
cause to be executed and delivered to the Lender by the Guarantor a continuing
guaranty substantially in the form of that attached hereto as Exhibit C (the
"Guaranty").
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3(c) Further Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Lender from time to
time such confirmatory and supplementary security agreements, financing
statements and other documents, instruments and agreements as the Lender may
reasonably request, which are in the Lender's judgment necessary or desirable to
obtain for the Lender the benefit of the Credit Documents and the Collateral.
4. Conditions to Making of Loans.
4(a) First Loan. As conditions precedent to the Lender's
obligation to make the first Loan hereunder:
(1) The Company shall have delivered to the Lender,
in form and substance satisfactory to the Lender and its counsel, each
of the following:
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of each of the Security
Agreement and the Guaranty;
(iii) A duly executed copy of the Note;
(iv) Duly executed copies of all financing statements
and other documents, instruments and agreements, properly
executed, deemed necessary or appropriate by the Lender, in
its reasonable discretion, to obtain for the Lender a
perfected, first priority security interest in and lien upon
the Collateral;
(v) Such credit applications, financial statements,
authorizations and such information concerning the Company and
the Guarantor and their respective businesses, operations and
conditions (financial and otherwise) as the Lender may
reasonably request;
(vi) Certified copies of resolutions of the Board of
Directors of each of the Company and the Guarantor approving
the execution and delivery of the Credit Documents to which
the Company or the Guarantor, respectively, is a party, the
performance of the Obligations thereunder and the consummation
of the transactions contemplated thereby;
(vii) A certificate of the Secretary or an Assistant
Secretary of each of the Company and the Guarantor certifying
the names and true signatures of the officers of the Company
or the Guarantor authorized to execute and deliver the Credit
Documents to which the Company or the Guarantor, respectively,
is a party;
(viii) A copy of the Articles of Incorporation of
each of the Company and the Guarantor, certified by the
respective Secretary or an Assistant Secretary
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of the Company or the Guarantor, respectively, as of the date
of this Agreement as being accurate and complete;
(ix) A copy of the Bylaws of each of the Company and
the Guarantor, certified by the respective Secretary or an
Assistant Secretary of the Company or the Guarantor,
respectively, as of the date of this Agreement as being
accurate and complete;
(x) (A) A certificate of the Secretary of State of
the State of California, certifying as of a recent date that
the Company is in good standing, (B) a certificate of the
Secretary of State of the State of Florida, certifying as of a
recent date that the Company is qualified as a foreign
corporation in the State of Florida; (C) a certificate of the
Secretary of State of the State of Delaware, certifying as of
a recent date that the Guarantor is in good standing, and (D)
a certificate of the Secretary of State of the State of
Florida, certifying as of a recent date that the Company is
qualified as a foreign corporation in the State of Florida;
(xi) An opinion of counsel for the Company and the
Guarantor substantially in the form of Exhibit D attached
hereto and covering such other matters as the Lender may
reasonably request;
(xii) Evidence satisfactory to the Lender that each
of the Funding Account and the Settlement Account has been
opened;
(xiii) A schedule of the initial Approved Investors
duly approved by the Lender;
(xiv) A Covenant Compliance Certificate demonstrating
in detail satisfactory to the Lender compliance with the
covenants set forth in Paragraphs 7(i), 7(j) and 7(k) below;
(xv) A copy of each Buy/Sell Agreement in effect as
of the date hereof;
(xvi) Such financial information as the Lender may
reasonably request with respect to any Approved Investor; and
(xvii) A duly completed Borrowing Base Schedule
certified by the Company.
(2) All acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the
making of any required filings, recordings or registrations) required
to be done and performed and to have happened precedent to the
execution, delivery and performance of the Credit Documents and to
constitute the same legal, valid and binding obligations, enforceable
in accordance with their respective terms, shall have been done and
performed and shall have happened in material compliance with all
applicable laws.
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(3) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with
the transactions contemplated by the Credit Documents shall be
satisfactory in form and substance to the Lender and its counsel.
(4) All fees required to be paid on or before the
date hereof pursuant to Paragraph 2(l) above shall have been paid prior
to (or will be paid concurrently with) the making of the first Loan
hereunder.
4(b) Ongoing Loans. As conditions precedent to the Lender's
obligation to make any Loan hereunder, including the first Loan, at and as of
the date of advance thereof;
(1) There shall have been delivered to the Lender a
Loan Request therefor;
(2) The representations and warranties of the Company
contained in the Credit Documents shall be accurate and complete in all
material respects as if made on and as of the date of such advance,
conversion or continuance (unless such representation specifically
relates to an earlier date, in which case such representation shall
have been true and correct as of such earlier date);
(3) There shall not have occurred an Event of Default
or Potential Default;
(4) Following the funding of the requested Loan, the
aggregate principal amount of Loans outstanding will not exceed the
lesser of: (i) the Credit Limit and (ii) the Collateral Value of the
Borrowing Base;
(5) There shall not have occurred any material
adverse change in the financial condition, assets, nature of assets,
operations or prospects of the Company from that represented in this
Agreement, the other Credit Documents, or the documents or information
furnished to the Lender in connection herewith or therewith; and
(6) The Required Documents for the Mortgage Loan(s)
contained in the Borrowing Base shall have been received by the Lender
(except as otherwise provided in subparagraph (o) of the definition of
"Eligible Mortgage Loan").
By making a Loan Request to the Lender hereunder, the Company shall be deemed to
have represented and warranted the accuracy and completeness of the statements
set forth in subparagraphs (b)(2) through (b)(6) above.
5. Representations and Warranties of the Company.
The Company represents and warrants to the Lender that:
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5(a) Financial Condition. The financial statements dated the
Statement Date, copies of which have been furnished to the Lender, are complete
and correct to the best knowledge of the Company and have, to the best knowledge
of the Company, been prepared to present fairly and consistently, in accordance
with GAAP, the financial condition of the Guarantor and its consolidated
Subsidiaries (including without limitation the Company) at such date and the
results of its operations and cash flows for the fiscal period then ended.
5(b) No Change. As of the date hereof, to the best knowledge
of the Company, there has been no material adverse change in the business,
operations, assets or financial or other condition of the Company or the
Guarantor from that shown on the financial statements dated as of the Statement
Date referred to in Paragraph 5(a) above.
5(c) Corporate Existence; Compliance with Law. The Company:
(1) is duly organized, validly existing and in good standing as a corporation
under the laws of the State of California and is qualified to do business in
Florida and in each other jurisdiction where its ownership of property or
conduct of business requires such qualification and where failure to qualify
could have a material adverse effect on the Company or its property or business
or on the ability of the Company to pay or perform the Obligations, (2) has the
corporate power and authority and the legal right to own and operate its
property and to conduct business in the manner in which it does and proposes so
to do, and (3) is in compliance with all Requirements of Law and Contractual
Obligation, the failure to comply with which could have a material adverse
effect on the business, operations, assets or financial or other condition of
the Company or on the Collateral or the Collateral Value of the Borrowing Base.
5(d) Corporate Power; Authorization; Enforceable Obligations.
The Company has the corporate power and authority and the legal right to
execute, deliver and perform the Credit Documents and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents. The Credit Documents have been duly executed and delivered on
behalf of the Company and constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and the effect of equitable
principles whether applied in an action at law or a suit in equity.
5(e) No Legal Bar. The execution, delivery and performance of
the Credit Documents, the borrowing hereunder and the use of the proceeds
thereof, will not violate any Requirements of Law or any Contractual Obligations
of the Company the violation of which could have a material adverse effect on
the business, operations, assets or financial or other condition of the Company
or on the Collateral or the Collateral Value of the Borrowing Base or create or
result in the creation of any Lien (except the Lien created by the Security
Agreement) on any assets of the Company.
5(f) No Material Litigation. Except as disclosed on Exhibit E
hereto, no litigation, investigation or proceeding of or before any court,
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or against any of its properties
or revenues which is likely to be adversely determined
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and which, if adversely determined, is likely to have a material adverse effect
on the business, operations, property or financial or other condition of the
Company or on the Collateral or the Collateral Value of the Borrowing Base.
5(g) Taxes. All tax returns that are required to be filed by
or on behalf of the Company have been filed and all taxes shown to be due and
payable on said returns or on any assessments made against the Company or any of
its property have been paid (other than taxes which are being contested in good
faith by appropriate proceedings and as to which the Company has established
adequate reserves in conformity with GAAP).
5(h) Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
5(i) Federal Reserve Board Regulations. The Company is not
engaged and will not engage, principally or as one of its important activities,
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of such terms under
Regulation U. No part of the proceeds of any Loan issued hereunder will be used,
directly or indirectly, for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
5(j) ERISA. The Company and each of its ERISA Affiliates are
in compliance in all material respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company or any of
its ERISA Affiliates which is likely to result in the termination of such Plan
for purposes of Title IV of ERISA.
5(k) Assets. The Company has good and marketable title to all
property and assets reflected in the financial statements referred to in
Paragraph 5(a) above (as such financial statements may be supplanted by those
financial statements delivered from time to time pursuant to Paragraph 6(a)),
except property and assets sold or otherwise disposed of in the ordinary course
of business subsequent to the respective dates thereof. The Company has no
outstanding Liens on any of its properties or assets and there are no security
agreements to which the Company is a party, nor any title retention agreements,
whether in the form of leases or otherwise, of any personal property except as
permitted under Paragraph 7(a) below.
5(l) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of
Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and is
not violating any rule, regulation or requirement under the Securities Act of
1933, as amended, or the Securities and Exchange Act of 1934, as amended. The
Company is not required to qualify an indenture under the Trust Indenture Act of
1939, as amended, in connection with its execution and delivery of the Note.
5(m) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with, any Governmental Authority is required
on the part of the Company in connection with the execution and delivery of the
Credit Documents (other than filings to create,
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perfect or continue the perfection of the security interests granted by it and
routine corporate filings to maintain good standing) or the performance of or
compliance with the terms, provisions and conditions hereof or thereof.
5(n) Ownership and Subsidiaries. Schedule II attached hereto
and incorporated herein by reference lists all of the shareholders of the
Company as of the effective date of this Agreement. As of the effective date of
this Agreement, the Company has no Subsidiaries.
6. Affirmative Covenants. The Company hereby covenants and agrees with
the Lender that, as long as any Obligations remain unpaid or the Lender has any
obligation to make Loans hereunder, the Company shall:
6(a) Financial Statements. Furnish or cause to be
furnished to the Lender:
(1) Within one hundred twenty (120) days after the
last day of each fiscal year of the Guarantor, consolidated and
consolidating statements of income and cash flows for such year and
consolidated and consolidating balance sheets as of the end of such
year of the Guarantor and its consolidated Subsidiaries (including,
without limitation, the Company), presented fairly in accordance with
GAAP and accompanied by an unqualified report of a firm of independent
certified public accountants acceptable to the Lender and including
therewith a copy of any management letter from such certified public
accountants;
(2) Within forty-five (45) days after the last day of
each calendar month, consolidated and consolidating statements of
income for such month and consolidated and consolidating balance sheets
as of the end of such month of the Guarantor and its consolidated
Subsidiaries (including, without limitation, the Company), accompanied
in each case by a Covenant Compliance Certificate executed by the Chief
Executive Officer of the Guarantor, stating that such financial
statements are prepared fairly and consistently in accordance with GAAP
and demonstrating in detail satisfactory to the Lender compliance with
the financial covenants set forth in Paragraphs 7(i), 7(j) and 7(k)
below as of and at the end of such month.
6(b) Certificates; Reports; Other Information. Furnish or
cause to be furnished to the Lender:
(1) Promptly, such additional financial and other
information, including, without limitation, financial statements of the
Company or the Guarantor or any Approved Investor, and information
regarding the Collateral, as the Lender may from time to time
reasonably request;
(2) Promptly, copies of any and all forms, reports,
supplements or other documents of any kind, if any, filed by the
Company or the Guarantor with the Securities and Exchange Commission or
with any state securities commission.
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(3) Upon request by Lender, the Additional Required
Documents with respect to any Mortgage Loan.
(4) Upon request by Lender, copies of any Buy/Sell
Agreements to which the Company is a party.
(5) Within seven (7) Business Days following any
proposed material change, a copy of any proposed material change to any
of the High LTV Investor Guidelines (which change shall be subject to
Lender's approval in its sole discretion).
6(c) Payment of Indebtedness. Pay or otherwise satisfy at or
before maturity or before it becomes delinquent or accelerated, as the case may
be, all its Indebtedness (including taxes), except Indebtedness being contested
in good faith by appropriate proceedings and for which provision is made to the
satisfaction of the Lender for the payment thereof in the event the Company is
found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by the Company.
6(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges, licenses,
approvals, franchises, properties and assets necessary or desirable in the
normal conduct of its business, and comply with all Contractual Obligations and
Requirements of Law (including, without limitation, any Requirements of Law
under or in connection with ERISA), except where the failure to so comply is not
likely to have a material adverse effect on the business, operations, assets or
financial or other condition of the Company or on the Collateral or the
Collateral Value of the Borrowing Base.
6(e) Inspection of Property; Books and Records; Audits.
(1) Keep proper books of record and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and
(2) Permit: (i) representatives of the Lender to (A)
visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often
as may reasonably be desired by the Lender (but, prior to the
occurrence of an Event of Default, only upon not less than two Business
Days' prior notice), and (B) discuss the business, operations,
properties and financial and other condition of the Company with
officers and employees of the Company, and with its independent
certified public accountants, and (ii) representatives of the Lender to
conduct periodic operational audits of the Company's business and
operations.
6(f) Notices. Promptly give written notice to the Lender
of:
(1) The occurrence of any Potential Default or Event
of Default known to responsible management personnel of the Company and
the proposed method of cure thereof;
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(2) Any litigation or proceeding affecting the
Company, the Guarantor or the Collateral which could have a material
adverse effect on the Collateral, the Collateral Value of the Borrowing
Base or the business, operations, property, or financial or other
condition of the Company or the Guarantor;
(3) A material adverse change known to responsible
management personnel of the Company in the business, operations,
property or financial or other condition of the Company or the
Guarantor;
(4) Any changes in the following senior management
positions of the Company: President, Chief Financial Officer or
Operations Manager;
(5) Any acquisition, purchase, redemption,
retirement, transfer or issuance of any shares of the Company's capital
stock (including without limitation any options or warrants relating
thereto); and
(6) Any prepayment of any Mortgage Loan included in
the Collateral value of the Borrowing Base in an amount greater than
ten percent (10%) of the original principal balance of said Mortgage
Loan (either by itself or in aggregate with other previous prepayments
of said Mortgage Loan).
6(g) Expenses. Pay all reasonable out-of-pocket costs
and expenses (including fees and disbursements of legal counsel) of the Lender:
(1) incident to the preparation, negotiation and administration of the Credit
Documents, including with respect to or in connection with any waiver or
amendment thereof or thereto (provided that the Company's responsibility to pay
fees and disbursements of the Lender's counsel in connection with the initial
preparation, negotiation, and execution of the Credit Documents shall be limited
to $5000 in fees, plus reasonable expenses), (2) associated with any periodic
audits conducted pursuant to Paragraph 6(e)(2)(ii) above, and (3) incident to
the enforcement of payment of the Obligations, whether by judicial proceedings
or otherwise, including, without limitation, in connection with bankruptcy,
insolvency, liquidations, reorganization, moratorium or other similar
proceedings involving the Company or a "workout" of the Obligations. The
obligations of the Company under this Paragraph 6(g) shall be effective and
enforceable whether or not any Loan is advanced by the Lender hereunder and
shall survive payment of all other Obligations.
6(h) Credit Documents. Comply with and observe all
terms and conditions of the Credit Documents.
6(i) Insurance. Obtain and maintain insurance with responsible
companies in such amounts and against such risks as are usually carried by
corporations engaged in similar businesses similarly situated, including,
without limitation, surety bonds, and furnish the Lender on request full
information as to all such insurance.
6(j) Wet Funding Mortgage Loan Transmittal Form. Furnish or
cause to be furnished to the Lender, with each Eligible Mortgage Loan shipped or
delivered which is of the
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type described in the proviso contained in subsection (o) of the definition of
Eligible Mortgage Loan, a Wet Funding Mortgage Loan Transmittal Form
substantially in the form attached as Exhibit J hereto.
7. Negative Covenants. The Company hereby agrees that, as long as any
Obligations remain unpaid or the Lender has any obligation to make Loans
hereunder, the Company shall not at any time, directly or indirectly:
7(a) Liens. Create, incur, assume or suffer to exist, any Lien
upon the Collateral except as contemplated by the Security Agreement, or create,
incur, assume or suffer to exist any Lien upon any of its other property and
assets (including servicing rights) except:
(1) Liens for current taxes, assessments or other
governmental charges which are not delinquent or which remain payable
without penalty, or the validity of which are contested in good faith
by appropriate proceedings upon stay of execution of the enforcement
thereof, provided the Company shall have set aside on its books and
shall maintain adequate reserves for the payment of same in conformity
with GAAP;
(2) Liens, deposits or pledges made to secure
statutory obligations, surety or appeal bonds, or bonds for the release
of attachments or for stay of execution, or to secure the performance
of bids, tenders, contracts (other than for the payment of borrowed
money), leases or for purposes of like general nature in the ordinary
course of the Company's business;
(3) Purchase money security interests for property
(except Mortgage Loans) hereafter acquired, conditional sale
agreements, or other title retention agreements, with respect to
property hereafter acquired; provided, however, that no such security
interest or agreement shall affect any servicing rights or extend to
any property other than the property acquired; and
(4) Liens securing Permitted Secured Debt.
7(b) Indebtedness. Create, incur, assume or suffer to exist,
or otherwise become or be liable in respect of any Indebtedness except:
(1) The Obligations;
(2) Indebtedness reflected in the financial
statements referred to in Paragraph 5(a) above;
(3) Trade debt incurred in the ordinary course of
business, paid as the same may become due and payable according to the
terms thereof or which is being contested in good faith, provided
provision is made to the satisfaction of the Lender for the eventual
payment thereof in the event it is found that such contested trade debt
is payable by the Company;
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(4) Indebtedness secured by Liens permitted under
Paragraph 7(a) above; and
(5) Permitted Unsecured Debt.
7(c) Consolidation and Merger; Change of Business. (i)
Liquidate or dissolve, or (ii) enter into any consolidation, merger,
partnership, joint venture, syndicate or other combination, or (iii) make any
change in the nature of its business as a mortgage banker as presently conducted
(except, in the case of activities covered under (ii) or (iii) above, with the
prior consent of the Lender, which consent shall not be unreasonably withheld).
7(d) Acquisitions. Without the prior consent of the Lender
(which consent shall not be unreasonably withheld), purchase or acquire or incur
liability for the purchase or acquisition of any or all of the assets or
business of any Person, other than in the normal course of business as currently
conducted (it being expressly agreed and understood that the acquisition of
non-recourse servicing is a normal course of business activity and that the
acquisition of recourse servicing is not a normal course of business activity).
7(e) Transfer of Stock. Permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital stock
now or hereafter outstanding (or any warrants or options relating thereto) if as
a result thereof the Guarantor would be the owner of less than one hundred
percent (100%) of the shares of the capital stock outstanding at such time
(including without limitation any options or warrants relating thereto).
7(f) Subsidiaries. Organize any Subsidiary without prior
written notice to the Lender.
7(g) Investments; Advances; Guaranties. Without the prior
consent of the Lender (which consent shall not be unreasonably withheld), make
or commit to make any advance, loan or extension of credit (other than (i)
advances of salary or earned commissions to officers or employees of the
Company, (ii) Mortgage Loans made or purchased in the ordinary course of the
Company's business, and (iii) advances, loans or extensions of credit to
officers, directors, shareholders or employees) to, or make or commit to make
any capital contribution to, or purchase any stocks, bonds, notes, debentures or
other securities (other than Cash and Cash Equivalents) of, or make any other
investment (other than the maintenance of operating bank accounts in the
ordinary course of the Company's business) in, or guaranty the indebtedness or
other obligations of, any Person, which such advances, loans, extensions of
credit, capital contributions, purchases, investments, or guaranties exceed
$100,000 in the aggregate.
7(h) Sale of Assets. Sell, lease, assign, transfer or
otherwise dispose of any of its assets (other than obsolete or worn out
property), whether now owned or hereafter acquired, other than in the ordinary
course of business as currently conducted and at fair market value (it being
expressly agreed and understood that the sale or other disposition of
Mortgage-Backed Securities and Mortgage Loans with or without servicing released
and of mortgage servicing rights is in the ordinary course of business).
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<PAGE>
7(i) Leverage Ratio. Permit the ratio at any date of Total
Liabilities to Adjusted Tangible Net Worth to be more than (i) during the period
from March 31, 1998 through and including September 29, 1998, 40.0:1.0, and (ii)
at all times thereafter, 15.0:1.0.
7(j) Minimum Book Net Worth. Permit Book Net Worth to be less
than (i) during the period from March 31, 1998 through and including September
29, 1998, $500,000, and (ii) at all times thereafter, $1,000,000.
7(k) Current Ratio. Permit the ratio at any date of total
current assets of the Guarantor and its consolidated Subsidiaries (including
without limitation the Company) to total current liabilities of the Guarantor
and its consolidated Subsidiaries (including without limitation the Company),
each as determined in accordance with GAAP, to be less than (i) during the
period from March 31, 1998 through and including September 29, 1998, 0.70:1.0,
and (ii) at all times thereafter, 0.85:1.0.
7(l) Dividends. During any fiscal year, declare and pay any
dividends, or return any capital, to its shareholders or authorize or make any
other distribution, payment or delivery of property or cash to its shareholders
as such, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its capital stock
now or hereafter outstanding (or any option or warrants issued by it for or with
respect to its capital stock), or set aside any funds for any of the foregoing
purposes, in an aggregate amount in excess of fifty percent (50%) of the income
of the Company available to shareholders for such fiscal year as determined in
accordance with GAAP.
7(m) Change of Control. Permit to occur a material change in
the composition of the directors or the officers of the Company as constituted
on the date hereof unless such director or officer is replaced by a person or
persons reasonably acceptable to the Lender.
8. Events of Default. Upon the occurrence of any of the following
events (an "Event of Default"):
8(a)The Company shall fail to pay principal or interest on any
Loan or any fee payable pursuant to Paragraph 2(l) above, or any amount payable
pursuant to Paragraph 2(f) or 2(j) above, when due; or
8(b) Any representation or warranty made or deemed made by the
Company or the Guarantor in any Credit Document or in connection with any Credit
Document shall be inaccurate or incomplete in any respect on or as of the date
made or deemed made; or
8(c) The Company shall fail to maintain its corporate
existence or shall default in the observance or performance of any covenant or
agreement contained in Paragraph 7 above or in the Security Agreement; or
8(d) The Company shall fail to observe or perform any other
term or provision contained in the Credit Documents and such failure shall
continue for thirty (30) days; or
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8(e) The Company shall default in any payment of principal of
or interest on any Indebtedness in the aggregate principal amount of $100,000 or
more (and without regard for the dollar amount of the defaulted payment), or any
other event shall occur, the effect of which is to permit such Indebtedness to
be declared or otherwise to become due prior to its stated maturity; or
8(f) (1) The Company or the Guarantor shall commence any case,
proceeding or other action (i) relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to the Company or the Guarantor, or seeking to adjudicate the
Company or the Guarantor a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to the Company or the Guarantor or the debts of either
of them, or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for the Company or for all or any substantial part of the
Company's assets, or the Company or the Guarantor shall make a general
assignment for the benefit of its, his or their creditors; or (2) there shall be
commenced against the Company or the Guarantor any case, proceeding or other
action of a nature referred to in clause (1) above which (i) results in the
entry of an order for relief or any such adjudication or appointment, or (ii)
remains undismissed, undischarged or unbonded for a period of sixty (60) days;
or (3) there shall be commenced against the Company or the Guarantor any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or substantially all of the
assets of any of them which results in the entry of an order for any such relief
which shall not have been vacated, discharged, stayed, satisfied or bonded
pending appeal within sixty (60) days from the entry thereof; or (4) the Company
or the Guarantor shall take any action in furtherance of, or indicating its, his
or their consent to, approval of, or acquiescence in (other than in connection
with a final settlement), any of the acts set forth in clauses (1), (2) or (3)
above; or (5) the Company or the Guarantor shall generally not, or shall be
unable to, or shall admit in writing its, his or their inability to pay its, his
or their debts as they become due; or
8(g) (1) The Company or any of its ERISA Affiliates shall
engage in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (2) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan, (3) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or institution of proceedings is, in the reasonable
opinion of the Lender, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for ten days after commencement thereof,
as the case may be, (4) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be
incurred by the Company or any of its ERISA Affiliates or (6) any other event or
condition shall occur or exist; and in each case in clauses (1) through (6)
above, such event or condition, together with all other such events or
conditions, if any, is likely to subject the Company or any of its respective
ERISA Affiliates to any tax, penalty or other
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liabilities, which in the aggregate are material in relation to the business,
operations, property or financial or other condition of the Company or any of
its ERISA Affiliates; or
8(h) One or more judgments or decrees in an aggregate amount
in excess of $100,000 shall be entered against the Company after the date hereof
and all such judgments or decrees shall not have been vacated, discharged,
stayed, satisfied or bonded pending appeal within sixty (60) days from the entry
thereof; or
8(i) The Guarantor shall fail to observe or perform any term
or provision of the Guaranty or shall attempt to rescind or revoke the Guaranty,
with respect to future transactions or otherwise;
THEN:
(1) Automatically upon the occurrence of an
Event of Default under Paragraph 8(f) above; and
(2) In all other cases, at the option of the
Lender,
the Lender's obligation to make Loans hereunder shall terminate and the
principal balance of outstanding Loans and interest accrued but unpaid thereon
shall become immediately due and payable, without demand upon or presentment to
the Company, which are expressly waived by the Company.
Notwithstanding anything to the contrary contained in this
Paragraph 8, the parties hereto acknowledge that it is their intention that the
violation or breach of any covenants made in respect of any Mortgage Loan
regarding the qualification of such Mortgage Loan as an "Eligible Mortgage Loan"
under this Agreement shall not constitute an Event of Default provided that the
Company is in compliance with the provisions of Paragraph 2(f) hereof.
9. Miscellaneous Provisions.
9(a) Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of the
Lender. The Lender shall not assign its rights and obligations under this
Agreement to any other party not a party to this Agreement as of the date
hereof; provided, however, that the Lender may at any time pledge or assign all
or any portion of the Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank. Subject to the foregoing, all provisions
contained in this Agreement or any document or agreement referred to herein or
relating hereto shall inure to the benefit of the Lender, its successors and
assigns, and shall be binding upon the Company, its successors and assigns.
9(b) Amendment. Neither this Agreement nor any of the other
Credit Documents may be amended or terms or provisions hereof or thereof waived
unless such amendment or waiver is in writing and signed by the Lender and the
Company. It is expressly agreed and understood that the failure by the Lender to
elect to accelerate amounts outstanding
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<PAGE>
hereunder or to terminate the obligation of the Lender to make Loans hereunder
shall not constitute an amendment or waiver of any term or provision of this
Agreement.
9(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Lender under the Credit Documents are cumulative and in addition
to all rights, powers and remedies provided under any and all agreements among
the Company and the Lender relating hereto, at law, in equity or otherwise. Any
delay or failure by the Lender to exercise any right, power or remedy shall not
constitute a waiver thereof by the Lender, and no single or partial exercise by
the Lender of any right, power or remedy shall preclude other or further
exercise thereof or any exercise of any other rights, powers or remedies.
9(d) Entire Agreement. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
9(e) Survival. All representations, warranties, covenants and
agreements on the part of the Company and the Guarantor contained in the Credit
Documents shall survive the termination of this Agreement and shall be effective
until the Obligations are paid and performed in full or longer as expressly
provided herein.
9(f) Notices. All notices given by any party to the others
under the Credit Documents shall be in writing unless otherwise provided for
herein, delivered personally or by depositing the same in the United States
mail, registered, with postage prepaid, addressed to the party at the address
set forth on Schedule I attached hereto. Any party may change the address to
which notices are to be sent by notice of such change to each other party given
as provided herein. Such notices shall be effective on the date received or, if
mailed, on the third Business Day following the date mailed.
9(g) Governing Law/Waiver of Jury Trial. This Agreement shall
be governed by and construed in accordance with the laws of the State of North
Carolina. TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE CREDIT DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER ENTERING INTO THE CREDIT DOCUMENTS.
9(h) Sub-Participation by Lender. The Lender may at any time
sell to one or more financial institutions (each of such financial institutions
being herein called a "Participant") participating interests in any of the
Obligations held by the Lender and its commitments hereunder; provided, however,
that: (1) no participation contemplated by this Paragraph 9(h) shall relieve the
Lender from its obligations hereunder or under any other Credit Document; (2)
the Lender shall remain solely responsible for the performance of such
obligations; and (3) the Company shall continue to deal solely and directly with
the Lender in connection with the Lender's rights and obligations under the
Credit Documents.
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9(i) Counterparts. This Agreement and the other Credit
Documents may be executed in any number of counterparts, all of which together
shall constitute one agreement.
9(j) Exculpatory Provisions. Neither the Lender nor any of its
officers, directors, employees, agents, counsel, attorneys-in-fact or Affiliates
shall be liable to the Company for any action taken or omitted to be taken by it
or such Person under or in connection with the Credit Documents or with respect
to the Collateral (except for its or such Person's own gross negligence or
willful misconduct).
9(k) Indemnification. The Company agrees to indemnify, defend
and hold harmless the Lender from and against any and all claims, obligations,
penalties, actions, suits, judgments, costs, disbursements, losses, liabilities
and damages (including, without limitation, attorneys' fees) of any kind
whatsoever which may at any time be imposed on, assessed against or incurred by
the Lender in any way (1) relating to or arising out of the Credit Documents or
any documents contemplated by or referred to therein or the transactions
contemplated thereby or any action taken or omitted to be taken by the Lender in
connection with the foregoing; provided, the Company shall not be liable for any
portion of any such claims, obligations, etc., arising out of or resulting from
the gross negligence or willful misconduct of the Lender. The indemnification
obligations of the Company under this Paragraph 9(k) shall survive termination
of this Agreement and payment in full of the Obligations.
9(l) Binding Arbitration. Upon demand of any party hereto,
whether made before or after institution of any judicial proceeding, any
dispute, claim or controversy arising out of, connected with or relating to the
Note or any other Credit Document ("Disputes"), between or among parties to the
Note or any other Credit Document shall be resolved by binding arbitration as
provided herein. Institution of a judicial proceeding by a party does not waive
the right of that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaim, claims brought as class actions,
claims arising from Credit Documents executed in the future, or claims
concerning any aspect of the past, present or future relationships arising out
of or connected with the Credit Documents. Arbitration shall be conducted under
and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association and Title 9 of the
U.S. Code. All arbitration hearings shall be conducted in Charlotte, North
Carolina. The expedited procedures set forth in Rule 51, et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted. Notwithstanding the foregoing, this paragraph
shall not apply to any hedging arrangement that is a Credit Document.
9(m) Confidentiality. The Lender and its directors, officers,
employees and affiliates shall use good faith efforts not to make public
disclosure of any information related to the Company and designated by the
Company or its affiliates in writing as confidential, including financial terms
and financial and organizational information contained in the Credit
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Documents or in any other documents, statements, certificates, materials or
information furnished by the Company or its affiliates in connection with the
Credit Documents; provided, that the foregoing shall not be construed to, now or
in the future, apply to any information reflected in any recorded document,
information obtained from sources other than the Company or its affiliates or
otherwise in the public domain nor shall it be construed to prevent the Lender
from (i) making any disclosure of any information (A) if required to do so by
any applicable law or regulation or accepted banking practice, (B) to any
governmental agency or regulatory body having or claiming authority to regulate
or oversee any aspect of the Lender's business or any of its subsidiaries or
affiliates in connection with the exercise of such authority or claimed
authority, (C) pursuant to subpoena, (D) to the extent the Lender or its counsel
deems necessary or appropriate to do so to effect or preserve its security for
the transaction contemplated by the Credit Documents or to enforce any remedy
provided for in the Credit Documents otherwise available by law, (ii) making
such disclosures as the Lender reasonably deems necessary or appropriate to any
bank or financial institution, and/or counsel thereto, which bank or financial
institution has been approved by the Company as a prospective lender under the
transaction contemplated by the Credit Documents or to which the Lender in good
faith desires to sell an interest in the extensions of credit made thereunder,
or (iii) making, on a confidential basis, such disclosures as the Lender deems
necessary or appropriate to the Lender's legal counsel (in-house or outside) or
accountants (including outside auditors).
10. Definitions. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
"Additional Required Documents" shall mean for any Mortgage Loan those
items described on Exhibit F attached hereto.
"Adjusted Tangible Net Worth" shall mean, as to the Guarantor and its
consolidated Subsidiaries, at any date:
(a) Book Net Worth, minus
(b) The sum of (1) all assets which would be classified as
intangible assets under GAAP, including, without limitation, purchased and
capitalized value of servicing rights, goodwill (whether representing the excess
cost over book value of assets acquired or otherwise), patents, trademarks,
trade names, copyrights, franchises and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs and
research and product development costs) plus (2) all receivables from directors,
officers and shareholders of the Guarantor or any of its consolidated
Subsidiaries (including, without limitation, receivables arising from or related
to loans made by the Guarantor or any of its consolidated Subsidiaries to such
directors, officers or shareholders).
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such Person. "Control" as used herein means the power to direct the
management and policies of such Person.
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"Agreement" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"Applicable Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan, the rate per annum (rounded upward, if necessary, to the next higher 1/32
of one percent (.03125%)) calculated in accordance with the following formula:
ER + 1.125
-----
Applicable Eurodollar Rate = 1-ERP
where
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
"Applicable Interest Rate" shall mean, at any time, at the Company's
sole option, either (i) the Corporate Base Rate at such time plus one and
one-quarter percent (1.25%) per annum, or (ii) the Applicable Eurodollar Rate at
such time.
"Approved Investor" shall mean any Person pre-approved in writing
(which pre-approval may be limited in dollar amounts by type and otherwise) by
the Lender (including those shown on Schedule III) and which approval has not
been revoked by the Lender in its sole discretion (such revocation to be
effective on the tenth Business Day following notice thereof given to the
Company in writing).
"Book Net Worth" shall mean the excess of total assets of the Guarantor
and its consolidated Subsidiaries over Total Liabilities of the Guarantor and
its consolidated Subsidiaries, each determined in accordance with GAAP.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Lender or otherwise identified as Collateral under
the Security Agreement as collateral security for the Obligations.
"Borrowing Base Schedule" shall mean a schedule prepared by the Lender
and certified to by the Company in the form of that attached hereto as Exhibit
L.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in Florida or Charlotte, North Carolina are authorized or
obligated to close their regular banking business.
"Buy/Sell Agreement" shall mean a bona fide current and unexpired
agreement between the Company and an Approved Investor under which said Approved
Investor agrees, prior to the expiration thereof, to purchase certain types of
Mortgage Loans or related Mortgage-Backed Securities at a Take-Out Price, which
Buy/Sell Agreement shall be in form and content reasonably satisfactory to the
Lender.
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"Capitalized Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
the amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
"Cash and Cash Equivalents" as to any Person shall mean those liquid
assets, including without limitation securities and other investments, which are
classified as "cash and cash equivalents" on a balance sheet of such Person
under GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning given such term in the Security
Agreement.
"Collateral Value of the Borrowing Base" shall mean at any date the sum
of the Unit Collateral Values of all Eligible Mortgage Loans included in the
Borrowing Base at such date (including Eligible Mortgage Loans shipped into
pools supporting Warehouse Related MBSs pending sale of such Warehouse Related
MBSs and delivery of the sale proceeds thereof to the Settlement Account).
"Commonly Controlled Entity" of a Person shall mean a Person, whether
or not incorporated, which is under common control with such Person within the
meaning of Section 414(c) of the Internal Revenue Code.
"Company" shall have the meaning given such term in the introductory
paragraph hereof.
"Contact Office" shall mean the office of the Lender at One First Union
Center, 301 South College Street, Charlotte, North Carolina 28288.
"Contractual Obligation" as to any Person shall mean any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Corporate Base Rate" shall mean for any day a fluctuating interest
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System averaged by
Federal funds brokers for such day as reported by the Federal Reserve Bank of
New York, or if no longer so reported then as published in Statistical Release
H.15 of the Federal Reserve System, or if such rate is not so published for any
day, the average of the quotations for such day of such transactions received by
the Lender from three (3) Federal funds brokers of recognized standing selected
by the Lender.
"Corporate Base Rate Loans" shall mean Loans at such time as they are
bearing interest at an interest rate based on the Corporate Base Rate.
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"Covenant Compliance Certificate" shall mean a certificate in the form
of Exhibit G attached hereto.
"Credit Documents" shall mean this Agreement, the Security Agreement,
the Guaranty, the Note and each other document, instrument and agreement
executed by the Company or the Guarantor in connection herewith, as any of the
same may be amended, extended or replaced from time to time.
"Credit Limit" shall mean $20,000,000.00.
"Eligible High-LTV Mortgage Loan" shall have the meaning set forth in
subparagraph (m) of the definition of "Eligible Mortgage Loan."
"Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to
which each of the following statements shall be accurate and complete (and the
Company by confirming the inclusion of such Mortgage Loan in any computation of
the Collateral Value of the Borrowing Base shall be deemed to so represent and
warrant to the Lender at and as of the date of such computation):
(a) Said Mortgage Loan is a binding and valid obligation of
the Obligor thereon, in full force and effect and enforceable in accordance with
its terms.
(b) Said Mortgage Loan is genuine in all respects as appearing
on its face and as represented in the books and records of the Company and all
information set forth therein is true and correct.
(c) Said Mortgage Loan is free of any default of any party
thereto (including the Company), other than as expressly permitted pursuant to
subparagraph (d) below, counterclaims, offsets and defenses and from any
rescission, cancellation or avoidance, whether by operation of law or otherwise.
(d) No payment under said Mortgage Loan is more than thirty
(30) days past due the payment due date set forth in the underlying promissory
note and deed of trust (or mortgage).
(e) Said Mortgage Loan contains the entire agreement of the
parties thereto with respect to the subject matter thereof, has not been
modified or amended in any respect and is free of concessions or understandings
with the Obligor thereon of any kind not expressed in writing therein.
(f) Said Mortgage Loan is in all respects as required by and
in accordance with all applicable laws and regulations governing the same,
including, without limitation, the federal Consumer Credit Protection Act, the
federal Truth-in-Lending Act, and the federal Equal Credit Opportunity Act, and
the regulations promulgated thereunder and all applicable usury laws and
restrictions, and all notices, disclosures and other statements or information
required by
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<PAGE>
law or regulation to be given, and any other act required by law or regulation
to be performed, in connection with said Mortgage Loan have been given and
performed as required.
(g) All advance payments and other deposits on said Mortgage
Loan have been paid in cash, and no part of said sums has been loaned, directly
or indirectly, by the Company to the Obligor.
(h) At all times said Mortgage Loan will be free and clear of
all Liens, except in favor of the Lender.
(i) The Property covered by said Mortgage Loan is insured
against loss or damage by fire and all other hazards normally included within
standard extended coverage in accordance with the provisions of said Mortgage
Loan with the Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is free and
clear of all Liens except of the Company subject only to (1) the Lien of current
real property taxes and assessments not yet due and payable; (2) covenants,
conditions and restrictions, rights of way, easements and other matters of the
public record, as of the date of recording, as are acceptable to mortgage
lending institutions generally and specifically referred to in a lender's title
insurance policy delivered to the originator of the Mortgage Loan and (i)
referred to or otherwise considered in the appraisal made for the originator of
the Mortgage Loan or (ii) which do not materially adversely affect the appraised
value of the Property as set forth in such appraisal; (3) other matters to which
like properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Mortgage Loan or the
use, enjoyment, value or marketability of the related Property; (4) Liens
subordinate in priority to the Lien in favor of the Company; and (5) in the case
of a second mortgage loan, Liens of other mortgage lenders which may be prior to
the Lien in favor of the Company and shall be reflected on the lender's title
insurance policy delivered to the originator of the Mortgage Loan.
(k) If said Mortgage Loan has been withdrawn from the
possession of the Lender and:
(1) If said Mortgage Loan was withdrawn by the
Company for purposes of correcting clerical or other nonsubstantive
documentation problems pursuant to a trust receipt, as permitted under
Paragraph 6 of the Security Agreement, the Unit Collateral Value of
said Mortgage Loan when added to the Unit Collateral Values of other
Mortgage Loans included in the calculation of the Collateral Value of
the Borrowing Base, the promissory notes for which have been similarly
withdrawn by the Company does not exceed $250,000, and the promissory
note and other documents relating to said Mortgage Loan are returned to
the Lender within ten (10) calendar days from the date of withdrawal;
(2) If said Mortgage Loan was shipped by the Lender
directly to a permanent investor for purchase, the full purchase price
therefor has been received by the Lender (or said Mortgage Loan has
been returned to the Lender) within thirty (30) days from the date of
shipment by the Lender; and
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(3) If said Mortgage Loan was shipped by the Lender
directly to a custodian for purposes of formation of a pool supporting
a Mortgage-Backed Security, the Mortgage-Backed Security is issued,
sold and the purchase price therefor has been received by the Lender
(or said Mortgage Loan has been returned to the Lender) within thirty
(30) days from the date of shipment by the Lender.
(l) The original principal balance of said Mortgage Loan did
not exceed $350,000; provided, however, that the original principal balance or
original maximum principal amount, as applicable, of said Mortgage Loan may
exceed $350,000 so long as (i) such Mortgage Loan is covered by a loan-specific
Take-Out Commitment from an Approved Investor, (ii) the original principal
balance or original maximum principal amount, as applicable, of said Mortgage
Loan did not exceed $600,000, and (iii) the Unit Collateral Value of said
Mortgage Loan when added to the Unit Collateral Values of all other Mortgage
Loans included in the Borrowing Base with an original principal balance in
excess of $350,000 does not exceed ten percent (10%) of the Credit Limit.
(m) Said Mortgage Loan has an aggregate loan-to-value ratio of
equal to or less than one hundred percent (100%); provided, however, that a
Mortgage Loan which has an aggregate loan-to-value ratio of greater than one
hundred percent (100%) may be included in the Borrowing Base so long as (i) said
Mortgage Loan has an aggregate loan-to-value ratio of equal to or less than one
hundred twenty-five percent (125%); (ii) said Mortgage Loan strictly complies to
the High-LTV Investor Guidelines; (iii) said Mortgage Loan possesses, in the
sole judgment of the Lender, the standard underwriting characteristics of the
standard secondary market for "high-LTV" Mortgage Loans; and (iv) the Unit
Collateral Value of said Mortgage Loan when added to the Unit Collateral Values
of all other Mortgage Loans included in the Borrowing Base of the type described
in this proviso does not exceed $1,000,000 (Eligible Mortgage Loans meeting all
of the requirements of this proviso shall be referred to in this Agreement as
"Eligible High-LTV Mortgage Loans").
(n) The improvements on the Property consist of a completed
one-to-four unit single family residence, including but not limited to a
condominium, planned unit development or townhouse but excluding in any event a
co-op.
(o) There has been delivered to the Lender the Required
Documents for said Mortgage Loan; provided, however, that the Required Documents
for said Mortgage Loan may be delivered to the Lender within seven (7) Business
Days of the inclusion of said Mortgage Loan in the Borrowing Base so long as the
Unit Collateral Value of said Mortgage Loan for which the Required Documents are
delivered within seven (7) Business Days after its inclusion in the Borrowing
Base, when added to the Unit Collateral Value of all other such Mortgage Loans
for which the Required Documents are delivered within seven (7) Business Days
after such Mortgage Loans are included in the Borrowing Base, does not exceed
twenty-five percent (25%) of the Credit Limit.
(p) Said Mortgage Loan is not subject to any servicing
arrangement with any Person other than the Company nor are any servicing rights
relating to said Mortgage Loan
26
<PAGE>
subject to any Lien, claim, interest or negative pledge in favor of any Person
other than as permitted hereunder.
(q) More than one hundred twenty (120) days have not elapsed
since said Mortgage Loan was included in the Borrowing Base (provided, however,
that with respect to an Eligible High-LTV Mortgage Loan, more than forty-five
(45) days shall not have elapsed since said Mortgage Loan was included in the
Borrowing Base).
(r) INTENTIONALLY OMITTED.
(s) The Company obtained an appraisal in connection with the
origination of said Mortgage Loan that would satisfy all appraisal requirements
for said Mortgage Loan if such appraisal had been originated by a federally
insured depositary institution.
(t) INTENTIONALLY OMITTED.
(u) INTENTIONALLY OMITTED.
(v) Said Mortgage Loan is secured by a first or second
priority mortgage or deed of trust on the Property covered thereby.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be supplemented or amended.
"ERISA Affiliate" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) that is a member of the group of which
such Person is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder in effect from time to time.
"Eurodollar Business Day" shall mean a Business Day upon which
commercial banks in London, England are open for domestic and international
business.
"Eurodollar Loans" shall mean Loans hereunder at such time as they are
bearing interest at the Applicable Eurodollar Rate.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the
arithmetic average of the rates at which deposits in immediately available U.S.
dollars in an amount equal to the aggregate amount of Eurodollar Loans proposed
to be subject to such rates having a maturity approximately equal to one month
are offered to or by reference banks in the London interbank market, as
determined by the Lender in accordance with its standard practices and
calculated by Lender on each Eurodollar Business Day during the term of this
Agreement, it being understood that the Eurodollar Rate may change from week to
week based on the Lender's weekly determination of the Eurodollar Rate as
provided above, said changes to be effective as of the date of determination of
the Eurodollar Rate by Lender.
27
<PAGE>
"Eurodollar Reserve Percentage" shall mean for any day, that percentage
expressed as a decimal, which is in effect on such day, as specified by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum aggregate reserve requirement (including all basis,
supplemental, marginal and other reserves) which is imposed on eurocurrency
liabilities.
"Event of Default" shall have the meaning set forth in Paragraph 8
above.
"Fair Market Value" shall mean, with respect to any Mortgage Loan, the
market bid price obtainable for such Mortgage Loan, as determined on a
reasonable basis by the Lender (based upon whole loan prices currently available
to the Company) at such time as it shall elect, including without limitation
after receipt of a notice from the Company pursuant to Paragraph 6(f)(6) above.
"Funding Account" shall mean Account No. ________________ maintained
in the Company's name alone with the Lender at the Contact Office.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or governments any state
or other political subdivision thereof, or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" shall have the meaning given such term in Paragraph 3(b)
above, as such instrument may be amended, extended or replaced from time to
time.
"Guarantor" shall mean Westmark Group Holdings, Inc., a Delaware
corporation.
"High-LTV Investor Guidelines" shall mean, collectively, those
guidelines promulgated by Approved Investors with respect to "high-LTV" Mortgage
Loans attached as Exhibit K hereto, as any of such guidelines may be amended
from time to time with the prior written consent of the Lender, which consent
shall not be unreasonably withheld.
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP, would be included in determining liabilities as
shown on the liability side of a statement of condition of such Person as of the
date as of which indebtedness is to be determined, including; without
limitation, all obligations for money borrowed and Capitalized Lease
Obligations, all amounts for which such Person may be obligated under gestation
or other repurchase facilities, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of any
agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Lender" shall have the meaning given such term in the introductory
paragraph hereof.
28
<PAGE>
"Lien" shall mean any security interest, mortgage, pledge, lien, claim
on property, charge or encumbrance (including any conditional sale or other
title retention agreement), any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction (other than a true lease notice filing).
"Loan" shall have the meaning given such term in Paragraph 1(a)(1)
above.
"Loan Request" shall mean a request for a Loan conveyed to the Lender
from a duly authorized officer of the Company, with such request to be confirmed
in writing upon the request of the Lender.
"Maturity Date" shall mean the earlier of: (a) ____________, 1999 [364
DAYS FROM CLOSING] as such date may be extended annually until __________ 2001
from time to time in writing by the Lender, in its sole discretion (provided,
however, that such date shall not be extended for another one-year term in
__________ 1999 unless either (i) the price per share of the Company's common
stock as of December 31, 1998 is equal to or greater than $2.75, or (ii) the
Company's pre-tax net income (as determined in accordance with GAAP) as of
December 31, 1998 is equal to or greater than $2,000,000), and (b) the date the
Lender terminates its obligation to make further Loans hereunder pursuant to
Paragraph 8 above.
"Mortgage-Backed Security" shall mean (a) any security (including,
without limitation, a participation certificate) that represents an interest in
a pool of mortgages, deeds of trusts or other instruments creating a Lien on
Property which is improved by a completed one-to-four unit single family
residence, including but not limited to a condominium, planned unit development
or townhouse.
"Mortgage Loan" shall mean a residential real estate secured loan,
including, without limitation: (a) a promissory note, any reformation thereof
and related deed of trust (or mortgage) and security agreement; (b) all
guaranties and insurance policies, including, without limitation, all mortgage
and title insurance policies and all fire and extended coverage insurance
policies and rights of the Company to return premiums or payments with respect
thereto; and (c) all right, title and interest of the Company in the Property
covered by said deed of trust (or mortgage).
"Multiemployer Plan" shall mean, as to the Company or any of its ERISA
Affiliates, a Plan of such Person which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Note" shall mean have the meaning given such term in Paragraph 2(c)
hereof.
"Obligations" shall mean any and all debts, obligations and liabilities
of the Company to the Lender (whether now existing or hereafter arising,
voluntary or involuntary, whether or not jointly owed with others, direct or
indirect, absolute or contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred), arising out of or related to the Credit Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
Indebtedness which is the subject of a Mortgage Loan.
29
<PAGE>
"Participant" shall have the meaning given such term in Paragraph 9(h)
above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Permitted Secured Debt" shall mean that Indebtedness which is the
subject of a Lien and described as "Permitted Secured Debt" on Exhibit H
attached hereto.
"Permitted Unsecured Debt" shall mean that Indebtedness described as
"Permitted Unsecured Debt" on Exhibit H attached hereto.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnership, limited liability company, trust, unincorporated
organization or Governmental Authority.
"Plan" shall mean, with respect to the Company or any of its ERISA
Affiliates, any pension plan that is covered by Title IV of ERISA and in respect
of which such Person or a Commonly Controlled Entity of such Person is an
"employer" as defined in Section 3(5) of ERISA.
"Potential Default" shall mean an event which but for the lapse of time
or the giving of notice, or both, would constitute an Event of Default.
"Prime Rate" shall mean a rate per annum equal to the rate announced
from time to time by the Lender to be its "Prime Rate" as such "Prime Rate" may
change from time to time, said changes to occur on the first date the "Prime
Rate" changes; it being understood that the "Prime Rate" is the rate announced
by the Lender from time to time as its "Prime Rate" and is not necessarily the
lowest interest rate charged by the Lender to its customers.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) which are
encumbered pursuant to a Mortgage Loan.
"Reportable Event" shall mean a reportable event as defined in Title IV
of ERISA, except actions of general applicability by the Secretary of Labor
under Section 110 of ERISA.
"Required Documents" shall mean for any Mortgage Loan those items
described on Exhibit I attached hereto.
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and Bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a
30
<PAGE>
determination of a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Security Agreement" shall have the meaning given such term in
Paragraph 3(a) above, as the same may be amended, extended or replaced from time
to time.
"Settlement Account" shall mean Account No. _________________
maintained in the name of the Lender at the Contact Office.
"Single Employer Plan" shall mean, as to the Company or any of its
ERISA Affiliates, any Plan of such Person which is not a Multiemployer Plan.
"Statement Date" shall mean ____________________, 19__ [DATE OF LAST
AUDITED FINANCIALS OF GUARANTOR].
"Subsidiary" shall mean any corporation, partnership or joint venture
more than fifty percent (50%) of the stock or other ownership interest of which
having by the terms thereof ordinary voting power to elect the board of
directors, managers or trustees of such corporation, partnership or joint
venture (irrespective of whether or not at the time stock of any other class or
classes of such corporation, partnership or joint venture shall have or might
have voting power by reason of the happening of any contingency) shall, at the
time as of which any determination is being made, be owned, either directly or
through Subsidiaries.
"Take-Out Commitment" with respect to any Mortgage Loan shall mean a
bona fide current, unused and unexpired whole loan commitment or forward sale
Mortgage-Backed Security commitment issued in favor of and held by the Company
made by an Approved Investor, under which said Approved Investor agrees, prior
to the expiration thereof, upon the satisfaction of certain terms and conditions
therein, to purchase such Mortgage Loan or related Mortgage-Backed Security at a
Take-Out Price, which commitment is not subject to any term or condition which
is not customary in commitments of like nature or which, in the reasonably
anticipated course of events, cannot be fully complied with prior to the
expiration thereof.
"Take-Out Price" with respect to any Mortgage Loan shall mean the
specified price to be paid for such Mortgage Loan under the applicable Take-Out
Commitment or Buy/Sell Agreement covering said Mortgage Loan, as such price may
be set forth in such Take-Out Commitment or calculated according to the formula
set forth in such Buy/Sell Agreement.
"Total Liabilities" shall mean total liabilities of the Guarantor and
its consolidated Subsidiaries reflected on its balance sheet in accordance with
GAAP.
"Unit Collateral Value" shall mean:
(i) with respect to each Eligible Mortgage Loan (other than an
Eligible High-LTV Mortgage Loan) included in the Borrowing Base, one
hundred percent (100%) of the lesser of: (A) the original principal
balance thereof, and (B) the Fair Market Value thereof.
31
<PAGE>
(ii) with respect to each Eligible High-LTV Mortgage Loan
included in the Borrowing Base, ninety-eight percent (98%) of the
original principal balance thereof.
"Warehouse Related MBS" shall have the meaning given such term in the
Security Agreement.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
WESTMARK MORTGAGE CORPORATION,
[CORPORATE SEAL] a California corporation
ATTEST:
By________________________ By_________________________________
Name______________________ Name_______________________________
Title_____________________ Title______________________________
FIRST UNION NATIONAL BANK, a national
banking association
By_________________________________
Name_______________________________
Title______________________________
WESTMARK GROUP HOLDINGS, INC., a
[CORPORATE SEAL] Delaware corporation, as Guarantor
ATTEST:
By________________________ By_________________________________
Name______________________ Name_______________________________
Title_____________________ Title______________________________
33
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
<TABLE>
<CAPTION>
<S> <C>
Schedule I Schedule of Addresses
Schedule II Shareholders of Company
Schedule III Approved Investors
Exhibit A Form of Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Company and the Guarantor
Exhibit E Litigation Schedule
Exhibit F Schedule of Additional Required Documents
Exhibit G Form of Covenant Compliance Certificate
Exhibit H Schedule of Permitted Other Debt (Including Permitted Secured Debt)
Exhibit I Schedule of Required Documents
Exhibit J Form of Wet Funding Mortgage Loan Transmittal Form
Exhibit K High-LTV Investor Guidelines
Exhibit L Borrowing Base Schedule
</TABLE>
<PAGE>
SCHEDULE I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _________________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Schedule of Addresses
---------------------
BORROWER:
Westmark Mortgage Corporation
355 N.E. 5th Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Mr. Payton Story, President
Facsimile: (561) 279-1821
BANK:
First Union National Bank
One First Union Center, TW-06
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. Evan Peverley
Facsimile: (704) 383-8121
GUARANTOR:
Westmark Group Holdings, Inc.
355 N.E. 5th Avenue, Suite
Delray Beach, Florida 33483
Attention: Mr. Mark Schaftlein, CEO
Facsimile: (561) 279-1801
<PAGE>
SCHEDULE II
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ________________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Shareholders of Company
-----------------------
COMMON VOTING STOCK
Shareholder Number of Shares
- ----------- ----------------
Westmark Group Holdings, Inc. 727
TOTAL NUMBER OF SHARES 727
PREFERRED STOCK
Shareholder Number of Shares
- ----------- ----------------
N/A None
TOTAL NUMBER OF SHARES None
<PAGE>
SCHEDULE III
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Approved Investors
------------------
GE Capital Mortgage Services
GreenTree Mortgage Services
Household Bank, F.S.B.
Master Financial, Inc.
MCA Mortgage Corporation
The Money Store
<PAGE>
EXHIBIT A
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Promissory Note
-----------------------
<PAGE>
EXHIBIT B
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Security Agreement
--------------------------
<PAGE>
EXHIBIT C
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ________________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Guaranty
----------------
<PAGE>
EXHIBIT D
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Legal Opinion of Counsel
for Company and Guarantor
-------------------------
<PAGE>
EXHIBIT E
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Litigation Schedule
-------------------
[Company to provide]
<PAGE>
EXHIBIT F
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Schedule of Additional Required Documents
-----------------------------------------
1. The original executed mortgage or deed of trust relating to the
Mortgage Loan;
2. A casualty insurance policy on the property subject to the Mortgage
Loan covering fire, hazard and extended coverage, and if applicable, flood and
earthquake insurance, all in amounts not less than the principal amount of the
promissory note relating to the Mortgage Loan (or the maximum amount issuable
for flood insurance) which insurance has been endorsed to provide for payment
thereof to the Company, as mortgagee, together with written notice to the
mortgagor of the fact, if true, that mortgagor's property lies within a flood
zone;
3. Disclosure statements complying with Regulation Z ("Truth in
Lending") of the Board of Governors of the Federal Reserve System;
4. Equal Credit Opportunity Act notice and additional disclosure;
5. An appraisal of the Property covered by the Mortgage Loan by an
appraiser acceptable to the Lender in its sole and absolute discretion, which
appraisal shall be in form and content satisfactory to the Lender;
6. Written statement signed by the attorney, title company or closing
agent responsible for supervising the closing of the Mortgage Loan that such
person or entity closed the Mortgage Loan in accordance with any closing
instructions received by such person or entity;
7. Evidence of hazard insurance in the form of a copy of the hazard
insurance policy or hazard insurance certificate indicating coverage greater
than or equal to the face amount of the Mortgage Loan;
8. An original mortgagee title insurance policy (or "marked-up" interim
title insurance binder with policy to follow not later than ninety (90) days
after the date of the Mortgage Loan) issued by a nationally recognized title
insurance company acceptable to the Lender, together with any attachments and
customary endorsements thereto, which insures that the mortgage or deed of trust
securing the promissory note relating to the Mortgage Loan is a valid and
enforceable first or second lien on the Property covered by the mortgage Loan
with no prior liens or encumbrances other than as permitted hereunder;
9. If a Take-Out Commitment does not exist, a true copy of the
applicable original Buy/Sell Agreement between the Company and an Approved
Investor pursuant to which such
<PAGE>
Mortgage Loan will be purchased, which is executed by the Company and the
Approved Investor and which is in full force and effect; and
10. Such other documents as the Lender may reasonably request from time
to time, including without limitation credit information relating to the Obligor
on such Mortgage Loan.
<PAGE>
EXHIBIT G
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Covenant Compliance Certificate
---------------------------------------
TO: First Union National Bank
This is the Covenant Compliance Certificate referred to in Section
6(a)(2) of the Mortgage Loan Warehousing Agreement dated as of ____________,
1998, by and between the Company and the Lender (the "Agreement," with
capitalized terms not otherwise defined herein having the same meanings assigned
such terms in the Agreement). Attached hereto are the consolidated and
consolidating financial statements of the undersigned as of ______________ __,
19__ prepared by the undersigned. This Covenant Compliance Certificate and the
attached consolidated and consolidating financial statements are furnished for
the purpose of procuring credit, and shall be substituted for the Covenant
Compliance Certificate and attached financial statements last submitted to the
Lender by the Company pursuant to Section 6(a)(2) of the Agreement.
I hereby certify that (i) I have carefully read the attached financial
statements, (ii) the attached financial statements are complete, true and
correct statements to the best of my knowledge and belief, (iii) the attached
financial statements were prepared in conformity with GAAP, as applied on a
basis consistent with that of the preceding statements submitted to Lender as of
the end of the previous reporting period, and (iv) the attached financial
statements fairly present the financial position of the undersigned and its
consolidated Subsidiaries (including, without limitation, the Company) and the
results of its operations as of _________________, 19___ and for the period then
ended.
I also hereby certify that, as of the date hereof, (i) each and every
covenant of the Company contained in the Agreement has been performed and
observed (except for covenants made in connection with Mortgage Loans, it being
the intention of the parties to the Agreement that the violation or breach of
any such covenant in respect of any Mortgage Loan regarding the qualification of
such Mortgage Loan as an "Eligible Mortgage Loan" under the Agreement shall not
constitute an Event of Default, provided that the Company is and continues to be
in compliance with the provisions of Section 2(f) of the Agreement), and (ii) no
Event of Default or Potential Default has occurred under the Agreement.
Attached are calculations of the financial ratios set forth in Sections
7(i), 7(j) and 7(k) of the Agreement all as of the date hereof, which
calculations are hereby certified to be complete, true and correct calculations
of the financial ratios contained in such sections.
<PAGE>
Certified on behalf of the undersigned this ____ day of ______________,
19__.
WESTMARK GROUP HOLDINGS, INC.
By:_________________________________
Name:_______________________________
Title: Chief Executive Officer
<PAGE>
WESTMARK GROUP HOLDINGS, INC.
Covenant Compliance Calculations
Made as of ____________________, 19___
Section Covenant Required Actual
7.1(i) Maximum Leverage Ratio (i) 3/31/98 through
9/29/98: 40.0:1.0
(ii) thereafter:
15.0:1.0 ____: 1.0
7.1(j) Minimum Book Net Worth (i) 3/31/98 through
9/29/98: $500,000
(ii) thereafter:
$1,000,000 $_______
7.1(k) Minimum Current Ratio (i) 3/31/98 through
9/29/98: 0.70:1.0
(ii) thereafter:
0.85:1.0 ____: 1.0
Calculations:
Leverage Ratio:
Total Liabilities/Divided/Adjusted Tangible Net Worth
Adjusted Tangible Net Worth:
Total assets - Total Liabilities - (intangible assets +
receivables from officers, directors and shareholders)
Book Net Worth:
Total assets - Total Liabilities
Current Ratio:
Total current assets/Divided/total current liabilities
<PAGE>
EXHIBIT H
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Schedule of Permitted Secured Debt and Permitted Unsecured Debt
---------------------------------------------------------------
Permitted Secured Debt:
Capitalized Lease Obligations.
Mortgage warehousing credit facilities extended to the Company from
time to time; provided, however, that the aggregate amount outstanding under
such facilities shall at no time exceed $2,000,000.
Permitted Unsecured Debt:
Those liabilities of the Company arising from settlements and judgments
shown in the columns "WMC Stl Bal" and "WMC Note Bal" on the schedule attached
to this Exhibit H and in existence on the date of this Agreement.
<PAGE>
EXHIBIT I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Schedule of Required Documents
------------------------------
1. An original written Loan Request, signed by an officer of the
Company who is authorized to make such request;
2. An original fully completed Delivery Certificate (as defined in the
Security Agreement);
3. The original executed promissory note relating to the Mortgage Loan
(properly endorsed or assigned to the Company if purchased by the Company),
which promissory note shall be duly endorsed in blank and assigned in blank
without recourse by the Company;
4. A copy of the original executed mortgage or deed of trust relating
to the Mortgage Loan, certified by the Company, or the title company or closing
attorney which closed the Mortgage Loan, to be a true copy of such original
mortgage or deed of trust;
5. An original executed and recordable but unrecorded assignment of the
mortgage or deed of trust relating to the Mortgage Loan (unless the Lender
determines that under applicable State law the assignment should be recorded in
order to adequately protect its interest, in which case the assignment shall be
recorded by the Company and a certified true copy thereof shall be provided to
the Lender), together with the original or a duly certified copy of a proper
assignment or assignments of the mortgage or deed of trust from the original
holder through any subsequent transferees to the Company, duly recorded if local
requirements in the jurisdiction in which the Property is located required the
recordation of such assignment or assignments;
6. If a Take-Out Commitment exists:
a. A true copy of the original Take-Out Commitment, certified by the
Company, which is in full force and effect, from an Approved Investor or, if a
copy of the Take-Out Commitment is not available, a certificate of the Company
that a verbal Take-Out Commitment exists, such certificate to include all
relevant details thereof; and
b. An original assignment of the Take-Out Commitment, substantially in
the form supplied by the Lender, executed by an authorized officer of the
Company;
7. A certified copy of the closing settlement statement (HUD-1); and
8. Satisfactory evidence of compliance with the requirements of such
other laws as may, from time to time, become applicable to the Mortgage Loan.
<PAGE>
EXHIBIT J
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _______________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Wet Funding Mortgage Loan Transmittal Form
--------------------------------------------------
MORTGAGE LOAN TRANSMITTAL FORM
WESTMARK MORTGAGE CORPORATION
Date Loan Requested under Credit Agreement:_____________________________________
Mortgage Loan Number:___________________________________________________________
Mortgagor's Name:_______________________________________________________________
Date of Mortgage Note:__________________________________________________________
Note Amount:___________ Note Interest Rate:_________________
Check number:__________ Mortgage Type:______________________
(if applicable)
Net Loan Value:________ Payment Type: FRM, ARM, OTHER
Advance %: Mortgage Term: 30, 15, 5, 10
_____________
Check Applicable Box:
This is the post-closing transmittal, therefore, the following
documents checked are enclosed pursuant to the Credit Agreement:
1. Original Mortgage Note Endorsed in Blank ________
2. Original Assignment of Mortgage in Recordable Form ________
3. Certified Copy of HUD-1 Settlement Statement ________
4. Certified Copy of Original Mortgage ________
Loan Request: $______________
Wire Advance proceeds to:_______________________________________________________
_____________________________________________________ Account No._______________
Bank Routing No._____________________________________ Contact Person:___________
Telephone No.____________________________
Investor Name:__________________________________________________________________
Investor Commitment Price:______________________________________________________
Commitment Number:______________________________________________________________
<PAGE>
Commitment Amount:______________________________________________________________
Expiration Date:________________________________________________________________
Borrower hereby pledges and affirms to the Bank pursuant to the terms of the
Agreement a first lien security interest in the loan(s) listed above, and in all
related documents and writings pertaining thereto, and all proceeds thereof
which security interest shall secure all past, present and future obligations of
Borrower to Bank under the Agreement. Borrower holds all documents relating to
such loan(s) in trust for the benefit of and subject to the security interest of
Bank.
_________________________________
(Authorized Signature)
Name:____________________________
Print
Title:___________________________
________________________________________________________________________________
BANK USE ONLY
__________ ___________
CH AA
__________ ___________
I PD
<PAGE>
EXHIBIT K
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
High-LTV Investor Guidelines
----------------------------
<PAGE>
EXHIBIT L
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1998
BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND
FIRST UNION NATIONAL BANK
Form of Borrowing Base Schedule
-------------------------------
This Borrowing Base Schedule is furnished pursuant to the Mortgage Loan
Warehousing Agreement dated as of _____________, 1998, as amended from time to
time, among the Company and the Lender (the "Agreement"). Unless otherwise
defined herein, the terms used in this Borrowing Base Schedule have the meanings
ascribed thereto in the Agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Aggregate Unit Collateral Values of
Eligible Mortgage Loans
in Borrowing Base as of previous
Borrowing Base Schedule delivered
by the Company $_____________
B. Aggregate Unit Collateral Values of
Eligible Mortgage Loans
submitted for inclusion in Borrowing
Base since previous Borrowing Base
Schedule delivered by the Company $____________
C. Sum of (A plus B) $____________
D. Aggregate Unit Collateral Values of
Eligible Mortgage Loans
previously released by the Lender for
which the full purchase price has been
received by the Lender since previous
Borrowing Base Schedule delivered by the
Company $____________
E. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans
withdrawn from the possession of the
Lender under a trust receipt and not
returned to the Lender exceeds $250,000 $____________
F. Aggregate Unit Collateral Values of Eligible
Mortgage Loans withdrawn from the
<PAGE>
possession of the Lender under a trust
receipt more than 10 days prior to the date
of this schedule and not returned to
the Lender $____________
G. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Lender and shipped
to an investor for purchase or to a
custodian for pool formation more than
30 days prior to the date of this schedule
and not returned to the Lender or for which
the full purchase price has not been
received by the Lender $____________
H. Aggregate Unit Collateral Values of
Eligible Mortgage Loans submitted
for inclusion in the Borrowing Base more
than 120 days in the case of Eligible
Mortgage Loans which are not Eligible
High-LTV Mortgage Loans (or more than
45 days in the case of Eligible High-LTV
Mortgage Loans) prior to the date of this
schedule $____________
I. Aggregate Unit Collateral Values of
Eligible Mortgage Loans which are
more than 30 days past due the payment
due date set forth therein $____________
J. Aggregate Unit Collateral Values of
Eligible Mortgage Loans the
Required Documents for which have not
been delivered to the Lender within
seven (7) Business Days after the
submission of such Eligible Mortgage
Loans for inclusion in the
Borrowing Base $____________
K. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans
for which the Required Documents are not
delivered upon, but within seven (7)
Business Days following, the submission
of such Eligible Mortgage Loans
for inclusion in the Borrowing Base
<PAGE>
exceeds twenty-five percent (25%) of
the Credit Limit $___________
L. Amount by which Aggregate Unit Collateral
Values of Eligible High-LTV Mortgage
Loans exceeds $1,000,000 $___________
M. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans with
original principal balances over $350,000
exceeds ten percent (10%) of the Credit Limit $___________
N. Sum of (D plus E plus F plus G plus H
plus I plus J plus K plus L plus M) $___________
O. Adjusted Collateral Value of the
Borrowing Base (C minus N) $___________
P. Aggregate principal amount of
Loans outstanding $___________
Q. Borrowing Base availability (O
minus P; must equal or exceed zero) $___________
</TABLE>
The undersigned hereby certifies that, as of the date hereof:
(1) I am the duly elected _______________ of the Company;
(2) The above schedule accurately states the Collateral Value of the
Borrowing Base and the aggregate principal amount of Loans outstanding;
(3) All Mortgage Loans included in the Borrowing Base as Eligible Mortgage
Loans comply in all respects with the requirements of the definition of
such term; and
(4) I have no knowledge of the existence of any condition or event
which constitutes an Event of Default under the Agreement.
<PAGE>
Certified on behalf of the undersigned this _____ day of _________, 19___.
WESTMARK MORTGAGE CORPORATION
By:_________________________________
Name:____________________________
Title:___________________________
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated as
of the ____ day of ____________, 1998, by WESTMARK MORTGAGE CORPORATION, a
California corporation (the "Company"), in favor of FIRST UNION NATIONAL BANK, a
national banking association (the "Lender").
RECITALS
--------
A. Pursuant to that certain Mortgage Loan Warehousing Agreement of even
date herewith by and between the Company and the Lender (as same may be amended,
extended or replaced from time to time, the "Warehousing Agreement," and with
capitalized terms not otherwise defined herein used with the same meanings as in
the Warehousing Agreement), the Lender has extended credit to the Company.
B. As a condition precedent to the effectiveness of the Warehousing
Agreement, the Company is required to execute and deliver to the Lender this
Security Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
---------
1. Delivery of Collateral. The Company shall deliver the Collateral or
cause the Collateral to be delivered to the Lender. Delivery of Collateral
consisting of Mortgage Loans and Mortgage-Backed Securities shall be effected by
delivery of the Required Documents therefor. The Lender's responsibility to
review such Collateral is limited to the review steps described on Exhibit 1
hereto, said review of Collateral delivered on any Business Day to be completed
before the opening of business of the Lender on the next succeeding Business
Day. All Mortgage Loans and Mortgage-Backed Securities at any time delivered to
the Lender hereunder shall be held by the Lender in a fire resistant vault,
drawer or other suitable depositary maintained and controlled solely by the
Lender, conspicuously marked to show the interests of the Lender therein and not
commingled with any other assets or property of, or held by, the Lender. The
Lender is not, and shall not at any time in the future be, subject, with respect
to the Collateral, in any manner or to any extent, to the direction or control
of the Company except as expressly permitted hereunder or under the other Credit
Documents. Under no circumstances will the Lender deliver possession of the
Collateral to the Company except in accordance with the express terms of this
Security Agreement.
2. Grant of Security Interest. The Company hereby pledges, assigns and
grants to the Lender, a first perfected security interest in the property
described in Paragraph 3 below (collectively and severally, the "Collateral"),
to secure payment and performance of the Obligations.
<PAGE>
3. Collateral. The Collateral shall consist of all now existing and
hereafter arising right, title and interest of the Company in, under and to each
of the following:
(a) All Mortgage Loans now owned or hereafter acquired or
originated by the Company and submitted to or held by or on behalf of the
Lender, including, without limitation, the promissory notes or other instruments
or agreements evidencing the indebtedness of Obligors thereon, all mortgages,
deeds to secure debt, trust deeds and security agreements related thereto, all
rights to payment thereunder, all rights in the Properties securing payment of
the indebtedness of the Obligors thereon, all rights under documents related
thereto, such as guaranties and insurance policies (issued by governmental
agencies or otherwise), including, without limitation, mortgage and title
insurance policies, fire and extended coverage insurance policies (including the
right to any return premiums), and all rights in cash deposits consisting of
impounds, insurance premiums or other funds held on account thereof;
(b) All Mortgage-Backed Securities, including, without
limitation, all Warehouse-Related MBSs, now owned or hereafter acquired by the
Company and submitted to or held by or on behalf of the Lender, all right to the
payment of monies and non-cash distributions on account thereof and all new,
substituted and additional securities at any time issued with respect thereto;
(c) All rights of the Company (but not its obligations) under
all Take-Out Commitments and Buy/Sell Agreements, now existing or hereafter
arising, covering any part of the foregoing Collateral, all rights to deliver
Mortgage Loans and Mortgage-Backed Securities to permanent investors and other
purchasers pursuant thereto and all proceeds resulting from the disposition of
such Collateral pursuant thereto;
(d) All now existing and hereafter arising rights to service,
administer and collect Mortgage Loans and Mortgage-Backed Securities submitted
to and held by or on behalf of the Lender (it being acknowledged and agreed that
prior to the occurrence of an Event of Default and acceleration of the
Obligations, the security interest in such servicing rights granted hereunder
shall be automatically terminated without need for further action upon the sale,
transfer or other disposition of the related Mortgage Loan or Mortgage-Backed
Security in accordance with the provisions of the Credit Documents), and all
rights to the payment of money on account of such servicing, administration and
collection activities;
(e) All now existing and hereafter arising accounts, contract
rights and general intangibles constituting or relating to any of the foregoing
Collateral;
(f) All now existing and hereafter acquired files, documents,
instruments, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records and other books, records,
information and data of the Company relating to the foregoing Collateral
(including all information, records, data, programs, tapes, discs, and cards
necessary or helpful in the administration or servicing of the foregoing
Collateral);
2
<PAGE>
(g) The Funding Account, the Settlement Account and each
Custodian Settlement Account (as defined below) and any and all funds at any
time held in any such accounts; and
(h) All products and Proceeds of the foregoing Collateral.
4. Lender's Review of Collateral. Each delivery of Mortgage Loans and
Mortgage-Backed Securities to the Lender shall be accompanied by a certificate
in form acceptable to the Lender (the "Delivery Certificate"). Upon any receipt
of Required Documents for any Mortgage Loan, the Lender shall review the same
and verify that:
(a) All Required Documents relating to such item of Collateral
appear regular on their face and are in the Lender's possession; and
(b) The statements set forth on Exhibit 1 hereto are accurate
and complete in all respects.
If the Lender notes any exception in the review described in subparagraph (a) or
(b) above or questions, in its reasonable discretion, the genuineness,
regularity, propriety, or accuracy of any item of Collateral, the Lender shall
notify the Company of such exception or noncompliance, and the Lender may
exclude the Mortgage Loan from the Borrowing Base. In the event that the Company
had been requested to deliver the Additional Required Documents with respect to
any Mortgage Loan, the Lender shall review and verify such Additional Required
Documents consistent with the obligations of the Lender above.
4A. Collateral Value Determination.
(a) No later than 2:00 p.m. (Charlotte, North Carolina time)
on each Business Day, the Lender shall compute the Collateral Value of the
Borrowing Base (a "Collateral Value Determination") as of 2:00 p.m. on such
Business Day and make a notation thereof.
(b) No later than 2:00 p.m. (Charlotte, North Carolina time)
on each Business Day, the Lender shall prepare and deliver to the Company via
facsimile a schedule showing the composition of the Borrowing Base on a
per-Mortgage Loan basis, as of such time. The Company shall certify as to the
accuracy of such schedule and shall return such schedule, with such
certification attached, to the Lender via facsimile no later than 3:00 p.m.
(Charlotte, North Carolina time) on each such Business Day.
5. Handling of Collateral; Settlement Account.
(a) So long as an Event of Default shall not have occurred and
be continuing, from time to time, the Lender may release documentation relating
to Mortgage Loans to the Company against a trust receipt executed by the Company
in the form of Exhibit 2 hereto. The Company and the Lender will comply with the
trust receipt procedures specified on Exhibit 3 hereto. The Company hereby
represents and warrants that any request by the Company for release of
Collateral under this subparagraph 5(a) shall be solely for the purposes of
correcting
3
<PAGE>
clerical or other non-substantial documentation problems in preparation of
returning such Collateral to the Lender for ultimate sale or exchange and that
the Company has requested such release in compliance with all terms and
conditions of such release set forth herein and in the Warehousing Agreement,
including, without limitation, subparagraph (k)(1) of the definition of Eligible
Mortgage Loan.
(b) So long as an Event of Default shall not have occurred and
be continuing, upon delivery by the Company to the Lender of a shipping request
in the form of that attached hereto as Exhibit 4, the Lender will transmit
Mortgage Loans held by it as directed by the Company as follows:
(1) If the transmittal is of documentation for
Mortgage Loans in the possession of the Lender in connection with the
sale thereof to a permanent investor or sale under a repurchase
facility, such transmittal will be under cover of a transmittal letter
in the form of that attached hereto as Exhibit 5A (or such other form
as may be required under any government program pursuant to which the
relevant Mortgage Loans are being shipped).
(2) If the transmittal is of documentation for
Mortgage Loans in connection with the shipment to a custodian or
trustee in connection with the formation of a mortgage pool supporting
a Mortgage-Backed Security (any such Mortgage- Backed Security secured
or otherwise supported by any such Mortgage Loan being referred to
herein as a "Warehouse-Related MBS") such transmittal will be under
cover of a transmittal letter in the form of that attached hereto as
Exhibit 5B (or such other form as may be required under any government
program pursuant to which such Warehouse-Related MBS is being issued),
and, in addition, will be conditioned upon the facts that:
(i) If the Warehouse-Related MBS is being
issued under a government program, there has been delivered to
the transfer agent for the Warehouse-Related MBS such form as
may be required under the government program pursuant to which
such Warehouse-Related MBS is being issued (which form shall
name the Lender or an Approved MBS Custodian (as defined
below) as the subscriber and the Person to whom the
Warehouse-Related MBS is to be delivered);
(ii) If the Warehouse-Related MBS is being issued
pursuant to a program other than a government program, there
has been delivered to and acknowledged by the trustee and
collateral agent or custodian for the underlying mortgage pool
a letter in form acceptable to the Lender;
(iii) The Person to whom such Warehouse-Related
MBS is to be delivered by the transfer agent or trustee is a.
a Person which has agreed to hold such Warehouse-Related MBS
and the proceeds of any sale or other disposition thereof as
custodian, agent and bailee for the benefit of Lender pursuant
to a custodial agreement substantially in the form of that
attached hereto as Exhibit 6
4
<PAGE>
(a "Custodial Agreement"), and b. a Person which has been
approved by the Lender (any Person acting in such capacity
being referred to herein as an "Approved MBS Custodian"); and
(iv) There has been delivered to the Approved MBS
Custodian a letter in the form of that attached to the
Custodial Agreement as Exhibit A.
In no event shall the Lender have any obligation to obtain written
acknowledgement of receipt from the addressee of any transmittal letter or other
communication sent by the Lender hereunder.
(c) All amounts payable on account of the sale of Collateral
(including, but not limited to a sale pursuant to a repurchase agreement) will
be instructed to be paid directly by the purchaser to the Settlement Account, or
in the case of Mortgage-Backed Securities delivered to an Approved MBS
Custodian, to a demand deposit account maintained with such Approved MBS
Custodian (a "Custodian Settlement Account") and, thereafter, to the Settlement
Account as provided in the applicable Custodial Agreement. Pursuant to Paragraph
2 above the Company has granted a security interest in and lien upon the
Settlement Account and in all Custodian Settlement Accounts and in any and all
amounts at any time held therein to the Lender as collateral security for the
Obligations. This Paragraph 5(c) shall constitute notice to any Approved MBS
Custodian of such security interest pursuant to the Uniform Commercial Code of
all relevant jurisdictions and any other law or regulation requiring such
notice. This Paragraph 5(c) shall further constitute irrevocable notice to any
Approved MBS Custodian that the accounts referred to in Paragraph 3(g) above are
"no access" accounts to the Company except to the extent expressly permitted
hereunder. The Lender shall hold such security interest in and lien upon the
accounts referred to in Paragraph 3(g) above and all funds at any time held
therein for its benefit with all rights of a secured party under the Uniform
Commercial Code of all relevant jurisdictions.
(d) So long as an Event of Default shall not have occurred and
be continuing, the Lender and any Approved MBS Custodian shall take such steps
as they may be reasonably directed from time to time by the Company in writing
which are not inconsistent with the provisions of this Security Agreement and
the other Credit Documents and which the Company deems necessary to enable the
Company to perform and comply with Take-Out Commitments and Buy/Sell Agreements
and with other agreements for the sale or other disposition in whole or in part
of Mortgage Loans and Mortgage-Backed Securities.
(e) Prior to the occurrence of an Event of Default and
acceleration of the Obligations and if, but only if, such action is not
inconsistent with the express provisions of this Security Agreement and the
other Credit Documents and would not create an Event of Default or Potential
Default, the Company may, in connection with its residential mortgage banking
business: originate, acquire and service Mortgage Loans; receive payments on
Mortgage Loans from the Obligors thereon and impounds and fees in connection
therewith; retain, use and apply fees and payments made on account of the
Mortgage Loans by the Obligors thereunder; disburse from impound accounts; in
the ordinary course of the Company's business, create, use, destroy
5
<PAGE>
and transfer records, files and other items described in Paragraph 3(f) above;
sell or otherwise dispose of Mortgage Loans not constituting Collateral, with or
without servicing rights; pledge Mortgage Loans to the extent permitted under
the Credit Documents; sell servicing rights; and enter into, exercise rights
under, perform, modify, waive and cancel any Take-Out Commitments or Buy/Sell
Agreements.
(f) Following the occurrence and during the continuance of an
Event of Default, the Lender shall not, and shall incur no liability to the
Company or any other Person for refusing, in its sole discretion, to, deliver
any item of Collateral to the Company or any other Person (other than under
existing Take-Out Commitments).
6. Costs and Expenses. The Lender shall notify the Company of all
extraordinary costs and expenses (including, without limitation, expenses of
legal counsel to the Lender) of the Lender directly relating to the Lender's
performance of this Security Agreement, and such extraordinary costs and
expenses shall be paid promptly by the Company or, if already paid by the
Lender, the Company promptly shall reimburse the Lender therefor.
7. Representations and Warranties. The Company hereby represents and
warrants that: (a) the Company is the sole owner of the Collateral (or, in the
case of after-acquired Collateral, at the time the Company acquires rights in
the Collateral, will be the sole owner thereof); (b) except for security
interests in favor of the Lender, no Person has (or, in the case of
after-acquired Collateral, at the time the Company acquires rights therein, will
have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral and, in any event, the Lender has a perfected,
first priority security interest thereon; (c) to the best knowledge of the
Company, all information heretofore, herein or hereafter supplied to the Lender
by or on behalf of the Company with respect to the Collateral is or will be
accurate and complete; and (d) each Mortgage Loan is, at the time when it is
submitted by the Company to the Lender for inclusion in the computation of the
Collateral Value of the Borrowing Base, an Eligible Mortgage Loan.
8. Covenants of the Company. The Company hereby agrees: (a) to procure,
execute and deliver from time to time any endorsements, assignments, financing
statements and other writings deemed necessary or appropriate by the Lender to
perfect, maintain and protect its security interest hereunder and the priority
thereof and to deliver promptly to the Lender all originals of Collateral or
Proceeds consisting of chattel paper or instruments; (b) not to surrender or
lose possession of (other than to the Lender), sell, encumber, or otherwise
dispose of or transfer, any Collateral or right or interest therein other than
shipment of Mortgage Loans and Mortgage-Backed Securities under Take-Out
Commitments or Buy/Sell Agreements and as otherwise permitted under Paragraph 5
above; (c) at all times to account fully for and promptly to deliver to the
Lender, in the form received, all Collateral or Proceeds received, endorsed to
the Lender as appropriate and accompanied by such assignments and powers, duly
executed, as the Lender shall request, and until so delivered all Collateral and
Proceeds shall be held in trust for the Lender, separate from all other property
of the Company and identified as the property of the Lender; (d) at any
reasonable time, upon demand by the Lender, to exhibit to and allow inspection
by the Lender (or Persons designated by the Lender) of the Collateral and the
records
6
<PAGE>
concerning the Collateral; (e) to keep the records concerning the Collateral at
the location(s) set forth in Paragraph 15 below and not to remove the records
from such location(s) without the prior written consent of the Lender; (f) at
the request of the Lender, to place on each of its records pertaining to the
Collateral a legend, in form and content satisfactory to the Lender, indicating
that such Collateral has been assigned to the Lender; (g) not to modify,
compromise, extend, rescind or cancel any deed of trust, mortgage, note or other
document, instrument or agreement connected with any Mortgage Loan pledged under
this Security Agreement or any document relating thereto or connected therewith
or consent to a postponement of strict compliance on the part of any party
thereto with any term or provision thereof; (h) to keep the Collateral insured
against loss, damage, theft, and such other risks as the Lender may request; (i)
to do all acts that a prudent investor would deem necessary or desirable to
maintain, preserve and protect the Collateral; (j) not knowingly to use or
permit any Collateral to be used unlawfully or in violation of any provision of
this Security Agreement or any applicable statute, regulation or ordinance or
any policy of insurance covering the Collateral; (k) to pay (or require to be
paid) prior to their becoming delinquent all taxes, assessments, insurance
premiums, charges, encumbrances, and liens now or hereafter imposed upon or
affecting any Collateral; (l) to notify the Lender before any such change shall
occur of any change in the Company's name, identity or structure through merger,
consolidation or otherwise; (m) to appear in and defend, at the Company's cost
and expense, any action or proceeding which may affect its title to or the
Lender's interest in the Collateral; (n) to keep accurate and complete records
of the Collateral and to provide the Lender with such records and such reports
and information relating to the Collateral as the Lender may request from time
to time; and (o) to comply with all laws, regulations and ordinances relating to
the possession, operation, maintenance and control of the Collateral.
9. Collection of Collateral Payments.
(a) The Company shall, at its sole cost and expense, endeavor
to obtain payment, when due and payable, of all sums due or to become due with
respect to any Collateral (each such payment being referred to as a "Collateral
Payment"), including, without limitation, the taking of such action with respect
thereto as the Lender may request, or, in the absence of such request, as the
Company may reasonably deem advisable; provided, however, that the Company shall
not, without the prior written consent of the Lender, grant or agree to any
rebate, refund, compromise or extension with respect to any Collateral Payment.
Upon the request of the Lender following the occurrence and during the
continuance of an Event of Default (and subject to the requirements of
applicable law), the Company will notify and direct any party who is or might
become obligated to make any Collateral Payment, to make payment thereof to the
Lender (or to the Company in care of the Lender) at such address as the Lender
may designate. The Company will reimburse the Lender promptly upon demand for
all out-of-pocket costs and expenses, including reasonable attorneys' fees and
litigation expenses, incurred by the Lender in seeking to collect any Collateral
Payment.
(b) Following the occurrence and during the continuance of an
Event of Default, upon the request of the Lender the Company will transmit and
deliver to the Lender, forthwith upon receipt and in the form received, all
cash, checks, drafts and other instruments for
7
<PAGE>
the payment of money (properly endorsed where required so that such items may be
collected by the Lender) which may be received by the Company at any time as
payment on account of any Collateral Payment and if such request shall be made,
until delivery to the Lender, such items will be held in trust for the Lender
and will not be commingled by the Company with any of its other funds or
property. Thereafter, the Lender is hereby authorized and empowered to endorse
the name of the Company on any check, draft or other instrument for the payment
of money received by the Lender on account of any Collateral Payment if the
Lender believes such endorsement is necessary or desirable for purposes of
collection.
(c) The Company hereby agrees to indemnify, defend and save
harmless the Lender and its agents, officers, employees and representatives from
and against all reasonable liabilities and expenses on account of any adverse
claim asserted against the Lender relating to any moneys received by the Lender
on account of any Collateral Payment (other than as a direct result of the gross
negligence or willful misconduct of the Lender) and such obligation of the
Company shall continue in effect after and notwithstanding the discharge of the
Obligations and the release of the security interest granted in Paragraph 2
above.
10. Authorized Action by Lender. The Company hereby irrevocably
appoints the Lender as its attorney-in-fact to do (but the Lender shall not be
obligated to and shall incur no liability to the Company or any third party for
failure so to do) at any time and from time to time following the occurrence and
during the continuance of an Event of Default, any act which the Company is
obligated by this Security Agreement to do, and to exercise such rights and
powers as the Company might exercise with respect to the Collateral, including,
without limitation, the right to (a) collect by legal proceedings or otherwise
and endorse, receive and receipt for all dividends, interest, payments, proceeds
and other sums and property now or hereafter payable on or on account of the
Collateral; (b) enter into any extension, reorganization, deposit, merger,
consolidation or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for the Collateral; (c) insure, process
and preserve the Collateral; (d) transfer the Collateral to the Lender's own or
its nominee's name; and (e) make any compromise or settlement, and take any
other action it deems advisable with respect to the Collateral. Notwithstanding
anything contained herein, in no event shall the Lender be required to make any
presentment, demand or protest, or give any notice and the Lender need not take
any action to preserve any rights against any prior party or any other person in
connection with the Obligations or with respect to the Collateral.
11. Default and Remedies. Upon the occurrence of an Event of Default
and following the acceleration of the Obligations, the Lender shall have the
right to, without notice to or demand upon the Company: (a) foreclose or
otherwise enforce the Lender's security interest in the Collateral in any manner
permitted by law or provided for hereunder; (b) sell or otherwise dispose of the
Collateral or any part thereof at one or more public or private sales, whether
or not such Collateral is present at the place of sale, for cash or credit or
future delivery and without assumption of any credit risk, on such terms and in
such manner as the Lender may determine; (c) require the Company to assemble the
Collateral or books and records relating thereto and make such available to the
Lender at a place to be designated by the Lender; (d) enter onto property where
any Collateral or books and records relating thereto are located and take
8
<PAGE>
possession thereof with or without judicial process; and (e) prior to the
disposition of the Collateral, prepare it for disposition in any manner and to
the extent the Lender deems appropriate. Upon any sale or other disposition
pursuant to this Security Agreement, the Lender shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral or portion thereof
so sold or disposed of and all proceeds thereof shall be applied to the
Obligations. Each purchaser at any such sale or other disposition shall hold the
Collateral free from any claim or right of whatever kind, including any equity
or right of redemption of the Company, and the Company specifically waives (to
the extent permitted by law) all rights of redemption, stay or appraisal which
it has or may have under any rule of law or statute now existing or hereafter
adopted.
12. Binding Upon Successors. All rights of the Lender under this
Security Agreement shall inure to the benefit of its successors and assigns, and
all obligations of the Company shall bind its successors and assigns.
13. Entire Agreement; Severability. This Security Agreement contains
the entire security agreement with respect to the Collateral between the Lender
and the Company. All waivers by the Company provided for in this Security
Agreement have been specifically negotiated by the parties with full cognizance
and understanding of their rights. If any of the provisions of this Security
Agreement shall be held invalid or unenforceable, this Security Agreement shall
be construed as if not containing such provisions, and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.
14. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of North Carolina and,
where applicable and except as otherwise defined herein, terms used herein shall
have the meanings given them in the Uniform Commercial Code as in effect from
time to time in the State of North Carolina.
15. Place of Business; Records. The Company represents and warrants
that its chief place of business is at 355 N.E. 5th Avenue, Suite 4, DelRay
Beach, Florida 33483, and that its books and records concerning the Collateral
are kept at its chief place of business.
16. Notice. Any written notice, consent or other communication provided
for in this Security Agreement shall be delivered or sent as provided in the
Warehousing Agreement.
9
<PAGE>
EXECUTED and sealed the day and year first above written.
WESTMARK MORTGAGE CORPORATION,
a California corporation
[CORPORATE SEAL]
ATTEST:
By:____________________________ By:____________________________
Name: ______________________ Name: ______________________
Title: _____________________ Title: _____________________
FIRST UNION NATIONAL BANK, a
national banking association
By:____________________________
Name:_______________________
Title:______________________
10
<PAGE>
SCHEDULE OF EXHIBITS
TO
SECURITY AGREEMENT
EXHIBIT DOCUMENT
- ------- --------
1 Required Review Steps
2 Form of Trust Receipt
3 Trust Receipt Procedures
4 Form of Shipping Request
5A Form of Whole Loan Sale Transmittal Letter
5B Form of Warehouse-Related MBS Transmittal
6 Form of Custodial Agreement
11
<PAGE>
EXHIBIT 1
---------
TO SECURITY
-----------
AGREEMENT
---------
REQUIRED REVIEW STEPS
---------------------
1. All submitted documents, including the report attached to the Delivery
Certificate, are consistent as to borrower name, loan face amount, loan
type (A+, A, B, C or D; FRM or ARM) and the Company's loan number.
2. The note and mortgage/deed of trust each bears an original signature or
signatures which appear to be those of the person or persons named as
the maker and mortgagor/trustor, or, in the case of a certified copy of
the mortgage/deed of trust, such copy bears what appears to be a
reproduction of such signature or signatures.
3. Except for (a) the endorsement to the Company of the note in the event
such loan was purchased by the Company and (b) the endorsement in blank
of the note by the Company, neither the note, the mortgage/deed of
trust, nor the assignment(s) of the mortgage/deed of trust contain any
irregular writings which appear on their face to affect the validity of
any such endorsement or to restrict the enforceability of the document
on which they appear.
4. The note is endorsed in blank and such endorsement bears an original
signature of an authorized officer of the Company, based on the current
list of such officers supplied by the Company.
5. The assignment of the mortgage/deed of trust bears an original
signature of an authorized officer of the Company, based on the current
list of such officers supplied by the Company.
12
<PAGE>
EXHIBIT 2
---------
TO SECURITY AGREEMENT
---------------------
FORM OF TRUST RECEIPT
---------------------
Date: ___________, 19__
The undersigned, WESTMARK MORTGAGE CORPORATION, a California
corporation (the "Company"), acknowledges receipt from FIRST UNION NATIONAL BANK
(the "Lender") pursuant to the Security Agreement (as those terms and
capitalized terms not otherwise defined herein are defined in that certain
Mortgage Loan Warehousing Agreement dated as of ____________, 1998, between the
Lender and the Company), or from its duly appointed agent, of the following
described documentation for the identified Mortgage Loans (the "Collateral
Documents"), possession of which is herewith entrusted to the Company solely for
the purpose of correcting documentary defects relating thereto:
Loan Document
Borrower Name Loan Number Note Amount Delivered
- ------------- ----------- ----------- -------------
It is hereby acknowledged that a security interest pursuant to the
Uniform Commercial Code as in effect in the State of North Carolina in the
Collateral hereinabove described and in the Proceeds of said Collateral has been
granted to the Lender pursuant to the Security Agreement.
The Company hereby represents and warrants that the Unit Collateral
Value of the Mortgage Loans for which the Collateral Documents are requested to
be released hereunder when added to the Unit Collateral Value of all other
Mortgage Loans included in the computation of the Collateral Value of the
Borrowing Base the Collateral Documents for which have been similarly released
does not exceed $250,000.
In consideration of the aforesaid delivery by the Lender (or by its
duly appointed agent), the Company hereby agrees to hold said Collateral
Documents in trust for the Lender as provided under and in accordance with all
provisions of the Security Agreement and to return said Collateral Documents to
the Lender no later than the close of business on the tenth calendar day
following the date hereof or, if such day is not a Business Day, on the
immediately succeeding Business Day.
WESTMARK MORTGAGE CORPORATION,
a California corporation
By:___________________________
Name:______________________
Title:_____________________
13
<PAGE>
EXHIBIT 3
---------
TO SECURITY AGREEMENT
---------------------
TRUST RECEIPT PROCEDURES
------------------------
The Company and Lender will adhere to the following procedures with respect to
trust receipts:
The Lender will maintain all original trust receipts in a vault, drawer
or other suitable depositary with a one hour fire rating maintained and
controlled solely by the Lender.
14
<PAGE>
EXHIBIT 4
---------
TO SECURITY AGREEMENT
---------------------
FORM OF SHIPPING REQUEST
------------------------
(For Whole Loan Deliveries)
Date: ________________
FIRST UNION NATIONAL BANK
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attention: ____________________
____________________
This letter is to serve as authorization for you to endorse and ship the
following loans:
Loan Number Borrower Name Note Amount
to the following address under Commitment #____________ (the "Commitment") from,
or under a Buy/Sell Agreement between the undersigned and, an Approved Investor
as follows:
NAME:
ADDRESS:
ATTENTION:
Please endorse the notes as follows:
Please ship the loan documents either by ___________________ or by such other
courier service as we have designated to you as "approved." The courier shall
act as an independent contractor bailee acting solely on your behalf as Lender,
as defined in that certain Mortgage Loan Warehousing Agreement dated as of
____________, 1998, as the same may be amended, extended or replaced from time
to time, but we acknowledge and agree that you are not responsible for any
delays in shipment or any other actions or inactions of the courier; however,
because the Commitment or the Buy/Sell Agreement expires on ______________,
199_, we ask that you deliver the loan documents to the courier no later than
_________________, 199_.
15
<PAGE>
Please have the courier bill us by using our acct #____________. If you should
have any questions, or should feel the need for additional documentation, please
do not hesitate to call _________________
WESTMARK MORTGAGE CORPORATION,
a California corporation
By:____________________________
Name:_______________________
Title:______________________
16
<PAGE>
EXHIBIT 5A
TO SECURITY AGREEMENT
(Direct Investor)
FORM OF WHOLE LOAN SALE TRANSMITTAL LETTER
[LETTERHEAD OF LENDER]
__________ __, 199__
Dear [Approved Investor]:
-----------------
Re: Westmark Mortgage Corporation:
-----------------------------
Sale of Mortgage Loans
----------------------
Attached please find original promissory note(s) in the original
principal amount of $____________ evidencing those Mortgage Loans listed
separately on the attached schedule, along with other related documents
(collectively, the "Mortgage Loan Collateral") which Mortgage Loans are owned by
Westmark Mortgage Corporation, a California corporation (the "Company") and are
being delivered to you for purchase.
The Mortgage Loans comprise a portion of the Collateral under (and as
the term "Collateral" and capitalized terms not otherwise defined herein are
defined in) that certain Mortgage Loan Warehousing Agreement dated as of
___________, 1998 by and between the Company as borrower and the undersigned as
lender ("Lender"), as amended or modified from time to time. Each of the
Mortgage Loans is subject to a security interest in favor of Lender, as set
forth in that certain Security Agreement dated as of ____________, 1998 by and
between the Company and Lender, as amended or modified from time to time. Said
security interest shall be automatically released upon your remittance of an
amount equal to the greater of (i) the full amount of the purchase price of such
Mortgage Loan(s) (as set forth on the schedule attached hereto), or (ii)
$________, which is the collateral value assigned by Lender to such Mortgage
Loan(s), by wire transfer to the following account of the Company:
WIRE INSTRUCTIONS TO SETTLEMENT ACCOUNT:
_______________________________________
_______________________________________
_______________________________________
Pending your purchase of each Mortgage Loan and until payment therefor
is received, the aforesaid security interest therein will remain in full force
and effect, and you shall hold possession of such Mortgage Loan Collateral as
custodian, agent and bailee for and on behalf of Lender and subject to the
direction and control of Lender. In the event any Mortgage Loan is
17
<PAGE>
unacceptable for purchase, return the rejected Mortgage Loan and all related
Mortgage Loan Collateral directly to Lender at the address set forth below. In
no event shall any Mortgage Loan or related Mortgage Loan Collateral be
returned, or sales proceeds remitted, to the Company or to any of its
affiliates. The Mortgage Loan and related Mortgage Loan Collateral must be so
returned or sales proceeds remitted in full no later than thirty (30) days from
the date hereof. If you are unable to comply with the above instructions, please
so advise the undersigned immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE
TERMS DESCRIBED IN THIS LETTER. THE UNDERSIGNED LENDER REQUESTS THAT YOU
ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING
AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED; HOWEVER, YOUR
FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
FIRST UNION NATIONAL BANK
By:_________________________________________
Title:______________________________________
Address: One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attn: ______________________________
______________________________
ACKNOWLEDGEMENT OF RECEIPT
[Approved Investor]
-----------------
By:________________________________
Name:___________________________
Title:__________________________
Date:______________________________
18
<PAGE>
EXHIBIT 5B
TO SECURITY AGREEMENT
(Pool Formation)
FORM OF WAREHOUSE-RELATED MBS TRANSMITTAL LETTER
[LETTERHEAD OF LENDER]
__________ __, 199__
Dear [Certificating Custodian]:
-----------------------
Re: Westmark Mortgage Corporation:
-----------------------------
Securitization of Mortgage Loans
--------------------------------
Attached please find original promissory note(s) in the original principal
amount of $____________ evidencing those Mortgage Loans listed separately on the
attached schedule, along with other related documents (collectively, the
"Mortgage Loan Collateral") which Mortgage Loans are owned by Westmark Mortgage
Corporation, a California corporation (the "Company") and are being delivered to
you as Custodian/Trustee for certification in connection with the formation of a
mortgage pool supporting the issuance of a Mortgage-Backed Security (the
"Warehouse-Related MBS") described as follows:
__________________________________________________________
__________________________________________________________
The Mortgage Loans comprise a portion of the Collateral under (and as
the term "Collateral" and capitalized terms not otherwise defined herein are
defined in) that certain Mortgage Loan Warehousing Agreement dated as of
___________, 1998 by and between the Company as borrower and the undersigned as
lender ("Lender"), as amended or modified from time to time. Each of the
Mortgage Loans is subject to a security interest in favor of Lender, as set
forth in the certain Security Agreement dated as of _____________, 1998 by and
between the Company and Lender, as amended or modified from time to time. Said
security interest shall be automatically released upon the issuance of the
Warehouse-Related MBS in accordance with the terms of the prescribed GNMA, FNMA
or FHLMC (or other) form enclosed herewith.
Pending issuance of the Warehouse-Related MBS, the aforesaid security
interest therein will remain in full force and effect, and you shall hold
possession of such Mortgage Loan Collateral as custodian, agent and bailee for
and on behalf of Lender and subject to the direction and control of Lender. In
the event any Mortgage Loan is unacceptable for pool formation, return the
rejected Mortgage Loan and all related Mortgage Loan Collateral directly to
Lender at the address set forth below. In no event shall any Mortgage Loan or
related Mortgage Loan Collateral be returned, or proceeds remitted, to the
Company or to any of its affiliates. The Mortgage Loan and related Mortgage Loan
Collateral must be so returned or the Warehouse-
<PAGE>
Based MBS issued no later than thirty (30) days from the date hereof. If you are
unable to comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE
TERMS DESCRIBED IN THIS LETTER. THE UNDERSIGNED LENDER REQUESTS THAT YOU
ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING
AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED; HOWEVER, YOUR
FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
FIRST UNION NATIONAL BANK
By:_________________________________________
Title:______________________________________
Address: One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attn: _______________________
_______________________
ACKNOWLEDGEMENT OF RECEIPT
[Certificating Custodian]
-----------------------
By:_____________________________
Name:___________________________
Title:__________________________
Date: __________________________
2
<PAGE>
EXHIBIT 6
---------
TO SECURITY AGREEMENT
---------------------
FORM OF CUSTODIAL AGREEMENT
---------------------------
(With Operating Instructions Attached)
_________________, 19__
______________________
______________________
______________________
Re: Westmark Mortgage Corporation:
-----------------------------
Ladies and Gentlemen:
The undersigned, FIRST UNION NATIONAL BANK (the "Lender") has entered
into (i) that certain Mortgage Loan Warehousing Agreement dated as of
____________, 1998 with Westmark Mortgage Corporation (the "Company") as the
same may be amended, extended or replaced from time to time (the "Warehousing
Agreement," capitalized terms not otherwise defined herein being used with the
same meaning as in the Warehousing Agreement) and (2) that certain Security
Agreement (the "Security Agreement") with the Company dated concurrently
therewith.
The Lender represents and confirms that it has the power and authority
under the Warehousing Agreement and the Security Agreement to execute this
Custodial Agreement. The Lender may execute any of its duties hereunder by or
through agents or attorneys-in-fact notified to you in writing.
The Lender hereby appoints you and you hereby accept appointment to act
as agent, custodian and bailee for the benefit of the Lender (in such capacity,
the "Approved MBS Custodian"). In such capacity, you agree to accept delivery
only on a free basis of certain mortgage-backed securities delivered to you from
time to time identified in a letter in the form of that attached hereto as
Exhibit A (all such mortgage-backed securities delivered to you and so
identified being referred to herein as "Subject Securities"). This Custodial
Agreement governs your rights and responsibilities as Approved MBS Custodian
with respect to all Subject Securities.
The Lender hereby directs you, as Approved MBS Custodian, to hold or
dispose of Subject Securities deposited with you only in accordance with the
instructions of a person described as an "Authorized Lender Representative" on a
schedule from time to time delivered to you by the Lender (the initial list of
such persons being attached hereto as Schedule I) or
<PAGE>
otherwise as expressly permitted hereunder. You are authorized, directed and
instructed to act upon all instructions from persons reasonably believed by you
to be genuine and authorized. Any instruction given hereunder may, in your
discretion, be written, oral, by telephone, telegraph, cable, radio or
electronic communication which is received by you. Written confirmations, if
any, of oral instructions provided hereunder shall in no way affect any action
taken by you in reliance upon the oral instructions, absent your gross
negligence or willful misconduct.
All Subject Securities are to be held by you in a custodial account
(Account No. _____________) maintained with you (the "MBS Custodial Account").
Unless and until you have received written notice from an Authorized Lender
Representative (which notice may be by facsimile transmission) that there has
occurred an "Event of Default" or a "Potential Default" under the Warehousing
Agreement, you may from time to time deliver Subject Securities at the direction
of the Company, to, but only to, Approved Investors (as listed on a schedule of
"Approved Investors" delivered to you from time to time by an Authorized Lender
Representative) against, in the case of delivery to an Approved Investor,
payment of the purchase price therefor. The proceeds of the sale or other
disposition of all Subject Securities are to be held by you in an account
(Account No. _____________) maintained with you (the "Custodian Settlement
Account") and transferred by the end of each Business Day to Account No.
__________________ maintained in the Lender's name at First Union National Bank
(the "Settlement Account") as follows:
____________________________
____________________________
____________________________
By executing this Custodial Agreement the Company confirms and the Lender and
the Company notify you that the Company has assigned and granted to the Lender a
security interest in and lien upon all now existing and hereafter arising right,
title and interest of the Company in the MBS Custodial Account, the Custodian
Settlement Account and the Settlement Account and in any and all investments and
proceeds at any time held therein.
You shall be under no duty to take or omit to take any action with
respect to Subject Securities, except in accordance with this Agreement and the
Operating Instructions attached hereto as Exhibit B, unless specifically
otherwise directed by the Lender and agreed to by you in writing. In the event
that you shall be uncertain as to your duties or rights hereunder, you shall be
entitled to refrain from taking any action until you shall be directed otherwise
by an order of a court of competent jurisdiction. In case you should agree to
our request and on our behalf to appear in, prosecute or defend any legal or
equitable proceeding either in your own name or in the name of your nominee, you
shall first be indemnified to your satisfaction (other than against your gross
negligence and willful misconduct).
By accepting delivery of any Subject Security, you shall be deemed to
have agreed to hold the Subject Security as Approved MBS Custodian hereunder,
free and clear of all liens,
2
<PAGE>
claims, interests and rights of offset in your favor or in favor of persons
claiming through you, subject only to due bills and checks described in the
second immediately following paragraph. Until you have been notified in writing
(including by telecopier) by an Authorized Lender Representative of the
occurrence of an Event of Default, you are hereby authorized to return Subject
Securities to the issuer/transfer agent therefor at the Company's written
request in connection with the reissuance thereof in smaller denominations;
provided, however, that any delivery of Subject Securities for reissuance shall
be covered by a transmittal letter or other written agreement instructing that
the reissued securities be returned directly to you. In this connection, we
acknowledge familiarity with the current securities industry practice of
delivering physical securities against later payment on the delivery date.
Notwithstanding our instructions to deliver Subject Securities against payment,
you are authorized to make delivery of such physical securities against a
temporary receipt (sometimes called a "window ticket") in lieu of payment. You
agree to use your best efforts to obtain payment therefor during the same
business day, but we confirm our assumption of all risks of payment for such
deliveries. You may accept certified checks in payment for Subject Securities
delivered on the Company's instruction and we assume sole responsibility for the
risks of collectability of such checks. YOU ARE HEREBY IRREVOCABLY INSTRUCTED BY
THE COMPANY AND THE LENDER THAT ALL PROCEEDS RECEIVED FROM THE SALE OR OTHER
DISPOSITION OF SUBJECT SECURITIES, UNTIL OTHERWISE NOTIFIED IN WRITING BY THE
LENDER SHALL BE WIRED TO THE SETTLEMENT ACCOUNT AS PROVIDED ABOVE.
You will provide to the Lender on a daily basis a report of activity
with respect to the MBS Custodian Account and the Custodial Settlement Account.
From time to time Subject Securities delivered for purchase may be
delivered by you following the scheduled settlement date for the sale thereof (a
"late delivery") and, as a result of such late delivery, the Company may be
obligated to pay to the purchaser accrued interest or principal amounts on
account thereof. Prior to your receipt from the Lender of notice of the
occurrence of an "Event of Default" or a "Potential Default," you are hereby
authorized to issue a due bill or check against the Custodian Settlement Account
for such amounts concurrently with such delivery. In the event amounts held in
the Custodian Settlement Account shall be insufficient to cover such due bill or
check, the Company shall immediately upon demand pay to you the full amount
thereof. It is expressly agreed and understood that the issuance of a required
due bill or bank check which will or may create an overdraft in the Custodian
Settlement Account shall be at your sole discretion and that any overdraft shall
be subject to the payment of interest on the amount thereof at your customary
rate. Notwithstanding anything to the contrary otherwise set forth herein, you
shall have a first lien against the Custodian Settlement Account for the amount
of such overdraft plus any accrued interest but such lien shall not secure any
other Indebtedness of the Company to you, whether arising hereunder or
otherwise.
You shall not be liable or accountable for any act or omission of
brokers, dealers or agents in connection with this Custodial Agreement. In
carrying out your duties hereunder, you may use such methods or agencies as you
determine in your sole discretion, including your own facilities.
3
<PAGE>
You shall maintain regular business records documenting all
instructions transmitted to you through any authorized means and any response by
you. You are authorized to electronically record any telephone communications
with the Company or the Lender arising out of this Custodial Agreement. Your
records shall be determinative of the form, content and time of all the
Company's and Lender's instructions and any response from you. The record of
each instruction and any response thereto shall be retained by you for at least
ninety (90) days following the date of the instruction. Any claim against you
for failure to properly follow an instruction transmitted by the Company or the
Lender must be made in writing and received by you within ten (10) days after
the date the instruction was received by you.
You shall give the Subject Securities that come into your possession
under this Custodial Agreement the same physical care and safeguards as are
afforded similar property owned by you; provided, however, your responsibility
hereunder is limited to losses occasioned directly by the gross negligence or
willful misconduct of your employees, or by robbery, burglary or theft (while
the securities are in your physical possession), to the extent of the market
value of the Subject Securities at the date of the discovery of such loss. With
respect to any Subject Securities which you deliver for us to a third party, and
with respect to such delivery, you shall be deemed no more than an
"intermediary" as referenced in Section 8-306(3) of the Uniform Commercial Code
as in effect from time to time in the State of North Carolina, and the only
warranty given by you shall be the warranty provided in said Section 8-306(3).
In no event shall you be liable for any indirect, special or consequential loss.
You may, at your option, make arrangements for insuring yourselves against loss
from any cause, but you shall not be under any obligation to insure for our
benefit.
Except as expressly set forth above with respect to advances made by
you in connection with "late deliveries," none of the Subject Securities held in
the MBS Custodial Account, the funds held at any time in the Custodian
Settlement Account, the Subject Securities or any proceeds of the sale or other
disposition thereof will be subject to any right, charge, security interest,
lien, encumbrance or claim of any kind in your or your creditors' favor. Any
claims for the payment of fees with respect to the safe custody or
administration of Subject Securities or for compensation, expenses, commitments
made by you upon instructions of the Lender, reimbursement of taxes incurred by
you for the account of the Lender, any penalties incurred by or levied or
assessed against you resulting from the Lender's improper or incorrect
instructions, or other liabilities of the Lender to you, and for indemnity
against any claim or liability to which you are subjected by reason of any
registration of Subject Securities shall be enforceable solely against the
Company and the Lender shall not have any responsibility therefor. The Lender
and the Company agree to make no claim against you except for any such claims or
liabilities arising, or claimed to have arisen, as a result of your gross
negligence or willful misconduct.
The Operating Instructions attached hereto are hereby made part hereof
and any and all capitalized terms defined herein shall have the same meaning
when used therein.
4
<PAGE>
This Custodial Agreement contains the whole of the understanding
between you and the Lender concerning the subject matter hereof and no provision
hereof shall be modified or altered except in writing signed by both you and the
Lender.
This Custodial Agreement shall be governed by the laws of the State of
North Carolina and shall be binding upon the Lender and upon its successors and
assigns and shall inure to your benefit and your successors and assigns and
shall be deemed continuing until terminated by either the Lender or you upon at
least sixty (60) days prior written notice to the other.
This letter is made in triplicate and will become an agreement between
you and the Lender upon your acceptance hereof in the space provided below.
FIRST UNION NATIONAL BANK
By:________________________________
Title:_____________________________
AGREED TO AND ACCEPTED:
__________________________
as Approved MBS Custodian
By:_____________________________
Title:__________________________
Date:___________________________
5
<PAGE>
ACKNOWLEDGEMENT AND AUTHORIZATION
---------------------------------
The Company approves the foregoing Custodial Agreement and authorizes
the Approved MBS Custodian to act in accordance with the terms thereof. The
Company agrees to be bound by the terms of the Custodial Agreement (including
all Exhibits thereto) to the same extent as if a party thereto. The Company
agrees to indemnify the Approved MBS Custodian for, and hold the Approved MBS
Custodian harmless against, any loss, liability or expense in connection with,
arising out of or in any way related to the transactions contemplated and
relationship established by the Custodial Agreement, or any action or omission
by the Approved MBS Custodian in connection with the Custodial Agreement, or any
agent, broker or dealer employed by the Approved MBS Custodian hereunder,
including the reasonable costs and expenses incurred in defending any such claim
of liability, except that the Company shall not be liable for (i) any loss,
liability or expense that is determined by a judgment of a court of competent
jurisdiction that is binding on the Approved MBS Custodian, final and not
subject to review on appeal, to be the direct result of acts or omissions on the
Approved MBS Custodian's part constituting gross negligence or willful
misconduct, or (ii) any claim that is based on the Approved MBS Custodian's
warranty as provided in Section 8-306(3) of the Uniform Commercial Code as in
effect from time to time in the State of North Carolina.
WESTMARK MORTGAGE CORPORATION,
a California corporation
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT A
---------
TO CUSTODIAL
------------
AGREEMENT
---------
FORM OF LETTER TO APPROVED MBS CUSTODIAN
----------------------------------------
To: __________________________,
as Approved MBS Custodian
Re: Westmark Mortgage Corporation:
Custodial and Collateral Agency Instructions
--------------------------------------------
Ladies and Gentlemen:
Reference is made to the attached letter/certification to the transfer
agent/trustee for the issuance of the Security described more particularly
therein, which Security is supported by a pool of residential mortgage loans,
mortgage-backed securities or both including mortgage loans and mortgage-backed
securities in which the undersigned (the "Lender") acting under that certain
Security Agreement dated as of _______________, 1998, as amended, extended or
replaced from time to time, holds a first perfected security interest. Pursuant
to such letter/certification, the transfer agent/trustee has been instructed to
deliver such Security to you. You are hereby notified that the Lender has a
first perfected security interest in the Security and in all proceeds of the
sale or other disposition thereof and in all accounts into which said proceeds
may be deposited.
This letter will confirm your agreement to hold such Security as a
"Subject Security" under and on terms and conditions set forth more particularly
in that certain Custodial Agreement, dated as of ______________, 199___ between
you and the Lender.
Very truly yours,
FIRST UNION NATIONAL BANK
By:________________________________
<PAGE>
The undersigned Company agrees to and acknowledges the terms of this
letter and, notwithstanding any contrary understanding with or instructions to
you, the addressee of this letter, the Company instructs you to act according to
the instructions set forth in this letter. These instructions cannot be altered
except by written instructions executed by the Lender.
WESTMARK MORTGAGE CORPORATION
By: _______________________________
Name: _________________________
Title: ________________________
2
<PAGE>
EXHIBIT B
---------
TO CUSTODIAL AGREEMENT
----------------------
OPERATING INSTRUCTIONS
These Operating Instructions are attached to and made a part of the
Custodial Agreement between First Union National Bank and
____________________________________, dated as of _________, 199__ (the
"Custodial Agreement"). Terms defined therein shall have their same meanings
when used herein.
1. From time to time GNMA, FNMA and FHLMC Subject Securities will be
issued at the request of the Company and credited to your account with [Federal
Reserve Bank of ________________] (in the case of FNMA and FHLMC Subject
Securities) or your account with the Participants Trust Company ("PTC") (in the
case of GNMA Subject Securities) (in each case, to be held by you for the
account of the Lender) in accordance with the Code of Federal Regulations (in
the case of FNMA and FHLMC Subject Securities) or the rules of PTC (in the case
of GNMA Subject Securities). Upon your receipt of confirmation that such Subject
Securities have been deposited into your account with the [Federal Reserve Bank
of ____________________] (in the case of FNMA and FHLMC Subject Securities) or
your account with PTC (in the case of GNMA Subject Securities), you shall
promptly issue to the Lender and the Company your confirmation that (1) you have
received such confirmation on the Fedwire (in the case of FNMA and FHLMC Subject
Securities, which confirmation will include the number of Subject Securities
deposited into your account with [Federal Reserve Bank of __________________])
or from PTC (in the case of GNMA Subject Securities), (2) you have made
appropriate entries on your books reflecting the interests of the Company as
beneficial owner and the Lender as secured party with respect to such Subject
Securities, and (3) there are no security interests or any rights or claims of
any third party in such Subject Securities in your favor or known to you which
have priority over the security interest of the Lender in such Subject
Securities.
2. With respect to the delivery or transfer of Subject Securities which
you hold for the account of the Lender, you are hereby authorized to act only
upon instructions from the Lender or, to the extent permitted by the Custodial
Agreement, by the Company. Upon notification to you by the Lender of an "Event
of Default" or a "Potential Default" under the Warehousing Agreement, no third
party, including without limitation the Company, may direct you to make any
delivery or transfer of such Subject Securities.
3. The proceeds of redemptions, collections and other receipts,
including dividend and interest income, shall be credited to the Custodian
Settlement Account upon collection or payment.
4. You are to notify the Lender and the Company upon receipt of notice
by you of any call for conversion, redemption, subscription rights or similar
proceeding affecting the
<PAGE>
Subject Securities held in the relevant account (any of the foregoing being
referred to herein as "Account Proceedings"), and shall take such action in
respect thereof as you may be directed in writing by the Lender; provided,
however, that you shall have no duty or responsibility to notify the Company or
the Lender of any Account Proceedings which do not appear in The Wall Street
Journal (New York Edition), The Standard & Poor's Called Bond Record for
Preferred Stocks, Financial Daily Called Bond Service, The Kenney Services or
official notifications from the Depository Trust Company or such other
publications of which you may from time to time notify the Lender in writing.
All solicitation fees payable to you as agent in connection with such event will
be retained by you unless specifically agreed to the contrary by you.
5. If applicable, you are authorized to exchange temporary for
definitive certificates, and old certificates for new or overstamped
certificates evidencing a change therein.
6. You are authorized and empowered in the name and on behalf of the
Lender and the Company to execute any certificates of ownership or other reports
which you are or may hereafter be required to execute and furnish under any
regulation of the Internal Revenue Service, or other authority of the United
States, insofar as the same are required in connection with any property which
is now or may hereafter be in your possession by virtue of the Custodial
Agreement and these Operating Instructions, claiming no exemptions on behalf of
the Lender or the Company. In the preparation of such reports, the status of the
Lender is to be described as a bank, trust company or financial institution, as
the case may be, domiciled in the United States. The Lender agrees to notify you
immediately in writing of any change in such status.
7. All mail communications which are to be furnished or forwarded
hereunder to the Lender or the Company shall be addressed to such party at the
last address on your records, provided that in case you in your sole discretion
shall determine that an emergency exists, you may use such other means of
communication as you shall deem advisable.
8. You are under no duty to supervise, recommend or advise the Lender
relative to the investment, purchase, sale, retention or other disposition of
any property held hereunder unless provided for by the Custodial Agreement.
9. With respect to any direction to receive securities in transactions
not placed through you, you shall have no duty or responsibility to advise the
Company of non-receipt, or to take any steps to obtain delivery of securities
from any brokers or dealers. All dealer concessions made to you will be retained
by you unless specifically agreed to the contrary by you.
10. Notwithstanding anything herein to the contrary, unless
instructions are received from the Lender, specifying a different destination
than the address listed on your records for the Lender, within ten (10) days of
the receipt of any termination notice, you shall have the right to transfer all
securities and other property held by you or any depositary in connection with
this Custodial Agreement or registered in your name to the Lender at the address
listed on your records.
2
PROMISSORY NOTE
---------------
_____________, 1998
FOR VALUE RECEIVED, WESTMARK MORTGAGE CORPORATION, a California
corporation (the "Company"), hereby unconditionally promises to pay to the order
of FIRST UNION NATIONAL BANK, a national banking association (the "Lender"), at
its office located at One First Union Center, TW-06, 301 South College Street,
Charlotte, North Carolina 28288, in lawful money of the United States and in
immediately available funds, on the dates required under that certain Mortgage
Loan Warehousing Agreement dated as of _____________, 1998 by and between the
Company and the Lender (as the same may be amended, extended or replaced from
time to time, the "Agreement" and with the capitalized terms not otherwise
defined herein used with the meanings given such terms in the Agreement), the
principal amount of each Loan made under the Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Lender referred to above, on the unpaid principal balance
hereof from the date advanced until paid in full on the dates and at the
applicable rates set forth in the Agreement. The holder of this Note is hereby
authorized to record the date and amount of each Loan, the date and amount of
each payment of principal and interest, and applicable interest rates and other
information with respect thereto, on the schedules annexed to and constituting a
part of this Note (or by any analogous method the holder hereof may elect
consistent with its customary practices) and any such recordation shall, absent
manifest error, constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, that the failure to make a notation
or the inaccuracy of any notation shall not limit or otherwise affect the
obligations of the Company under the Credit Documents.
This Note is the Note referred to in, and is entitled to all the
benefits of, the Agreement. Reference is hereby made to the Agreement and to the
Security Agreement for rights and obligations of payment and prepayment,
collateral security, Events of Default and the rights of acceleration of the
maturity hereof upon the occurrence of an Event of Default.
The Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence or
forebearance granted by any holder of this Note to any party now or hereafter
liable hereon. Any transferees of this Note, or endorser, guarantor or surety
paying this Note in full, shall succeed to all rights of Lender, and Lender
shall be under no further responsibility for the exercise thereof or the Loan
evidenced hereby. Nothing herein shall limit any right granted to Lender by
other instrument or by law.
<PAGE>
This Note shall be governed by, and construed in accordance with, the
laws of the State of North Carolina, and is being executed and sealed by the
duly authorized officers of the Company as of the day and year first above
written.
WESTMARK MORTGAGE CORPORATION,
a California corporation
By:__________________________________
Name:_____________________________
Title:____________________________
2
GUARANTY
--------
THIS GUARANTY (this "Guaranty") is made and dated as of the ______ day
of ________, 1998 by WESTMARK GROUP HOLDINGS, INC., a Delaware corporation (the
"Guarantor").
RECITALS
--------
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated
as of ______________, 1998, between the Company (as hereinafter defined) and
First Union National Bank (the "Lender") (as amended, extended and replaced from
time to time, the "Warehousing Agreement," and with capitalized terms not
otherwise defined herein used with the same meanings as in the Warehousing
Agreement) the Lender has agreed to extend credit to WESTMARK MORTGAGE
CORPORATION, a California corporation (the "Company"), on the terms and subject
to the conditions set forth therein.
B. As a condition precedent to the effectiveness of the Credit
Documents, the Guarantor is required to execute and deliver to the Lender this
Guaranty.
C. One hundred percent (100%) of the outstanding common stock of the
Company is owned by Guarantor, and thus the Guarantor will derive material
benefit from the extension of credit by the Lender to the Company pursuant to
the Warehousing Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
AGREEMENT
---------
1. The Guarantor hereby irrevocably and unconditionally guarantees,
jointly and severally, the payment when due, upon maturity, acceleration or
otherwise, of the Obligations whether heretofore, now, or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
whether or not such Obligations are from time to time reduced, or extinguished
and thereafter increased or incurred, whether or not the Company may be liable
individually or jointly with others, whether or not recovery upon such
Obligations may be or hereafter become barred by any statute of limitations, and
whether or not such Obligations may be or hereafter become otherwise invalid or
unenforceable. This Guaranty is a guaranty of payment and not of collection.
2. The Guarantor irrevocably and unconditionally guarantees, jointly
and severally, the payment of the Obligations whether or not due or payable by
the Company upon: (a) the dissolution, insolvency or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by or
against, the Company or the Guarantor, or (b) the appointment of a
<PAGE>
receiver for, or the attachment, restraint of or making or levying of any order
of court or legal process affecting, the property of the Company or the
Guarantor, and unconditionally promises to pay such Obligations to the Lender,
or order, on demand, in lawful money of the United States.
3. The liability of the Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by the Guarantor or by any other party, and the liability of the
Guarantor hereunder is not affected or impaired by (a) any direction of
application of payment by the Company or by any other party, or (b) any other
guaranty, undertaking or maximum liability of the Guarantor or of any other
party as to the Obligations, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any revocation or release of any
obligations of any other guarantor of the Obligations, or (e) any dissolution
of, termination of or increase, decrease or change in the personnel of, the
Guarantor, or (f) any payment made to the Lender on the Obligations which the
Lender repays to the Company pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
the Guarantor waives any right to the deferral or modification of the
Guarantor's obligations hereunder by reason of any such proceeding.
4. The obligations of the Guarantor hereunder are independent of the
Obligations of the Company, and a separate action or actions may be brought and
prosecuted against the Guarantor whether or not action is brought against the
Company and whether or not the Company be joined in any such action or actions.
Any payment by the Company or other circumstance which operates to toll any
statute of limitations as to the Company shall operate to toll the statute of
limitations as to the Guarantor.
5. The Guarantor authorizes the Lender (whether or not after
termination of this Guaranty), without notice or demand (except as shall be
required by applicable statute and cannot be waived), and without affecting or
impairing its liability hereunder, from time to time to (a) renew, compromise,
extend, increase, accelerate or otherwise change the time for payment of, or
otherwise change the terms of, the Obligations or any part thereof, including
increase or decrease of the rate of interest thereon; (b) take and hold security
for the payment of this Guaranty or the Obligations and exchange, enforce, waive
and release any such security; (c) apply such security and direct the order or
manner of sale thereof as the Lender in its discretion may determine; and (d)
release or substitute any one or more endorsers, guarantors, the Company or
other obligors. The Lender may without notice to or the further consent of the
Company or the Guarantor assign this Guaranty in whole or in part to any person
acquiring an interest in the Obligations.
6. It is not necessary for the Lender to inquire into the capacity or
power of the Company or the officers acting or purporting to act on its behalf,
and the Obligations made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
7. The Guarantor waives any right to require the Lender to (a) proceed
against the Company or any other party; (b) proceed against or exhaust any
security held from the Company; or (c) pursue any other remedy in the Lender's
power whatsoever. To this end, and without limiting the generality of the
foregoing, the Guarantor expressly waives any rights the
2
<PAGE>
Guarantor might otherwise have had under the provisions of North Carolina
General Statutes Section 26-7 et seq.. The Lender may, at its election,
foreclose on any security held for the Obligations by one or more judicial or
nonjudicial sales, or exercise any other right or remedy the Lender may have
against the Company, or any security, without affecting or impairing in any way
the liability of the Guarantor hereunder except to the extent the Obligations
have been paid. The Guarantor waives any defense arising out of any such
election, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of the Guarantor
against the Company or any security. The Guarantor hereby waives any claim or
other rights which the Guarantor may now have or may hereafter acquire against
the Company or any other guarantor of all or any of the Obligations that arise
from the existence or performance of the Guarantor's obligations under this
Guaranty or any other of the Credit Documents (as such claims and rights being
referred to as the "the Guarantor's Conditional Rights"), including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
or indemnification, or any right to participate in any claim or remedy which the
Lender has against the Company or any collateral which the Lender now has or
hereafter acquires for the Obligations, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, by any payment
made hereunder or otherwise, including, without limitation, the right to take or
receive from the Company, directly or indirectly, in cash or other property or
setoff or in any other manner, payment or security on account of such claim or
other rights. If, notwithstanding the foregoing provisions, any amount shall be
paid to the Guarantor on account of the Guarantor's Conditional Rights and
either (a) such amount is paid to the Guarantor at any time when the Obligations
shall not have been paid or performed in full, or (b) regardless of when such
amount is paid to the Guarantor any payment made by the Company to the Lender is
at any time determined to be a preferential payment, then such amount paid to
the Guarantor shall be deemed to be held in trust for the benefit of the Lender
and shall forthwith be paid to the Lender to be credited and applied upon the
Obligations, whether matured or unmatured, in such order and manner as the
Lender shall determine. To the extent that any of the provisions of this
Paragraph shall not be enforceable, the Guarantor agrees that until such time as
the Obligations have been paid and performed in full and the period of time has
expired during which any payment made by the Company or the Guarantor to the
Lender may be determined to be a preferential payment, the Guarantor's
Conditional Rights to the extent not validly waived shall be subordinate to the
Lender's right to full payment and performance of the Obligations and the
Guarantor shall not seek to enforce the Guarantor's Conditional Rights during
such period. The Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
Obligations. The Guarantor assumes all responsibility for being and keeping
itself informed of the Company's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Obligations and
the nature, scope and extent of the risks which the Guarantor assumes and incurs
hereunder, and agrees that the Lender shall have no duty to advise the Guarantor
of information known to it regarding such circumstances or risks.
8. In addition to the Obligations, the Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses incurred by the
Lender in enforcing this Guaranty in any action or proceeding arising out of, or
relating to, this Guaranty. This Guaranty and the liability and obligations of
the Guarantor hereunder are binding upon the Guarantor and its successors
3
<PAGE>
and assigns, and this Guaranty inures to the benefit of and is enforceable by
the Lender and its successors, transferees, and assigns.
9. No right or power of the Lender hereunder shall be deemed to have
been waived by any act or conduct on the part of such Person, or by any neglect
to exercise such right or power, or by any delay in so doing; and every right or
power shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by the Lender.
10. The Guarantor agrees to execute any and all further documents,
instruments and agreements as Lender from time to time reasonably requests to
evidence the Guarantor's obligations hereunder.
11. The Guarantor hereby represents and warrants and agrees that:
(a) The financial statements dated the Statement Date, copies
of which have been furnished to the Lender, are complete and correct
and have been prepared to present fairly and consistently, in
accordance with GAAP, the financial condition to the Guarantor and its
consolidated Subsidiaries (including without limitation the Company) at
such date and the results of its operations and cash flows for the
fiscal period then ended.
(b) As of the date hereof, there has been no material adverse
change in the business, operations, assets or financial or other
condition of the Guarantor from that shown on the financial statements
dated as of the Statement Date referred to in Paragraph (a) above.
(c) The Guarantor: (1) is duly organized, validly existing and
in good standing as a corporation under the laws of the State of
Delaware and is in good standing as a foreign corporation in Florida
and in each other jurisdiction where its ownership of property or
conduct of business requires such qualification and where failure to so
be in good standing could have a material adverse effect on the
property or business of the Guarantor or on the Guarantor's ability to
pay or perform the Obligations or its obligations hereunder, (2) has
the corporate power and authority and the legal right to own and
operate its property and to conduct business in the manner in which it
does and proposes to do so, (3) is in compliance with all Requirements
of Law and Contractual Obligations to the extent that failure to so
comply could have a material adverse effect on the Guarantor or the
Company or either of their property or business or on the ability of
the Company to pay or perform the Obligations or the ability of the
Guarantor to pay or perform the Guarantor's obligations hereunder, and
(4) has reviewed and approved the Credit Documents.
(d) The Guarantor has the corporate power and authority and
the legal right to execute, deliver and perform the Credit Documents to
which it is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Guaranty. The
Credit Documents to which the Guarantor
4
<PAGE>
is a party have been duly executed and delivered on behalf of the
Guarantor and constitute legal, valid and binding obligations of the
Guarantor enforceable against the Guarantor in accordance with their
respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles whether applied in an action at law or a
suit in equity.
(e) The execution, delivery and performance by the Guarantor
of any Credit Documents to which the Guarantor is a party will not
violate any Requirement of Law or any Contractual Obligation of the
Guarantor to the extent that failure to comply could have a material
adverse effect on the Guarantor or its property or business or on the
ability to pay or perform the Obligations or its obligations hereunder.
(f) Except as disclosed on Exhibit 1 hereto, no litigation,
investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or any of its
consolidated Subsidiaries or against any of such Person's properties or
revenues which is likely to be adversely determined and which, if
adversely determined, is likely to have a material adverse effect on
the business, operations, property or financial or other condition of
the Guarantor or the Company, or the Guarantor and its consolidated
Subsidiaries taken as a whole, or on the Collateral, or the Collateral
Value of the Borrowing Base.
(g) Each of the Guarantor and the Company and each of the
Guarantor's consolidated Subsidiaries has filed or caused to be filed
all tax returns that are required to be filed and have paid all taxes
shown to be due and payable on said returns or on any assessments made
against any of them or any of the property of any of them other than
taxes which are being contested in good faith by appropriate
proceedings and as to which the Guarantor, the Company or such
Subsidiary has established adequate reserves in conformity with GAAP.
(h) The Guarantor is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(i) Neither the Guarantor nor the Company, nor any of the
Subsidiaries of either the Guarantor or the Company, is engaged or will
engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of such
terms under Regulation U. No part of the proceeds of any Loan made
under the Warehousing Agreement will be used, directly or indirectly,
for "purchasing" or "carrying" "margin stock" as so defined or for any
purpose which violates, or which would be inconsistent with, the
applicable provisions of the Regulations of the Board of Governors of
the Federal Reserve System.
5
<PAGE>
(j) The Guarantor and each of its ERISA Affiliates, if any,
are in compliance in all respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company
or any of its ERISA Affiliates which is likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(k) The Guarantor has not issued any unregistered securities
in violation of the registration requirements of Section 5 of the
Securities Act of 1933, as amended, or any other existing applicable
law, and is in compliance, in all material respects, with all existing
applicable rules, regulations and requirements under the Securities Act
of 1933, as amended, or the Securities and Exchange Act of 1934, as
amended.
(l) No consent, approval, authorization of, or registration,
declaration or filing with, any Governmental Authority is required on
the part of the Guarantor in connection with the execution and delivery
of the Credit Documents to which the Guarantor is a party or the
performance of or compliance with the terms, provisions and conditions
hereof or thereof.
(m) The Guarantor shall not sell, lease, assign, transfer or
otherwise dispose of any of its assets (other than obsolete or worn out
property), whether now owned or hereafter acquired, other than in the
ordinary course of business as currently conducted and at fair market
value.
(n) The Guarantor shall furnish or cause to be furnished to
the Lender;
(1) Within one hundred twenty (120) days
after the last day of its fiscal year, consolidated and
consolidating statements of income and cash flows for such
year, and consolidated and consolidating balance sheets as of
the end of such year, of the Guarantor and its consolidated
Subsidiaries (including, without limitation, the Company),
presented fairly in accordance with GAAP and accompanied by an
unqualified report of a firm of independent certified public
accountants acceptable to the Lender and including therewith a
copy of any management letter from such certified public
accountants;
(2) Within forty-five (45) days of the last
day of each calendar month, consolidated and consolidating
statements of income for such month, and consolidated and
consolidating balance sheets as of the end of such month, of
the Guarantor and its consolidated Subsidiaries (including,
without limitation, the Company) accompanied in each case by a
duly-executed Covenant Compliance Certificate.
(3) Promptly, such additional financial and
other information as the Lender may from time to time
reasonably request; and
6
<PAGE>
(4) Promptly, copies of any and all forms,
reports, supplements or other documents of any kind filed by
the Guarantor with the Securities and Exchange Commission.
(o) The Guarantor shall continue to own one hundred percent
(100%) of the outstanding capital voting stock of the Company.
(p) The Guarantor shall not:
(1) permit the ratio at any date of Total
Liabilities to Adjusted Tangible Net Worth to be more than (i)
during the period from March 31, 1998 through and including
September 29, 1998, 40.0:1.0, and (ii) at all times
thereafter, 15.0:1.0.
(2) permit Book Net Worth to be less than
(i) during the period from March 31, 1998 through and
including September 29, 1998, $500,000, and (ii) at all times
thereafter, $1,000,000; or
(3) permit the ratio at any date of total
current assets of the Guarantor and its consolidated
Subsidiaries to total current liabilities of the Guarantor and
its consolidated Subsidiaries, each as determined in
accordance with GAAP, to be less than (i) during the period
from March 31, 1998 through and including September 29, 1998,
0.70:1.0, and (ii) at all times thereafter, 0.85:1.0.
(q) The Guarantor shall not, during any fiscal year, declare
and pay any dividends, or return any capital, to its shareholders or
authorize or make any other distribution, payment or delivery of
property or cash to its shareholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a
consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any options or warrants issued by it for or
with respect to its capital stock), or set aside any funds for any of
the foregoing purposes, in an aggregate amount in excess of fifty
percent (50%) of the income of the Guarantor available to shareholders
for such fiscal year as determined in accordance with GAAP.
12. This Guaranty shall be deemed to be made under and shall be
governed by the laws of the State of North Carolina.
13. If any of the provisions of this Guaranty shall contravene or be
held invalid under the laws of any jurisdiction, this Guaranty shall be
construed as if not containing those provisions and the rights and obligations
of the parties hereto shall be construed and enforced accordingly.
7
<PAGE>
Executed and sealed as of the day and year first above written.
WESTMARK GROUP HOLDINGS, INC.,
a Delaware corporation
[CORPORATE SEAL]
By:________________________
Attest: Name:___________________
Title:__________________
By:____________________________
Name:_______________________
Title:______________________
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM [Identidy specific financial statements] AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 99,824
<SECURITIES> 2,876,528
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 8,717,601
<CURRENT-ASSETS> 8,817,425
<PP&E> 1,039,145
<DEPRECIATION> (371,986)
<TOTAL-ASSETS> 13,788,435
<CURRENT-LIABILITIES> 11,622,092
<BONDS> 1,276,916
0
1,147,870
<COMMON> 14,263
<OTHER-SE> 577,294
<TOTAL-LIABILITY-AND-EQUITY> 13,788,435
<SALES> 2,802,605
<TOTAL-REVENUES> 3,056,142
<CGS> 303,037
<TOTAL-COSTS> 2,655,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 304,571
<INCOME-PRETAX> 435,619
<INCOME-TAX> 0
<INCOME-CONTINUING> 435,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,619
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.10
</TABLE>
