UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] 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)
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Securities registered under Section 12(b) of the
Exchange Act:
NONE
Securities registered under Section 12(g) of the
Exchange Act:
COMMON STOCK, $0.005 PAR VALUE
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [XX]
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Issuer's revenues for the 12 months ended December 31, 1997: $8,342,506.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the average bid and ask price for such stock on March 2,
1998: $5,379,308.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 2, 1998: 2,352,735 (one class).
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders which will be filed pursuant to
Regulation 14A not later than April 30,1998
is incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format: Yes [ ] No [XX]
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TABLE OF CONTENTS
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ITEMS PAGE
PART I
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ITEM 1. BUSINESS........................................................................................1
ITEM 2. PROPERTIES......................................................................................5
ITEM 3. LEGAL PROCEEDINGS...............................................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........9
ITEM 7 FINANCIAL STATEMENTS...........................................................................16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL DISCLOSURE..............16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT EXECUTIVE OFFICERS AND DIRECTORS....................................16
ITEM 10. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION.................................................18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................18
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K...............................................................19
SIGNATURES.......................................................................................................22
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PART I
ITEM 1. BUSINESS
Westmark Group Holdings, Inc. ("Westmark" or the "Company") through its
wholly-owned subsidiary Westmark Mortgage Corporation ("Westmark Mortgage"),
funds, purchases and sells first and second mortgage loans. In most cases, the
Company will purchase and fund its mortgage loans utilizing warehouse lines of
credit. Most of these loans are to individuals who generally cannot obtain
financing from conventional lending sources because of impaired credit. This
type of mortgage loan, commonly referred to as a "non-conforming", "sub-prime",
or "B/C" mortgage loan, carries higher interest rates than a conventional
mortgage loan, commonly referred to as a "conforming", "prime" or "A" mortgage
loan. The Company's mortgages, both conforming and non-conforming, are secured
primarily by single family, multi-family and condominium residences.
The Company began marketing its non-conforming mortgage loan products
in January 1995. In 1996, non-conforming loans accounted for approximately 54%
of the Company's production compared to approximately 15% of the Company's
production in 1995. Non-conforming loans accounted for over 95% of the Company's
production in 1997.
Westmark Mortgage is registered and/or licensed to originate, purchase
closed loans, underwrite, fund or sell residential mortgage loans in the states
of Arizona, Arkansas, California, Florida, Georgia, Illinois, Indiana, Kansas,
Kentucky, Michigan, Missouri, New Mexico, Ohio, Oregon, Tennessee, Washington
and Wisconsin. The Company, which does not service the mortgage loans it
originates and purchases except for occasional collection of the initial
mortgage payment, pools and sells mortgage loans on a "servicing released" basis
to third-party institutional investors. These investors include The Money Store,
Household Financial Services, Inc., Mortgage Corporation of America, Green Tree
Financial Corporation and Master Financial, Inc. The Company generally sells the
mortgage loans within thirty days of origination. The primary purchasers of the
Company's mortgage loans are Household Financial Services and The Money Store.
Marketing
Traditionally, Westmark has marketed its products and services through
field sales representatives ("Account Executives"), each of whom is responsible
for cultivating relationships with brokers in a specific geographical region.
Each Account Executive visits prospective clients in a particular territory and
reviews loans and loan applications. If the loan or application appears to meet
the underwriting criteria of Westmark, the account executive obtains the
mortgage application documentation and forwards it to Westmark Mortgage's
underwriters.
In addition to field Account Executives, Westmark has inside sales
Account Executives. These employees focus on less densely populated states and
territories, utilizing telemarketing to prospect for Westmark business. Brokers
in these areas will send the loan application into the operations division
directly. Management has found this process to be more cost effective for
sparsely populated areas than traditional Account Executive visits.
Westmark also markets its products at national and regional industry
trade shows. The Company has its own booth at these shows and sends its field
and inside Account Executives to cultivate new and existing clients in their
booths. This effort provides continued market recognition for the Company and
its field and inside Account Executives. Westmark collects prospective client
information at these events and inputs the data into a computer database for
marketing purposes. The marketing department sends marketing literature by mail
or facsimile to these prospective clients to further enhance market recognition
of the Company and its products. The information on the new contacts is then
distributed to the appropriate Account Executives who follow up with sales
calls.
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Competition
The Company faces intense competition, primarily from mortgage banking
companies, commercial banks, credit unions, thrift institutions, and finance
companies. Many of these competitors are substantially larger and have more
capital and other resources than the Company. Competition can take many forms,
including convenience in obtaining a loan, customer service, marketing and
distribution channels and interest rates. Furthermore, the current level of
gains realized by the Company and its competitors on the sale of the type of
loans they originate and purchase is attracting additional competitors into this
market with the possible effect of lowering gains that may be realized on the
Company's future loan sales. Competition may be affected by fluctuations in
interest rates and general economic conditions. During periods of rising rates,
competitors which have "locked in" low borrowing costs may have a competitive
advantage. During periods of declining rates, some potential customers become
focused on obtaining an "A" rate or FNMA refinanced loan. During economic
slowdowns or recessions, the Company's borrowers may have new financial
difficulties which tend to provide new opportunities to the Company and its
competition.
The Company depends largely on independent mortgage brokers, financial
institutions and other mortgage bankers for its originations and purchases of
new loans. The Company's competitors also seek to establish relationships with
the Company's independent mortgage brokers, financial institutions and other
mortgage bankers, none of whom is obligated by contract or otherwise to continue
to do business with the Company. In addition, the Company expects the volume of
wholesale loans purchased by the Company to increase and the relative proportion
of wholesale loans to total loans originated and purchased by the Company to
expand. The Company's future results may become more exposed to fluctuations in
the volume and cost of its wholesale loans resulting from competition from other
purchasers of such loans, market conditions and other factors.
Regulation
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
The Company's domestic business is subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities
and is subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on part or all of its operations. The
Company is subject to the rules and regulations of, and examinations by HUD and
state regulatory authorities with respect to originating, processing,
underwriting and selling loans. These rules and regulations, among other things,
impose licensing obligations on the Company, establish eligibility criteria for
mortgage loans, prohibit discrimination, provide for inspections and appraisals
of properties, require credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to demands for
indemnification or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive.
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Employees
As of December 31, 1997, the Company employed 12 full-time
administrative employees and 60 full-time production and operations employees.
To date, the Company has been able to recruit and retain sufficient qualified
personnel. None of the Company's employees are represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
Green World Sale
Effective July 1996, the Company acquired all of the issued and
outstanding capital stock of Green World Technologies, Inc. ("Green World"), a
provider of air conditioner enhancement products, from GTB Company ("GTB"). GTB
had recently acquired Green World from Medical Industries of America, Inc.
("MIOA"), an affiliate of the Company. In that connection, the Company (i)
issued GTB 130,000 shares of its Series E convertible preferred stock ("Company
Series E Preferred Stock"), and (ii) agreed to pay GTB royalties of 14% of the
gross sales of Green World for a period of two years. Green World is a
nationwide marketer of Talon, an energy-saving add-on to air-cooled condensers
found in air conditioners, heat pumps and refrigeration systems.
Management subsequently decided to focus the Company's resources
exclusively on its mortgage operations. In December 1997, the Company divested
substantially all of its interest in Green World pursuant to an exchange
agreement between the Company, GTB and Green World (the "Exchange Agreement").
Pursuant to the provisions of the Exchange Agreement, the Company returned to
GTB all of the outstanding shares of Green World common stock and issued to GTB
37,500 shares of the Company's Common Stock. In exchange, GTB assigned all of
the Company's Series E Preferred Stock back to the Company. Green World issued
the Company 185,000 shares of its series A convertible preferred stock (the
"Green World Series A Preferred Stock"), in exchange for which the Company paid
Green World $70,000 and gave Green World a promissory note for $380,000 (the
"Company Note"), the first two payments of which were made in February and March
1998. Payment of the Company Note is secured by the Green World Series A
Preferred Stock and the Company Series E Preferred Stock. The Company has agreed
to loan Green World up to $8,000 per month to cover the salaries of two Green
World officers (the "Green World Salary Advances") through December 1998.
Westmark and GTB exchanged mutual general releases. The Company's Green World
Series A Preferred Stock represents approximately 18.5% of the capital stock of
Green World on a fully diluted basis, and is subject to certain mandatory
redemption provisions. The Company's remaining interest in Green World is
reflected in the Company's financial statements as an investment in discontinued
operations.
Westmark-Medical Industries Agreement
Pursuant to an agreement between MIOA and the Company dated November
1995 and amendments thereto (the "Stock Purchase Agreement"), Medical Industries
of America, Inc., formerly known as Heart Labs of America, Inc. ("MIOA")
purchased 259,679 shares of the Company's common stock for (i) $3,210,000,
comprised of $1,210,000 cash and $200,000 of cash equivalents, and (ii) 200,000
shares of MIOA series B convertible preferred stock with a stated value of $10
per share. The Stock Purchase Agreement provided that MIOA's ownership of the
Company would not be diluted below 49% (the "Anti-Dilution Provision"). In May
1996, the Company issued MIOA 73,779 shares of common stock pursuant to the
Anti-Dilution Provision. Over the first half of 1996, MIOA loaned the Company an
aggregate of $2,388,593 represented by one-year notes, bearing interest at the
rate of 10% per annum. In March 1996, the Company converted $700,000 of this
indebtedness into 200,000 shares of the Company's Series C Preferred Stock with
a stated value of $3.50 per share.
The Company and MIOA entered into a settlement agreement dated January
1997 which was amended March 1997, and June 1997 (the "MIOA Settlement
Agreement"). The MIOA Settlement Agreement terminated the Anti-Dilution
Provision. Pursuant to the MIOA Settlement Agreement, the Company issued to MIOA
a three year promissory note (the "MIOA Note") in the principal amount of
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$1,953,000, bearing interest at 10% per annum, with monthly payments in the
amount of $25,000 which commenced June 30, 1997, and a final balloon payment of
unpaid principal and interest due on June 30, 2000. The MIOA Settlement
Agreement also provided for satisfaction of the MIOA Note as follows: (1) in the
event the Company receives additional capitalization of (i) a minimum amount of
$300,000 and a maximum amount of $1.5 million, MIOA is entitled to receive the
first $300,000, (ii) in the event the additional capitalization exceeds $1.5
million, MIOA will be entitled to receive the first $500,000 of additional
capitalization in excess of $1.5 million, and (iii) in the event additional
capitalization exceeds $3 million, MIOA shall be entitled to receive 50% of the
excess; (2) MIOA is entitled to 15% and 20% of the net cash flow of the Company
in excess of operating expenses and settlement payments on a consolidated basis
in calendar years 1997 and 1998, respectively; and (3) in the event the Company
should sell or spin-off either of Westmark Mortgage or Green World, MIOA is
entitled to 50% of the cash proceeds received by the Company resulting from the
sale or spin-off (the Company received no cash proceeds in connection with the
sale, described elsewhere in this Form 10-KSB, of its Green World subsidiary).
In addition, the MIOA Settlement Agreement provides that: (1) MIOA is
entitled to demand registration rights for its shares of common stock; (2) after
repayment of the MIOA Note, MIOA shall repurchase the shares of MIOA preferred
and common stock owned by WGHI, and WGHI shall repurchase the shares of WGHI
preferred and common stock owned by MIOA (the purchase price for the preferred
shares shall be the stated value and the purchase price for the common shares
shall be the closing bid price on the day prior to the repurchase); and (3) MIOA
and the Company release each other from any and all claims arising out of or
related to the Stock Purchase Agreement, ownership of each other's shares of
common and preferred stock, and the parties' business relationship.
MIOA presently owns 333,458 shares of the Company's Common Stock, and
200,000 shares of the Company's Series C Preferred Stock ($3.50 stated value).
Westmark presently owns 200,000 shares of MIOA's series B convertible preferred
stock. At December 31, 1997, the Company owed MIOA $ 1,783,464, plus accrued
interest of $247,202, net of interest in the sum of $47,000 which represents
interest forgiveness for the second quarter.
Michael Morrell and Linda Moore
Michael Morrell and Linda Moore resigned as President and Vice
President, respectively, and Mr. Morrell resigned as Chairman of the Board of
Directors of the Corporation in November 1995. Mr. Morrell and Ms. Moore
subsequently became officers, and in the case of Mr. Morrel, a director of MIOA.
Subsequent to their resignations, Mr. Morrell and Ms. Moore entered into to
termination agreements and consulting agreements with the Company. Various
disputes arose in connection with the performance of those agreements. In
January 1997, the parties entered into a settlement agreement which was amended
in November 1997. Pursuant to the terms of the settlement agreement, as amended,
the Company issued to Mr. Morrell 75,000 shares of the Company's common stock in
November 1997 and 24,700 shares of the Company's common stock in December 1997
for unpaid salary, consulting fees, and expenses. Interest in the sum of $31,000
was to be satisfied by the partial assignment of a promissory note receivable or
shares of common stock of Green World received by the Company in connection with
the sale of Green World. Pursuant to the terms of the settlement, Mr. Morrell
also received: (1) $13,800 for past due rental obligations under the lease for
the Company's Delray Beach, Florida offices; (2) 27,562 shares of Company common
stock for delinquent consulting fees and $7,500 per month under his consulting
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agreement with the Company beginning January 1997 through November 1998; (3)
$5,400 for automobile lease expenses; and (4) $1,000 for miscellaneous expense
reimbursement; and (5) a warrant to purchase 45,000 shares of the Company's
stock which expired unexercised on January 28, 1998. Also pursuant to the
settlement agreement, the Company paid Ms. Moore $5,000 and issued 33,100 shares
of the Company's common stock in November 1997 for unpaid salary. Interest in
the sum of $9,000 was to be satisfied by the partial assignment of a promissory
note receivable or shares of Common Stock of Green World received by the Company
in connection with the sale of Green World. Pursuant to the settlement
agreement, Ms. Moore also received: (1) 11,200 shares of the Company's common
stock for unpaid consulting fees; and (2) a warrant to purchase 24,067 shares of
the Company's common stock which expired unexercised on January 26, 1998.
History
The Company was incorporated in Colorado during 1986 under the name
Eagle Venture Acquisitions, Inc. Until May 1990, the Company was not in the
mortgage finance business. In May 1990, the Company changed its name to Network
Real Estate of California, Inc. The Company then began providing a variety of
real estate services through its wholly-owned subsidiary, Network Real Estate,
Inc. ("Network Real Estate"). These services included real estate brokerage,
mortgage banking services and insurance services. In July 1992, the Company
changed its name to Network Financial Services, Inc. From May 1990 through
August 1993, the Company conducted substantially all of its business operations
through its subsidiary, Network Real Estate.
In August 1993, the Company acquired Westmark Mortgage from Primark
Corporation, an unaffiliated third party. Westmark Mortgage was engaged in
essentially the same business as it is today, except that it purchased and
originated primarily conforming mortgage loans and serviced some mortgage loans
it originated. In August 1994, Freddie Mac approved sale of the Company's
mortgage servicing portfolio. In September 1994, the Company sold its entire
mortgage servicing portfolio to Crown Bank.
Pursuant to an April 1994 agreement, effective December 31, 1993, the
Company sold Network Real Estate to a former president of the Company.
In April 1996, Westmark combined its California and Florida operations
centers into one facility in Delray Beach, Florida, in order to increase
efficiency and lower overhead expenses. The Company continues to maintain
satellite offices in the following locations: Anaheim Hills, California; Downers
Grove, Illinois; and Baton Rouge, Louisiana.
ITEM 2. PROPERTIES
The Company maintains its executive and production offices at 355 N.E.
Fifth Avenue, Suite #4, Delray Beach, Florida 33483. This total space consists
of 6,466 square feet. In 1994 and 1995, respectively, the Company acquired from
an unaffiliated third party ownership of Unit 7 (1,047 square feet) and Unit 5
(1,466 square feet) for a combined purchase price of $160,000. In 1997, Westmark
Mortgage purchased Unit 2 (954 square feet) and Unit 4 (2,080 square feet) from
a consultant, former officer and director of the Company, Michael Morrell, for a
purchase price of $275,000.
The Company leases additional office space at the same complex above
comprised of Unit 1 (919 square feet). The Company also leases space for its
satellite offices in Anaheim Hills, California (1,500 square feet), Downers
Grove, Illinois (1,047 square feet) and Baton Rouge, Louisiana (1,200 square
feet). The total lease expense is approximately $6,800 per month which is
considered market.
Pursuant to an Agreement dated July 10, 1996 (the "Original Acquisition
Agreement") WGHI acquired various parcels of real property located in Palm Beach
County, Florida ("Parcel A") from PBF Land Co. in exchange for all of the common
stock and ownership of Network Capital Group, a WGHI subsidiary. Parcel A had an
appraised value of approximately $1,298,000. Pursuant to the same Agreement,
WGHI agreed to acquire other parcels of land ("Parcel B") through the issuance
into escrow of 1,000,00 shares of Series D Preferred Stock with the stated value
of $5,000,000. The Preferred Stock was convertible under certain conditions
relating to, among other things, the sale of all or a portion of Parcel B at
certain minimum prices. Subsequent to the date of the Original Acquisition
Agreement, the former owner of Parcel A and Parcel B, Whitehall Financial
Services ("Whitehall") asserted that it was a third party beneficiary of such
Agreement. Pursuant to settlement agreements and mutual releases with PBF Land
Co. and Whitehall dated November 7, 1996 (the "PBF Settlement Agreement" and the
"Whitehall Settlement Agreement"), 500,000 of the Series D Preferred Shares
previously issued in the name of PBF Land Co. were to be cancelled and reissued
in the name of Whitehall. Of such shares, 400,000 were to be escrowed and
released only upon the occurrence of certain conditions relating to the sale of
the real property contained in Parcel B and/or certain other conditions. WGHI
continued to be obligated to purchase Parcel B subject to the receipt and
approval of an opinion letter of title and real property appraisal. The Company
contends that it has not received nor approved either an opinion letter of title
or written appraisal. On December 14, 1997, WGHI and PBF Land Co. executed a
letter agreement pursuant to which the Company renounced any right in Parcel B
in satisfaction of its obligations to PBF Land Co. in the Original Acquisition
Agreement and the PBF Settlement Agreement of November 7, 1996. The Company
retained ownership of Parcel A and has taken a $590,000 write down in value for
the year ending December 31, 1997, with respect to such property. In December
1997, Whitehall filed a Notice of Interest with Palm Beach County regarding both
Parcels A and B. Whitehall contends that no adequate consideration was received
by Whitehall from PBF Land Co. when Parcels A and B were originally conveyed by
Whitehall to PBF Land Co. Whitehall also contends that it is entitled to some
portion of the Series D Preferred Stock to be issued to Whitehall to compensate
Whitehall for the conveyance of Parcel A to Westmark. The Company contends that
pursuant to the Original Acquisition Agreement, Parcel A was acquired solely in
exchange for the Company's interest in Network Capital Group, and that Whitehall
was entitled to receive Series D Preferred Shares only upon acquisition of
Parcel B. The Company contends that it is not required to issue any Series D
Preferred Shares of stock to Whitehall because the Company never received title
to Parcel B nor an opinion letter of title or written appraisal as provided for
in the Original Acquisition Agreement and the PBF and Whitehall Settlement
Agreements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a plaintiff in NETWORK FINANCIAL SERVICES, INC. V.
MCCURDY RAICHE, RYALS, NASH & MOSS LAND COMPANY, filed March 1993 in Monterey
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County, California Superior Court. The plaintiff alleges fraud, negligent
misrepresentation, breach of fiduciary duty, negligence, quiet title, RICO
violations and conversion. Defendant McCurdy initiated a Cross-Complaint naming,
among others, the Company as a cross defendant. The Cross-Complaint seeks
damages for breach of a stock option agreement, breach of contract, and
declaratory relief. The Company has finalized a settlement with defendants
Raiche and Ryals. The Cross-Complaint is subject in April 1998 to mandatory
dismissal for lack of prosecution because the Cross-Complainant will not have
filed any pleadings or taken any other action in the case for over 5 years. The
Company does not anticipate any liability with regard to this matter.
The Company is a defendant in KNIGHT V. LOMAS MORTGAGE U.S.A., ETC., ET
AL. originally filed in federal court on August 27, 1995 and now pending in
Orange County, California Superior Court Case No. 771006. The complaint is based
upon a contention by the Plaintiffs that Lomas Mortgage U.S.A. as the servicing
agent wrongfully impaired the credit rating of Plaintiffs and breached the
written agreement between the parties. A preliminary determination indicated
that the basis for the dispute is between Lomas U.S.A. and the Plaintiffs, but
the Company has been named as a party defendant based on the original
contractual relationship between the Plaintiffs and Westmark. Settlement
negotiations are pending and a trial date has been set for May 4, 1998. The
Plaintiffs have not specified the amount of the damages claim. The Company
believes the risk of loss on the plaintiffs' tort theories, including punitive
damages claims, is remote because Plaintiff has been unable to establish that
the Company had knowledge of, participated in, or otherwise consented to or
ratified the alleged misconduct of its servicing agent Lomas. The Plaintiffs
contend under a contract theory that the Company is responsible for Lomas'
failure to account for payments made, resulting in unspecified damage to
Plaintiffs' credit.
Westmark has alleged: (1) that Plaintiff failed to mitigate their
damage by timely seeking to refinance their mortgage; and (2) the damage to
Plaintiff's credit was not proximately caused by defendants' purported conduct,
but rather by Plaintiff's repeated failure to timely deliver payments due.
The principal amount of the loan at issue is $180,000.00. The loan has
been sold on the secondary market and no longer belongs to Westmark. The loan is
presently current. The Plaintiff has recently been able to clear their credit
and is in the process of refinancing their existing loan. An itemized settlement
demand has been requested from the Plaintiff, and depositions are scheduled for
late March, 1998.
The Company is a defendant in Amber Capital Corporation, Universal
Solutions, INC., Pyramid Holdings, Inc. and Affiliated Services, Inc. (the
"Claimants") V. WESTMARK GROUP HOLDINGS, INC., American Arbitration Case
#33-199-00127-97-DO. On June 10, 1997, the Claimants filed a Demand for
Arbitration seeking "compensatory damages in an undetermined amount and
rescission of stock purchases and return of funds". The case is set for hearing
in April 1998. The Complaint is based on the alleged failure of Westmark to
register certain shares issued to the Claimants, and damages allegedly suffered
by the Claimants as a result thereof. The Company is still in the process of
preparing for arbitration and is unable to determine the probable outcome of the
suit.
The Company is a defendant in CORESTATES BANK, N.A. VS. WESTMARK
MORTGAGE CORPORATION, filed in the Circuit Court in Broward County, Florida on
June 20, 1997. The Plaintiff alleges breach of contract with respect to
brokering a sale of the Company's loan servicing rights in 1994 resulting in a
claim in the sum of $72,974, exclusive of interests and costs. The company has
entered into a settlement agreement including a protracted payment plan and the
current balance as of December 31, 1997 is $43,949, and a stipulation for entry
of final judgment against the Company if the Company defaults on the settlement
agreement
The Company is a defendant/appellee in CONWAY vs. DANNA ET AL filed in
Santa Clara County Superior Court No. CV 737589. The initial Complaint was filed
in January, 1994, and was amended in January, 1997. The Complaint alleges
damages for fraud, breach of written contract, breach of implied covenant of
good faith dealing, common count, and breach of California securities statutes
against Network Financial Services, Inc. (a.k.a. Westmark) and others. The Court
ordered this action dismissed upon motion of defendants. Three of the original
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plaintiffs have filed an appeal of the trial court order, which appeal is
pending. Although the outcome of litigation cannot be predicted with any degree
of certainty, the Company considers the risk of loss in this matter to be
remote, and, consequently, does not anticipate any liability with regard to this
matter.
The Company is a defendant in FAIRBANKS VS. WESTMARK MORTGAGE
CORPORATION, ET AL. filed on June 20, 1997 in Orange County, California Superior
Court Case #780765. Plaintiff is seeking specific performance, quiet title,
declaratory relief and injunctive relief with respect to the foreclosure of a
mortgage wherein Westmark Mortgage Corporation was the original mortgagee. The
Company does not anticipate any liability with regard to this matter.
The Company is a defendant in HOMESIDE VS. WESTMARK filed on December
15, 1997, in Palm Beach County, Florida, Case #CL97-11164-AE. Plaintiff contends
that Westmark Mortgage is obligated to repurchase three loans previously sold to
Homeside Lending, Inc. due to various borrower deficiencies. Negotiations are
pending between the parties and the extent of the Company's liability, if any,
cannot be ascertained in the absence of additional discovery and an evaluation
of the market value of the subject properties.
The Company is a defendant in ECS INTERNATIONAL, INC. VS. WESTMARK
GROUP HOLDINGS, INC. filed in United States District Court, Eastern District of
California on March 5, 1998, Case # CIV. S-89-0386 LKK PAN. The Plaintiff
contends Westmark is obligated to convert and/or redeem 35,000 shares of Series
D preferred stock of the Company. The complaint alleges violations of Section
10(b) of the Securities Exchange Act of 1934; refusal to convert shares of
preferred stock to common stock; breach of contract; fraud; conversion; breach
of fiduciary duty; and breach of the covenant of good faith and fair dealing.
The Plaintiff is seeking compensatory damages of $175,000.00 plus prejudgment
interest thereon from September 5, 1996 A Pre-Trial Conference has been set for
June 15, 1998. The Company intends to defend the matter vigorously.
IN RE CHURCHILL TECHNOLOGY, INC. is a Chapter 11 reorganization filed
on November 27, 1996 in U.S. Bankruptcy Court, Western District of New York. The
Debtor is the landlord of an office condominium occupied by the Company. The
Debtor agreed to release the Company from a 1995 contract requiring the Company
to purchase the condominium unit for $150,000 in return for the Company agreeing
to lease payments payable from May 1998 through December 1998, totaling
$24,506.56. The agreement between the Company and the Debtor is awaiting
Bankruptcy Court approval. The Company believes that approval is likely. If the
Bankruptcy Court fails to approve the agreement, the Company's potential
liability would be specific performance of the contract to purchase the
Condominium which the Company believes is now worth only $85,000.
The Company is a defendant in HOWARD RICE VS. WESTMARK MORTGAGE
CORPORATION, ET AL., a proceeding in aid of execution on a stipulated judgment
for unpaid legal fees of $164,391, filed on September 5, 1997, in Palm Beach
County. The Company has made payments which have reduced the total indebtedness
to $124,391. The Company is engaged in settlement negotiations which the Company
believes will reduce the remaining amount sought by Plaintiff.
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See also discussion of whitehall Financial Services in Item 2 of
this Form 10-KSB.
Management does not believe that any of these proceedings, individually
or in the aggregate, will materially impact the Company's financial condition or
results of operations. From time to time the Company is a defendant (actual or
threatened) in certain lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse affect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded since June 1992 on the
NASDAQ Small Cap Stock Market. The Common Stock trades under the symbol "WGHI".
Prior to June 1992, there was no public market for the Common Stock. The
following table sets forth the range of high and low closing sale prices for the
Common Stock as reported on the NASDAQ Small Cap Stock Market during each of the
quarters presented. The quotations set forth below, which have been adjusted to
give effect to a 1-for-5 reverse stock split effected in August 1997, are
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inter-dealer quotations, without retail mark-ups, mark-downs or commissions and
do not necessarily represent actual transactions.
COMMON STOCK
QUARTERLY PERIOD ENDED HIGH LOW
March 31, 1997 $ 8.440 $ 2.815
June 30, 1997 $ 5.315 $ 2.345
September 30, 1997 $ 4.845 $ 2.655
December 31, 1997 $ 3.375 $ 1.813
As of March 1, 1997, there were approximately 670 holders of record of
the Company's Common Stock. This number does not include beneficial owners of
the Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
The Company has never declared or paid any cash dividends. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and future operations, and therefore does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
This Annual Report on Form 10-KSB 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, those set forth below 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 Financial
Statements listed in Item 7 and the Notes thereto appearing elsewhere in this
Form 10-KSB.
General
Westmark Mortgage, the Company's wholly-owned subsidiary, is a mortgage
banking company engaged in the business of funding, purchasing and selling
mortgage loans secured primarily by one-to-four family residences. The Company
primarily generates income from (i) gains recognized from premiums on loans sold
through whole loan sales to institutional purchasers, (ii) investment income
earned on loans held for sale, and (iii) origination fees and related revenue
received as part of loan closings. Gain on sale of loans, which represents the
sales price in excess of loan acquisition and related costs from whole loan
sales, constituted 65% and 81% of total revenues in 1996 and 1997, respectively.
Investment income earned on loans held for sale constituted 20% and 10% of total
revenues in 1996 and 1997, respectively. Loan origination fees and related
revenue represented 12% and 8% of total revenues in 1996 and 1997, respectively.
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The Company currently has purchase agreements with Household Financial
Services, The Money Store, Green Tree Mortgage Services, Master Financial, Inc.,
MCA Mortgage Corporation, and various non-conforming mortgage conduits pursuant
to which the Company sells loans. The Company sells all of the loans it funds,
generally within 30 days of origination. These agreements are for specific terms
or are open ended, and require the loans to satisfy the underwriting criteria
described therein. During 1996 and 1997, the Company sold loans totaling $89.5
million and $124 million, respectively. The Company does not service any of the
loans it originates, except for occassional collection of the initial mortgage
payment, and sells all loans primarily in whole loan sales. The gain on sale of
loans was $1,881,068 and $6,735,709 in 1996 and 1997, respectively.
Loans held for sale were comprised of 10% "A" (conforming) loans and
90% "B/C" (non-conforming) loans at December 31, 1996 and 2% "A" loans and 98%
"B/C" loans at December 31, 1997. When the Company commits to fund loans, the
parties agree upon an interest rate. Until the Company obtains a commitment to
sell the loan to an investor, the Company is subject to interest-rate
fluctuations. Typically, the Company obtains commitments for the sale of "A"
loans to investors concurrently with making a loan commitment to the borrower.
Interest rate commitments are not typically made to "B/C" borrowers before the
loan funds.
Investment income earned on loans held for sale is derived primarily
from interest payments on loans in inventory. Certain fixed rate "B/C" loans
generally carry a note rate in excess of the cost to borrow. This results in a
positive revenue differential between cost to borrow (at the time the loan
funds) and the loan sale. Management's strategy is to sell those loans in whole
loan sales and in bulk sales as quickly as practicable in order to optimize cash
flow from the sale of the loans. In addition, the Company realizes revenue from
loan origination fees and certain loan discount fees.
Underwriting
All home equity loans are underwritten to the Company's mortgage
underwriting guidelines. The underwriting process is intended to assess both the
prospective borrower's ability to repay the loan and the adequacy of the real
property security as collateral for the loan. In the origination process,
typically, the loan application is taken by the approved broker/correspondent
and the basic application (FNMA Form 1003) and the credit report ordered by the
originating office. The 1003 and credit report are forwarded via Toll Free fax
to the Delray Beach office. Westmark underwriters grade the credit report and
determine acceptability within program guidelines and a preliminary
approval/pre-qualification is faxed back to the originator. Approvals are
generally generated within a 24 hour period and closing occurs within days.
Account executives rely on pagers, fax machines, cellular phones and overnight
delivery to be in contact with corporate headquarters at all times. The
underwriting standards involve the following: (i) the borrower's ability to
repay is analyzed by verifying qualifying income via traditional methods, i.e.,
self-employed borrowers are asked to supply copies of Federal Income Tax Returns
and waged borrowers supply copies of W-2 forms and paystubs, in instances where
"stated income" is used, lower loan to value ratios are offered, and
verification of the source of the income is obtained (copies of business
license, phone verification of employment and/or bank statements), (ii) loan to
value ratios are adjusted to reflect the condition of the borrower's recent
credit history. The greater and more recent the derogatory items are, the more
equity the borrower is required to maintain in the property; (iii) the property
being offered as security for the loan is appraised by a state licensed
appraiser. The appraisal report is carefully reviewed by Westmark's staff
underwriter to ensure that the loan is sufficiently secured. If there is a
question about the quality of the appraisal, a review from another appraiser is
obtained. Larger loan sizes require two full independent appraisal reports; (iv)
on purchase transactions, the borrower's cash down payment is verified as to
amount and source to ensure that they have legitimate equity in the property and
on refinances, the length of time of ownership is verified, using FNMA
guidelines in this area; and (v) on a case-by-case basis, after review and
approval by the Company's underwriters, home equity loans may be made which vary
from the underwriting guidelines and any variations must be approved by a senior
underwriter or by an executive officer of the Company. In summary, Westmark
carefully analyzes each borrower's income, credit and equity. The loan to value
ratio reflects the risk associated with each borrower's situation. These steps
are taken to ensure each loan's quality and performance.
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See Notes to Consolidated Financial Statements of the Company
(included in Item 7) for further discussion of accounting policies and other
significant items.
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
Total revenues increased 187% to $8,342,506 in 1997 from $2,903,921 in
1996. This increase was primarily due to the growth in acquisitions of
non-conforming mortgages.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 258% to $6,735,709 in 1997 from $1,881,068 in 1996. This
increase was due as a result of management's decision to acquire and sell
non-conforming loans. Management intends to continue to originate and sell
non-conforming loans as part of its overall strategy. The volume of
non-conforming loans acquired during 1997 was approximately $128 compared to $41
million in 1996 and $24 million in 1995. Due to the Company's strategy of
selling loans prior to the first payment, management believes that there is no
greater substantive risk in original non-conforming loans than "A" loans.
Loan origination fees increased 88% to $667,029 in 1997 from $355,25
in 1996. This increase is primarily due to acquiring more non-conforming loans.
Traditionally, conforming "A" and non-conforming loans, at the wholesale level,
do not contain loan origination fees. Management has adjusted the loan
origination pricing structure to provide for an increase in per loan origination
fees on non-conforming product. Initially, this change could reduce the cash
requirements at the time of loan funding, thereby possibly reducing gain on sale
of these loans; however, management's goal is to increase the volume of loans,
creating larger pools of loans to sell to investors, which should allow the
Company to maintain its current premium rate on ultimate gain on sale of loans.
Investment income, comprised primarily of interest earned on loans held
for sale, increased 38% to $809,975 in 1997 from $584,399 in 1996. This increase
is due primarily to more loan sales in 1997 as compared with 1996.
Total expenses increased 32% to $9,032,329 in 1997 from $6,829,131 in
1996. This increase is primarily due to (i) an increase in general and
administrative expenses and (ii) non-recurring expenses incurred in
1997 financial transactions.
Direct loan fee expenses increased 141% to $1,041,631 in 1997 and
$432,425 in 1996, due primarily to the increase in loan volume offset by
reductions in loan processing fees charged by the Company's warehouse lenders in
1997.
Interest expense decreased 10% to $1,053,671 in 1997 from $1,172,852 in
1996, due primarily to the increased volume of whole loan sales offset by the
reduced borrowing cost associated with the Company's Warehouse Facilities.
General and administrative expense increased 30% to $5,109,177 from
$3,930,199 in 1996, due primarily to increased personnel costs as a result of
increased loan volume.
Depreciation and amortization expenses increased to $160,497 in 1997
from $140,337 in 1996, primarily due increased technological costs relating to
the purchase of computer hardware and software equipment.
Net loss decreased to $1,468,070 in 1997 from a net loss of $3,800,995
in 1996, resulting in a net loss per share of $1.06 in 1997 as compared with a
net loss per share of $5.36 in 1996.
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Liquidity and Capital Resources
During 1997 and 1996, the Company experienced, and continues to
experience, certain significant cash flow problems and has, from time to time,
experienced difficulties meeting its obligations as they become due. In
addition, the Company has negotiated several settlement agreements with its
creditors to settle its outstanding obligations through the issuance of stock.
As reflected in the consolidated financial statements, the Company has incurred
net losses of $1,468,070 in 1997 and $3,800,995 in 1996, and as of December 31,
1997, the Company's consolidated financial position reflects a working capital
deficiency of $3,095,874. Furthermore, the Company was not in compliance with
certain covenants relating to minimum net worth and minimum current ratio
requirements under its warehouse lines of credit. Subsequent to the year end,
the Company received a waiver of these covenants.
In March 1998, the Company reached a preliminary understanding for a
$20,000,000 revolving warehouse line of credit with First Union National Bank.
The term will be one year, renewable subject to the Company's common stock price
attaining a certain minimum, or the Company obtaining minimum net income. This
will result in a savings to the Company through a reduction in interest rates
charged between this new warehouse line and the current warehouse lines.
Additionally, the Company will issue to First Union National Bank 240,000
warrants to purchase Company common shares at $2.50 per share.
In an agreement dated July 31, 1997 (as amended September 15, 1997)
between MCA Financial Corp (MCA), Westmark Mortgage Corporation (WMC) and
Westmark Group Holdings, Inc. (WGHI) (the "Original Agreement"), WMC agreed to
sell eligible nonconforming mortgage loans to MCA in a total amount of
$16,667,000 and MCA agreed to purchase $500,000 of the Company's Series G
Convertible Preferred Stock with a stated value equal to the cash investment,
convertible into 5% of the Company's outstanding common stock as of January 31,
1998. The Original Agreement has expired under its own terms. But pursuant to an
oral modification to the Original Agreement, WGHI is issuing 48,624 shares (the
"MCA Common Stock") of its common stock to MCA for $193,856.27, already paid by
MCA. The MCA Common Stock will be immediately convertible into 38,771 shares of
Class G Convertible Preferred Stock. In March 1998, MCA and the Company agreed
that upon completion of the sale by WMC to MCA of the entire $16,667,000
principal of eligible non-conforming loans provided for in the Original
Agreement, MCA will invest an additional $306,143.73 (the "Additional
Investment") in WGHI. In return MCA will receive (i) 61,229 shares of Class G
Convertible Preferred Stock convertible into WGHI's common stock on a 1 for 1.23
basis, and (ii) warrants to purchase 65,251 shares of WGHI common stock (the
"MCA Warrants"). The MCA Warrants shall be exercisable at $3.25 per share and
shall expire thirty (30) months after their date of issuance.
The Company is currently conducting discussions with several creditors
concerning converting up to approximately $300,000 of debt into share of the
Company's common or preferred stock.
In February 1998, certain executives of the Company agreed to purchase
400,000 shares of common stock at $2.125 per share. The purchase will be
evidenced by promissory notes to the Company with full recourse to the maker.
The Company expects to collect approximately $400,000 with respect to those
promissory notes through June 30, 1998.
Certain Factors That May Affect Future Results
General
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
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values reduces the ability of borrowers to use home equity to support borrowings
and increases the loan-to-value ratios of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on borrowers who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources, the actual rates of delinquencies,
foreclosures and losses on such loans could be higher under adverse economic
conditions than those currently experienced in the mortgage lending industry in
general. Any sustained period of such increased delinquencies, foreclosures or
losses could adversely affect the pricing of the Company's loan sales. While the
Company believes the underwriting criteria and collection methods it employs
enable it to mitigate the higher risks inherent in loans made to these
borrowers, no assurance can be given that such criteria or methods will afford
adequate protection against such risks.
The success of Company's business is predicated upon the use of its
services in connection with the purchase or refinancing of residential real
estate. The mortgage origination market and real estate market are often
adversely effected, usually on a short-term basis, by unusual climatic events in
any single geographic area such as hurricanes, earthquakes and tornadoes. The
happening of such events or recurrence of such events in a particular area may
increase the rates for mortgage and homeowners insurance causing a decline in
the number of home purchasers and mortgage borrowers. Since 1994, the Company
has undertaken a geographic expansion to avoid concentration in any single
geographic location.
Effect of Fluctuating Interest Rates
Fluctuations in interest rates and increases and decreases of the prime
rate may directly impact the mortgage market and the ability of the Company to
attract "A" or non-conforming or other classes of mortgage loans. If interest
rates should rise, the number of applications for new mortgages may fall.
Management believes that the non-conforming mortgage market is not as
particularly interest-rate sensitive as is the "A" mortgage market. The "A"
mortgage market is primarily composed of borrowers who are interest-rate-driven.
"A" mortgage borrowers refinance current mortgages for ones with lower interest
rates and terms. As interest rates increase, such refinancing diminishes
purchase activities and the number of loan applications in that "A" market
decreases. The non-conforming market, on the other hand, is primarily composed
of borrowers who are payment-driven with the mortgage loan used as a means of
access to equity. The common goal of the non-conforming borrower is to leverage
available equity for immediate use, and despite increases in interest rates, the
non-conforming borrower focuses primarily on the monthly payment. Thus, the
decrease in loan applications in the non-conforming market which may occur when
interest rates increase, is typically not as significant as in the "A" mortgage
market. However, there can be no assurances that interest rates will not rise
and negatively impact the Company's financial position by causing fewer
non-conforming mortgages to be processed by the Company.
Risks of non-conforming Mortgage Market as Compared with "A" Mortgage Market
The Company has changed its mortgage banking strategy to focus on the
non-conforming mortgage market, a nationally growing segment of the mortgage
industry. The non-conforming mortgage market serves borrowers whose credit
history or amount of debt increases the risk associated with mortgage loans and
puts such loans outside the guidelines established by Fannie Mae and Freddie
Mac. Thus, the non-conforming mortgage loans cannot be resold to those
institutions and the Company must locate buyers outside that established market.
The Company's strategy in reducing its risk associated with funding
non-conforming loans is to obtain commitments from outside investors for the
resale to them of such non-conforming loan mortgages before the Company funds
such mortgages. The non-conforming mortgage loan is particularly dependent on
the accuracy of the appraisal of the underlying property because of the higher
risk of lack of repayment and the consequent mortgage originator's increased
reliance on such underlying mortgage assets. In addition, because of the
inherent risks, the non-conforming loan originator charges greater loan
origination fees and mortgage rates generating a higher yield than those of the
"A" mortgage market. Consequently, the profit margins that can be realized by
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the Company on the resale of such non-conforming loans is greater than those
realizable from the "A" loan mortgage market. There is no assurance that the
Company will be able to continue to achieve a higher profit margin from the
resale of its loans or will be able to continue to locate buyers for such
non-conforming loan packages. Occasionally, as part of such resale of the
mortgages, the Company issues certain representations to repurchase defective
loans, but only as to defective loans arising from an incidence of first payment
fraud. While there can be no assurance that the Company will not be required to
repurchase a significant amount of such loans, this has not traditionally been a
serious consideration for the Company. In fiscal 1995, the Company paid a total
of $480,000 for repurchased defective loans, or .3038% of its total loan
originations, which amount related to loans originated prior to the purchase of
Westmark Mortgage by the Company. As of December 31, 1997 the portfolio of loans
Household Financial Services, Inc. purchased from Westmark totaled approximately
$66 million. The portfolio had a delinquency rate of less than 2%, an amount
well within its established guideline.
Contingent Risks of Loan Sales
Although the Company sells substantially all loans which it originates
and purchases on a nonrecourse basis, the Company retains some degree of risk on
substantially all loans sold. During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers.
In the ordinary course of its business, the Company is subject to
claims made against it by borrowers and private investors arising from, among
other things, losses that are claimed to have been incurred as a result of
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions of employees, officers and agents of the Company (including its
appraisers), incomplete documentation and failures by the Company to comply with
various laws and regulations applicable to its business. The Company believes
that liability with respect to any currently asserted claims or legal actions is
not likely to be material to the Company's consolidated results of operation or
financial condition; however, any claims asserted in the future may result in
legal expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
Likewise with the repurchase scenario discussed above, the Company at
any one time is potentially subject to past portfolio liabilities, particularly
from the conforming business. Periodically, the Company will receive demands for
repurchase from various investors. Though the Company has been successful in
having individual requests rescinded or cured, there can be no assurance that
individual defects will be cured. Management does not feel that this risk could
seriously impair the Company's ability to operate.
Dependence Upon Key Personnel
The Company's success depends upon the availability and performance of
its senior management, particularly Mark Schaftlein, Payton Story, III and
Irving Bowen. The loss of any one of their services could have a material
adverse affect on the Company. Although the Company has entered into employment
agreements with Messrs. Schaftlein, Bowen and Story, any one or all of them
could nonetheless leave the Company's employ.
Dependence Upon Warehouse Financing
The Company relies upon access to warehouse credit facilities in order to fund
originations of new mortgage loans and purchases of existing mortgage loans. The
Company has the following four warehouse lines of credit: a $10 million
warehouse line of credit with Princap Mortgage, Inc.; a $7 million Warehouse
line of credit with The Money Store; a $7 million warehouse line of credit with
Household Bank, F.S.B.; and a $2 million warehouse line of credit with Mortgage
Corporation of America. In addition, the Company has reached a preliminary
agreement with First Union National Bank providing for a $20,000,000 revolving
line (although no assurance can be given that a final agreement will be
reached).
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These warehouse lines of credit are secured by the mortgage loans they are used
to fund and purchase. The Company believes that it will be able to renew its
existing warehouse lines of credit or replace them with other facilities as they
expire, but has no assurance that it will be able to continue to obtain such
financing on favorable terms, if at all. If the Company is unable to maintain or
improve the capacity and terms of its warehouse lines of credit, the Company may
have to curtail loan origination and purchasing activities, which could have a
material adverse effect on the companies results of operations and financial
condition.
Ability to Maintain Nasdaq Listing and Public Market
No Assurance of Continued Market for Securities; "Penny Stock"
Regulations. Although the Company's Common Stock is listed on the Nasdaq Small
Cap Market, there can be no assurance that a public trading market for the
securities will be sustained. Continued inclusion on Nasdaq requires the Company
to maintain certain criteria such as, among others, market value, public float,
capital and surplus. If for any reason the Company fails to maintain sufficient
qualifications for continued listing on the Nasdaq National Market, purchasers
of the securities may have difficulty in selling their securities should they
desire to do so because certain restrictions (the "penny stock" rules) may be
placed upon the sale of securities, unless the securities qualify for an
exemption from the "penny stock" rules. The Commission has adopted regulations
which generally define "penny stock" to be any equity security that has a market
price of less than $5 per share or an exercise price of less than $5 per share,
subject to certain exceptions. Since the Common Stock is quoted on Nasdaq, it is
exempt from the definition of "penny stock." If it is later removed from listing
by Nasdaq and traded at a price below $5 per share, the securities may become
subject to the "penny stock" rules that impose burdensome sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and institutional accredited investors. The "penny stock"
rules may restrict the ability or desirability of broker-dealers to sell the
Company's Common Stock. Some brokerage firms will not effect transactions in the
securities if they trade below $5 per share and it is unlikely that any bank or
financial institution will accept the securities as collateral, which could have
an adverse effect in developing or sustaining any market for the securities and
may affect the ability of purchasers in this Offering to sell the Common Stock
in the secondary market.
Notice of Delisting. On February 26, 1998, Nasdaq notified the company
that it is not in compliance with Nasdaq's new listing requirements and that the
Company's securities are scheduled for delisting at the close of business on
March 16, 1998. On March 11, 1998, the Company sent a written request to Nasdaq
for a hearing to apply for a temporary exception to the new listing
requirements. Nasdaq has notified the Company that the Nasdaq Listing
Qualifications Panel (the "Panel") will consider the Company's request for a
temporary exception during the week of April 13, 1998. Nasdaq has also informed
the Company that delisting of the Company's common stock will be stayed pending
the Panel's final written determination. The Company believes, but has no
assurance, that its application for a temporary exception to the new listing
requirements will be successful, and that such exception will be for a period of
time sufficient to allow the Company to meet the new listing requirements. If
the Company loses its Nasdaq listing, trading in the securities would be
conducted in the over-the-counter market known as the NASD OTC Electronic
Bulletin Board, whereupon trading in the Company's securities will be subject to
the "penny stock" regulations. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's Common Stock if it were to lose its Nasdaq listing.
Limitation on Liability of Directors and Officers.
The Certificate of Incorporation of the Company provides that the
Company will indemnify any director, officer, employee or agent of the Company
with respect to actions, suits or proceedings relating to the Company. Such
indemnification will cover expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if the director, officer,
employee or agent of the Company is a party, or threatened to be made a party to
any action, suit or proceeding by reason of the fact that such person served or
serves as a director, officer, employee or agent of the Company, or served or
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serves, at the Company's request, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
ITEM 7 FINANCIAL STATEMENTS
Information with respect to this item is set forth in the "Index" to
Consolidate Financial Statements on Page F-1 through F-25.
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
TABLE OF CONTENTS
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PAGE
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REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2 - F-3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-4
Statements of Operations F-5
Statements of Stockholders' Equity F-6 - F-7
Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 -F-25
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Westmark Group Holdings, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Westmark Group
Holdings, Inc. and Subsidiary as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Westmark Group Holdings , Inc. and
Subsidiary for the year ended December 31, 1996, were audited by other auditors
whose report dated March 11, 1997, included an explanatory paragraph that
described an uncertainty regarding the Company's ability to continue as a going
concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westmark Group
Holdings, Inc. and Subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As more fully described in Note 2, the Company is subject to certain liquidity
considerations and other matters, including repeated operating losses, working
capital deficiency, and insufficient equity for certain contractual commitments.
The Company's plans with respect to these matters are also described in Note 2.
RACHLIN COHEN & HOLTZ
Fort Lauderdale, Florida
March 24, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying statements of operations, stockholder's equity
and cash flows ("the financial statements") of Westmark Group Holdings, Inc. and
subsidiary for the year ended December 31, 1996. The financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statement. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the results of operations of Westmark Group Holdings, Inc.
and the changes in its stockholders' equity and cash flows for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
Denver, Colorado
March 11, 1997
F-3
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 100,010
Mortgage loans held for sale 7,788,374
-----------
Total current assets 7,888,384
Property and Equipment 644,563
Investments in Preferred Stock 2,876,528
Investments in Real Estate 500,000
Cost in Excess of Net Assets Acquired 631,132
Other Assets 280,000
-----------
$12,820,607
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,539,379
Warehouse lines of credit 7,733,492
Settlements payable 733,979
Accounts payable 485,621
Accrued liabilities 359,287
Dividends payable 132,500
-----------
Total current liabilities 10,984,258
-----------
Long-Term Debt 1,774,044
-----------
Commitments, Contingencies, Subsequent Events
and Other Matters -
Stockholders' Equity:
Preferred stock $.001 par value; 10,000,000
shares authorized; 250,005 shares issued
and outstanding; stated at liquidation value 800,010
Common stock, $0.005 par value; 15,000,000
shares authorized; 2,389,655 shares issued
and outstanding 11,948
Additional paid-in capital 27,496,031
Deficit (28,245,684)
-----------
Total stockholders' equity 62,305
-----------
$12,820,607
===========
See Notes to Consolidated Financial Statements
F-4
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
Revenues: ---- ----
<S> <C> <C>
Gain on sale of loans $ 6,735,709 $ 1,881,068
Loan origination fees 667,029 355,255
Interest income 808,975 584,399
Other income 130,793 83,199
------------ -----------
8,342,506 2,903,921
------------ -----------
Costs and Expenses
Direct loan fees 1,041,631 432,425
Interest expense (warehouse interest $783,697 in 1997 and $779,994 in 1996) 1,053,671 1,172,852
General and administrative 5,109,177 3,930,199
Common stock issued for services 1,667,353 1,153,318
Depreciation 69,824 74,393
Amortization 90,673 65,944
------------ -----------
9,032,329 6,829,131
------------ -----------
Losss from Operation (689,823) (3,925,210)
------------ -----------
Other Income (Expense):
Dividend income 140,000 140,000
Provision for estimated impairment in value of investment in land (590,000) -
Extinguishment of debt 68,978 -
------------ -----------
Loss from Continuing Operations before Income Taxes (1,070,845) (3,785,210)
Income Taxes 147,000 3,000
------------ -----------
Loss from Continuing Operations (1,217,845) (3,788,210)
------------ -----------
Discontinued Operations:
Loss on disposal of subsidiary,
net of tax effect of $147,000 and $42,000 (250,225) (71,156)
Gain on disposal of subsidiary, net of tax effect of $39,000 - 58,371
------------ -----------
Loss of Discontinued Operations (250,225) (12,785)
------------ -----------
Net Loss $ (1,468,070) $(3,800,995)
============ ===========
Loss Per Common Share:
From continuing operations $ (0.89) $ (5.34)
Deom discontinued operations (0.17) (0.02)
------------ -----------
Net Loss $ (1.06) $ (5.36)
============ ===========
Weighted Average Number of Common Share Outstanding 1,506,204 732,068
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 - $ - 2,632,772 $23,165,937 $ 1,153,688
Retroactive restatement relating to 1 for 5 reverse stock split - - (2,106,218) - -
------- ---------- ---------- ----------- ------------
Balance, December 31, 1995, as restated - - 526,554 23,165,937 1,153,688
Year Ended December 31, 1996:
Repurchase and retirement of common shares - - (48,000) (802,000) -
Issuance of common stock for services and debt
conversions - - 484,046 1,798,572 -
Sale of common stock - - 4,000 20,000 -
Issuance of Non-Callable Series B Preferred Shares in exchange
for cancellation of warrants 300,000 600,000 - - (600,000)
Sale of Non-Callable Series C Preferred Shares 200,000 700,000 - - -
Sale of Non-Callable Series D Preferred Shares for
subscription receivable 50,000 250,000 - - -
Exchange of Non-Callable Series E Preferred Shares in
connection with acquisition of Green World Technologies, Inc. 130,000 1,300,000 - - -
Conversion Series A Preferred Shares to non-callable 100,000 400,000 - - -
Cumulative preferred dividends payable - - - - -
Warrants issued for compensation - - - - 70,000
Reincorporation in Delaware and change
from no par value common stock to par value common stock - - - (24,177,676) 24,177,676
Net loss - - - - -
------- ---------- ---------- ----------- ------------
Balance, December 31, 1996 780,000 $3,250,000 966,600 $ 4,833 $ 24,801,364
------- ---------- ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Other
Equity
Reductions Deficit Total
---------- ------- -----
<S> <C> <C> <C>
Balance, December 31, 1995 $ - $(22,728,421) $1,591,204
Retroactive restatement relating to 1 for 5 reverse stock split - - -
----------- ------------ ----------
Balance, December 31, 1995, as restated - (22,728,421) 1,591,204
Year Ended December 31, 1996:
Repurchase and retirement of common shares - - (802,000)
Issuance of common stock for services and debt
conversions (950,254) - 848,318
Sale of common stock - - 20,000
Issuance of Non-Callable Series B Preferred Shares in exchange
for cancellation of warrants - - -
Sale of Non-Callable Series C Preferred Shares - - 700,000
Sale of Non-Callable Series D Preferred Shares for
subscription receivable (250,000) - -
Exchange of Non-Callable Series E Preferred Shares in
connection with acquisition of Green World Technologies, Inc. - - 1,300,000
Conversion Series A Preferred Shares to non-callable - - 400,000
Cumulative preferred dividends payable - (126,000) (126,000)
Warrants issued for compensation - - 70,000
Reincorporation in Delaware and change
from no par value common stock to par value common stock - - -
Net loss - (3,800,995) (3,800,995)
----------- ------------ -----------
Balance, December 31, 1996 $(1,200,254) $(26,655,416) $ 200,527
----------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 780,000 $3,250,000 966,600 $ 4,833 $24,801,364
Year Ended December 31, 1997:
Conversion of Series A Preferred Shares including cumulative
dividends to common stock (100,000) (400,000) 197,800 989 444,011
Conversion of Series B Preferred Shares including cumulative
dividends to common stock (249,995) (499,990) 345,264 1,726 564,803
Conversion of Series D Preferred Shares to notes payable (50,000) (250,000) - - -
Retirement of Series E Preferred Shares and issuance of 37,500 shares of
common stock pursuant to an exchange agreement
regarding Green World Technologies, Inc. (130,000) (1,300,000) 37,500 188 74,812
Conversion of callable preferred stock into common stock - - 30,000 150 74,850
Cumulative Preferred Dividends - - - - -
Issuance of common stock for services and debt conversions - - 680,822 3,404 1,192,993
Sale of common stock - - 131,669 658 343,198
Amortization of unearned shares - - - - -
Net loss - - - - -
-------- ---------- --------- ------- -----------
Balance, December 31, 1997 250,005 $ 800,010 2,389,655 $11,948 $27,496,031
======== ========== ========= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Other
Equity
Reductions Deficit Total
---------- ------- -----
<S> <C> <C> <C>
Balance, December 31, 1996 $(1,200,254) $(26,655,416) $ 200,527
Year Ended December 31, 1997:
Conversion of Series A Preferred Shares including cumulative
dividends to common stock - - 45,000
Conversion of Series B Preferred Shares including cumulative
dividends to common stock - - 66,539
Conversion of Series D Preferred Shares to notes payable - - (250,000)
Retirement of Series E Preferred Shares and issuance of 37,500 shares of
common stock pursuant to an exchange agreement
regarding Green World Technologies, Inc. - - (1,225,000)
Conversion of callable preferred stock into common stock - - 75,000
Cumulative Preferred Dividends - (122,198) (122,198)
Issuance of common stock for services and debt conversions - - 1,196,397
Sale of common stock - - 343,856
Amortization of unearned shares 1,200,254 - 1,200,254
Net loss - (1,468,070) (1,468,070)
----------- ------------ ----------
Balance, December 31, 1997 $ - $(28,245,684) $ 62,305
=========== ============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,468,070) $ (3,800,995)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 69,824 185,256
Amortization 90,673 -
Common stock issued for services 1,667,353 1,153,318
Loss on disposal of assets 397,225 71,856
Gain on disposal of subsidiary - (97,371)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable - 365,717
Other current assets - (41,008)
Mortgage loans held for sale (2,793,181) 14,484,836
Other assets 148,453 (119,419)
Increase (decrease) in:
Accounts payable (1,159,792) (131,292)
Accrued expenses (272,262) (177,129)
Settlements payable 326,419 -
Warehouse lines of credit 2,985,471 (13,877,845)
------------ ------------
Net cash used by operating activities (7,887) (1,984,076)
------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment (115,015) (13,752)
------------ ------------
Cash Flows from Financing Activities:
Repurchase of common stock - (802,000)
Proceeds from issuance of notes payable 152,238 1,661,988
Payments on notes payable (291,715) (75,543)
Sale of stock for cash 343,856 920,000
------------ ------------
Net cash provided by financing activities 204,379 1,704,445
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 81,477 (293,383)
Cash and Cash Equivalents, Beginning 18,533 311,916
------------ ------------
Cash and Cash Equivalents, Ending $ 100,010 $ 18,533
============ ============
Supplemental Disclosures:
Cash paid for interest $ 986,284 $ 1,158,779
============ ============
</TABLE>
Non-cash Financing Transactions:
During 1997, the Company acquired a building from a related party in
exchange for cash of $29,000 and mortgages of $306,000.
During 1996, the Company traded land valued at approximately $2.0 million
with associated liabilities of approximately $900,000 for land with a value
of $1.0 million.
See Notes to Consolidated Financial Statements
F-8
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Westmark Group Holdings, Inc. ("the Company"), through a
wholly-owned subsidiary, is engaged in the business of purchasing
and selling residential mortgage loans. The Company deals primarily
in non-conforming loans (generally those borrowers with below
average and delinquent credit) with a small component of their
loans in the conforming loan category (those borrowers with perfect
or good credit).
The Company's Articles of Incorporation, as amended, authorize the
Company to issue and have outstanding at any one time 15,000,000
shares of common stock with a par value of $0.005 and 10,000,000
shares of preferred stock with a par value of $0.001. In August
1997, the Company effected a 1 for 5 reverse stock split, decreased
the number of authorized shares of common stock from 50,000,000 to
15,000,000, and adjusted the par value from $.001 to $.005 per
share.
The Company has established the following Preferred Stock Series:
Series A, $4.00 stated value, 8% cumulative, convertible, 100,000
shares authorized, no shares issued or outstanding. Convertible
into common stock at the lesser of $7.50 or 40% of the closing
bid price on the day prior to conversion, but no more than $1.35
per share.
Series B, $2.00 stated value, 10% cumulative, convertible, 300,000
shares authorized, 50,005 shares issued and outstanding.
Convertible into common stock at 42% of the closing bid price on
the day prior to conversion, but no more than $1.35 per share.
Series C, $3.50 stated value, 10% cumulative, convertible, 500,000
shares authorized, 200,000 shares issued and outstanding.
Convertible into common stock at the lessor of $7.50 or 84% of the
closing bid price on the day prior to conversion.
Series D, $5.00 stated value, 10% cumulative, convertible, 250,000
shares authorized, no shares issued or outstanding. Convertible
into common stock at 100% of the closing bid price on the day prior
to conversion.
Series E, $10.00 stated value, no dividend rights, 130,000 shares
authorized, no shares issued or outstanding. Convertible into
shares of common stock at $2.25 per share.
Series F, $5.00 stated value, no dividend rights, 1,000,000 shares
authorized, no shares issued or outstanding.
F-9
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The entities included in these consolidated financial statements
are as follows:
Westmark Group Holdings, Inc. - This company was originally
incorporated under the laws of the State of Colorado in 1986,
but was reincorporated under the laws of the State of Delaware
in June, 1996.
Westmark Mortgage Corporation ("Westmark") - This wholly-owned
subsidiary, incorporated on September 17, 1979 under the laws of
the State of California, purchases and sells residential
mortgage loans.
All significant intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Mortgage Loans Held for Sale
Mortgage loans are originated by retail brokers and closed and
purchased by the Company to be sold to investors. The loans are
reported at the lower of aggregate cost or market. The cost of
mortgage loans held for sale is the cost of the mortgage loans
reduced or increased by the net deferred fees or costs associated
with originating or acquiring the loans. Market value is determined
by outstanding commitments from investors or current investor yield
requirements. There was no allowance for market losses on mortgage
loans held for sale at December 31, 1997.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets. Repairs, maintenance and replacements which do not
extend the lives of the respective assets are charged to expense as
incurred.
Cost in Excess of Net Assets Acquired
Cost in excess of assets purchased, which represents the excess
purchase price over the fair value of net assets acquired, is
amortized on a straight-line basis over a ten-year period. The
Company assesses the recoverability of this intangible asset by
determining whether the amortization of the balance over its
remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. Any diminution in
value of such costs will be charged to expense when determined.
F-10
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and
mortgage loans held for sale.
From time to time during the year, the Company had deposits in
financial institutions in excess of the federally insured limits.
The Company maintains its cash with high quality financial
institutions which the Company believes limits these risks.
Mortgage loans held for sale include amounts due from mortgagees
prior to the sale of the loans to investors which usually occurs
within 30 days. The Company originates and purchases mortgage loans
based on an evaluation of the mortgagees' financial condition and
based upon an appraisal of the collateral real estate. Management
believes the collateral, coupled with the short holding period,
limits any risk.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Material estimates as to which it is reasonably possible
that a change to the estimate could occur in the near term include
allowance for market losses on mortgage loans held for sale,
estimated amortization of cost in excess of net assets acquired,
and the fair value of investments in preferred stock and real
estate. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires the recognition of deferred tax
liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Loss Per Common Share
Basic loss per common share has been computed using the net loss
adjusted for preferred dividends over the weighted average shares
outstanding. Diluted loss per common share has not been presented,
since the effect of common share equivalents would be
anti-dilutive.
F-11
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate
Real estate is recorded at the lower of cost or estimated fair
value as determined by independent appraisal.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
incurred for the years ended December 31, 1997 and 1996 were not
material.
Reclassifications
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 presentation.
NOTE 2. LIQUIDITY CONSIDERATIONS AND OTHER MATTERS
During 1996, 1997, and continuing in early 1998, the Company
experienced certain material cash flow problems and has, from time to
time, experienced difficulties meeting its obligations as they become
due. In addition, the Company has negotiated several settlement
agreements with its creditors to settle its outstanding obligations
through the issuance of stock. As reflected in the consolidated
financial statements, the Company has incurred net losses of $1,468,070
in 1997 and $3,800,995 in 1996, and as of December 31, 1997, the
Company's consolidated financial position reflects a working capital
deficiency of $3,095,874. Furthermore, the Company was not in
compliance with certain covenants relating to minimum net worth and
minimum current ratio requirements. Subsequent to the year end, the
Company received a waiver of these covenants (see Note 7).
The Company is required to maintain $2,000,000 in net tangible
stockholders' equity to remain listed for quotation on the NASDAQ
SmallCap Market. With a net tangible stockholders' deficiency of
$568,827 at December 31, 1997, the Company does not meet this
requirement. On February 26, 1998 NASDAQ notified the Company that it
is not in compliance with NASDAQ's new listing requirements and that
the Company's securities were scheduled for delisting at the close of
business March 16, 1998. On March 11, 1998, the Company sent a written
request to NASDAQ for a hearing to apply for a temporary exception to
the new listing requirements. NASDAQ has notified the Company that the
NASDAQ Listing Qualifications Panel (the "Panel") will consider the
Company's request for a temporary exception during the week of April
13, 1998. NASDAQ has also informed the Company that delisting of the
Company's common stock will be stayed pending the Panel's final written
determination. If the Company is unable to satisfy the requirements for
continued listing with NASDAQ, any trading in the securities listed
thereon would be conducted in the over-the-counter market of the
National Quotation Bureau or on the OTC Bulletin Board. This could
significantly curtail the trading market for the Company's common
stock.
F-12
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. LIQUIDITY CONSIDERATIONS AND OTHER MATTERS (Continued)
Management's plans with regard to these matters encompass the following
actions:
1. Debt to Equity Conversion
The Company is currently conducting discussions with several
creditors concerning converting up to approximately $300,000 of
debt into shares of the Company's common or preferred stock.
2. Additional Warehouse Line Financing
In March 1998, the Company reached a preliminary understanding for
a $20,000,000 revolving warehouse line of credit with First Union
National Bank. The term will be one year, renewable subject to the
Company's common stock price attaining a certain minimum, or the
Company obtaining minimum net income. This may result in a savings
to the Company, through a reduction in interest rates charged
between this new warehouse line and the current warehouse lines.
Additionally, the Company will issue to First Union National Bank
240,000 warrants to purchase Company common shares at $2.50 per
share.
3. Sale of Series G Preferred Stock
In March 1998, MCA (see Note 14) and the Company agreed that upon
completion of the sale by Westmark to MCA of the entire $16,667,000
principal of eligible non-conforming loans provided for in the
Original Agreement, MCA will invest an additional $306,144 (the
"Additional Investment") in the Company. In return MCA will receive
(i) 61,229 shares of a Class G Convertible Preferred Stock
convertible into the Company's common stock on a 1 for 1.23 basis,
and (ii) warrants to purchase 65,251 shares of the Company's common
stock (the "MCA Warrants"). The MCA Warrants shall be exercisable
at $3.25 per share and shall expire thirty (30) months after their
date of issuance.
4. Executive Stock Purchase Plan
In February 1998, certain executives of the Company agreed to
purchase 400,000 shares of common stock at $2.125 per share. The
purchase will be evidenced by promissory notes to the Company with
full recourse to the maker. The Company expects to collect
approximately $400,000 with respect to those promissory notes
through June 30, 1998.
5. Increased Marketing Effort and Focus on Core Business
With the disposal of the subsidiaries in unrelated lines of
business, management believes that the Company is positioned to
concentrate on its core business of mortgage lending. This focus,
coupled with increased marketing efforts to strengthen and expand
the mortgage broker network, should allow the Company to penetrate
a larger percentage of the non-conforming residential mortgage
market.
F-13
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. LIQUIDITY CONSIDERATIONS AND OTHER MATTERS (Continued)
The ultimate success of management's plans cannot be ascertained with
any degree of certainty. Accordingly, there can be no assurance that
the Company will be able to deal successfully with the liquidity
considerations and other matters discussed above.
NOTE 3. RELATED PARTY TRANSACTIONS
Medical Industries of America, Inc.
As of December 31, 1997, the Company owns 200,000 shares of Medical
Industries of America, Inc., formerly known as Heart Labs of
America, Inc. ("MIOA") Series B convertible preferred stock (see
Note 5). Additionally, MIOA has an equity investment in the
Company, as well as having advanced the Company funds in exchange
for promissory notes. MIOA owns 333,458 common shares of the
Company, as well as 200,000 shares of the Company's Series C
Preferred Stock. The Series C Preferred Stock has a $3.50 per share
stated value, earns a 10% cumulative dividend, and is convertible
into common shares of the Company at the lesser of $7.50 or 84% of
the closing bid on the day prior to conversion.
From a historical perspective, pursuant to an agreement between
MIOA and the Company dated November 1995 and amendments thereto
(the "Stock Purchase Agreement"), MIOA purchased 259,679 shares of
the Company's common stock for a purchase price of $3,210,000,
comprised of $1,210,000 cash and cash equivalents, and the issuance
to the Company of 200,000 shares of MIOA Series B Convertible
Preferred Stock with a stated value of $10 per share. The Stock
Purchase Agreement provided that MIOA's ownership of the Company
would not be diluted below 49%, based on common stock actually
outstanding (the "Anti-Dilution Provision"). In May 1996, the
Company issued MIOA 73,779 shares of common stock in order to
maintain such percentage ownership. Subsequent to the November 1995
purchase agreement, MIOA loaned the Company an aggregate of
$2,388,593 pursuant to one-year notes, bearing interest at the rate
of 10% per annum. In March 1996, the Company converted $700,000 of
this indebtedness into 200,000 shares of Series C Preferred Stock
with a stated value of $3.50 per share.
F-14
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. RELATED PARTY TRANSACTIONS (Continued)
Medical Industries of America, Inc. (Continued)
In January, 1997 the Company and MIOA entered into a settlement
agreement which was amended in March 1997, and June 1997 (the "MIOA
Settlement Agreement"). The MIOA Settlement Agreement terminated
the Anti-Dilution Provision. Pursuant to the MIOA Settlement
Agreement, the Company issued to MIOA a three year promissory note
(the "MIOA Note") in the sum of $1,953,000 bearing interest at 10%
with monthly payments of $25,000 commencing June 1997 with a
balloon payment due June, 2000. The Company further agreed with
respect to the promissory note that in the event the Company
receives additional capitalization of a minimum amount of $300,000
and a maximum amount of $1.5 million, MIOA shall be entitled to
receive the first $300,000. In the event the additional
capitalization exceeds $1.5 million, MIOA will be entitled to
receive the first $500,000 of additional capitalization in excess
of $1.5 million. In the event additional capitalization exceeds $3
million, MIOA shall be entitled to receive 50% of the excess until
the above indebtedness is paid in full.
MIOA shall also be entitled to receive 15% of the net cash flow of
the Company in excess of operating expenses and settlement payments
on a consolidated basis during the calendar year 1997, and 20% of
net cash flow as defined in calendar year 1998 until the
indebtedness is paid in full. In the event the Company should sell
or spin-off its subsidiary, MIOA shall be entitled to 50% of the
net cash proceeds received by the Company resulting from the sale
or spin-off up to the maximum of their indebtedness. In addition,
the MIOA Settlement Agreement provides that: (1) MIOA is entitled
to demand registration rights for its shares of common stock; (2)
after repayment of the MIOA Note, MIOA shall repurchase the shares
of MIOA preferred and common stock owned by Westmark, and Westmark
shall repurchase the shares of Westmark preferred and common stock
owned by MIOA (the purchase price for the preferred shares shall be
the stated value and the purchase price for the common shares shall
be the closing bid price on the day prior to the repurchase); and
(3) MIOA and the Company shall release each other from any and all
claims arising out of or related to the Stock Purchase Agreement,
ownership of each other's shares of common and preferred stock, and
the parties' business relationship.
F-15
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. RELATED PARTY TRANSACTIONS (Continued)
Common Stock Issued for Services
In June 1996, the Company issued 30,000 shares of the Company's
common stock with an estimated fair value of $187,000 in exchange
for services to a stockholder of MIOA.
Purchase of Building
The Company purchased its headquarter buildings from a stockholder
and former officer of the Company who is also a current officer and
director of MIOA. These buildings were purchased for approximately
$335,000.
Related Party Advances
The Company has agreed to advance to Green World (see Note 5) an
amount not to exceed $8,000 monthly for a period of one year
commencing January, 1998 to enable Green World to fund certain
officer's compensation.
F-16
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. RELATED PARTY TRANSACTIONS (Continued)
Settlement Agreements with Prior Officers
Michael Morrell and Linda Moore, former officers and directors of
the Company, and current officers and directors of MIOA, resigned
from the Company in November 1995 and received separation and
consulting agreements (as amended) which provided for the
following:
<TABLE>
<CAPTION>
Morrell Moore
------- -----
<S> <C> <C>
Shares of common stock of the Company
for unpaid salary, expenses and outstanding debt 127,352 shares 44,300 shares
Cash $19,200 $5,000
Accrued interest $31,000 $9,000
Consulting agreement
payable monthly through November 1998 $7,500/month -
Warrants:
Exercise price $5.00 25,000 shares 13,400 shares
Exercise price $4.05 20,000 shares 10,667 shares
All of the above warrants expired unexercised
in January, 1998
NOTE 4. PROPERTY AND EQUIPMENT
Buildings and improvements $535,991
Equipment and furniture 463,226
--------
999,217
Less accumulated depreciation 354,654
--------
$644,563
========
</TABLE>
F-17
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENTS IN PREFERRED STOCK
Medical Industries of America, Inc.
The Company is the owner of 200,000 shares of Medical Industries of
America, Inc. ("MIOA") convertible, redeemable, non-voting
preferred stock, series B (see Note 3). The stock carries a 7%
cumulative dividend, payable whether or not declared, a $10 per
share liquidation preference, and is convertible for a period of 10
years from the date of issuance into registered common shares of
MIOA at the average of the bid and asked price of the MIOA common
stock for the thirty days prior to conversion. MIOA may redeem the
shares of preferred stock at any time for $10 per share.
This investment is classified as available for sale under the
criteria established by SFAS No. 115 - Accounting for Investments
in Marketable Securities. Its market value is deemed to be
$2,000,000 which is equal to cost, and which has been determined by
reference to the common stock into which it is convertible. The
Company considers current liquidity of MIOA common stock to be
sufficient to sustain this market value. There were no unrealized
holding gains and losses attributable to this investment in 1997 or
1996.
Green World Technologies, Inc.
Effective July 1996, the Company entered into an agreement under
which the Company acquired all of the issued and outstanding
capital stock of Green World Technologies, Inc. ("Green World"), a
provider of air conditioner enhancement products, from GTB Company
("GTB"). In that connection, the Company (i) issued GTB 130,000
shares of its Series E convertible stock ("Company Series E
Preferred Stock"), and (ii) agreed to pay GTB royalties of 14% of
the gross sales of Green World for a period of two years. GTB had
acquired Green World from MIOA, and within one month of acquiring
Green World, GTB sold it to the Company as described above.
Management subsequently decided to focus the Company's resources
exclusively on its mortgage operations. In December 1997, the
Company divested substantially all of its interest in Green World
pursuant to an exchange agreement between the Company, GTB and
Green World (the "Exchange Agreement"). Under the Exchange
Agreement, the Company returned to GTB all of the outstanding
shares of Green World common stock and issued 37,500 shares of the
Company's Common Stock to GTB. In exchange, GTB assigned 130,000
shares of the Company's Series E Preferred Stock back to the
Company. Green World issued the Company 185,000 shares of its
Series A Convertible Preferred Stock (the "Green World Series A
Preferred Stock"), in exchange for which the Company paid Green
World $70,000 and gave Green World a promissory note for $380,000
(the "Company Note"). Payment of the Company Note is secured by the
Green World Series A Preferred Stock and the Company Series E
Preferred Stock.
F-18
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENTS IN PREFERRED STOCK (Continued)
Green World Technologies, Inc. (Continued)
The Company's Green World Series A Preferred Stock represents
approximately 18.5% of the capital stock of Green World on a fully
diluted basis. The Series A cumulative, voting, preferred stock
earns a dividend of 7%, is convertible into common stock of Green
World one a one for one basis at any time subsequent to Green World
becoming a Publicly Traded Company, and is mandatorily redeemable
at $6.70 per share with payments to be made in an amount equal to
25% of Green World's net income. This investment is carried at
cost, adjusted for an estimated impairment of market value, of
approximately $876,000.
NOTE 6. INVESTMENT IN REAL ESTATE
The Company is the owner of various parcels (land strips) of real
property in Florida. The property consists of various strips of 25-30
foot platted road rights of way. The properties have potential
marketability problems due to certain title considerations. The
carrying value of the properties has been reduced by $590,000 for an
estimated impairment in value during 1997 to an estimated fair market
value of $410,000.
The Company also acquired a property in settlement of a loan
repurchased due to foreclosure. The property is recorded at the unpaid
principal balance of the loan of $90,000, which is considered to be
lower than the estimated fair value as determined by appraisal.
NOTE 7. WAREHOUSE LINES OF CREDIT
The Company has warehouse agreements with four lending institutions.
The lines of credit vary from $2 to $10 million per lender, totaling
$26 million. The lines are fully collateralized by the assignment and
pledge of funded mortgage loans. Interest on the lines vary from 1% to
2% above the prime rate of interest (9.5 to 10.5% at December 31,
1997). The warehouse agreements have certain loan covenants which
require the Company to maintain certain minimum financial and operating
requirements. Under the most restrictive covenants, the Company is
required to maintain a minimum net worth of $3,600,000 and a minimum
current ratio of 1.1. The Company was not in compliance with these
covenants at December 31, 1997, and, subsequently, received a waiver
from the warehouse lender (see Note 2).
NOTE 8. SETTLEMENTS PAYABLE
The Company has negotiated settlement agreements allowing extended
monthly payments with various creditors totaling approximately
$734,000. These agreements resolve prior defaults and unsatisfied
judgments for amounts past due. In addition, the Company has negotiated
several settlement agreements with creditors to settle outstanding
obligations through the issuance of stock. Monthly payments pursuant to
these settlements approximate $85,000.
F-19
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
NOTE 9 LONG-TERM DEBT
<S> <C>
Related Parties
10% notes payable, secured by Series C Convertible Preferred Stock of the Company,
monthly payments of $25,000, balance due June 30, 2000. $1,783,464
12.99% mortgage loan collateralized by building, interest due monthly, principal due
July 30, 2002. 155,000
10% mortgage loan, collateralized by building, monthly payments of $3,253, balance due
July 24, 1999. 88,572
10% mortgage loan, collateralized by building, monthly payments of $1,556, with balloon
payment due on July 24, 1999. 42,465
Non-interest bearing note payable, secured by 37,500 shares of
the Company's common stock, monthly payments of $100,000
commencing February 1998, balance due May 1998.
380,000
----------
Total related party debt 2,449,501
Other
Various demand notes payable with interest rates ranging from
8.75% to 12%, due in monthly installments aggregating
approximately $53,000 through April 1998 and $12,000 thereafter. 605,062
Unsecured notes payable, monthly payments of approximately
$23,000 including interest at 10% beginning December 1997 with
the remaining balance due by December 1998.
258,860
----------
3,313,423
Less Current Maturities 1,539,379
----------
$1,774,044
==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997 are as follows:
Year Ending December 31:
1998 $1,539,379
1999 435,581
2000 1,183,463
2001 -
2002 155,000
----------
Total $3,313,423
==========
F-20
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. INCOME TAXES
The net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred
income taxes. Significant components of the Company's deferred tax
assets as of December 31, 1997 are as follows:
Benefit of net operating loss carryforwards 4,700,000
Less valuation allowance 4,700,000
----------
Net deferred tax asset $ -
==========
At December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $13 million which are
available to offset future federal taxable income, if any, through
2012. These carryforwards are on a consolidated return basis for the
members of the consolidated group and, thus, the loss carryforwards may
have certain separate return limitations.
As of December 31, 1997, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards, and accordingly, a
valuation allowance of $4,700,000, which related to the net operating
losses, has been established.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. Such a
change in ownership occurred in 1995. As a result, based upon the
amount of the taxable loss incurred to December 31, 1995 (approximately
$7,500,000), the Company estimates that an annual limitation of
approximately $455,000 will apply to approximately $6,800,000 of the
net operating loss carryforward existing as of that date. Approximately
$8 million of incurred net operating losses will be unavailable to the
Company due to this limitation. The Company's utilization of its tax
benefit carryforwards may be further restricted in the event of
subsequent changes in the ownership of the Company.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is a defendant in an action in which the claimants are
seeking compensatory damages in an undetermined amount and
rescission of stock purchases and return of funds. The Company is
still in the process of preparing for arbitration and is unable to
determine the probable outcome of the suit at this time.
F-21
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
The Company is a defendant in an action in which the plaintiff
contends Westmark is obligated to convert and/or redeem 35,000
shares of Series D preferred stock of the Company. The complaint
alleges violations of Section 10(b) of the Securities Exchange Act
of 1934; refusal to convert shares of preferred stock to common
stock; breach of contract; fraud; conversion; breach of fiduciary
duty; and breach of the covenant of good faith and fair dealing.
The Company is unable to determine its potential liability, if any,
until such time as the Company can undertake and complete
discovery.
The Company is involved in certain other litigation arising in the
ordinary course of business. In the opinion of management, any
liabilities resulting from such litigation would not be material in
relation to the Company's financial position.
Employment Agreements
The Company has employment agreements with its executive officers,
which expire at various times through April 23, 2000. Such
agreements, which have been revised from time to time, provide for
minimum salary levels, car allowances, incentive stock options and
incentive bonuses which are payable if specified management goals
are attained.
The aggregate commitment for future salaries at December 31, 1997,
excluding bonuses, are as follows:
1998 $ 550,000
1999 592,000
2000 252,000
----------
Total $1,394,000
==========
F-22
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. COMMITMENTS AND CONTINGENCIES (Continued)
Operating Leases
The Company leases certain of its facilities and equipment under
operating leases. The leases, which expire at various dates through
May 2001, require monthly payments of approximately $11,000. In
addition, the Company is responsible for all taxes, insurance,
maintenance and utilities on the office leases.
Minimum future lease payments on these leases are as follows:
1998 $ 94,000
1999 83,000
2000 41,000
2001 3,000
--------
Total $221,000
========
Rent expense was approximately $227,000 and $173,000 for 1997 and
1996, respectively.
Off-Balance-Sheet Risk
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
represent commitments to fund loans and involve, to varying
degrees, elements of interest-rate risk and credit risk in excess
of the amount recognized in the balance sheet. The interest-rate
risk is mitigated by the Company's commitments to sell loans to
investors. The credit risk is mitigated by the Company's evaluation
of the creditworthiness of potential borrowers on a case-by-case
basis.
NOTE 12. STOCK OPTION PLAN
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). As permitted by FAS No. 123, the Company
continues to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). The differences between the
recognition and measurement provisions of FAS No. 123 and APB 25 are
not significant to the Company's results of operations for the year
ended December 31, 1997.
F-23
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. STOCK OPTION PLAN (Continued)
Stock Option Plans
In May 1994, the stockholders approved the Stock Option Plan. The
plan was established as a compensatory plan to attract, retain, and
provide equity incentives to selected persons to promote the
financial success of the Company. A total of 600,000 common shares
have been reserved for grants under the plan. The options may be
granted as either Incentive Stock Options (ISO's) or Non-Qualified
Stock Options (NQSO's).
As of December 31, 1997, a total of 563,383 options have been
granted pursuant to this Plan. All the options have an exercise
price which is at least equal to market value.
1997 1996
Shares Shares Price
------ ------ -----
Beginning Balance 38,583 64,781 $2 to $10
Options granted 525,600 - $2.50
Options exercised - -
Options canceled (800) (26,198) $2 to $10
------- -------
Ending Balance 563,383 38,583 $2 to $10
======= =======
NOTE 13. WARRANTS
Warrants have been issued to officers and employees of the Company
providing for the issuance of up to 137,002 shares of common stock at
an exercise price of $2.50 to $5.00 per share, upon the Company's
attainment of certain earnings levels or common stock price levels over
the various years through year 2000.
Warrants issued to non-employees consisted of warrants to purchase a
total of 607,649 shares of common stock at prices ranging from $2.50
per share to $5.00 per share. The warrants expire on various dates
through June 2004.
NOTE 14. SIGNIFICANT INVESTORS
The Company currently has purchase agreements with various investors
and non-conforming mortgage conduits whereby the Company purchases
loans and resells them. The Company sells virtually all of the loans it
purchases. These agreements are for specific terms or are open ended,
and require the loans to satisfy the underwriting criteria described
therein. During 1997 and 1996, the Company sold loans totaling $124
million and $89.5 million, respectively. The Company does not service
any of the loans it purchases and sells all loans primarily in whole
loan sales. Two investors represented 74% of the outstanding loans sold
during 1997, and one investor represented 30% of the outstanding loans
sold during 1996.
F-24
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 14. SIGNIFICANT INVESTORS (Continued)
In an agreement dated July 31, 1997 (as amended September 15, 1997)
between MCA Financial Corp (MCA), Westmark, and the Company (the
"Original Agreement"), Westmark agreed to sell eligible nonconforming
mortgage loans to MCA in a total amount of $16,667,000 and MCA agreed
to purchase $500,000 of the Company's Series G Convertible Preferred
Stock with a stated value equal to the cash investment, convertible
into 5% of the Company's outstanding common stock as of January 31,
1998. The Original Agreement has expired under its own terms. But
pursuant to an oral modification to the Original Agreement, the Company
is issuing 48,624 shares (the "MCA Common Stock") of its common stock
to MCA for $193,856, already paid by MCA. The MCA Common Stock will be
immediately convertible into 38,771 shares of Class G convertible
Preferred Stock.
In March 1998, MCA (see Note 2) and the Company agreed that upon
completion of the sale by Westmark to MCA of the entire $16,667,000
principal of eligible non conforming loans provided for in the Original
Agreement, MCA will invest an additional $306,144 (the "Additional
Investment") in the Company. In return MCA will receive (i) 61,229
shares of a class G Convertible Preferred Stock convertible into the
Company's common stock on a 1 for 1.23 basis, and (ii) warrants to
purchase 65,251 shares of the Company's common stock (the "MCA
Warrants"). The MCA Warrants shall be exercisable at $3.25 per share
and shall expire thirty (30) months after their date of issuance.
F-25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL
DISCLOSURE
Comiskey & Company resigned as the Company's independent certified
public accountants effective January 2, 1998. There were no disagreements
between the Company and Comiskey & Company on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure in connection with the audits of the fiscal years ended December 31,
1994, 1995, and 1996, and all subsequent interim periods. Rachlin, Cohen & Holz
was engaged on January 2, 1998 as the Company's independent certified public
accountants. This change in accountants was previously reported in the Company's
Form 8-K filed on January 6, 1998.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT EXECUTIVE OFFICERS
AND DIRECTORS
The information required by this item regarding directors, executive
officers, promoters and control persons of the Company is incorporated by
reference to the Registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
not later than April 30, 1998.
Set forth below are the names, ages as of March 1, 1998, and business
experience of the executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Mark Schaftlein 40 President, Chief Executive Officer and Director
Irving Bowen 56 Treasurer, Chief Financial Officer and Director
Payton Story, III 51 Director
Louis Resweber 35 Chairman of the Board and Director
Allan C. Sorensen 59 Outside Director
John O. Hopkins 38 Outside Director
</TABLE>
Mr. Schaftlein has been President and Chief Executive Officer of the
Company and Chief Executive Officer of Westmark Mortgage since May 1997. From
February 1996 until May 1997, he served as President of Westmark Mortgage. Mr.
16
<PAGE>
Schaftlein has been a Director of the Company since January 1996. From February
1995 until February 1996, he was Director of the Non-conforming Division of
Westmark Mortgage, managing the transition of Westmark Mortgage from a
conforming to a non-conforming lender. He established the bulk loan sales
programs with Household Finance Corp. and The Money Store which the Company
presently utilizes. From September 1993 until February 1995, Mr. Schaftlein was
a Senior Vice President with National Lending Center, Inc., where he oversaw
expansion of operations into multiple states and assisted in development of the
non-conforming loan program. From January 1993 until September 1993, he served
as Vice President of Fleet Finance and was responsible for developing a new
wholesale division in the non-conforming credit market. From 1984 to January
1993, he was a Vice President at Citicorp. In 1996, he was the President of the
Gold Coast chapter of the Florida Association of Mortgage Brokers.
Mr. Bowen has been Treasurer, Chief Financial Officer and Director of
the Company since September 1997. He has also served as Executive Vice
President, Treasurer, Chief Financial Officer and Director of Westmark Mortgage
since September 1997. From 1967 to 1988, he was with the major accounting firm
KPMG in the Audit Department, serving many financial services companies, real
estate companies and public and privately-held companies subject to Securities
and Exchange Commission regulation. He became a KPMG Peat Marwick partner in
1976. Since 1988, he has provided business advice and consulting to selected
clients, operated the Mai Kai restaurant as the trustee of the owner's estate,
from 1991 to 1994, served as Chief Operating Officer for Crown America
Developments. Ltd. (Successor to Olympia & York Southeast Equity Corp.). From
May 1994 until June 1997, he was Managing Director of J. Michael Reisert, a full
service securities broker/dealer.
Mr. Story has been President and Director of Westmark Mortgage since
May 1997. From May 1996 until May 1997, he was Senior Vice-President of Lending.
He has been a served as a Director of the Company since February 1997. From July
1985 to April 1996, he was Chief Executive Officer and President of West Coast
Mortgage Services, Inc. From January 1969 to July 1985, he was the Marketing
Director of Beneficial Management Corporation in Peapock, New Jersey. In 1992,
he was president of the Florida Association of Mortgage Brokers-Gulf Coast. He
is a certified mortgage consultant of the Florida and National Associations of
Mortgage Brokers.
Mr. Resweber has been a Director of the Company since December 1996. In
February 1997, he became Chairman of the Board of Directors of the Company. He
has been Executive Vice President of Westmark Group Holding, Inc. since July
1997. From October 1992 until May 1995, he was Senior Vice President, Capital
Markets, for United Companies Financial Corp. ("United Companies"), a New York
Stock Exchange listed financial services company, and one of the nation's oldest
and largest non-conforming mortgage lenders. From 1995 to 1997, he was President
and Chief Executive Officer of Network Acquisition Corp. He has extensive
experience in capital markets, mergers and acquisitions, business administration
and management, and investor relations.
Mr. Hopkins has been an outside director of the Company since February,
1998. He has served as President and Managing Director of his own law firm for
over ten years, which specializes in corporate and commercial transactions, real
estate law and commercial litigation. He is a member of the Florida Bar as well
as the United States District Court for the Southern District of Florida and the
South Palm Beach County Bar Association. He is also a licensed Florida Real
Estate Broker and Mortgage Broker. From March 1983 until December 1986 he served
as President of a retail mortgage organization company that specialized in
residential financing. He has been a Director and Vice-President of Professional
Golf Advertising, Inc. since May 1997. Mr.
Hopkins has been involved in various other outside business ventures.
Mr. Sorensen has been an outside director of the Company since
February, 1998. From April 1967 until October 1997, he served in various
capacities, including President, Chief Executive Officer, Chairman of the Board
of Directors of Interim Services, Inc., a New York Stock Exchange company with
1997 annual revenue of $1.6 billion dollars and 706 locations worldwide. He has
been a Director and Vice Chairman of Let's Talk Cellular & Wireless, Inc. since
October 1994. Let's Talk Cellular & Wireless successfully completed an initial
public offering in November 1997. Since October 1997, he has been a Director and
Vice Chairman of Interim HealthCare, Inc., a spin-off of Interim Services, Inc.
17
<PAGE>
which he helped found in 1966. Interim HealthCare, Inc. had 1997 revenue of $250
million dollars, with 381 locations in the United States.
ITEM 10. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Description
2.1(a) Form of Plan and Agreement of Merger by and between Westmark
Group Holdings, Inc., a Colorado corporation and Westmark
Group Holdings, Inc.-Delaware, a Delaware corporation.
2.1(b)* Exchange Agreement among the Company, GTB Company, and Green
World Technologies, Inc. dated December 14, 1997 (See Exhibit
2.1 to Form 8-K filed with the Commission on December 30,
1997.)
3.1(a)* Articles of Incorporation of Eagle Venture Investments, Inc.
(See Exhibit 3.1 to Registration Statement on Form S-18 filed
with the Commission on August 24, 1987.)
3.1(b)* Articles of Amendment to Articles of Incorporation of
Eagle Venture Investments, Inc. (See Exhibit 3.1 to
Registration Statement on Form S-18 filed with the Commission
on August 24, 1987.)
3.1 (c) Article of Amendment to Articles of Incorporation of Eagle
Venture Acquisitions, Inc.
3.1 (d) Articles of Amendment to Articles of Incorporation of Network
Real Estate of California, Inc.
3.1 (e) Articles of Amendment to Articles of Incorporation of Network
Real Estate of California, Inc.
3.1 (f) Articles of Amendment to Articles of Incorporation of Network
Real Estate of California, Inc.
3.1 (g) * Articles of Amendment to Articles of Incorporation of
Network Financial Services, Inc. (See Exhibit 3.1 to Form
10-K405 filed with the Commission on April 14, 1995.)
3.1 (h) Articles of Amendment to Articles of Incorporation of Westmark
Group Holdings, Inc.
3.2 (a) Certificate of Incorporation of Westmark Group Holdings, Inc.-
Delaware.
18
<PAGE>
3.2 (b) * Certificate of Amendment to Certificate of Incorporation of
Westmark Group Holdings, Inc. (See Exhibit 3.1 to Form 8-K
filed with the Commission on August 29, 1997.)
3.3 By-laws of the Company.
4.1 Form of Specimen Common Stock Certificate.
4.2 Series A Preferred Stock Designation.
4.3 Series B Preferred Stock Designation.
4.4 Series C Preferred Stock Designation.
4.5 Series D Preferred Stock Designation.
4.6 Series E Preferred Stock Designation.
4.7 Series F Preferred Stock Designation.
10.1 Warehouse Credit and Security Agreement between the
Company and Princap Mortgage Warehouse,
Inc. dated October 26, 1997.
10.2 Warehouse and Security Agreement between the Company and TMS
Mortgage, Inc. dated March 3, 1997.
10.3 Sales and Purchase Agreement between the Company and TMS
Mortgage, Inc. dated March 25, 1995.
10.4 $5,000,000 Warehouse Line Revolving Credit Agreement
between the Company and Household
Financial Services, Inc. dated April 7, 1997.
10.5 Security and Collateral Agency Agreement between the Company
and Household Financial Services, Inc. dated April 7, 1997.
10.6 First Amendment to Credit Agreement and First Amendment to
Revolving Credit Line between the Company and Household
Financial Services, Inc. dated April 7, 1997.
10.7 Continuing Loan Purchase Agreement between the Company and
Household Financial Services, Inc. dated February 26, 1996.
10.8 Mortgage Warehousing and Security Agreement between the
Company and Mortgage Corporation of America.
10.9 Master Purchase Agreement between the Company and Mortgage
Corporation of America. Dated June 2, 1997.
10.10 Continuing Agreement for Sale and Purchase of Mortgages
- Servicing Released between the Company and MorCap, Inc.
dated February 6, 1997.
10.11 Master Agreement for Sale and Purchase of Mortgages between
the Company and Industry Mortgage Company, L.P. dated
February 29, 1996.
10.12 Master Mortgage Loan Purchase Agreement between the
Company and Southern Pacific Funding Corporation dated
March 11, 1997.
10.13 * Michael Morrell Termination Agreement (See Exhibit 10.1 to
Form S-8 filed with the Commission on February 12, 1997 -
File Number 333-21661).
10.14 * Linda Moore Termination Agreement (See Exhibit 10.1 to Form
S-8 filed with the Commission on February 12, 1997 - File
Number 333-21659).
10.15 Mark Schaftlein Employment Agreement.
10.16 Mark Schaftlein Amendment to Employment Agreement.
10.17 Payton Story Employment Agreement.
10.18 Payton Story Amendment to Employment Agreement.
10.19 Louis Resweber Director Agreement.
10.20 Louis Resweber Employment Agreement.
10.21 Irv Bowen Employment Agreement.
10.22 Harry Coolidge Amended and Restated Consulting Agreement.
10.23 Harry Coolidge Amendment to Consulting Agreement.
10.24 Harry Coolidge Second Amendment to Consulting Agreement.
10.25 1990 Non-Qualified Stock Option Plan.
10.26 1993 Non-Qualified Stock Option Plan.
10.27 1994 Non-Qualified Stock Option Plan.
19
<PAGE>
10.28 Settlement Agreement between the Company and Jackson, Tufts,
Cole & Black dated February 22, 1996.
10.29 Settlement Agreement between the Company and Howard Rice dated
March 26, 1996.
10.30 Settlement Agreement between the Company and Medical
Industries of America, Inc. dated January 23, 1997.
10.31 Modification to Settlement Agreement between the Company
and Medical Industries of America, Inc. dated March 31, 1997.
10.32 Amendment to Modified Settlement Agreement between the
Company and Medical Industries of America dated June 26, 1997.
10.33 Revised Settlement Agreement between the Company and Medical
Industries of America, Inc.
10.34 Settlement Agreement and Mutual Release of All Claims
between the Company and Harden dated November 3, 1997.
10.35 Settlement Agreement by and among the Company and Michael
Morrell and Linda Moore dated January 23, 1997.
10.36 Amendment to Settlement Agreement by and among the Company
and Michael Morrell and Linda Moore dated November 19, 1997.
11.1 Statement Re: Computation of Per Share Earnings.
16.1 * Letter on change in certifying accountant (See Exhibit 1.1 to
Form 8-K filed with the Commission on January 6, 1998.)
21.1 List of Subsidiaries.
23.1 Consent of Comiskey & Company.
27.1 Financial Data Schedule
- --------------------------------
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
(b) REPORTS ON FORM 8-K
Form 8-K filed on August 29, 1997 reported the following items: (i)
shareholder approval of a minimum 1 for 3 up to 1 for 5 reverse split
of the Company's outstanding shares of common stock; an Amendment to
the Certificate of Incorporation decreasing the number of authorized
shares of common stock from 50 million to 15 million, and the
adjustment of the par value of the common stock from $.001 to $.005;
(ii) the resignation effective August 27, 1997, of Norman Birmingham as
Chief Financial Officer of the Company; (iii) the appointment of Irv
Bowen as Chief Financial Officer of the Company by the Board of
Directors on August 28, 1997; and (iv) Norman Birmingham and Todd
Walker were not re-elected as directors of the Company.
Form 8-K filed on December 30, 1997 reported the divestiture of Green
World Technologies, Inc.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
WESTMARK GROUP HOLDINGS, INC.
(Registrant)
<S> <C>
Date: March 30, 1998 By: /s/ Mark Schaftlein
-------------------
Mark Schaftlein
President, Chief Executive Officer and Director
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ MARK SCHAFTLEIN President, Chief Executive March 30, 1998
- ------------------------ Officer and Director
Mark Schaftlein (Principal Executive Officer)
/S/ IRVING BOWEN Treasurer, Chief Financial March 30, 1998
- ------------------------ Officer and Director (Principal
Irving Bowen Financial Officer and
Accounting Officer)
/S/ PAYTON STORY, III Director March 30, 1998
- ------------------------
Payton Story, III
/S/ LOUIS RESWEBER Chairman of the Board of March 30, 1998
- ------------------------ of Directors
Louis Resweber
/S/ ALLAN C. SORENSEN Outside Director March 30, 1998
- ------------------------
Allan C. Sorensen
/S/ JOHN O. HOPKINS Outside Director March 30, 1998
- ------------------------
John O. Hopkins
</TABLE>
21
<PAGE>
EXHIBIT 2.1(a)
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER ("Agreement"), dated as of the ________
day of _______, 1996, is made and entered into by and between Westmark Group
Holdings, Inc., a Colorado corporation (the "Company"), and Westmark Group
Holdings, Inc.-Delaware, a Delaware corporation ("Westmark-Delaware"). W I T N E
S S E T H:
WHEREAS, the Company is a corporation organized and existing under the
laws of the State of Colorado, having been incorporated on first day of
December, 1986; and
WHEREAS, Westmark-Delaware is a wholly-owned subsidiary corporation of the
Company, having been incorporated on the _____ day of ______, 1996; and WHEREAS,
the respective Boards of Directors of the Company and WestmarkDelaware
determined that it is desirable to merge the Company into Westmark-Delaware
("Merger").
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Company shall be merged into Westmark-Delaware upon the terms and conditions
hereinafter set forth.
ARTICLE I
MERGER
On the effective date of the Merger ("Effective Date") as provided herein,
the Company shall be merged into Westmark-Delaware, the separate existence of
the Company shall cease, and Westmark-Delaware ("Surviving Corporation") shall
continue to exist under the name of Westmark Group Holdings, Inc. by virtue of,
and shall be governed by, the laws of the State of Delaware. The filing of this
Agreement with the Delaware Secretary of State shall effect the name change of
Westmark Group Holdings, Inc.-Delaware to Westmark Group Holdings, Inc., and
this shall be in lieu of filing an amendment to the WestmarkDelaware Certificate
of Incorporation. The address of The Prentice-Hall Corporation System, Inc., the
registered office of the Surviving Corporation in the State of Delaware, is 32
Loockerman Square, Suite L100, Dover, Kent County, Delaware 19901. The Company
appoints the Colorado Secretary of State to be the Company's registered agent in
the State of Colorado. A-1
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Westmark-Delaware ("Delaware Charter") as in
effect on the date hereof without change unless and until amended in accordance
with applicable law.
ARTICLE III
BYLAWS OF THE SURVIVING CORPORATION
The Bylaws of the Surviving Corporation shall be the Bylaws of
<PAGE>
Westmark-Delaware ("Delaware Bylaws") as in effect on the date hereof without
change unless and until amended in accordance with applicable law.
ARTICLE IV
EFFECT OF MERGER ON STOCK OF CONSTITUENT CORPORATIONS
4.01. On the Effective Date, each outstanding share of common stock of the
Company, no par value ("Common Stock"), shall be converted into one share of
WestmarkDelaware common stock, par value .001 ("Delaware Common Stock"), except
for those shares with respect to which the holders thereto duly exercise their
dissenters' rights pursuant to Title 7, Article 113 of the Colorado Revised
Statutes Annotated ("CRSA"), and each outstanding share of Delaware Common Stock
held by the Company shall be retired and cancelled.
4.02. On the Effective Date, each outstanding share of preferred stock of
the Company ("Preferred Stock") shall be converted into one share of Delaware
preferred stock, par value .001 ("Delaware Preferred Stock"), except for those
shares with respect to which the holders thereto duly exercise their dissenters'
rights pursuant to Title 7, Article 113 of the CRSA, and each outstanding share
of Delaware Preferred Stock held by the Company shall be retired and cancelled.
4.03. After the Effective Date, certificates representing shares of the
Common Stock will represent shares of Delaware Common Stock. Each holder of a
certificate or certificates representing one or more shares of Common Stock,
upon surrender of the same to the transfer agent or the Company, shall be
entitled to receive in exchange therefor a certificate or certificates
representing one or more shares of Delaware Common Stock.
4.04. After the Effective Date, certificates representing shares of the
Preferred Stock will represent shares of Delaware Preferred Stock. Each holder
of a certificate or certificates representing one or more shares of Preferred
Stock, upon surrender of the same to the transfer agent or the Company, shall be
entitled to receive in exchange therefor a certificate or certificates
representing one or more shares of Delaware Preferred Stock.
A-2
<PAGE>
ARTICLE V
CORPORATE EXISTENCE, POWERS AND
LIABILITIES OF SURVIVING CORPORATIONS
5.01. On the Effective Date, the separate existence of the Company shall
cease. The Company shall be merged with and into Westmark-Delaware, the
Surviving Corporation, in accordance with the provisions of this Agreement.
Thereafter, WestmarkDelaware shall possess all the rights, privileges, powers,
and franchises of a public as well as of a private nature, and shall be subject
to all the restrictions, disabilities, and duties of each of the parties to this
Agreement; and all and singular, the rights, privileges, powers, and franchises
of the Company and Westmark-Delaware, and all property, real, personal, and
mixed, and all debts due to each of them on whatever account, shall be vested in
WestmarkDelaware; and all property, rights, privileges, powers, and franchises,
and all and every other interest shall be thereafter as effectually the property
of Westmark-Delaware, the Surviving Corporation, as they were of the respective
constituent entities, and the title to any real estate, whether by deed or
otherwise, vested in the Company and Westmark-Delaware or either of them, shall
not revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon the property of the parties hereto, shall be
preserved unimpaired, and all debts, liabilities and duties of the Company,
shall thenceforth attach to Westmark-Delaware, and may be enforced against it to
the same extent as if said debts, liabilities, and duties had been incurred or
contracted by it.
5.02. The Company agrees that it will execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken such further or other action as the Surviving Corporation may
deem necessary in order to vest in and confirm to the Surviving Corporation
title to and possession of all the property, rights, privileges, immunities,
powers, purposes and franchises, and all and every other interest, of the
Company and otherwise to carry out the intent and purposes of this Agreement.
ARTICLE VI
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
6.01. Upon the Effective Date, the officers and/or directors of the
Surviving Corporation shall be the officers and/or directors of
Westmark-Delaware in office at such date, and such persons shall hold office in
accordance with the Delaware Bylaws until their respective successors shall have
been appointed or elected.
6.02. If, upon the Effective Date, a vacancy shall exist in the Board of
Directors of the Surviving Corporation, such vacancy shall be filled in the
manner provided by the Delaware Bylaws.
A-3
<PAGE>
ARTICLE VII
APPROVAL BY SHAREHOLDERS; EFFECTIVE DATE;
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE
7.01. Soon after the approval of this Agreement by the requisite number of
shareholders of the Company, the respective Boards of Directors of the Company
and Westmark-Delaware will cause their duly authorized officers to make and
execute Articles of Merger effecting this Agreement and shall cause the same to
be filed with the Secretaries of State of Colorado and Delaware, respectively,
in accordance with the CRSA and Delaware General Corporation Law ("DGCL"). The
Effective Date shall be the date on which the Merger becomes effective under the
DGCL.
7.02. The Boards of Directors of the Company and Westmark-Delaware may
amend this Agreement and the Delaware Charter at any time prior to the Effective
Date, provided that an amendment made subsequent to the approval of the Merger
by the shareholders of the Company may not (i) change the amount or type of
shares to be received in exchange for or on conversion of the shares of the
capital stock, (ii) change any term of the Delaware Charter, or (iii) change any
of the terms and conditions of this Agreement if such change would adversely
affect the holders on the capital stock.
ARTICLE VIII
TERMINATION OF MERGER
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, whether before or after shareholder approval of
this Agreement, by the consent of the Board of Directors of the Company and
Westmark-Delaware.
ARTICLE IX
MISCELLANEOUS
In order to facilitate the filing and recording of this Agreement, this
Agreement may be executed in counterparts, each of which when so executed shall
be deemed to be an original and all such counterparts shall together constitute
one and the same instrument.
A-4
<PAGE>
IN WITNESS WHEREOF, (i) Westmark-Delaware has caused this Agreement to be
signed by the President of Westmark-Delaware and attested by the Secretary of
WestmarkDelaware pursuant to authorization contained in a resolution adopted by
the Board of Directors of Westmark-Delaware approving this Agreement and (ii)
the Company has caused this Agreement to be signed by the President of the
Company and attested by the Secretary of the Company pursuant to authorization
contained in a resolution adopted by the Board of Directors of the Company
approving this Agreement.
WESTMARK GROUP HOLDINGS, INC.-
DELAWARE, a Delaware corporation
ATTEST: By__________________________________________
________________, President
- ---------------------------------
_______________, Secretary
WESTMARK GROUP HOLDINGS, INC.,
a Colorado corporation
ATTEST: By__________________________________________
_________________, President
- ---------------------------------
_______________, Secretary
The undersigned, Dawn Drella, as Secretary of Westmark Group Holdings,
Inc.Delaware, a Delaware corporation, hereby certifies (i) that the foregoing
Merger was duly approved by the affirmative vote of the sole holder of all
outstanding shares of Delaware Common Stock (ii) that the Delaware Common Stock
was the only classes of shares of said corporation outstanding at the time of
such approval.
WITNESS my hand this the _______ day of __________________________, 1996.
--------------------------------------------
Secretary
A-5
<PAGE>
The undersigned, __________________, as Secretary of Westmark Group
Holdings, Inc., a Colorado corporation, hereby certifies (i) that the foregoing
Merger was duly adopted by _______% of the holders of all outstanding shares of
Common Stock and (ii) that the Common Stock was the only class of voting shares
of said corporation's capital stock outstanding at the time of such adoption.
WITNESS my hand this the _________ day of __________________________, 1996.
--------------------------------------------
Secretary
A-6
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
EAGLE VENTURE ACQUISITIONS, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Eagle Venture Acquisitions, Inc.
SECOND: The Corporation has received cash or other
consideration in connection with the issuance of outstanding shares.
THIRD: The following amendments to the Articles of Incorporation were
adopted by the shareholders of this Corporation on the 14th day of May, 1990, in
the manner prescribed by the Colorado Corporation Code. Resolutions setting
forth the proposed following amendments, directing such amendments be submitted
to the shareholders and calling a meeting of shareholders to consider such
amendments, were duly called and held, upon notice duly given, and a quorum of
shareholders was present at such meeting. The number of shares voted for each of
the amendments was sufficient for approval.
FOURTH: Article FIRST of the Articles of Incorporation of
this Corporation is amended in its entirety to read as follows:
"FIRST: The name of the Corporation is Network Real Estate of California,
Inc."
FIFTH: The first sentence of Article FIFTH of the Articles of Incorporation
is amended as follows:
"FIFTH: The number of directors of the Corporation shall be fixed by
resolution of the Board of Directors and shall not be less than three nor
more than fifteen."
SIXTH: Article EIGHTH of the Articles of Incorporation is amended by adding
a new subsection (d) to read as follows:
"(d) The personal liability of any director for monetary damages shall be
eliminated to the maximum extent permitted by law. A director who is or was
made a party to a proceeding because he is or was an officer, employee, or
agent of the corporation is entitled to the same rights as if he were or
had been made a party because he was a director."
<PAGE>
SEVENTH: These Articles of Amendment do not effect a change in the amount
of stated capital of this Corporation.
EAGLE VENTURE ACQUISITION, INC.
/s/ Illegible
--------------------------------
Its president
/s/ Raymond A. ???
--------------------------------
Its Secretary
Subscribed and sworn to before me this 24th day of May, 1990. My commission
expires July 18, 1991
/s/ Phyllis L. Herd
--------------------------------
Notary public
(S E A L)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
NETWORK REAL ESTATE OF CALIFORNIA, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Network Real Estate of California,
Inc.
SECOND: The Corporation has received cash or other consideration in
connection with the issuance of outstanding shares.
THIRD: The following amendment to the Articles of Incorporation was adopted
by the shareholders of this Corporation on the 1st day of October, 1990, in the
manner prescribed by the Colorado Corporation Code. Resolutions setting forth
the proposed following amendment, directing such amendment be submitted to the
shareholders and calling a meeting of shareholders to consider such amendment,
were duly adopted by the Board of Directors by unanimous written consent of its
members. A meeting of shareholders was duly called and held, upon notice duly
given, and a quorum of shareholders was present at such meeting. The number of
shares voted for the amendment was sufficient for approval.
FOURTH: Subsection (a) of Article FOURTH of the Articles of Incorporation
of this Corporation is amended in its entirety to read as follows:
(a) The aggregate number of shares which the corporation shall have the
authority to issue is 900,000,000 Common Shares, having no par value.
FIFTH: These Articles of Amendment do not effect a change in
the amount of stated capital of this Corporation.
NETWORK REAL ESTATE OF CALIFORNIA, INC.
/s/ E.R. Gershon
---------------------------------------
Its President
/s/ Illegible
---------------------------------------
Its Secretary
<PAGE>
Subscribed and sworn to before me this 2nd day of October, 1990.
My commission expires March 18, 1994
/s/ Karen H. Palmer
---------------------------------------
Notary Public
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATIO
OF
NETWORK REAL ESTATE OF CALIFORNIA, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Network Real Estate of California,
Inc.
SECOND: The Corporation has received cash or other consideration in
connection with the issuance of outstanding shares.
THIRD: The following amendment to the Articles of Incorporation was adopted
by the shareholders of this Corporation on the 1st day of October, 1990, in the
manner prescribed by the Colorado Corporation Code. Resolutions setting forth
the proposed following amendment, directing such amendment be submitted to the
shareholders was duly called and held, upon notice duly given, and a quorum of
shareholders was present at such meeting. The number of shares voted for the
amendment was sufficient for approval.
FOURTH: Subsection (a) of Article FOURTH of the Articles of Incorporation
of this Corporation is amended in its entirety to read as follows:
(a) Until the close of business on February 25, 1991 (the "Effective
Date"), the total number of shares which the Corporation shall have
authority to issue is Nine Hundred Million (900,000,000) Common Shares, no
par value (hereinafter referred to as "Common Shares"). At the close of
business on the Effective Date, the number of authorized Common Shares of
the Corporation will be decreased from 900,000,000 to 15,000,000 Common
Shares, no par value per share, and the total number of shares which the
Corporation shall then have the authority to issue will be Fifteen Million
(15,000,000) Common Shares, no par value per share. Each one hundred fifty
(150) Common Shares, no par value, issued and outstanding at the close of
business on the Effective Date will be changed, reclassified and decreased
to one (1) Common Share, no par value. No fractional Common Shares shall be
issued and any shareholder who would otherwise receive a fractional share
will be entitled to receive one whole Common Share in lieu of a fractional
Common Share.
<PAGE>
FIFTH: These Articles of Amendment do not effect a change in the amount
of stated capital of this Corporation.
NETWORK REAL ESTATE OF CALIFORNIA, INC.
/s/ E.R. Gershon
---------------------------------------
Its President
/s/ Illegible
---------------------------------------
Its Secretary
<PAGE>
Subscribed and sworn to before me this 15th day of February 1991.
My commission expires March 18, 1994
/s/ Karen H. Palmer
---------------------------------------
Notary Public
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
NETWORK REAL ESTATE OF CALIFORNIA, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Network Real Estate of California,
Inc.
SECOND: The Corporation has received cash or other consideration in
connection with the issuance of outstanding shares.
THIRD: The following amendment to the Articles of Incorporation was adopted
by the shareholders of this Corporation on the 12th day of March, 1992, in the
manner prescribed by the Colorado Corporation Code. Resolutions setting forth
the proposed following amendment, directing such amendment to be submitted to
the shareholders and calling a meeting of shareholders to consider such
amendment, were duly adopted by this Corporation's Board of Directors. A meeting
of shareholders was duly called and held, upon notice duly given, and a quorum
of shareholders was present at such meeting. The number of shares voted for the
amendment was sufficient for approval.
<PAGE>
FOURTH: Article FIRST of the Articles of Incorporation of this Corporation
is amended in its entirety to read as follows:
"First: The name of the Corporation is Network Financial Services, Inc."
FIFTH: These Articles of Amendment do not effect a change in the amount of
stated capital of this Corporation.
DATED: 6-16-92
NETWORK REAL ESTATE OF CALIFORNIA, INC.
/s/ LEE J. BANA
---------------------------------------
LEE J. BANA
President/CEO
/s/ JAMES D. TUCKER
---------------------------------------
JAMES D. TUCKER
Chief Financial Officer and Secretary
ARTICLES OF AMENDMENT TO THE ARTICLES OF
INCORPORATION OF WESTMARK GROUP HOLDINGS, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
Westmark Group Holdings, Inc. adopts the following Article of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is WESTMARK GROUP HOLDINGS, INC.
SECOND: The following Amendment to the Articles of Incorporation was
adopted by the Board of Directors of the Corporation on September 27, 1994 in
the manner prescribed by the Colorado Business Corporation Act. Shareholder
action was not required.
THIRD: Article Fourth of the Articles of Incorporation is amended in its
entirety to read as follows:
(a) The Corporation is authorized to issue two classes of shares to be
designated "preferred" and "common", herein referred to as "preferred shares"
and "common shares" respectively. The total number of common shares authorized
is 100,000,000 shares. The total number of preferred shares authorized is
30,000,000 shares.
(b) The preferred shares authorized by these Articles of incorporation
shall be issued from time to time in series. The rights, preferences, privileges
and restrictions granted to or imposed on the first series of preferred shares
are as follows:
(1) The first series of preferred shares shall consist of 300,000
shares.
(2) The holder of any shares of the first series shall have the right
to convert said shares to common shares after June 30, 1995 upon
written notice to the Corporation. Each preferred share shall be
convertible into 10 shares of common stock of the Corporation.
(3) Each first series preferred share shall have voting rights
equivalent to 10 shares of the Corporation's common stock.
(c) Each shareholder of record shall have one vote for each share of
stock standing in his or her name on the books of the corporation and entitled
to vote. Cumulative voting shall not be permitted in the election fo directors
or otherwise.
(d) At all meetings of shareholders, one-third of the shares entitled
to vote at such meeting, represented in person or by proxy, shall constitute a
quorum.
(e) The shareholders, by vote or concurrence of a majority of the
outstanding shares of the corporation, or any class or series thereof, entitled
to vote on the subject matter,
<PAGE>
may take any action which, except for this Article, would require a two-thirds
vote under the Colorado Corporation Code, as amended.
(f) No shareholder of the corporation shall have any preemptive or
other right to subscribe for any additional unissued or treasury shares of stock
or for other securities of any class, or for the rights, warrants or options to
purchase stock, or for scrip, or for securities of any kind convertible into
stock or carrying stock purchase warrants or privileges.
(g) The board of directors may from time to time distribute to the
shareholders in partial liquidation, out of stated capital or capital surplus of
the corporation, a portion of its assets, in cash or property, subject to the
limitations contained in the statutes of Colorado and these Articles of
Incorporation."
Westmark Group Holdings, Inc.
By: /s/ ?????
-------------------------
Harry C. Coolidge, Secretary
CERTIFICATE OF INCORPORATION
OF
WESTMARK GROUP HOLDINGS, INC.- DELAWARE
The undersigned, a natural person for the purpose of organizing a for
profit corporation under the provisions and subject to the requirements of the
Delaware General Corporation Law, hereby certifies that:
ARTICLE I
The name of the Corporation is Westmark Group Holdings, Inc.-Delaware
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801,
and the name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
The Corporation shall have authority to issue a total 50,000,000 shares
of common stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share.
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall have
such distinctive designation or title as shall be determined by the Board of
Directors of the Corporation ("Board of Directors") prior to the issuance of any
shares thereof. Each such class or series of Preferred Stock shall have such
voting powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, shall be stated in such
resolution or resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
Subject to all of the rights of the Preferred Stock or any series
thereof described in appropriate certificates of designation, the holders of the
Common Stock shall be entitled
B-1
<PAGE>
to receive, when, as, and if declared by the Board of Directors, out of funds
legally available therefore, the dividends payable in cash, common stock, or
otherwise.
No stockholder of the Corporation shall have the right of cumulative
voting at any election of Directors of the Corporation.
ARTICLE V
The name and mailing address of the incorporator is Norman J.
Birmingham, 355 N.E. Fifth Avenue, Delray Beach, FL 33483.
ARTICLE VI
The name and mailing address of the person who is to serve as the
initial directors until the first annual meeting of stockholders or until their
successors are elected and qualified are:
NAME ADDRESS
---- -------
Norman J. Birmingham 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
Todd Walker 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
Mark Schaftlein 355 N.E. Fifth Avenue
Delray Beach, Florida 33483
ARTICLE VII
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than three
nor more than nine directors, the exact number of directors to be determined
from time to time by resolution adopted by the Board of Directors. The number of
directors may be increased or decreased, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until his successor is elected and qualified, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors howsoever resulting, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
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ARTICLE VIII
Elections of directors at an annual or special meeting of stockholders
shall be by written ballot unless the Bylaws of the Corporation shall otherwise
provide.
ARTICLE IX
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or a committee
thereof, the Chairman of the Board, President, or by the holders of at least 30%
of all the shares entitled to vote at the proposed special meeting.
ARTICLE X
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which such
director derived an improper personal benefit. No amendment to or repeal of this
Article X shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE XI
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Article. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized by this Article. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise,
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both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under this Article.
(h) For purposes of this Article, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) No amendment or repeal of this Article XI shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
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ARTICLE XII
The Corporation hereby expressly opts out of ss.203 of the Delaware
General Corporation Law, regarding business combinations with interested
shareholders.
ARTICLE XIII
Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at any meeting of stockholders. Whenever the Corporation shall
be authorized to issue more than one class of stock, no outstanding share of any
class of stock which is denied voting power under the provisions of the
Certificate of Incorporation, or a designation thereunder, shall entitle the
holder thereof to the right to vote at any meeting of stockholders, except as
the provisions of the law shall otherwise require.
Notwithstanding the foregoing and except as otherwise provided by law
or in the resolution or resolutions of the Board of Directors providing for the
issuance of any particular class or series of Preferred Stock, the holders of
Common Stock shall have the exclusive right to vote for the election of
Directors and for all other purposes except that, with respect to any amendment
of any provision of the Certificate of Incorporation which consists of a series
designation, or portion thereof, for any series of Preferred Stock, the holders
of Common Stock shall not be entitled to any vote. Except as otherwise provided
by law or in the resolution or resolutions of the Board of Directors providing
for the issuance of any particular class or series of Preferred Stock, the
holders of Common Stock and any other capital stock of the Corporation at the
time entitled thereto shall vote together as one class.
ARTICLE XIV
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
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reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class or creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE XV
In furtherance of, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation.
ARTICLE XVI
The Corporation reserves the right to repeal, alter, amend, or rescind
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Incorporation to be signed this the ______ day of ____________, 1996.
INCORPORATOR:
NORMAN J. BIRMINGHAM, President
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BYLAWS
OF
WESTMARK GROUP HOLDINGS, INC. - DELAWARE
(a Delaware corporation)
ARTICLE 1.
DEFINITIONS
1.1 Definitions. Unless the context clearly requires otherwise, in these
Bylaws:
(a) "Board" means the board of directors of the Corporation.
(b) "Bylaws" means these bylaws as adopted by the Board and includes
amendments subsequently adopted by the Board or by the Stockholders.
(c) "Certificate of Incorporation" means the Certificate of
Incorporation of WESTMARK GROUP HOLDINGS, INC.- DELAWARE as filed with
the Secretary of State of the State of Delaware and includes all
amendments thereto and restatements thereof subsequently filed.
(d) "Corporation" means WESTMARK GROUP HOLDINGS, INC. DELAWARE
(e) "Section" refers to sections of these Bylaws,
(f) "Stockholder" means stockholders of record of the Corporation.
1.2 Offices. The title of an office refers to the person or persons who at
any given time perform the duties of that particular office for the
Corporation.
ARTICLE 2.
OFFICES
2.1 Principal Office. The Corporation may locate its principal office
within or without the state of incorporation as the Board may determine.
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2.2 Registered Office. The registered office of the Corporation required by
law to be maintained in the state of incorporation may be, but need not be, the
same as the principal place of business of the Corporation. The Board may change
the address of the registered office from time to time.
2.3 Other Offices. The Corporation may have offices at such other places,
either within or without the state of incorporation, as the Board may designate
or as the business of the Corporation may require from time to time.
ARTICLE 3.
MEETINGS OF STOCKHOLDERS
3.1 Annual Meetings. The Stockholders of the Corporation shall hold their
annual meetings for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings at such time, date
and place as the Board shall determine by resolution.
3.2 Special Meetings. The Board, the Chairman of the Board, the President
or a committee of the Board duly designated and whose powers and authority
include the power to call meetings may call special meetings of the Stockholders
of the Corporation at any time for any purpose or purposes. Special meetings of
the Stockholders of the Corporation may also be called by the holders of at
least 30% of all shares entitled to vote at the proposed Special meeting.
3.3 Place of Meetings. The Stockholders shall hold all meetings at such
places, within or without the State of Delaware, as the Board or a committee of
the Board shall specify in the notice or waiver of notice for such meetings.
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3.4 Notice of Meetings. Except as otherwise required by law, the Board or a
committee of the Board shall give notice of each meeting of Stockholders.
whether annual or special, not less than 10 nor more than 60 days before the
date of the meeting. The Board or a committee of the Board shall deliver a
notice to each Stockholder entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to him personally, or by depositing such
notice in the United States mail, in a postage prepaid envelope, directed to him
at his address as it appears on the records of the Corporation, or by
transmitting a notice thereof to him at such address by telegraph, telecopy,
cable or wireless. If mailed, notice is given on the date deposited in the
United States mail, postage prepaid, directed to the Stockholder at his address
as it appears on the records of the Corporation. An affidavit of the Secretary
or an Assistant Secretary or of the Transfer Agent of the Corporation that he
has given notice shall constitute, in the absence of fraud, prima facie evidence
of the facts stated therein.
Every notice of a meeting of the Stockholders shall state the place, date
and hour of the meeting and, in the case of a special meeting, also shall state
the purpose or purposes of the meeting. Furthermore, if the Corporation will
maintain the list at a place other than where the meeting will take place, every
notice of a meeting of the Stockholders shall specify where the Corporation will
maintain the list of Stockholders entitled to vote at the meeting.
3.5 Stockholder Notice. Stockholders who intend to nominate persons to the
Board of Directors or propose any other action at an annual meeting of
Stockholders must timely notify the Secretary of the Corporation of such intent.
To be timely, a Stockholder's
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notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the date, of such meeting; provided, however, that in the event that less than
75 days' notice of the date of the meeting is given or made to Stockholders,
notice by the Stockholder to be timely must be received not later than the close
of business on the 15th day following the date on which such notice of the date
of the annual meeting was mailed. Such notice must be in writing and must
include a (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
meeting; (ii) the name and record address of the Stockholder proposing such
business; (iii) the class, series and number of shares of capital stock of the
corporation which are beneficially owned by the Stockholder; and (iv) any
material interest of the Stockholder in such business, The Board of Directors
reserves the right to refuse to submit any such proposal to stockholders at an
annual meeting if, in its judgment, the information provided in the notice is
inaccurate or incomplete.
3.6 Waiver of Notice. Whenever these Bylaws require written notice, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall constitute the equivalent of notice.
Attendance of a person at any meeting shall constitute a waiver of notice of
such meeting, except when the person attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. No written
waiver of notice need specify either the business to be transacted at, or the
purpose
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or purposes of any regular or special meeting of the Stockholders, directors or
members of a committee of the Board.
3.7 Adjournment of Meeting. When the Stockholders adjourn a meeting to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Stockholders may transact any business
which they may have transacted at the original meeting. If the adjournment is
for more than 30 days or, if after the adjournment, the Board or a committee of
the Board fixes a new record date for the adjourned meeting, the Board or a
committee of the Board shall give notice of the adjourned meeting to each
Stockholder of record entitled to vote at the meeting.
3.8 Quorum. Except as otherwise required by law, the holders of a majority
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes at any meeting of
the Stockholders. In the absence of a quorum at any meeting or any adjournment
thereof, the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, or, in the absence therefrom of all the
Stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting to in other place, date or time.
If the chairman of the meeting gives notice of any adjourned special
meeting of Stockholders to all Stockholders entitled to vote thereat, stating
that the minimum percentage of stockholders for a quorum as provided by Delaware
law shall constitute a quorum, then, except as otherwise required by low, that
percentage at such adjourned
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meeting shall constitute a quorum and a majority of the votes cast at such
meeting shall determine all matters.
3.9 Organization. Such person as the Board may have designated or, in the
absence of such a person, the highest Ranking officer of the Corporation who is
present shall call to order any meeting of the Stockholders, determine the
presence of a quorum, and act as chairman of the meeting. In the absence of the
Secretary or an Assistant Secretary of the Corporation, the chairman shall
appoint someone to act as the secretary of the meeting.
3.10 Conduct of Business. The chairman of any meeting of Stockholders shall
determine the order of business and the procedure at the meeting, including such
regulations of the manner of voting and the conduct of discussion as he deems in
order.
3.11 List of Stockholders. At least 1O days before every meeting of
Stockholders, the Secretary shall prepare a list of the Stockholders entitled to
vote at the meeting or any adjournment thereof arranged in alphabetical order,
showing the address of each Stockholder and the number of shares registered in
the name of each Stockholder. The Corporation shall make the list available for
examination by any Stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting will take place or at the
place designated in the notice of the meeting.
The Secretary shall produce and keep the list at the time and place of the
meeting during the entire duration of the meeting, and any Stockholder who is
present may inspect the list at the meeting. The list shall constitute
presumptive proof of the identity of
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the Stockholders entitled to vote at the meeting and the number of shares each
Stockholder holds.
A determination of Stockholders entitled to vote at any meeting of
Stockholders pursuant to this Section shall apply to any adjournment thereof.
3.12 Fixing of Record Date. For the purpose of determining Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, or Stockholders entitled to receive payment of any
dividend, or in order to make a determination of Stockholders for any other
proper purpose, the Board or a committee of the Board may fix in advance a date
as the record date for any such determination of Stockholders. However, the
Board shall not fix such date, in any case, more than 60 days nor less than 10
days prior to the date of the particular action.
If the Board or a committee of the Board does not fix a record date for the
determination of Stockholders entitled to notice of or to vote at a meeting of
Stockholders, the record date shall be at the close of business on the day next
preceding the day on which notice is given or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held or
the date on which the Board adopts the resolution declaring a dividend.
3.13 Voting of Shares. Each Stockholder shall have one vote for every share
of stock having voting rights registered in his name on the record date for the
meeting. The Corporation shall not have the right to vote treasury stock of the
Corporation, nor shall another corporation have the right to vote its stock of
the Corporation if the Corporation holds, directly or indirectly, a majority of
the shares entitled to vote in the election of
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directors of such other corporation. Persons holding stock of the
Corporation in a fiduciary capacity shall have the right to vote such stock.
Persons who have pledged their stock of the Corporation shall have the right to
vote such stock unless in the transfer on the books of the Corporation the
pledgor expressly empowered the pledgee to vote such stock. In that event, only
the pledgee, or his proxy, may represent such stock and vote thereon.
A plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote shall determine all elections and,
except when the law or Certificate of Incorporation requires otherwise, the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote shall determine all other matters.
Where a separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and the affirmative vote of the majority of shares of such
class or classes present in person or represented by proxy at the meeting shall
be the act of such class.
The Stockholders may vote by voice vote on all matters. Upon demand by a
Stockholder entitled to vote, or his proxy, the Stockholders shall vote by
ballot. In that event, each ballot shall state the name of the Stockholder or
proxy voting, the number of shares voted and such other information as the
Corporation may require under the procedure established for the meeting.
3.14 Inspectors. At any meeting in which the Stockholders vote by
ballot, the chairman may appoint one or more inspectors. Each inspector shall
take and sign an oath
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to execute the duties of inspector at such meeting faithfully, with strict
impartiality, and according to the best of his ability. The inspectors shall
ascertain the number of shares of outstanding and the voting power of each;
determine the shares represented at a meeting and the validity of proxies and
ballots; count all votes and ballots; determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors; and certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
certification required herein shall take the form of a subscribed, written
report prepared by the inspectors and delivered to the Secretary of the
Corporation. An inspector need not be a Stockholder of the Corporation, and any
Officer of the Corporation may be an inspector on any question other than a vote
for or against a proposal in which he has a material interest.
3.15 Proxies. A Stockholder may exercise any voting rights in person or by
his proxy appointed by an instrument in writing, which he or his authorized
attorney-in-fact has subscribed and which the proxy has delivered to the
secretary of the meeting pursuant to the manner prescribed by law.
A proxy is not valid after the expiration of three years after the date of
its execution, unless the person executing it specifies thereon the length of
time for which it is to continue in force (which length may exceed three years)
or limits its use to a particular meeting. Each proxy is irrevocable if it
expressly states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power.
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The attendance at any meeting of a Stockholder who previously has given a
proxy shall not have the effect of revoking the same unless he notifies the
Secretary in writing prior to the voting of the proxy.
3.16 Action by Consent. Any action required to be taken at any annual or
special meeting of stockholders of the Corporation or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, retain receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within 60 days of the earliest
dated consent delivered in the manner required by this section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the, Corporation by delivery to its registered office,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded.
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Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE 4.
BOARD OF DIRECTORS
4.1 General PowerS. The Board shall manage the property, business and
affairs Of the Corporation.
4.2 Number. The number of directors who shall constitute the Board shall
equal not less than one nor more than nine, as the Board may determine by
resolution from time to time.
4.3 Election of Directors and Term of Office. The Stockholders of the
Corporation shall elect the directors at the annual or adjourned annual meeting
(except as otherwise provided herein for the filling of vacancies). Each
director shall hold office until his death, resignation, retirement, removal, or
disqualification, or until his successor shall have been elected and qualified.
4.4 Resignations. Any director of the Corporation may resign at any time
by giving written notice to the Board or to the Secretary of the Corporation.
Any resignation shall take effect upon receipt or at the time specified in the
notice. Unless the notice specifies otherwise, the effectiveness of the
resignation shall not depend upon its acceptance.
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4.5 Removal. Stockholders holding a majority of the outstanding shares
entitled to vote at an election of directors may remove any director or the
entire Board of Directors at any time, with or without cause.
4.6 Vacancies. A majority of the remaining directors, although less than a
quorum, or a sole remaining director may fill any vacancy on the Board, whether
because of death, resignation, disqualification, an increase in the number of
directors, or any other cause. Any director elected to fill a vacancy shall hold
office until his death, resignation, retirement, removal, or disqualification,
or until his successor shall have been elected and qualified.
4.7 Chairman of the Board. At the initial and annual meeting of the Board,
the directors may elect from their number a Chairman of the Board of Directors.
The Chairman shall preside at all meetings of the Board and shall perform such
other duties as the Board may direct. The Board also may elect a Vice Chairman
and other officers of the Board, with such powers and duties as the Board may
designate from time to time.
4.11 Compensation. The Board may compensate directors for their services
and may provide for the payment of all expenses the directors incur by attending
meetings of the Board or otherwise.
ARTICLE 5.
MEETINGS OF DIRECTORS
5.1 Regular Meetings. The Board may hold regular meetings at such
places, dates and times as the Board shall establish by resolution. If Any day
fixed for a meeting falls on a legal holiday, the Board shall hold the meeting
at the same place and time on the next succeeding business day. The Board need
not give notice of regular meetings.
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5.2 Place of Meetings. The Board may hold any of its meetings in or out of
the State of Delaware, at such places as the Board may designate, at such places
as the notice or waiver of notice of any such meeting may designate, or at such
places as the persons calling the meeting may designate.
5.3 Meetings by Telecommunications. The Board or any committee of the Board
may hold meetings by means of conference telephone or similar telecommunications
equipment that enable all persons participating in the meeting to hear each
other. such participation shall constitute presence in person at such meeting.
5.4 Special Meetings. Chairman of the Board, the President, or one-half of
the directors then in office may call a special meeting of the Board. The person
or persons authorized to call special meetings of the Board may fix any place,
either in or out of the State of Delaware as the place for the meeting.
5.5 Notice of Special Meetings. The person or persons calling a special
meeting of the Board shall give written notice to each director of the time,
place, date and purpose of the meeting of not less than three days if by mail
and not less than 24 hours if by telegraph or in person before the date of the
meeting. If mailed, notice is given on the date deposited in the United States
mail, postage prepaid, to such director. A director may waive notice of any
special meeting, and any meeting shall constitute a legal meeting without notice
if all the directors are present or if those not present sign either before or
after the meeting a written waiver of notice, a consent to such meeting, or an
approval of the minutes of the meeting. A notice or waiver of notice need not
specify the purposes of the meeting or the business which the Board will
transact at the meeting.
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<PAGE>
5.6 Waiver by Presence. Except when expressly for the purpose of objecting
to the legality of a meeting, a director's presence at a meeting shall
constitute a waiver of notice of such meeting.
5.7 Quorum. A majority of the directors then in office shall constitute a
quorum for all purposes at any meeting of the Board. In the absence of a quorum,
a majority Of directors present at any meeting may adjourn the meeting to
another place, date or time without further notice. No proxies shall be given by
directors to any person for purposes of voting or establishing a quorum at a
directors meetings.
5.8 Conduct of Business. The Board shall transact business in such order
and manner as the Board may determine. Except as the law requires otherwise,
the Board shall determine all matters by the vote of a majority of the directors
present at a meeting at which a quorum is present. The directors shall act as a
Board, and the individual directors shall have no power as such.
5.9 Action by Consent. The Board or a committee of the Board may take any
required or permitted action without a meeting if all members of the Board or
committee consent thereto in writing and file such consent with the minutes of
the proceedings of the Board or committee.
ARTICLE 6
COMMITTEES
6.1 Committees of the Board. The Board may designate, by a vote of a
majority of the directors then in office, committees of the Board. The
committees shall serve at the
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<PAGE>
pleasure of the Board and shall possess such lawfully delegable powers and
duties as the Board may confer.
6.2 Selection of Committee Members. The Board shall elect by a vote of a
majority of the directors then in office a director or directors to serve as the
member or members of a committee. By the same vote, the Board may designate
other directors as alternate members who may replace any absent or disqualified
member at any meeting of a committee. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may appoint by unanimous
vote another member of the Board to act at the meeting in the place of the
absent or disqualified member.
6.3 Conduct of Business. Each committee may determine the procedural rules
for meeting and conducting its business and shall act in accordance therewith,
except as the law or these Bylaws require otherwise. Each committee shall make
adequate provision for notice of all meetings to members. A majority of the
members of the committee shall constitute a quorum, unless the committee
consists of one or two members. In that event, one member shall constitute a
quorum. A majority vote of the members present shall determine all matters. A
committee may take action without a meeting if all the members of the committee
consent in writing and file the consent or consents with the minutes of the
proceedings of the committee.
6.4 Authority. Any committee, to the extent the Board provides, shall have
and may exercise all the powers and authority of the Board in the management of
the business
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<PAGE>
and affairs of the Corporation, and may authorize the affixation of the
Corporation's seal to all instruments which may require or permit it. However,
no committee shall have any power or authority with regard to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the Stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
Stockholders a dissolution of the Corporation or a revocation of a dissolution
of the Corporation, or amending these Bylaws of the Corporation. Unless a
resolution of the Board expressly provides, no committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger.
6.5 Minutes. Each committee shall keep regular minutes of its proceedings
and report the same to the Board when required.
ARTICLE 7
OFFICERS
7.1 Officers of the Corporation. The officers of the Corporation shall
consist of a President, a Secretary, a Treasurer and such Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and other officers as the Board
may designate and elect from time to time. The same person may hold at the same
time any two or more offices, except the offices of President and Secretary.
7.2 Election and Term. The Board shall elect The officers of the
Corporation. Each officer shall hold office until his death, resignation,
retirement, removal or disqualification, or until his successor shall have been
elected and qualified.
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<PAGE>
7.3 Compensation of Officers. The Board shall fix the compensation of all
officers of the Corporation. No officer shall serve the Corporation in any other
capacity and receive compensation, unless the Board authorizes the additional
compensation.
7.4 Removal Officers and Agents. The Board may remove any officer or agent
it has elected or appointed at any time, with or without cause.
7.5 Resignation of Officers and Agents. Any officer or agent the Board has
elected or appointed may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified. Unless otherwise specified in
the notice, the Board need not accept the resignation to make it effective.
7.6 Bond. The Board may require by resolution any officer, agent, or
employee of the Corporation to give bond to the Corporation, with sufficient
sureties conditioned on the faithful performance of the duties of his respective
office or agency. The Board also may require by resolution any officer, agent or
employee to comply with such other conditions as the Board may require from time
to time.
7.7 President. The President shall be the principal executive officer of
the Corporation and, subject to the Board's control, shall supervise and direct
all of the business and affairs of the Corporation. When present, he shall sign
(with or without the Secretary, an Assistant Secretary, or any other officer or
agent of the Corporation which the Board has authorized) deeds, mortgages,
bonds, contracts or other instruments which the Board has authorized an officer
or agent of the Corporation to execute. However, the President shall
17
<PAGE>
not sign any instrument which the laws, these Bylaws, or the Board expressly
require some other officer or agent of the Corporation to sign and execute.
In general, the President shall perform all duties incident to the office of
President and such other duties as the Board may prescribe from time to time.
7.8 Vice President. In the absence of the President or in the event of his
death, inability or refusal to act, the Vice Presidents in the order of their
length of service as Vice Presidents, unless the Board determines otherwise,
shall perform the duties of the President. When acting as the President, a Vice
President shall have all the Powers and restrictions of the Presidency. A Vice
President shall perform such other duties as the President or the Board may
assign to him from time to time.
7.9 Secretary. The Secretary shall (a) keep the minutes of the meetings of
the Stockholders and of the Board in one or more books for that purpose, (b)
give all notices which these Bylaws or the law requires, (c) serve as custodian
of the records and seal of the Corporation, (d) affix the seal of the
corporation to all documents which the Board has authorized execution on behalf
of the Corporation under seal, (e) maintain a register of the address of each
Stockholder of the Corporation, (f) sign, with the President, a Vice President,
or any other officer or agent of the Corporation which the Board has authorized,
certificates for shares of the Corporation, (g) have charge of the stock
transfer books of the Corporation, and (h) perform all duties which the
President or the Board may assign to him from time to time.
7.10 Assistant secretaries. In the absence of the Secretary or in the event
of his death, inability or refusal to act, the Assistant Secretaries in the
order of their length of
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service as Assistant Secretary, unless the Board determines otherwise, shall
perform the duties of the Secretary. When acting as the Secretary, an Assistant
Secretary shall have the powers and restrictions of the Secretary. An Assistant
Secretary shall perform such other duties as the President, Secretary or Board
may assign from time to time.
7.11 Treasurer. The Treasurer shall (a) have responsibility for all funds
and securities of the Corporation, (b) receive and give receipts for moneys due
and payable to the corporation from any source whatsoever, (c) deposit all
moneys in the name of the Corporation in depositories which the Board selects,
and (d) perform all of the duties which the President or the Board may assign to
him from time to time.
7.12 Assistant Treasurer. In the absence of the Treasurer or in the event
of his death, inability or refusal to act, the Assistant Treasurers in the order
of their length of service as Assistant Treasurer, unless the Board determines
otherwise, shall perform the duties of the Treasurer. When acting as the
Treasurer, an Assistant Treasurer shall have the powers and restrictions of the
Treasurer. An Assistant Treasurer shall perform such other duties as the
Treasurer, the President, or the Board may assign to him from time to time.
7.13 Delegation of Authority. Notwithstanding any provision of these Bylaws
to the contrary, the Board may delegate the powers or duties of any officer to
any other officer or agent.
7.14 Action with Respect to Securities of Other Corporation. Unless the
Board directs otherwise, the President shall have the power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation holds
19
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securities. Furthermore, unless the Board directs otherwise, the President shall
exercise any and all rights and powers which the Corporation possesses by reason
of its ownership of securities in another corporation
7.15 Vacancies. The Board may fill any vacancy in any office because of
death, resignation, removal, disqualification or any other cause in the manner
which these Bylaws prescribe for the regular appointment to such office.
ARTICLE 8.
CONTRACTS, LOANS, DRAFTS,
DEPOSITS AND ACCOUNTS
8.1 Contracts. The Board may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. The Board may make such authorization
general or special.
8.2 Loans. Unless the Board has authorized such action, no officer or
agent of the Corporation shall contract for a loan on behalf of the Corporation
or issue any evidence of indebtedness in the Corporation's name.
8.3 Drafts. The President, any Vice President, the Treasurer, any Assistant
Treasurer, and such other persons as the Board shall determine shall issue all
checks, drafts and other orders for the payment of money, notes and other
evidences of indebtedness issued in the name of or payable by the Corporation.
8.4 Deposits. The Treasurer shall deposit all funds of the Corporation not
otherwise employed in such banks, trust companies, or other depositories as the
Board may select or as any officer, assistant, agent or attorney of the
Corporation to whom the Board has delegated such power may select. For the
purpose of deposit and collection for the
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account of the Corporation, the President or the Treasurer (or any other
officer, assistant, agent or attorney of the Corporation whom the Board has
authorized) may endorse, assign and deliver checks, drafts and other orders
for the payment of money payable to the order of the Corporation.
8.5 General and Special Bank Accounts. The Board may authorize the opening
and keeping of general and special bank accounts with such banks, trust
companies, or other depositories as the Board may select or as any officer,
assistant, agent or attorney of the Corporation to whom the Board has delegated
such power may select. The Board may make such special rules and regulations
with respect to such bank accounts, not inconsistent with the provisions of
these Bylaws, as it may deem expedient.
ARTICLE 9.
CERTIFICATE FOR SHARES AND THEIR TRANSFER
9.1 Certificates for Shares. Every owner of stock of the Corporation shall
have the right to receive a certificate or certificates, certifying to the
number and class of shares of the stock of the Corporation which he owns. The
Board shall determine the form of the certificates for the shares of stock of
the Corporation. The Secretary, transfer agent, or registrar of the Corporation
shall number the certificates representing shares of the stock of the
Corporation in the order in which the Corporation issue them. The President
or any Vice President and the Secretary or any Assistant Secretary shall sign
the certificates in the name of the Corporation. Any or all certificates may
contain facsimile signatures. In case any officer, transfer agent, or registrar
who has signed a certificate, or whose facsimile signature appears on a
certificate, ceases to serve as such officer, transfer agent, or registrar
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before the Corporation issues the certificate, the Corporation may issue the
certificate with the same effect as though the person who signed such
certificate, or whose facsimile signature appears on the certificate, was such
officer, transfer agent, or registrar at the date of issue. The Secretary,
transfer agent, or registrar of the Corporation shall keep a record in the stock
transfer books of the Corporation of the names of the persons, firms or
corporations owning the stock represented by the certificates, the number and
class of shares represented by the certificates and the dates thereof and, in
the case of cancellation, the dates of cancellation. The Secretary, transfer
agent, or registrar of the Corporation shall cancel every certificate
surrendered to the Corporation for exchange or transfer. Except in the case of a
lost, destroyed, stolen or mutilated certificate, the Secretary, transfer agent,
or registrar of the Corporation shall not issue a new certificate in exchange
for an existing certificate until he has cancelled the existing certificate.
9.2 Transfer of Shares. A holder of record of shares of the Corporation's
stock, or his attorney-in-fact authorized by power of attorney duly executed
and filed with the Secretary, transfer agent or registrar of the Corporation,
may transfer his shares only on the stock transfer books of the Corporation.
Such person shall furnish to the Secretary, transfer agent, or registrar of the
Corporation proper evidence of his authority to make the transfer and shall
properly endorse and surrender for cancellation his existing certificate or
certificates for such shares. Whenever a holder of record of shares of the
Corporation's stock makes a transfer of shares for collateral security, the
Secretary, transfer agent, or registrar of the Corporation shall state such fact
in the entry of transfer if the transferor and the transferee request.
22
<PAGE>
9.3 Lost Certificates. The Board may direct the Secretary, transfer agent,
or registrar of the Corporation to issue a new certificate to any holder of
record of shares of the Corporation's stock claiming that he has lost such
certificate, or that someone has stolen, destroyed or mutilated such
certificate, upon the receipt of an affidavit from such holder to such fact.
When authorizing the issue of a new certificate, the Board, in its discretion
may require as a condition precedent to the issuance that the owner of such
certificate give the Corporation a bond of indemnity in such form and amount as
the Board may direct.
9.4 Regulations. The Board may make such rules and regulations, not
inconsistent with these Bylaws, as it deems expedient concerning the issue,
transfer and registration of certificates for shares of the stock of the
corporation. The Board may appoint or authorize any officer or officers to
appoint one or more transfer agents, or one or more registrars, and may require
all certificates for stock to bear the signature or signatures of any of them.
9.5 Holder of Record. The Corporation may treat as absolute owners of
shares the person in whose name the shares stand of record as if that person had
full competency, capacity and authority to exercise all rights of ownership,
despite any knowledge or notice to the contrary or any description indicating a
representative, pledge or other fiduciary relation, or any reference to any
other instrument or to the rights of any other person appearing upon its record
or upon the share certificate. However, the Corporation may treat any person
furnishing proof of his appointment as a fiduciary as if he were the holder of
record of the shares.
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9.6 Treasury Shares. Treasury shares of the Corporation shall consist Of
Shares which the Corporation has issued and thereafter acquired but not
cancelled. Treasury shares shall not carry voting or dividend rights.
ARTICLE 10.
INDEMNIFICATION
10.1 The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an act or in the right of the Corporation) by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner in which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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10.2 The Corporation shall indemnify any person or was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
10.3 To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 10.1 and 10.2 of this
Article, or in defense of any claim, issue or matter therein, be shall be
indemnified against expenses' (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
10.4 Any indemnification under subsections 10.1 and 10.2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case
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upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections 10.1 and 10.2 of this Article. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
10.5 Expenses (including attorneys' fees) incurred by an officer or
director in defending in a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or Officer to repay such amount if
it shall ultimately be determined that be is not entitled to be indemnified by
the Corporation as authorized by this Article. Such expenses (including
attorneys' fees) incurred by other employees and agents may he so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
10.6 The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
26
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10.7 The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under this Article.
10.8 For purposes of this section references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
10.9 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
27
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10.10 Nothing contained in this Article 10, or elsewhere in these Bylaws,
shall operate to indemnify any director or officer in such indemnification is
contrary to law, either as a matter of policy, or under the provisions of
the Federal Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, or any other applicable state or Federal law.
ARTICLE 11.
TAKEOVER OFFERS
In the event the Corporation receives a takeover offer, the Board of
Directors shall consider all relevant factors in evaluating such offer,
including, but not limited to the terms of the offer, and the potential
economic and social impact of such offer on the Corporation's stockholders,
employees, customers, creditors and community in which it operates.
ARTICLE 12.
NOTICES
12.1 General. Whenever these Bylaws require notice to any Stockholder,
director, officer or agent, such notice does not mean personal notice. A person
may give effective notice under these Bylaws in every case by depositing a
writing in a post office or letter box in a postpaid, scaled wrapper, or by
dispatching a prepaid telegram addressed to such Stockholder, director, officer
or agent at his address on the books of the Corporation. Unless these Bylaws
expressly provide to the contrary the time when the person sends notice shall
constitute the time of the giving of notice.
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12.2 Waiver of Notice. Whenever the law or these Bylaws require notice, the
person entitled to said notice may waive such notice in writing, either before
or after the time stated A therein.
ARTICLE 13.
MISCELLANEOUS
13.1 Facsimile Signatures. In addition to the use of facsimile signatures
which these Bylaws specifically authorize, the Corporation may use such
facsimile signatures of any officer or officers, agents or agent, of the
Corporation as the Board or a committee of the Board may authorize.
13.2. Corporate Seal. The Board may provide for a suitable seal containing
the name of the Corporation, of which the Secretary shall be in charge. The
Treasurer, any Assistant Secretary, or any Assistant Treasurer may keep and use
the seal or duplicates of the seal if and when the Board or a committee of the
Board so directs.
13.3. Fiscal Year. The Board shall have the authority to fix and change the
fiscal year of the Corporation.
ARTICLE 14
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, the
Stockholders or the Board may amend or repeal these Bylaws at any meeting.
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The undersigned hereby certifies that the foregoing constitutes a true and
correct copy of the Bylaws of the Corporation as adopted by the Directors on the
10th day of May, 1996
Executed as of this 10th day of May, 1996.
----------------------------------------
MARK SCHAFTLEIN, Secretary
EXHIBIT 4.1
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
NUMBER WESTMARK GROUP SHARES
HOLDINGS
THIS CERTIFICATE IS CUSIP
TRANSFERABLE IN SEE REVERSE FOR CERTAIN
DENVER, COLORADO DEFINITIONS
WESTMARK GROUP HOLDINGS, INC.
COMMON STOCK
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE, OF
Westmark Group Holdings, Inc. transferable on the books of the Corporation by
the holder hereof in person or by a duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Countersigned and Registered:
-----------------------------
Transfer Agent and Registrar Dated:
By
President Secretary Authorized Signature
WESTMARK GROUP HOLDINGS, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof which
the Corporation is authorized to issue and the qualifications, limitations or
restrictions of such preferences and/or rights. Any such request should be
addressed to the Corporation at its principal place of business or to the
Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT -.....Custodian.....
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to
survivorship and not as tenants Minors Act
in common ......................
(State)
<PAGE>
Additional abbreviations may also be used though not in the above list. For
Value Received, ______________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
================================================================================
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP OR POSTAL
CODE, OF ASSIGNEE)
================================================================================
_________________________________________________________________________ Shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated, _______________________
X _____________________________
NOTICE: THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
x______________________________
ALL GUARANTEES MUST BE MADE BY
A FINANCIAL INSTITUTION (SUCH
AS A BANK OR BROKER) WHICH IS A
PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION
PROGRAM ("STAMP"), THE NEW YORK
STOCK EXCHANGE, INC. MEDALLION
SIGNATURE PROGRAM ("MSP"), OR
THE STOCK EXCHANGES MEDALLION
PROGRAM ("SEMP") AND MUST NOT
BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT
ACCEPTABLE.
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation,"
a corporation organized and existing under the laws of the State of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
effective April 1, 1996 adopted a resolution providing for the issuance of a
series of 200,000 shares of Series A Convertible Preferred Stock, $4.00 stated
value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series A Convertible Preferred
Stock, $4.00 stated value per share ("Series A Preferred Stock"), is hereby
authorized and created, said series to consist of up to 200,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES A PREFERRED STOCK.
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of 8% per share, payable
quarterly, in arrears, commencing on the 30th day of June 1996. Dividends
on each share of Series A Preferred Stock shall begin to accrue and shall
cumulate from the date of original issue of such share ("Issue Date"),
whether or not declared, and shall be payable to the holder of such share
on the record date (as defined in Section 1(b) below). Dividends on
account of arrears for any past dividend periods may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on a record date fixed for such payment by the Board of
Directors of the Corporation or by a committee of such Board duly
authorized to fix such date by resolution designating such committee.
(b) Dividends on the Series A Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for the payment of dividends. The
record dates for payment of dividends shall be the 15th day of December,
March, June and September.
(c) Dividends payable on the Conversion Date (as defined in Section
2(b) below) of the Series A Preferred Stock shall be calculated on the
basis of the actual number of days elapsed (including the Conversion Date)
over a 365-day year.
2. CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK. (a) At any
time on or after the Issue Date, each holder of shares of
<PAGE>
Series A Preferred Stock may, at his option, convert any or all such
shares, plus all dividends accrued and unpaid on such Series A Preferred
Stock up to the Conversion Date, on the terms and conditions set forth in
this Section 2, into fully paid and non-assessable shares of the
Corporation's common stock, no par value ("Common Stock"). The number of
shares of Common Stock into which each share of Series A Preferred Stock
may be converted shall be determined by dividing $4.00 by the Conversion
Price (as defined herein) in effect at the time of conversion. The
"Conversion Price" per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of Series A Preferred
Stock shall be the lesser of (i) $1.50 or (ii) 84% of the closing bid
price per share of Common Stock as quoted by the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automatic Quotations System, or, if the Common stock is not listed or
admitted to trading on any national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotations System, in
the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose, on the trading day immediately preceding the Conversion Date.
(b) To exercise his conversion privilege, the holder of any shares of
Series A Preferred Stock shall surrender to the Corporation during regular
business hours at the principal executive offices of the Corporation or
the offices of the transfer agent for the Series A Preferred Stock or at
such other place as may be designated by the Corporation, the certificate
or certificates for the shares to be converted, duly endorsed for transfer
to the Corporation (if required by it), accompanied by written notice
stating that the holder irrevocably elects to convert such shares.
Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the "Conversion
Date." Within three (3) business days after the date on which such
delivery is made, the Corporation shall issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which the holder is entitled as a
result of such conversion, and cash with respect to any fractional
interest of a share of Common Stock as provided in paragraph (c) of this
Section 2. The holder shall be deemed to have become a stockholder of
record of the number of shares of Common Stock into which the shares of
Series A Preferred Stock have been converted on the
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<PAGE>
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have become
a stockholder of record of such shares on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. Upon conversion of only a portion of the
number of shares of Series A Preferred Stock represented by a certificate
or certificates surrendered for conversion, the Corporation shall within
three (3) business days after the date on which such delivery is made,
issue and send (with receipt to be acknowledged) to the holder thereof or
the holder's designee, at the address designated by such holder, a new
certificate covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate or certificates so
surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series A Preferred Stock. If more than one share
of Series A Preferred Stock shall be surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series A Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation for
that purpose.
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<PAGE>
(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series A
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) The Corporation shall at all times reserve for issuance and maintain
available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Series A Preferred Stock, the
full number of shares of Common Stock deliverable upon the conversion of
all Series A Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary
director and stockholder action), in accordance with the laws of the State
of its incorporation, increase the authorized number of shares of its
Common Stock if at any time the authorized number of shares of its Common
Stock remaining unissued shall not be sufficient to permit the conversion
of all of the shares of Series A Preferred Stock at the time outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series A Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will in good
faith and as expeditiously as possible meet such registration, listing or
approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion of
the shares of Series A Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that
the Corporation shall at any time subdivide the outstanding shares of
Common Stock, or shall pay or make a dividend or distribution on any
class of capital stock of the Corporation in Common Stock, the
Conversion Price in effect immediately prior to such subdivision or
the issuance of such dividend shall be proportionately decreased, and
in case the Corporation shall at any time
4
<PAGE>
combine the outstanding shares of Common Stock, the Conversion Price
in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may
be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive
a dividend, or any other distribution, payable otherwise than in
cash; or
(B) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or
other securities, or to receive any other rights; or
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with
or into another corporation, share exchange for all outstanding
shares of Common Stock under a plan of exchange to which the
Corporation is a party, or conveyance of all or substantially
all of the assets of the Corporation to another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation; then, and in such
case, the Corporation shall cause to be mailed to the holders of
record of the outstanding Series A Preferred stock, at least ten
days prior to the date hereinafter specified, a notice stating
the date on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up is
to take place and the date, if any is to be fixed, as of which
holders of Corporation securities of record shall be entitled to
exchange their shares of Corporation securities for securities
or other property deliverable upon such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding up.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid
5
<PAGE>
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all time
in good faith assist in the carrying out of all the provisions of
paragraph 2(h) and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of
the Series A Preferred Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series A Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series A Preferred Stock shall be converted
pursuant to Section 2(a) hereof, the shares so converted shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to class or series, and may thereafter be reissued,
but not as shares of Series A Preferred Stock.
3. REDEMPTION OF SERIES A PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series A
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share, plus all dividends accrued
and unpaid on such Series A Preferred Stock up to the date fixed for
redemption, upon giving the notice hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series A Preferred Stock, a notice in writing
shall be given by mail to the holders of record of the Series A Preferred
Stock at their respective addresses as the same shall appear on the stock
books of the Corporation. Such notice shall state: (i) the redemption
date; (ii) the redemption price, and the amount of dividends on the Series
A Preferred Stock that will be accrued and unpaid to the date fixed for
redemption; (iii) the place or places where certificates for shares are to
be surrendered for payment of the redemption price; (iv) that the
dividends on shares to be redeemed will cease to accrue on such redemption
dates; (v) the conversion rights of the shares to be redeemed; (vi) the
period within which the conversion rights may be exercised; and (vii) the
Conversion Price, and the number of shares of Common Stock issuable upon
conversion of a share of Series A Preferred Stock at the time.
6
<PAGE>
(c) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series A
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series A Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to outstanding as of the redemption date. In the
event a holder of Series A Preferred Stock provides the Corporation with
notice of conversion of all or a portion of such Series A Preferred Stock
into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series A Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(d) After October 1, 1996, the holder of the Series A Preferred Stock
shall have the right to cause the Company to redeem, in whole or in part,
the shares of Series A Preferred Stock at the stated value per share, plus
all dividends accrued and unpaid on such Series A Preferred Stock, upon
providing written notice to the Corporation at its record office. Upon
receipt of such written notice, the Corporation shall have twenty business
days within which to effectuate the redemption.
(e) The Series A Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series A
Preferred Stock unless full dividends of on all outstanding shares of
Series A Preferred Stock shall have been paid in full for all past
dividend periods.
(f) All shares of Series A Preferred Stock so redeemed shall have the
status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series A Preferred Stock.
(g) No holder of shares of Series A Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
7
<PAGE>
4. VOTING.
(a) Except as otherwise required by law, the shares of Series A
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series A Preferred Stock then outstanding shall be entitled or receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to liquidation, an amount equal to $4.00 per
share, plus accumulated and unpaid dividends thereon to the date fixed for
distribution. It is understood that the Series A Preferred Stock shall be
junior in rank to the Series B Preferred Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the Series A Preferred Stock and any other
shares of stock of the Corporation ranking as to any such distribution on
a parity with the Series A Preferred Stock are not paid in full, the
holders of the Series A Preferred Stock and of such other shares shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series A Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series A
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such
8
<PAGE>
proposed action, including a description of the stock, cash, and property
to be received by the holders of shares of Series A Preferred Stock upon
consummation of the proposed action and the date of delivery thereof. If
any material change in the facts set forth in the initial notice shall
occur, the Corporation shall promptly give written notice to each holder
of shares of Series A Preferred Stock of such material change. The
Corporation shall not consummate any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation before the expiration of 30
days after the mailing of the initial notice or 10 days after the mailing
of any subsequent written notice, whichever is later; provided that any
such 30-day or 10-day period may be shortened upon the written consent of
the holders of all of the outstanding shares of Series A Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series A Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(a) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the outstanding
shares of Series A Preferred Stock, voting separately as a class:
(i) Amend, alter or repeal any provision of the Certification of
Incorporation or Bylaws of the Corporation so as to affect adversely
the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock.
(b) The provisions of this paragraph 6 shall not in any way limit the
right and power of the Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and preferred
stock ranking senior to the terms of the Series A Preferred Stock and
other obligations, and to incur indebtedness to banks and to other
lenders.
9
<PAGE>
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by NORMAN J.
BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its
secretary, this ____ day of ________________, 1996.
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM
Chief Executive Officer
ATTEST:
By DAWN DRELLA, Secretary
STATE OF __________ |
|
COUNTY OF _________ |
BE IT REMEMBERED that on this _______ day of ___________, 1996, personally
came before me, a Notary Public in and for the County and State aforesaid,
NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc.,
a Colorado corporation, and he duly executed said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said Corporation and the facts stated therein are true; and that the seal
affixed to said certificate and attested by the Secretary of said corporation is
the corporate seal of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
NOTARY PUBLIC, IN AND FOR
THE STATE OF _____________
10
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation,"
a corporation organized and existing under the laws of the State of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
and effective as of April 1, 1996 adopted a resolution providing for the
issuance of a series of 300,000 shares of Series B Convertible Preferred Stock,
$2.00 stated value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series B Convertible Preferred
Stock, $2.00 stated value per share ("Series B Preferred Stock"), is hereby
authorized and created, said series to consist of up to 300,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES B PREFERRED STOCK.
(a) The holders of the Series B Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of 10% per share, payable
monthly, in arrears on the last day of each month, commencing on the 30th
day of April, 1996. Dividends on each share of Series B Preferred Stock
shall begin to accrue and shall cumulate from April 1, 1996 (the "Issue
Date"), whether or not declared, and shall be payable to the holder of
such share on the record date (as defined in Section 1(b) below).
Dividends on account of arrears for any past dividend periods may be
declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on a record date fixed for such payment
by the Board of Directors of the Corporation or by a committee of such
Board duly authorized to fix such date by resolution designating such
committee.
(b) Dividends on the Series B Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for the payment of dividends. The
record dates for payment of dividends shall be the 20th day of each month.
(c) Dividends payable on the Conversion Date (as defined in Section
2(b) below) of the Series B Preferred Stock shall be calculated on the
basis of the actual number of days elapsed (including the Conversion Date)
over a 365-day year.
2. CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK. (a) At any
time on or after the Issue Date, each holder of shares of
<PAGE>
Series B Preferred Stock may, at his or her option, at any time or from
time to time, convert any or all such shares, plus all dividends accrued
and unpaid on such Series B Preferred Stock up to the Conversion Date, on
the terms and conditions set forth in this Section 2, into fully paid and
non-assessable shares of the Corporation's common stock, no par value
("Common Stock"). Each share of Series B Preferred Stock plus all
dividends accrued and unpaid on such Series B Preferred Stock, shall be
automatically converted into fully paid and nonassessable shares of Common
Stock of the Corporation, unless previously converted, thirty-seven months
after the Issue Date thereof. The number of shares of Common Stock into
which each share of Series B Preferred Stock may be converted shall be
determined by dividing $2.00 by the Conversion Price (as defined herein)
in effect at the time of conversion. The "Conversion Price" per share at
which shares of Common Stock shall be initially issuable upon conversion
of any shares of Series B Preferred Stock shall be 84% of the closing bid
price per share of Common Stock as quoted by the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automatic Quotations System (including the OTC electronic bulletin board),
or, if the Common stock is not listed or admitted to trading on any
national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System (including the OTC
electronic bulletin board), in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Corporation for that purpose, on the trading day immediately preceding the
Conversion Date.
(b) To exercise his or her conversion privilege, the holder of any
shares of Series B Preferred Stock shall deliver via facsimile or
overnight mail, notice of intent to convert and shall within five business
days surrender to the Corporation during regular business hours at the
principal executive offices of the Corporation located at 355 N. E. Fifth
Avenue, Suite 4, Delray Beach, Florida 33483, or the offices of the
transfer agent for the Series B Preferred Stock, the certificate or
certificates for the shares to be converted, duly endorsed for transfer to
the Corporation (if required by it). Conversion shall be deemed to have
been effected on the date when delivery of the notice of conversion is
made, and such date is referred to herein as the "Conversion Date." Within
three (3) business days after the date on which such delivery is made, the
Corporation shall issue and send (with receipt to be acknowledged) to the
holder thereof or the holder's designee, at the address designated by such
holder, a certificate or certificates for the number of full shares
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<PAGE>
of Common Stock to which the holder is entitled as a result of such
conversion, and cash with respect to any fractional interest of a share of
Common Stock as provided in paragraph (c) of this Section 2. The holder
shall be deemed to have become a stockholder of record of the number of
shares of Common Stock into which the shares of Series B Preferred Stock
have been converted on the applicable Conversion Date. Upon conversion of
only a portion of the number of shares of Series B Preferred Stock
represented by a certificate or certificates surrendered for conversion,
the Corporation shall within three (3) business days after the date on
which such delivery is made, issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a new certificate covering the number
of shares of Series B Preferred Stock representing the unconverted portion
of the certificate or certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series B Preferred Stock. If more than one
share of Series B Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series B Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series B Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of Directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
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Exchange member firm selected from time to time by the Corporation for
that purpose.
(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series B
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series B
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series B Preferred Stock from time to time
outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of
the State of its incorporation, increase the authorized number of shares
of its Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series B Preferred Stock at the time
outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series B Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will at all
times subsequent to the date of this Designation use its best efforts to
meet such registration, listing or approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion of
the shares of Series B Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that
the Corporation shall at any time subdivide the outstanding shares of
Common Stock, or shall pay or make a dividend or distribution on any
class of capital
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stock of the Corporation in Common Stock, the Conversion Price in
effect immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased, effective at the
close of business on the date of such subdivision, dividend or
combination, as the case may be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive
a dividend, or any other distribution, payable otherwise than in
cash; or
(B) that the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or
other securities, or to receive any other rights; or
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with
or into another corporation, share exchange for all outstanding
shares of Common Stock under a plan of exchange to which the
Corporation is a party, or conveyance of all or substantially
all of the assets of the Corporation to another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation; then, and in such
case, the Corporation shall cause to be mailed to the holders of
record of the outstanding Series B Preferred stock, at least ten days
prior to the date hereinafter specified, a notice stating the date on
which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding up is to take place and the date, if any is
to be fixed, as of which holders of Corporation securities of record
shall be entitled to exchange their shares of Corporation securities
for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up. In the
event of a reorganization, consolidation, merger, or share exchange,
the Corporation shall
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require that the transactional documents provide for the rights
listed in this paragraph 2(h)(ii).
(iii) FAILURE TO OBTAIN EFFECTIVENESS OF A REGISTRATION
STATEMENT. The Corporation will immediately file a registration
statement on Form SB-2 or other appropriate form with the Securities
and Exchange Commission to register, among other issuances, the
issuance of the Common Stock to be issued upon the conversion of the
Series B Preferred Stock. The Corporation will use its best efforts
to obtain effectiveness of such registration statement, although
there is no assurance that this registration statement will be deemed
effective, nor is there any assurance as to the length of time such
registration statement will remain effective if such event occurs. If
the Corporation's registration statement is not rendered effective on
or before June 30, 1996, the Conversion Price shall be decreased by
2% during each month (or portion thereof) that such registration
statement fails to become effective (i.e., reduced from 84% to 82%,
82% to 80%, etc.); provided, however, that the Conversion Price shall
never be less than 42% of the closing bid price per share of Common
Stock.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
the carrying out of all the provisions of paragraph 2(h) and in the taking
of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series B Preferred Stock
against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series B Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series B Preferred Stock shall be converted
pursuant to Section 2(a) hereof, the shares so converted shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to class or series, and may thereafter be reissued,
but not as shares of Series B Preferred Stock.
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3. REDEMPTION OF SERIES B PREFERRED STOCK AT OPTION OF CORPORATION.
(a) Subject to the provisions of this Section 3, the Series B
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share, plus all dividends accrued
and unpaid on such Series B Preferred Stock up to the date fixed for
redemption, upon giving the notice hereinafter provided.
(b) In the event the Corporation exercises its redemption right at a
time when the Corporation has not obtained, or has failed to maintain, the
effectiveness of a registration statement filed under the Act registering
the issuance of the shares of Common Stock upon conversion of the Series B
Preferred Stock (or the resale of the Common Stock if such Common Stock
has been issued upon conversion of the Series B Preferred Stock)
("Effectiveness of a Registration Statement"), the redemption price shall
be the sum of (i) the stated value of the Series B Preferred Stock divided
by the Conversion Price as adjusted pursuant to Section 2(h) and (ii) the
dividends accrued and unpaid on such Series B Preferred Stock. The holders
of Series B Preferred Stock acknowledge that there is no guarantee that
the Corporation will be able to obtain effectiveness of such a
registration statement as set forth in this Section 3(b), or if such
registration statement is deemed effective, that the Corporation will be
able to maintain the effectiveness of such registration statement for any
period of time.
(c) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series B Preferred Stock, a notice in writing
shall be given by mail or by facsimile to the holders of record of the
Series B Preferred Stock at their respective addresses as the same shall
appear on the stock books of the Corporation. Such notice shall state: (i)
the redemption date; (ii) the redemption price, and the amount of
dividends on the Series B Preferred Stock that will be accrued and unpaid
to the date fixed for redemption; (iii) the place or places where
certificates for shares are to be surrendered for payment of the
redemption price; (iv) that the dividends on shares to be redeemed will
cease to accrue on such redemption dates; (v) the conversion rights of the
shares to be redeemed; (vi) the period within which the conversion rights
may be exercised; and (vii) the Conversion Price, and the number of shares
of Common Stock issuable upon conversion of a share of Series B Preferred
Stock at the time.
(d) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series B
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series B Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall
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<PAGE>
default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to be outstanding as of the redemption date. In
the event a holder of Series B Preferred Stock provides the Corporation
with notice of conversion of all or a portion of such Series B Preferred
Stock into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series B Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(e) The Series B Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series B
Preferred Stock unless full dividends of on all outstanding shares of
Series B Preferred Stock shall have been paid in full for all past
dividend periods.
(f) All shares of Series B Preferred Stock so redeemed shall have the
status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series B Preferred Stock.
(g) No holder of shares of Series B Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
4. VOTING.
(a) Except as otherwise required by law, the shares of Series B
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
(b) Notwithstanding the foregoing, if the Corporation has not
obtained or has failed to maintain the Effectiveness of a Registration
Statement as described in Section 3(b) on or before December 31, 1996 and
the closing bid price of the Common Stock of the Corporation is at or
below $1.00 for any five consecutive trading days subsequent to December
31, 1996, then the holders of the Series B Preferred Stock, voting
separately as a class, shall be entitled to elect a majority of the Board
of Directors at any meeting of the stockholders of the Corporation at
which directors are to be elected, or held, as the case may be. The right
of the holders of the Series B Preferred Stock to elect such directors
shall cease when
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Effectiveness of a Registration Statement as described in Section 3(b)
occurs. At any time after such voting power shall have so vested in the
holders of the Series B Preferred Stock, upon the written request of a
holder of record of Series B Preferred Stock, addressed to the Secretary
of the Corporation at the principal office of the Corporation, and to the
other holders of the Series B Preferred Stock, the Secretary shall, at the
election of such requesting holder: (i) call a special meeting of the
holders of the Series B Preferred Stock for the election of the directors
to be elected by them as hereinafter provided, such meeting to be held
within 45 days after delivery of such request at the place and upon the
notice provided by law and in the Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not be required
to call such special meeting in the case of any such request received less
than 45 days before the date fixed for the next ensuing annual meeting of
the stockholders; or (ii) obtain written consents from holders of the
Series B Preferred Stock for the election of the directors to be elected
by them in an amount sufficient to satisfy applicable state law
requirements and comply with applicable federal securities law
requirements with respect to this consent provision.
(c) The holders of the Series B Preferred Stock voting as a class
will have the right to remove without cause at any time and replace any
director such holders have elected pursuant to this Section 4.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series B Preferred Stock then outstanding shall be entitled or receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series B Preferred Stock as to liquidation, an amount equal to $2.00 per
share, plus accumulated and unpaid dividends thereon to the date fixed for
distribution. It is understood that the Series A Preferred Stock ranks
junior to the Series B Preferred Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the Series B Preferred Stock and any other
shares of stock of the Corporation ranking as to any such distribution on
a parity with the Series B Preferred Stock are not paid in full, the
holders of the Series B Preferred Stock and of such other shares shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series B Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
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(b) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series B
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of Series B Preferred
Stock upon consummation of the proposed action and the date of delivery
thereof. If any material change in the facts set forth in the initial
notice shall occur, the Corporation shall promptly give written notice to
each holder of shares of Series B Preferred Stock of such material change.
The Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation before the
expiration of 30 days after the mailing of the initial notice or 10 days
after the mailing of any subsequent written notice, whichever is later;
provided that any such 30-day or 10-day period may be shortened upon the
written consent of the holders of all of the outstanding shares of Series
B Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series B Preferred
Stock and the holders of shares of Common Stock. If a majority of the
holders of the Series B Preferred Stock objects to the appraiser or to the
valuation of shares, the Corporation shall engage such appraiser as shall
be approved by the holders of a majority of shares of the Corporation's
Series B Preferred Stock. The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice to each holder of shares
of Series B Preferred Stock of the appraiser's valuation.
6. CORPORATION LIMITATIONS.
(a) So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the unanimous affirmative
vote or the written consent of the holders of the outstanding shares of
Series B Preferred Stock, voting separately as a class:
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(i) Amend, alter or repeal any provision of the Certification of
Incorporation or Bylaws of the Corporation so as to affect adversely
the relative rights, preferences, qualifications, limitations or
restrictions of the Series B Preferred Stock.
(b) Unless otherwise contractually restricted, the provisions of this
paragraph 6 shall not in any way limit the right and power of the
Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, preferred stock
ranking junior to the terms of the Series B Preferred Stock and other
obligations, and to incur indebtedness to banks and to other lenders.
7. HOLDERS OF SERIES B PREFERRED STOCK LIMITATIONS.
(a) For a period of thirty-seven months from the Issue Date, no
holders of Series B Preferred Stock shall be required or permitted,
through conversion, exercise or receipt upon foreclosure, to obtain
more than 5% at any one time of the outstanding voting equity of the
Corporation as computed in accordance with Section 13 of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
(b) Notwithstanding the foregoing, if the Corporation fails to obtain
or has failed to maintain the Effectiveness of a Registration Statement as
described in Section 3(b) prior to December 31, 1996 and the closing bid
price per share of the Common Stock of the Corporation for any five
consecutive trading days subsequent to December 31, 1996 is at or below
$1.00, the limitations set forth in Section 7(a) above shall be rendered
inapplicable ninety (90) days after written notice has been given by a
holder of the Series B Preferred Stock to the Corporation with respect to
such holder giving notice.
8. TRANSFERABILITY. The Series B Preferred Stock shall be transferable by
the holders, provided such transfer is in compliance with applicable federal and
state securities laws.
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IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by NORMAN J.
BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its
secretary, this ____ day of ________________, 1996.
WESTMARK GROUP HOLDINGS, INC.
By NORMAN J. BIRMINGHAM
Chief Executive Officer
ATTEST:
By DAWN DRELLA, Secretary
STATE OF __________ |
|
COUNTY OF _________ |
BE IT REMEMBERED that on this _______ day of ___________, 1996, personally
came before me, a Notary Public in and for the County and State aforesaid,
NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc.,
a Colorado corporation, and he duly executed said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said Corporation and the facts stated therein are true; and that the seal
affixed to said certificate and attested by the Secretary of said corporation is
the corporate seal of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
NOTARY PUBLIC, IN AND FOR
THE STATE OF _____________
12
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the
"Corporation," a corporation organized and existing under the laws of the State
of Colorado,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation of the Corporation, and pursuant to the provisions
of Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated,
such Board of Directors by the unanimous written consent of its members dated
effective March 29, 1996 adopted a resolution providing for the issuance of a
series of 500,000 shares of Series C Convertible Preferred Stock, $3.50 stated
value per share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series C Convertible Preferred
Stock, $3.50 stated value per share ("Series C Preferred Stock"), is hereby
authorized and created, said series to consist of up to 500,000 shares. The
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
1. CASH DIVIDENDS ON SERIES C PREFERRED STOCK.
(a) The holders of the Series C Preferred Stock shall be
entitled to receive, out of the funds of the Corporation legally
available therefor, cumulative cash dividends at the annual rate of 10%
per share, payable quarterly, in arrears, commencing on the 30th day of
June 1996. Dividends on each share of Series C Preferred Stock shall
begin to accrue and shall cumulate from the date of original issue of
such share ("Issue Date"), whether or not declared, and shall be
payable to the holder of such share on the record date (as defined in
Section 1(b) below). Dividends on account of arrears for any past
dividend periods may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on
a record date fixed for such payment by the Board of Directors of the
Corporation or by a committee of such Board duly authorized to fix such
date by resolution designating such committee.
(b) Dividends on the Series C Preferred Stock shall be payable
to holders of record as they appear on the books of the Corporation as
of the close of business on any record date for the payment of
dividends. The record dates for payment of dividends shall be the 15th
day of December, March, June and September.
<PAGE>
(c) Dividends payable on the Conversion Date (as defined in
Section 2(b) below) of the Series C Preferred Stock shall be calculated
on the basis of the actual number of days elapsed (including the
Conversion Date) over a 365-day year.
2. CONVERSION OF SERIES C PREFERRED STOCK INTO COMMON STOCK. (a)
At any time on or after December 15, 1997, each holder of
shares of Series C Preferred Stock may, at his option, convert any or
all such shares, plus all dividends accrued and unpaid on such Series C
Preferred Stock up to the Conversion Date, on the terms and conditions
set forth in this Section 2, into fully paid and non-assessable shares
of the Corporation's common stock, no par value ("Common Stock"). The
number of shares of Common Stock into which each share of Series C
Preferred Stock may be converted shall be determined by dividing $3.50
by the Conversion Price (as defined herein) in effect at the time of
conversion. The "Conversion Price" per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of
Series C Preferred Stock shall be the lesser of (i) $1.50 or (ii) 84%
of the closing bid price per share of Common Stock as quoted by the
principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on the National Association of
Securities Dealers Automatic Quotations System, or, if the Common stock
is not listed or admitted to trading on any national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotations System, in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time
to time by the Corporation for that purpose, on the trading day
immediately preceding the Conversion Date.
(b) To exercise his conversion privilege, the holder of any
shares of Series C Preferred Stock shall surrender to the Corporation
during regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Series C
Preferred Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required
by it), accompanied by written notice stating that the holder
irrevocably elects to convert such shares. Conversion shall be deemed
to have been effected on the date when such delivery is made, and such
date is referred to herein as the "Conversion Date." Within three (3)
business days after the date on which such delivery is made, the
Corporation shall issue and send (with receipt to be acknowledged) to
the holder thereof or the holder's designee, at the address designated
by such holder, a certificate or certificates for the number of full
shares of Common Stock to which the holder is entitled as a result of
such conversion, and cash with respect to any fractional interest of a
share of Common Stock as provided in paragraph (c) of this Section 2.
The holder shall be deemed to have become a stockholder of record of
the number of shares of Common Stock into which the shares of Series C
Preferred Stock have been converted on the
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applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have
become a stockholder of record of such shares on the next succeeding
date on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date. Upon conversion of only
a portion of the number of shares of Series C Preferred Stock
represented by a certificate or certificates surrendered for
conversion, the Corporation shall within three (3) business days after
the date on which such delivery is made, issue and send (with receipt
to be acknowledged) to the holder thereof or the holder's designee, at
the address designated by such holder, a new certificate covering the
number of shares of Series C Preferred Stock representing the
unconverted portion of the certificate or certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series C Preferred Stock. If more
than one share of Series C Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series C Preferred Stock, the Corporation shall make an
adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest, to the nearest 1/100th of a
share of Common Stock, in cash at the Current Market Price (as defined
below) on the business day preceding the effective date of the
conversion. The "Current Market Price" of publicly traded shares of
Common Stock or any other class of Common Stock or other security of
the Corporation or any other issuer for any day shall be deemed to be
the daily "Closing Price" for the trading day immediately preceding the
Conversion Date. The "Current Market Price" of the Common Stock or
other class of capital stock or securities of the Corporation or any
other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors
of the Corporation or such committee, available to make such
determination, as determined in good faith judgment of the Board of
Directors or such committee. The "Closing Price" shall mean the last
reported sales price on the principal securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automatic Quotations System,
or, if the Common stock is not listed or admitted to trading on any
national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System, in the over-the-counter
market as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for that purpose.
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(d) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of Series C Preferred Stock pursuant
hereto. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in
which the Series C Preferred Stock so converted were registered, and no
such issue and delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(e) The Corporation shall at all times reserve for issuance
and maintain available, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the Series
C Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all Series C Preferred Stock from
time to time outstanding. The Corporation shall from time to time
(subject to obtaining necessary director and stockholder action), in
accordance with the laws of the State of its incorporation, increase
the authorized number of shares of its Common Stock if at any time the
authorized number of shares of its Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the shares
of Series C Preferred Stock at the time outstanding.
(f) If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series C Preferred Stock require
registration or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under any federal or
state law or regulation or otherwise, including registration under the
Securities Act of 1933, as amended, and appropriate state securities
laws, before such shares may be validly issued or delivered upon
conversion, the Corporation will in good faith and as expeditiously as
possible meet such registration, listing or approval, as the case may
be.
(g) All shares of Common Stock which may be issued upon
conversion of the shares of Series C Preferred Stock will upon issuance
by the Corporation be validly issued, fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issuance
thereof.
(h) The Conversion Price in effect shall be subject to
adjustment from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the
event that the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall pay or make a
dividend or distribution on any class of capital stock of the
Corporation in Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time
4
<PAGE>
combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business
on the date of such subdivision, dividend or combination, as
the case may be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS,
CAPITAL REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record
of the holders of its Common Stock for the purpose of
entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash; or
(B) that the Corporation shall take a record
of the holders of its Common Stock for the purpose of
entitling them to subscribe for or purchase any
shares of stock of any class or other securities, or
to receive any other rights; or
(C) of any capital reorganization of the
Corporation, reclassification of the capital stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of Common
Stock), consolidation or merger of the Corporation
with or into another corporation, share exchange for
all outstanding shares of Common Stock under a plan
of exchange to which the Corporation is a party, or
conveyance of all or substantially all of the assets
of the Corporation to another corporation; or
(D) of the voluntary of involuntary
dissolution, liquidation or winding up of the
Corporation;
then, and in such case, the Corporation shall cause to be
mailed to the holders of record of the outstanding Series C
Preferred stock, at least ten days prior to the date
hereinafter specified, a notice stating the date on which (x)
a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding up is to take
place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to
exchange their shares of Corporation securities for securities
or other property deliverable upon such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding up. (i) The
Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid
5
<PAGE>
or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation, but will at all
time in good faith assist in the carrying out of all the provisions of
paragraph 2(h) and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion rights of the holders
of the Series C Preferred Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each
holder of Series C Preferred Stock a certificate signed by the chief
financial officer of the Corporation setting forth (i) such adjustment
or readjustment, (ii) the Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion
of his shares.
(k) In case any shares of Series C Preferred Stock shall be
converted pursuant to Section 2(a) hereof, the shares so converted
shall be restored to the status of authorized but unissued shares of
preferred stock, without designation as to class or series, and may
thereafter be reissued, but not as shares of Series C Preferred Stock.
3. REDEMPTION OF SERIES C PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series C
Preferred Stock shall be redeemable in whole, or in part, at the option
of the Corporation by resolution of the Board of Directors at any time
after the Issue Date, at the stated value per share, plus all dividends
accrued and unpaid on such Series C Preferred Stock up to the date
fixed for redemption, upon giving the notice hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the
date fixed for redemption of the Series C Preferred Stock, a notice in
writing shall be given by mail to the holders of record of the Series C
Preferred Stock at their respective addresses as the same shall appear
on the stock books of the Corporation. Such notice shall state: (i) the
redemption date; (ii) the redemption price, and the amount of dividends
on the Series C Preferred Stock that will be accrued and unpaid to the
date fixed for redemption; (iii) the place or places where certificates
for shares are to be surrendered for payment of the redemption price;
(iv) that the dividends on shares to be redeemed will cease to accrue
on such redemption dates; (v) the conversion rights of the shares to be
redeemed; (vi) the period within which the conversion rights may be
exercised; and (vii) the Conversion Price, and the number of shares of
Common Stock issuable upon conversion of a share of Series C Preferred
Stock at the time.
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<PAGE>
(c) After giving notice and prior to the close of business on
the business day prior to the redemption date, the holders of the
Series C Preferred Stock so called for redemption may convert such
stock into Common Stock in accordance with the conversion privileges
set forth in Section 2 hereof. Unless (i) the holder of shares of
Series C Preferred Stock to whom notice has been duly given shall have
exercised its rights to convert in accordance with Section 2 hereof; or
(ii) the Corporation shall default in the payment of the redemption
price as set forth in such notice, upon such redemption date such
holder shall no longer have any voting or other rights with respect to
such shares, except the right to receive the moneys payable upon such
redemption from the Corporation without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of the
certificates, and the shares represented thereby shall no longer be
deemed to outstanding as of the redemption date. In the event a holder
of Series C Preferred Stock provides the Corporation with notice of
conversion of all or a portion of such Series C Preferred Stock into
shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation
shall default in the payment of the redemption price as set forth in
such redemption notice, the conversion shall not be effective unless
the holder of the Series C Preferred Stock electing to convert provides
written notice to the Corporation within 20 days of the purported
redemption date of his desire to effect such conversion.
(d) The Series C Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series
C Preferred Stock unless full dividends of on all outstanding shares of
Series C Preferred Stock shall have been paid in full for all past
dividend periods.
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<PAGE>
(e) All shares of Series C Preferred Stock so redeemed shall
have the status of authorized but unissued preferred stock, but such
shares so redeemed shall not be reissued as shares of Series C
Preferred Stock.
(f) No holder of shares of Series C Preferred Stock shall have
the right to require the Corporation to redeem all or any portion of
such shares.
4. VOTING.
(a) Except as otherwise required by law, the shares of Series
C Preferred Stock shall not be entitled to vote on any matters
presented at any annual or special meeting of stockholders of the
Corporation or to be taken by written consent of the stockholders of
the Corporation.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series C Preferred Stock then outstanding shall be entitled or receive
out of assets of the Corporation available for distribution to
stockholders, after payment in full of the liquidation distribution to
which holders of the preferred stock with a liquidation preference are
entitled, but before any distribution of assets is made to holders of
Common Stock or of any other class of capital stock of the Corporation
ranking junior to the Series C Preferred Stock as to liquidation, an
amount equal to $3.50 per share, plus accumulated and unpaid dividends
thereon to the date fixed for distribution. It is understood that the
Series C Preferred Stock shall be junior in rank to the Series B
Preferred Stock and shall rank senior to the Series A Preferred Stock.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the
Series C Preferred Stock and any other shares of stock of the
Corporation ranking as to any such distribution on a parity with the
Series C Preferred Stock are not paid in full, the holders of the
Series C Preferred Stock and of such other shares shall share ratably
in any such distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Series C Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the
Corporation with or into any other corporation or corporations, nor the
sale or lease of all or substantially all of the assets of the
Corporation shall be deemed to be a liquidation, dissolution or a
winding up of the Corporation within the meaning of any of the
provisions of this Section 4.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such
action, or within 20 days prior to any stockholders' meeting called to
approve such action, or within 20 days after the commencement of any
involuntary proceeding, whichever is earlier, give each holder of
shares of Series C Preferred Stock initial written notice of the
proposed action. Such initial written notice shall describe the
material terms and conditions of such proposed action, including a
description of the stock, cash, and property to be received by the
holders of shares of Series C Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of shares
of Series C Preferred Stock of such material change. The Corporation
shall not consummate any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation before the expiration of
30 days after the mailing of the initial notice or 10 days after the
mailing of any subsequent
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<PAGE>
written notice, whichever is later; provided that any such 30-day or
10-day period may be shortened upon the written consent of the holders
of all of the outstanding shares of Series C Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series C Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice
to each holder of shares of Series C Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(a) So long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the
outstanding shares of Series C Preferred Stock, voting separately as a
class:
(i) Amend, alter or repeal any provision of the
Certification of Incorporation or Bylaws of the Corporation so
as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the Series C
Preferred Stock.
(b) The provisions of this paragraph 6 shall not in any way
limit the right and power of the Corporation to:
(i) Increase the total number of authorized shares of
Common Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and
preferred stock ranking senior to the terms of the Series C
Preferred Stock and other obligations, and to incur
indebtedness to banks and to other lenders.
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<PAGE>
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
NORMAN J. BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA,
its secretary, this 23 day of May, 1996.
WESTMARK GROUP HOLDINGS, INC.
By /s/ NORMAN J. BIRMINGHAM
---------------------------------
NORMAN J. BIRMINGHAM
Chief Executive Officer ATTEST:
By /s/ DAWN DRELLA
- ------------------------------
DAWN DRELLA, Secretary
10
EXHIBIT 4.5
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation," a
corporation organized and existing under the laws of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 8, Article 141, of the Delaware General Corporation Law, such Board of
Directors by the unanimous written consent of its members dated effective
November 21, 1996 adopted a resolution providing for the issuance of a series of
250,000 shares of Series D Convertible Preferred Stock, $5 stated value per
share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series D Convertible Preferred
Stock, $5 stated value per share ("Series D Preferred Stock"), is hereby
authorized and created, said series to consist of up to 250,000 shares of Series
D Preferred Stock. The voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or
restrictions thereof shall be as follows:
1. CASH DIVIDENDS ON SERIES D PREFERRED STOCK.
(a) The holders of the Series D Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of 10% per share, payable
quarterly, in arrears, commencing on the 15th day of March 1997. Dividends
on each share of Series D Preferred Stock shall begin to accrue and shall
cumulate from the date of original issue of such share ("Issue Date"),
whether or not declared, and shall be payable to the holder of such share
on the record date (as defined in Section 1(b) below). Dividends on
account of arrears for any past dividend periods may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on a record date fixed for such payment by the Board of
Directors of the Corporation or by a committee of such Board duly
authorized to fix such date by resolution designating such committee.
(b) Dividends on the Series D Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for the payment of dividends. The
record dates for payment of dividends shall be the 15th day of December,
March, June and September.
<PAGE>
(c) Dividends payable on the Conversion Date (as defined in Section
2(b) below) of the Series D Preferred Stock shall be calculated on the
basis of the actual number of days elapsed (including the Conversion Date)
over a 365-day year.
2. CONVERSION OF SERIES D PREFERRED STOCK INTO COMMON STOCK. (a) At any
time on or after April 1, 1997, each holder of shares of
Series D Preferred Stock may, at his option, convert any or all such
shares on the terms and conditions set forth in this Section 2, into fully
paid and non-assessable shares of the Corporation's common stock, $.001
par value ("Common Stock"). The number of shares of Common Stock into
which each share of Series D Preferred Stock may be converted shall be
determined by dividing $5 by the Conversion Price (as defined herein) in
effect at the time of conversion. The "Conversion Price" per share at
which shares of Common Stock shall be initially issuable upon conversion
of any shares of Series D Preferred Stock shall be the average of the
closing bid price per share of Common Stock for the five days preceding
the date of conversion as quoted by the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if
not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automatic Quotations
System, or, if the Common stock is not listed or admitted to trading on
any national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System, in the over-the-counter
market as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for that purpose, immediately
preceding the Conversion Date.
(b) To exercise his conversion privilege, the holder of any shares
of Series D Preferred Stock shall surrender to the Corporation during
regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Series D
Preferred Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required by
it), accompanied by written notice stating that the holder irrevocably
elects to convert such shares. Conversion shall be deemed to have been
effected on the date when such delivery is made, and such date is referred
to herein as the "Conversion Date." Within three (3) business days after
the date on which such delivery is made, the Corporation shall issue and
send (with receipt to be acknowledged) to the holder thereof or the
holder's designee, at the address designated by such holder, a certificate
or certificates for the number of full shares of Common Stock to which the
holder is entitled as a result of such conversion, and cash with respect
to any fractional interest of a share of Common Stock as provided in
paragraph (d) of this Section 2. The holder shall be deemed to have become
a stockholder of record of the number of shares of Common Stock into which
the shares of Series D Preferred Stock have been converted on the
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have become
a stockholder of record of such shares on the next succeeding date on
which the transfer books are open, but the Conversion Price
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<PAGE>
shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares of Series D Preferred Stock represented by
a certificate or certificates surrendered for conversion, the Corporation
shall within three (3) business days after the date on which such delivery
is made, issue and send (with receipt to be acknowledged) to the holder
thereof or the holder's designee, at the address designated by such
holder, a new certificate covering the number of shares of Series D
Preferred Stock representing the unconverted portion of the certificate or
certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series D Preferred Stock. If more than one
share of Series D Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series D Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series D Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation for
that purpose.
(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series D Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series D
Preferred Stock so converted were registered, and no such issue and
delivery shall be made
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<PAGE>
unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series D
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series D Preferred Stock from time to time
outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of
the State of its incorporation, increase the authorized number of shares
of its Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series D Preferred Stock at the time
outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series D Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will in good
faith and as expeditiously as possible meet such registration, listing or
approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion
of the shares of Series D Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event
that the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall pay or make a dividend or
distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Price in effect immediately prior to
such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any
time combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may
be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
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<PAGE>
(A) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to receive a dividend, or any other distribution, payable
otherwise than in cash; or
(B) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to subscribe for or purchase any shares of stock of any class
or other securities, or to receive any other rights; or
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock), consolidation or merger of the
Corporation with or into another corporation, share exchange
for all outstanding shares of Common Stock under a plan of
exchange to which the Corporation is a party, or conveyance of
all or substantially all of the assets of the Corporation to
another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in such case, the Corporation shall cause to be mailed to
the holders of record of the outstanding Series D Preferred stock,
at least ten days prior to the date hereinafter specified, a notice
stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up is to
take place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to exchange
their shares of Corporation securities for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding up.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
the carrying out of all the provisions of paragraph 2(h) and in the taking
of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series D Preferred Stock
against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to
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<PAGE>
each holder of Series D Preferred Stock a certificate signed by the chief
financial officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series D Preferred Stock shall be
converted pursuant to Section 2(a) hereof, the shares so converted shall
be restored to the status of authorized but unissued shares of preferred
stock, without designation as to class or series, and may thereafter be
reissued, but not as shares of Series D Preferred Stock.
3. REDEMPTION OF SERIES D PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series D
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share upon giving the notice
hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series D Preferred Stock, a notice in writing
shall be given by mail to the holders of record of the Series D Preferred
Stock at their respective addresses as the same shall appear on the stock
books of the Corporation. Such notice shall state: (i) the redemption
date; (ii) the redemption price, and the amount of dividends on the Series
D Preferred Stock that will be accrued and unpaid to the date fixed for
redemption; (iii) the place or places where certificates for shares are to
be surrendered for payment of the redemption price; (iv) that the
dividends on shares to be redeemed will cease to accrue on such redemption
dates; (v) the conversion rights of the shares to be redeemed; (vi) the
period within which the conversion rights may be exercised; and (vii) the
Conversion Price, and the number of shares of Common Stock issuable upon
conversion of a share of Series D Preferred Stock at the time.
(c) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series D
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series D Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to outstanding as of the redemption date. In the
event a holder of Series D Preferred Stock provides the Corporation with
notice of conversion of all or a portion of such Series D Preferred Stock
into shares of Common Stock
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<PAGE>
on or after any notice of redemption is provided, the holder shall have
been deemed to convert as of the redemption date provided, however, that
in the event the Corporation shall default in the payment of the
redemption price as set forth in such redemption notice, the conversion
shall not be effective unless the holder of the Series D Preferred Stock
electing to convert provides written notice to the Corporation within 20
days of the purported redemption date of his desire to effect such
conversion.
(d) The Series D Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of Series D
Preferred Stock unless full dividends of on all outstanding shares of
Series D Preferred Stock shall have been paid in full for all past
dividend periods.
(e) All shares of Series D Preferred Stock so redeemed shall have
the status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series D Preferred Stock.
(f) No holder of shares of Series D Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
4. VOTING.
(a) Except as otherwise required by law, the shares of Series D
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
5. LIQUIDATION RIGHTS.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series D Preferred Stock then outstanding shall be entitled to receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series D Preferred Stock as to liquidation, an amount equal to $5 per
share. It is understood that the Series D Preferred Stock shall be junior
in rank to the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the amounts
payable with respect to the Series D Preferred Stock and any other shares
of stock of the Corporation ranking as to any such distribution on a
parity with the Series D Preferred Stock are not paid in full, the holders
of the Series D Preferred Stock and of such other shares shall share
ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
7
<PAGE>
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series D Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 5.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series D
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of Series D Preferred
Stock upon consummation of the proposed action and the date of delivery
thereof. If any material change in the facts set forth in the initial
notice shall occur, the Corporation shall promptly give written notice to
each holder of shares of Series D Preferred Stock of such material change.
The Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation before the
expiration of 30 days after the mailing of the initial notice or 10 days
after the mailing of any subsequent written notice, whichever is later;
provided that any such 30-day or 10-day period may be shortened upon the
written consent of the holders of all of the outstanding shares of Series
D Preferred Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series D Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series D Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(a) So long as any shares of Series D Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the outstanding
shares of Series D Preferred Stock, voting separately as a class:
(i) Amend, alter or repeal any provision of the Certification
of Incorporation or Bylaws of the Corporation so as to affect
adversely the relative
8
<PAGE>
rights, preferences, qualifications, limitations or restrictions of
the Series D Preferred Stock.
(b) The provisions of this paragraph 6 shall not in any way limit
the right and power of the Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and preferred
stock ranking senior to the terms of the Series D Preferred Stock
and other obligations, and to incur indebtedness to banks and to
other lenders.
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by MARK
SCHAFTLEIN, its chief executive officer, and attested by TODD WALKER, its
secretary, this 21st day of November, 1996.
WESTMARK GROUP HOLDINGS, INC.
By________________________________________
MARK SCHAFTLEIN Chief Operating Officer
ATTEST:
By ____________________________________
TODD WALKER, Assistant Secretary
9
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation," a
corporation organized and existing under the laws of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 8, Article 141, of the Delaware General Corporation Law, such Board of
Directors by the unanimous written consent of its members dated effective
November 21, 1996 adopted a resolution providing for the issuance of a series of
130,000 shares of Series E Convertible Preferred Stock, $10 stated value per
share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series E Convertible Preferred
Stock, $10 stated value per share ("Series E Preferred Stock"), is hereby
authorized and created, said series to consist of up to 130,000 shares of Series
E Preferred Stock. The voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or
restrictions thereof shall be as follows:
1. NO DIVIDENDS ON SERIES E PREFERRED STOCK.
(a) The holders of the Series E Preferred Stock shall not be
entitled to receive dividends on the shares of Series E Preferred Stock.
2. CONVERSION OF SERIES E PREFERRED STOCK INTO COMMON STOCK.
(a) Prior to the close of business on July 21, 1997, each holder of
shares of Series E Preferred Stock may, at his option, convert any or all
such shares, on the terms and conditions set forth in this Section 2, into
fully paid and non-assessable shares of the Corporation's common stock,
$.001 par value ("Common Stock"). The number of shares of Common Stock
into which each share of Series E Preferred Stock may be converted shall
be determined by dividing $10 by the Conversion Price (as defined herein)
in effect at the time of conversion. The "Conversion Price" per share at
which shares of Common Stock shall be initially issuable upon conversion
of any shares of Series E Preferred Stock shall be $.45; provided,
however, that in the event that conversion of all of the shares of Series
E Preferred Stock result in the issuance of Common Stock in an amount in
excess of 49% of the issued and outstanding shares of the Corporation, the
conversion price will be increased so that conversion of all the
outstanding shares of the Series E Preferred Stock shall not exceed 49%
1
<PAGE>
of the issued and outstanding shares of the Corporation at the time of
conversion. Any shares issued after August 22, 1996 for the purpose of
exchange for fair value of assets received by the Corporation, 94,500
shares of Common Stock issued for legal fees pursuant to the amended stock
purchase agreement dated August 22, 1996 between the Corporation and GTB
Company, the shares of common stock issued for a capital raise of up to
$2,000,000, all shares underlying the employee stock option plan, warrants
issued prior to July 21, 1996, and the first 500,000 shares of Common
Stock to be issued for the repayment of debt will be excluded from the
anti-dilution calculation described above. In the event that less than all
the issued and outstanding shares of Series E Preferred Stock is tendered
to the Corporation for conversion, the Corporation shall convert such
portion on the basis set forth above. In the event that prior to the
conversion of all of the issued and outstanding shares of Series E
Preferred Stock, such Common Stock issued equals 49%, the balance of the
Series E Preferred Stock will be cancelled.
(b) To exercise his conversion privilege, the holder of any shares
of Series E Preferred Stock shall surrender to the Corporation during
regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Series E
Preferred Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required by
it), accompanied by written notice stating that the holder irrevocably
elects to convert such shares. Conversion shall be deemed to have been
effected on the date when such delivery is made, and such date is referred
to herein as the "Conversion Date." Within three (3) business days after
the date on which such delivery is made, the Corporation shall issue and
send (with receipt to be acknowledged) to the holder thereof or the
holder's designee, at the address designated by such holder, a certificate
or certificates for the number of full shares of Common Stock to which the
holder is entitled as a result of such conversion, and cash with respect
to any fractional interest of a share of Common Stock as provided in
paragraph (b) of this Section 2. The holder shall be deemed to have become
a stockholder of record of the number of shares of Common Stock into which
the shares of Series E Preferred Stock have been converted on the
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have become
a stockholder of record of such shares on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. Upon conversion of only a portion of the
number of shares of Series E Preferred Stock represented by a certificate
or certificates surrendered for conversion, the Corporation shall within
three (3) business days after the date on which such delivery is made,
issue and send (with receipt to be acknowledged) to the holder thereof or
the holder's designee, at the address designated by such holder, a new
certificate covering the number of shares of Series E Preferred Stock
representing the unconverted portion of the certificate or certificates so
surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series E Preferred Stock. If more than one
share of Series E
2
<PAGE>
Preferred Stock shall be surrendered for conversion at any one time by the
same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number
of shares of Series E Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series E Preferred Stock, the Corporation
shall make an adjustment in respect of such fractional interest equal to
the fair market value of such fractional interest, to the nearest 1/100th
of a share of Common Stock, in cash at the Current Market Price (as
defined below) on the business day preceding the effective date of the
conversion. The "Current Market Price" of publicly traded shares of Common
Stock or any other class of Common Stock or other security of the
Corporation or any other issuer for any day shall be deemed to be the
daily "Closing Price" for the trading day immediately preceding the
Conversion Date. The "Current Market Price" of the Common Stock or other
class of capital stock or securities of the Corporation or any other
issuer which is not publicly traded shall mean the fair value thereof as
determined by an independent investment banking firm or appraisal firm
experienced in the valuation of such securities or properties selected in
good faith by the Board of Directors of the Corporation or a committee
thereof or, if no such investment banking or appraisal firm is, in the
good faith judgment of the Board of directors of the Corporation or such
committee, available to make such determination, as determined in good
faith judgment of the Board of Directors or such committee. The "Closing
Price" shall mean the last reported sales price on the principal
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the National Association of Securities Dealers
Automatic Quotations System, or, if the Common stock is not listed or
admitted to trading on any national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotations System, in
the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose.
(d) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series E Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series E
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series E
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series E Preferred Stock from time to time
outstanding. The Corporation shall from time to time (subject to obtaining
necessary director
3
<PAGE>
and stockholder action), in accordance with the laws of the State of its
incorporation, increase the authorized number of shares of its Common
Stock if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of all
of the shares of Series E Preferred Stock at the time outstanding.
(f) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series E Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will in good
faith and as expeditiously as possible meet such registration, listing or
approval, as the case may be.
(g) All shares of Common Stock which may be issued upon conversion
of the shares of Series E Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event
that the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall pay or make a dividend or
distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Price in effect immediately prior to
such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any
time combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may
be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to receive a dividend, or any other distribution, payable
otherwise than in cash; or
(B) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to subscribe for or purchase any shares of stock of any class
or other securities, or to receive any other rights; or
4
<PAGE>
(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock), consolidation or merger of the
Corporation with or into another corporation, share exchange
for all outstanding shares of Common Stock under a plan of
exchange to which the Corporation is a party, or conveyance of
all or substantially all of the assets of the Corporation to
another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation; then, and in
such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding Series E Preferred stock,
at least ten days prior to the date hereinafter specified, a
notice stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or
(y) such reclassification, reorganization, consolidation,
merger, share exchange, conveyance, dissolution, liquidation,
or winding up is to take place and the date, if any is to be
fixed, as of which holders of Corporation securities of record
shall be entitled to exchange their shares of Corporation
securities for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger,
share exchange, conveyance, dissolution, liquidation, or
winding up.
(i) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
the carrying out of all the provisions of paragraph 2(h) and in the taking
of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series E Preferred Stock
against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(h), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series E Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(k) In case any shares of Series E Preferred Stock shall be
converted pursuant to Section 2(a) hereof, the shares so converted shall
be restored to the status of authorized but unissued shares of preferred
stock, without designation as to class or series, and may thereafter be
reissued, but not as shares of Series E Preferred Stock.
5
<PAGE>
3. REDEMPTION OF SERIES E PREFERRED STOCK.
(a) Subject to the provisions of this Section 3, the Series E
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share upon giving the notice
hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series E Preferred Stock, a notice in writing
shall be given by mail to the holders of record of the Series E Preferred
Stock at their respective addresses as the same shall appear on the stock
books of the Corporation. Such notice shall state: (i) the redemption
date; (ii) the redemption price; (iii) the place or places where
certificates for shares are to be surrendered for payment of the
redemption price; (iv) the conversion rights of the shares to be redeemed;
(v) the period within which the conversion rights may be exercised; and
(vi) the Conversion Price, and the number of shares of Common Stock
issuable upon conversion of a share of Series E Preferred Stock at the
time.
(c) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series E
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series E Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to outstanding as of the redemption date. In the
event a holder of Series E Preferred Stock provides the Corporation with
notice of conversion of all or a portion of such Series E Preferred Stock
into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series E Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(d) All shares of Series E Preferred Stock so redeemed shall have
the status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series E Preferred Stock.
(e) No holder of shares of Series E Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
6
<PAGE>
4. VOTING.
(f) Except as otherwise required by law, the shares of Series E
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
5. LIQUIDATION RIGHTS.
(g) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series E Preferred Stock then outstanding shall be entitled to receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series E Preferred Stock as to liquidation, an amount equal to $10 per
share. It is understood that the Series E Preferred Stock shall be junior
in rank to the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the Series E Preferred Stock and any other
shares of stock of the Corporation ranking as to any such distribution on
a parity with the Series E Preferred Stock are not paid in full, the
holders of the Series E Preferred Stock and of such other shares shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series E Preferred
Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(h) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 5.
(i) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series E
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of Series E Preferred
Stock upon consummation of the proposed action and the date of delivery
thereof. If any material change
7
<PAGE>
in the facts set forth in the initial notice shall occur, the Corporation
shall promptly give written notice to each holder of shares of Series E
Preferred Stock of such material change. The Corporation shall not
consummate any voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation before the expiration of 30 days after the
mailing of the initial notice or 10 days after the mailing of any
subsequent written notice, whichever is later; provided that any such
30-day or 10-day period may be shortened upon the written consent of the
holders of all of the outstanding shares of Series E Preferred Stock.
(j) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series E Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series E Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(k) So long as any shares of Series E Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the outstanding
shares of Series E Preferred Stock, voting separately as a class:
(i) Amend, alter or repeal any provision of the Certification
of Incorporation or Bylaws of the Corporation so as to affect
adversely the relative rights, preferences, qualifications,
limitations or restrictions of the Series E Preferred Stock. (l) The
provisions of this paragraph 6 shall not in any way limit
the right and power of the Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and preferred
stock ranking senior to the terms of the Series E Preferred Stock
and other obligations, and to incur indebtedness to banks and to
other lenders.
8
<PAGE>
IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by MARK
SCHAFTLEIN, its chief executive officer, and attested by TODD WALKER, its
secretary, this _____ day of _________, 1996.
WESTMARK GROUP HOLDINGS, INC.
By________________________________________
MARK SCHAFTLEIN Chief Operating Officer
ATTEST:
By_________________________________
TODD WALKER, Assistant Secretary
9
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES F CONVERTIBLE PREFERRED STOCK
OF
WESTMARK GROUP HOLDINGS, INC.
Westmark Group Holdings, Inc., hereinafter called the "Corporation," a
corporation organized and existing under the laws of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions of
Title 8, Article 141, of the Delaware General Corporation Law, such Board of
Directors by the unanimous written consent of its members dated effective
November 21, 1996 adopted a resolution providing for the issuance of a series of
1,000,000 shares of Series F Convertible Preferred Stock, $5 stated value per
share, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, the Series F Convertible Preferred
Stock, $5 stated value per share ("Series F Preferred Stock"), is hereby
authorized and created, said series to consist of up to 1,000,000 shares of
Series F Preferred Stock. The voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions thereof shall be as follows:
1. NO DIVIDENDS ON SERIES F PREFERRED STOCK.
(a) The holders of the Series F Preferred Stock shall not be
entitled to receive dividends on the shares of Series F Preferred Stock.
2. CONVERSION OF SERIES F PREFERRED STOCK INTO COMMON STOCK.
(a) At any time on or after April 1, 1997, each holder of shares of
Series F Preferred Stock may, at his option, convert any or all such
shares on the terms and conditions set forth in this Section 2, into fully
paid and non-assessable shares of the Corporation's common stock, $.001
par value ("Common Stock"). The number of shares of Common Stock into
which each share of Series F Preferred Stock may be converted shall be
determined by dividing $5 by the Conversion Price (as defined herein) in
effect at the time of conversion. The "Conversion Price" per share at
which shares of Common Stock shall be initially issuable upon conversion
of any shares of Series F Preferred Stock shall be the greater of (i)
$1.00 or (ii) the average closing bid price per share of Common Stock for
the five days immediately preceding the date of conversion as quoted by
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on
any national securities exchange, on the National Association of
Securities Dealers Automatic Quotations System, or, if the Common stock is
not listed or
<PAGE>
admitted to trading on any national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotations System, in
the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose, immediately preceding the Conversion Date.
(b) Each holder hereof shall be restricted from converting no more
than a total of $200,000 of stated value of Series F Preferred Stock until
the date upon which the Corporation receives net proceeds greater than or
equal to $1,000,000 from the sale of the real property more particularly
described on Exhibit "A" attached hereto. After the receipt of $1,000,000,
each holder shall be entitled to convert shares of Series F Preferred
Stock on a PRO-RATA basis equal to the amount of additional sums received
by the Corporation in excess of $1,000,000. For example, if there are two
holders of Series F Preferred Stock, each holding an equal number of
shares of Series F Preferred Stock and the Corporation received $50,000 in
excess of $1,000,000, each holder would be entitled to convert $25,000 of
stated value of Series F Convertible Stock. The holders shall be further
restricted from converting $200,000 worth of Series F Preferred Stock per
90 day period commencing April 1, 1997.
(c) To exercise his conversion privilege, the holder of any shares
of Series F Preferred Stock shall surrender to the Corporation during
regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the Series F
Preferred Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required by
it), accompanied by written notice stating that the holder irrevocably
elects to convert such shares. Conversion shall be deemed to have been
effected on the date when such delivery is made, and such date is referred
to herein as the "Conversion Date." Within three (3) business days after
the date on which such delivery is made, the Corporation shall issue and
send (with receipt to be acknowledged) to the holder thereof or the
holder's designee, at the address designated by such holder, a certificate
or certificates for the number of full shares of Common Stock to which the
holder is entitled as a result of such conversion, and cash with respect
to any fractional interest of a share of Common Stock as provided in
paragraph (d) of this Section 2. The holder shall be deemed to have become
a stockholder of record of the number of shares of Common Stock into which
the shares of Series F Preferred Stock have been converted on the
applicable Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event he shall be deemed to have become
a stockholder of record of such shares on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. Upon conversion of only a portion of the
number of shares of Series F Preferred Stock represented by a certificate
or certificates surrendered for conversion, the Corporation shall within
three (3) business days after the date on which such delivery is made,
issue and send (with receipt to be acknowledged) to the holder thereof or
the holder's designee, at the address designated by such holder, a new
certificate covering the number of shares of Series F Preferred Stock
representing the unconverted portion of the certificate or certificates so
surrendered.
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(d) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series F Preferred Stock. If more than one
share of Series F Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series F Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series F Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional
interest equal to the fair market value of such fractional interest, to
the nearest 1/100th of a share of Common Stock, in cash at the Current
Market Price (as defined below) on the business day preceding the
effective date of the conversion. The "Current Market Price" of publicly
traded shares of Common Stock or any other class of Common Stock or other
security of the Corporation or any other issuer for any day shall be
deemed to be the daily "Closing Price" for the trading day immediately
preceding the Conversion Date. The "Current Market Price" of the Common
Stock or other class of capital stock or securities of the Corporation or
any other issuer which is not publicly traded shall mean the fair value
thereof as determined by an independent investment banking firm or
appraisal firm experienced in the valuation of such securities or
properties selected in good faith by the Board of Directors of the
Corporation or a committee thereof or, if no such investment banking or
appraisal firm is, in the good faith judgment of the Board of directors of
the Corporation or such committee, available to make such determination,
as determined in good faith judgment of the Board of Directors or such
committee. The "Closing Price" shall mean the last reported sales price on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automatic Quotations System, or, if the Common stock is not listed
or admitted to trading on any national securities exchange or quoted on
the National Association of Securities Dealers Automated Quotations
System, in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation for
that purpose.
(e) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series F Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series F
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(f) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Series F
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series F Preferred Stock from time to time
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outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of
the State of its incorporation, increase the authorized number of shares
of its Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series F Preferred Stock at the time
outstanding.
(g) If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series F Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange
or other regulatory body under any federal or state law or regulation or
otherwise, including registration under the Securities Act of 1933, as
amended, and appropriate state securities laws, before such shares may be
validly issued or delivered upon conversion, the Corporation will in good
faith and as expeditiously as possible meet such registration, listing or
approval, as the case may be.
(h) All shares of Common Stock which may be issued upon conversion
of the shares of Series F Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(i) The Conversion Price in effect shall be subject to adjustment
from time to time as follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event
that the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall pay or make a dividend or
distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Price in effect immediately prior to
such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any
time combine the outstanding shares of Common Stock, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may
be.
(ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In the event:
(A) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to receive a dividend, or any other distribution, payable
otherwise than in cash; or
(B) that the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to subscribe for or purchase any shares of stock of any class
or other securities, or to receive any other rights; or
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(C) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock), consolidation or merger of the
Corporation with or into another corporation, share exchange
for all outstanding shares of Common Stock under a plan of
exchange to which the Corporation is a party, or conveyance of
all or substantially all of the assets of the Corporation to
another corporation; or
(D) of the voluntary of involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in such case, the Corporation shall cause to be mailed to
the holders of record of the outstanding Series F Preferred stock,
at least ten days prior to the date hereinafter specified, a notice
stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding up is to
take place and the date, if any is to be fixed, as of which holders
of Corporation securities of record shall be entitled to exchange
their shares of Corporation securities for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding up.
(j) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all time in good faith assist in
the carrying out of all the provisions of paragraph 2(i) and in the taking
of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series F Preferred Stock
against impairment.
(k) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to paragraph 2(i), the Corporation at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof, and prepare and furnish to each holder
of Series F Preferred Stock a certificate signed by the chief financial
officer of the Corporation setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of his
shares.
(l) In case any shares of Series F Preferred Stock shall be
converted pursuant to Section 2(a) hereof, the shares so converted shall
be restored to the status of authorized but unissued shares of preferred
stock, without designation as to class or series, and may thereafter be
reissued, but not as shares of Series F Preferred Stock.
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3. REDEMPTION OF SERIES F PREFERRED STOCK.
(b) Subject to the provisions of this Section 3, the Series F
Preferred Stock shall be redeemable in whole, or in part, at the option of
the Corporation by resolution of the Board of Directors at any time after
the Issue Date, at the stated value per share upon giving the notice
hereinafter provided.
(c) Not less than thirty nor more than sixty days prior to the date
fixed for redemption of the Series F Preferred Stock, a notice in writing
shall be given by mail to the holders of record of the Series F Preferred
Stock at their respective addresses as the same shall appear on the stock
books of the Corporation. Such notice shall state: (i) the redemption
date; (ii) the redemption price; (iii) the place or places where
certificates for shares are to be surrendered for payment of the
redemption price; (iv) the conversion rights of the shares to be redeemed;
(v) the period within which the conversion rights may be exercised; and
(vi) the Conversion Price, and the number of shares of Common Stock
issuable upon conversion of a share of Series F Preferred Stock at the
time.
(d) After giving notice and prior to the close of business on the
business day prior to the redemption date, the holders of the Series F
Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 2 hereof. Unless (i) the holder of shares of Series F Preferred
Stock to whom notice has been duly given shall have exercised its rights
to convert in accordance with Section 2 hereof; or (ii) the Corporation
shall default in the payment of the redemption price as set forth in such
notice, upon such redemption date such holder shall no longer have any
voting or other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation
without interest thereon, upon surrender (and endorsement, if required by
the Corporation) of the certificates, and the shares represented thereby
shall no longer be deemed to outstanding as of the redemption date. In the
event a holder of Series F Preferred Stock provides the Corporation with
notice of conversion of all or a portion of such Series F Preferred Stock
into shares of Common Stock on or after any notice of redemption is
provided, the holder shall have been deemed to convert as of the
redemption date provided, however, that in the event the Corporation shall
default in the payment of the redemption price as set forth in such
redemption notice, the conversion shall not be effective unless the holder
of the Series F Preferred Stock electing to convert provides written
notice to the Corporation within 20 days of the purported redemption date
of his desire to effect such conversion.
(d) All shares of Series F Preferred Stock so redeemed shall have
the status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of Series F Preferred Stock.
(e) No holder of shares of Series F Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
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4. VOTING.
(e) Except as otherwise required by law, the shares of Series F
Preferred Stock shall not be entitled to vote on any matters presented at
any annual or special meeting of stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
5. LIQUIDATION RIGHTS.
(f) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series F Preferred Stock then outstanding shall be entitled to receive out
of assets of the Corporation available for distribution to stockholders,
after payment in full of the liquidation distribution to which holders of
the preferred stock with a liquidation preference are entitled, but before
any distribution of assets is made to holders of Common Stock or of any
other class of capital stock of the Corporation ranking junior to the
Series F Preferred Stock as to liquidation, an amount equal to $5 per
share. It is understood that the Series F Preferred Stock shall be junior
in rank to the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the amounts payable with respect to the Series F
Preferred Stock and any other shares of stock of the Corporation ranking
as to any such distribution on a parity with the Series F Preferred Stock
are not paid in full, the holders of the Series F Preferred Stock and of
such other shares shall share ratably in any such distribution of assets
of the Corporation in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of
the liquidating distribution to which they are entitled, the holders of
shares of Series F Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the Corporation.
(g) Neither the consolidation of nor merging of the Corporation with
or into any other corporation or corporations, nor the sale or lease of
all or substantially all of the assets of the Corporation shall be deemed
to be a liquidation, dissolution or a winding up of the Corporation within
the meaning of any of the provisions of this Section 5.
(h) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall,
within 10 days after the date the Board of Directors approves such action,
or within 20 days prior to any stockholders' meeting called to approve
such action, or within 20 days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series F
Preferred Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of Series F Preferred
Stock upon
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consummation of the proposed action and the date of delivery thereof. If
any material change in the facts set forth in the initial notice shall
occur, the Corporation shall promptly give written notice to each holder
of shares of Series F Preferred Stock of such material change. The
Corporation shall not consummate any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation before the expiration of 30
days after the mailing of the initial notice or 10 days after the mailing
of any subsequent written notice, whichever is later; provided that any
such 30-day or 10-day period may be shortened upon the written consent of
the holders of all of the outstanding shares of Series F Preferred Stock.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series F Preferred
Stock and the holders of shares of Common Stock. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series F Preferred Stock of the appraiser's
valuation.
6. LIMITATIONS.
(j) So long as any shares of Series F Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
the written consent of the holders of at least 66-2/3% of the outstanding
shares of Series F Preferred Stock, voting separately as a class:
(i) Amend, alter or repeal any provision of the Certification
of Incorporation or Bylaws of the Corporation so as to affect
adversely the relative rights, preferences, qualifications,
limitations or restrictions of the Series F Preferred Stock. (k) The
provisions of this paragraph 6 shall not in any way limit
the right and power of the Corporation to:
(i) Increase the total number of authorized shares of Common
Stock; or
(ii) Issue bonds, notes, mortgages, debentures, and preferred
stock ranking senior to the terms of the Series F Preferred Stock
and other obligations, and to incur indebtedness to banks and to
other lenders.
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IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by MARK
SCHAFTLEIN, its chief executive officer, and attested by TODD WALKER, its
secretary, this 21st day of November, 1996.
WESTMARK GROUP HOLDINGS, INC.
By ________________________________________
MARK SCHAFTLEIN Chief Operating Officer
ATTEST:
By ________________________________
TODD WALKER, Assistant Secretary
9
WAREHOUSE CREDIT AND SECURITY AGREEMENT
THIS WAREHOUSE CREDIT AND SECURITY AGREEMENT (this "Agreement"), dated as
of the Commencement Date set forth below is between PRINCAP MORTGAGE WAREHOUSE,
INC., a Delaware corporation (the "Lender") and the Borrower identified below.
ARTICLE I.
BASIC LOAN TERMS; OTHER DEFINED TERMS
The following terms shall have the following definitions whenever used in
this Agreement.
1.1. Borrower: Westmark Mortgage Corporation
X Corporation State: California
---
Limited Partnership State:
---
General Partnership State:
---
Proprietorship State:
---
1.2. Borrower's 355 N.E. 5th Ave., Suite 5
Address: Delray Beach
State: Florida Zip: 33483
1.3. Guarantor: None
1.4. Guarantor's
Address:
1.5 Lender's Two Echelon Plaza, Suite 265
Address: 221 Laurel Rd., Voorhees, N.J. 08043
Phone/Fax 609-770-1880/609-770-1920
1.6. Basic Interest Rate: Prime Rate plus 2%
1.7. Default Interest Rate: Basic Interest Rate plus 2%
1.8. Commencement Date: October 26, 1997
1.9. Termination Date: One year from Commencement Date.
1.10. Advance Repayment Period: Ninety (90) days from Origination
1.11. Maximum Credit Availability $10,000,000
Subject to the following sublimits on Advances:
Not to exceed $350,000 per Mortgage Loan
Not to exceed an aggregate of $350,000 per Mortgagor.
Not to exceed two Mortgage Loans per Mortgagor outstanding at any time.
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(The above sublimits shall apply unless prior approval to exceed the
same is obtained from the Lender).
Not to exceed 98% of Committed Purchase Price
Not to exceed 98% of Mortgage Loan as of Origination
Not to exceed 30% of Maximum Credit Availability, when aggregated
with all other Wet Advances outstanding.
1.12. Minimum Deposit: $5,000.00
1.13. Facility Fees:
A. One/twelth of 0.25% per annum of the unused portion of the
Maximum Credit Availability payable on the last Business Day of each month for
each month that less than 50% of the Maximum Credit Availability has been
advanced.
B. $140. per Advance Request; or, if not received at least one
(1) Business Day prior to Origination, $190. per Advance Request.
1.14. Advance: An advancement of the proceeds of the Loan made available
to Borrower under this Agreement.
1.15. Advance Request: The written request for an Advance made by
Borrower to Lender in the form of Exhibit "A" accompanied by all of the
following:
(a) Originally executed Promissory Note of Borrower.
(b) Loan Purchase Commitment issued by an Approved Investor in an
amount sufficient to repay in full the Advance, together with interest accrued
thereon through the date of sale, and otherwise on terms and conditions
satisfactory to Lender in its sole discretion.
(c) An assignment of the Mortgage by the Borrower in recordable
form but for completion of the name and address of the assignee and, if not yet
available, Mortgage recordation information.
1.16. Affiliate: Any Person or entity that, now or hereafter, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common ownership or control with any Obligor. For purposes of this
definition, the terms "control," "controls" and "controlled" shall refer to the
power to determine the management or policies of a Person, whether resulting
from an official position or capacity with such Person, direct or indirect
beneficial ownership of at least twenty percent (20%) of the voting securities
or other equity interests of such Person, or otherwise.
1.17. Agency. FNMA, FHLMC or GNMA, as applicable (all as defined in the
list of Approved Investors attached).
1.18. Applicable Requirements: The requirements set forth in Lender's
Warehousing Guide together with all laws, rules, regulations and official
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publications of any federal, state or local government or and any agency,
department, bureau, board, commission or instrumentality of any of the
foregoing now existing or hereafter created including, without limitation: all
federal, state, local and foreign laws, statutes, rules, regulations, licensing
requirements, ordinances, codes, rules, orders, opinions and directives that
may be applicable to the solicitation, origination, credit analysis,
settlement, transfer, assignment, servicing, administration, disposition and
collection of Mortgage Loans, and all amendments and supplements thereto in
effect as of the time of reference, including: (a) the Cranston-Gonzales
National Affordable Housing Act; (b) the Equal Credit Opportunity Act; (c) the
Fair Credit Reporting Act; (d) Truth-in Lending Act (including Regulation Z);
(e) Real Estate Settlement Procedures Act; (f) the Fair Debt Collection
Practice Act; (g) Unfair Trade Practices Acts; (h) the, Hart-Scott-Rodino
Antitrust Improvements Act; (i) Financial Institutions Reform, Recovery and
Enhancement Act; (j) Home Mortgage Disclosure Act; (k) laws relating to
consumer protection, loan and appraisal disclosure, usury, fair housing, debt
collection, unfair or deceptive acts or practices; (1) public notice and
recordation acts; (m) the Internal Revenue Code; (n) the National Housing Act;
and (o) the Serviceman's Readjustment Act. Also included are the rules,
regulations, directives and instructions of or concerning an Agency, HUD, FHA
or VA including, without limitation, the requirements of the Agency guides, the
Agency agreements, federal regulations promulgated by HUD under the National
Housing Act, federal regulations promulgated by the VA under the Serviceman's
Readjustment Act and handbooks, circulars, notices, bulletins and other
communications of any of the foregoing to the extent applicable as of the time
of reference.
1.19. Approved Investor: A Person identified on Exhibit "B" or such
other Person as Lender approves in writing after Lender's review of Financial
Statements and other information pertaining to the creditworthiness of the
Approved Investor as Lender may request.
1.20. Agreement: This agreement, together with all exhibits, amendments,
modifications and supplements hereto as may be in effect from time to time.
1.21. Bailee Letter: The letter setting forth the terms and conditions
under which Lender will permit Collateral Documents to be released to the
custody of Approved Investor for purposes of inspecting same to determine
conformance with the terms of the Loan Purchase Commitment. Lender's standard
form of Bailee Letter is attached as Exhibit "C".
1.22. Borrower Authorization: The completed certification of Borrower in
the appropriate form (corporate, partnership or proprietorship, as the case may
be) attached as Exhibit "D" including all required attachments.
1.23. Business Day: Any day upon which Chase Manhattan Bank or other
depositary for the Collection Account is open for business.
1.24. Collection Account: The cash collateral account maintained by
Lender with Chase Manhattan Bank, as collateral agent (including its
successors in such capacity, the "Collateral Agent") on behalf of one or more
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persons that may from time to time own an interest in any Promissory Note
pursuant to the Collateral Agency Agreement dated as of March 21, 1994 between
Lender and Chemical Bank, predecessor to Chase Manhattan Bank, as Collateral
Agent, which Collateral Agency Agreement provides, among other things, that
Lender has assigned to Collateral Agent (a) all rights to receive payments
under, or with respect to, any Promissory Note or other Loan Document; and (b)
all remittances under any Loan Purchase Commitment or any Collateral Documents,
all of which must be deposited directly into the Collection Account by
electronic transfer of immediately available funds as follows:
Chase Manhattan Bank
450 West 33rd Street
Attention: Global Securities and Trust
New York
ABA Routing #021000021 for further credit to:
Princap Mortgage Warehouse, Inc.
Collection Account #323-309348
1.25. Collateral: Collectively, all of the following:
(a) all Mortgage Loans originated in whole or in part by Advances
made under this Agreement or which otherwise are, or are required to be, pledged
or delivered to Lender under this Agreement, and all Collateral Documents which
are, or are required to be, pledged or delivered to Lender under this Agreement
including, in each case, without limitation: the original Mortgage Note
evidencing each Mortgage Loan and each Mortgage securing each Mortgage Note;
(b) all Loan Purchase Commitments, all rights of Borrower to
enforce the Loan Purchase Commitments and all rights to receive payment for, or
other proceeds of the sale of, any Mortgage Loan under any Loan Purchase
Commitment or otherwise as a result of the sale, transfer or other assignment of
any Mortgage Loan, all proceeds of sales deposited in the Collection Account and
all funds in the Maintenance Account from whatever sources;
(c) all rights of Borrower to service any Mortgage Loan and to
receive any payment or compensation for the servicing of any Mortgage Loan and
all rights to receive any payments under any Mortgage Loan; and
(d) all accounts, contract rights, general intangibles, cash,
securities, certificates, documents, instruments, claims, demands, files,
databases, electronic and other information pertaining to any of the
above mentioned items and all proceeds of the foregoing.
1.26. Collateral Documents: Collectively, all of the following:
(a) The original Mortgage Note evidencing the Mortgage Loan
endorsed in blank by Borrower;
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(b) The original recorded Mortgage securing the Mortgage Note (or,
until the original recorded Mortgage is returned from recordation, a
photocopy of the original Mortgage, certified by the Settlement Agent to be a
true copy of the original instrument submitted for recording);
(c) Marked-up commitment of a title insurance company satisfactory
to Lender to issue an ALTA loan policy insuring the Mortgage as first priority
lien (unless Lender has specifically agreed in writing to a lesser priority) in
an amount not less than the principal amount of the Mortgage Loan;
(d) Certificates of casualty or hazard insurance naming Borrower
and Lender (as their interests may appear), as mortgagee and loss payee;
(e) Policies or certificates of private mortgage insurance;
(f) Credit report on the Mortgagor;
(g) Appraisal of the real property described in the Mortgage;
(h) HUD-1 Settlement Sheet;
(i) Mortgage Loan application executed as of origination;
(j) Copies of all statements (including disclosure statements),
certifications and other forms required under Applicable Requirements; and
(k) Such other documents as are customarily desired for inspection
or transfer incidental to the purchase of a Mortgage Note by an institutional
investor and any additional documents which are customarily executed by the
seller of a Mortgage Note to an institutional investor and maintained in the
related Mortgage Loan file.
1.27. Committed Purchase Price: The purchase price which the Approved
Investor has agreed to pay for a Mortgage Loan under the terms of the applicable
Loan Purchase Commitment.
1.27a Eligible Mortgage Loan:
(1) No Mortgage Loan shall be considered to be an "Eligible Mortgage
Loan" under the Agreement unless it (i) complies in all respects with the
requirements set forth in Section 1.39 of the Agreement, and (ii) complies in
all respects with following additional requirements:
(a) Is secured by a residential 1-4 family dwelling.
(b) Is a first or second lien.
(c) Has a maximum loan principal not in excess of any limit or
sublimit as stated in Section 1.11, unless approved in advance by the Lender.
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(d) Is deliverable to the Approved Investor which issued the
Loan Purchase Commitment within the time permitted thereby, which in no case may
exceed 90 days from the Advance Date.
(2) In addition, a Mortgage Loan shall not qualify as an
"Eligible Mortgage Loan" if any of the following statements are true with regard
to such Mortgage Loan:
(a) It fails to meet any of the above requirements.
(b) Is a Mortgage Loan to an officer, principal, manager or
Guarantor of the Borrower.
(c) Is a Mortgage Loan not generally saleable in the secondary
market.
(d) Is a Mortgage Loan which, at closing, requires an escrow
of any funds for any purpose, other than the following: immediate payment of
debts due, or for future payment of taxes, insurance or mortgage insurance
premiums, when same become due.
1.28. Encumbrance: Any mortgage, lien, pledge, adverse claim, charge,
security interest or other encumbrance in or on, or any interest or title of any
vendor, lessor, lender to, or other secured party of the Person under any
conditional sale or other title retention agreement or capital lease with
respect to, any property or asset of the Person.
1.29. Event of Default: An occurrence described in Article VII of this
Agreement.
1.30. Financial Statements: True, correct and complete copies of the
balance sheet of the Person designated and related statement of income,
statement of cash flows and such other financial statements in such detail as
Lender may reasonably request, together with notes thereto, which: (a) present
fairly the financial position of the Person and the results of its operations as
of the end of the applicable period; (b) are in the form furnished by Lender or
is otherwise in form satisfactory to the Lender; and (c) unless otherwise
specified in this Agreement or otherwise approved by Lender in writing, are
prepared by an independent certified public accountant in accordance with
generally accepted accounting principles, and accompanied by the opinion,
satisfactory in form and substance to Lender, of an independent certified public
accountant satisfactory to Lender.
1.31. Financing Statements: The UCC-1 Financing Statements to be executed
by Borrower for filing not later than the Commencement Date in the appropriate
filing offices of the State and County identified in Borrower's Address or, if
the address identified in Article I is not the principal place of business of
Borrower, or Borrower conducts its business in other names, or if other filings
are necessary or appropriate to perfect Lender's security interest in the
Collateral, then, such other offices as are identified in Schedule 1.31 attached
to this Agreement.
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1.32. Indebtedness: Any obligation for borrowed money, including (a) any
obligation owed for all or any part of the purchase price of property or other
assets or for the cost of property or other assets constructed or of
improvements thereto, other than accounts payable included in current
liabilities and incurred in respect of property purchased in the ordinary course
of business; (b) any capital lease obligation; and (c) any reimbursement
obligations and other obligations under any letter of credit, currency swap
agreement, interest rate swap, cap, collar or floor agreement or other interest
rate management devise, or any forward sale or purchase agreement for foreign
currencies.
1.33. Judgment: A final judgment or judgment, or order or orders, of any
judicial authority or governmental entity issued against Borrower or other
Obligor or which otherwise affects any of the Collateral.
1.34. Loan: The credit facility, in an amount not to exceed the Maximum
Credit Availability, being made available by Lender to Borrower under the terms
and conditions of this Agreement and the other Loan Documents.
1.35. Loan Documents: Collectively, this Agreement, each and every
Promissory Note, the Surety Agreement, the Financing Statements and all
agreements, amendments, certificates, financing statements, schedules, reports,
notices, and exhibits now or hereafter executed or delivered in connection with
any of the foregoing, as may be in effect from time to time.
1.36. Loan Purchase Commitment: The valid, legally binding and enforceable
commitment of an Approved Investor to purchase the Mortgage Loan which is, or is
proposed to be, Collateral for an Advance for a Committed Purchase Price and on
other terms and conditions which are satisfactory to Lender in its sole
discretion. Subject to Lender's prior written approval, which may be given or
withheld in Lender's sole discretion, the commitment of another Person as
Approved Investor may be substituted for the original Loan Purchase Commitment,
as Collateral for the Loan, should the original Approved Investor fail or refuse
to perform under the Loan Purchase Commitment.
1.37. Maintenance Account: The demand deposit account in the name of
Borrower established at Chase Manhattan Bank as to which an authorized
representative of Lender shall be a signatory with power of withdrawal.
1.38. Mortgage: The mortgage, deed of trust or other security instrument
properly executed by all owners of the real property described in the Mortgage,
duly acknowledged by a notary public or other official authorized to take
acknowledgments under Applicable Requirements, in appropriate form for
recordation and in a form which complies with all Applicable Requirements and
which creates a first (unless otherwise approved by Lender in writing) mortgage
lien on a fully completed 1-4 family residential dwelling unit. The Mortgage
shall include, as appropriate, condominium, cooperative, or planned unit
development riders and non-uniform provisions appropriate for the state in which
the real property described in the Mortgage is located.
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1.39. Mortgage Loan: A loan which has been or is proposed to be originated
by Borrower to a Person who is not an obligor or an Affiliate of an Obligor and
funded in whole or in part by the proceeds of an Advance; which will be secured
by a mortgage upon origination; which is fully funded at Origination; which has
been originated in full compliance with Applicable Requirements; which is the
subject of a Loan Purchase Commitment issued by an Approved Investor; which
satisfies all conditions of purchase under the Loan Purchase Commitment; and
which is an Eligible Mortgage Loan as defined in Section 1.27a above.
1.40. Mortgage Note: The original promissory note evidencing a Mortgage
Loan executed by all owners of the real property described in the Mortgage in a
form which complies with all Applicable Requirements and all conditions of
purchase under the Loan Purchase Commitment.
1.41. Mortgagor: Individually and collectively, any and all Persons
executing a Mortgage Note, Mortgage or other Collateral Documents securing a
Mortgage Loan.
1.42. Obligations: Collectively, all obligations of the Obligors:
(a) To pay the principal, interest, Facility Fees and any other
liabilities of Borrower to Lender under this Agreement and the other Loan
Documents in accordance with their respective terms;
(b) To satisfy all other direct or indirect liabilities of any
Obligor to Lender with respect to the Loan, the Loan Documents and the
Collateral whether now existing or hereafter incurred, whether or not evidenced
by any note or other instrument, matured or unmatured, direct, absolute or
contingent, joint or several, including any extensions, modifications, renewals
thereof and substitutions therefor;
(c) To repay Lender all amounts advanced by Lender hereunder or
otherwise on behalf of any Obligor under or with respect to any Loan Document or
any of the Collateral; and
(d) To reimburse Lender, on demand, for all of Lender's expenses and
costs, including the reasonable fees and expenses of its counsel, in connection
with the negotiation, preparation, administration, amendment, modification, or
enforcement of this Agreement, any Loan Document, any Collateral Document or any
Loan Purchase Commitment, including all amounts payable under the reimbursement
and indemnity provisions set forth in Article IX of this Agreement.
1.43. Obligors: Collectively, Borrower, any one or more Persons
identified as a Guarantor, and any other Person who, now or hereafter, becomes
directly or indirectly liable under any Loan Document.
1.44. Origination: The date a Mortgage Loan is funded by an Advance.
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1.45. Person: Any individual, corporation, partnership, association,
limited liability company, joint-stock company, trust, unincorporated
organization, joint venture, court or governmental or political subdivision or
agency thereof.
1.46. Prime Rate: The annual rate of interest published in the wall Street
Journal from time to time as the "prime" rate of interest charged by commercial
banks from time to time as a reference rate (or a rate equivalent to the
foregoing) with the understanding that such rates may merely serve as basis upon
which effective rates of interest are calculated for loans making reference
thereto and that such rates are not necessarily the lowest or best rate at which
such banks calculate interest or extend credit. The Prime Rate shall change for
purposes of this Agreement and each Promissory Note as such announced or
published rate changes.
1.47. Promissory Note: Each promissory note of Borrower, in the form of
Exhibit "E" attached to this Agreement, properly executed and evidencing
Borrower's Obligation to repay Borrower's requested Advance together with
interest thereon.
1.48. Settlement Agent: A title insurance company approved by Lender in
writing or, if authorized under a closing protection letter issued by an
approved title insurance company to Lender, an attorney-at-law or other Person
identified by Borrower as the proposed Settlement Agent in the Advance Request
provided such Person has been approved by Lender in writing and authorized by
Lender under Lender's Settlement Instructions.
1.49. Settlement Instructions: The letter from Lender to the Settlement
Agent setting forth the terms and conditions under which the Settlement Agent is
authorized to receive, hold and disburse the Advance to, or for the benefit of,
Borrower by funding the Mortgage Loan origination and to act as custodian of the
Mortgage Note for delivery to Lender the next Business Day after Origination.
Lender's standard form of Settlement Instructions is attached to this Agreement
as Exhibit "IF".
1.50. Surety Agreement: The Guaranty and Surety Agreement dated as of the
Commencement Date and each and every Guaranty and Surety Agreement, or
reaffirmation of Guaranty and Surety Agreement, executed by Persons identified
as Guarantor and delivered to Lender as a condition of an Advance. Lender's
standard form of Surety Agreement is attached to this Agreement as Exhibit
"G".
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1.51. Warehousing Guide. The manual issued by Lender containing the
warranties, representations, procedures and requirements of Borrower in
fulfilling its obligations to Lender under this Agreement.
1.52. Wet Advance, An Advance made to Settlement Agent for disbursement
for the benefit of Borrower but, as to which, the Mortgage Note has not been
physically delivered to the custody of Lender. An Advance ceases to be a Wet
Advance upon delivery of the Mortgage Note to the custody of Lender.
ARTICLE II.
THE LOAN; LOAN ADVANCEMENT
2.1. The Loan. Lender shall make the Loan available to Borrower upon the
terms and conditions of this Agreement and the other Loan Documents.
2.2. Request for Advance. Borrower shall make request for Advances by
submission to Lender at Lender's Address set forth in Article I of a fully
completed Advance Request accompanied by the Promissory Note, the Loan Purchase
Commitment and other items required under the definition for Advance Request set
forth in Article I or in the form of Advance Request attached. If the Advance
Request is not received by Lender at least one (1) Business Day prior to the
scheduled Origination, Borrower shall pay to Lender an additional Facility Fee
for expedited service as set forth in Article I.
2.3. Lender's Approval. Lender is not obligated to advance the Loan as
requested in the Advance Request unless and until Lender has received, and found
satisfactory in all respects, all Loan Documents and all information pertaining
to the Collateral and the Collateral Documents including, without limitation,
the Loan Purchase Commitment. The aggregate amount of Advances outstanding at
any one time shall not exceed the maximum Credit Availability set forth in
Article I and the amount of any Advance shall, unless approved in writing by
Lender, be subject to the sublimits established under Article I and such other
limitations as may be imposed by Lender as a condition of making the Advance.
2.4. Interest. The outstanding principal balance of the Loan from time to
time shall bear interest at the Basic Interest Rate. If an Advance is not repaid
in full, together with accrued interest thereon, within the applicable Advance
Repayment Period, the outstanding balance of the Advance will thereafter bear
interest at the Default Interest Rate. Upon the occurrence of an Event of
Default, or earlier upon the Termination Date, the entire outstanding balance of
the Loan will commence to bear interest at the Default Interest Rate until
Lender receives payment in full of all obligations. All computations of interest
under this Agreement or any Promissory Note shall be made by Lender on the basis
of a year of 360 days for the actual number of days elapsed.
2.5. Repayment of Advances. Each Advance, together with all accrued but
unpaid interest thereon, is due and payable in full, by electronic
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transfer of immediately available funds to the Collection Account, on the
earlier to occur of: (a) the date the Committed Purchase Price is due and
payable under the Loan Purchase Commitment or, if earlier, the date payment is
made; and (b) the expiration of the Advance Repayment Period.
2.6. Pledge of Collection Account. Borrower irrevocably and
unconditionally assigns to Lender the right to direct payment of the entire
Committed Purchase Price to the Collection Account; assigns and pledges to
Lender a first priority, fully perfected security interest in the proceeds of
sales of Mortgage Loans and other cash or non-cash items paid, remitted or
otherwise deposited with respect to Mortgage Loans or other Collateral Documents
whether in the Collection Account or the Maintenance Account or otherwise; and
grants to Lender the absolute and unconditional right to set off against, or
otherwise withdraw from funds deposited with respect to Borrower in the
Collection Account or the Maintenance Account: (a) the amount of the Advance or
Advances with respect to which funds have been remitted to the Collection
Account; (b) Facility Fees owing with respect to such Advance or Advances: (c)
accrued but unpaid interest with respect to such Advances; and (d) any other
obligations not paid as and when due to Lender. No funds deposited in the
Collection Account shall be subject to any Encumbrance except the security
interest of Lender. Payments (including proceeds realized from the sale or other
disposition of the Collateral) deposited into the Collection Account shall be
applied to interest, principal, Facility Fees and other Obligations under any
Loan Document in such order and amounts as are satisfactory to the Lender. Upon
satisfaction in full of all obligations then due and owing to Lender, Lender
shall remit any remaining proceeds of remittances deposited into the Collection
Account by transfer to the Maintenance Account. No funds in the Maintenance
Account shall be commingled with any other funds of Borrower or any other
Person.
2.7. Voluntary, Mandatory Prepayments. Borrower shall have the right to
prepay the Loan at any time, in whole or in part. If, at any time, the aggregate
amount of Borrower's outstanding obligations exceeds the Maximum Credit
Availability or the amount of any Advance exceeds the sublimits established for
such Advance under Article I, Borrower shall repay to Lender, within ten (10)
days after notice, the amount of such excess.
2.8. Termination Date. The entire outstanding principal balance of the
Loan, all interest accrued but unpaid thereon, and any other Obligations due by
any obligor to Lender shall be immediately due and payable in full on the
Termination Date. No further Advances are available to Borrower from and after
the Termination Date unless Borrower and Lender enter into a written amendment
of this Agreement extending the Termination Date.
ARTICLE III.
SECURITY AGREEMENT; LOAN DOCUMENTATION
3.1. Grant of Security Interest. As security for the prompt payment,
performance, satisfaction and discharge as and when due of all Obligations,
Borrower hereby assigns, delivers, pledges and grants to Lender a first
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priority, fully perfected lien upon, and security interest in and to, all of the
Collateral including, without limitation, the Mortgage Loans, the Collateral
Documents, the Loan Purchase Commitment, all rights of Borrower to funds in the
Collection Account or the Maintenance Account and all proceeds of the
Collateral.
3.2. Power of Attorney. Borrower hereby constitutes and appoints the
Lender as its true and lawful attorney, irrevocably, with full power to act,
require, demand, receive, compound and give acquittance for any and all monies
and claims for monies due or to become due under or arising out of the
Collateral, to endorse any checks or other instruments or orders in connection
therewith, to file any claims or take any action or institute any proceedings
which Lender may deem to be necessary or advisable to enforce Borrower's rights
in, to or under any of the Collateral, which appointment as attorney is coupled
with an interest. Upon request of Lender at any time, Borrower shall execute and
deliver such power or powers, duly executed by Borrower and in recordable form
for the jurisdictions in which Mortgage Assignments may be recorded, as may be
necessary or appropriate to exercise the rights and remedies of Lender under
this Agreement including the right to record individual Mortgage Assignments,
effectuate the sale under the Loan Purchase Commitment, or otherwise realize
upon the Collateral.
3.3. Loan Documentation Prior to Commencement Date. On or before the
Commencement Date, Borrower shall execute and deliver to Lender, or cause to be
executed and delivered to Lender, this Agreement, the Surety Agreement, the
Financing Statements and all other Loan Documents and shall have delivered to
Lender satisfactory evidence of all of the following:
(a) Insurance. Certificates addressed to Lender evidencing
commercial general liability insurance and, if required under Applicable
Requirements, errors and omissions insurance, fidelity bonds and other insurance
in form and amounts satisfactory to Lender.
(b) minimum Deposit. Establishment of the Maintenance Account in an
amount not less than the Minimum Deposit set forth in Article I of this
Agreement.
(c) Borrower Authorization. The Borrower Authorization together
with certificates evidencing the good standing of Borrower, the due
authorization and proper licensure of Borrower to enter into the Loan Documents
and to engage in the business of origination of Mortgage Loans in all
jurisdictions in which it engages in such business.
(d) Payments; Reimbursements. Payment in full of any costs and
expenses of Lender in connection with the negotiation and preparation of the
Loan Documents and making of the Loan including all filing and recording fees,
search, examination and certification fees and charges, attorneys' fees, and
costs of reproduction and transmittal.
3.4. Loan Documentation Prior to Each Advance. Prior to each Advance,
Borrower shall execute and deliver to Lender, or cause to be executed and
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delivered to Lender, the Advance Request, the Promissory Note, the Loan Purchase
Commitment, Borrower's instructions to the Settlement Agent and any other
Collateral, Collateral Documents or other information or documentation required
to be delivered by Lender as a condition of making the Advance. Funding of each
Advance shall be made by electronic transfer of funds to the account of the
Settlement Agent under Lender's Settlement Instructions and the instructions
delivered to Settlement Agent by Borrower which shall include, among other
things: (a) receipt by Settlement Agent of the Mortgage Note, Mortgage and
Collateral Documents required to be delivered as conditions of funding of the
Mortgage Loan under Borrower's settlement instructions; (b) custody of the
Mortgage Note for delivery to Lender (together with the HUD-1 settlement sheet
and other documentation required under Lender's Settlement Instructions) the
next Business Day following origination; and (c) custody of the Mortgage for
recordation in applicable recording offices promptly after Origination. Borrower
acknowledges that Lender's Settlement Instructions require the Settlement Agent
to return the Advance to Lender if origination does not occur within one
Business Day after receipt of the Advance.
3.5. After Orgination. Borrower shall do all things necessary or
appropriate to cause the Mortgage Loan to be purchased by Approved Investor for
the Committed Purchase Price not later than the expiration of the Advance
Repayment Period or, if earlier, the expiration of the Loan Purchase Commitment.
Lender agrees to cooperate with Borrower and Approved Investor by conditional
delivery of the Mortgage Note to Approved Investor, for purposes of inspection
only, under the terms and conditions of Lender's Bailee Letter.
(a) If ten (10) Business Days prior to the earlier to occur of (i)
expiration of the Loan Purchase Commitment for the Mortgage Loan; or (ii) the
date the first installment of principal and interest is due on the Mortgage
Loan, Borrower has not requested Lender to deliver the Mortgage Note to
Approved Investor for inspection; or Borrower has not delivered a complete
package of Collateral Documents (other than the Mortgage Note) to Approved
Investor for inspection, Borrower shall notify Lender of the reason for the
delay and the steps Borrower will take to correct any deficiencies causing the
delay. Upon demand of Lender at any time prior to receipt of payment in full of
the Committed Purchase Price to the Collection Account, Borrower shall deliver,
or cause to be delivered, the Collateral Documents to Lender or, if so directed
by Lender, to an Approved Investor.
(b) Unless the Committed Purchase Price has been paid in full to
the Collection Account, the Mortgage Note delivered under Lender's Bailee Letter
must be returned to Lender, and the other Collateral Documents must be returned
to Borrower, prior to the earlier to occur of (i) the expiration of the Advance
Repayment Period; or (ii) twenty (20) calendar days after the date of Lender's
Bailee Letter. All costs and expenses incurred by Lender arising from or related
to the sale of the Mortgage Loan shall be borne by Borrower including, without
limitation, all express delivery charges to deliver Collateral Documents to, or
retrieve the same from, the Approved Investor.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
To induce Lender to execute and deliver this Agreement and to make the
Loan available to Borrower, Borrower represents and warrants to Lender that, as
of the date of this Agreement, the date of each Advance, and the date of any
renewal or extension (if any) of the Termination Date:
4.1. Good Standing; Authorization. The information pertaining to
Borrower's legal status set forth in Article I is true, correct and complete.
Borrower has all requisite power, and has obtained and maintains in full
compliance with Applicable Requirements, all licenses and approvals required to
originate Mortgage Loans in all jurisdictions in which it conducts such
business. The execution, delivery and performance of this Agreement, each
Promissory Note, the Loan Purchase Commitment, the Collateral Documents and any
other Loan Documents have been duly authorized by all requisite proceedings on
the part of Borrower.
4.2. Compliance with Laws and Other Agreements. Borrower, the Mortgage
Loans and the Collateral Documents are in compliance with all Applicable
Requirements and all requirements of the Approved Investor. Borrower has not
received, and has no knowledge of, any order or notice of any violation or claim
of violation of any Applicable Requirement or any matter which would permit the
Approved Investor to decline to purchase the Mortgage Loan. Borrower has
received a copy of Lender's Warehousing Guide as of the Commencement Date and
has complied, and will comply, in all material respects with the requirements of
the Warehousing Guide and other Applicable Requirements.
4.3. No Conflict; Governmental Approvals. The execution, delivery, and
performance of this Agreement, the Loan Purchase Commitment, the Collateral
Documents and each of the Loan Documents will not (a) conflict with, violate,
constitute a default under, or result in a breach of any Applicable Requirement;
or (b) conflict with or result in a breach of any provision of Loan Purchase
Commitment or other agreement or instrument binding upon the Borrower.
4.4. Financial Position. The Financial Statements delivered to Lender by
any obligor are true, correct and complete as of the date of such Financial
Statements for the period covered thereby.
(a) Borrower has no Indebtedness other than as shown in the most
recent Financial Statements delivered to Lender.
(b) Borrower has no investment, whether by stock purchase, capital
contribution, loan advance, purchase of property or otherwise in any Person,
other than as shown in the most recent Financial Statements delivered to Lender.
(c) Since the date of the most recent Financial Statements
delivered to Lender, there has not been any material adverse change in the
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business, operations, properties or financial position of Borrower or the
Approved Investor under a Loan Purchase Commitment. Borrower does not know of
any fact (other than matters of a general economic or political nature) which
materially adversely affects or, so far as the Borrower can now reasonably
foresee, will materially adversely affect, the origination or sale of any
Mortgage Loan or the business, operations, properties or financial position of
Borrower or the performance by Borrower of its obligations under this Agreement
and the other Loan Documents.
4.5. Encumbrances. All of the Collateral is owned by Borrower free and
clear of all Encumbrances except the Loan Documents.
4.6. Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Borrower, threatened against or
affecting Borrower before any court, arbitrator, or other governmental
authority.
4.7. Valid, Binding and Enforceable. This Agreement, the Loan Documents
and the Collateral Documents have been duly and validly executed and delivered
by the parties thereto (other than Lender) and constitute the valid and legally
binding obligations of such parties enforceable in accordance with their
respective terms. No default or event which, but for the giving of notice or
passage of time, or both, would constitute an Event of Default has occurred and
is continuing uncured.
4.8. Priority of Security Interests. The county and state identified in
Borrower's Address in Article I is the location of the principal place of
business of Borrower and, unless otherwise specified in Schedule 1.31, those
locations are the only locations in which the Financing Statements must be filed
to perfect the security interest granted to Lender in the Collateral. Unless
otherwise specified in Schedule 1.31, Borrower does not do business under any
other names. Upon the filing of the Financing Statements in those locations,
Lender will have a valid and perfected first-priority security interest in all
of the Collateral for all the Obligations free and clear of all Encumbrances.
4.9. No Untrue Statements. Neither this Agreement, the Loan Documents nor
any other document, certificate or statement furnished or to be furnished by
Borrower or by any other party to Lender in connection herewith contains, or at
the time of delivery will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
ARTICLE V.
AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that from the Commencement Date and
until satisfaction in full of the Obligations, unless Lender shall otherwise
consent in writing, Borrower shall do the following:
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5.1. Use of Advance. Use the proceeds of each Advance only to fund the
Mortgage Loan described in the Advance Request submitted to Lender for such
Advance.
5.2. Financial Reporting. Furnish to Lender:
(a) Financial Statements of Borrower and each Person identified as
Guarantor within ninety (90) days after the end of each fiscal year of Borrower
or Guarantor, as the case may be. Financial Statements of Guarantor need not be
audited or prepared by an independent certified public accountant.
(b) Within fifteen (15) days after filing, a photocopy of the
signed federal income tax return of the Borrower including all accompanying
schedules.
(c) Within fifteen (15) days after filing, a photocopy of the
signed federal income tax return of each Person identified as Guarantor
including all accompanying schedules,
(d) Not later than the fifth (5th) day of each calendar month in
which Advances are outstanding, a servicing report certified as true by the
chief financial officer of Borrower indicating payments received on account of
unsold Mortgage Loans (or any delinquency in payment), amounts withheld for tax
and insurance escrows, and the principal and interest remitted to Lender.
(e) Not later than fifteen (15) days after the end of each quarter,
unaudited Financial Statements of Borrower for the quarter then-ended.
(f) Such other information as is reasonably requested by Lender to
determine the financial condition of any Obligor or any Person proposed to be an
Approved Investor.
5.3. Maintenance Account. Maintain the Maintenance Account at all times
funded with the Minimum Deposit.
5.4. Collateral Documents. Originate each Mortgage Loan in full compliance
with Applicable Requirements. Cause the Settlement Agent to take custody of the
Mortgage Note and deliver same to Lender on the next Business Day following the
Origination. Maintain custody of all other Collateral Documents in good
condition and forward same to Lender for inspection under the Loan Purchase
Commitment promptly after Origination. Promptly after Origination, cause each
Mortgage to be properly recorded in the appropriate filing office of the
jurisdiction in which the real property described in the Mortgage is located. Do
all things necessary to fulfill each condition precedent to purchase under the
Loan Purchase Commitment. Cure any deficiencies in the Collateral Documents at
Borrower's sole cost and expense.
5.5. Minimum Net Worth. Maintain a minimum net worth (aggregated for both
Borrower and Guarantor) at all times not less than the greater of (a)
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such amount, if any, as is required under Applicable Requirements; or (b)
$250,000.
5.6. Management. Furnish to Lender within five (5) days of any election or
appointment of officers or directors, written notice of any change in the
persons who from time to time become principals, officers or directors of
Borrower.
5.7. Servicing. Until such time as the Mortgage Loan is sold to the
Approved Investor, service the Mortgage Loan in accordance with all Applicable
Requirements, maintain tax and insurance escrows in accordance with Applicable
Requirements, and remit all principal and interest received on account of the
Mortgage Loan to Lender. Deliver to Lender in accordance with the Warehousing
Guide all post-closing documentation as and when required thereunder. Cause
insurance to be maintained as required under the Collateral Documents and the
Applicable Requirements naming Borrower and Lender (as their interests may
appear), as mortgagee.
5.8. Notices. Notify Lender of any default under the Loan Purchase
Commitment or any Collateral Documents; any Judgment against any obligor or
affecting any Collateral; any bankruptcy or insolvency proceeding commenced by
or against any obligor; any event or occurrence which would, if not cured within
the applicable notice or grace period, constitute an Event of Default under the
Loan Documents or the Collateral Documents; and any change in the principal
place of business of Borrower.
5.9. Further Actions. Cooperate and join with Lender, at its own expense,
in taking all such further actions as Lender, in its sole judgment, shall deem
necessary to effectuate the provisions of the Loan Documents and to perfect or
continue the perfected status of all Encumbrances granted to Lender pursuant to
the Loan Documents and the Collateral Documents, including, without limitation,
the execution, delivery and filing of financing statements, amendments thereto
and continuation statements, the delivery of chattel paper, documents or
instruments to Lender.
ARTICLE VI.
NEGATIVE COVENANTS
Borrower hereby covenants and agrees that from the Commencement Date until
satisfaction in full of the Obligations, it will not do any one or more of the
following without first obtaining the written consent of Lender:
6.1. Identity. Change its name, enter into or effect any merger,
consolidation, share exchange, division, conversion, reclassification,
reorganization or recapitalization, or other transaction of like effect, or
dissolve.
6.2. Transfer. Sell or transfer any of the Collateral (except to the
Approved Investor upon payment of the Committed Purchase Price to the Collection
Account) or permit or suffer any Encumbrance (other than the Loan Documents)
upon the Collateral.
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6.3. Agreements. Modify, terminate or fail to enforce the Loan
Purchase Commitment or any Collateral Documents.
6.4. Collection Account. Ask, demand, receive or take any payment under
any Loan Purchase Commitment or otherwise with respect to the sale or transfer
of any Mortgage Loan except by direct payment of the full Committed Purchase
Price to the Collection Account.
6.5. Affiliates. Pay to any obligor or Affiliate of any Obligor any fees,
compensation, or other sums from proceeds of any Advance or any mortgage Loan
except pursuant to a written agreement approved in writing by Lender.
ARTICLE VII.
EVENTS OF DEFAULT
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
7.1. Failure to Pay. Any principal, interest, fees or other Obligations
requiring payment or deposit of money under this Agreement or any of the Loan
Documents is not paid or deposited as and when due, whether upon the expiration
of the Advance Repayment Period, the Termination Date, acceleration, or
otherwise.
7.2. Invalidity. The validity, binding nature of, or enforceability of
any material term or provision of any of the Loan Documents, any Collateral
Documents or the Loan Purchase Commitment is disputed by, on behalf of, or in
the right or name of any Person or any material term or provision of any such
document is found or declared to be terminated, invalid, avoidable, or
nonenforceable by any court of competent jurisdiction.
7.3. False warranties; Breach of Representations. Any warranty or
representation made by any Obligor in this Agreement or any other Loan Document
or in any Advance Request or other writing delivered under or pursuant to this
Agreement or any other Loan Document, or in connection with any provision of
this Agreement or related to the transactions contemplated hereby shall prove to
have been false or incorrect or breached in any material respect on the date as
of which made.
7.4. Judgments. Issuance of a Judgment; (a) affecting any of the
Collateral; or (b) against any Obligor which, when aggregated with any other
Judgments, exceeds Fifty Thousand Dollars ($50,000.00) outstanding at any one
time; or (c) which would have a material adverse effect on the ability of any
obligor to conduct its business.
18
<PAGE>
7.5. Bankruptcy; Insolvency; Liquidation; Death.
(a) Any Obligor becomes insolvent, or generally fails to pay, or is
generally unable to pay, or admits in writing its inability to pay, its debts as
they become due or applies for, consents to, or acquiesces in, the appointment
of a trustee, receiver or other custodian for such Obligor, or a substantial
part of its property, or makes a general assignment for the benefit of
creditors.
(b) Any Obligor commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any state or federal bankruptcy
or insolvency law, or any dissolution or liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other case
or proceeding under any state or federal bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is involuntarily commenced against or in
respect of any Obligor, or an order for relief is entered in any such
proceeding.
(d) A trustee, receiver, or other custodian is appointed for any
substantial part of such Obligor's property.
(e) The death of any Obligor.
7.6. Breach of Covenants or Conditions. If, and to the extent not included
in any of the occurrences listed above, any Obligor fails to perform or observe
any term, covenant, agreement or condition in this Agreement or any of the other
Loan Documents or is in violation of or non-compliance with any provision of
this Agreement or any of the Loan Documents, and has not remedied and fully
cured such non-performance, non-observance, violation of or non-compliance
within fifteen (15) days after Lender has given written notice thereof to such
Obligor; provided, however, that during such fifteen (15) day period Lender's
obligations to make Advances to Borrower shall be suspended.
ARTICLE VIII.
REMEDIES
Upon the occurrence of an Event of Default, Lender shall have the right,
in its sole discretion, to pursue any one or more of the following rights and
remedies, without notice to any Obligor:
8.1. Further Advances. Refuse to make any further Advances.
8.2. Acceleration. Declare immediately due and payable the entire unpaid
principal balance of the Loan, all interest and fees accrued and unpaid thereon,
and all other amounts and Obligations payable by Borrower under this Agreement
and the other Loan Documents, all without protest, presentment, demand, or
further notice of any kind to Borrower, all of which are expressly waived by
Borrower.
19
<PAGE>
8.3. Set-Off. Apply to the then unpaid balance of the Obligations any
items or funds held by Lender, any funds of Borrower in the Collection Account
or the Maintenance Account and any and all deposits (whether general or special,
time or demand, matured or unmatured, fixed or contingent, liquidated or
unliquidated) now or hereafter maintained by Borrower with Lender, and any other
indebtedness at any time held or owing by Lender to or for the credit or the
account of Borrower. Lender is hereby authorized to charge any such account or
indebtedness for any amounts due to Lender. Such right of set-off shall exist
whether or not Lender shall have made any demand under this Agreement, any
Promissory Note or any other Loan Document and whether or not the Loan and the
other obligations are matured or unmatured. Borrower hereby confirms Lender's
lien on such accounts and right of set-off, and nothing in this Agreement shall
be deemed any waiver or prohibition of such lien and right of set-off.
8.4. UCC Remedies. Transfer the Mortgage Loan to Lender's name by
recordation of the Mortgage assignment; sell the Mortgage Loan and the
Collateral Documents to any one or more Persons on commercially reasonable terms
acceptable to Lender at one or more public or private sales; and otherwise
exercise all rights of a secured party under the Uniform Commercial Code then in
effect in the jurisdiction in which the Collateral is located.
8.5. Other Remedies. Enforce the Loan Purchase Commitment, collect
payments under the Collateral Documents, and otherwise proceed to protect and
enforce its rights under this Agreement and the other Loan Documents by
exercising such remedies as are available to Lender in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any provision contained in this Agreement or any of
the other Loan Documents or in aid of the exercise of any power granted in this
Agreement or any of the other Loan Documents.
ARTICLE IX.
MISCELLANEOUS
9.1. Remedies Cumulative; No Waiver. The rights, powers and remedies of
Lender provided in this Agreement and the other Loan Documents are cumulative
and not exclusive of any right, power or remedy provided by law or equity, and
no failure or delay on the part of Lender in the exercise of any right, power,
or remedy shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power, or remedy preclude other or further exercise
thereof, or the exercise of any other right, power or remedy.
9.2. Notices. Every notice and communication under this Agreement or any
of the other Loan Documents shall be in writing and shall be given by either (a)
hand-delivery, (b) first class mail (postage prepaid), (c) nationally recognized
overnight commercial courier, or (d) telecopy or other means of electronic
transmission, if confirmed promptly by any of the methods specified in clauses
(a), (b) and (c) of this sentence, to Borrower's Address or Lender's Address, as
the case may be, set forth in Article I. Notice given by telecopy or other means
of electronic transmission shall be deemed to have been given and received when
sent. Notice by overnight courier shall be
20
<PAGE>
deemed to have been given and received on the date scheduled for delivery.
Notice by mail shall be deemed to have been given and received three (3)
calendar days after the date first deposited in the United States Mail. Notice
by hand delivery shall be deemed to have been given and received upon delivery.
A party may change its address by giving written notice to the other party as
specified herein.
9.3. Costs, Expenses and Attorneys' Fees. Whether or not the transactions
contemplated by this Agreement and the other Loan Documents are fully
consummated, Borrower shall promptly pay (or reimburse, as Lender may elect) all
costs and expenses which Lender has incurred or may hereafter incur in
connection with the negotiation, preparation, reproduction, interpretation and
enforcement of this Agreement, the other Loan Documents or the Collateral
Documents, the collection of all amounts due hereunder and thereunder, and any
amendment, modification, consent or waiver which may be hereafter requested by
Borrower or otherwise required. Such costs and expenses shall include, without
limitation, the fees and disbursements of counsel to Lender, the costs of
appraisal fees, searches of public records, costs of filing and recording
documents with public offices, and similar costs and expenses incurred by
Lender. Upon the occurrence of an Event of Default, such costs shall also
include the fees of any accountants, consultants or other professionals retained
by Lender. Borrower's reimbursement obligations under this section shall survive
any termination of this Agreement.
9.4. Survival of Covenants. This Agreement and all covenants, agreements,
representations and warranties made herein and in any certificates delivered
pursuant hereto shall survive the making of the Loan and the execution and
delivery of each Promissory Note and, subject to other provisions of this
Article IX, shall continue in full force and effect until all of the Obligations
have been fully paid, performed, satisfied and discharged.
9.5. Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts and by the different parties on separate counterparts.
Each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
9.6. Headings. The headings of sections have been included herein for
convenience only and shall not be considered in interpreting this Agreement.
9.7. Payment Due On A Day Other Than A Business pay. If any payment due or
action to be taken under this Agreement or any Loan Document falls due or is
required to be taken on a day which is not a Business Day, such payment or
action shall be made or taken on the next succeeding Business Day and such
extended time shall be included in the computation of interest.
9.8. Judicial Preceedings. Each party to this Agreement agrees that any
suit, action or proceeding, whether claim or counterclaim, brought or instituted
by any party hereto or any successor or assign of any party, on or with respect
to this Agreement or any of the other Loan Documents or the dealings of the
parties with respect hereto, or thereto, shall be tried only
21
<PAGE>
by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. Further, each party waives any right it may have to claim or
recover, in any such suit, action or proceeding, any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC
AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT LENDER WOULD NOT EXTEND CREDIT TO
BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS
AGREEMENT.
9.9. Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of New Jersey, Neither this
Agreement nor any Promissory Note shall be construed to require payment of
interest in an amount which exceeds the maximum interest rate permitted under
applicable laws.
9.10. Integration. This Agreement and the other Loan Documents constitute
the sole agreement of the parties with respect to the subject matter hereof and
thereof and supersede all oral negotiations and prior writings with respect to
the subject matter hereof and thereof.
9.11. Amendment and Waiver. No amendment of this Agreement, and no waiver
of any one or more of the provisions hereof shall be effective unless set forth
in writing and signed by the parties hereto.
9.12. Successors and Assigns. This Agreement i) shall be binding upon
Borrower and Lender and their respective successors and assigns, and ii) shall
inure to the benefit of Borrower and Lender and their respective successors and
assigns, provided, however, that Borrower may not assign its rights hereunder or
any interest herein without the prior written consent of Lender, and any such
assignment or attempted assignment by Borrower shall be void and of no effect
with respect to Lender.
9.13. Severability of Provisions. Any provision in this Agreement that is
held to be inoperative, unenforceable, voidable, or invalid in any jurisdiction
shall, as to that jurisdiction, be ineffective, unenforceable, void or invalid
without affecting the remaining provisions in any other jurisdiction, and to
this end the provisions of this Agreement are declared to be severable.
9.14. Consent to Jurisdiction and Service of Process. Borrower irrevocably
appoints each and every officer of Borrower as its attorneys upon whom may be
served, by regular or certified mail at the address for notices furnished under
this Article IX, any notice, process or pleading in any action or proceeding
against it arising out of or in connection with this Agreement or any of the
other Loan Documents. Borrower hereby (a) consents that any action or proceeding
against it be commenced and maintained in any court within the State of New
Jersey or in the United States District Court for the District of New Jersey by
service of process on any such officer; (b) agrees that the courts of the State
of New Jersey and the United States District Court for the District of New
Jersey shall have jurisdiction with respect to
22
<PAGE>
the subject matter hereof and the person of Borrower and the Collateral; and
(c) waives any objection that such Borrower may now or hereafter have as to the
venue of any such suit, action or proceeding brought in such a court or that
such court is an inconvenient forum. Notwithstanding the foregoing, Lender, in
its absolute discretion, may also initiate proceedings in the courts of any
other jurisdiction in which Borrower may be found or in which any of its
properties or the Collateral may be located.
9.15. Surrender. If, after receipt of any payment of all or any part of
the obligations, Lender is compelled to surrender such payment to any Person or
entity for any reason (including, without limitation, a determination that such
payment is void or voidable as a preference or fraudulent conveyance, an
impermissible setoff, or a diversion of trust funds), then this Agreement and
the other Loan Documents shall continue in full force and effect, and Borrower
shall be liable for, and shall indemnify, defend and hold harmless Lender with
respect to the full amount so surrendered including Lender's costs and expenses
under the indemnity set forth in Section 9.16 below.
9.16. Indemnification. Borrower shall indemnify, defend and hold harmless
Lender and its officers, directors, employees and agents with respect to any and
all claims, expenses, demands, losses, costs, fines or liabilities of any kind,
including reasonable attorneys' fees and costs, arising from or in any way
related to i) the acts or omissions of Borrower or any Obligor under, pursuant
to, or related to this Agreement and the other Loan Documents; ii) any Obligor's
breach or violation of any representation, warranty, covenant or undertaking
contained in this Agreement or the other Loan Documents; iii) any Obligor's
failure to comply with all Applicable Requirements; and iv) any claims arising
from or related to the Collateral.
9.17. Survival. Any reimbursement or indemnification obligation contained
in this or any other Loan Document shall survive termination of this Agreement
or payment in full of the Loan. Without limiting the foregoing, the provisions
of Sections 9.3, 9.15 and 9.16 of this Agreement shall survive the termination
of this Agreement and the other Loan Documents and shall be and remain effective
notwithstanding the payment of the obligations, the cancellation of any
Promissory Note, the release of any Encumbrance securing the obligations or any
other action which Lender may have taken in reliance upon its receipt of such
payment. Any cancellation of any Promissory Note, release of any Encumbrance or
other such action shall be deemed to have been conditioned upon any payment of
the Obligations having become final and irrevocable.
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized representatives and delivered as of the
Commencement Date.
PRINCAP MORTGAGE WAREHOUSE, INC.
By: /s/ Thomas Hutchison,
-----------------------
Name: Thomas Hutchison,
President
Westmark Mortgage Corporation
By: /s/ Mark Schaftlein
-----------------------
Name: Mark Schaftlein
Title: C.E.O
(Corporate Seal)
By: /s/ Payton Story III
-----------------------
Name: Payton Story III
Title: President
Attest: /s/ Barbara Nola
-------------------------
Barbara Nola
Secretary
24
<PAGE>
TRANSMITTAL INFORMATION AND DOCUMENTS TO BE DELIVERED TO PMW TO ADVANCE FUNDS
Exhibit "A"
- ---------------------------
(Date)
PrinCap Mortgage Warehouse, Inc.
Two Laurel Plaza, Suite 265
221 Laurel Rd.
Voorhees, NJ 08043
<TABLE>
<CAPTION>
<S> <C>
Home Owner's Name: Address:
--------------------- ----------------------------------------------------------------------
Advance Date: Interest Rate: Loan Purchase Comm. Exp:
-------------- --------------- -----------------------------------
Loan #: Pts. or Discount: Amortization Term.#
-------------------- -------------- ---------------------------------------
Mortgage Amt: Approved Investor: Purpose of Loan:
-------------- ----------------- -------------------------------------
Advance Amount: Committed Purchase Price: Acquisition: Refi:
--------------- ------------------ -------------- ----------
</TABLE>
Gentlemen:
We hereby request an advance under our warehouse line of credit for the above
mortgage loan and, in support thereof, we enclose the following documents:
(check off)
---- 1. Fully executed Promissory Note with original authorized signature
(Exhibit "E").
---- 2. Originally executed Assignment of Mortgage, in blank, in proper
form for recordation
---- 3. Copy of unexecuted Mortgage Note showing that original has been
endorsed as follows: "Pay to the order of _______________________
(leave blank), without recourse _________________________________
(signed by authorized signature)".
---- 4. Copy of completed form of Mortgage (1st page, Legal, last page, and
all Riders in full)
---- 5. Copy of Take Out commitment from Approved Investor covering this
loan
---- 6. Wire instructions for funding (See Form 20)
---- 7. Copy of Seller's Settlement Instruction Letter (Exhibit "F") as
sent to Settlement Agent
---- 8. Copy of our Settlement Agent's closing protection letter is on file
with you____or is supplied herewith____(check applicable)
---- 9. Original Airbill complete with approved Investor's address.
We hereby certify that the information set forth in this certification is true,
correct and complete and that the mortgage loan for which is advancement is
requested complies in all respects with the requirements of the Agreement and
the Loan Purchase Commitment.
Very truly yours,
By: (Authorized Signature)
-------------------------------------
25
<PAGE>
EXHIBIT "B"
APPROVED INVESTORS
(List here the name, address, Phone number and contact person for all investors
to whom you will be selling loans you expect to fund with your line of credit)
27
<PAGE>
EXHIBIT "B" ATTACHMENT
1. Household Bank
961 Weigel Drive
Elmhurst, IL 60126
Contact: Rudy Ormond
630-617-7000
2. The Money Store
2450 Del Paso Road #200
Sacramento, CA 95834
Contact: Darrel Cotherman
1-916-617-9500
3, Mortgage Corporation of America (MCA)
23999 Northwestern Hwy. #100
Southfield, MI 48075
Contact: Michael Jehle
1-248-358-0606
4. Master Financial Inc.
333 South Anita #150
Orange, CA 92668
Contact: Jon C. Montgomery
1-714-456-1056
5. Green Tree Mortgage Services
5425 Beaumont Center Blvd. #900
Tampa, Florida 33634
Contact: Ree Kennedy
1-813-884-3447
6. GE Capital Home Equity Services
Three Executive Campus
Cherry Hill, New Jersey 08034
Contact: Michele Amrom
800-239-3363
<PAGE>
EXHIBIT "C"
STANDARD FORM OF BAILEE LETTER
BAILEE LETTER
- ----------------------
- ----------------------
Attention:
Re: (Insert Name of Borrower] (the "Originator")
Gentlemen:
Princap Mortgage Warehouse, Inc. ("Princap") is the holder of a security
interest in the enclosed original mortgage note and other mortgage loan
documents (collectively, the "Collateral") now or hereafter delivered to you by
Originator or Princap for your inspection prior to purchase of the Collateral by
you pursuant to a certain loan purchase commitment (the "Loan Purchase
Commitment") between you and the Originator.
Princap delivers the Collateral to you to be held by you as bailee and, by
your receipt of the Collateral, you agree to hold the Collateral as bailee, for
the benefit of Princap as secured party pursuant to applicable provisions of the
Uniform Commercial Code and the terms of this Bailee Letter.
Your obligations as bailee with respect to the Collateral shall terminate
without further action on the part of Princap at the time you purchase the
Collateral by remitting in full the purchase price specified in the Loan
Purchase Commitment (the "Committed Purchase Price") by wire transfer of
immediately available funds to our account specified below and such funds have
been received in such account or, if earlier, upon your re-delivery of the
Collateral to us at the address set forth below or such other address as you
are notified by Princap in writing. Until the Committed Purchase Price is
received by Princap, the Collateral remains subject to the liens and security
interests granted by the Originator to Princap. You are not authorized to
deliver or release the Collateral to any other person (including, without
limitation, the Originator) other than Princap.
INSTRUCTIONS FOR WIRE TRANSFER OF FUNDS:
Chase Manhattan Bank
450 W. 33rd Street
Attn: Global Securities and Trust
New York
ABA Routing #021000021
To the further credit of
Princap Mortgage Warehouse, Inc.
Collection Account #323-309348
28
<PAGE>
INSTRUCTIONS FOR RE-DELIVERY OF COLLATERAL
Princap Mortgage Warehouse, Inc.
Two Echelon Plaza, Suite 265
221 Laurel Road
Voorhees, NJ 08043
Until receipt of the Committed Purchase Price, Princap reserves the right
at any time, upon written notice to you, to require immediate delivery and
return of the Collateral to us at the address set forth above. In any event,
unless the Committed Purchase Price has been received, you agree to redeliver
and return the Collateral to Princap no later than the date which is twenty (20)
calendar days after the date of this letter without any notice,' demand or other
action by us.
Princap also holds an assignment of, and security interest in,
Originator's rights under the Loan Purchase Commitment including, without
limitation, the right to receive payment of the Committed Purchase Price and the
right of prior approval of any adjustment in the Committed Purchase Price.
If you are in agreement with the foregoing, please have the enclosed copy
of this letter executed by your authorized officer and return it to the address
of Princap set forth above. In the event that the foregoing is not acceptable to
you, please deliver and return to us immediately the Collateral at the address
of Princap set forth above by overnight courier delivery. If Princap does not
receive a copy of this letter executed by you, then you shall be deemed to have
accepted possession of the Collateral as bailee for Princap, the secured party,
effective the date first written above.
Very truly yours
PRINCAP MORTGAGE WAREHOUSE, INC.
By:
------------------------------------
Agreed to and accepted as of
the date set forth above:
- -------------------------------
By:
---------------------------
Name:
Title:
29
<PAGE>
EXHIBIT "D-1"
BORROWER AUTHORIZATION (CORPORATE)
(Disregard if Borrower is not a corporation)
I, the undersigned secretary of Westmark Mortgage Corporation a California
corporation ("Borrower") do hereby certify that I am the Secretary of Borrower
and that, as such, I am authorized to execute this Certificate on behalf of
Borrower, and I further certify that at a meeting of the Board of Directors of
Borrower, duly and regularly called and held, a quorum being present throughout,
the following resolutions were unanimously adopted and recorded in the minute
books of Borrower, kept by me, and are in accord with and pursuant to the
Articles of Incorporation and By-Laws of Borrower, true copies of which are
attached hereto as, respectively, Exhibits "A" and "B", and such Articles of
Incorporation and By-Laws are now in full force and effect. I further certify
that attached hereto as Exhibit "C" is a certification issued by the authorized
officer of the state in which the Borrower is incorporated attesting to the
subsistence and good standing of Borrower.
RESOLVED, that Borrower is hereby authorized and directed to enter into a
warehouse credit and security transaction in the amount of ten million
($10,000,000) (the "Loan") with Princap Mortgage Warehouse, Inc. ("Lender") as
set forth in the Warehouse Credit and Security Agreement attached hereto, and do
all things necessary or appropriate to enter into and perform its obligations
thereunder.
FURTHER RESOLVED, that the President, any Vice-President or other proper
officer of Borrower are authorized and directed to execute and deliver in the
name of Borrower and on its behalf all documents required to be delivered by
Borrower in connection with the Loan and do all other acts in the name of
Borrower and in its behalf, as are necessary or proper in order for the
transactions contemplated in the Commitment to be consummated in accordance with
their respective terms.
FURTHER RESOLVED, that any officer shall be authorized to execute on
behalf of the corporation an Incumbancy Certificate in a form satisfactory to
the Lender, containing the names and original signatures of those officers and
employees or agents of the corporation who shall be authorized to execute
certain documents and other items on behalf of the corporation, which execution
shall be fully effective and bind the corporation in the context thereof. Said
Incumbancy Certificate may be changed or modified at any time and shall be fully
effective if signed on behalf of the corporation by any officer. Any Incumbancy
Certificate previously executed by this corporation is hereby ratified and
shall remain in full force and effect until changed or modified.
I further certify that each of the following persons has been duly elected
and qualified to hold and currently holds the office set forth opposite his name
below and that the signature of each such person appearing opposite his name
below in his own true signature:
30
<PAGE>
Name Office Signature
- ---- ------ ---------
Mark Schaftlein Chief Executive Officer /s/ Mark Schaftlein
Payton Story III President /s/ Payton Story III
Barbara Nola Secretary /s/ Barbara Nola
Barbara Nola Treasurer /s/ Barbara Nola
IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of
Borrower to be affixed as of
-------------------------------------------
/s/ Barbara Nola
----------------------
Barbara Nola
Secretary
(Corporate Seal)
31
<PAGE>
EXHIBIT "E"
Promissory Note
Mortgage Loan Amount: $ Date of Promissory Note:
---------------- ---------------
THE UNDERSIGNED BORROWER ("Borrower") hereby agrees to pay to the order of
PRINCAP MORTGAGE WAREHOUSE, INC., a Delaware corporation ("Lender") the amount
of the Advance made by Lender at the request of Borrower to fund the Mortgage
Loan Amount set forth above, together with interest thereon from the date of
advancement at the Basic Interest Rate set forth in the Warehouse Credit and
Security Agreement dated ________ between Borrower and Lender (the "Agreement").
Reference is made to the Agreement for the terms and conditions under which the
Advance has been made, the period within which payment is due, the Default
Interest Rate and the place and manner of payment. Capitalized terms used and
not otherwise defined in this Promissory Note shall have the respective meanings
given to those terms in the Agreement.
Upon the occurrence of an Event of Default (as defined in the Agreement)
the entire principal of this Promissory Note, together with accrued but unpaid
interest thereon, and any other obligations of Borrower or other Obligors to
Lender shall become immediately due and payable in full. Borrower waives
presentment for payment, demand, protest, notice of protest, notice of dishonor
or other notice of any kind.
Borrower hereby reconfirms to Lender that all representations and
warranties of Borrower set forth in the Agreement are true, correct and complete
as if remade as of the Date of this Promissory Note set forth above.
This Promissory Note is a "Loan Document" as defined in the Agreement.
This Promissory Note may not be changed orally or by course of conduct but only
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, consent, modification, or discharge is sought.
This Promissory Note has been accepted by Lender in the State of New
Jersey and shall be governed by the internal laws of the State of New Jersey.
Nothing contained in this Promissory Note or any other Loan Document shall
require the Borrower to pay, or Lender to accept, interest in an amount which
would subject Lender to penalty under applicable law. In the event that the
payment of any interest due under this or any other Loan Document would subject
Lender to penalty under applicable law, then, ipso facto, the obligation of
Borrower to make such payment shall be reduced to the highest rate then
permitted under applicable law without penalty.
Time is of the essence of Borrower's obligations under this Note.
All notices, requests, statements, offers, acceptances, requests for
consents or other writings required or permitted to be given or furnished under
this Promissory Note shall be given in accordance with the applicable provisions
contained in the Agreement.
34
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower has
executed and delivered this Promissory Note to Lender as of the Date of
Promissory Note set forth above.
Name of Borrower:
-----------------------------------------
By:
-------------------------------------
Name:
Title:
35
<PAGE>
EXHIBIT "F"
LENDER'S SETTLEMENT INSTRUCTIONS
Date:
-------------------------------
Settlement Agent:
----------------------------------
Address:
----------------------------------
Telefax:
----------------------------------
Settlement Acct:
----------------------------------
Originator:
----------------------------------
Mortgagor:
----------------------------------
Mortgage Loan Amount: $ Advance Amount: $
-------------- -----------------------
This is to advise you that, at the request of the Originator identified
above, Princap Mortgage Warehouse, Inc. ("Princap") will, within one Business
Day of the date of this letter, deposit by electronic transfer of funds into
your Settlement Account identified above, the Advance Amount identified above.
The Advance Amount is to be used to fund the residential mortgage loan to the
Mortgagor identified above in the Mortgage Loan Amount identified above and for
no other purposes.
By acceptance of the Advance Amount you agree to act as agent for Princap
to take custody of the originally executed Mortgage Note on behalf of Princap
and deliver the Mortgage Note, with a complete and accurate photocopy of the
fully executed HUD-1 Settlement Statement, to Princap at the address set forth
below, by nationally recognized express delivery service on the next day (other
than Saturday, Sunday or bank holiday) (a "Business Day") following the date the
Mortgage Loan is funded:
Princap Mortgage Warehouse, Inc.
Two Echelon Plaza, Suite 265
221 Laurel Road
Voorhees, NJ 08043
If, within one Business Day after the Advance Amount is deposited into
your Settlement Account, the Advance Amount is not disbursed to fund the closing
with the Mortgagor, you must return the Advance Amount not later than 2:00 p.m.
EST/EDT on the second Business Day following receipt, by electronic transfer of
immediately available funds, to the following account:
Chase Manhattan Bank
450 W. 33rd Street
Attn: Global Securities and Trust
New York, NY
ABA Routing #021000021
To the further credit of
Princap Mortgage Warehouse, Inc.
Collection Account #323-309348
Re: [Name of Originator]
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36
<PAGE>
Please contact the undersigned (telephone: 609-770-1880 (telefax:
609-770-1920) if further instructions are required.
Very truly yours,
PRINCAP MORTGAGE WAREHOUSE, INC.
By:
-----------------------------------
37
WAREHOUSE AND SECURITY
AGREEMENT
NATIONAL CORRESPONDENT
Between
TMS MORTGAGE INC., as Lender
and
WESTMARK MORTGAGE CORPORATION,
as Borrower
Dated 3-26, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I - Definitions ................................................1
ARTICLE II - Line of Credit..............................................6
Section 2.1 Lender's Commitment.........................................6
Section 2.2 Advances....................................................7
Section 2.3 Limitations on Use of Advance...............................7
Section 2.4 Notice and Manner of Borrowing..............................7
Section 2.5 Master Note and Interest Rate...............................7
Section 2.6 Payments of Accrued Interest................................8
Section 2.7 Payments of Principal.......................................8
Section 2.8 Release of Loan Documents by Lender.........................10
Section 2.9 No Prepayment Penalty.......................................11
Section 2.10 Warehouse Fees and Expenses.................................11
Section 2.11 Increase; Reduction or Termination..........................11
Section 2.12 Method of Making Payments...................................12
Section 2.13 Loan Funding................................................12
Section 2.14 Termination for Non-Use of Line of Credit...................12
ARTICLE III - Conditions Precedent .......................................12
Section 3.1 Conditions Precedent to Lender's Obligations Hereunder......12
Section 3.2 Conditions Precedent to Each Advance........................14
Section 3.3 Limitations on Obligations to Advance.......................15
ARTICLE IV - Security Interest; Power of Attorney .......................16
Section 4.1 Grant of Security Interest..................................16
Section 4.2 Security Instruments .......................................16
Section 4.3 Power of Attorney ..........................................17
ARTICLE V - Representations and Warranties..............................17
Section 5.1 Legal Status................................................18
Section 5.2 General Powers..............................................18
Section 5.3 Enforceability..............................................18
Section 5.4 Security Interest ..........................................18
Section 5.5 Agreements; No Default......................................18
Section 5.6 Endorsements under Power of Attorney........................18
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Section 5.7 Litigation; Compliance with Laws............................18
Section 5.8 Payment of Taxes............................................19
Section 5.9 Title of Assets; Absence of Liens...........................19
Section 5.10 Representations Relating to Loans and Other
Collateral.................................................19
ARTICLE VI - Affirmative Covenants ......................................22
Section 6.1 Performance.................................................23
Section 6.2 Payment of Expenses.........................................23
Section 6.3 Delinquency Reports.........................................23
Section 6.4 Records; Inspection of Reports and Documents and On-
Site Audit.................................................23
Section 6.5 Further Assurances..........................................23
Section 6.6 Notation of Endorsement.....................................23
Section 6.7 Outstanding Agreements......................................23
Section 6.8 Legal Compliance............................................23
Section 6.9 Indemnification.............................................23
Section 6.10 Faulty or Late Documentation; Unsatisfactory, Titles........24
Section 6.11 Financial and Compliance Statements.........................24
Section 6.12 Financial Condition.........................................25
Section 6.13 Notice of Adverse Change....................................25
Section 6.14 Covenants with Respect to Each Advance......................25
Section 6.15 Third Party Powers of Attorney..............................26
Section 6.16 Investors List..............................................26
Section 6.17 Insurance...................................................26
Section 6.18 Loan Servicing..............................................26
Section 6.19 Insured Closing Letters.....................................27
ARTICLE VII - Borrower's Negative Covenants...............................27
Section 7.1 Underwriting Guidelines ....................................27
Section 7.2 Use of Funds ...............................................27
Section 7.3 Compromise of Collateral....................................27
Section 7.4 Additional Financing Agreements.............................27
ARTICLE VIII - Events of Default .........................................27
Section 8.1 Failure to Pay .............................................28
Section 8.2 Breach of Covenant .........................................28
Section 8.3 Breach of Representation or Warranty .......................28
Section 8.4 Insolvency .................................................28
Section 8.5 Cross Default...............................................28
Section 8.6 Bankruptcy .................................................28
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Section 8.7 Dissolution.................................................28
Section 8.8 Decline of Collateral.......................................28
Section 8.9 Insecurity..................................................28
ARTICLE IX - Rights and Remedies of Lender...............................29
Section 9.1 Termination of Commitments..................................29
Section 9.2 Acceleration of Borrower's Obligations......................29
Section 9.3 Possession of Collateral and Records........................29
Section 9.4 Sale of Collateral..........................................29
Section 9.5 Set off.....................................................30
Section 9.6 Communication with Obligors.................................3O
Section 9.7 Collection of Collateral....................................30
Section 9.8 Opening of Mail.............................................31
Section 9.9 Default under Section 8.8...................................31
Section 9.10 Cumulative Nature of Remedies...............................31
ARTICLE X - Miscellaneous Provisions....................................31
Section 10.1 Notice......................................................31
Section 10.2 Construction................................................32
Section 10.3 Amendment...................................................32
Section 10.4 Execution...................................................32
Section 10.5 Choice of Law; Venue and Jurisdiction.......................32
Section 10.6 Successors and Assigns......................................32
Section 10.7 Approval Fees and Expenses of Lender........................33
Section 10.8 Incorporation Security Documents............................33
Section 10.9 Waivers.....................................................33
Section 10.10 No Third Party Beneficiary Rights...........................33
Section 1O.11 Continuing Obligation.......................................33
Section 10.12 Photocopies Sufficient......................................33
Section 10.13 Time........................................................33
Section 10.14 No Joint Venture............................................34
Section 10.15 Final Agreement.............................................34
Section 10.16 Recreated or Substituted Collateral.........................34
Section 10.17 Standard of Care of Collateral; Lost Collateral.............34
Section 10.18 Lender's Pledge of Collateral...............................34
Section 10.19 Attorneys' Fees.............................................35
Promissory Note
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<PAGE>
EXHIBITS
EXHIBIT A - Loan Documents
EXHIBIT B - Form of Borrower Trust Receipt
EXHIBIT C - Request for Advance
EXHIBIT D - Master Promissory Note
EXHIBIT E - Form of Agreement to Pledge
EXHIBIT F - Attorneys' Opinion
EXHIBIT G - Guaranty
EXHIBIT H - Form of Bailee Letter
EXHIBIT I - Form of Master Bailee Letter
EXHIBIT J - Investors List
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WAREHOUSE AND SECURITY AGREEMENT
(National Correspondent Program)
THIS WAREHOUSE AND SECURITY AGREEMENT is made and entered into as
of____________, 1997, by and between TMS Mortgage Inc., a New Jersey
corporation, having its principal office at 2840 Morris Avenue, Union, New
Jersey 07083 ("Lender") and Westmark Mortgage Corporation, a California
corporation, having its principal office at 355 N.E. Fifth Avenue, Suite 4,
Delray Beach, Florida 33483 ("Borrower").
ARTICLE I
Definitions
As used in this Agreement (including, without limitation, all exhibits
hereto), the following terms shall have the respective meanings set forth below
unless the specific context of this Agreement requires a different meaning. All
terms defined in this Agreement appear throughout with the initial letters
capitalized. The singular use of any defined term shall include the plural and
the plural use of any defined term shall include the singular.
Section 1.1 Advances. The term "Advances" means the principal amount of
monies lent, from time to time, by Lender to Borrower under the Line of Credit
subject to the terms and conditions of the Security Documents.
Section 1.2 Agreement. The term "Agreement" means this Warehouse and
Security Agreement entered into by and between Lender and Borrower and all
exhibits, amendments, addenda and supplements attached hereto.
Section 1.3 Agreement to Pledge. The tenant "Agreement to Pledge" means
an agreement by Borrower to pledge Loans as Collateral to Lender substantially
in the form of Exhibit "E" hereto, which form may be amended by Lender from time
to time in its sole discretion.
Section 1.4 Bailee Letter. The term "Bailee Letter" means a Bailee
Letter substantially in the form of Exhibit "H" hereto, which form may be
amended by Lender from time to time in its sole discretion.
Section 1.5 Borrower Trust Receipt. The term "Borrower Trust Receipt"
means a trust receipt substantially in the form of Exhibit "B" hereto, which
form may be amended by lender from time to time in its sole discretion.
Section 1.6 Business Day. The term "Business Day" means any day of the
week other than (i) a Saturday, Sunday, or a day which is a legal holiday in the
states of Florida, California or
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New Jersey, or (ii) a day on which national banking institutions are
authorized or obligated by law or executive order to be closed.
Section 1.7 Closing Agent. The term Closing Agent" means, as of any
time, the escrow agent, attorney, or other person or entity handling the closing
of a Loan that is the subject of a Wet Funding Advance of whom Lender, in its
sole discretion, then approves.
Section 1.8 Closing Agent Instructions. The term "Closing Agent
Instructions" means closing instructions from Borrower to a Closing Agent, in
such form and substance as Lender shall approve in its sole discretion.
Section 1.9 Collateral. The term "Collateral" means all right, title
and interest of Borrower, of every kind and nature, in and to all of the
following property, assets and rights of Borrower wherever located, whether now
existing or hereafter arising, and whether now or hereafter owned, acquired by
or accruing or owing to Borrower, and all proceeds and products thereof,
whether cash or non-cash:
(a) (i) all Loans pledged hereunder and all other mortgage loans that
are from time to time made or held by Borrower including all mortgage notes and
mortgages evidencing and securing such mortgage loans; (ii) all mortgage-backed
securities secured by or evidencing an interest in any pool of Pledged Mortgages
which are delivered or caused to be delivered to, or are otherwise in the
possession of Lender or Borrower their respective agents, bailees or custodians
as assignee or pledged to Lender or Borrower, or for such purpose, are
registered by book-entry in the name of, Lender or Borrower, (including
delivery to or registration in the name of a third party on behalf of Lender or
Borrower); and (iii) all Servicing Agreements to which the Borrower is a party,
("Pledged Mortgages," "Pledged Securities," and "Pledged Servicing Agreements,"
respectively, and collectively "Pledged Items"), together with all right, title
and interest of Borrower in any and all Loan Documents related to any of the
foregoing Pledged Items;
(b) any and all commitments issued by any private mortgage insurer or
by any federal agency to insure or guarantee any Pledged Mortgage or Pledged
Security;
(c) any and all commitments of any federal agency or any other
persons or entity to purchase Pledged Mortgages or Pledged Securities from
Borrower;
(d) any and all property related to the foregoing, including, without
limitation, the right to service Pledged Mortgages while owned by Borrower, all
accounts, accounts receivable, chattel paper, contract rights, and general
intangibles of whatsoever kind so related and all documents or instruments in
respect of any Pledged Item, including, without limitation, the right to receive
all insurance proceeds and condemnation awards which may be payable in respect
of the premises encumbered by any Pledged Mortgage;
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(e) any and all accounts, accounts receivables, contract rights,
general intangibles and other amounts due to Borrower for principal and interest
advances, unpaid late charges, escrow account receivables and amounts held by
Borrower as principal and interest escrows, and all tax, insurance and other
mortgage escrow and impound accounts relating to the Pledged Item;
(f) any and all files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, escrow accounts, documents, instruments,
taxes, disks, cards, accounting records, and other records and data of Borrower
related to the Pledged Items;
(g) any and all other tangible or intangible personal property of
Borrower of whatever nature or description, whether now owned or hereafter
acquired, including, but not limited to, all goods, machinery equipment,
furniture, fixtures, inventory, accounts and accounts receivable, instruments,
documents, chattel paper, choses in action, general intangibles, and other
obligations due to Borrower.
Section 1.10 Collateral Loan Documents. The term "Collateral Loan
Documents" means (i) the original Note with endorsements in blank executed by
Borrower; (ii) a certified true copy of the Mortgage filed for recording; (iii)
assignments in blank for the Mortgage executed by Borrower; (iv) all recorded
intervening assignments of the Mortgage, or certified true copies thereof, filed
for recording, if any; (v) an original Title Policy or preliminary title report;
and (vi) a copy of the HUD-1 or HUD-1A settlement statement certified by the
related Closing Agent to be a true and correct copy of the original thereof.
Section 1.11 Insured Closing Letter. The term "Insured Closing Letter"
means an effective insured closing letter or closing protection letter, in form
and substance acceptable to the Lender, from the title insurance company from
which the mortgage title insurance for the related Mortgage is or is to be
procured, which letter is current and in full force and effect, indemnifying and
holding the Borrower and the Lender harmless from and against the failure of the
Closing Agent to comply with the written closing instructions of the Borrower
and Lender and from the fraud of such Closing Agent, or otherwise the failure of
such Closing Agent to properly handle funds, in connection with such closing of
the Loan, and which letter otherwise conforms to the requirements of Section
6.19 of this Agreement.
Section 1.12 Investor. The term "Investor" means, as of any time, a
financially sound third party private institution of which Lender, in its sole
discretion, then approves, as an investor whose commitments may be relied upon
for the timely purchase of Loans. The initial list of approved Investors is
attached hereto as Exhibit "J."
Section 1.13 Laws. The term "Laws" means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any government or
political subdivision or agency thereof, or any court or similar entity
established by any such government or political subdivision or agency.
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Section 1.14 Line of Credit. The term "Line of Credit" shall mean the
revolving credit accommodation to be established by Lender for Borrower in
accordance with Article II hereof, subject to all of the terms and conditions of
the Security Documents.
Section 1.15 Loan. The term "Loan" means a loan that is originated or
acquired by Borrower, secured by Real Property, and that is eligible for
warehousing as Collateral under this Agreement.
Section 1.16 Loan Documents. The term "Loan Documents" means with
respect to each Loan constituting part of the Collateral, the Collateral Loan
Documents and all accompanying instruments, insurance policies, if
applicable, evidence of compliance with applicable Laws and other writings that
document the Loan including, without limitation, all documents required to be
delivered by Borrower to Lender, or a custodian for the benefit of and selected
by Lender, or held in trust by Borrower for the benefit of Lender, pursuant to
the terms of this Agreement and as listed on Exhibit "A" attached hereto.
Section 1.17 Loan Value. The term "Loan Value" means for each Loan
constituting part of the Collateral an amount equal to the lesser of:
(a) (i) in the case of a Loan offered for sale to an Investor,
ninety-eight percent (98%) of the principal balance of the Note,
or
(ii) in the case of a Loan offered for sale to Lender under a
separate sale and purchase agreement between Borrower and
Lender, one hundred percent (100%) of the principal balance
of the Note;
(b) the acquisition price paid by Borrower for the Loan;
(c) the amount requested by Borrower on the relative Request for
Advance; or
(d) the fair market value of the Loan which shall be determined by
Lender in Lender's sole discretion.
The Loan Value, in any case, shall be determined at the time of an
Advance against the related Loan.
Section 1.18 Master Bailee Letter. The term "Master Bailee Letter"
means a master bailee letter substantially in the form of Exhibit "I" hereto,
which form may be amended by Lender from time to time in its sole discretion.
Section 1.19 Master Note. The term "Master Note" means the Master
Promissory Note of even date herewith in a principal amount not to exceed
the Maximum Principal Balance in
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the form attached hereto as Exhibit "D" executed by Borrower as obligor
thereunder and delivered to Lender concurrently with this Agreement, and any
substitutions or replacements therefor which reference this Agreement.
Section 1.20 Maturity Date. The term "Maturity Date" means that date
which is six months from the date of this Agreement, which date may be extended
by the mutual written agreement of Borrower and Lender.
Section 1.21 Maximum Principal Balance. The term "Maximum Principal
Balance" means $5,000,000.00 which is the maximum aggregate principal amount
Lender shall be obligated to advance to Borrower under this Agreement, as
limited by the terms and conditions of the Security Documents.
Section 1.22 Mortgage. The term "Mortgage" means any and all deed(s) of
trust, deed(s) to secure debt, trust deed(s) or mortgage(s), as applicable,
securing repayment of the indebtedness evidenced by a Note.
Section 1.23 Note. The term "Note" means the instrument evidencing the
indebtedness of an Obligor under a Loan whether such instrument is a note,
promissory note, retail installment contract or obligation, bond, note secured
by real estate, or otherwise characterized.
Section 1.24 Obligor. The term "Obligor" means the borrower or
borrowers under a Note, or any other person or entity who owes payments under
a Note.
Section 1.25 Pay Off Notice. The term "Pay Off Notice" means a notice
substantially in a form required by Lender in the Standard Procedures which is
to be used for purposes of notifying Lender of principal payments to be made
under the Agreement.
Section 1.26 Prime Rate. The term "Prime Rate" means the rate published
in the, Money Rate section of the Wall Street Journal from time to time as the
"Prime Rate." The Prime Rate shall be adjusted from time to time without prior
notice to Borrower upon the date of the Wall Street Journal's publication of any
changes in the Prime Rate. If two or more prime rates are published in the Wall
Street Journal, the Prime Rate will be the highest one so published. If the
Wall Street Journal no longer publishes a Prime Rate, Lender, in its reasonable
judgment, will substitute another means of determining an annual rate of
interest which will thereafter be the Prime Rate for purposes of this Agreement.
Lender will give Borrower notice of such substitution.
Section 1.27 Purchase Commitment. The term "Purchase Commitment" means
a commitment issued by an Investor to purchase a Loan which commitment is
substantially in a form required by Lender in the Standard Procedures.
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Section 1.28 Real Property. The term "Real Property" means the
underlying fee simple interest or leasehold estate in real property improved by
one to four residential units, multi-family residential units or mixed-use
property.
Section 1.29 Repayment Date. The term "Repayment Date" means the date
which is sixty (60) days from the Maturity Date.
Section 1.30 Request for Advance. The term "Request for Advance" means
a notice substantially in the form of Exhibit C" attached hereto, which form
may be amended by Lender from time to time in its sole discretion, and upon not
less than three (3) Business Days notice to Borrower.
Section 1.31 Security Documents. The term "Security Documents" means
this Agreement, the Master Note and all other documents or writings, including
all Exhibits hereto, executed for the benefit of Lender relating to the section.
Section l.32 Servicing Agreement. The term "Servicing Agreement" means
a written agreement by and between Borrower and a third party whereby Borrower
agrees to act on behalf of such third party to, among other things, receive
payments in respect of mortgage loans and to service such loans, whether or not
such loans have been pledged as part of the Collateral.
Section 1.33 Shipping Request. The term "Shipping Request" means a
written request from Borrower to Lender for the shipment of Loan Documents to an
Investor substantially in a form required by Lender in the Standard Procedures.
Section 1.34 Standard Procedures. The term "Standard Procedures" means
the procedures established by Lender for the operation of the Line of Credit
which are provided by Lender to Borrower and may be amended by Lender from time
to time in its sole discretion.
Section 1.35 Wet Funding Advance. The term "Wet Funding Advance" means
the funding of any Advance under this Agreement which is supported by an
Agreement to Pledge.
ARTICLE II
Line of Credit
Section 2.1 Lender's Commitment. Lender will establish and maintain,
subject to all of the terms, conditions and provisions of the Security
Documents, a revolving Line of Credit for use by Borrower in the origination or
acquisition of Loans, the principal sum of which is not to exceed at any one
time the Maximum Principal Balance. Lender's commitment to make Advances under
the Line of Credit expires on the Maturity Date.
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Section 2.2 Advances. Subject to the terms and conditions of the
Security Documents, Lender will make Advances under the Line of Credit at the
written request of Mark Shaftlein, Beth McKeon or Payton Story, any one acting
alone, each of whom is hereby authorized to request Advances on behalf of
Borrower and direct the disposition thereof, until written notice of the
revocation of such authority is received by Lender. Each such Advance shall be
in an amount equal to the Loan Value of the Loan or Loans pledged to Lender in
respect to such Advance.
Section 2.3 Limitations on Use of Advance. Each Advance hereunder shall
be used by Borrower solely in the origination or acquisition of Loans.
Section 2.4 Notice and Manner of Borrowing. Borrower shall notify
Lender in writing of its desire for an Advance by submitting to Lender a
completed Request for Advance executed by any person or persons authorized
pursuant to Section 2.2. The Request for Advance and any funding thereon shall
be made in accordance with the Standard Procedures. Notwithstanding anything to
the contrary in the Standard Procedures or in this Agreement, Borrower shall
deliver to Lender the related Collateral Loan Documents in accordance with
Section 3.2(c) no later than the deadline for Lender's receipt of the related
Request for Advance and Loan Documents as set forth in said Standard Procedures,
or in the event of a Wet Funding Advance, not later than two (2) Business Days
after the date of the Advance. Prior to funding, Lender shall have at least one
(1) Business Day to examine the Request for Advance and the related documents
submitted in accordance with Section 3.2 and may reject such of them as do not
meet the requirements of this Agreement or the terms of any Purchase Commitment
as provided in Section 3.2(b). The Request for Advance may be sent by facsimile
or telecopy transmission by Borrower to Lender and Lender shall be entitled to
rely thereon. If the Request for Advance is initially given by facsimile or
telecopy transmission, the original executed notice must be received by Lender
within two (2) Business Days after Lender's receipt of the facsimile or telecopy
transmission thereof. Advances made under the Line of Credit shall be by wire
transfer to Borrower, to the bank account identified in the Request for Advance.
Any such Advance shall be conclusively presumed to have been made to or for the
benefit of Borrower when the Advance is deposited to the credit of such account.
Notwithstanding anything in this Agreement to the contrary, Lender shall not be
obligated to make an Advance unless such Advance can be matched by Lender to
a specific Loan which has been closed or, if the subject of a Wet Funding
Advance, shall be closed no later than the next Business Day following the date
of the respective Advance.
Section 2.5 Master Note and Interest Rate. Advances under the Line of
Credit shall be evidenced by the Master Note. All Advances and interest thereon
plus other charges hereunder, shall constitute a single indebtedness hereunder
and under the Master Note. The aggregate principal amount outstanding under the
Line of Credit shall bear interest at an annual rate equal to one and one-half
percentage points (1.5%) in excess of the Prime Rate, as such Prime Rate changes
from time to time. Changes in the interest rate will become effective on the
effective date of a change in the Prime Rate. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and accrued daily on the
aggregate principal amount outstanding under the Line of Credit. All amounts
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advanced by Lender to fund, any costs, fees or expenses, including attorneys'
fees, relating or pertaining to or otherwise arising under the Security
Documents shall be advanced under the Line of Credit, evidenced by the Master
Note and treated as an Advance hereunder.
Section 2.6 Payments of Accrued Interest. Borrower shall pay to Lender
on a monthly basis interest accrued upon the aggregate principal amount
outstanding under the Line of Credit, such interest payment to be for all
interest accrued through and including the last day of the immediately
preceding calendar month. Borrower shall pay such accrued interest to Lender by
the fifteenth (15th) day of each month.
Section 2.7 Payments of Principal. Borrower shall make the following
payments of principal, without prior demand by or notice from Lender, which
payments shall be applied by Lender to reduce the then outstanding principal
balance of the Line of Credit:
(a) In the event a Loan constituting part of the Collateral is sold,
Borrower shall pay to Lender, no later than the date of sale of such Loan, the
Loan Value of such Loan, provided that the following shall apply:
(i) In the event such Loan is sold to Lender, the portion of the
purchase price for such Loan that is equal to the amount due on the
Line of Credit in respect of such Loan shall be directly applied by
Lender to pay down the Line of Credit; provided, however, that
Lender shall have the right to apply the remainder of the
respective purchase price to further pay down the Line of Credit
in its sole discretion.
(ii) In the event such Loan is sold to an Investor whereby Lender
has delivered Loan Documents to such Investor under the cover of a
Bailee Letter pursuant to Section 2.8(c), Borrower shall cause the
appropriate principal payment to be made, or the return of the
Loan Documents, to Lender, no later than two (2) Business Days
after the delivery by Lender of such Loan Documents; or, in the
event Lender receives from the Investor a written notice that a
defect in the Loan exists requiring cure by Borrower, and the
Investor intends to have such defect cured, then the appropriate
principal payment shall be made upon the earlier of cure of the
defect or the expiration of twenty-one (21) days after Lender's
delivery of such Loan Documents, unless such Loan Documents are
sooner received by Lender.
(b) In the event a Loan constituting part of the Collateral that is
offered for sale to, but not purchased by, Lender constitutes Collateral under
this Agreement for a period in excess forty-five (45) days after notice to
Borrower by Lender of its decision not to purchase, then Borrower shall make to
Lender an immediate payment in an amount equal to the Loan Value of such Loan.
(c) In the event the outstanding balance on the Line of Credit exceeds
the monetary limits set forth in Section 3.3(c), 3.3(d) or 3.3(e) of this
Agreement, Borrower shall make to Lender an
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immediate payment in such amount as is necessary to reduce the outstanding
balance to an amount which conforms to such limits.
(d) In the event any Loan constituting part of the Collateral that is
not offered for sale by Borrower to Lender constitutes Collateral for a period
in excess of forty-five days, Borrower shall make to Lender an immediate payment
in an amount equal to the Loan Value of such Loan.
(e) Upon discovery by Borrower, or by Lender with notice to Borrower,
of a breach of any representation or warranty under Article V, or that such
representation or warranty no longer continues to be true, with respect to any
particular Loan constituting part of the Collateral, Borrower shall make to
Lender an immediate payment in an amount equal to the Loan Value of such Loan.
(f) In the event there is any principal prepayment in whole or in part
on a Loan constituting part of the Collateral, Borrower shall pay to Lender the
amount of such principal payment. Such prepayment by Borrower shall constitute a
prepayment of principal treated in accordance with Section 2.9. All payments of
principal pursuant to this subsection shall be due no later than the fifth
day of the month immediately following the month in which Borrower receives such
payment from Obligor. All such payments to Lender shall be accompanied by a
trial balance of all Loans on which such principal payments were made.
(g) If at any time the outstanding principal balance of the Line of
Credit exceeds the then aggregate Loan Value for all of the Loans constituting
the Collateral, less the amount of any principal payments made by Obligor that
are paid by Borrower to Lender, Borrower shall pay the differential immediately
upon Lendees demand.
(h) In the event Borrower fails to return to Lender any Loan Document
delivered by Lender under a Borrower's Trust Receipt within five (5) Business
Days of Borrower's receipt of such Loan Document, Borrower shall make to Lender
an immediate payment in an amount equal to the Loan Value of the respective
Loan.
(i) In the event a Loan that is the subject of a Wet Funding Advance is
not closed within one (1) Business Day of such Advance, or such Loan is closed
but the related Collateral Documents are not received by Lender within two (2)
Business Days of such closing, Borrower shall make to Lender an immediate
payment in an amount equal to the related Advance.
(j) All unpaid principal, accrued and unpaid interest and other amounts
outstanding under the Line of Credit shall be due and payable in full on the
Repayment Date.
Unless otherwise specifically stated, all payments due Lender under
this Section 2.7 shall be made within one (1) Business Day after the event
giving rise to the payment obligation. Where a payment of the Loan Value of a
Loan is required by this Section 2.7, the amount of the payment shall be
reduced by the amount of any principal prepayments previously made to Lender
that have
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been applied on account of such Loan. Each payment of principal made pursuant to
Section 2.7 shall be accompanied by a completed Pay Off Notice. Borrower shall
deliver to Lender a copy of said Pay Off Notice at least one (1) full Business
Day prior to its wiring any principal payment amount.
Section 2.8 Release of Loan Documents by Lender.
(a) Full Payment of All Amounts Due. Provided that no Event of Default
has occurred and is occurring, upon the Repayment Date and receipt by Lender via
wire in immediately available funds of all unpaid principal, accrued and unpaid
interest and all other amounts outstanding under the Line of Credit, Lender
shall deliver or release to Borrower, or in accordance with Borrower's written
direction, all original Loan Documents in Lender's possession and constituting
part of the Collateral.
(b) Full Payment with Respect to Particular Loan. Provided that no
Event of Default has occurred and is occurring, upon payment in fall in
respect of a Loan or Loans in accordance with Section 2.7 and 2.13, plus any
Warehouse Fee and any other expenses due under this Agreement with respect to
such Loan or Loans, Lender shall deliver or release to Borrower, or in
accordance with Borrower's written direction, the original Loan Documents in
Lender's possession relating to such Loan or Loans.
(c) Release of Loan Documents to Investor. Provided that no Event of
Default has occurred and is occurring, Borrower may from time to time request
that Lender permit the sale or other disposition of Loans constituting
Collateral to an Investor (or to any one or more custodians acting on the
Investor's behalf, as the case may be) pursuant to a Purchase Commitment by
delivering to Lender a completed Shipping Request form. "Each Shipping Request
shall include all necessary instruction and information to enable Lender, from
reviewing the face thereof without further inquiry, to assemble all necessary
documents, execute any necessary and appropriate endorsements or signatures, for
delivery to the Investor in a timely manner and in accordance with the related
Purchase Commitment and the terms of this Agreement. Borrower hereby expressly
acknowledges and agrees that any delivery, sale or disposition of Collateral to
any Investor shall be upon such terms and conditions as are acceptable to the
Lender to protect and maintain its rights and interests therein. Such terms and
conditions shall include, without limitation, delivery of Loan Documents to
Investors under a Bailee Letter or other instrument that is reasonably required
by Lender in its discretion to ensure that the proceeds of such sale or other
disposition shall be paid to Lender and that Lender's first priority perfected
security interest therein shall continue notwithstanding such delivery, sale or
other disposition until receipt by Lender of all amounts due in respect of such
Loan. In connection herewith, Borrower shall deliver to each Investor a Master
Bailee Letter and endeavor in good faith to obtain an executed Master Bailee
Letter therefrom. In no event shall Lender be obligated to deliver Loan
Documents to an Investor prior to receipt of a Purchase Commitment for the
related Loans and either an executed Master Bailee Letter or Bailee Letter. At
no time shall Loan Documents for Loans having an aggregate Loan Value of more
than $1,000,000.00 (or such larger amount as Lender in its discretion may
consent to in writing from time
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to time) be delivered to a single Investor unless Lender shall have received an
amount not less than the Loan Value of the related Loans, less any principal
prepayments made to Lender on account thereof, plus any Warehouse Fee or other
expenses due in connection therewith. Lender shall have no duty at any time to
credit Borrower for any amounts due from any Investor in respect of any sale or
disposition of a Loan until and unless Lender has received actual payment in
the required amount of immediately available and cleared funds. Lender shall
not be under any duty at any time to take any action to collect any amounts or
enforce any obligations due from any Investor in connection with any such sale
or disposition, or to recover any Loan Documents delivered to any Investor
pursuant hereto.
(d) Delivery to Borrower for Correction. Provided that no Event of
Default has occurred and is continuing, Borrower may request the release of any
Loan Document for correction or servicing by duly executing and delivering to
Lender a Borrower's Trust Receipt which shall obligate the Borrower to return
the Loan Documents within five (5) days of its receipt thereof, and if not so
returned, redeem the related Loan as Collateral by making payment pursuant to
Section 2.7(h), plus any and all fees or expenses due on account of the related
Loan.
(e) Delivery Expenses. Borrower shall pay or reimburse Lender for all
shipping costs and any other expenses incurred in connection with delivery
hereunder.
Section 2.9 No Prepayment Penalty. Notwithstanding any other provision
of Section 2.7, any principal outstanding under the Line of Credit may be
prepaid in whole or in part at any time without penalty of any kind. Except as
otherwise specifically provided for in this Agreement, Lender may apply
prepayments of principal to the Line of Credit in any manner according to its
sole discretion.
Section 2.10 Warehouse Fees and Expenses. Borrower shall pay to Lender
Warehouse Fee in the amount of $100.00 for each Loan constituting part of the
Collateral and not purchased by Lender. Such Warehouse Fee shall (i) with
respect to those Loans identified in the Request for Advance as Loans Borrower
does not intend to offer for sale to Lender, be payable upon delivery of the
Loan Documents or other documents as are required to be submitted pursuant to
Section 3.2(c) prior to an Advance (unless Lender has otherwise agreed, in its
sole discretion, to permit such fee to be payable as billed), and (ii) with
respect to all other Loans, be payable as billed by Lender. In any event, the
Warehouse Fee shall be paid prior to the release by Lender of any Loan Documents
related to the respective Loan. In addition to the Warehouse Fee, Borrower shall
reimburse Lender its actual costs for any and all wiring fees, delivery fees and
other costs and expenses incurred in connection with the administration and
maintenance of the Line of Credit.
Section 2.11 Increase; Reduction or Termination. Notwithstanding any
provision contained herein to the contrary, Lender shall have the right, in its
sole and absolute discretion, to reduce the Maximum Principal Balance, or to
terminate the Line of Credit at any time, without cause, by written notice to
Borrower. Such reduction or termination shall take effect no sooner than
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ninety (90) days after the date such notice is given to Borrower, unless this
Agreement is sooner terminated, or sooner expired on the Business Day
immediately preceding the Maturity Date. Additionally, Lender may, in its sole
and absolute discretion grant a request of Borrower to an increase in the
Maximum Principal Balance. Any such increase shall be evidenced by an amendment
to this Agreement and a new Master Note and shall become effective upon
satisfaction of any and all preconditions set forth in such amendment.
Section 2.12 Method of Making, Payments. Except as otherwise
specifically provided herein or otherwise stated in writing by Lender to
Borrower, all payments hereunder shall be made to Lender no later than close of
Lender's business on the date when due and shall be made in lawful money of the
United States of America in immediately available funds transferred via wire
transfer to accounts designated by Lender from time to time. Whenever any
payment to be made hereunder or under the Master Note shall be stated to be due
on a day which is not a Business Day, the due date thereof shall be the next
succeeding Business Day, with interest, as applicable, continuing to accrue
through said Business Day.
Section 2.13 Loan Funding. In the event the Loan Value advanced by
Lender for a Loan that is subject to a Wet Funding Advance is less than the
principal balance of said Loan, the difference shall be funded by Borrower. It
shall be Borrower's sole responsibility, and Lender shall have no obligation, to
ensure that sufficient funds to cover the difference between the Loan Value
advanced by Lender and the principal balance of the respective Loan, plus other
amounts as may be required to close such Loan, are forwarded to the Closing
Agent or otherwise provided for funding of the Loan.
Section 2.14 Termination for Non-Use of Line of Credit. In the event a
period of ninety (90) days shall transpire during which time no request for an
Advance shall have been made, Lender may, at its sole option, terminate any
obligation Lender may have to make further Advances under the Line of Credit. In
the event Lender exercises this option, Lender may, in its sole discretion,
agree to reactivate the Line of Credit following a reevaluation of Borrower and
Borrower's financial, condition.
ARTICLE III
Conditions Precedent
Section 3.1 Conditions Precedent to Lender's Obligations Hereunder.
Before Lender will be obligated to perform any of its obligations to Borrower as
contemplated by Article II hereof, Lender will have received all of the
following documents and other items, all of which must be properly completed and
executed by Borrower, acknowledged if applicable and dated as of the date of
this Agreement:
(a) The Security Documents;
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(b) Any documents or showings Lender may require in order to assure,
protect or perfect Lender's security interest in the Collateral, properly filed
or recorded with the appropriate governmental authorities, and the
certifications and showings from appropriate governmental authorities confirming
such filing and recordation of Lender's lien position, including without
limitation, such executed Uniform Commercial Code financing statements as Lender
deems appropriate, naming Borrower as debtor and Lender as secured party,
containing a description of collateral matching Section 1.9 of this Agreement,
and otherwise duly completed in form and substance sufficient for filing in all
jurisdictions necessary in order to perfect Lender's security interest in the
Collateral, together with evidence satisfactory to Lender of the proper filing
thereof in all filing offices deemed necessary or appropriate by Lender;
(c) Original certified copy of the resolution of the board of
directors, or other written organizational consent of Borrower as applicable, in
form and substance satisfactory to Lender, authorizing the execution, delivery
and performance of the Security Documents, the endorsements and assignments
referred to in this Agreement and the consummation of this Agreement;
(d) Original certificates of the secretary of Borrower, in form and
substance satisfactory to Lender, as to the incumbency and signatures of the
officers executing the Security Documents and consummating the transactions
contemplated therein, if applicable;
(e) Original certificates of good standing for Borrower in its state of
organization and in each state in which Borrower conducts business, if
applicable;
(f) A certified copy of the articles or certificate of incorporation
and bylaws, partnership agreement, articles of organization or other applicable
organizational documents of Borrower including with any amendments thereto;
(g) All documentation described in and required by the Security
Documents;
(h) All other documentation reasonably required by Lender, including
but not limited to documentation which evidences the licensing of Borrower as a
mortgage banker or mortgage broker in the respective states or jurisdictions
where Borrower conducts its business and where any such licensing is required;
(i) A written opinion of Borrower's legal counsel, addressed to and for
the benefit of Lender, in form and substance substantially similar to Exhibit
"F";
(j) A personal guaranty by Borrower's principal, Mark Shaftlein, as and
if required by Lender, which guaranty shall be in a form and substance
substantially similar to Exhibit "G" and all financial statements or other
documents as may be required by Lender in connection with said guaranty;
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(k) Financial statements of Borrower for the fiscal year end
immediately preceding, and for each full fiscal quarter up to, the date of this
Agreement, which financial statements shall include a balance sheet, statements
of income, changes in stockholder's equity and cash flows for each such period,
all prepared in accordance with generally accepted accounting principles and
audited by independent certified public accountants of recognized standing
acceptable to Lender;
(1) Copies of any and all financing agreements under which Borrower is
a debtor which are currently in force and effect or which are being negotiated
as of the date this Agreement is executed by Borrower;
(m) Copies of Borrower's errors and omissions insurance or mortgage
impairment insurance policy and blanket bond coverage policy and other insurance
required by Section 6.17, or certificates in lieu of policies showing compliance
by Borrower as of the date of this Agreement;
(n) Payment of the approval fee provided under Section 10.7, plus any
other amounts due upon consummation of this Agreement as provided herein;
Section 3.2 Conditions Precedent to Each Advance. Before Lender shall
be obligated to honor a Request for Advance under the Line of Credit, all of the
following shall have occurred to Lender's satisfaction with respect to each Loan
pledged as Collateral at the time of such Advance:
(a) The conditions set forth in Section 3.1 will have been satisfied,
and Borrower will continue to be in compliance therewith, and the Request for
Advance will have been received by Lender in accordance with Section 2.4;
(b) Borrower will have offered such Loan for sale to Lender pursuant
to and in accordance with a sale and purchase agreement executed by the parties,
or Borrower will have delivered a Purchase Commitment for such Loan executed by
an Investor, the acceptability of which shall be in the sole discretion of
Lender; and
(c) (i) If the Advance is not the subject of a Wet Funding Advance, the
Collateral Loan Documents will have been delivered to Lender no
later than the respective deadline set forth in the Standard
Procedures; or
(ii) If the Advance is the subject of a Wet Funding Advance, an
Agreement to Pledge, properly completed and executed by Borrower
shall be delivered to Lender with the Request for Advance, and
Closing Agent Instructions duly executed by the Closing Agent and
an Insured Closing Letter covering the related Closing Agent shall
be delivered to Lender. Furthermore, pursuant to the Agreement to
Pledge, the Collateral Loan Documents shall be delivered to Lender
within two (2) Business Days after the respective Advance.
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Notwithstanding anything to the contrary in this Section 3.2(c), with
respect to any Loan offered by Borrower for purchase by Lender, Borrower shall
cause to be delivered to Lender all remaining Loan Documents within five (5)
Business Days after the respective Advance.
Section 3.3 Limitations on Obligations to Advance. Lender shall have no
obligation to honor a Request for Advance if any of the following is true:
(a) Any Loan Document received by Lender in connection with the Loan
or Loans being pledged in respect of such Advance, following opportunity for
correction by Borrower in accordance with Section 2.8(d), is deemed by Lender in
Lender's sole discretion to be unsatisfactory or inadequate.
(b) Borrower is in default under the Security Documents or has
otherwise failed to comply with any requirement, obligation or duty, provided
for therein.
(c) The total aggregate outstanding amount of Advances in respect to
all Loans that are not purchased by lender, whether or not offered for sale to
Lender by Borrower, exceeds the lesser of ten percent (10%) of the Maximum
Principal Balance or thirty percent (30%) of the average daily balance
outstanding on the Line of Credit during the preceding thirty (30) days; or
(d) The aggregate principal amount outstanding under the Line of Credit
exceeds an amount equal to the aggregate Loan Value of all of the Loans
constituting the Collateral.
(e) The aggregate outstanding amount of Advances in respect to Loans
subject to a Wet Funding Advance with respect to which Lender has not yet
received the related Collateral Loan Documents exceeds $1,000,000.00.
(f) The outstanding principal balance of any Loan pledged as Collateral
exceeds $300,000.00 unless Borrower obtains Lender's prior written consent, or
the outstanding principal balance of any such Loan exceeds $500,000.00; or
(g) The amount of the Advance requested exceeds the Loan Value of the
Loan or Loans offered as Collateral in support of the Advance requested.
(h) Any delinquency in excess of thirty (30) days or any material
default exists on any Collateral.
(i) The Maturity Date has occurred and no extension thereof has been
granted by Lender.
(j) An event exists which with the passage of time, the giving of
notice, or both, would constitute an Event of Default under this Agreement.
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(k) Any representation or warranty of Borrower contained or rendered in
connection with this Agreement has ceased to be true at the time of Borrower's
request for an Advance or will cease to be true upon Borrower's receipt of such
Advance.
(1) Borrower has incurred any material liability, direct or contingent,
other than in the ordinary course of its business, since the dates of Borrower's
most recent financial statements delivered to Lender pursuant to this Agreement.
(m) There has occurred any change in applicable Law, or interpretation
thereof, with respect to which Lender, or its legal counsel, is of the
reasonable opinion that Lender would be in violation of such Law by making such
Advance.
(n) The related Real Property is located in a jurisdiction not
previously addressed in the opinion of counsel delivered pursuant to Section 3.1
(i), or there has occurred any event, change of circumstance or change of
applicable Law, or interpretation thereof, which calls into question any of the
matters addressed in such opinion of counsel, unless Borrower has delivered to
Lender an updated opinion of counsel, addressed to and for the benefit of
Lender, covering such matters in Exhibit "F" hereto as Lender may reasonably
request.
ARTICLE IV
Security Interest, Power of Attorney
Section 4.1 Grant of Security Interest. In consideration of Lender's
establishment of the Line of Credit for Borrower, the Advances made and to be
made by Lender and for other valuable consideration, the receipt and adequacy of
which is hereby acknowledged by Borrower, Borrower hereby pledges,
hypothecates, assigns and grants to Lender, and its successors and assigns, a
perfected first priority continuing security interest in the Collateral,
including, but not limited to, all Loans with respect to which an Advance is
made and all Loan Documents, both now existing or which may come into existence
or otherwise acquired in the future, which security interest shall secure (i)
the full and complete performance of Borrower of the terms and conditions of the
Security Documents; (ii) the indebtedness of Borrower to Lender under the Line
of Credit and the Master Note; (iii) the repayment to Lender of all expenses,
fees and amounts due and payable under this Agreement; (iv) all future advances
of any kind by Lender to Borrower or to or for the account of Borrower; and (v)
all other liabilities and indebtedness of Borrower to Lender, now existing or
hereafter incurred, whether matured or unmatured, direct or contingent, joint or
several, including extensions and renewals thereof.
Section 4.2 Security Instruments. Borrower agrees from time to time to
execute such other documents deemed necessary by Lender to evidence, perfect and
continue the security interest granted by Borrower hereunder.
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Section 4.3 Power of Attorney. Borrower hereby appoints Lender its
attorney-in-fact, with full power of substitution, for the purpose of carrying
out the provisions hereof and taking any action and executing any instruments
which Lender may deem necessary or advisable to accomplish the purposes hereof,
which appointment is irrevocable and coupled with an interest provided, however,
that this power of attorney shall terminate upon the latest of Borrower's
payment in full of all obligations owing to Lender under this Agreement and
under the Master Note or termination or expiration of this Agreement. Without
limiting the generality of the foregoing, Lender shall have the right and power
(i) to give notices of its security interest in the Collateral to any person,
either in the name of Borrower or in its own name; (ii) to endorse and deliver
to any person or entity any check, instrument or other paper coming into
Lender's possession and representing payment made in respect of any Note
included in the Collateral or in respect of any other Collateral; (iii) to
prepare, complete, execute, deliver and record any assignment of Mortgage to
Lender, or to any other person or entity; (iv) to endorse and deliver any Note
relating to any Loan constituting the Collateral and do every other thing
necessary or desirable to effect transfer of all or any portion of the
Collateral to Lender or to any other person or entity; (v) to take all necessary
and appropriate action in respect to all obligations of Borrower hereunder and
the items of Collateral to be delivered to Lender or held by Borrower in trust
for the Lender including, without limitation, to instruct any title company or
closing agent to deliver any Loan Document held by it directly to tender or its
designee; (vi) to commence, prosecute, settle, discontinue, defend, or otherwise
dispose of any claim relating to any part of the Collateral; (vii) to endorse
and collect all checks payable to the order of the Borrower representing any
payment on account of or the sale proceeds of any Loan constituting Collateral;
(viii) to execute and acknowledge any Loan Documents or other documents
necessary in order to perfect Lender's interest in accordance with this
Agreement; and (ix) generally to sign Borrower's name wherever necessary or
appropriate to effect the performance of this Agreement. This section shall be
liberally construed so as to give the greatest latitude to Lender's power as
Borrower's attorney-in-fact to collect, sell and deliver any of the Collateral
and all other documents relating thereto. The powers and authorities herein
conferred on Lender may be exercised by or through any person or entity who, at
the time of the execution of a particular instrument, is an authorized officer
of Lender. The power of attorney conferred by this Section shall become
effective upon the, execution and delivery of this Agreement and is granted for
a valuable consideration. All persons or entities dealing with Lender, any
officer thereof, or any substitute attorney, acting pursuant hereto shall be
fully protected in treating the powers and authorities conferred by this Section
as existing and continuing in full force and effect until advised by Lender that
obligations hereunder have been fully and finally paid and satisfied and the
Agreement has expired or otherwise terminated.
ARTICLE V
Representations and Warranties
Borrower hereby represents and warrants to Lender that so long as
Borrower has any unpaid indebtedness or other obligations to Lender, or Lender
has any outstanding commitment to Borrower, contingent or otherwise, all of
the following will be true:
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Section 5.1 Legal Status. Borrower is legally and properly organized
and validly existing and is in good standing under the Laws of the state
governing its creation or operations and is duly qualified and in good standing
in each and every other state in which the business it conducts requires it to
be so qualified. Borrower is duly licensed as a mortgage banker, mortgage broker
or however required in all jurisdictions where it conducts its business and
where any such licensing is required.
Section 5.2 General Powers. Borrower has the power and authority to own
its properties, to carry on its business in the manner in which it conducts
such business and to execute, acknowledge and deliver the Security Documents and
any other documents contemplated herein to be executed, acknowledged or
delivered by it.
Section 5.3 Enforceability. The Security Documents, when duly executed
and delivered by Borrower, will be enforceable in all respects by Lender
against Borrower.
Section 5.4 Security Interest. Lender will have a perfected first lien
security interest in the Collateral.
Section 5.5 Agreements; No Default. Borrower is not in default under
any other credit or loan transaction with any other lender. Furthermore,
Borrower is not a party to any agreement, instrument or indenture or subject to
any restriction materially and adversely affecting its business, operations,
assets or financial condition, except as disclosed in the financial statements
provided to Lender hereunder. Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement, instrument or indenture which default could have a
material adverse effect on the business, operations, properties or financial
condition of Borrower. No holder of any indebtedness of Borrower has given
notice of any asserted default thereunder, and no liquidation or dissolution of
Borrower and no receivership, insolvency, bankruptcy, reorganization or other
similar proceedings relative to Borrower or any of its properties is pending, or
to the knowledge of Borrower, threatened.
Section 5.6 Endorsements under Power of Attorney. All endorsements to
Notes, executions of assignments of mortgages or deeds of trust, or any other
signatures on Loan Documents made by third parties on behalf of Borrower are
valid and enforceable as to bind Borrower as if Borrower signed said documents
itself, and said endorsements, assignments or other execution of documents are
made pursuant to valid and enforceable powers of attorney granted to such third
party by Borrower.
Section 5.7 Litigation; Compliance with Laws. There are no actions,
claims, suits or proceedings pending, or to the knowledge of Borrower threatened
or reasonably anticipated against or affecting Borrower in any court or before
any arbitrator or before any government commission, board, bureau or other
administrative agency which, if adversely determined, may reasonably be '
expected to result in any material and adverse change in the business,
operations, assets or financial
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condition of Borrower. Borrower is not in violation of any provision of any Law,
or of any judgment, award, rule, regulation, order, decree, writ or injunction
of any court or public regulatory body or authority which might have a material
adverse effect on the business, operations, assets or financial condition of
Borrower.
Section 5.8 Payment of Taxes. Borrower has filed or caused to be
filed all federal, state and local income, excise, property and other tax
returns with respect to the operations of Borrower which are required to be
filed, all such returns are true and correct, and Borrower has paid or caused to
be paid all taxes as shown on such returns or on any assessment, to the extent
that such taxes have become due. The amounts reserved, as a liability for
income and other taxes payable, in the financial statements provided to Lender
in connection with entering this Agreement are sufficient for payment of all
unpaid federal, state and local income, excise property and other taxes, whether
or not disputed, of Borrower accrued for or applicable to the period and on the
dates of such financial statements and all years and periods prior thereto and
for which Borrower may be liable in its own right or as transferee of the assets
of, or as successor to, any other person or entity.
Section 5.9 Title of Assets; Absence of Liens. Borrower has good,
valid, insurable (in the case of real property) and marketable title to all of
its properties and assets (whether real or personal, tangible or intangible)
reflected on the financial statements provided to Lender in connection with
entering this Agreement, except for such properties and assets as have been
disposed of since the date of such financial statements as no longer used or
useful in the conduct of its business or as have been disposed of in the
ordinary course of business, and except for Servicing Agreements; and Borrower
has good title to all Servicing Agreements and servicing rights thereunder
subject only to rights of other counterparties to the Servicing Agreements; and
all such properties and assets are free and clear of all Liens except as
disclosed in such financial statements and except as otherwise agreed to in
writing and expressly accepted by Lender.
Section 5.1 0 Representations Relating to Loans and Other Collateral.
Borrower makes the following representations and warranties with respect to each
Loan constituting part of the Collateral, each representation and warranty to
be deemed made anew by Borrower at the time each Loan is pledged provided that
with respect to Loans that are subject to a Wet Funding Advance, the
representations and warranties shall be true and correct within one (1) Business
Day of the respective Advance:
(a) Such Loan was originated in accordance with the loan origination,
eligibility and credit underwriting standards of Borrower then in effect.
Furthermore, such Loan was originated in accordance, and the form of Loan
Documents comply, with all applicable federal, state, and local laws, rules,
regulations and ordinances, including without limitation, the Federal Real
Estate Settlement Procedures Act, as amended, and Regulation X thereunder; the
Federal Truth in Lending Act, as amended, and Regulation Z thereunder; the
Federal Equal Credit Opportunity Act, as amended, and Regulation B thereunder;
all applicable state statutes and regulations affecting the originating
lender, and all applicable usury and interest rate limitations laws. The
originator of the
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Loan is, and was at the time of origination, duly authorized and licensed to
originate the Loans pursuant to any and all applicable Laws.
(b) Borrower has reviewed the Loan Documents pertaining to such Loan
and has examined and made such other inquiry, including, without limitation:
(i) the circumstances surrounding the Obligor's application for the Loan; (ii)
the conduct of the authorized broker or third party lender originating the Loan,
if applicable; and (iii) the documentation of such Loan, which is necessary in
order to confirm the accuracy of the representations and warranties made by the
Borrower in this Section 5.10.
(c) All Loan Documents evidencing such Loan are valid and enforceable
according to their terms and have been properly completed and executed.
(d) All policies of title insurance, hazard insurance, and flood
insurance respecting such Loan and the related Real Property and improvements
thereon are in full force and effect, have been fully paid and have been issued
by sound and financially responsible insurance companies, duly licensed and
qualified to transact business, and are in such amounts as are required by law
and as satisfy prevailing industry standards. All such policies insure Borrower,
among others, as loss payee thereunder, in a form such that it may be endorsed
to Lender as loss payee as required hereunder, and there are no facts or
circumstances which could provide a basis for revocation of any policies or
defense to any claims made thereon. If such Real Property is located in a
special flood hazard area identified by the Federal Emergency Management Agency
("FEMA") pursuant to the National Flood Insurance Reform Act of 1994, as amended
(the "Act"), a flood insurance policy issued by FEMA, or one conforming to the
requirements of the Federal Housing Administration, has been obtained and
complies with this Subsection (c) and with the Act.
(e) In the event such Loan is secured by Real Property, such Loan is
secured by a valid, enforceable first or second lien on the fee simple title to,
or a valid enforceable lien on a leasehold estate at least five years longer
than the term of the Mortgage on, the Real Property, subject only to the lien of
current real property taxes and assessments, and covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of the related Mortgage.
(f) The terms, covenants and conditions of such Loan have not been
waived, altered, impaired or modified in any respect. The monthly payments are
sufficient to amortize the original principal balance of such Loan over the
original term, unless the provisions of the Loan otherwise provide for a balloon
payment, and are scheduled monthly to pay interest in arrears at the interest
rate on the Note. No payment schedule on a Loan has been set up to cause
negative amortization of the Loan's principal balance.
(g) There is no default, breach, violation or event of acceleration
existing under the terms and covenants of such Loan, nor has any event
occurred which upon the giving of notice or the lapse
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of time, or both, would constitute a default, breach, violation or event of
acceleration, nor has Borrower waived any of the foregoing.
(h) All requirements set forth in the Loan Documents pertaining to such
Loan and any other applicable Laws have been fully met and complied with. There
is no requirement or obligation for future advances under such Loan. There is
not outstanding any advance of funds by Borrower to or on behalf of the Obligor
to be used by the Obligor for the payment of any monthly installment, principal,
interest or other charges payable under such Loan.
(i) No payments are thirty (30) days or more past due under such Loan.
(j) All costs, fees and expenses incurred in making, closing and
recording such Loan have been paid, all proceeds of such Loan have been fully
disbursed and received by or for the benefit of the Obligor.
(k) The related Real Property is assessed separate and apart from any
other property for local property tax purposes. There are no delinquent tax or
delinquent assessment liens against the Real Property.
(1) The origination, servicing, record keeping and collection practices
used with respect to such Loan have been, and shall continue to be, in all
respects in accordance with all applicable requirements, legal and prudent and
nothing has been done, or omitted to be done, which creates, or would create,
an offset, defense (including the defense of usury) counterclaim or moratorium
with respect to such Loan, and particularly the obligation of the Obligor to pay
the unpaid principal of, and interest on, the Loan.
(m) There is pending no proceeding for a total or partial condemnation
of the related Real Property or any part thereof and said Real Property is free
of material damage. There is no improvement covered by such Loan in violation of
any applicable zoning law or regulation, building code or any valid
restrictive or protective covenant or setback line.
(n) The related Mortgage, if applicable, has been duly recorded or
filed for record in the proper public office, or sent for recording or filing,
in order to give constructive notice thereof to all subsequent purchasers or
encumbrancers of the related Real Property.
(o) Borrower is the sole legal and equitable owner and holder of such
Loan, free and clear of all liens, and there has not been any other sale or
assignment thereof. Borrower has, and will continue to have, the full right,
power and authority to pledge the Loans and Collateral and to sell and assign
the Loans to Lender or Investors.
(p) The Obligor of such Loan, or any other grantor of the related
Mortgage has not conveyed such Obligor's or grantor's right, title or interest
to or in the Real Property to any party.
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The related Note is not, and has not been, secured by my collateral except the
lien of the related Mortgage, and the Mortgage was not given as collateral or
security for the performance of obligations of any person other than the
mortgagor or trustor, as applicable.
(q) The Mortgage, if applicable, contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Real Property of the benefits of the
security provided thereby, including (i) in the case of a Mortgage designated as
a deed of trust, by trustee's sale and (ii) otherwise by judicial foreclosure.
In the event that the Mortgage constitutes a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves and is named in the deed of trust or has been
substituted in accordance with applicable law.
(r) The related Mortgage has not been satisfied, released, canceled,
deferred or subordinated, in whole or in part, and the Real Property has not
been released from the lien of the Mortgage, in whole or in part, nor has any
instrument been executed that would affect any satisfaction, release,
cancellation, subordination, deferral or rescission.
(s) All parties to the related Note and Mortgage had legal capacity at
the time to enter into such Loan and to execute and deliver the Note and
Mortgage, no Obligor has been released in whole or in part from any liability
under the Note, and the Note and Mortgage have been duly and properly executed
by such parties, are genuine and each is the legal, valid and binding obligation
of the maker thereof, enforceable in accordance with their terms, except as
enforceability may be limited by debtor relief laws.
(t) With respect to any Loan secured by Real Property that is improved
by multi-family or mixed-use properties, all inspections, licenses and
certificates required to be made or issued with respect to the use and occupancy
thereof, including without limitation certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities, and the Real Property is lawfully occupied under applicable law.
(u) No Loan has a shared appreciation feature, or other contingent
interest feature. No loan falls within the coverage of Section 103(aa) of the
Truth-in-Lending Act, as amended, nor Section 226.32 of Federal Reserve Board
Regulation Z, as amended, which govern certain mortgages commonly known as "high
cost mortgages" or "Section 32 mortgages."
ARTICLE VI
Affirmative Covenants
Borrower agrees that so long as Borrower has any unpaid indebtedness or
obligations to Lender, contingent or otherwise, Borrower will, unless Lender
otherwise consents in writing:
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Section 6.1 Performance. Pay in full to Lender when, and as due, all
amounts that are due and payable under the Security Documents and fully perform
each and every covenant, duty and responsibility required of it pursuant to the
terms and conditions of the Security Documents.
Section 6.2 Payment of Expenses. Promptly reimburse and pay on a
current basis to Lender all necessary and reasonable costs, expenses and fees,
as established throughout this Agreement.
Section 6.3 Delinquency Reports. Within ten (1O) days after the end of
each calendar month, furnish to Lender a servicing portfolio delinquency report
of Borrower with respect to the Loans constituting part of the Collateral and
for which Borrower retains the servicing rights, as of the end of the previous
calendar month.
Section 6.4 Records, Inspection of Reports and Documents and On-Site
Audit. Provide Lender access for inspection of its books, documents and records
as Lender shall request from time to time. Lender will be allowed to conduct,
from time to time, financial and operational audits at Borrower's office during
normal business hours. Borrower shall maintain adequate books, accounts and
records in accordance with generally accepted accounting principles.
Section 6.5 Further Assurances. Execute and deliver such additional
documents as may be reasonably required by Lender from time to time to document
and consummate the transactions contemplated in this Agreement, and comply with
such administrative requests as Lender may reasonably make from time to time in
order to provide for the proper, timely and efficient administration of the
transactions contemplated in this Agreement.
Section 6.6 Notation of Endorsement. Make appropriate notations on its
books of all endorsements to Lender or in blank for the benefit of Lender, and
shall give such notice thereof to such persons as Lender may from time to time
require.
Section 6.7 Outstanding Agreements. Perform all its obligations under,
and provide to Lender upon request a written statement in full detail of, all of
its outstanding agreements to borrow funds or obtain other credit accommodations
from other lenders or other persons.
Section 6.8 Legal Compliance. Comply with any and all Laws applicable
to any and all aspects of Borrower's business operations, including without
limitation, proper licensing requirements to originate the Loans constituting
Collateral under this Agreement.
Section 6.9 Indemnification. Indemnify, defend and save Lender and any
of its officers, directors, employees or agents harmless from any and all loss,
liability, damage, or expense, including reasonable attorneys' fees and costs,
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Lender in any way relating to or arising out of the Security
Documents, the Loans, or any other transactions made in connection with this
Agreement.
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Should Lender or any of its officers, directors, employees or agents incur any
loss, liability, damage or expense of any kind or nature whatsoever indemnified
against by the Borrower, the same shall be paid by Borrower to Lender within ten
(10) days from the date on which demand for such payment is made by Lender upon
Borrower. Lender agrees not to make any payment or settle any claim for which it
will seek indemnification from Borrower for a period of ten (10) days after
giving Borrower written notification of its intention to make such payment or
settle such claim.
Section 6.10 Faulty or Late Documentation; Unsatisfactory Titles.
Correct or cure any of the following within five (5) Business Days after notice
from Lender of such defect or omission:
(a) Any errors, omissions or inaccuracies in the Loan Documents
delivered to or reviewed by Lender in support of a requested Advance;
(b) Any defect in the status of title to the Real Property securing
any Loan;
(c) Any failure of Borrower to deliver any Loan Document to Lender by
the date specified hereunder.
If Borrower fails to correct such defect or omission in a manner
acceptable to Lender within five (5) Business Days after notice, Lender shall
have the right to demand immediate reimbursement from Borrower of all funds
advanced by Lender with respect to the related Loan, and refuse to honor any
other requests for Advances until the faulty documentation or title matter has
been cured by Borrower, the late Loan Document has been delivered to Lender,
or Borrower has repaid to Lender all amounts due to Lender under or on account
of the Loan that is the subject of the faulty or late documentation or
unsatisfactory title.
Section 6.11 Financial and Compliance Statements. Furnish to Lender:
(a) As soon as available and in any event within one hundred twenty
(120) days after the end of Borrower's fiscal year, financial statements of
Borrower including a balance sheet, statements of income and changes in
stockholder's equity for such fiscal year, all in reasonable detail, audited by
an independent certified public accountant of recognized standing and certified
by Borrower's chief financial officer, and prepared in accordance with the
generally accepted accounting principles.
(b) As soon as available and in any event within sixty (60) days after
the end of each fiscal quarter of Borrower, financial statements of Borrower for
the period beginning the first of Borrower's fiscal year to the end of such
fiscal quarter, including a balance sheet, statements of income and changes in
stockholder's equity for such fiscal quarter, all in reasonable detail and
certified by Borrower's chief financial officer, and prepared in accordance with
generally accepted accounting principles.
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Section 6.12 Financial Condition. Borrower shall, during the entire
term of this Agreement, maintain: (i) a minimum financial net worth of
$3,600,000.00; (ii) a minimum current ratio (current assets divided by current
liabilities) of 1.1; and (iii) a maximum debt to worth ratio (total liabilities
divided by net worth) of 9.0; provided, however, that if Borrower is now or
becomes indebted under any other financing agreement during the term of this
Agreement, and any such financing agreement contains financial covenants that
are more restrictive than stated herein, then the financial covenants of such
other financing agreement shall prevail. Any Guarantor of this Agreement shall
maintain those certain financial conditions that may be specified in a guaranty
executed in favor of Lender pursuant to Section 3.1(j) of this Agreement. Any
adverse change in these stated financial conditions with respect to Borrower or
any Guarantor shall constitute a material adverse change for purposes of Section
6.13.
Section 6.13 Notice of Adverse Change. Borrower shall notify Lender of
any material adverse change since the date of the Agreement in the financial or
any other condition of the Borrower or any Guarantor, which would warrant
withholding further Advances or otherwise constitute a default under this
Agreement. The duty to notify shall include, but is not limited to, changes in
the ownership, business structure or key management personnel of Borrower;
notice of investigation, revocation or pending regulatory action against any
license or permit held by Borrower, or principal of Borrower; or notice of
pending litigation or actual litigation relative to Borrower, or Borrower's
agents, officers, or principals in an amount in excess of $100,000.00.
Section 6.14 Covenants with Respect to Each Advance. Borrower shall:
(a) Insure to Lender a perfected first lien security interest in the
Collateral and the proceeds thereof, including but not limited to all
Collateral currently existing or which may subsequently come into existence or
may be otherwise acquired by Lender or Borrower in the future, in accordance
with the provisions of this Agreement. Borrower shall undertake such further
acts, execute such further documents and assist Lender in such a manner as
Lender may require in order that Lender may fully and completely receive the
benefit of and exercise the rights and obligations transferred to Lender
pursuant hereto.
(b) Maintain or cause to be maintained, such fire and extended coverage
insurance (including flood and earthquake) on all Real Property forming the
basis of the Collateral as may be required by Lender and as permitted by
applicable law and certify the existence thereof to Lender; provided, however,
that should Borrower fail to maintain or cause to be maintained such insurance
satisfactory to Lender, Lender may obtain such insurance at Borrower's expense
and such expense shall be added to the amounts outstanding under this Agreement,
repayment of which shall be secured by the security interest created hereby.
(c) Comply with each and every duty and obligation set forth under
Section 3.2 hereof.
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(d) Notify Lender in writing within ten (10) days of (i) any known
default which occurs relative to any Collateral or Loan Documents delivered to
Lender, or (ii) any default by Borrower under the Security Documents.
(e) With respect to any Wet Funding Advance:
(i) without limiting the generality of Section 6.9, indemnify,
defend and hold Lender harmless from and against any loss, including
reasonable attorney's fees and costs, attributable to the failure of
the Closing Agent or the title insurance company from which the title
insurance for the related Mortgage is procured, to comply with the
Closing Agent Instructions; and
(ii) collaterally assign to Lender all of Borrower's right title
and interest in, to and under each related Insured Closing Letter,
each such Insured Closing Letter to constitute additional Collateral
available to Lender in the event of loss with respect to the closing of
such Loan.
Section 6.15 Third Party Powers of Attorney. Borrower shall provide to
Lender immediately upon Lender's request copies of any and all powers of
attorney executed by Borrower authorizing third parties to execute or endorse
Loan Documents on behalf of Borrower.
Section 6.16 Investors List. Borrower shall notify Lender of any new
potential third party Investor. Lender may approve such third party as an
Investor for purposes of this Agreement in its sole discretion. Lender shall
have no obligation with respect to the release of Loan Documents to such third
party until so approved as an Investor.
Section 6.17 Insurance. Maintain (a) errors and omissions insurance or
mortgage impairment insurance and blanket bond coverage, with such companies and
in such amounts as satisfy prevailing industry standards or applicable
requirements of any state licensing authority, having jurisdiction over
Borrower, and (b) liability insurance and fire and other hazard insurance on its
properties, with responsible insurance companies, in such amounts and against
such risks as is customarily carried by similar businesses operating in the same
vicinity; and (c) within thirty (30) days after notice from Lender, obtain such
additional insurance as Lender shall reasonably require, all at the sole expense
of Borrower. Copies of such policies shall be furnished to Lender without
charge upon request of Lender. If and to the extent requested by Lender, such
insurance shall be endorsed to name Lender as loss payee.
Section 6.18 Loan Servicing. Service or cause to be serviced the
Loans in accordance with applicable Laws, Servicing Agreements and industry
standards and take all actions necessary to enforce the obligations of Obligors
under the Loans.
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Section 6.19 Insured Closing Letters. At the time of each Request for
Advance (and at the time of the closing of the related Loan), Borrower shall
have obtained an effective Insured Closing Letter and provide the Lender with
evidence of the same from time to time upon request. Borrower agrees to
indemnify the Lender in accordance with Section 6:9 for any loss, liability,
damage or expense attributable to the failure of the related Closing Agent to
comply with the Closing Agent Instructions or any other disbursement or
instruction letter or letters of the Borrower, or of the Lender, relating to
such Loan. Borrower hereby collaterally assigns to Lender all of its rights,
title and interest in, to and under each such Insured Closing Letter, whether
now existing or hereafter arising or acquired, relating to or providing coverage
for any and all Loans constituting Collateral hereunder, or for the related
closing thereof, and each such Insured Closing Letter shall constitute
additional Collateral available to the Lender.
ARTICLE VII
Borrower's Negative Covenants
Borrower agrees that so long as Borrower has any unpaid indebtedness or
obligation to Lender, contingent or otherwise, Borrower will not, unless Lender
first consents in writing:
Section 7.1 Underwriting Guidelines. Materially change its loan
underwriting guidelines, credit approval process or documentation requirements
for making or purchasing Loans.
Section 7.2 Use of Funds. Use any part of the Advances for purposes
other than to originate or purchase Loans.
Section 7.3 Compromise of Collateral. Make any compromise, adjustment
or settlement in respect of any Collateral, nor take any actions to impair the
value of such Collateral, nor accept anything other than cash or good and
readily available funds in payment or liquidation of such Collateral, nor
transfer, sell, assign, encumber or deliver any Collateral to any person or
entity other than Lender, except as otherwise provided for under this Agreement.
Section 7.4 Additional Financing Agreements. Become indebted under, or
otherwise enter, any financing agreement under which Borrower is extended
credit for any purpose.
ARTICLE VIII
Events of Default
The occurrence of any of the following events shall automatically, and
without notice thereof except as otherwise provided in this Article VIII,
constitute an immediate default under this Agreement and shall automatically
give rise to the immediate enforcement and application of the Lender's rights
upon default as specified in this Agreement or as otherwise available under
applicable law:
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Section 8.1 Failure to Pay. Failure by Borrower to timely make any
payment contemplated by Sections 2.6 and 2.7 hereof.
Section 8.2 Breach of Covenant. Failure of Borrower to perform or
maintain any promise, term, or condition of, or any other default under, the
Security Documents, or any other agreement under which Borrower has obligations
to Lender.
Section 8.3 Breach of Representation or Warranty. Any representations
or warranties contained herein or in any other agreement under which Borrower
has obligations to Lender or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith or any other agreement under
which Borrower has obligations to Lender shall be false or misleading in any
respect.
Section 8.4 Insolvency. Borrower or any guarantor of Borrower's
indebtedness under the Line of Credit shall die, suffer a materially, adverse
change in financial condition, admit in writing such party's inability to pay
its debts, make a general assignment for the benefit of creditors apply for or
consent to for such party or such party's business or property.
Section 8.5 Cross Default. The occurrence of any default under (a) any
agreement between the parties relating to the purchase by Lender of the
Collateral; (b) any other agreement between Borrower and Lender or any affiliate
thereof; or (c) any other evidence of indebtedness or liability for money
borrowed by Borrower and due and payable to any person, including Lender, or to
any document securing such evidence of indebtedness, and continuance of such
default without cure within the applicable cure period.
Section 8.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any federal or
state bankruptcy law or other laws for the relief of debtors shall be instituted
by or against Borrower or any guarantor of Borrower's indebtedness under the
Line of Credit.
Section 8.7 Dissolution. Any order, judgment or decree that is entered
decreeing the dissolution of Borrower.
Section 8.8 Decline of Collateral. Failure of Borrower to make such
payments or deposit such additional security or Collateral as shall be deemed to
be satisfactory by Lender if at any time Lender, in its reasonable discretion,
shall determine that the Collateral has declined in value.
Section 8.9 Insecurity. Lender, in its sole discretion, deems itself to
be otherwise insecure.
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ARTICLE IX
Rights and Remedies of Lender
Upon the occurrence of any of the Events of Default stated in Article
VIII or otherwise in this Agreement, Lender may, at its option, do any one or
more of the following, all without demand, presentment or notice, all of which
are hereby expressly waived by Borrower:
Section 9.1 Termination of Commitments. Terminate any obligation Lender
may have to make further Advances to Borrower under the Line of Credit.
Section 9.2 Acceleration of Borrower's Obligations. Declare all or any
part of Borrower's outstanding indebtedness contemplated hereunder (including,
without limitation, the unpaid principal, interest, costs and expenses owing
under this Agreement, the Line of Credit, and the Master Note), or otherwise, to
be immediately due and payable.
Section 9.3 Possession of Collateral and Records. Lender may take
possession of such of the Collateral, Loan Documents and the books and records
relating thereto as Lender shall not then possess, and for such purpose Lender
may enter upon the premises on which any portion of the Collateral, the Loan
Documents, or any records of Borrower relating thereto, or any part thereof may
be situated, and remove the same therefrom without any liability for suit,
action or other proceedings by Borrower. Borrower hereby waives any and all
rights to prior notice and to a judicial hearing with respect to the possession
of such Collateral, the Loan Documents or the records. Lender may require
Borrower to assemble and deliver such Collateral and Loan Documents to any
place or places as Lender may designate.
Section 9.4 Sale of Collateral. Sell or otherwise dispose of any or all
of the Collateral upon such terms and under such conditions as Lender in its
sole discretion deems advisable, upon five (5) days' advance notice, at public
or private sale, conducted by any officer or agent of or auctioneer or attorney
for Lender, as designated by Lender, at any location designated by Lender, for
cash, upon credit or future delivery, and at such price or prices as Lender
shall, in its sole discretion, deem appropriate, and Lender may be the purchaser
of any or all of the Collateral so sold. Each purchaser (including Lender) at
any such sale shall hold the Collateral so sold free from any claim or right of
whatsoever kind, including, without limitation, any equity or right of
redemption of Borrower. Borrower hereby specifically waives, to the extent it
may lawfully do so, all rights of redemption, stay or appraisal which it has or
may have under Law now existing or hereafter adopted. Any notice required by Law
of any sale, public or private, of all or any part of the Collateral shall be
deemed in all circumstances to have been given in a commercially reasonable
manner if placed in the mail at least five (5) days prior to such sale addressed
to Borrower at its address last known to Lender. Lender shall not be obligated
to make any sale pursuant to any such notice. At any such sale the Collateral
may be sold in one lot as an entirety or in separate lots or parcels. In the
case of any sale of all or any part of the Collateral for credit or for future
delivery, the Collateral so sold may be retained by Lender until the selling
price is paid by the purchaser thereof, but Lender shall not
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incur any liability in case of the failure of such purchaser to take up and pay
for the Collateral so sold, and in case of any such failure, such Collateral may
again be sold under and pursuant to the provisions hereof. Lender, as
attorney-in-fact of Borrower pursuant to Section 4.3, shall have the power to
execute all conveyances, assignments and transfers of the Collateral sold
pursuant hereto in its name and stead. Borrower shall, if so requested by
Lender, ratify and confirm any sale or sales by executing and delivering to
Lender, or to such purchaser or purchasers, all such documents as may, in
the judgment of Lender, be advisable for such purpose. All acts of such
attorney-in-fact or designee are hereby ratified and approved by Borrower, and
such attorney or designee shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact or Law in
accordance with this Agreement.
Section 9.5 Set off. Set off against the unpaid balance of the
obligations of Borrower any funds or debts owing to it by Lender. Borrower
hereby confirms Lender's right of lien and set off and nothing in this Agreement
shall be deemed to constitute any waiver or prohibition thereof.
Section 9.6 Communication with Obligors. Communicate with and notify
any Obligor of any endorsements of the Notes and assignments of the Mortgages
hereunder, and require such Obligor to make payments due under the Loan
Documents directly to Lender.
Section 9.7 Collection of Collateral. In any order: (a) require
Borrower to continue to service the Loans provided it shall undertake such
obligation in accordance with Law and industry standards for sound and prudent
servicing; in which event all payments received by Borrower with respect to
the Loans shall be immediately paid over to Lender; (b) take over the exclusive
right to service the Loans and to otherwise collect any Collateral at the sole
expense of Borrower, pursuant to the terms and conditions of a separate written
addendum to this Agreement and executed by Lender and Borrower; and (c) enforce
its security interest in any or all of the Collateral, in any order. Lender
shall not be liable in any manner for any acts done or not done incident to such
collection or liquidation. Lender shall have the right to settle, compromise, or
adjust the claims or rights of Borrower under the Loan Documents and accept
return of the Real Property encumbered thereby, and in turn sell and dispose of
such Real Property without notice to or approval of Borrower, except as may
otherwise be required by this Agreement or by Law. Lender may employ agents and
attorneys, as designated by Lender, to collect or liquidate any Collateral
hereunder, and Lender shall not be liable to Borrower for such Collateral, or
for any defaults of any such agents and attorneys.
Borrower agrees to pay and be liable for any and all necessary
expenses, including reasonable attorneys' fees and court costs, incurred by
Lender in collecting or enforcing its rights in the Collateral, together with
interest thereon at the default rate set forth in the Master Note. Lender shall
apply all proceeds of collection and other monies under its control to amounts
due under this Agreement or to any obligations of Borrower to Lender in any
manner in which Lender, in its sole discretion, deems appropriate, and Borrower
will continue to be liable for any deficiency.
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Section 9.8 Opening of Mail. Open any mail addressed to Borrower in
connection with any Loan or any amounts advanced hereunder. Lender, as
attorney-in-fact for Borrower under Section 4.3, may sign tile name of Borrower
to any receipts, checks, notes, agreements, or other instruments or letters in
order to collect or liquidate Collateral.
Section 9.9 Default under Section 8.8. Notwithstanding the provisions
of this Article IX, if the only default by Borrower under this Agreement is a
default under Section 8.8 hereof, then prior to exercising its other remedies
hereunder Lender will give Borrower the right to redeem any Collateral which has
declined in value for an amount equal to the Loan Value for such Collateral less
any principal prepayment applied by Lender with respect to such Collateral or
Lender may, at its option, allow Borrower to provide additional Collateral in
amounts satisfactory to Lender. If Borrower has not redeemed such Collateral and
paid the redemption amount in full or, if allowed by Lender, provided additional
Collateral in amounts satisfactory to Lender within five (5) days after Lender
gives Borrower written notice to do so, then Lender may proceed with all of its
rights and remedies under this Agreement or at Law.
Section 9.10 Cumulative Nature of Remedies. Each right, power and
remedy of Lender herein contained shall be cumulative, and concurrent, and
recourse to one right or remedy shall not constitute a waiver or relinquishment
of any other right, power or remedy.
ARTICLE X
Miscellaneous Provisions
Section 10.1 Notice. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given if
personally delivered, or deposited into the United States mail (registered or
certified mail), postage prepaid, addressed as follows:
If to Lender: Corporate Counsel
The Money Store
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000; (908) 686-6907 (FAX)
And: Jeff Rogers - Correspondent Lending
The Money Store
3301 C Street, Suite 100-M
Sacramento, California 95816
(916) 446-5000; (916) 443-2399 (FAX)
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If to Borrower: Westmark Mortgage Corporation
355 N.E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Mark Shaftlein
(407) 243-8010; (407) 243-2999 (FAX)
Section 10.2 Construction. The titles of the Articles and Sections
herein appear as a matter of convenience only and shall not affect the
construction or interpretation of the terms of this Agreement. Each provision
contained in this Agreement shall be construed (absent an express contrary
provision therein) as being independent of each other provision contained herein
and compliance with any one provision shall not (absent such an express
contrary provision) be deemed to excuse compliance with any or all other
provisions. The determination by a court of competent jurisdiction that any
one provision of this Agreement is either unenforceable, ineffective, or invalid
shall not affect the remaining terms of this Agreement, and any such term or
provision determined to be invalid or unenforceable shall be deemed t6 be
severed from this Agreement.
Section 10.3 Amendment. This Agreement may not be amended or modified
except by a writing signed by all of the parties to this Agreement at the time
of the amendment or modification. In the event of any amendment or modification
to the terms or conditions hereof, Borrower shall execute and deliver to Lender
such documents, including without limitation, a new Master Note, as Lender
reasonably may request to reflect the terms and conditions of any such amendment
or modification.
Section 10.4 Execution. An original and one (1) duplicate original of
this Agreement shall be signed by the parties, each of which shall be deemed
for all purposes to be an original, but all of which together shall constitute
one instrument.
Section 10.5 Choice of Law; Venue and Jurisdiction. The laws of the
State of New Jersey shall strictly and absolutely govern the interpretation,
construction and enforceability of the Security Documents and the rights and
obligations of the parties thereto. Borrower hereby consents to the personal
jurisdiction of the courts of the State of New Jersey, including the
jurisdiction of the United States District Court of the District of New Jersey
(to the extent diversity of citizenship or other jurisdictional basis exists)
and agrees that venue and jurisdiction shall be proper in any county in New
Jersey, or in the United States District Court of the District of New Jersey if
suit is filed to enforce, interpret or construe the Security Documents.
Section 10.6 Successors and Assigns. This Agreement shall not be
assignable by either party hereto, in whole or in part, without the prior
written consent of the other party, except that Lender shall have the right to
assign this Agreement, in whole or in part, without consent of Borrower, to any
subsidiary, affiliate, or parent entity of Lender whether now existing or to be
formed.
Page 32 of 35
<PAGE>
Section 10.7 Approval Fees and Expenses of Lender. Borrower shall pay
to Lender, on or prior to the date of this Agreement, an approval fee which
shall be determined by Lender and of which Lender has notified Borrower prior
to consummation of this Agreement, plus actual expenses incurred by Lender in
connection with the initial preparation, execution and delivery of the Security
Documents. Notwithstanding the payment of any fees, costs or expenses otherwise
provided for by this Agreement, Borrower shall pay all reasonable costs and
expenses, including without limitation, attorneys fees and costs, recording
costs, wiring fees and shipping costs, incurred by Lender at any time after the
date of this Agreement in connection with the administration of any Security
Document or this Agreement, or the protection, preservation, exercise or
enforcement of any right, remedies, powers or benefits thereunder, or the
amendment of any Security Document, or the making and repayment of Advances.
Section 10.8 Incorporation Security Documents. The terms and conditions
of the Security Documents are incorporated herein by reference and made a part
hereof, as if fully set forth herein. In the event of any inconsistencies
between this Agreement and any other Security Document, such inconsistencies
shall be construed, interpreted, and resolved so as to benefit Lender,
independent of, which of the Security Documents controls, and Lender's election
of which interpretation or construction is for the Lender's benefit shall
govern.
Section 10.9 Waivers. Lender may at any time or from time to time waive
all or any rights under any of the Security Document, but any waiver or
indulgence by Lender at any time or from time to time shall not constitute a
future waiver of performance or exact performance by Borrower.
Section 10.10 No Third Party Beneficiary Rights. No person not a party
to the Security Documents shall have any benefit hereunder nor have third party
beneficiary rights as a result of the Security Documents.
Section 10.11 Continuing Obligation. The terms, conditions,
representations, warranties and covenants set forth in the Security Documents
shall survive the execution and delivery of the Security Documents and all
transactions contemplated hereunder and shall constitute continuing obligations
of Borrower so long as Borrower has any unpaid indebtedness or obligation to
Lender contingent or otherwise.
Section 10.12 Photocopies Sufficient. A carbon, photograph, photocopy
or other reproduction of this Agreement or of a financing statement shall be
sufficient as a financing statement for purposes of perfecting the security
interests created herein.
Section 10.13 Time. With respect to the obligations of Borrower
hereunder, time is strictly of the essence with respect to this Agreement.
Page 33 of 35
<PAGE>
Section 10.14 No Joint Venture. The relationship of Lender and Borrower
is strictly contractual, both parties expressly disclaiming the existence of any
joint venture, partnership or relationship between them by virtue of the
Security Documents.
Section 10.15 Final Agreement. The Security Documents contain the final
and entire agreement and understanding of the parties and any terms and
conditions not set forth therein are neither a part of the Security Documents
nor the understanding of the parties hereto. Further, the Security Documents
supersede and replace any predecessor agreements, whether written or oral,
between the parties, which predecessor agreements shall be automatically void
upon the execution of the Security Documents.
Section 10.16 Recreated or Substituted Collateral. Upon sale or payment
in full of a Loan or upon the Maturity Date and full repayment of the Line of
Credit requiring return of the Loan Documents to the Borrower, if Lender is
unable to locate or produce the Loan Documents, then Lender agrees to cooperate
fully with Borrower to legally recreate such Loan Documents. If such Loan
Documents cannot be legally recreated, then (i) in the event of such payment in
full, Lender will execute and deliver customary lost note affidavits and
indemnities for delivery to the mortgagor in order to evidence said payment in
full or to Borrower in order to assure Borrower that such Loan has not been
transferred by Lender; and (ii) in the event of a sale, Lender may substitute
Loan Documents for a different Loan having a substantially similar loan grade,
interest rate, principal balance, amortization schedule and term. Borrower will
accept such substitute Loan Documents as full performance by Lender, and
Borrower will use its best efforts to cause the related Investor to accept same.
Section 10.17 Standard of Care of Collateral; Lost Collateral. Lender
shall have no obligation with respect to any Loan Documents or any other
Collateral in its possession or control from time to time other than to exercise
reasonable care in the safekeeping and preservation of such documents, or other
Collateral as and to the extent required by Section 9-207 of the Uniform
Commercial Code of New Jersey as amended from time to time, provided, however,
that Lender shall have no duty to take steps to preserve rights against prior
parties. It is expressly agreed that Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Loan Documents or other
Collateral in its possession if it exercises the same diligence in the care
thereof which it exercises in the care of its own property. Lender shall have no
liability to Borrower, or any Investor on account of any original Loan Documents
delivered or released by Lender pursuant to Section 2.8 of this Agreement
which are lost in the course of such delivery or release so long as such
original Loan Documents were at the time of such loss in the possession of (i) a
reputable courier service selected by Lender or (ii) any courier service
selected by Borrower.
Section 10.18 Lender's Pledge of Collateral. Lender may, from time to
time, pledge its security interest in all or part of the Collateral to a third
party making a loan to Lender, the purpose of which is to secure such loan made
to Lender pursuant to any security agreement between Lender and such third
party.
Page 34 of 35
<PAGE>
Section 10.19 Attorneys' Fees. If any legal action or other proceeding
is brought for the enforcement of the Security Documents, or because of an
alleged dispute, breach, default, claim or misrepresentation arising out of or
in connection with any of the provisions of the Security Documents, the
successful or prevailing party or parties shall be entitled to recover its
reasonable attorneys' fees and other reasonable costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as
of the day and year first above written.
ATTEST: LENDER:
TMS Mortgage Inc.,
a New Jersey corporation
/s/ Frances Ira By: /s/ Mimi Thomas
- ----------------------- --------------------------------------
Name: Frances Ira Mimi Thomas
Title: Correspondent Approval Officer Vice President of Operations
BORROWER:
Westmark Mortgage Corporation,
a California corporation
By: /s/ Mark Shaftlein
Payton Story III --------------------------------------
- -------------------------- Mark Shaftlein
Name: Payton Story III President
Title: Sr V.P. of Lending
Page 35 of 35
<PAGE>
MASTER PROMISSORY NOTE
3-26, 1997
----------
(Date)
FOR VALUE RECEIVED, the undersigned Westmark Mortgage Corporation (the
"Borrower") promises to pay to TMS Mortgage Inc. (the "Lender"), or its order,
at the Lender's offices at 2840 Morris Avenue, Union, New Jersey 07083, or at
such other place as the holder of this Master Note may from time to time
designate, the principal amount of $5,000,000.00, or so much of the principal
amount as may have been disbursed to the Borrower under the terms of that
certain Warehouse and Security Agreement (the "Agreement") of even date herewith
between the Lender and the Borrower, together with interest at the rate
hereafter specified and any and all other amounts which may be payable to the
holder of this Master Note by the Borrower, payable in full, if not sooner paid
pursuant to the Agreement, on the Repayment Date. All capitalized terms in this
Master Note shall have the same meanings as set forth in the Agreement.
The following terms shall apply to this Master Note:
1 Interest Rate. Interest shall accrue on the disbursed and unpaid
balance hereunder at a floating per annum rate which shall equal the Prime Rate,
plus one and one-half percentage points (1.5%). Changes in the interest rate
shall be made as of, and immediately upon, the occurrence of any change in the
Prime Rate. Interest shall be calculated on the basis of a three hundred sixty
(360) day year applied to the actual days on which there exist an unpaid
disbursed principal balance. Payments of accrued and unpaid interest shall be
made on the tenth day of each consecutive month of the term of this Master Note
beginning with the first month immediately following the date of this Master
Note.
2. Application of Payments. All payments made hereunder shall be
applied first to late charges or other amounts owed to holder pursuant to the
Agreement, next to accrued and unpaid interest, and then to principal.
3. Principal Payments. Borrower may prepay this Master Note in whole or
in part at any time without penalty or additional interest and shall make
principal payments as and when required by and in accordance with the terms of
Section 2.7 of the Agreement.
4. Late Payment Charge. Should any payment of interest or principal due
hereunder be received by the holder of this Master Note after its due date,
Borrower shall pay a late payment charge equal to four percent (4%) of the
amount then due.
-1-
<PAGE>
5. Acceleration Upon Default. Upon a default in the payment of any
interest, principal and interest, or any other amounts due hereunder or under
the Agreement, or in the performance of any of the covenants, conditions, or
terms of the Agreement or any other Security Documents, the holder may, in the
holder's sole and absolute discretion and without notice or demand, declare
the entire unpaid balance of principal plus accrued and unpaid interest and any
other amounts due hereunder and under the Agreement immediately due and
payable.
6. Default Interest Rate. Upon a default in the payment of any amount
due under this Master Note or the Agreement, or in the performance of the
covenants, conditions, or terms of the Agreement or any other Security
Documents, and unless and until cured, the holder hereof may raise the rate of
interest accruing on the disbursed unpaid principal balance by six (6)
percentage points above the rate of interest otherwise applicable, independent
of whether the holder of this Master Note elects to accelerate the unpaid
principal balance as a result of such default.
7. Record of Amounts Owing. The holder of this Master Note is
authorized to record the date and amount of each Advance and the date and amount
of each repayment of principal thereof and any such recordation shall constitute
prima facie evidence of the accuracy of the amount so recorded; provided that
the failure of the holder hereof to make such recordation (or any error in such
recordation) shall not affect the obligations of the Borrower hereunder or
under the Agreement.
8. Expenses of Collection. Should this Master Note be referred to an
attorney for collection, Borrower shall pay all of the holder's costs, fees
(including attorneys' fees) and expenses resulting from such referral.
9. Subsequent Holder. In the event the holder of this Master Note
transfers this Master Note for value, Borrower agrees that all subsequent
holders of this Master Note shall not be subject to any claims or defenses which
Borrower may have against a prior holder, all of which are waived as to the
subsequent holder, and that all subsequent holders shall have all of the rights
of a holder in due course with respect to Borrower even though the subsequent
holder may not qualify, under applicable law, absent this paragraph, as a holder
in due course.
10. Waiver of Protest. Borrower, and any other maker, endorser, or
guarantor, waive presentment, notice of dishonor, and protest.
11. Extension of Maturity. Borrower, and any other maker, endorser, or
guarantor, agree that the maturity of this Master Note, or any payment due
hereunder, may be extended at any time or from time to time without releasing,
discharging, or affecting the liability of such party.
12. Choice of Law. This Master Note shall be governed, construed, and
enforced strictly in accordance with the laws of the State of New Jersey.
- 2 -
<PAGE>
13. Severability. If any provision of this Master Note shall be
adjudged invalid, illegal, or unenforceable then such partial invalidity,
illegality or unenforceability shall not cause the remainder of this Master Note
to be or to become invalid, illegal, or unenforceable and if a provision hereof
is held invalid, illegal or unenforceable in one or more of its applications,
the parties hereto agree that the provisions shall remain in effect in all
valid, legal, and enforceable applications that are severable from the invalid,
illegal, or unenforceable application or applications.
IN WITNESS WHEREOF, the undersigned hereby causes this Master Note to
be executed and sealed as of the day and year first above written.
BORROWER:
ATTEST: Westmark Mortgage Corporation
a California corporation
/s/ Payton Story III By:/s/ Mark Shaftlein
- ---------------------------------- ----------------------------
Payton Story III Mark Shaftlein
Senior Vice President of Lending President
-3-
<PAGE>
GUARANTY
In consideration for TMS Mortgage Inc., ("Lender") entering into that
certain Warehouse and Security Agreement dated as of 3-26 1997, (the
"Agreement") with Westmark Mortgage Corporation ("Borrower") and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
undersigned hereinafter, "Guarantor" or "Guarantors",) jointly, severally,
unconditionally, personally and irrevocably guaranty the performance by Borrower
of all of its obligations under the Agreement, including any addenda thereto,
and including but not limited to, Borrower's obligations to repay the
indebtedness thereunder and to indemnify Lender. As used in this Guaranty, all
capitalized terms shall have the meanings set forth as definitions in Article I
of the Agreement.
The liability under this guaranty shall be absolute and unconditional
and unaffected by (i) any amendment or modification of the provisions of the
Agreement or any addenda thereto, or any Loan, (ii) any extensions of time for
performance required thereby, (iii) the release of Borrower or any other party
including one or more but not all of any other Guarantor from performance or
observance of any of the agreements, covenants, terms or conditions contained in
the Agreement, the Loans, or this guaranty by operation of law, whether made
with or without notice, (iv) any release of any real or personal property or
other security held by Lender for the performance of the obligations hereby
guarantied or provided for in the Loans (v) Lender's failure to obtain, retain,
preserve, perfect or enforce any rights against any person (including) Borrower,
or any Guarantor) or any property securing payment and performance of the
obligations under the Agreement or Loans.
Guarantor's liability hereunder is a guaranty of payment and
performance and not of collectibility, and is not conditional or contingent on,
the genuineness, validity, regularity, or enforceability of the Agreement or
the Loans, or the pursuit by Lender of any remedies Lender now has or may
hereafter have with respect thereto.
Guarantor makes the following representations, warranties and covenants
to Lender as of the date of this Guaranty:
(a) Guarantor has full power and authority to enter into this Guaranty
and to perform this Guaranty. The execution, delivery and performance of this
Guaranty by Guarantor have been duly and validly authorized by all necessary
action on the part of Guarantor and all required consents or approvals have been
duly obtained.
(b) The financial statements of Guarantor heretofore furnished to
Lender are true and correct in all material respects and fully and fairly
represent the financial condition of Guarantor as of the date thereof, and no
material adverse changes have occurred in the financial condition or,
operations of Guarantor since the date of such financial statements.
-1-
<PAGE>
(c) Guarantor has received reasonably equivalent value in exchange for
the execution, delivery and performance of this Guaranty. Guarantor is solvent
and will not become insolvent as a result of the execution, delivery or
performance of this Guaranty.
(d) This Guaranty is a legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms, subject
as to enforceability to the effect of applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors generally.
Additionally, Guarantor waives any duty on Lender's part to disclose to
Guarantor any facts it may now or hereafter know about Borrower, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume, or has reason to believe
that such facts are unknown to Guarantor, or has a reasonable opportunity to
communicate such facts to Guarantor, it being understood and agreed that
Guarantor is fully responsible for being and keeping informed of the financial
condition of Borrower and of all circumstances bearing on the risk of nonpayment
of any obligation hereby guarantied.
Until all terms, covenants, and conditions of the Agreement hereby
guarantied on Borrower's part to be performed and observed are fully performed
and observed, Guarantor:
(a) Shall have no right of subrogation against Borrower by reason of
any payments or acts of performance by Guarantor in compliance with Guarantor's
obligations under this guaranty;
(b) Waives any right to enforce any remedy that they shall have against
Borrower by reason of any one or more payments or acts of performance in
compliance with the obligations of Guarantor under this guaranty; and
(c) Subordinates any liability or indebtedness of Borrower held by
Guarantor to the obligations of Borrower to Lender.
This guaranty shall be binding on each Guarantor and their respective
heirs, representatives, executors, successors, and assigns and shall inure to
the benefit of and shall be enforceable by Lender, its successors and assigns.
- 2 -
<PAGE>
In the event any litigation arises between Lender, any Guarantor or
Borrower, or between any of them and the other, each Guarantor agrees to pay
Lender's attorneys' fees and costs.
This guaranty shall be construed and enforced in accordance with the
laws of the State of New Jersey.
Date: 3-26, 1997
/s/ Mark Shaftlein
----------------------------
Mark Shaftlein
-3-
<PAGE>
EXHIBIT "A"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED 3-26, 1997
LOAN DOCUMENTS
With respect to a Loan, the following documents shall constitute the
Loan Documents:
(1) The Credit Application.
(2) Original Note, with executed endorsement in blank.
(3) Original or certified true copy Mortgage or deed of trust properly
executed and recorded, or filed for recording.
(4) Executed Assignment of Mortgage, in blank, as well as all recorded
intervening assignments (or certified true copies thereof), filed for
recording, if applicable.
(5) Title Policy or preliminary title report identifying legal
description and all owners of the property, if applicable.
(6) Completed Verification of Employment (FNMA 1005 or equivalent).
Employment verification or acceptable proof, dated not more than sixty
(60) days prior to the closing of the Loan.
(7) Copies of two recent consecutive pay stubs, W-2 forms and/or, as
required signed federal tax returns, or other acceptable proof of
income, dated not more than sixty (60) days prior to the closing of the
Loan.
(8) The credit report, dated not more than 60 days prior to the closing
of the Loan.
(9) A detailed analysis of the credit investigations including
investigation of recent credit inquiries.
(10) For self-employed borrowers, two years' signed federal income tax
returns with all schedules, and a current profit and loss statement
dated not more than sixty (60) days prior to the closing of the Loan.
(11) Mortgage verification including balance and current status, if
applicable.
(12) Deposit verification (or equivalent), if applicable, including
date opened and balance.
(13) Copy of the disbursement check or evidence of wire transfer.
(14) Truth-in-lending Disclosures.
(15) All disclosures required by state or federal law.
(16) Appraisals, if applicable.
(17) Evidence of insurance and loss payable endorsements, if applicable.
(18) Current loan ledger payment history dated not more than thirty
(30) days prior to the Delivery Date, if applicable.
(19) Flood Certification and appropriate notices, as required.
EXHIBIT "A"
<PAGE>
EXHIBIT "B"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED 3-26, 1997
FORM OF BORROWER TRUST RECEIPT
Received in trust, from TMS Mortgage Inc. as Lender (the "Lender"), the
following property:_____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
which the undersigned hereby undertakes to hold for Lender (for itself and for
anyone for whom Lender is acting as agent) and subject to its order for the
purpose of being corrected for sale, or otherwise dealt with, as the Lender may
direct, and when sold, or otherwise dealt with as directed, to pay the net
proceeds to Lender. The undersigned expressly agrees that there is hereby
created a trust for Lender, and that Lender may at any time take possession of
said property and proceeds wherever located. The undersigned agrees to return to
Lender the above-referenced property within five (5) days after the date hereof,
and acknowledges that if such above-referenced property is not returned within
five (5) days after the date hereof, such property shall be deemed ineligible as
Collateral pursuant to the terms of the Warehouse and Security Agreement dated
as of _______, 1997 by and between Lender and Westmark Mortgage Corporation (the
"Agreement"). The undersigned further acknowledges that there will remain in,
and is hereby granted to, said Lender a security interest in the property,
(including as the case may be the goods, documents, and instruments), and in
contract rights relating thereto, and in the proceeds of all thereof pursuant
to the Agreement.
Date: 3-26, 1997 Westmark Mortgage Corporation,
a California corporation
By: /s/ Mark Shaftlein
------------------------------
Mark Shaftlein
President
EXHIBIT "B"
<PAGE>
EXHIBIT "C"
TO WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC., AND
WESTMARK MORTGAGE CORPORATION
DATED_________, 1997
REQUEST FOR ADVANCE
Warehouse Advance For: (name of borrower) Advance Date:________________
Prepared by:_______________ Phone:_____________ AM/PM__________________
BORROWER NAME:__________________________________________________________________
INTEREST RATE: __________________ LOAN AMOUNT:_________________________________
LOAN TYPE:_____________________________________ ADVANCE AMOUNT:________________
PURCHASE/REFI:_________________(P/R) TERM:__________________________
CONFORMING/NON-CONFORMING:______________________________________________(C/N)
LOAN SUBJECT TO AGREEMENT TO PLEDGE: __________ YES _______________ NO
PROPERTY ADDRESS:
STREET ADDRESS:_________________________________________________________________
CITY, STATE, ZIP:_____________________________________________________________
WIRE FUNDS TO:
BANK:__________________________________________________________________
CITY, STATE:__________________________________________________________________
ABA NO:__________________________________________________________________
ACCOUNT NO:__________________________________________________________________
ACCOUNT NAME:__________________________________________________________________
TMS OR other investor name:_____________________________________________________
OTHER INVESTOR BUY PRICE:_________________ LOCK EXPIRATION:____________________
TMS USE ONLY:
DATE ENTERED_______________ WET/DRY____________________________________
ENTERED BY _______________ NOTE DATE _________________________________
JCODE _______________ TMS LOAN #:________________________________
The undersigned hereby requests an advance of funds, for the loans ("Loans") and
in the amounts described above, pursuant to a Warehouse and Security Agreement
dated ________ ("Agreement") which Agreement is incorporated herein by
reference, between TMS Mortgage Inc. ("Lender") and the undersigned
("Borrower"). Borrower hereby confirms to Lender, pursuant to the terms of the
Agreement, a perfected first lien interest in the Loans and in all related
documents and proceeds thereof. Borrower hereby reaffirms and makes to Lender
each and every representation, warranty and covenant of Borrower as stated in
the Agreement, and Borrower represents that it is not in default under the
Agreement and that no conditions or events exist, which with the giving of
notice, the passage of time, or both, would place Borrower in default under the
Agreement.
Date: ________________________________ By:__________________________________
[Name of Borrower]
<PAGE>
EXHIBIT "D"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED 3-26, 1997
3-26, 1997
------------------
(date)
Union, New Jersey
MASTER PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned Westmark Mortgage Corporation (the
"Borrower") promises to pay to TMS Mortgage Inc. (the "Lender"), or its order,
at the Lender's offices at 2840 Morris Avenue, Union, New Jersey 07083, or at
such other place as the holder of this Master Note may from time to time
designate, the principal amount of $5,000,000.00, or so much of the principal
amount as may have been disbursed to the Borrower under the terms of that
certain Warehouse and Security Agreement (the "Agreement") of even date herewith
between the Lender and the Borrower, together with interest at the rate
hereafter specified and any and all other amounts which may be payable to the
holder of this Master Note by the Borrower, payable in full, if not sooner paid
pursuant to the Agreement, on the Repayment Date. All capitalized terms in this
Master Note shall have the same meanings as set forth in the Agreement.
The following terms shall apply to this Master Note:
1. Interest Rate. Interest shall accrue on the disbursed and unpaid
balance hereunder at a floating per annum rate which shall equal the Prime Rate,
plus one and one-half percentage points (1.5%). Changes in the interest rate
shall be made as of, and immediately upon, the occurrence of any change in the
Prime Rate. Interest shall be calculated on the basis of a three hundred sixty
(360) day year applied to the actual days on which there exist an unpaid
disbursed principal balance. Payments of accrued and unpaid interest shall be
made on the tenth day of each consecutive month of the term of this Master Note
beginning with the first month immediately following the date of this Master
Note.
2. Application of Payments. All payments made hereunder shall be
applied first to late charges or other amounts owed to holder pursuant to the
Agreement, next to accrued and unpaid interest, and then to principal.
EXHIBIT "D" - 1
<PAGE>
3. Principal Payments. Borrower may prepay this Master Note in whole or
in part at any time without penalty or additional interest and shall make
principal payments as and when required by and in accordance with the terms of
Section 2.7 of the Agreement.
4. Late Payment Charge. Should any payment of interest or principal due
hereunder be received by the holder of this Master Note after its due date,
Borrower shall pay a late payment charge equal to four percent (4%) of the
amount then due.
5. Acceleration Upon Default. Upon a default in the payment of
any interest, principal and interest, or any other amounts due hereunder or
under the Agreement, or in the performance of any of the covenants, conditions,
or terms of the Agreement or any other Security Documents, the holder may, in
the holder's sole and absolute discretion and without notice or demand, declare
the entire unpaid balance of principal plus accrued and unpaid interest and any
other amounts due hereunder and under the Agreement immediately due and
payable.
6. Default Interest Rate. Upon a default in the payment of any amount
due under this Master Note or the Agreement, or in the performance of the
covenants, conditions, or terms of the Agreement or any other Security
Documents, and unless and until cured, the holder hereof may raise the rate of
interest accruing on the disbursed unpaid principal balance by six (6)
percentage points above the rate of interest otherwise applicable, independent
of whether the holder of this Master Note elects to accelerate the unpaid
principal balance as a result of such default.
7. Record of Amounts Owing. The holder of this Master Note is
authorized to record the date and amount of each Advance and the date
and amount of each repayment of principal thereof and any such recordation
shall constitute prima facie evidence of the accuracy of the amount so
recorded; provided that the failure of the holder hereof to make such
recordation (or any error in such recordation) shall not affect the
obligations of the Borrower hereunder or under the Agreement.
8. Expenses of Collection. Should this Master Note be referred to an
attorney for collection, Borrower shall pay all of the holder's costs, fees
(including attorneys' fees) and expenses resulting from such referral.
9. Subsequent Holder. In the event the holder of the Master Note
transfers this Master Note for value, Borrower agrees that all subsequent
holders of this Master Note shall not be subject to any claims or defenses which
Borrower may have against a prior holder, all of which are waived as to the
subsequent holder, and that all subsequent holders shall have all of the rights
of a holder in due course with respect to Borrower even though the subsequent
holder may not qualify, under applicable law, absent this paragraph, as a holder
in due course.
10. Waiver of Protest. Borrower, and any other maker, endorser, or
guarantor, waive, presentment, notice of dishonor, and protest.
EXHIBIT "D" - 2
<PAGE>
11. Extension of Maturity. Borrower, and any other maker, endorser, or
guarantor, agree that the maturity of this Master Note, or any payment due
hereunder, may be extended at any time or from time to time without releasing,
discharging, or affecting the liability of such party.
12. Choice of Law. This Master Note shall be governed, construed, and
enforced strictly in accordance with the laws of the State of New Jersey.
13. Severability. If any provision of this Master Note shall be
adjudged invalid, illegal, or unenforceable then such partial invalidity,
illegality or unenforceability shall not cause the remainder of this Master Note
to be or to become invalid, illegal, or unenforceable and if a provision hereof
is held invalid, illegal or unenforceable in one or more of its applications,
the parties hereto agree that the provisions shall remain in effect in all
valid, legal, and enforceable applications that are severable from the invalid,
illegal, or unenforceable application or applications.
IN WITNESS WHEREOF, the undersized hereby causes this Master Note to be
executed and sealed as of the day and year first above written.
BORROWER:
ATTEST: Westmark Mortgage Corporation,
a California corporation
By:/s/ Mark Shaftlein
---------------------------
Mark Shaftlein
President
/s/ Payton Story III
- ----------------------------------
Payton Story III
Senior Vice President of Lending
EXHIBIT "D" - 3
<PAGE>
EXHIBIT "E"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED 3-26, 1997
(the "AGREEMENT")
AGREEMENT TO PLEDGE
This Agreement to Pledge is made pursuant to the Warehouse and Security
Agreement dated 3-26, 1997, (the "Agreement") by and between TMS Mortgage Inc.
("Lender") and Westmark Mortgage Corporation ("Borrower"). The Agreement is
incorporated herein by this reference.
Borrower hereby pledges and affirms to Lender, pursuant to the
Agreement a perfected first security interest in and to those Loans identified
on the Request for Advance accompanying this Agreement to Pledge as Loans that
are subject to an Agreement to Pledge.
Borrower warrants and represents that all Loans subject to this
Agreement to Pledge will be closed and funded as of ________, 199_____, (the
"Funding Date") (which date shall be no later than one (1) Business Day after
the date of the related Advance), and that all required Loan Documents listed
in Section 3.2(c) of the Agreement related to the Loans will be obtained at the
closing of such Loans.
Borrower understands and agrees that Lender's receipt of this Agreement
to Pledge, the Request for Advance, the Closing Agent Instructions and Insured
Closing Letter, all properly completed and executed as applicable is a
precondition to Lender's obligation to honor the related Request for Advance.
Borrower further agrees to deliver all required Collateral Loan
Documents related to the Loans to Lender as soon as reasonably possible, but in
any event no later than two (2) Business Days after the Advance of funds made by
Lender in respect thereof.
Borrower further represents that each Loan will be properly closed and
funded with good funds as of the Funding Date, and agrees to cause all documents
in respect of the Loan to be properly completed and executed. Borrower further
represents and warrants that as of the Funding Date, the Loans will constitute
valid and enforceable obligations of the underlying obligors and that each
representation and warranty of Section 5.10 of the Agreement, with respect to
each Loan, shall be true and correct as of the related Funding Date.
EXHIBIT "E" - 1
<PAGE>
Borrower further agrees that while it is in possession of any Loans, it
will hold same in trust for Lender, without authority to make any other
disposition thereof, or of the proceeds thereof, except as may be otherwise
permitted in writing by Lender. Borrower assumes the responsibility for loss or
destruction of any of the Loan until the same is delivered to Lender.
Borrower hereby acknowledges receipt of a copy of this Agreement to
Pledge.
Date: 3-26, 1997 Westmark Mortgage Corporation,
a California corporation
By: /s/ Mark Shaftlein
------------------------------
Mark Shaftlein
President
EXHIBIT "E" - 2
<PAGE>
EXHIBIT "G"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED 3-26, 1997
GUARANTY
In consideration for TMS Mortgage Inc., ("Lender") entering into that
certain Warehouse and Security Agreement dated as of 3-26, 1997, (the
"Agreement") with Westmark Mortgage Corporation ("Borrower") and for other
good and valuable consideration, receipt of which is hereby acknowledged, the
undersigned (hereinafter, "Guarantor" or "Guarantors",) jointly, severally,
unconditionally, personally and irrevocably guaranty the performance by Borrower
of all of its obligations under the Agreement, including any addenda thereto,
and including but not limited to, Borrower's obligations to repay the
indebtedness thereunder and to indemnify Lender. As used in this Guaranty, all
capitalized terms shall have the meanings set forth as definitions in Article I
of the Agreement.
The liability under this guaranty shall be absolute and unconditional
and unaffected by (i) any amendment or modification of the provisions of the
Agreement or any addenda thereto, or any Loan, (ii) any extensions of time for
performance required thereby, (iii) the release of Borrower or any other party
including one or more but not all of any other Guarantor from performance or
observance of any of the agreements, covenants, terms or conditions contained in
the Agreement, the Loans, or this guaranty by operation of law, whether made
with or without notice, (iv) any release of any real or personal property or
other security held by Lender for the performance of the obligations hereby
guarantied or provided for in the Loans (v) Lender's failure to obtain, retain,
preserve, perfect or enforce any rights against any person (including Borrower,
or any Guarantor) or any property securing payment and performance of the
obligations under the Agreement or Loans.
Guarantor's liability hereunder is a guaranty of payment and
performance and not of collectibility, and is not conditional or contingent on
the genuineness, validity, regularity, or enforceability of the Agreement or the
Loans, or the pursuit by Lender of any remedies Lender now has or may hereafter
have with respect thereto.
Guarantor makes the following representations, warranties and covenants
to Lender as of the date of this Guaranty:
EXHIBIT "G"- 1
<PAGE>
(a) Guarantor has full power and authority to enter into this
Guaranty and to perform this Guaranty. The execution, delivery and performance
of this Guaranty by Guarantor have been duly and validly authorized by all
necessary action on the part of Guarantor and all required consents or approvals
have been duly obtained.
(b) The financial statements of Guarantor heretofore furnished to
Lender are true and correct in all material respects and fully and fairly
represent the financial condition of Guarantor as of the date thereof, and no
material adverse changes have occurred in the financial condition or operations
of Guarantor since the date of such financial statements. -
(c) Guarantor has received reasonably equivalent value in exchange for
the execution; delivery and performance of this Guaranty. Guarantor is solvent
and will not become insolvent as a result of the execution, delivery or
performance of this Guaranty.
(d) This Guaranty is a legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms, subject
as to enforceability to the effect of applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors generally.
Additionally, Guarantor waives any duty on Lender's part to disclose to
Guarantor any facts it may now or hereafter know about Borrower, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume, or has reason to believe
that such facts are unknown to Guarantor, or has a reasonable opportunity to
communicate such facts to Guarantor, it being understood and agreed that
Guarantor is fully responsible for being and keeping informed of the financial
condition of Borrower and of all circumstances bearing on the risk of nonpayment
of any obligation hereby guarantied.
Until all terms, covenants, and conditions of the Agreement hereby
guarantied on Borrowees part to be performed and observed are fully performed
and observed, Guarantor:
(a) Shall have no right of subrogation against Borrower by reason of
any payments or acts of performance by Guarantor in compliance with Guarantor's
obligations under this guaranty;
(b) Waives any right to enforce any remedy that they shall have against
Borrower by reason of any one or more payments or acts of performance in
compliance with the obligations of Guarantor under this guaranty; and
(c) Subordinates any liability or indebtedness of Borrower held by
Guarantor to the obligations of Borrower to Lender.
EXHIBIT "G" - 2
<PAGE>
This guaranty shall be binding on each Guarantor and their respective
heirs, representatives, executors, successors, and assigns and shall inure to
the benefit of and shall be enforceable by Lender, its successors and assigns.
In the event any litigation arises between Lender, any Guarantor or
Borrower, or between any of them and the other, each Guarantor agrees to pay
Lender's attorneys' fees and costs.
This guaranty shall be construed and enforced in accordance with the
laws of the State of New Jersey.
Date: 3-26, 1997
/s/ Mark Shaftlein
--------------------------
Mark Shaftlein
EXHIBIT "G" - 3
<PAGE>
EXHIBIT "H"
TO
WARE HOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED________, 1997
FORM OF BAILEE LETTER
Re: Bailee Letter to Investor regarding Transfer of Collateral Under that
Warehouse and Security Agreement by and between TMS Mortgage Inc., as
Lender, and Westmark Mortgage Corporation, as Borrower, dated_______,
1997 (the "Loan Agreement")
Dear Investor:
Enclosed are _______________original promissory notes in the original
principal amount of $___________ ("Notes") evidencing the Loans described on the
attached schedule, along with other related documents (collectively,
"Collateral") relating to Borrower. A security interest in the Collateral has
been granted to TMS Mortgage Inc., a New Jersey corporation ("Lender") pursuant
to the Loan Agreement. The Borrower has previously delivered possession of the
Collateral to Lender.
All Collateral now or hereafter delivered to you is to be held by you
as a bailee for the benefit of Lender, and subject to Lender's exclusive
direction and control. Proceeds of all Notes accepted for purchase shall be
transferred via wire transfer, within two (2) Business Days of your receipt of
Collateral to TMS Mortgage Inc. in immediately available funds to:"_____________
_____________________________________________________________________ for the
purpose of national national warehouse loans for the account of ______________
(insert Borrower's name) ________."
Prior to the expiration of such two-day period, you agree to (i) remit
the purchase price to Lender as described below; (ii) return the Collateral to
Lender; or (iii) notify Lender in writing of a defect in the Collateral
requiring cure by the Seller and which you intend to have cured, in which event
the purchase price shall be remitted or the Collateral delivered to Lender
within twenty-one (21) days of your receipt of the Collateral.
Upon Lender's receipt of such proceeds, Lender's security interest in
the Collateral shall terminate without further action. The Collateral has not
heretofore been assigned or transferred by Lender to any other party and Lender
has not recorded any security interests therein.
EXHIBIT "H" - 1
<PAGE>
Notes which are not accepted for purchase, together with all other
related documents, shall be returned, within two (2) Business Days after the
date of receipt to: The Money Store, 3301 "C" Street, Suite 801-E, Sacramento,
California 95816, Attention: Warehouse Lending Specialist, Correspondent Lending
Department.
Do not honor any communications from Borrower relating to any
Collateral without the written or telephonic consent of TMS Mortgage Inc., or
until TMS Mortgage Inc. has received proceeds of the sale of such Note. Do not
deliver any Collateral to any third party without the written consent of TMS
Mortgage Inc. in its capacity as Lender.
If you have any questions, please call Warehouse Lending Specialist at
(916) 928-3072.
Please acknowledge receipt and acceptance of the terms of this letter
and the Collateral by signing and returning the enclosed copy of this letter
and Schedule to The Money Store, 3301 "C" Street, Suite 801-E, Sacramento,
California 95816, Attention: Warehouse Lending Specialist, Correspondent
Lending.
Very Truly Yours,
TMS Mortgage Inc.
By: ______________________
Name:_____________________
Title:____________________
Received, Acknowledged and Accepted:
INVESTOR:
____________________________________
By:_________________________________
Name:_______________________________
Title:______________________________
Date:_______________________________
EXHIBIT "H" - 2
<PAGE>
EXHIBIT "I"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
FORM OF MASTER BAILEE LETTER
Re: Contracts with Westmark Mortgage Corporation ("Seller") for
Purchase of Mortgage Notes
Dear Sir or Madam:
Pursuant to the purchase contracts entered and to be entered into
between you and Seller, mortgage notes and related documents ("Collateral") will
be sent to you from time to time for purchase. Security interests in the
Collateral have been granted by Seller to TMS Mortgage Inc. ("Lender") to secure
Seller's borrowings under a Warehouse and Security Agreement. The Collateral
constitutes collateral for such warehouse borrowings.
The Collateral will be sent to you from time to time on the
understanding that you will hold it for Lender, as its agent and bailee, subject
to the direction and control of only Lender, in order to preserve and continue
the perfection of Lender's security, interest in such Collateral until it is
purchased by you or returned to Lender. Further, you may not take any orders or
directions from Seller with respect to the Collateral or take any action with
respect to the Collateral that may be inconsistent with the terms of this letter
without the prior written consent of Lender.
By executing this letter, you agree that you will hold the Collateral
sent to you pursuant to the terms of the purchase contracts and this letter
only as the agent and bailee of Lender, and as such will take no action with
respect to the Collateral other than to hold it for examination for no longer
than two (2) Business Days from the date it is received by you, subject only
to the terms hereof or of an individual bailee letter delivered to you with the
subject Collateral. Prior to the expiration of such two-day period, you agree to
(i) remit the purchase price to Lender as described below; (ii) return the
Collateral to Lender; or (iii) notify Lender in writing of a defect in the
Collateral requiring cure by Seller, and which you intend to have cured, in
which event the purchase price shall be remitted or the Collateral delivered to
Lender within twenty-one (21) days of your receipt of the Collateral. Prior to
remitting payment for the Collateral, you agree not to surrender or transfer any
such collateral to any party other than Lender, including Seller. Further, upon
receipt of a written notice from Lender that Seller is in default under its
obligation and that Lender is exercising its remedies, you agree to promptly
either (i) purchase, or (ii) return to Lender, or such other person as Lender
designates in the notice, all Collateral then held by you.
EXHIBIT "I" - 1
<PAGE>
Upon receipt of Collateral sent to you for purchase pursuant to the
terms of the purchase contracts and this letter, you- may purchase such
Collateral only by forwarding the purchase price in immediately available funds
by wire transfer as instructed by Lender.
Any Collateral that does not conform to your requirements shall
be immediately returned to ____________________________________________________
_______________________________________________________________________________.
PLEASE CONFIRM YOUR AGREEMENT TO THE TERMS OF THIS LETTER BY SIGNING
AND RETURNING THE ENCLOSED COPIES OF THIS LETTER TO THE AGENT.
Very truly yours,
WESTMARK MORTGAGE CORPORATION,
a California corporation
Name:_________________________
By:___________________________
Title:________________________
TMS MORTGAGE INC., as Lender
Name:_________________________
By:___________________________
Title:________________________
ACKNOWLEDGMENT
The undersigned hereby agrees to the terms and conditions set forth in
the above letter.
[Investor Name]
By:___________________________
Title:________________________
Date:_________________________
EXHIBIT "I" - 2
<PAGE>
EXHIBIT "J"
TO
WAREHOUSE AND SECURITY AGREEMENT
BETWEEN TMS MORTGAGE INC. AND
WESTMARK MORTGAGE CORPORATION
DATED _________, 1997
INVESTORS LIST
EXHIBIT "J"
SALE AND PURCHASE AGREEMENT
(Conventional - Flow)
THIS SALE & PURCHASE AGREEMENT (the "Agreement"), is made and entered into
as of March 25, 1995, by and between TMS Mortgage, Inc. the ("Purchaser"), and
Westmark Mortgage Corporation (the "Seller").
WITNESSETH
WHEREAS, Seller is engaged in the origination and sale of loans (as
hereinafter defined; and
WHEREAS, Seller desires to sell and Purchaser desires to purchase Loans
which were originated or purchased by Seller and which are the subject of this
Agreement; and
WHEREAS, Purchaser has agreed to purchase and Seller has agreed to sell
said Loans from time to time pursuant to the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements contained herein, the Purchaser and Seller each agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. All words and phrases defined in this Article I
(except as expressly provided otherwise herein or unless the context otherwise
requires) shall have the respective meanings specified in this Article I for all
purposes of this Agreement.
(a) "Agreement" means this Sale and Purchase Agreement entered into by and
between Purchaser and Seller, and all exhibits, amendments and supplements
attached hereto.
(b) "Assignment of Mortgage" means an assignment of all of a Seller's
right, title and interest in and to a Mortgage for the benefit of Purchaser, in
a form acceptable to Purchaser, to be executed by Seller in connection with each
Loan purchased hereunder, as applicable.
(c) "Business Day" means any day of the week other than Saturday, Sunday,
or a day which is a legal holiday in the states of ________ or New Jersey, or a
day on which national banking institutions are authorized or obligated by law or
executive order to close.
(d) "Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, insolvency, rearrangement, moratorium, reorganization, or similar
debtor relief laws affecting the rights of creditors generally from time to time
in effect in any state or under the Laws of the United States.
(e) "Delivery Date" means that date which is five(5) Business days prior to
the relevant Purchase Date and on which the Loan Documents for Loans purchased
hereunder are required to be delivered to Purchaser or its designated agent.
(f) "Document Delivery Procedures" means the procedures established by
Purchaser for the delivery of Loan Documents evidencing Loans to be purchased
hereunder, attached hereto as Exhibit "B", as may be amended from time to time
by Purchaser in its sole discretion.
(g) "Flood Insurance Policy" means a policy of insurance issued by the
Federal Emergency Management Agency pursuant to the National Flood Insurance Act
of 1968, as amended, or any other policy providing similar coverage against loss
sustained by floods conforming to Federal Housing Administration requirements.
(h) "Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions or decrees of the United States or any agency
thereof, or any state, or political subdivision thereof, or any court of
competent jurisdiction thereof.
(i) "Loan" means those loans that have been originated by Seller to provide
financing for residential real estate, and that are the subject of Purchase
under this agreement, as more particularly described on Exhibit "A" entitled
"Mortgage Loan Schedule", attached hereto and made part hereof.
(j) "Loan Documents" means the Notes, Mortgages and all accompanying
instruments, insurance policies, if applicable, evidence of compliance with
applicable Laws and other writings that document, evidence or relate to the
Loans purchased hereunder which
1
<PAGE>
include, without limitation, all documents required to be delivered by Seller to
Purchaser pursuant to the terms of this Agreement and the Document Delivery
Procedures.
(k) "Loan File" means that set of Loan Documents relative to each Loan.
(l) "Mortgage" means the deed of trust, deed to secure debt, trust deed or
mortgage securing repayment of the debt evidenced by a Note executed by an
Obligor for each individual Loan purchased hereunder, as applicable.
(m) "Mortgage Loan Schedule" means that list of loans reflected on a
schedule substantially similar in form to Exhibit "A" attached hereto,
identifying those loans submitted by Seller to Purchaser for review and approval
for Purchase which, when executed by both parties, is incorporated herein and
made part of this Agreement.
(n) "Note" means an instrument evidencing the debt of an Obligor under a
Loan whether such instrument is a note, promissory note, retail installment
contract or obligation, bond, note secured by real estate, or otherwise
characterized.
(o) "Notice Address" means:
(i) Purchaser: Corporate Counsel
The Money Store
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000 (908) 686-6907 (FAX)
and Michael Benoff - Correspondent Lending
The Money Store
3301 C Street, Suite 100-M
Sacramento, California 95816
(916) 446-5000 (916) 443-2399(FAX)
(ii) Seller: Westmark Mortgage Corp.
355 NE 5th Ave, Suite 4
Delray Beach, Fl 33483
Attention: N. Clark
(p) "Obligor" means the obligor(s) on a Note, or a subsequent owner of a
Real Property who has assumed the respective Mortgage.
(q) "Permitted Encumbrances" means with respect to a Mortgage, those
liens, covenants, conditions, restrictions, rights-of-way, easements, and other
matters that are of public record as of the date of the recording of a Mortgage.
(r) "Pricing Schedule" means the pricing matrix set forth in Exhibit "C",
attached hereto and made part hereof.
(s) "Purchase" means the purchase of a Loan by Purchaser from Seller on the
Purchase Date, pursuant to the terms and conditions of this Agreement.
(t) "Purchase Date" means the funding date for the purchase of Loans
hereunder which shall be the fifteenth (15th), or the first preceding Business
Day thereto, and last Business Day of each calendar month, unless otherwise
agreed to in writing by the parties.
(u) "Real Property" means the underlying fee simple security for each Loan
which shall consist only of real property improved by one to four family
residences.
Section 1.2 Forms. All forms specified by the text hereof or by references
to exhibits attached hereto shall be as set forth herein, subject only to such
changes that do not alter the substantive rights of the parties hereto, or as
may be required by applicable Laws.
Section 1.3 Recitals, Titles and Headings. The terms and phrases used in
the recitals and the titles and headings of the articles and sections of this
Agreement have been included for convenience of reference only and the meaning,
construction and interpretation of such words and phrases for purposes of this
Agreement shall be determined solely by references to Section 1.1 hereof, shall
not be considered a part hereof, shall not in any way modify or restrict any of
the terms or provisions hereof and shall not be considered or given any effect
in construing this Agreement or any provision hereof or in ascertaining intent,
if any question of intent should arise.
Section 1.4 Interpretation. Unless the context requires otherwise, words of
the masculine gender shall be construed to include correlative words of the
feminine and neuter genders and vice versa, and words of the singular number
shall be construed to include correlative words of the plural number and vice
versa. This Agreement, and all the terms and provisions hereof, shall be
construed to effect the purposes set forth herein and to sustain the validity of
this Agreement.
2
<PAGE>
ARTICLE II
Representations, Warranties and Covenants
Section 2.1 Representations, Warranties and Covenants of Purchaser.
Purchaser makes the following representations, warranties, and covenant to
Seller:
(a) Purchaser is a corporation duly organized, validly existing, and in
good standing under the laws of its state of incorporation and possesses all
requisite authority, power, licenses, permits and franchises to conduct any and
all business contemplated by this Agreement and to execute, deliver and comply
with its obligations under the terms of this Agreement, the execution, delivery
and performance of which have been duly authorized by all necessary corporate
action.
(b) The execution and delivery of this Agreement by Purchaser in the manner
contemplated herein and the performance and compliance with the terms hereof by
it will not violate: (i) its certificate of incorporation or bylaws, or (ii)
any laws that could have a material adverse effect upon the validity,
performance or enforceability of any of the terms of this Agreement applicable
to Purchaser, and will not constitute a material default (or an event that, with
notice or lapse of time or both, would constitute a material default) under, or
result in the material breach of, any contract, agreement or other instrument to
which Purchaser is a party.
(c) The execution and delivery of this Agreement by Purchaser in the manner
contemplated herein and the performance and compliance with the terms hereof by
it do not require the consent or approval of any government authority, or if
such consent or approval is required, it has been obtained.
(d) This Agreement, and all documents and instruments contemplated hereby
that are executed and delivered by Purchaser shall constitute valid, legal and
binding obligations of Purchaser, enforceable in accordance with their
respective terms except as the enforcement thereof may be limited by applicable
Debtor Relief Laws.
Section 2.2 Representations, Warranties and Covenants of Seller. Seller
makes the following representations, warranties and covenants to Purchaser:
(a) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction governing its creation and existence
and is duly authorized and qualified to transact its business and is in good
standing in each jurisdiction in which its business, properties or the business
contemplated by this Agreement requires such authorization and qualification.
Seller possesses all requisite authority, power, licenses, permits and
franchises to conduct its business and to execute, deliver and comply with its
obligations under the terms of this Agreement and to sell Loans to Purchaser.
The execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action.
(b) The execution and delivery of this Agreement by Seller in the manner
contemplated herein and the ongoing performance and compliance with the terms
hereof by Seller will not violate: (i) its certificate of incorporation and
bylaws or other governing documents as applicable, or (ii) any laws that could
have an adverse effect upon the validity, performance or enforceability of any
of the terms of this Agreement applicable to the Seller, and will not violate or
constitute a material default (or an event that, with notice or lapse of time or
both, would constitute a material default) under, or result in the breach of,
any contract, agreement or other instrument to which the Seller is a party.
(c) The execution and delivery of this Agreement by Seller in the manner
contemplated herein and the ongoing performance and compliance with the terms
hereof by it do not require the consent or approval of any governmental
authority or, if such consent or approval is required, it has been obtained.
(d) This Agreement and all documents and instruments contemplated hereby
which are executed and delivered by seller constitute valid, legal and binding
obligations of Seller, enforceable in accordance with their respective terms,
except as the enforcement hereof may be limited by applicable Debtor Relief
Laws.
(e) No information, certificate, statement, or written report delivered to
Purchaser or its agents in connection with this Agreement, or any other report
required hereunder, contains or shall contain any untrue statement of a material
face or omit to state a material fact necessary to make the information,
certificate, statement or report not misleading.
(f) The sale of each Loan shall be reflected on Seller's balance sheet and
other financial statements as a sale of assets by Seller. Seller will not take
any action or omit to take any action which would cause the transfer of the
Loans to Purchaser to be treated as anything other than a sale to Purchaser of
all of Seller's right, title and interest in and to each Loan.
(g) There is no litigation pending, or to Seller's knowledge which, if
determined adversely to Seller, would adversely affect the sale of the Loans,
the execution, delivery or enforceability of this Agreement, or which would
have a material adverse effect on the financial condition of Seller.
(h) The transfer, assignment and conveyance of Loans by Seller pursuant to
this Agreement are in the ordinary course of Sellers' business and are not
subject to the bulk transfer or any similar statutory provisions in effect in
any applicable jurisdiction. Seller is not transferring the Loans with an actual
intent to hinder, delay or defraud any of its creditors. Seller is solvent and
will not be rendered insolvent by the sale of any Loans.
3
<PAGE>
(i) The sale, transfer, assignment and conveyance of the Loans by Seller to
Purchaser pursuant to this Agreement does not and shall not violate any Law or
the terms of any license held by Seller.
(j) Seller has not employed or otherwise engaged any broker or finder in
connection with the negotiation or execution of this Agreement; nor has Seller
conducted the negotiations with respect to this Agreement nor with respect to
the transactions contemplated by this Agreement in such manner as to give rise
to any claims against Purchaser for any brokerage commission, finder's fee or
similar payment.
Section 2.3 Representations, Warranties and Covenants of Seller Relating to
Loans. With respect to each Loan, Seller makes the following representations,
warranties, and covenants to Purchaser, each of which shall be deemed to be made
anew by Seller at the time of delivery and of Purchase:
(a) Seller is fully familiar with the origination and underwriting
standards of Purchaser and warrants that all Loans have been originated in
accordance therewith. Furthermore, all Loans have been originated in full
accordance, and the form of the Note, Mortgage, and other Loan Documents comply,
with all applicable federal, state and local laws, rules regulations and
ordinance, including without limitation, the Federal Consumer Credit Protection
Act, as amended, the Federal Truth-In-Lending Act, as amended, and Regulation Z
thereunder, the Federal Equal Credit Opportunity Act, as amended, and Regulation
B thereunder, the National Flood Insurance Act, as amended, the Federal Flood
Disaster Protection Act, as amended, the Federal Fair Credit Reporting Act, as
amended, the rules of the Federal Trade Commission, as amended, all applicable
state statutes and regulations affecting Seller, and all applicable usury and
interest rate limitation laws. The originator of each Loan, whether Seller or
any other entity, was duly licensed to participate in the making of such loan
pursuant to any and all applicable federal, state or local laws, rules,
regulations and ordinances.
(b) The information set forth in the Mortgage Loan Schedule, attached
hereto as Exhibit "A", pertaining to each Loan delivered hereunder is true and
correct as of the date thereof. Seller has reviewed the Loan file pertaining to
each Loan and has examined and made such other inquiry, including without
limitation: (i) the circumstances surrounding the Obligor's application for the
Loan; and (ii) the documentation of such Loan, which is necessary in order to
confirm the accuracy of the representations, warranties and covenants made by
Seller in this Section 2.3. On the delivery Date, Seller will deliver possession
of each such Loan file to Purchaser or its designated agents, whether such
delivery is made directly by Seller or pursuant to Seller's instructions.
(c) All policies of title insurance, hazard insurance, and flood insurance
respecting the Loan or the Real Property or improvements thereon are in full
force and effect, have been fully paid and have been issued by sound and
financially responsible insurance companies, duly licensed and qualified to
transact business, and are in such amounts as are reasonably required by
Purchaser or as required by law. All such policies insure Seller, among others,
as loss payee thereunder, in a form such that it may be endorsed to Purchaser as
loss payee as required hereunder, and there are no facts or circumstances which
could provide a basis for revocation of any policies or defense to any claims
made thereon. With respect to any Loan secured by Real Property located in a
flood area identified by the Federal Emergency Management Agency pursuant to the
National Flood Insurance Act 0f 1968, as amended, a Flood Insurance Policy has
been obtained and complies with this Subsection (c).
(d) Each Loan is secured by a valid, enforceable lien on the fee simple
title to the Real Property, or on a household estate of a period at least five
years longer than the term of the Mortgage encumbering the Real Property,
subject only to the lien of current real property taxes and assessments and
Permitted Encumbrances.
(e) The terms, covenants and conditions of each Loan have not been waived,
altered, impaired or modified in any respect. The monthly payments of each Loan,
whether fixed or adjusted from time to time under the terms of the Note, are
sufficient to authorize the original principal balance over the original term
and to pay interest in arrears at the interest rate on the Note.
(f) There is no default, breach, violation or event of acceleration
existing under the terms and covenants of each Loan nor has any event occurred
which, upon the giving of notice or the lapse of time, or both, would constitute
a default, breach, violation or event of acceleration, nor has Seller waived any
of the foregoing. All requirements set forth in the Loan Documents and all
requirements of any applicable Laws have been fully met and complied with. No
payments shall be deliquent under each Loan as of the Purchase Date thereof. All
costs, fees and expenses incurred in making, closing and recording each Loan
have been paid and all proceeds of each Loan have been fully disbursed and
received by, or for the benefit of, the Obligor. There is no requirement or
obligation for future advances under each Loan. There is not outstanding any
advance of funds by Seller to or on behalf of the Obligor for the payment of any
monthly installment, principal, interest or other charges payable under any
Loan.
(g) The real Property is assessed separate and apart from any other
property for local tax purposes. there shall be no deliquent tax or delinquent
assessment liens against the Real Property as of the Purchase Date.
(h) The origination, servicing, recordkeeping and collection practices used
with respect to each Loan have been and are in all respects in accordance with
legal and prudent business requirements. Nothing has been done, or omitted to be
done, which creates, or would create, an offset, defense (including the defense
of usury), counterclaim or moratorium with respect to any Loan, and in
particular the obligation of the Obligor to pay the unpaid principal of, and
interest on, the Loan.
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(i) there is pending no proceeding for total or partial condemnation of
the Real Property or any put thereof and the Real Property is free of material
damage. No improvement encumbered by the Loan is in violation of any applicable
zoning law or regulation, building code or any valid restrictive or protective
covenant or setback line.
(j) If applicable, the Mortgage has been duly recorded or filed for record
in the proper public office in order to give constructive notice thereof to all
subsequent purchaser or encumbrances of the Real Property.
(k) As of the respective Purchase date, Seller was the sole owner of the
Loan and there has not been any other sale or assignment thereof.
(l) The Obligor, or any other grantor of the Mortgage, has not conveyed
such Obligor's or grantor's right, title or interest to or in the Real Property
to any party. The related Note is not, and has not been, secured by any
collateral except the lien of the related Mortgage, and the Mortgage was not
given as collateral or security for the performance of obligations of any person
other than the Obligor.
(m) The Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the Real Property of the benefits of the security
provided thereby, including: (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale; and (ii) otherwise by judicial foreclosure. In the
event that the Mortgage constitutes a deed of trust, a trustee, duly qualified
under applicable law to serve as such, has been properly designated and
currently so serves, and is named in the Mortgage or has been substituted in
accordance with applicable law and no fees or expenses will become payable by
Purchaser to such trustee under the deed of trust, except in connection with a
trustee's sale after default by the Obligor.
(n) The Mortgage securing any Loan has been satisfied, released, canceled,
deferred or subordinated, in whole or in part, and the Real Property has not
been released from the lien of the Mortgage, in whole or in part, nor has any
instrument been executed that would affect any satisfaction, release,
cancellation, subordination, deferral or rescission.
(o) All parties to each Note and Mortgage, if applicable, had legal
capacity at the time to enter into the respective Loan and to execute and
deliver the Note and the Mortgage and no Obligor has been released in whole or
in part from any liability under the Note. The Note and the Mortgage have been
duly and properly executed by such parties, are genuine and each is the legal,
valid and binding obligation of the maker thereof, and enforceable in accordance
with its terms, except as enforceability may be limited by Debtor Relief Laws.
(p) Seller did not use any adverse selection procedures detrimental to
Purchaser in selecting the Loans from among the outstanding loans in Seller's
portfolio. Seller has no knowledge of any circumstances or conditions with
respect to any Loan, the relative Mortgage, Real Property, Obligor, or Obligor's
credit standing that can be reasonably expected to cause prudent private
investors in the secondary market to regard the Loan as an unacceptable
investment, increase the likelihood that the Loan will become delinquent, or
adversely affect the value or marketability of the Loan.
(q) Any applicable period during which the Obligor may rescind the Loan has
expired.
Section 2.4 Notice to Purchaser. if, at any time, any representation or
warranty of Seller set forth in this Agreement would not be true and correct in
all respects if made by Seller at such time (regardless of whether such
representation or warranty is actually made, deemed to be made, or required to
be made at such time), Seller shall immediately notify Purchaser of such fact
and provide a full and accurate explanation thereof.
ARTICLE III
Conditions Precedent
Section 3.1 Board of Directors Resolutions of Seller. Seller shall deliver
to Purchaser, concurrently with the execution of this Agreement, a copy of its
Board of Directors' resolution duly authorizing the execution of this Agreement
by Seller and the performance of the obligations of Seller under this Agreement,
and specifically authorizing the officers signing this Agreement, on behalf of
Seller, to do so.
Section 3.2 Opinion of counsel. Concurrently with the execution of this
Agreement, Seller shall submit to Purchaser a written opinion of Seller's
counsel, addressed to and for the benefit of Purchaser, in the form and
substance of Exhibit "D" attached hereto.
ARTICLE IV
Purchase of Loans
Section 4.1 Loan Delivery and Purchase.
(a) Purchase. Purchaser may, at its election, by the execution of a
Mortgage Loan Schedule (Exhibit "A"), purchase those Loans from time to time
offered by Seller for Purchase, on the terms and conditions set forth in this
Agreement and in the Mortgage Loan
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Schedule. Each Purchase shall include and cover only those Loans as are
delivered to and approved by Purchaser purchaser pursuant to this Section 4.1.
(b) Pre-Approval and Price Commitment. Prior to the delivery of Loans as
further described in this Section 4.1 Seller shall submit to Purchaser with
respect to each Loan delivered, a completed underwriting and transmittal summary
in the form required by Purchaser, a completed loan application and a credit
report, with explanations of credit, for each applicant. Upon receipt and review
of these items by Purchaser, Purchaser may, in its sole discretion, preapprove
the Loan(s) and issue a price commitment for each preapproved Loan. The Loan
must be closed and submitted to Purchaser in accordance with subsection (c)
below within the time specified in any price commitment issued by Purchaser in
order for the stated price to apply.
(c) Delivery. On or before each Delivery Date, the Seller shall deliver to
Purchaser a completed Mortgage Loan Schedule and, with respect to each Loan
offered for Purchase, the Loan Documents and a duly executed Assignment of
Mortgage in accordance with the Document Delivery Procedures. Seller
acknowledges that, as a condition to acceptance and Purchase of Loans, Loans
shall in addition to, and without limitation of, any other requirements set
forth herein, be paid current by the Obligor such that payments of principal and
interest are paid through the due date that is not more than one pay period
prior to the Purchase Date. Seller shall pay all costs of preparing and
furnishing to Purchaser the Loan Documents, including original or certified
copies of the respective Loan Documents and the Assignment of Mortgage.
(d) Review and Approval. Purchaser will review the Loan Documents and
Assignment of Mortgage with respect to each Loan offered in accordance its own
underwriting standards and shall approve or disapprove such Loan for Purchase
within its sole discretion. Purchaser shall have the right to inspect, or cause
to be inspected, the Real Property of any loan, to determine if the Real
Property is in conformity with Purchaser's requirements. The examination of a
Loan File and Loan Documents by Purchaser hereunder shall not constitute a
waiver of any warranty, representation or covenant by Seller, the Obligor or any
other party connected with the Loan, with respect to such Loan. Notwithstanding
the delivery procedures of this Section 4.1, Purchaser may, in its sole
discretion, accept Loan Documents which contain a certified copy of the Mortgage
in lieu of the original of same, and may approve the pertinent Loan for Purchase
without such original if the Loan Documents are otherwise complete, all other
Loan Documents are present, and the Loan otherwise qualifies for Purchase
hereunder. The Purchase of such Loan is subject in all respects to Section 4.2
hereof, and the original recorded Mortgage in a form acceptable to Purchaser
must be delivered to Purchaser within sixty (60) days after the Purchase Date.
(e) Purchase Price. The purchase price for each Purchase of Loans shall be
determined according to the Pricing Schedule (Exhibit "C"), subject to any
adjustments or change reflected on the Mortgage Loan schedule. The Pricing
Schedule is subject to change in the Purchaser's sole discretion upon five (5)
days prior written notice. Purchaser shall pay to Seller the purchase price of
each Loan upon the Purchase thereof.
(f) Recording and Other Acts. Purchaser will cause the proper filing or
recording of the Assignment of Mortgage for each Loan in all government and
other offices necessary to perfect Purchaser's lien, provided, however, that
seller shall be responsible for all costs associated with such filing and/or
recording. Seller shall perform any other action as Purchaser may reasonably
direct to consummate the Purchase. The Seller shall also provide to Purchaser
such reports or information regarding the Loans as any reasonably requested by
Purchaser.
(g) Transfer of Insurance. Seller shall advise any relevant insurance
carrier of the sale of each Loan and shall effect an assignment to the Purchaser
of the loss payee endorsement for hazard and flood insurance, and any and all
other insurance respecting the Real Property and/or the improvements located
thereon.
Section 4.2 Defects. (a) Following the Purchase of any Loan, and
notwithstanding the review of the Loan Documents by Purchaser, if: (i) any
document constituting a part of the Loan Documents, in the sole judgment of
Purchaser, is defective, inaccurate or incomplete in any respect, (ii) any
closing document shall not be valid and binding, or (iii) any representation,
warranty or covenant of Seller, in the sole judgment of Purchaser, is untrue or
incorrect in any respect, Seller shall cure such defect within a period of
thirty (30) days from the time it receives notice from Purchaser of the
existence of such Defect, or such shorter period as may be required by law or
this Agreement. Each condition described in (a)(i) through (iii) above shall
constitute a Defect for purposes of this Agreement. Seller hereby agrees that,
if any Defect is not cured within the thirty (30) day period or such shorter
period as applicable, seller will: (A) repurchase the related Loan from
Purchaser at a price equal to (i) one hundred percent (100%) of the unpaid
principal balance of such Loan, plus (ii) any accrued and unpaid interest at the
annual rate borne by the Note to the date of the repurchase, plus (iii) any fees
and expenses charged by third parties relating to the repurchase of the Loan,
plus (iv) the entire premium, if any, with respect to such Loan paid by
Purchaser to Seller over the principal balance of such Loan on the Purchase
Date, plus (v) all expenses incurred by Purchaser in connection with the
Purchase of the Loan; and (B) in all cases, whether or not the Loan has been
repaid or otherwise satisfied, indemnify, defend and hold harmless Purchaser and
its respective successors and assigns for any loss, damage, forfeiture, penalty
or expenses (including reasonable attorneys' fees and costs) incurred by any of
them in connection with the defective Loan in a form acceptable to Purchaser.
The entire purchase price of the defective Loan shall be remitted by Seller as
instructed by Purchaser, with notice to Purchaser
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of the amount of such remittance and the Loan concerned. Upon compliance with
all of the terms of this Section 4.2 by Seller, Purchaser shall assign and
deliver the related Loan Documents to Seller without recourse.
Seller hereby waives any statute of limitations or other Law that might
otherwise be raised in defense to any repurchase hereunder. If Seller fails to
repurchase a defective Loan at the time and in the manner provided in this
Section 4.2, Purchaser may immediately terminate all of Seller's right pursuant
to this Agreement and/or may pursue any and all other remedies available under
this Agreement or as otherwise provided by law.
Section 4.3 Grant of Power of Attorney. Seller hereby appoints Purchaser,
its agents, employees, successors and assigns, the true and lawful attorney in
fact of Seller with the full power of substitution for and in the place and
stead of Seller on behalf and for the benefit of Purchaser, to demand and
control any and all of the sums due on the Loans, and to enforce any and all
rights with respect thereto, and to endorse the name of Seller where Seller's
name is designated as the payee upon any notes, collateral, security,
acceptances, checks, drafts, money orders or other evidences of payment coming
into the hands of Purchaser in full or partial payment of any of the Loans, and
to make "satisfied" and to release or cause to be marked or relensed, all liens
and securities related thereto, when and if Purchaser may reasonably so
determine.
Section 4.4 expenses. Except as specifically provided to the contrary in
this Agreement, Purchaser and Seller shall each bear its own costs and expenses
in connection with the negotiation and preparation of this Agreement and the
performance by each of Purchaser and Seller of its respective obligations
arising under this Agreement.
ARTICLE V
Assignment of Servicing
Section 5.1 Seller to Assign Servicing. Seller hereby assigns and releases
all servicing rights and responsibilities including without limitation, all
rights to receive servicing fees and other servicing related income and
benefits, with respect to each Loan to and for the benefit of Purchaser, as of
the Purchase Date. Seller acknowledges and agrees that Purchaser shall enjoy
such servicing rights, all freely assignable, with no residual, contingent or
other claims thereon remaining in Seller, until only such time, if any, as
Seller repurchases any Loan from Purchaser pursuant to the terms of this
Agreement, and then only as to the Loans repurchased. Purchaser hereby agrees to
assume the servicing obligations of the assigned Loans at the time of Purchase
thereof; provided, however, that the obligations of Seller set forth in Section
4.2 hereof shall survive assignment as obligations of Seller. Seller will notify
Obligor of the transfer of servicing at Seller's cost and in accordance with
any applicable laws.
Section 5.2 Conditions to Assignment. In connection with the assignment of
servicing Loans hereunder, Seller shall have delivered to Purchaser any taxes,
insurance premiums and other funds collected with interest, if any, due Obligor
by Seller relative to any of the Loans.
ARTICLE VI
Termination
Section 6.1 Right to Terminate. Either Purchaser of Seller may terminate
this Agreement without cause on sixty (60) days prior written notice to the
other party. This Agreement shall continue in full force and effect until such
notice is given and sixty (60) calendar days then elapse, after which time this
Agreement shall be terminated for all purposes except as to unsatisfied
Purchases then outstanding and Loan thereafter delivered, substituted,
repurchased, etc. No such notice of termination shall affect Seller's
obligations as to repurchase of Loans, nor shall void any representation,
warranty to covenant of either party, nor preclude access by Purchaser to
Seller's books and records with respect to Loans previously purchased.
Notwithstanding anything to the contrary in this Section 6.1, Purchaser shall
have the right to immediately terminate this Agreement upon breach or default by
Seller of any of its obligations, representations, warranties or covenants under
this Agreement, including without limitation in the event Seller becomes or is
found to be disqualified or authorized to make Loans as contemplated by this
Agreement.
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Entire Agreement, Modifications, Waivers. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporancous agreement,
representations and understanding of the parties. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing
7
<PAGE>
by both parties. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
Section 7.2 Governing Law. This Agreement shall be construed in accordance
with the Laws of the State of New Jersey, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
Laws.
Section 7.3 Notices. All notices, certificates or other communications
required to be made hereunder shall be in writing and deemed given when
delivered or five (5) Business Days after mailing by certified or registered
mail, postage prepaid, return receipt requested, addressed to the appropriate
Notice Address. Purchaser or Seller may, by notice given hereunder, designate
any further or different address to which subsequent notices, certificates and
other communications shall be sent.
Section 7.4 Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof. Such invalid or unenforceable provision shall be amended, if possible,
in accordance with Section 7.1 hereof in order to accomplish to purposes of this
Agreement.
Section 7.5 Further Assurances and Corrective Instruments. To the extent
permitted by law, Purchaser and Seller agree that each will, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such supplements hereto and such further instruments as may
reasonably be required or appropriate to further express the intention, or to
facilitate the performance, of this Agreement during the term hereof.
Section 7.6 Limitation on Liability of Parties. Each party to this
Agreement shall be liable under this Agreement only to the extent that
obligations are imposed upon the party against whom enforcement is sought.
Section 7.7 Limitation of Liability of Directors, Officers, Employees and
Agents of a Party. No director, officer, employee or agent of any party of this
Agreement shall be individually liable to any other party for the taking of any
action, or for refraining to take any action, in good faith pursuant to this
Agreement.
Section 7.8 Survival of Obligations and Covenants. Notwithstanding anything
to the contrary expressed in this Agreement, the termination of this Agreement
shall not affect any obligations of Seller under this Agreement, including,
without limitation, obligations under Section 4.2 hereof. The representations,
warranties, covenants and indemnification of seller under Section 2.2, 2.3, 2.4
and 7.9 hereof shall continue without regard to any termination hereof. All of
the terms of this Agreement shall be binding upon and inure to the benefit of
Seller and Purchaser and their respective legal representatives, successors and
assigns.
Section 7.9 Indemnification. Seller agrees to any does hereby indemnify,
defend and hold harmless Purchaser, its directors, officers, employees and
agents, and its successors and assigns, against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against any of such
indeminified parties, in any way related to, or arising out of this Agreement or
any of the transactions contemplated herein, to the extent that any of the same
results from or arises out of any breach of any representation or warranty made
by Seller in this Agreement or from any breach by Seller of any covenant or
obligation of Seller under this Agreement. The indemnities and covenants
contained in this Section 7.9 shall survive the termination of this Agreement.
Section 7.10 Assignment. Purchaser may assign this Agreement, in whole or
in part and at its sole discretion, to any subsidiary or affiliate entity
whether now existing or to be formed.
Section 7.11 Attorney's Fees. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, claim or misrepresentation arising out of or in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover its reasonable attorneys' fees and other
reasonable costs incurred in that action or proceeding, in addition to any other
relief to which it may be entitled.
Section 7.12 Counterparts. This Agreement may be executed in any number of
identical counterparts, each of which shall be an original; provided, however,
that all such counterparts shall together constitute one and the same
instrument.
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Section 7.13 Reports and Payments Due on Weekends and Holidays. Any report,
certificate, or payment required hereunder falling due on a Saturday, Sunday or
other day on which national banking institutions are authorized or obligated by
law or executive order to close shall be due on the next Business Day.
Section 7.14 No Third Party Beneficiary. No provision of this Agreement
shall be deemed or construed to be for the benefit of any third party.
Section 7.15 Inspection of Reports and Documents and On-Site Audit. Seller
shall provide Purchaser access for inspection of its books, documents and
records as Purchaser shall request from time to time. Purchaser will be allowed
to conduct, from time to time, financial and operational audits at Seller's
office during normal business hours.
IN WITNESS WHEREOF, This Sale and Purchase Agreement has been executed as
of the day and year first written above.
PURCHASER:
ATTEST: TMS Mortgage, Inc.
By: /s/ Lori Mello By: /s/ Jeff Rogers
---------------------- -------------------------
Asst. Corporate Counsel Name: Jeff Rogers
(Name and Title) Title: Vice President
SELLER:
ATTEST: Westmark Mortgage Corp.
By: /s/ Natasha Clark By: /s/ Steve Tilkin
---------------------- -------------------------
Asst. Secretary Name: Steve Tilkin
(Name and Title) Title: President
9
$5,000,000 WAREHOUSING LINE REVOLVING
CREDIT AGREEMENT
by and between
WESTMARK MORTGAGE CORPORATION
and
HOUSEHOLD FINANCIAL SERVICES, INC.
Dated as of April 7, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS; INTERPRETATION ................................... 1
Section 1.1. Definitions ............................................. 1
Section 1.2. Interpretation .......................................... 7
SECTION 2. THE CREDIT ................................................... 7
Section 2.1. The Revolving Credit ................................... 7
Section 2.1. Applicable Interest Rates .............................. 7
Section 2.3. Minimum Borrowing Amounts .............................. 8
Section 2.4. Borrowing Procedures ................................... 8
Section 2.5. Prepayments ............................................ 8
Section 2.6. The Note ............................................... 9
Section 2.7. Commitment Terminations ................................ 9
SECTION 3. FEES AND PAYMENTS ........................................... 9
Section 3.2. Audit Fees ............................................ 9
Section 3.3. Place and Application of Payments .................. 10
SECTION 4. THE COLLATERAL .............................................. 10
Section 4.1. The Collateral ........................................ 10
Section 4.2. Further Assurances .................................... 10
SECTION 5. REPRESENTATIONS AND WARRANTIES ............................. 10
Section 5.1. Organization and Qualification ....................... 10
Section 5.2. Subsidiaries ......................................... 11
Section 5.3. Corporate Authority and Validity of Obligations....... 11
Section 5.4. Use of Proceeds ...................................... 11
Section 5.5. Financial Reports .................................... 11
Section 5.6. No Material Adverse Change ........................... 12
Section 5.7. Full Disclosure ...................................... 12
Section 5.8. Good Title ........................................... 12
Section 5.9. Investment Company ................................... 12
Section 5.10. Litigation and Other Controversies ................... 12
Section 5.11. Taxes ................................................ 12
Section 5.12. Approvals ............................................ 13
Section 5.13. Affiliate Transactions ............................... 13
Section 5.14. ERISA ................................................ 13
Section 5.15. Compliance with Laws ................................. 13
Section 5.16. Other Agreements ..................................... 14
Section 5.17. No Defaults .......................................... 14
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<PAGE>
SECTION 6. CONDITIONS PRECEDENT ........................................ 14
Section 6.1. Initial Loan .......................................... 14
Section 6.2. All Loans ............................................. 15
SECTION 7. COVENANTS .................................................. 15
Section 7.1. Maintenance of Business .............................. 15
Section 7.2. Maintenance of Property .............................. 15
Section 7.3. Taxes and Assessments ................................ 15
Section 7.4. Insurance ............................................ 16
Section 7.5. Financial Reports .................................... 16
Section 7.6. Indebtedness for Borrowed Money ...................... 17
Section 7.7. Liens ................................................ 17
Section 7.8. Mergers, Consolidations and Sales .................... 18
Section 7.9. ERISA ................................................ 18
Section 7.10. Compliance with Laws ................................. 19
Section 7.11. Burdensome Contracts with Affiliates ................. 19
Section 7.12. Maintenance of Subsidiaries .......................... 19
Section 7.13. Change in the Nature of Business ..................... 19
SECTION 8. EVENTS OF DEFAULT AND REMEDIES ............................. 19
Section 8.1. Events of Default ..................................... 19
Section 8.2. Remedies Certain Events of Default .................... 21
Section 8.3. Remedies Other Events of Default ...................... 21
Section 8.4. Expenses .............................................. 21
SECTION 9. MISCELLANEOUS............................................... 21
Section 9.1. No Waiver of Rights .................................. 21
Section 9.2. NonBusiness Day ...................................... 22
Section 9.3. Documentary Taxes .................................... 22
Section 9.4. Survival of Representations .......................... 22
Section 9.5. Survival of Indemnities .............................. 22
Section 9.6. Notices .............................................. 22
Section 9.7. Counterparts ......................................... 23
Section 9.9. Successors and Assigns ............................... 23
Section 9.9. Amendments ........................................... 23
Section 9.10. Fees and Indemnification ............................. 23
Section 9.11. Governing Law ........................................ 24
Section 9.12. Headings ............................................. 24
Section 9.13. Entire Agreement ..................................... 24
Section 9.14. Terms of Collateral Documents Not Superseded ......... 24
Section 9.15. Construction ......................................... 24
-ii-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of this 7th day of April, 1997 by and
between HOUSEHOLD FINANCIAL SERVICES, INC., a Delaware corporation with its
corporate office at 2700 Sanders road, Prospect Heights, Illinois 60070
("Lender") and Westmark Mortgage Corporation, a California corporation with its
principal office at 355 NE 5th Avenue, Delray Beach, Florida 33483 (the
"Borrower").
RECITALS
WHEREAS, the Borrower has requested the Lender to provide the Borrower
with a revolving warehouse line of credit facility for use by the Borrower in
connection with its acquisition or origination of mortgage loans and, subject to
the terms and conditions set forth herein, the Lender has agreed to provide such
facility.
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION
Section 1.1. Definitions. The following terms when used herein have the
following meanings:
"Additional Required Documents" shall mean with respect to any
Mortgage Loan, those items listed on Exhibit C-1 hereto.
"Affiliate" means any Person, directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise.
"Borrowing Base" means, as of any time it is to be determined, 100% of the
then outstanding unpaid amount of Eligible Mortgage Loans.
"Business Day" means any day other than a Saturday or Sunday on which
banks are not authorized or required to close in Chicago, Illinois.
"Closing Agent" means any title company approved in writing by the Lender.
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<PAGE>
"Collateral" means all properties, rights, interests and privileges from
time to time subject to the Liens granted to the Lender or the Collateral Agent
for the benefit of the Lender pursuant to the Collateral Documents.
"Collateral Agent" means First Union Bank of North Carolina and any
successors thereto appointed as Collateral Agent under the Security Agreement
and the other Loan Documents.
"Collateral Documents" means the Security Agreement and all other security
agreements, financing statements and other documents as shall from time to time
secure the Note or any other obligations of the Borrower hereunder or in
connection herewith.
"Commitment" is defined in Section 2.1 hereof.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Domestic Rate" means for any day the rate of interest published from time
to time in the Money Rate section of The Wall Street Journal as the prevailing
prime rate of United States' largest banks; or, if The Wall Street Journal shall
cease to publish such a rate, then the rate from time to time announced by
Household Bank, N.A. as its prime commercial rate, with any change in such rate
resulting from a change in the relevant prime rate to be effective as of the
date of the relevant change in such prime rate.
"Eligible Mortgage Loan" shall mean any Mortgage Loan having all of the
following characteristics:
(i) is the legal, valid and binding obligation of the maker thereof in
full force and effect and is enforceable in accordance with its terms;
(ii) is either a first or second Mortgage Loan which comports in all
respects in all respects with General Underwriting Guidelines;
(iii) was made or acquired by the Borrower in the ordinary course of the
Borrower's business with the General Underwriting, Guidelines, was in an
original principal amount of not less than $10,000 and not more than $400,000,
such Mortgage Loan was fully funded, the Borrower has no obligation to make
future advances thereunder and the Borrower holds good and indefeasible sole
title to such Mortgage Loan subject to no claims, liens, charges or other rights
of any other Person other than, in the case of a second Mortgage Loan, the
holder of a Permitted First Mortgage Lien;
(iv) no payment under such Mortgage Loan is more than thirty (30) days
past the due date set forth in the underlying promissory note and mortgage (or
deed of trust);
(v) the Collateral Agent has a perfected Lien and security interest in
such Mortgage Loan free and clear of any Liens or claims of any other Person
except, in the case of a second Mortgage Loan, the holder of a Permitted First
Mortgage Lien;
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(vi) such Mortgage Loan has not been included in the Borrowing Base for
more than sixty (60) days;
(vii) such Mortgage Loan contains the entire agreement of the parties
thereto with respect to the subject matter thereof and is not a Rewritten
Mortgage Loan;
(viii) such Mortgage Loan is secured by a valid and subsisting first or
second, as the case may be, mortgage lien of record on the Property covered by
the related mortgage or deed of trust 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 records, as of the date of recording, being acceptable to mortgage
lending institutions generally and specifically referred to in a lender's title
insurance policy delivered to the originator of said Mortgage Loan and (i)
referred to or otherwise considered in the appraisal made for the originator of
said 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 said
Mortgage Loan or the use, enjoyment, value or marketability of the related
Property; or (4) in the case of a second Mortgage Loan, a Permitted First
Mortgage Lien;
(ix) such Mortgage Loan is free of any default of any party thereto
(including the Borrower), offsets, defenses or counterclaims to such Mortgage
Loan, including the obligation of the related obligor to pay the unpaid
principal and interest on the underlying promissory note and free from any
rescission, cancellation or avoidance whether by operation of law or otherwise;
(x) either (1) a lender's title insurance policy, issued standard American
Land Title Association form, or such other form reasonably satisfactory to the
Lender by the applicable Closing Agent, in favor of the Borrower and such
Borrower's successors and assigns (or the original lender and such lender's
successors and assigns) in an amount at least equal to the remaining principal
amount of such Mortgage Loan insuring the mortgagee's interest under the related
Mortgage Loan as the holder of a valid first or second mortgage lien of record
on the related Property subject only to exceptions described in clause (vii)
above, was effective on the date of the origination or acquisition, as the case
may be, of such Mortgage Loan, and, such policy will be valid and thereafter
such policy shall continue in full force and effect; or (2) a title opinion was
rendered on the effective date of the origination or acquisition, as the case
may be, of such Mortgage Loan, subject only to exceptions described in clause
(viii) above;
(xi) the Property subject to such Mortgage Loan is Property. which is
zoned and suitable for residential or recreational purposes;
(xii) there is no proceeding pending or threatened for the total or
partial condemnation of the Property subject to such Mortgage Loan, nor is such
a proceeding currently occurring, and each Property is undamaged by waste, fire,
earthquake, earth movement or other casualty;
(xiii) no improvements on adjoining property encroach upon the Property
subject to such Mortgage Loan, and are stated in the title insurance policy and
affirmatively insured and
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such Property constitutes a legally subdivided parcel separate from any real
property not covered by the Mortgage;
(xiv) with respect to each Mortgage Loan secured by a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such deed of trust, and no
fees or expenses are or will become payable by the owners to the trustee under
the deed of trust, except in connection with a trustee's sale after default by
the related mortgagor;
(xv) the mortgage (or deed of trust) securing such Mortgage Loan contains
customary and enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the related Property of the
benefits of the security, including (A) in the case of a deed of trust, by
trustee's sale and (B) otherwise by judicial foreclosure. There is no homestead
or other exemption available which could materially interfere with the right to
sell the related Property at a trustee's sale or the right to foreclose the
related mortgage;
(xvi) if and to the extent called for under the General Underwriting
Guidelines, an appraisal was performed with respect to each Mortgage Loan;
(xvii) the Borrower has no knowledge that there exist on the Property
subject to such Mortgage Loan any hazardous materials, regulated substances,
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Resource Conservation and Recovery Act of 1996, or other federal,
state or local environmental legislation;
(xviii) such Mortgage Loan shall not be due from an Affiliate, subsidiary,
officer or employee of any Borrower, from the United States or any agency or
department thereof; or from any foreign debtor or borrower;
(xix) such Mortgage Loan is and shall be evidenced by only one original
mortgage note;
(xx) each mortgage (or deed of trust) or an assignment thereof relating to
such Mortgage Loan shall identify the Borrower, as the mortgagee;
(xxi) the Required Documents for said Mortgage Loan have been delivered to
the Collateral Agent or to the applicable Closing Agent which has executed and
delivered an Escrow Agreement satisfactory to the Lender prior to the
inclusion of said Mortgage Loan in the Borrowing Base and, if the Lender or the
Collateral Agent has so requested in writing, the Additional Required Documents
have also been delivered to the Collateral Agent or the applicable Closing Agent
on terms and conditions set forth above;
(xxii) if said Mortgage Loan was not closed and recorded at the date said
Mortgage Loan was first included in the Borrowing Base, said Mortgage Loan was
closed and recorded no later than the second Business Day immediately following
the date first included in the Borrowing Base.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
"Escrow Agreement" means an agreement in the form attached hereto as
Exhibit I or in such other form as is acceptable to the Lender.
"Event of Default" means any event or condition specified in Section 8.1
hereof.
"GAAP" means generally acceptable accounting principles as in effect from
time to time, applied by the Borrower and its Subsidiaries as a basis consistent
with the preparation of the Borrower's most recent financial statements
furnished to the Lender pursuant to Section 5.5 hereof.
"General Underwriting Guidelines" shall mean the general underwriting
guidelines set forth on Exhibit H hereto.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business), (iii) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or becomes liable for the payment
of such indebtedness, (iv) all Capitalized Lease Obligations of such Person and
(v) all obligations of such Person on or with respect to letters of credit,
bankers' acceptances and other extensions of credit whether or not representing
obligations for borrowed money.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, capital lease or other title
retention arrangement.
"Loans" means and includes loans made under the Revolving Credit, and each
of them singly.
"Loan Documents" means this Agreement, the Note and the Collateral
Documents.
"Material Plan" is defined in Section 8.1(h) hereof.
"Mortgage Loan" shall mean a loan secured by real estate including without
limitation: (i) a promissory note and related mortgage (or deed of trust) and
any other security documents, (ii) all reserves, guaranties and insurance
policies, including without limitation, all mortgage and title insurance
policies and rights of the owner of such loan to retain all or any part of such
reserves or to return premiums or payments with respect thereto and (iii) all
right, title and interest of the owner of such Mortgage Loan in the Property
covered by said mortgage (or deed of trust).
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"Note" is defined in Section 2.6 hereof
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Note, all accrued and unpaid fees and all other obligations of
the Borrower to the Lender or the Collateral Agent arising under the Loan
Documents, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Permitted First Mortgage Lien" means any first mortgage lien permitted
under General Underwriting Guidelines.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code and either (i) is maintained by a member of the Controlled Group for
employees of a member of the Controlled Group, (ii) is maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions, or (iii) under which a member of
the Controlled Group has any liability, including any liability by reason of
having been a substantial employer within the meaning of Section 4063 of ERISA
at any time during the preceding five years or by reason of being deemed a
contributing sponsor under Section 4064 of ERISA.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Required Documents" means, with respect to any Mortgage Loan, those
items listed on Exhibit C hereto.
"Revolving Credit" is defined in Section 2.1 hereof.
"Rewritten Mortgage Loan" means any Mortgage Loan in respect of which
(i) the original terms have been rewritten, restructured or otherwise modified
or (ii) forbearance has been granted; provided, however, that a Rewritten
Mortgage Loan shall not include a Mortgage Loan as to which the Borrower has
permitted an assumption or granted a partial release in accordance with its
prior practices and consistent with General Underwriting Guidelines.
"Security Agreement" means that certain Security and Collateral Agency
Agreement dated of even date herewith among the Borrower, the Collateral Agent
and the Lender, as the same may from time to time be amended.
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"Subsidiary" means any corporation or other entity of which more than
fifty percent (50%) of the outstanding voting stock or comparable equity
interests (including interests as a limited partner in a limited partnership) is
at the time directly or indirectly owned by the Borrower, by one or more of its
Subsidiaries, or by the Borrower and one or more of its Subsidiaries.
"Termination Date" shall mean March 31, 1998, or such earlier date on
which the Commitment is terminated in whole pursuant to Sections 2.6, 8.2 or 8.3
hereof.
"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which the present value of all vested nonforfeitable
accrued benefits under such Plan exceeds the fair market value of all Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the Controlled Group to the PBGC or the
Plan under Title IV of ERISA.
"Welfare Plan" means a "welfare plan," as defined in Section 3(l) of
ERISA.
"Wholly-Owned" means a Subsidiary of which all of the issued and
outstanding shares of stock (other than directors' qualifying shares as required
by law) or other comparable equity interests shall be owned by the Borrower
and/or one or more of its Wholly-Owned Subsidiaries.
Section 1.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. All
references to times of day herein are references to Chicago, Illinois time
unless otherwise specifically provided. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP
except where such principles are inconsistent with the specific provisions of
this Agreement.
SECTION 2. THE CREDIT
Section 2.1. The Revolving Credit. Subject to the terms and conditions
hereof, the Lender agrees to extend a revolving credit (the "Revolving Credit")
to the Borrower in an aggregate principal amount at any one time outstanding not
to exceed the lesser of (i) $5,000,000 (the "Commitment") (subject to any
reductions thereof pursuant to the terms hereof) or (ii) the Borrowing Base as
then determined and computed, which may be availed of by the Borrower in its
discretion from time to time, be repaid and used again, to and including the
Termination Date.
Section 2.1. Applicable Interest Rates. (a) Pre-Default Rate. Each Loan
made by the Lender shall bear interest (computed on the basis of a year of 360
days and actual days elapsed) on the unpaid principal amount thereof from the
date such Loan is made until maturity (whether by acceleration or otherwise) at
a rate per annum determined by adding two percent (2%) to the Domestic Rate from
time to time in effect, payable on the earlier of (i) the prepayment thereof
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in accordance with Section 2.5(b) hereof or (ii) sixty (60) days from the date
such Loan was made pursuant hereto and at maturity (whether by acceleration or
otherwise).
(b) Default Rate. If any payment (including any required prepayment) of
principal on any Loan is not made when due (whether by acceleration or
otherwise), such Loan shall bear interest (computed on the basis of a year of
360 days and actual days elapsed) from the date such payment was due until paid
in full, payable on demand, at a rate per annum equal to the sum of six percent
(6%) plus the Domestic Rate from time to time in effect.
Section 2.3. Minimum Borrowing Amounts. Each Loan shall be in an amount
not less than $10,000.
Section 2.4. Borrowing Procedures. (a) Notice to the Lender. The Borrower
shall give telephonic or telecopy notice to the Lender (which notice shall be
irrevocable once given and, if by telephone, shall be promptly confirmed in
writing) by no later than 12:00 noon (Chicago time) on the date of any requested
Loan. Each such notice shall specify the date of the requested Loan (which shall
be a Business Day) and the amount of the requested Loan. The Borrower agrees
that the Lender may rely on any such telephonic or telecopy notice given by any
person the Lender in good faith believes is authorized to request loans on
behalf of the Borrower without the necessity of independent investigation and in
the event any notice by such means conflicts with the written confirmation, such
notice shall govern if the Lender has acted in reliance thereon.
(b) Disbursement of Loans. Subject to Section 6 hereof, the Lender shall
make the proceeds of each Loan available to the Borrower at the Lender's
principal office in Mt. Prospect, Illinois not later than close of business on
the date of such borrowing provided that Borrower hereby directs the Lender
(unless Borrower notifies the Lender to the contrary in writing in connection
with a Loan request hereunder) to wire transfer the proceeds (of each Loan
hereunder) to the Closing Agent in accordance with the relevant Escrow
Agreement.
Section 2.5. Prepayments. (a) Voluntary. The Borrower may prepay on any
Business Day without premium or penalty and in whole or in part (but, if in
part, then in an amount not less than $10,000) any Loans at any time on one
Business Day's prior notice to the Lender by no later than 1:00 p.m. (Chicago
time), such prepayment to be made by the payment of the principal amount to be
prepaid together with accrued interest thereon.
(b) Mandatory. (i) Concurrently with each reduction of the Commitment
(whether voluntarily pursuant to Section 2.7 or otherwise) the Borrower shall
prepay the Note by the amount, if any, necessary so that the aggregate
outstanding principal balance of the Note shall not exceed the Commitment as so
reduced, each such prepayment to be made by the payment of the principal amount
to be prepaid plus accrued interest thereon.
(ii) The Borrower covenants and agrees that in the event that the
outstanding principal amount of the Note shall at any time and for any reason
exceed the Borrowing Base as then determined and computed, the Borrower shall
immediately without notice or demand pay over the amount of the excess to the
Lender as and for a mandatory prepayment on the Note.
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(c) Reborrowings. Any amount paid or prepaid on the Loans on or before the
Termination Date may, subject to the terms and conditions of this Agreement, be
borrowed, repaid and borrowed again.
Section 2.6. The Note. (a) The Loans made to the Borrower by the under
shall be evidenced by a promissory note of the Borrower in the form of Exhibit A
hereto (such promissory note, as the same may from time to time be amended,
together with any notes executed in replacement thereof are hereinafter referred
to as the "Note"). Such Note shall be dated the date of issuance thereof and be
payable to the order of the Lender in the principal amount of its Commitment.
(b) The Lender shall record on its books or records or on a schedule to
the Note held by it the amount of each Loan made by it to the Borrower, and all
payments of principal and interest and the principal balance from time to time
outstanding thereon; provided that prior to the transfer of any Note all such
amounts shall be recorded on a schedule to such Note. The record thereof,
whether shown on such books or records of the Lender or on a schedule to any
Note, shall be prima facie evidence as to all such amounts; provided, however,
that the failure of the Lender to record any of the foregoing or any error in
any such record shall not limit or otherwise affect the obligation of the
Borrower to repay all Loans made to it hereunder together with accrued interest
thereon.
Section 2.7. Commitment Terminations. The Borrower shall have the right at
any time and from time to time, upon three (3) Business Days' prior written
notice to the Lender to terminate without premium or penalty, in whole or in
part, the Commitment, any partial termination to be in an amount not less than
$1,000,000 or any larger amount that is an integral multiple of $1,000,000,
provided that, the Commitment may not be reduced to an amount less than the
aggregate principal amount of Loans then outstanding. Any termination of
Commitment pursuant to this Section 2.7 may not be reinstated.
SECTION 3. FEES AND PAYMENTS
(a) The Borrower shall pay to the Lender a transaction fee for each Loan
requested hereunder in an amount equal to the amount specified on the fee
schedule dated __________, 1997 furnished by Lender to Borrower. Such fee to be
due and payable on the date each such Loan is made pursuant hereto.
(b) The Borrower shall also pay to the Lender such wire transfer,
processing fees and other charges as the Lender from time to time customarily
imposes in connection with the disbursement and administration of Loans
hereunder, such fees to be paid in accordance with the standard and customary
practices of the Lender.
(c) The Borrower shall also pay to the Lender a custody fee in the amount
of $75.00 for each Loan made hereunder, such fee to be due and payable on the
date each such Loan is made hereunder provided however, that the amount of such
fee shall be subject to increases at any time in the event the fee payable by
Lender to the Collateral Agent is increased by the Collateral Agent, the Lender
agreeing to notify the Borrower of any such increase in writing.
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Section 3.2. Audit Fees. The Borrower shall pay to the Lender the Lender's
costs and expenses in connection with audits of the Collateral performed by the
Lender or its agents or representatives; provided, however, that in the absence
of any Default or Event of Default, the Borrower shall not be required to
reimburse the Lender for more than two (2) such audit(s) per calendar year.
Section 3.3. Place and Application of Payments. All payments of principal
and interest on the Loans and all payments of fees and all other amounts payable
under this Agreement shall be made to the Lender by no later than 1:00 p.m.
(Chicago time) at the principal office of the Lender in Prospect Heights,
Illinois (or such other location as the Lender may designate to the Borrower).
Any payments received after such time shall be deemed to have been received by
the Lender on the next Business Day. All such payments shall be made in lawful
money of the United States of America, in immediately available funds at the
place of payment, without setoff or counterclaim.
Anything contained herein to the contrary notwithstanding, all payments
and collections received in respect of the indebtendess evidenced by the Note
and all proceeds of collateral received, in each instance, by the Lender after
the occurrence of an Event of Default shall be applied as follows:
(a) first to the payment of any outstanding costs and expenses
incurred by the lender or the collateral Agent in monitoring, verifying,
protecting, preserving or enforcing any liens on the Collateral or in
protecting, preserving or enforcing rights hereunder or under any other
Loan document, and in any event including all costs and expenses of a
character which the Borrower has agreed to pay under Section 9.10 hereof;
(b) second to the payment of any outstanding interest or other fees
or amounts due hereunder, under the Note or any other Loan Document other
than for principal;
(c) third to the payment of principal owing on the Note; and
(d) fourth to the Borrower or whomever may be lawfully entitled
thereto.
SECTION 4. THE COLLATERAL
Section 4.1. The Collateral. The Note and the other obligations of the
Borrower hereunder and under the other Loan Documents shall be secured by valid
and perfected first priority Liens pursuant to the Security Agreement in favor
of the Collateral Agent for the benefit of the Lender on all of the Borrower's
now existing and hereafter arising or acquired Mortgage Loans which are
transferred to the custody and control of the Collateral Agent and all
accounts, general intangibles, instruments, documents, records and other rights
and properties related to such Mortgage Loans (as more fully described in the
Security Agreement) together with all proceeds relating thereto. The Borrower
covenants and agrees that it will comply with all terms and conditions of each
of the Collateral Documents and that it will at any time and from time to time
at the request of the Collateral Agent or the Lender, execute and deliver such
instruments and documents and do such acts and things as the Collateral Agent
or the Lender may reasonably
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request in order to provide for or protect or perfect the Lien of the Collateral
Agent in the Collateral for the benefit of the Lender.
Section 4.2. Further Assurances. The Borrower covenants and agrees that
it will comply with all terms and conditions of each of the Collateral
Documents and that it will, at any time, and from time to time as requested by
the Collateral Agent or the Lender, execute and deliver such further
instruments and agreements and do such acts and things as the Collateral Agent
or the Lender may deem necessary or appropriate to provide for or protect or
perfect the lien of the Collateral Agent or Lender in the Collateral.
SECTION 5. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1. Organization and Qualification. The Borrower is duly
organized, validly existing and in good standing under the laws of the State of
California, has full and adequate corporate power to own its Property and to
carry on its business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of its business
conducted by it or the nature of the Property owned or leased by it makes such
licensing or qualification necessary, including without limitation, the states
listed on Exhibit B hereto except as otherwise disclosed in writing to the under
and except for those jurisdictions in which the failure to so qualify would not
have a material adverse effect on the operations of the Borrower or its
Subsidiaries taken as a whole unless such failure would affect the ability of
the Borrower to enforce payment of any part of the Collateral. Exhibit B
contains a listing of all states in which the Borrower is duly qualified and
licensed to do business as of the date hereof.
Section 5.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it was
incorporated or organized, as the case may be, has full and adequate power to
own its Property and carry on its business as conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of its
business as now conducted or proposed to be conducted by it or the nature of
the Property owned or leased by it makes such licensing or qualification
necessary except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on the operations of the Borrower or
its Subsidiaries taken as a whole unless such failure would affect the ability
of the Borrower to enforce payment of any part of the Collateral. Exhibit D
hereto identifies each Subsidiary, the jurisdiction of its incorporation or
organization, as the case may be, the percentage of issued and outstanding
shares of each class of its capital stock or other equity interests owned by the
Borrower and the Subsidiaries and, if such percentage is not 100% (excluding
directors' qualifying shares as required by law), a description of each class of
its authorized capital stock and other equity interests and the number of
shares of each class issued and outstanding. All of the issued and outstanding
shares of capital stock and other equity interests of each Subsidiary are
validly issued and outstanding and fully paid and nonassessable and all such
shares and other equity interests indicated on Exhibit D as owned by the
Borrower or a Subsidiary are owned, beneficially and of record, by the Borrower
or such subsidiary, free and clear of all Liens. There are no outstanding
commitments or other obligations of any Subsidiary to issue, and no options,
warrants or other rights of any Person to acquire, any shares of any class of
capital stock or other equity interests of any Subsidiary.
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Section 5.3. Corporate Authority and Validity of Obligations. The Borrower
has full right and authority to enter into the Loan Documents to make the
borrowings herein provided for, to grant to the Collateral Agent for the benefit
of the Lender the Liens described in the Collateral Documents, to issue its Note
and to perform all of its obligations hereunder and under the other Loan
Documents. The Loan Documents have been duly authorized, executed and delivered
by the Borrower and constitute valid and binding obligations of the Borrower
enforceable in accordance with their terms and the Loan Documents do not, nor
does the performance or observance by the Borrower of any of the matters or
things herein or therein provided for, contravene any provision of law or
any judgment, injunction, order or decree binding upon the Borrower or any
Subsidiary or any charter or by-law provision of the Borrower or any Subsidiary
or any covenant, indenture or agreement of or affecting the Borrower or any
Subsidiary or any of their respective Properties, or result in the creation or
imposition of any Lien on any Property of the Borrower or any Subsidiary.
Section 5.4. Use of Proceeds. The Loans hereunder shall be used by the
Borrower solely for the purchase or funding by it of Eligible Mortgage Loans.
Section 5.5. Financial Report. The balance sheet of the Borrower as at
December 31, 1995 and the related consolidated statements of income, retained
earnings and cash flows of the Borrower for the fiscal year then ended and
accompanying notes thereto, which financial statements are accompanied by the
report of Comiskey & Company, independent public accountants, and the unaudited
balance sheet of the Borrower as at December 31, 1996 and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for the twelve (12) months then ended, heretofore
furnished to the Lender, fairly present the financial condition of the Borrower
as at such dates and the results of its operations and cash flows for the
periods then ended in conformity with generally accepted accounting principles
applied on a consistent basis; provided that the unaudited financial statements
remain subject to normal year end adjustments.
Section 5.6. No Material Adverse Change. Since December 31, 1996, there
has been no change in the condition, financial or otherwise, of the Borrower and
its subsidiaries, taken as a whole, except changes in the ordinary course of
business, none of which individually or in the aggregate have been materially
adverse.
Section 5.7. Full Disclosure. The statements and information furnished to
the Lender in connection with the negotiation of this Agreement and the
commitment by the Lender to provide the financing contemplated hereby do not
contain any untrue statements of a material fact or omit a material fact
necessary to make the material statements contained therein or herein not
misleading, the Lender acknowledging that as to any projections furnished to the
Lender, the Borrower does not warrant their accuracy, but only represents that
the same were prepared on the basis of information and estimates the Borrower
believed to be reasonable at the time such projections were prepared.
Section 5.8 Good Title. The Borrower and its subsidiaries have good and
defensible title to their respective assets as reflected on the most recent
consolidated balance sheet of the Borrower and its subsidiaries furnished to the
Lender (except for sales of assets by the Borrower
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and its subsidiaries in the ordinary course of their respective business),
subject to no Liens other than such thereof as are permitted by Section 7.7
hereof.
Section 5.9. Investment Company. Neither the Borrower nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
Section 5.10. Litigation and Other Controversies. Except as heretofore
disclosed in writing to the Lender with respect to litigation or other
controversies pending as of the date hereof, there is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
the Borrower threatened, against the Borrower or any Subsidiary which either (a)
involves a claim for $100,000 or more or (b) if adversely determined would (a)
impair, the validity or enforceability of, or impair the ability of the Borrower
to perform its obligations under this Agreement or any other Loan Document or
(b) result in any material adverse change in the financial condition or
Property, business or operations of the Borrower and its Subsidiaries taken as a
whole.
Section 5.11. Taxes. All tax returns required to be filed by the Borrower
or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Borrower or any
Subsidiary or upon any of their respective Properties, income or franchises,
which are shown to be due and payable in such returns have been paid except as
otherwise disclosed in writing to the Lender and except where such taxes are
being contested in good faith and appropriate reserves have been established
therefor. The Borrower does not know of any proposed additional tax assessment
against it or its Subsidiaries for which adequate provision in accordance with
GAAP has not been made on its accounts except as otherwise disclosed in writing
to the Lender. Adequate provisions in accordance with GAAP for taxes on the
books of the Borrower and each Subsidiary have been made for all open years, and
for its current fiscal period.
Section 5.12. Approvals. No authorization, consent, license, exemption,
filing (except for the filing of financing statements as herein contemplated) or
registration with any court or governmental department, agency or
instrumentality, nor any approval or consent of the stockholders of the Borrower
or any other Person, is or will be necessary to the valid execution, delivery or
performance by the Borrower of this Agreement or any other Loan Document.
Section 5.13. Affiliate Transactions. Neither the Borrower nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
(other than with Wholly-Owned Subsidiaries) on terms and conditions which are
less favorable to the Borrower or such Subsidiary than would be usual and
customary in similar contracts or agreements between Persons not affiliated
with each other.
Section 5.14. ERISA. The Borrower and each Subsidiary are in compliance in
all material respects with ERISA to the extent applicable to them and have
received no notice to the contrary from the PBGC or any other governmental
entity or agency. As of December 31, 1996, the liability of the Borrower and its
Subsidiaries to PBGC in respect of Unfunded Vested Liabilities would not have
been in excess of $_____ if all employee pension benefit plans maintained by the
Borrower and its Subsidiaries had been terminated as of such date. No
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condition exists or event or transaction has occurred with respect to any Plan
which could reasonably be expected to result in the incurrence by the Borrower
or any Subsidiary of any material liability, fine or penalty under ERISA or the
Code or in connection with any Plan. Neither the Borrower nor any Subsidiary
has any contingent liability with respect to any post-retirement benefits under
a Welfare Plan, other than liability for continuation coverage described in
Part 6 of Title I of ERISA and liability for post-retirement medical and life
insurance benefits.
Section 5.15. Compliance with Laws. The Borrower and its Subsidiaries are
in compliance in all material respects with the requirements of all federal,
state and local laws, rules and regulations applicable to or pertaining to the
Properties or business operations of the Borrower or any Subsidiary (including,
without limitation, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and "Z",
the Soldiers, and Sailors' Civil Relief Act of 1940, and any other federal,
state and local laws relating to interest, usury, consumer credit, equal credit
opportunity, fair credit reporting, privacy, consumer protection, false or
deceptive trade practices and disclosure, the Occupational Safety and Health Act
of 1970, the Americans with Disabilities Act of 1990, and laws and regulations
establishing quality criteria and standards for air, water, land and toxic or
hazardous wastes or substances), non-compliance with which could have a material
adverse effect on the financial condition, Properties, business or operations of
the Borrower and its Subsidiaries, taken as a whole. Neither the Borrower nor
any Subsidiary has received notice to the effect that its operations are not in
compliance with any of the requirements of applicable federal, state or local
environmental, health and safety statutes and regulations or are the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could have a material
adverse effect on the financial condition, Properties, business or operations
of the Borrower or any Subsidiary.
Section 5.16. Other Agreements. Except as disclosed in writing to the
Lender with respect to certain defaults existing as of the date hereof, neither
the Borrower nor any Subsidiary is in default under the terms of any covenant,
indenture or agreement of or affecting the Borrower, any Subsidiary or any of
their Properties.
Section 5.17. No Defaults. No Default or Event of Default has occurred
and is continuing.
SECTION 6. CONDITIONS PRECEDENT
The obligation of the Lender to make any Loan or any other financial
accommodation hereunder shall be subject to the following conditions precedent:
Section 6.1. Initial Loan. Prior to the making of the initial Loan
hereunder:
(a) The Lender shall have received the favorable written opinion of Harry
Coolidge, Esq., counsel to the Borrower, in form and substance satisfactory to
the Lender;
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(b) The Lender shall have received (i) certified copies of resolutions of
the Board of Directors of the Borrower, authorizing the execution and delivery
of this Agreement and the other Loan Documents, indicating the authorized
signers of this Agreement and the other Loan Documents and all other documents
relating thereto, the persons authorized to request Loans hereunder and the
specimen signatures of such signers, and (ii) copies of certificates of good
standing certified by the appropriate governmental officer in the jurisdiction
of the Borrower's incorporation and in each state in which it is authorized to
do business as a foreign corporation;
(c) The Lender shall have received this Agreement, the Note and the other
Loan Documents, together with any financing statements and amendments to
existing financing statements requested by the Lender or the Collateral Agent in
connection therewith;
(d) The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the other Loan Documents;
(e) The Lender shall have received certified copies of the Borrower's
articles of incorporation and by-laws and all amendments thereto throuch the
date hereof.
(f) The Lender shall have received evidence satisfactory to it of the
accuracy of the representations contained in Section 5.15 hereof.
Section 6.2. All Loans. As of the time of the making of each Loan
(including the initial Borrowing):
(a) The Lender shall have received the notice required by Section 2.4
hereof and a fully executed Escrow Agreement.
(b) Each of the representations and warranties, of the Borrower set forth
in Section 6 hereof shall be true and correct as of said time, except to the
extent that any such representation or warranty relates solely to an earlier
date;
(c) The Borrower shall be in fall compliance with all of the terms and
conditions of this Agreement and of the other Loan Documents, and no Default or
Event of Default shall have occurred and be continuing or would occur as a
result of making such Borrowing;
(d) After giving effect to the Loan, the aggregate principal amount of all
Loans hereunder shall not exceed the lesser of (i) the Borrowing Base and (ii)
the Commitment; and
(e) Such Loan shall not violate any order, judgment or decree of any court
or other authority or any provision of law or regulation applicable to the
Lender.
Each request for a Loan hereunder shall be deemed to be a representation
and warranty by the Borrower on the date of such Borrowing as to the facts
specified in this Section 6.2.
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SECTION 7. COVENANTS
The Borrower agrees that, so long as any Commitment is available to or any
Obligations are outstanding hereunder, except to the extent compliance in any
case or cases is waived in writing by the Lender:
Section 7.1. Maintenance of Business. The Borrower shall, and shall cause
each Subsidiary to, preserve and keep in force and effect its corporate
existence and all licenses, permits and franchises necessary to the proper
conduct of its business.
Section 7.2. Maintenance of Property. The Borrower will maintain, preserve
and keep its Properties in good repair, working order and condition (ordinary
wear and tear excepted), and will from time to time make all needful and proper
repairs, renewals, replacements, additions and betterments thereto so that at
all times the efficiency thereof shall be fully preserved and maintained, and
will cause each Subsidiary to do so in respect of Property owned or used by it.
Section 7.3. Taxes and Assessments. The Borrower will duly pay and
discharge, and will cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 7.4. Insurance. The Borrower will insure and keep insured, and
will cause each Subsidiary to insure and keep insured, with good and responsible
insurance companies, all insurable Property owned by it which is of a character
usually insured by Persons similarly situated and operating like Properties
against loss or damage from such hazards and risks, and in such amounts, as are
insured by Persons similarly situated and operating like Properties; and the
Borrower will insure, and cause each Subsidiary to insure, such other hazards
and risks (including employers' and public liability risks) with good and
responsible insurance companies as and to the extent usually insured by Persons
similarly situated and conducting similar businesses. The Borrower shall in any
event maintain insurance on the Collateral to the extent required by the
Collateral Documents. The Borrower will upon request of the Lender furnish a
certificate setting forth in summary form the nature and extent of the
insurance maintained pursuant to this Section.
Section 7.5. Financial Reports. The Borrower will maintain a standard
system of accounting in accordance with GAAP and will furnish to the Lender and
its duly authorized representatives such information (including financial
statements) respecting the business and financial condition of the Borrower and
its Subsidiaries as the Lender may reasonably request; and without any request,
will furnish to the Lender and, in the case of the Borrowing Base certificate
called for by clause (a) and notices called for by clause (h)(ii) below, to the
Collateral Agent:
(a) as soon as available, and in any event within fifteen (15) days after
the end of each calendar month, a borrowing base certificate in the form
attached hereto as Exhibit E
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showing the computation of the Borrowing Base in reasonable detail as of the
close of such monthly period, certified to by the chief financial officer of the
Borrower;
(b) as soon as available, and in any event within thirty (30) days after
the end of each calendar month, a copy of the consolidated balance sheet and
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for such period, all in reasonable detail showing
in comparative form the figures for the corresponding date and period in the
previous fiscal year, prepared by the Borrower in accordance with GAAP, together
with a report on the aging of Mortgage Loans and a report of charge-offs,
recoveries and repossession of collateral with respect to Mortgage Loans all in
reasonable detail prepared by the Borrower, and in each case certified to by the
chief financial officer of the Borrower;
(c) as soon as available, and in any event within one hundred and twenty
(120) days after the close of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries as of the close
of such fiscal year and the consolidated statements of income, retained earnings
and cash flows of the Borrower and its Subsidiaries for such period, and
accompanying notes thereto, all in reasonable detail showing in comparative form
the figures for the previous fiscal year, accompanied by an unqualified opinion
thereon of Comiskey & Company or another firm of independent public accountants
of recognized standing, selected by the Borrower and satisfactory to the Lender,
to the effect that the financial statements have been prepared in accordance
with GAAP and present fairly in accordance with GAAP the consolidated financial
condition of the Borrower and its Subsidiaries as of the close of such fiscal
year and the results of their operations and cash flows for the fiscal year then
ended and that an examination of such accounts in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(d) not later than five (5) business days after receipt by the Borrower
thereof, a copy of any management letters on internal accounting controls of the
Borrower or any Subsidiary prepared by its independent public accountants;
(e) not later than five (5) business days after receipt by the Borrower
thereof, a copy of any internal audit reports (with responses, when available)
with respect to the Borrower or any Subsidiary prepared by its controller's
office or other in-house staff accountants;
(f) not later than five (5) business days after receipt by the Borrower
thereof, a copy of each audit made by any regulatory agency of the books and
records of the Borrower or any of its Subsidiaries; and
(g) promptly after knowledge thereof shall have come to the attention of
any of (i) any threatened or pending litigation or officer of the Borrower,
written notice which responsible governmental proceeding or labor controversy
against the Borrower or any Subsidiary involves an amount of $100,000 or more or
which, if adversely determined, would have a material adverse effect the
financial condition, Properties, business or operations of the Borrower and its
Subsidiaries, taken as a whole, or of the occurrence of any Default or Event of
Default hereunder and (ii) any material dispute or claim relating to any
Eligible Mortgage Loan.
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Each of the financial statements ftm-@shed to the Lender pursuant to
clauses (b) and (c) of this Section shall be accompanied by a written
certificate in the form attached hereto as Exhibit F signed by the chief
financial officer of the Borrower to the effect that to the best of the chief
financial officer's knowledge and belief no Default or Event of Default has
occurred during the period covered by such statements or, if any such Default or
Event of Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any, taken by the
Borrower to remedy the same.
Section 7.6. Indebtedness for Borrowed Money. The Borrower will not, nor
will it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing provisions shall not restrict nor operate to prevent:
(a) the indebtedness of the Borrower owing to the Lender hereunder; and
(b) the indebtedness of the Borrower to other lenders not exceeding
$15,000,000 in aggregate principal amount from time to time incurred to fund the
purchase by the Borrower or any of its Subsidiaries of mortgaae loans which are
pledged to and in the possession of such lenders (or an agent or bailee acting
on their behalf) to secure repayment of such indebtedness.
Section 7.7. Liens. The Borrower will not, nor will it pen-nit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Borrower or any Subsidiary; provided, however, that this
Section shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's compensation,
unemployment insurance, old age benefits, social security obligations, taxes,
assessments, statutory obligations or other similar charges, good faith cash
deposits in connection with tenders, contracts or leases to which the Borrower
or any Subsidiary is a party or other cash deposits required to be made in the
ordinary course of business, provided in each case that the obligation is not
for borrowed money and that the obligation secured is not overdue or, if
overdue, is beina contested in good faith by appropriate proceedings which
prevent enforcement of the matter under contest and adequate reserves have been
established therefor;
(b) mechanics', workmen's, materialmen's, landlords', carriers', or other
similar Liens arising in the ordinary course of business with respect to
obligations which are not due or which are being contested in good faith by
appropriate proceedings which prevent enforcement of the matter under contest;
(c) the pledge of assets for the purpose of securing an appeal, stay or
discharge in the course of any legal proceeding, provided that the aggregate
amount of liabilities of the Borrower and its Subsidiaries secured by a pledge
of assets permitted under this clause, including interest and penalties thereon,
if any, shall not be in excess of $100,000 at any one time outstanding;
(d) the Liens granted in favor of the Collateral Agent for the benefit of
the Lender by the Collateral Documents; and
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(e) Liens on mortgace loans and related assets securing indebtedness
permitted by Section 7.6(b) hereof.
Section 7.8. Mergers, Consolidations and Sales. The Borrower will not, nor
will it permit any Subsidiary to, be a party to any merger or consolidation, or
sell, transfer, lease or otherwise dispose of all or any substantial part of its
Property, or in any event sell or discount (with or without recourse) any of its
notes or accounts receivable (other than sales of mortgages not constituting
Collateral in the ordinary course of business and sales of Collateral permitted
under the Security Agreement). The sale, lease, transfer or other disposition of
5% of the assets of the Borrower or any Subsidiary shall be deemed substantial
for the foregoing purposes.
Section 7.9. ERISA. The Borrower will, and will cause each Subsidiary to,
promptly pay and discharge all obligations and liabilities arising under ERISA
of a character which if unpaid or unperformed might result in the imposition of
a Lien against any of its Properties. The Borrower will, and will cause each
Subsidiary to, promptly notify the Lender of (i) the occurrence of any
reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of
any notice from the PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor, (iii) its intention to terminate or withdraw
from any Plan, and (iv) the occurrence of any event with respect to any Plan
which would result in the incurrence by the Borrower or any Subsidiary of any
material liability, fine or penalty, or any material increase in the contingent
liability of the Borrower or any Subsidiary with respect to any post-retirement
Welfare Plan benefit.
Section 7.10. Compliance ii,ith Lmvs. The Borrower will, and will cause
each Subsidiary to, comply in all material respects with the requirements of all
federal, state and local laws, rules, regulations, ordinances and orders
applicable to or pertaining to the Collateral, Properties or business operations
of the Borrower or any Subsidiary, non-compliance with which could have a
material adverse effect on the financial condition, Properties, business or
operations of the Borrower or any Subsidiary or could result in a Lien upon any
of their Property. The Borrower agrees, at intervals reasonably acceptable to
the Lenders, to make periodic inspections of the documentation relating to
mortgage loans made or acquired by it to monitor compliance of the same with
applicable law and to provide the Collateral Azent and the Lenders with the
results of such inspections.
Section 7.11. Burdensome Contracts ivith Affiliates. The Borrower will
not, nor will it permit any Subsidiary to, enter into any contract, agreement or
business arrangement with any of its Affiliates (other than with Wholly-Owned
Subsidiaries) on ten-ns and conditions which are less favorable to the Borrower
or such Subsidiary than would be usual and customary in similar contracts,
agreements or business arrangements between Persons not affiliated with each
other.
Section 7.12. Maintenance of Subsidiaries. 'ne Borrower will not assign,
sell or transfer, or permit any Subsidiary to issue, assign, sell or transfer,
any Voting Stock of a Subsidiary, provided that the foregoing shall not operate
to prevent the issuance, sale and transfer to any person of any voting stock of
a Subsidiary solely for the purpose of qualifying, and to the extent legally
necessary to qualify, such person as a director of such Subsidiary.
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Section 7.13. Change in the Nature of Business. The Borrower will not, and
will not permit any Subsidiary to, engage in any business or activity if as a
result the general nature of the business of the Borrower or any Subsidiary
would be changed in any material respect from the general nature of the business
engaged in by the Borrower or any Subsidiary on the date of this Agreement.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default. Any one or more of the following shall
constitute an Event of Default hereunder:
(a) default in the payment when due of all or any part of the principal of
or interest on the Note (whether at the stated maturity thereof or at any other
time provided for in this Atzreement) or of any fee or other amount payable by
the Borrower hereunder or by the Borrower under any other Loan Document and, in
the case of any such interest payment or fee, non-payment thereof shall have
continued for three (3) Business Days after the same shall have become due; or
(b) default in the observance or performance of any covenant set forth
in Sections 8.5, 8.8, 8.9 or 8.13 hereof; or
(c) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within thirty (30)
days after the earlier to occur of (i) the date on which such failure shall
first become known to any officer of the Borrower or (ii) the date on which
written notice thereof is given to the Borrower by the Lender; or
(d) any representation or warranty made by the Borrower herein or in any
other Loan Document, or in any statement or certificate ftimished by it pursuant
hereto or thereto, or in connection with any Loan made hereunder, proves untrue
in any material respect as of the date of the issuance or making thereof; or
(e) any event occurs or condition exists (other than those described in
clauses (a) through (d) above) which is specified as an Event of Default under
any Loan Document, or any Loan Document shall for any reason not be or shall
cease to be in full force and effect, or any Loan Document is declared to be
null and void; or
(f) default shall occur under any evidence of Indebtedness for Borrowed
Money issued, assumed or guaranteed by the Borrower in an amount equal to or in
excess of $100,000 or under any indenture, agreement or other instrument under
which the same may be issued, and such default shall continue for a period of
time sufficient to permit the acceleration of the maturity of any such
Indebtedness for Borrowed Money (whether or not such maturity is in fact
accelerated) or any such Indebtedness for Borrowed Money shall not be paid when
due (whether by lapse of time, acceleration or otherwise); or
(g) any judgment or judgments, writ or writs, or warrant or warrants of
attachment, or any similar process or processes in an aggregate amount in excess
of $100,000 shall be entered or filed against the Borrower or any of its
Subsidiaries or against any of their Property,
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and in each case which remains unvacated, unbonded, unstayed or unsatisfied for
a period of thirty (30) days; or
(h) the Borrower or any member of its Controlled Group shall fail to pay
when due an amount or amounts aggregating in excess $100,000 which it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terrninate a Plan or Plans having aggregate Unfunded Vested
Liabilities in excess of $500,000 (collectively, a "Material Plan" shall be
filed under Title IV of ERISA by the Borrower or any other member of its
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a tnistee to be appointed to administer any Material Plan or a proceeding
shall be instituted by a fiduciary of any Material Plan against the Borrower or
any member of its Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA
and such proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(i) the Borrower or any Subsidiary shall (i) have entered involuntarily
against it an s Bankruptcy Code, as amended, (ii) not pay, or admit in order for
relief under the United State due, (iii) make an assigrunent for writing its
inability to pay, its debts generally as they become the benefit of creditors,
(iv) apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for it or
any substantial part of its Property, (v) institute any proceeding seeking to
have entered against it an order for relief under the United States Bankruptcy
Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding
up, liquidation, reorganization, arrangement, adjustment or composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, or (vi) fail to
contest in good faith any appointment or proceeding described in Section 8.1(j)
hereof; or
(j) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be f its Subsidiaries or any substantial part of any of their
appointed for the Borrower or any o Section 8. l(i)(v) shall be instituted
auainst the Borrower Property, or a proceeding described in or any of its
Subsidiaries, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of thirty (30) days.
Section 8.2. Remedies - Certain Events of Defaiilt. When any Event of
Default described in clauses (a) through (h), both inclusive, of Section 8.1 has
occurred and is continuing, the Lender may take either or both of the following
actions:
(a) terminate the obligation Of the Lender to extend any further credit
hereunder on the date (which may be the date thereof) stated in such notice;
(b) declare the principal of and the accrued interest on the Note to be
forthwith due and payable and thereupon the Note, including both principal and
interest and all fees, charges and other amounts payable hereunder and under the
other Loan Documents, shall be and become immediately due and payable without
further demand, presentment, protest or notice of any kind.
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The Lender, after giving notice to the Borrower pursuant to this Section
8.2, shall also promptly send a copy of such notice to the Collateral Agent, but
the failure to do so shall not impair or annul the effect of such notice.
Section 8.3. Remedies - Other Events of Default. When any Event of Default
described in clauses (i) or (j) of Section 8.2 has occurred and is continuing,
then the Note, includin- both principal and interest, and all fees, charges and
other amounts payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligations of the Lender to extend further credit
pursuant to any of the terms hereof shall immediately terminate.
Section 8.4. Fxpenses. The Borrower agrees to pay to the Lender, or any
other holder of the Note, all costs and expenses incurred or paid by the Lender
or any such holder, including reasonable attorneys' fees and court costs, in
connection with any Default or Event of Default by the Borrower hereunder or in
connection with the enforcement of any of the terms hereof or of the other Loan
Documents.
SECTION 9. MISCELLANEOUS
Section 9.1. No Waiver of Rights. No delay or failure on the part of the
Lender or on the part of the holder or holders of the Note in the exercise of
any power or richt shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any sincle or partial exercise thereof preclude any other
or further exercise of any other power or right, and the rights and remedies
hereunder of the Lender and of the holder or holders of the Note are cumulative
to, and not exclusive of, any rights or remedies which any of them would
otherwise have.
Section 9.2. Non-Business Day. If any payment of principal or interest on
any Loan or of any fee hereunder shall fall due on a day which is not a Business
Day, interest at the rate such principal bears for the period prior to maturity
or at the rate such fee accrues shall continue to accrue from the stated due
date thereof to and including the next succeeding Business Day, on which the
same shall be payable.
Section 9.3. Documentary Ta'ces. The Borrower agrees that it will pay any
documentary, stamp or similar taxes payable in respect to this Agreement, the
Note or any other Loan Document, including interest and penalties, in the event
any such taxes are assessed irrespective of when such assessment is made and
whether or not any credit is then in use or available hereunder.
Section 9.4. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
Section 9.5. Survival of Indemnities. All indemnities with respect to the
Loans shall survive the termination of this Agreement and the payment of the
Loans and the Note.
-22-
<PAGE>
Section 9.6. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable, telecopy or telex) and shall be
given to the relevant party at its address or telecopier number set forth below
or such other address, telecopier number or telex number as such party may
hereafter specify by notice to the other, given by United States certified or
registered mail, by telecopy or by other telecommunication device capable of
creating a written record of such notice and its receipt. Notices hereunder
shall be addressed to:
If to the.Borrower:
-------------------
Westmark Mortgage Corporation
355 NE 5th Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Mark Schaftlein
Telephone: (800) 840-6677 (Ext. 31)
Telecopy: (561) 279-1801
If to the Lender:
-----------------
Household Financial Services, Inc.
2700 Sanders Road
Prospect Heights, IL 60070
Attention:
Telephone: (--)
Telecopy: C-)
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section; provided that any notice given
pursuant to Section 2 hereof shall be effective only upon receipt.
Section 9.7. Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties on different counterparts, each of
which when executed shall be deemed an original but all such counterparts taken
together shall constitute one and the same instrument.
Section 9.8 SuccessorsandAssigns. ThisAgreementshallbebindinguponthe
Borrower and its s@4@@essors and assi-ns, and shall inure to the benefit of the
Lender and its t' successors and assigns, including any subsequent holder of the
Note; provided, however, that the Borrower may not assign any of its rights or
obligations hereunder without the written consent of the Lender.
-23-
<PAGE>
Section 9.9. Amendments. Any provision of this Agreement, the Note or the
other Loan Documents may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Lender.
Section 9.10. Fees and Indemnification. (a) The Borrower agrees to pay
the reasonable fees and disbursements of counsel to the Lender, in connection
with the preparation and execution of this Agreement and the other Loan
Documents, and any recording or filing of any of the foregoing, and any
amendment, waiver or consent related hereto, whether or not the transactions
contemplated herein are consummated.
(b) The Borrower further agrees to indemnify the Lender, its directors,
officers and employees against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitations, all
reasonable expenses of litigation or preparation therefor whether or not the
Lender is a party thereto) which any of them may pay or incur arising out of or
relating to this Agreement, any other Loan Document, the Collateral (including
without limitation any environmental claims or liabilities related to any
property siibject to a Mortgage Loan) the transactions contemplated hereby or
thereby or the direct or indirect application or proposed application of the
proceeds of any Loan hereunder, other than those which arise from the gross
negligence or willful misconduct of the party claiming indemnification. The
obligations of the Borrower under this Section shall survive the termination of
this Agreement.
Section 9. 11. Governing L@ov. This Agreement and the Note, and the rights
and duties of the parties hereto and thereto, shall be construed and determined
in accordance with the laws of the State of Illinois, without regard to the
internal laws thereof with respect to conflicts of law.
Section 9.12. Headings. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
on 9.13. Entire Agreement. This Agreement constitutes the entire
understandinof the parties hereto with respect to the subject matter hereof and
any prior or contemporaneous agreements, whether written or oral, with respect
thereto are superseded hereby.
Section 9.14. Terms of Collateral Documents Not Stiperseded. Nothing
contained herein shall be deemed or construed to permit any act or omission
which is prohibited by the terms of any Collateral Document, the covenants and
agreements contained herein being in addition to and not in substitution for the
covenants and agreements contained in the Collateral Documents.
Section 9.15. Construction. The parties hereto acknowledge and agree that
this Agreement shall not be construed more in favor of one than the other based
upon which party drafted the same, it being acknowledged that all parties hereto
contributed substantially to the negotiation and preparation of this Agreement.
-24-
<PAGE>
Upon execution hereof by all the parties, this Agreement shall be a
contract among the parties for the purposes hereinabove set forth.
Dated as of April 7, 1997.
WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein
--------------------------------
Its: Mark Schaftlein
President (type or Print Name)
-25-
<PAGE>
Accepted and Agreed to as of the day and year last above written.
HOUSEHOLD FINANCIAL SERVICES, INC.
By:
------------------------------
Its:
----------------------------
(Type or Print Name)
-26-
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$5,000,000 April 7, 1997
FOR VALUE RECEIVED, the undersigned, WESTMARK MORTGAGE CORPORATION, a
________________________ California corporation (the ""Borrower", promises to
pay to the order of HOUSEHOLD FINANCIAL SERVICES, INC. (the "Lender") on the
Termination Date of the hereinafter defined Credit Agreement, at the principal
office of the Lender in Prospect Heights, Illinois, in immediately available
funds, the principal sum of the Lender in Prospect Heights, Illinois, in
immediately available funds, the principal sum of Five Million dollars
($5,000,000) or, if less, the aggregate unpaid principal amount of all Loans
made by the Lender to the Borrower under the Revloving Credit pursuant to such
Credit Agreement and with each such Loan to mature and become payable as
provided in such Credit Agreement, together with interest on the principal
amount of each such Loan from time to time outstanding hereunder at the rates,
and payable in the manner and on the dates, specified in the Credit Agreement.
The Lender shall record on its books or records or on a schedule attached
to this Note, each Loan made by it pursuant to its Commitment, together with all
payments of principal and interest and the principal balances from time to time
outstanding hereon, provided that prior to the transfer of this Note all such
amounts shall be recorded on a schedule attached to this Note. The record
thereof, whether shown on such books or records or on the schedule to this Note,
shall be prima facie evidence of the same, provided, however, that the failure
of the Lender to record any of the foregoing or any error in any such record
shall not limit or otherwise affect the obligation of the Borrower to repay all
Loans made to it under the Revolving Credit pursuant to the Credit Agreement
together with accrued interest thereon.
This Note is the Note referred to in the Credit Agreement bearing even
date herewith, between the Borrower and the Lender (such Credit Agreement as the
same may from time to time be amended or restated being referred to as the
"Credit Agreement") and payment hereof is secured by the Collateral Documents,
and this Note and the holder hereof are entitled to all the benefits provided
for thereby or referred to therein, to which Credit Agreement and Collateral
Documents reference is hereby made for a statement thereof. All defined terms
used in this Note, except terms otherwise defined herein, shall have the same
meaning as in the Credit Ageeement.
Prepayments may be made hereon, certain prepayments are required to be
made hereon and this Note may be declared due prior to the expressed maturity
hereof, all in the events, on the terms and the manner as provided for in the
Credit Agreement and Collateral Documents.
-27-
<PAGE>
The Borrower hereby waives demand, presentment, protest or notice of any
kind hereunder.
This Note shall be governed by and construed in accordance with the laws
of the State of Illinois.
WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein
--------------------------------
Its:Mark Schaftlein
President (type or Print Name)
<PAGE>
EXHIBIT B
States in which the Borrower Is Qualified to
Conduct Business as of Closing
Alabama
Arizona
California
Colorado
Florida
Georgia
Hawaii
Idaho
Indiana
Kansas
Kentucky
Mississippi
Missouri
Montana
Nevada
Ohio
Oregon
Utah
Washington
Wyoming
<PAGE>
EXHIBIT C
REQUIRED DOCUMENTS
1. Mortgage note executed by a third party in favor of the Borrower
(properly endorsed or assigned to the Borrower if purchased by the Borrower) and
endorsed by the Borrower in blank.
2. Mortgage or deed of trust securing above mortgage note. In lieu of
executed, original recorded documents, the Collateral Lender will accept a copy
which has been stamped as having been recorded by the appropriate recorders
office or, in the case of Mortgage Loans constitutin- less than 5% of the
aggregate Elioible Mortgage Loans, a copy of said mortgage or deed of trust
accompanied by a transmittal letter to the appropriate recording office so long
as the original recorded mortgage or a copy thereof indicating the original has
been recorded from the appropriate recorder's office is delivered to the
Collateral Lender within 60 days from the date the Borrower funded such Mortgage
Loan or the date the Borrower acquired such MortgaLe Loan, as appropriate.
3. Assignment of the mortgage or deed of trust by the Borrower in blank
and in recordable form and the original or a duly certified copy of a proper
assignment or assignments of the related mortgage or deed of trust from the
original holder, thrOU2h and subsequent transferees to the Borrower duly
recorded. The assignment by the Borrower to the Collateral Lender shall not be
filed for record unless the Lender shall reasonably determine that it is
necessary to do so in connection with the perfection of the security interest
therein, such recordation to be at the Borrower's expense.
4. Either an appraisal or a statement from the Borrower that no appraisal
was required under the General Underwriting Guidelines.
5. A policy of title insurance written by a title company insurin(T the
mortlyaize or deed of tnist as a first lien on the Property and in amount and
containing exceptions satisfactory to the Collateral Lender.
<PAGE>
EXHIBIT C-1
ADDITIONAL REQUIRED DOCUMENTS
1. Other documentation as the Lender or the Collateral Agent may
reasonably deem appropriate, as well as documentation necessary to falfill
requirements of take-out commitments.
2. The Borrower will execute at any time such additional documents as may
be necessary in the opinion of the Lender or the Collateral to transfer to the
Collateral Lender, for the benefit of the Lender, the title to any Collateral
pledged and/or hypothecated pursuant to the Security Agreement.
<PAGE>
EXHIBIT D
SUBSIDIAREES OF WESTMARK MORTGAGE CORPORATION
NAME JURISDICTION OF PERCENTAGE
- ---- INCORPORATION OF OWNERSHIP
--------------- ------------
<PAGE>
Exhibit E
Borrowing Base Certiricate
To: Household Financial Services, Inc.
Pursuant to the terms of the Credit Agreement dated as of April 7, 1997
between us (the "Credit Agreement"), we submit this Borrowing Base Certificate
to you and certify that the information set forth below and on any attachments
to this Certificate is true, correct and complete as of the date of this
Certificate.
A. Borrowing Base
1. Gross Mortgage Loans =========
A1
2. Less:
(a) Owed by an account debtor who
is an Affiliate, Shareholder, or Employee ________
(b) Owed by an account debtor who
is in an insolvency or reorganization ________
proceeding
(c) Unpaid more than ____ days ________
(d) Subject to claims, offsets or
defenses ________
(e) Rewritten or otherwise
non-performing ________
(f) Included in Borrowing Base
for more than ___ days ________
(g) Otherwise Ineligible ________
Sum of Lines A2(a)-A2(g) =========
A2
3. Eligible Mortgage Loans (line A1 minus =========
(A2) A3
4. Borrowing Base (line A3 x 100%) _________
A4
B. Revolving Credit Loans _________
B
C. Unused Availability =========
(line A4 minus B)
Dated as of this ___________________ day of ________________, 19__.
Westmark Mortgage Corporation
By:
-----------------------------
Its:
-----------------------------
<PAGE>
EXHIBIT F
COMPLIANCE CERTIFICATE
To: Household Financial Services, Inc.
This Compliance Certificate is furnished to you pursuant to the
requirements of Section 1997 (the "Credit Agreement"), by and 7.5 of that
certain Credit Agreement dated as of April 7, 1997 (the "Credit Agreement"), by
and between Westmark Mortgage Corporation (the "Borrower") and you (the
"Lender"). Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit Agreement.
The Undersi-ned hereby certifies that:
1. I am the duly elected __________________________________________ of the
Borrower;
2. I have reviewed the terms of the Credit Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or the occurrence of any event
which constitutes a Default or Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Certificate, except as set forth below; and
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
The foregoing certifications, together with the computations set forth in
the Attachment hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _________________ day
of __________________________ 19__.
---------------------------------------------
--------------------------, -----------------
(Type or Print Name) (Title)
<PAGE>
EXHIBIT G
PENDING LITIGATION
<PAGE>
EXHIBIT H
UNDERWRITING GUIDELINES
<PAGE>
EXHIBIT I
ESCROW AGREEMENT
WESTMARK MORTGAGE CORPORATION
SECURITY AND COLLATERAL AGENCY AGREEMENT
This Security and Collateral Agency Agreement (the "Agreement") dated as
of April 7, 1997 by and between Westmark Mortgage Corporation, a California
corporation with its mailing address at 355 NE 5th Avenue, Suite 4, Delray
Beach, Florida 33483 (the "Company"), Household Financial Services, Inc., a
Delaware corporation with its mailing address at 2700 Sanders Road, Prospect
Heights, Illinois 60070 as secured party hereunder (the "Lender"), and First
Union Bank of North Carolina, N.A., a national banking association with its
mailing address at One First Union Center, TW-6, Charlotte, NC 28288-1066,
acting as custodian and agent hereunder for the Lender (said First Union Bank of
North Carolina, N.A. acting as such agent hereunder and any successor or
successors to said bank in such capacity being hereinafter referred to as the
"Collateral Agent");
WITNESSETH THAT:
WHEREAS, the Company and the Lender have entered into a Credit Agreement
dated as of April 7, 1997 (such Credit Agreement as the same may from time to
time be amended or restated from time to time being hereinafter referred to as
the "Credit Agreement") between the Company and the Lender pursuant to which the
Lender has agreed, subject to certain terms and conditions, to extend credit to
the Company; and
WHEREAS, as a condition precedent to entering into the Credit Agreement,
the Lender has required, among other things, that the Company grant to the
Lender, a lien on and security interest in certain personal property of the
Company as collateral security for such credit facilities and related
obligations, and that the Collateral Agent act as agent, bailee and custodian
for the benefit of the Lender, in each case pursuant to this Agreement and
various other instruments and documents;
Now, THEREFORE, for and in consideration of the execution and delivery
by the Lender of the Credit Agreement, and other good and valuable
consideration, receipt whereof is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Terms defined in Credit Agreement. All capitalized terms used herein
without definition shall have the same meanings herein as such terms have in the
Credit Agreement.
2. Appointment of Collateral Agent. The Lender hereby appoints the
Collateral Agent to act as agent, bailee and custodian for the exclusive benefit
of the Lender with respect to the Collateral (as hereinafter defined). The
Collateral Agent hereby accepts such appointment and agrees to maintain and hold
all Collateral at any time delivered to it as agent, bailee and
<PAGE>
custodian for the exclusive benefit of the Lender. The Collateral Agent
acknowledges and agrees that the Collateral Agent is acting and will act with
respect to the Collateral for the exclusive benefit of the Lender and is not and
shall not at any time in the future be, subject with respect to the Collateral,
in any manner whatsoever, to the direction or control of the Company except as
expressly permitted hereunder. The Collateral Agent agrees to act in accordance
with this Agreement and in accordance with any instructions properly delivered
pursuant hereto. Under no circumstances shall the Collateral Agent deliver
possession of the Collateral to the Company except in accordance with the
express terms of this Agreement or otherwise upon the written instruction of the
Lender.
3. Grant of Security Interest in the Collateral.
(a) The Company hereby grants to the Lender a security interest
in, and acknowledges and agrees that the Lender has and shaal continue to have a
continuing security interest in, any and all right, title and interest of the
Company, whether now existing or hereafter acquired or arising, in and to:
(i) Mortgage Loans. Mortgage Loans, whether now existing or
hereafter arising and however evidenced or acquired, in which the Company now
has or hereafter acquires any rights and for which the promissory notes
evidencing the same shall, from time to time, be either identified by the
Company for inclusion in the Borrowing Base or in the possession of the
Collateral Agent (or an agent or bailee acting on behalf of the Lender or
Collateral Agent) (the term "Mortgage Loans" means and includes any loans made
or acquired by the Company secured by real estate including without limitation
(i) all promissory notes, mortgages, deeds of trust or other security documents,
(ii) all guaranties and insurance policies, including without limitation, all
mortgage and title insurance policies and (iii) all right, title and interest of
the owner of such loan in any interest in any kind of property or asset relating
thereto whether real, personal or mixed, or tangible or intangible;
(ii) Take-Out Commitments. All rights (but not obligations)
of the Company under all Take-Out Commitments, now existing or hereafter
arising, covering any Mortgage Loans, all rights to deliver Mortgage Loans, to
purchasers or permanent investors pursuant thereto and all proceeds resulting
from the disposition of such Mortgage Loans, pursuant thereto (the term
"Take-Out Commitment" means with respect to any Mortgage Loan: (a) a commitment
issued in favor of and held by the Company made by another party under which
said party agrees to purchase such loan or (b) an underwriting agreement with a
third party);
(iii) Servicing Rights. All now existing or hereafter arising
rights to service, administer and/or collect Mortgage Loans (unless any such
assignment shall be prohibited) and all rights to the payment of money on
account of such servicing, administration and/or collection activities;
(iv) Receivables. Receivables, whether now existing or
hereafter arising, and however evidenced or acquired, in which the Company now
has or hereafter acquires any rights which constitute or relate to any of the
other Collateral herein described (the term "Receivables" means and includes
accounts, accounts receivable, contract rights,
-2-
<PAGE>
instruments, notes, drafts, acceptances, documents, chattel paper, any right of
the Company to payment for services rendered, and whether or not earned by
performance, and all other forms of obligations owing to the Company, and
general intangibles, all forms of obligations at any time owing to or held or
acquired by the Company and all of the Company's rights and claims with respect
to such obligations (including its rights to receive payments on such
obligations, all rights of the Company under any arrangements authorizing the
Company to draw checks or drafts on the bank account of the obligor in respect
of a Mortgage Loan, all rights of the Company under any other automatic payment
plan entered into by the obligor in respect of a Mortgage Loan, its rights to
all collateral and other security therefor [including, without limitation,
rights to all insurance of the foregoing as well as rights to any repossessed
goods or real property] and its rights under all guaranties thereof);
(v) Dealer Claims. All rights and claims of the Company,
whether now existing or hereafter arising, against dealers or others from whom
it acquires Mortgage Loans or liens or security interests in Mortgage Loans
(individually a "Dealer" and collectively "Dealers"), including, without
limitation, all payments (whether in cash or property), and rights to receive
payments or retain sums of money on account of or for Mortgage Loans returned,
charged back to or repurchased by the parties from whom the Company has acquired
Mortgage Loans or liens or security interests in Mortgage Loans, including
rights under letters of credit furnished to support rights and claims against
dealers (the foregoing being collectively referred to as the "Dealer Claims");
(vi) Indemnification Claims. All rights and claims of the
Company, whether now existing or hereinafter arising, against title companies or
other closing agents (collectively the "Closing Agents" and individually, a
"Closing Agent") under any and all agreements or arrangements between the
Company and a Closing Agent in connection with the closing and funding of
Mortgage Loans, (collectively, the "Indemnification Agreements"), including
without limitation, all payments and rights to receive payments or other
property thereunder;
(vii) Records and Cabinets. Supporting evidence and documents
relating to any of the above described property and agreements or arrangements
for the processing or collection thereof, including without limitation, computer
programs, disks, tapes and related electronic data processing media, together
with rights of the Company to retrieve the same from third parties, written
applications, credit information, account cards, payment records,
correspondence, notes and other evidences of indebtedness, insurance
certificates and the like, together with all books of account, ledgers, tapes
and discs and cabinets in or on which the same are reflected or maintained, all
whether now existing or hereafter arising (the "Records and Cabinets");
(viii) Remittance Account and Funding Account.
The Remittance Account (as defined in Section 9(c) hereof) and all deposit
accounts of, or for the benefit of, the Company or any Closing Agent and all
sums now or hereafter on deposit therein, into which proceeds of loans made by
the Lender to the Company are deposited.
-3-
<PAGE>
(ix) Proceeds and Products. All proceeds and products of the
foregoing and all insurance of the foregoing and proceeds thereof, whether now
existing or hereafter arising;
all of the foregoing being herein sometimes referred to as the "Collateral" and
the Mortgage Loans are sometimes hereinafter collectively referred to as
"Pledged Loans".
(b) This Agreement is made and given to secure, and shall secure, the
prompt payment or performance in full when due, whether by lapse of time,
acceleration or otherwise, of (i) all indebtedness, obligations and liabilities
of the Company under or in connection with or evidenced by (x) the Credit
Agreement or (y) the Notes from time to time issued by the Company thereunder or
(z) this Agreement or any other Loan Document, in each case whether now existing
or hereafter arising, due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired and (ii) all expenses and
charges, legal and otherwise, incurred by the Collateral Agent or the Lender in
collecting or enforcing any of such indebtedness, obligations and liabilities or
in realizing on or protecting any security therefor, including, without
limitation, the security afforded hereunder (all of such indebtedness,
obligations, liabilities, expenses and charges identified in the immediately
foregoing clauses (i) and (ii) being hereinafter referred to as the "Secured
Obligations").
4. Delivery of Collateral. (a) From time to time, the Company shall
deliver the Collateral or cause the Collateral to be delivered to the Collateral
Agent hereunder. Delivery of the Collateral consisting of Mortgage Loans shall
be effected by delivery of the Required Documents therefor. The Collateral
Agent's responsibility to review such Collateral is limited to the review steps
set forth on Exhibit A hereto, said review to be completed within five (5)
Business Days from receipt by the Collateral Agent of such Collateral. All
Collateral at any time delivered to the Collateral Agent hereunder shall be held
by the Collateral Agent in a fire resistant vault or other suitable depositary
maintained and controlled solely by the Collateral Agent, conspicuously marked
to show the interest of the Lender therein and not commingled with any other
assets or property of, or held by, the Collateral Agent.
(b) Unless and until notified to do otherwise by the Collateral Agent,
all promissory notes, mortgages, deeds of trust or other documents evidencing or
relating to Underlying Mortgage Loans shall be held by the Company subject to
the security interest of the Collateral Agent therein solely as custodian,
bailee and agent for and on behalf of the Collateral Agent and the Secured
Parties subject to the instructions of the Collateral Agent and upon being
requested to do so, the Company shall deliver all such promissory notes,
mortgages, deeds of trust and other documents to the Collateral Agent together
with such endorsements, assignments and other instruments and documents as the
Collateral Agent may request.
5. Collateral Agent's Review of Collateral. Each delivery of Mortgage
Loans shall be accompanied by a report of the Company summarizing all pertinent
information with respect to such Mortgage Loans. Upon any receipt of Required
Documents for any such item of Collateral, the Collateral Agent 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 Collateral Agent's possession; and
-4-
<PAGE>
(b) The statements set forth on Exhibit A hereto are accurate and
complete in all respects.
Such verification for Collateral delivered during any period covered by
a collateral report referred to in Section 11(b) below shall be set forth in
such report. If the Collateral Agent notes any exception in the review described
in subsections (a) or (b) above or questions, in its reasonable discretion, the
genuineness, regularity, propriety, or accuracy of any item of Collateral, the
Collateral Agent shall so note in its next collateral report delivered to the
Lender. In the event that the Company has been required to deliver the
Additional Required Documents with respect to any Pledged Loan, the Collateral
Agent shall review and verify such Additional Required Documents consistent with
the obligations of the Collateral Agent above.
6. Borrowing Base Conformity; Mark-to-Market Requirement. (a) In support
of its obligation to repay the Secured Obligations, the Company shall cause to
be maintained with the Collateral Agent a Borrowing Base consisting of Eligible
Mortgage Loans.
(b) In the event on any day the outstanding principal balance of Loans
under the Credit Agreement ("Aggregate Credit Exposure") exceeds the- Borrowing
Base, as determined by the Collateral Agent at the request of the Lender in the
course of making a Determination of Availability pursuant to Section 7 below,
the Collateral Agent shall promptly so notify the Lender which shall promptly so
notify the Company and the Company shall immediately pay to the Lender the full
amount of such excess.
7. Determination of Availability; Calculation Assumptions. (a) Upon the
request of the Lender on any Business Day upon which the Company has delivered
to the Lender a request for a Borrowing under the Credit Agreement ("Borrowing
Request"), the Collateral Agent shalI compute the Borrowing Base and promptly
notify the Lender on such date of the dollar amount by which the Borrowing Base
exceeds (or is less than) the Aggregate Credit Exposure on such date before
effecting the credit extensions and repayments contemplated by such Borrowing
Request (a "Determination of Availability").
(b) In making any Determination of Availability or other calculation
involving a determination of the Borrowing Base, the Collateral Agent shall be
permitted to rely, without independent investigation of the correctness thereof,
on:
(1) The most recent information supplied by the Lender to the
Collateral Agent with respect to Aggregate Credit Exposure outstanding;
(2) With respect to a determination as to whether or not a
Pledged Loan is at any time covered by a Take-Out Commitment, or the outstanding
principal balance thereof or the cost or acquisition price therefor, information
supplied by the Company to the Collateral Agent on the related Delivery
Certificate; and
(3) With respect to a determination as to whether amounts received
in the Remittance Account represent the purchase price paid for a specific
Pledged Loan and, consequently, whether such Pledged Loan should be removed from
any such calculation, information supplied by the Company to the Collateral
Agent in writing.
-5-
<PAGE>
8. Allocation of Payments Received. All amounts received by the
Collateral Agent (including without limitation all amounts credited to the
Remittance Account) prior to the occurrence and continuance of any Event of
Default or Default on account of the sale or other disposition of the Collateral
shall be remitted and applied as provided in Section 9(c) hereof. Any other
amounts which may be received by the Collateral Agent prior to the occurrence
and continuance of any Event of Default or Default shall be made available to
the Company at the principal office of the Lender in Prospect Heights, Illinois
or at such other place designated by the Lender. All amounts of any kind which
may be received by the Collateral Agent with respect to the Collateral during
the continuance of any Default shall be held by the Collateral Agent for the
benefit of the Lender until such Default is cured or waived. Any amounts
received or held by the Collateral Agent during the continuance of any Event of
Default shall be paid to the Lender and applied in accordance with the Credit
Agreement.
9. Handling of Collateral; Remittance Account. (a) Unless an Event of
Default shall have occurred and be continuing, from time to time until otherwise
notified by the Required Banks (by telephone, telecopier or otherwise), the
Collateral Agent is hereby authorized to release documentation relating to
Pledged Loans to the Company against a trust receipt executed by the Company in
the form of Exhibit B hereto. The Company and the Collateral Agent will comply
with the trust receipt procedures specified on Exhibit C hereto. The Company
hereby represents and warrants that any request by the Company for release of
Collateral under this Section 9(a) shall be solely for the purposes of
correcting clerical or other non-substantial documentation problems in
preparation of returning such Collateral to the Collateral Agent 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 Credit
Agreement, including, without limitation, the definition of Eligible Mortgage
Loan.
(b) Unless an Event of Default or Default shall have occurred and be
continuing, in the event of a proposed sale of Pledged Loans or in connection
with the formation of a mortgage pool supporting mortgage backed securities,
which in either case will yield net proceeds to the Company in a minimum amount
at least equal to the amount by which the Note must be prepaid so that after
giving effect to the release of the related Pledged Loans involved in such sale
or securitization transaction, the outstanding principal balance of the Notes
will not exceed the Borrowing Base as then in effect (the "Release Price") upon
delivery by the Company to the Collateral Agent of a shipping request in the
form of that attached hereto as Exhibit D (which request shall be delivered to
the Collateral Agent no later than 10 days prior to the expected transmittal
date contemplated below), the Collateral Agent will transmit Pledged Loans held
by it as directed by the Company as follows:
(1) If the transmittal is of documentation for Pledged Loans in
the possession of the Collateral Agent to a third party which has been approved
in writing by the Lender, which approval shall not be unreasonably withheld or
delayed and which approval must be requested by the Company no later than 30
days prior to such anticipated transmittal in connection with the sale of such
Pledged Loans pursuant to a Take-Out Commitment, such transmittal will be under
cover of a transmittal letter in the form of that attached hereto as Exhibit E
(or such other form as may be approved by the Lender).
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(2) If the transmittal is of documentation for Pledged Loans in
connection with the shipment to a custodian or trustee which has been approved
in writing by the Required Banks which approval shall not be unreasonably
withheld or delayed in connection with the formation of a mortgage pool
supporting mortgage-backed securities pursuant to a Take-Out Commitment (any
such mortgage-backed security secured or otherwise supported by any such Pledged
Loan being referred to herein as a "MBS"), such transmittal will be under cover
of a transmittal letter in the form of that attached hereto as Exhibit F (or
such other form as may be approved by the Required Banks). The Collateral Agent
shall use its best efforts to obtain written acknowledgment of receipt from the
addressee of any transmittal letter or other communication sent by the
Collateral Agent hereunder.
(c) All amounts payable on account of the sale of any Pledged Loan or
the sale of the MBS related thereto will be instructed to be paid directly by
the purchaser to a trust account maintained with Household Bank, N.A. in the
name of the Company under sole custody and control of the Lender (the
"Remittance Account"). Pursuant to Section 3 above the Company has granted a
security interest in and lien upon the Remittance Account and in any and all
amounts at any time held therein as collateral security for the Secured
Obligations. This Section 9(c) shall constitute notice to the Collateral Agent
and Household Bank, N.A. of such security interest pursuant to Section
9302(l)(g) of the Illinois Uniform Commercial Code and any other law or
regulation requiring such notice. This Section 9(c) shall further constitute
irrevocable notice to the Collateral Agent and Household Bank, N.A. that
Remittance Account is a "no access" account to the Company. The Lender shall
hold such security interest in and lien upon the accounts referred to in Section
3 above and all funds at any time held therein for the benefit of the Secured
Parties with all rights of a secured party under the Illinois Uniform Commercial
Code. Unless an Event of Default or Default shall have occurred and be
continuing, when final payment of items constituting proceeds of the sales of
Pledged Loans or any MBS relating thereto has been received and are acceptable
to the Collateral Agent as such, an amount equal to the Release Price therefor
shall be transferred to the Lender and applied by the Lender as a prepayment on
the Note as set forth in Section 2.5 of the Credit Agreement with the balance of
such proceeds to be made available to the Company at the Agent's principal
office in Prospect Heights, Illinois. Amounts received after the occurrence and
during the continuance of any Event of Default or Default shall be handled in
accordance with Sections 8 and 16 hereof.
(d) Prior to the occurrence of an Event of Default, the Collateral
Agent 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 Credit Agreement and which the Company deems
necessary to enable the Company to perform and comply with Approved Take-Out
Commitments.
(e) As long as no Event of Default has occurred and is continuing and
if, but only if, such action is not inconsistent with the express provisions of
this Security Agreement and the Credit Agreement and would not create an Event
of Default or Default hereunder or thereunder, the Company may engage in the
consumer finance mortgage business and, in connection therewith, may: originate,
acquire and service Pledged Loans; receive payments on Pledged Loans from the
obligors thereon and impounds and fees in connection therewith; retain, use and
apply fees and payments made on account of the Pledged Loans by the obligors
thereunder; disburse from impound accounts; in the ordinary course of the
Company's business, deal with
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and manage its records, files and other items described in Section 3 above; sell
or otherwise dispose of Pledged Loans not included in the Borrowing Base, with
or without servicing rights; pledge Pledged Loans to the extent permitted under
the Credit Agreement; sell servicing rights; and enter into, exercise rights
under, perform, modify, waive and cancel any Take-Out Commitments.
(f) Following the occurrence of an Event of Default or Default, the
Collateral Agent shall not, and shall incur no liability to the Company or any
other Person for refusing to, release any item of Collateral to the Company or
any other Person (other than under existing Approved Take-out Commitments)
without the express prior written consent and at the direction of the Lender.
10. Release of Collateral. (a) No later than the close of business of
the Collateral Agent on the second Business Day following the delivery by the
Company to the Collateral Agent (with a copy concurrently delivered to the
Lender) of a Release Request, the Collateral Agent shall, unless prohibited by
law or judicial process binding upon the Collateral Agent and unless a Default
or Event or Default shall have occurred and be continuing, unconditionally
release Excess Collateral (as defined below) from the Lien of the Collateral
Agent and the Lender hereunder.
(b) For purposes of this Section 10, the term "Excess Collateral" shall
mean at any date, Pledged Loans included as Collateral hereunder at such date
which, if released, would not result in a failure of the Company to be in
compliance with the requirements of the Credit Agreement and Section 6 above.
The Collateral Agent shall be entitled to rely, without independent
investigation of the correctness thereof, on the most recent information
supplied to it by the Lender with respect to Aggregate Credit Exposure and, with
respect to the outstanding principal balance of Pledged Loans, on the most
recent information supplied to it by the Company in making any determination
regarding Excess Collateral pursuant hereto. The Collateral Agent may, in the
discretion of and upon direction of the Lender to do so, select those Pledged
Loans which it will release pursuant to subsection (a) above, it being expressly
acknowledged and agreed by the Company that the Collateral Agent and Lender
intend to retain a Lien hereunder on Pledged Loans which they deem of the
highest value. The Collateral Agent and the Lender will from time to time
establish the general parameters of the approach to such selection process which
they anticipate following but the Collateral Agent and the Lender reserve the
right to act in their sole discretion in making such selection and shall have no
liability to the Company or any other Person in connection with any actual
selection and subsequent release other than such as constitutes gross negligence
or willful misconduct on their part.
11. Reports. (a) The Company shall deliver to the Collateral Agent on
or before the 15th of each month a copy of a status report of the Collateral
reasonably satisfactory to the Collateral Agent as of the close of business on
the last day of the immediately preceding month.
(b) The Collateral Agent shall deliver to the Company and Lender: (1)
on or before 5 days following receipt by it of the report referred to in Section
11(a) above, a collateral report in the form of that attached hereto as Exhibit
G with respect to the status of the Borrowing Base as of the date of the most
recent Borrowing Base Certificate provided by the Company pursuant to the Credit
Agreement, and (2) from time to time, such other reports and information as the
1.61
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Lender may from time to time reasonably request. In preparing any such reports
the Collateral Agent shall be entitled to rely, without independent
investigation (other than the review steps described on Exhibit A hereto), on
information supplied to the Collateral Agent by the Company and the Lender.
12. No Reliance. The Collateral Agent shall not be responsible to any
Secured Party for any recitals, statements, representations or warranties
contained herein or in any other Loan Document; or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility, accuracy,
completeness or sufficiency of the Collateral or this Agreement or other Loan
Document or instruments executed and delivered, or which could have been
executed or delivered, in connection with this Agreement or the other Loan
Documents, including, without limitation, the attachment, creation,
effectiveness or perfection of the security interest granted or purported to be
granted hereunder in and to the Collateral or the Company's or Collateral's
compliance with federal or state licensing requirements, usury, retail
installment sales and consumer credit and protection laws and regulations. The
Collateral Agent shall be entitled to refrain from exercising any discretionary
powers or actions under this Agreement or any other Loan Document until the
Co1lateral Agent shall have received the prior written consent of the Lender to
such action.
13. Costs and Expenses. The Company agrees to pay the fees, costs and
expenses of the Collateral Agent in accordance with the terms of a written
agreement between the Company and the Collateral Agent together with all other
costs and expenses in connection herewith as provided in the Credit Agreement.
14. Availability of Documents. The Lender and its agents, accountants,
attorneys and auditors will be permitted during normal business hours at any
time and from time to time upon reasonable notice to examine (to the extent
permitted by applicable law) the files, documents, records and other papers in
the possession or under the control of the Collateral Agent relating to any or
all Collateral and to make copies thereof. Prior to the occurrence of an Event
of Default, any such activity will be at the cost and expense of the Lender and
following the occurrence of an Event of Default, all costs and expenses
associated with the exercise by Lender of its rights under this Section 14 shall
be promptly paid by the Company upon demand of the Lender.
15. Covenants, Agreements, Representations and Warranties. So long as
any Secured Obligations or any obligation to extend the same remain outstanding,
the Company hereby covenants and agrees with, and represents and warrants to,
the Lender that:
(a) The Company is the sole lawful owner of the Collateral and has the
sole right, power and lawful authority to deliver this Agreement and to perform
each and all of the matters and things herein provided for.
(b) The Company's chief executive office and chief place of business is
at 355 NE 5th Avenue, Suite 4, Delray Beach Florida 33483, and the Company has
no other executive offices or places of business other than 180 North Riverview,
Suite 230, Anaheim Hills, California 92808. The Company will not maintain an
executive office or place of business at a location other than those specified
pursuant to the immediately preceding sentence without first
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providing the Collateral Agent and the Lender 30 days' prior written notice of
its intent to do so; provided, however, that the Company will at all times
maintain its chief executive office in the contiguous continental United States.
(c) The Collateral and every part thereof is and will be free and clear
of all security interests, liens, attachments, levies and encumbrances of every
kind, nature and description and whether voluntary or involuntary, except for
the security interest of the Collateral Agent therein and liens permitted under
the Security Agreement. The Company will warrant and defend the Collateral
against any claims and demands of all persons at any time claiming the same or
any interest in the Collateral adverse to the Collateral Agent or Lender.
(d) Each Pledged Loan which is included at any time in the computation
of the Borrowing Base, is an Eligible Mortgage Loan.
(e) The Company will promptly pay when due all taxes, assessments, and
governmental charges and levies upon or against the Company or its operations or
the Collateral or any other property of the Company, in each case before the
same become delinquent and before penalties accrue thereon, unless and to the
extent that the same are being contested in good faith by appropriate
proceedings which prevent foreclosure on or other realization upon the
Collateral and preclude interference with the operation of the Company's
business in the ordinary course, and the Company shall have established adequate
reserves therefor.
(f) The Company will not, without the Lender's prior written consent,
sell, assign, mortgage, lease or otherwise dispose of the Collateral or any
interest therein except to the Collateral Agent or in connection with shipment
of Pledged Loans under Approved Take-Out Commitments and as otherwise permitted
under Section 9 above.
(g) The Company will at all times allow the Lender or its
representatives free access to and right of inspection of the premises of the
Company and the Collateral. The Company will not remove the Collateral from its
present location without the Lender's prior written consent (provided that it is
understood and agreed that if for any reason Collateral is at any time kept or
located at locations other than its present location or locations hereafter
consented to by the Lender, the Collateral Agent shall nevertheless have and
retain a security interest therein).
(h) The Company agrees, at all times upon the request of the Collateral
Agent or the Lender, to account fully for the Collateral and all proceeds
thereof and further agrees, upon the occurrence and during the continuance of
any Event of Default or Default, to promptly deliver to the Collateral Agent, in
the form received, all Collateral or Proceeds thereof endorsed to the Collateral
Agent as appropriate and accompanied by such assignments and powers, duly
executed, as the Collateral Agent shall request and until so delivered all
Collateral and Proceeds shall be held in trust for the Collateral Agent,
separate from all other property of the Company and identified as the property
of the Collateral Agent.
(i) The Company has not invoiced Receivables or otherwise transacted
business, and does not invoice Receivables or otherwise transact business, under
any trade names or styles other than in its name indicated at the beginning
hereof. The Company will not change its name
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or transact business under any trade name, in each case without first giving the
Lender 30 days' prior written notice of its intent to do so.
(j) The Company agrees to execute and deliver to the Lender and the
Collateral Agent such further endorsements, agreements, financing statements and
assignments or other instruments and documents and to do all such other things
as the Collateral Agent or Lender may deem necessary or appropriate to assure
the Lender its security interest and the priority thereof hereunder, including
such financing statement or statements or amendments thereof or supplements
thereto or other instruments as the Lender may from time to time require in
order to comply with the Uniform Commercial Code as enacted in the State of
Illinois and any successor statute(s) thereto (the "Code"). The Company agrees
to promptly deliver to the Collateral Agent all originals of Collateral or
proceeds constituting chattel paper or instruments. The Company hereby agrees
that a carbon, photographic or other reproduction of this Agreement or any such
financing statement is sufficient for filing as a financing statement by the
Collateral Agent without notice thereof to the Company wherever the Collateral
Agent in its sole discretion desires to file the same. In the event for any
reason the law of any other jurisdiction than Illinois becomes or is applicable
to the Collateral or any part thereof, the Company agrees to execute and deliver
all such instruments and to do all such other things as the Collateral Agent or
Lender in its sole discretion deems necessary or appropriate to preserve,
protect and enforce the security interest of the Collateral Agent under the law
of such other jurisdiction to at least the same extent as such security interest
would be protected under the Code. The Collateral Agent shall, after an Event of
Default shall have occurred hereunder and while continuing, have the right to
take physical possession of any and all of the Collateral and to maintain such
possession on the Company's premises or to remove the Collateral or any part
thereof to such other places as the Collateral Agent may desire. If the
Collateral Agent exercises its right to take possession of the Collateral, the
Company shall, upon Collateral Agent' demand, assemble the Collateral and make
it available to the Collateral Agent at a place designated by the Collateral
Agent. The Company shall at its expense perform any and all other steps
requested by Collateral Agent to preserve and protect the security interest
hereby granted in the Collateral.
(k) The Company will not, except as permitted under Section 16(a)
hereof, modify, compromise, extend, rescind or cancel any note, mortgage, deed
of trust or other document, instrument or agreement relating to any Pledged Loan
pledged under this Security Agreement or consent to a postponement of strict
compliance on the part of any party thereto with any material term or provision
thereof.
(1) The Company will do all things that a prudent investor would deem
necessary or desirable to maintain, preserve and protect the Collateral.
(m) On failure of the Company to perform any of the covenants and
agreements herein contained, the Lender or the Collateral Agent may at its
option perform the same and in so doing may expend such sums as the Lender or
the Collateral Agent may deem advisable in the performance thereof, including
without limitation the payment of any insurance premiums, the payment of any
taxes, liens and encumbrances, expenditures made in defending against any
adverse claims and all other expenditures which the Lender or the Collateral
Agent may be compelled to make by operation of law or which the Lender or the
Collateral Agent may make by agreement or otherwise for the protection of the
security hereof. All such sums and amounts
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so expended shall be repayable by the Company immediately without notice or
demand, shall constitute additional Secured Obligations hereunder and shall bear
interest from the date said amounts are expended at the rate per annum
(computed on the basis of a year of 360 days for the actual number of days
elapsed) determined by adding _% to the Domestic Rate with any change in such
rate per annum as so determined by reason of a change in such Domestic Rate to
be effective on the date of such change in said Domestic Rate (such rate per
annum as so determined being hereinafter referred to as the "Default Rate"). No
such performance of any covenant or agreement by the Lender or the Collateral
Agent on behalf of the Company, and no such advancement or expenditure therefor,
shall relieve the Company of any default under the terms of this Agreement or in
any way obligate the Lender or the Collateral Agent, or the Lender to take any
further or future action with respect thereto. The Lender or the Collateral
Agent in making any payment hereby authorized may do so according to any bill,
statement or estimate procured from the appropriate public office or holder of
the claim to be discharged without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien or title or claim. The Collateral Agent in performing any
act hereunder shall be the sole judge of whether the Company is required to
perform the same under the terms of this Agreement. The Collateral Agent or the
Lender are each authorized to charge any depository or other account of the
Company maintained with the Collateral Agent or Lender for the amount of such
sums and amounts so expended by the Collateral Agent.
16. Collection of Collateral Payments.
(a) The Company shall make collection of all Pledged Loans,
Receivables, Dealer Claims and any other sums due with respect to the Collateral
(collectively, "Collateral Payments") unless notified to the contrary by the
Collateral Agent after the occurrence and during the continuance of any Default
or Event of Default and may use the same to carry on its business in accordance
with sound business practice and otherwise subject to the terms hereof and of
any separate written agreements between the Company and the Lender; provided
that, other than in the ordinary course of the Company's business and consistent
with practices historically observed by it, the Company shall not, without the
prior written consent of the Lender, grant any extension of the time of payment
of any Collateral Payment, compromise or settle any Collateral Payment for less
than the full amount thereof, release (in whole or in part) any person or
property liable for the payment thereof or granted as collateral security
therefor, or allow any credit or discount whatsoever thereon.
(b) Upon the occurrence of any Default or Event of Default hereunder,
all instruments (including any postdated checks) at any time constituting part
of the Collateral Payments shall, upon receipt by the Company and request by the
Collateral Agent or the Lender, be immediately endorsed to and deposited with
the Collateral Agent in the same form as received by the Company. Upon the
occurrence and during the continuation of any Default or Event of Default
hereunder, whether or not the Collateral Agent has exercised any or all of its
rights under other provisions of this Section 16, in the event the Collateral
Agent requests the Company to do so:
(i) all chattel paper at any time constituting part of the
Collateral Payments shall, upon receipt by the Company, be immediately endorsed
to and deposited with the Collateral Agent; and/or
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(ii) the Company shall instruct all customers and account debtors
to remit all payments in respect of Collateral Payments to a lock box or lock
boxes under the sole custody and control of the Collateral Agent and which are
maintained at post offices selected by the Collateral Agent.
(c) Upon the occurrence and during the continuation of any Default or
Event of Default hereunder, whether or not the Collateral Agent has exercised
any or all of its rights under other provisions of this Section 16, the
Collateral Agent or its designee may notify account debtors or others at any
time that Collateral Payments have been assigned to the Collateral Agent or of
the Collateral Agent' security interest therein and either in its own name, or
the name of the Company, or both, demand, collect (including, without
limitation, through a lock box analogous to that described in Section 16(b)(ii)
hereof), receive, receipt for, sue for, compound and give acquittance for any or
all amounts due or to become due on Collateral Payments, and in the Collateral
Agent's discretion file any claim or take any other action or proceeding which
Collateral Agent may deem necessary or appropriate to protect and realize upon
the security interest of Collateral Agent in the Collateral Payments.
(d) Upon the occurrence and during the continuation of any Default or
Event of Default hereunder, the Collateral Agent may, at any time or times
thereafter, cause all instruments, chattel paper, monies or other proceeds of
Pledged Loans, Receivables, Dealer Claims or other Collateral Payments
transmitted to or otherwise received by the Collateral Agent pursuant to any of
the provisions of Sections 16(a), 16(b) or 16(c) hereof to be deposited, handled
and administered by the Collateral Agent in and through the Remittance Account
(or other accounts maintained by the Collateral Agent at a commercial bank or
banks selected by the Collateral Agent) and the Company acknowledges that the
maintenance of such Remittance Account or accounts by the Collateral Agent is
solely for the Collateral Agent's own convenience and that the Company does not
have any right, title. or interest therein or any amounts at any time standing
to the credit thereof. When final payment of checks, instruments or other items
so received by the Lender as collections of the Collateral Payments have been
received by the Collateral Agent in cash or final solvent credits at its
principal office, acceptable to the Collateral Agent as such, the same shall be
given to the Lender and applied in payment of the Secured Obligations, whether
or not then due and payable, in such amounts, in such manner and order. as set
forth in the Credit Agreement (provided, however, that the Collateral Agent may
at the Lender's direction credit uncollected funds in payment of the Secured
Obligations, provided further that the Company shall be liable for and pay upon
demand any overdraft caused thereby, together with interest thereon at the
Default Rate). Neither the Collateral Agent nor the Lender shall be required to
make such applications more frequently than once per week.
17. Power of Attorney. In addition to any other powers of attorney
contained herein, the Company appoints the Lender and the Collateral Agent and
each of them individually their respective nominees, or any other person whom
the Lender or the Collateral Agent may designate as the Company's attorney in
fact, with full power (i) to endorse the Company's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Lender' or the Collateral Agent's possession and (ii) to sign the
Company' name on drafts against customers, on schedules and assignments of
Collateral payments, on notices of assignment and on public records, on
verifications of accounts, and on
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notices to customers, to notify the post office authorities to change the
address for delivery of the Company's mail to an address designated by the
Lender or Collateral Agent, and to receive, open and dispose of all mail
addressed to the Company, provided that the Lender and the Collateral Agent each
agrees, as a special covenant, to exercise such rights set forth in clauses (i)
and (ii) only upon the occurrence and during the continuance of an Event of
Default hereunder. The Collateral Agent or the Lender may send requests for
verification of Collateral Payments to customers or account debtors, and do all
things necessary to carry out this Agreement. The Company hereby ratifies and
approves all acts of any such attorney and agrees that neither the Collateral
Agent, the Lender nor any such attorney will be liable for any acts or omissions
nor for any error of judgment or mistake of fact or law other than their gross
negligence or willful misconduct. The foregoing power of attorney, being coupled
with an interest, is irrevocable until the Secured Obligations have been fully
satisfied and the commitments of the Lender to extend credit to the Company
under the Credit Agreement have terminated. The Lender may file one or more
financing statements disclosing its security interest in any or all of the
Collateral without the Company's signature appearing thereon. The Company also
hereby grants the Lender and the Collateral Agent a power of attorney to execute
any such financing statement, or amendments and supplements to financing
statements, on behalf of the Company without notice thereof to the Company,
which power of attorney is coupled with an interest and is irrevocable until the
Secured Obligations have been fully satisfied and the commitments of the
Lender to extend credit to the Company under the Credit Agreement have
terminated.
18. Defaults and Remedies.
(a) The occurrence of any event or the existence of any condition which
is specified as an Event of Default or Default under the Credit Agreement shall
constitute an "Event Of Default" or "Default" hereunder.
(b) Upon the occurrence and during the continuation of any Event of
Default hereunder, the Lender shall have, in addition to all other rights
provided herein or by law, the rights and remedies of a secured party under the
Code (regardless of whether the Code is the law of the jurisdiction where the
rights or remedies are asserted), and further the Lender may, without demand and
without advertisement or notice, all of which the Company hereby waives, at any
time or times, sell and deliver any or all Collateral held by it or the
Collateral Agent or for its public or private sale, for cash, upon credit or
otherwise, at such prices and upon such terms as the Lender deems advisable, in
its sole discretion. In addition to all other sums due the Collateral Agent or
the Lender hereunder, the Company shall pay the Collateral Agent and the Lender
all costs and expenses incurred by the Collateral Agent or the Lender, including
a reasonable allowance for attorneys' fees and court costs, in obtaining,
liquidating or enforcing payment of Collateral or Secured Obligations or in the
prosecution or defense of any action or proceeding by or against the Collateral
Agent, the Lender or the Company concerning any matter arising out of or
connected with this Agreement or the Collateral or Secured Obligations,
including without limitation any of the foregoing arising in, arising under or
related to a case under the United States Bankruptcy Code. Any requirement of
reasonable notice shall be met if such notice is personally served on or mailed,
postage prepaid, to the Company at the mailing address shown at the beginning
hereof at least 10 days before the time of sale or other event giving rise to
the requirement of such notice. The Collateral Agent or the Lender may be the
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purchaser at any such sale. The Company hereby waives all of its rights of
redemption from any such sale. Subject to the provisions of applicable law, the
Lender may postpone or cause the postponement of the sale of all or any portion
of the Collateral by announcement at the time and place of such sale, and such
sale may, without further notice, be made at the time and place to which the
sale was postponed or the Lender may further postpone such sale by announcement
made at such time and place.
(c) Failure by the Lender or the Collateral Agent to exercise any
right, remedy or option under this Agreement or any other agreement between the
Company and the Lender or the Collateral Agent or provided by law, or delay by
the Lender or Collateral Agent in exercising the same, shall not operate as a
waiver; no waiver by the Collateral Agent shall be effective unless it is in
writing, signed by the Lender or the Collateral Agent at the direction of the
Lender and then only to the extent specifically stated. For purposes of this
Agreement, a Default or Event of Default hereunder shall be construed as
continuing after its occurrence until the same is waived in writing by the
Lender. Neither the Collateral Agent, nor the Lender, nor any party acting as
attorney for the Collateral Agent or the Lender, shall be liable hereunder for
any acts or omissions or for any error of judgment or mistake of fact or law
other than their gross negligence or willful misconduct. The rights and remedies
of the Lender and the Collateral Agent under this Agreement shall be cumulative
and not exclusive of any other right or remedy which the Collateral Agent or the
Lender may have.
19. Application of Proceeds. The proceeds and avails of the Collateral
at any time received by the Lender or Collateral Agent shall, (if received by
the Collateral Agent in cash or its equivalent be transmitted to the Lender and
applied by the Lender in reduction of the Secured Obligations as set forth in
Section 3.3 of the Credit Agreement except as otherwise expressly provided
herein. The Company shall remain liable to the Collateral Agent and the Lender
for any deficiency. Any surplus remaining after the full payment and
satisfaction of the Secured Obligations shall be returned to the Company or to
whomsoever the Lender reasonably determine to be lawfully entitled thereto.
20. Continuing Agreement. This Agreement shall be a continuing agreement
in every respect and shall remain in full force and effect until all of the
Secured Obligations, both for principal and interest, have been fully paid and
satisfied and any Commitment of the Lender to extend any credit to the Company
under the Credit Agreement shall have terminated. Upon such termination of this
Agreement, the Lender shall, upon the request and at the expense of the Company,
forthwith release all its liens and security interests hereunder.
21. The Collateral Agent.
(a) The Lender hereby appoints the Collateral Agent as the agent for
the Lender hereunder and under the other Loan Documents and authorizes the
Collateral Agent as its agent to take such action on its behalf under the
provisions of this Agreement and to exercise such powers and perform such
duties as are expressly delegated thereto by the terms of this Agreement,
together with such other powers as are reasonably incidental thereto and which
the Collateral Agent is expressly directed to undertake by the Lender. The
Collateral Agent shall have no duties or responsibilities except those
expressly set forth herein, and no implied
-15-
<PAGE>
covenants, responsibilities, obligations or liabilities shall be read into the
Loan Documents or otherwise exist against the Collateral Agent.
(b) Delegation of Duties. The Collateral Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning such duties. The Collateral Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care which are reasonably
acceptable to the Lender and the Company.
(c) Exculpatory Provisions. Neither the Collateral Agent nor any of its
officers, directors, employees, agents, counsel, attorneys-in-fact or Affiliates
shall be (1) liable to the Lender, or the Company for any action taken or
omitted to be taken by it or such Person under or in connection with the Loan
Documents (except for its or such Person's own negligence, lack of good faith or
willful misconduct), or (2) responsible in any manner to either of the Lender or
the Company for: (i) any recitals, statements, representations or warranties
made by the Company or any officer thereof contained in the Loan Documents or in
any certificates, report, statement or other document referred to or provided
for in, or received by the Collateral Agent under or in connection with, the
Loan Documents (except such as are prepared by the Collateral Agent and, then,
only to the extent the Collateral Agent is responsible for verification of the
accuracy and completeness of the information contained therein or the facts upon
which such information is based as expressly provided herein) or for the value,
validity, effectiveness, genuineness, enforceability, collectibility or
sufficiency of the Loan Documents or for any failure of the Company to perform
its obligations thereunder or (ii) any action taken or omitted to be taken by
the Collateral Agent with respect to the Collateral in accordance with written
instructions given as permitted under the Loan Documents, or (iii) assuring
compliance of the Loan Documents and the transactions contemplated by the Loan
Documents with any law or regulation binding on such Person, it being expressly
acknowledged, agreed and understood that each such Person has obtained
independent advice satisfactory to it in all such respects. The Collateral Agent
shall be under no obligation to the Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Loan Documents (other than agreements required to be complied with by
the Collateral Agent thereunder and subject to the standards of care set forth
therein with respect thereto) or to inspect the properties, books or records of
the Company. The Collateral Agent shall be entitled to refrain from exercising
any discretionary powers or actions under this Agreement or any other Loan
Document until it shall have received the prior written consent of the Lender to
such action.
(d) Reliance by Collateral Agent. The Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certification, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the Collateral
Agent. The Collateral Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Collateral Agent.
The Collateral Agent shall be fully justified in failing or refusing to take any
action hereunder unless
-16-
<PAGE>
it shall first receive such advice or concurrence of the Lender or it shall
first be indemnified to its satisfaction by the Lender against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any action (other than liability and expense arising out of
the Collateral Agent's negligence, lack of good faith, or willful misconduct).
The Collateral Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with a request of the Lender
absent negligence, lack of good faith or willful misconduct on the part of the
Collateral Agent in the method in which it acts or refrains from acting in
accordance therewith, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lender.
(e) Notice of Default; Agreement to Advance. The Collateral Agent shall
be deemed to have no knowledge or notice of the occurrence of any Event of
Default or Default under the Credit Agreement or any other Loan Document unless
the Collateral Agent has received notice from the Lender or the Company
referring to the Loan Documents, describing such Event of Default or Potential
Default and stating that such notice is a "notice of default". In the event that
the Collateral Agent receives such a notice, the Collateral Agent shall give
notice thereof to the Company and the Lender. The Collateral Agent shall take
such action with respect to such Event of Default or Potential Default as is set
forth in Section and as shall be reasonably directed by the Lender; provided,
however that unless and until the Collateral Agent shall have received such
directions, the Collateral Agent may (but shall not be obligated to) take such
action or refrain from taking such action (in each case consistent with the
provisions of the Loan Documents), with respect to such Event of Default or Loan
Default, as it shall deem advisable in the best interest of the Lender.
(f) Indemnification. The Company agrees to indemnify, defend and hold
harmless the Collateral Agent in its capacity as such and its agents, employees,
officers and directors from and against any and all claims, obligations,
penalties, actions, suits, judgments, reasonable costs and disbursements,
losses, liabilities and damages (including, without limitation, reasonably
attorneys' fees) of any kind whatsoever which may at any time be imposed on,
assessed against or incurred by the Collateral Agent in any way resulting from
any action taken or omitted to be taken by the Lender (so long as the Lender is
entitled to indemnification for such acts or omissions from the Company under
the Credit Agreement) or the Company relating to or arising out of the Loan
Documents or any documents contemplated by or referred to therein or the
transactions contemplated thereby; provided, however, that this Paragraph shall
not relieve the indemnified party from liability for its own negligence, lack of
good faith or wilful misconduct. The Collateral Agent agrees that it will
promptly notify the Company of any such claim, action or suit asserted or
commenced against it and that the Company may assume the defense thereof with
counsel reasonably satisfactory to the Collateral Agent at the Company's sole
expense, that the Collateral Agent will cooperate with the Company on such
defense, and that the Collateral Agent will not settle any such claim, action or
suit without the consent of the Company; provided, however, that in the event
the Collateral Agent is not reasonably satisfied with such defense, the
Collateral Agent after reasonable notice to the Company and their failure to
cure, may assume such defense with counsel satisfactory to the Collateral Agent
and the Company shall be responsible for the reasonable expense thereof. The
Lender agrees to indemnify and hold harmless the Collateral Agent in its
capacity as such to the extent required by the Company pursuant to the terms
hereof and without limiting the obligation of the Company to do so. The
indemnification obligations of the Company and the Lender under this Section 1
shall survive
-17-
<PAGE>
termination of the Loan Documents and payment in full of the Obligations;
provided, that the Collateral Agent shall only be entitled to claim such
indemnity based on circumstances specified in a written request submitted to the
Company not later than ninety (90) days after the repayment in full of the
outstanding Loans.
(g) Collateral Agent in Its Individual Capacity. The Collateral Agent
and its Affiliates may take loans to, accept deposits from and generally engage
in any kind of business with the Company as though the Collateral Agent were not
the Collateral Agent hereunder.
(h) Successor Agents. The Collateral Agent may resign as such under the
Credit Documents upon sixty (60) days' prior written notice to the other parties
hereto. The Company may upon sixty (60) days' prior notice remove and discharge
the Collateral Agent, or any successor Collateral Agent thereafter appointed,
from the performance of its duties under this Agreement by written notice from
the Company to the Collateral Agent or the successor Collateral Agent, with
copies thereof to the Company. If the Collateral Agent shall resign or is
removed by the Lender, then, on or before the effective date of such resignation
or removal, the Lender shall appoint a successor agent reasonably acceptable to
the Company (after prior consultation with the Company) or, if the Lender is
unable to appoint a successor agent, the Collateral Agent (after prior
consultation with the Company) shall appoint a successor agent for the
Administrative Agent, which successor agent shall be reasonably acceptable to
the Company. If the Collateral Agent is removed by the Company, then, or before
the effective date of such removal, the Company shall appoint a successor agent
reasonably acceptable to the Lender (after prior consultation with the Lender)
or if the Company is unable to appoint a successor agent, the Collateral Agent
(after prior consultation with the Lender shall appoint a successor agent for
the Company, which successor agent shall be reasonably acceptable to the Lender.
Any such successor agent so appointed shall succeed to the rights, powers and
duties of the Collateral Agent, and the term "Collateral Agent" shall mean such
successor agent effective upon its appoint, and the former Collateral Agent's
rights, powers and duties shall be terminated without any other or further act
or deed on the part of such former Collateral agent or any of the parties to
this Agreement or any of the other Loan Documents or successors thereto. Upon
such appointment, the resigned or removed Collateral Agent will deliver all
Collateral to the successor Collateral Agent and take all other steps deemed
necessary by the Lender to vest the successor Collateral Agent with all rights,
titles, and powers given to the Collateral Agent hereunder. The Company shall,
(i) promptly upon removal of Collateral Agent, pay to the Collateral Agent any
accrued and unpaid fees which may be owing to it and (ii) upon request from the
Collateral agent (provided such request is submitted to the Company no later
than ninety (90) days after removal of the Collateral Agent), pay to the
Collateral Agent any reasonable fees incurred in conjunction with such removal.
After the Collateral Agent's resignation hereunder, the provisions of this
Section 21 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Collateral Agent hereunder.
22. Miscellaneous.
(a) This Agreement cannot be changed or terminated orally. This
Agreement shall create a continuing security interest in the Collateral and
shall be binding upon the Company, its successors and assigns and shall inure,
together with the rights and remedies of the Collateral Agent hereunder, to the
benefit of the Collateral Agent, the Lender and their successors and
-18-
<PAGE>
assigns; provided, however, that the Company may not assign its rights or
delegate its duties hereunder without the Collateral Agent's and under's prior
written consent. The Company hereby releases the Lender and the Collateral Agent
from any liability for any act or omission relating to the Collateral or this
Agreement, except the Lender's or Collateral Agent's, as appropriate, gross
negligence or willful misconduct.
(b) All communications provided for herein shall be in writing, except as
otherwise specifically provided for hereinabove, and shall be given and deemed
to have been made if given in accordance with the provisions of Section 9.6 of
the Credit Agreement, addressed as follows: If to the Company or the Lender at
the addresses specified in Section 9.6 of the Credit Agreement.
If to the Collateral Agent:
First Union Bank of North Carolina, N.A.
One First Union Center
TW-6
Charlotte, NC 28288
Attention: Marty Froelick
Telephone: 704-383-1761
Telecopy: 704-374-7102
(c) In the event that any provision hereof shall be deemed to be
invalid by reason of the operation of any law or by reason of the interpretation
placed thereon by any court, this Agreement shall be construed as not containing
such provision, but only as to such jurisdictions where such law or
interpretation is operative, and the invalidity of such provision shall not
affect the validity of any remaining provision hereof, and any and all other
provisions hereof which are otherwise lawful and valid shall remain in full
force and effect.
(d) This Agreement shall, to the extent permitted by applicable law, be
deemed to have been made in the State of Illinois and shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to principles of conflicts of laws. All terms which are used in this Agreement
which are defined in the Code shall have the same meanings herein as said terms
do in the Code unless this Agreement shall otherwise specifically provide. The
headings in this instrument are for convenience of reference only and shall not
limit or otherwise affect the meaning of any provision hereof.
(e) The Company, by its execution hereof, acknowledges and agrees that
it is and remains liable for the performance of any and all of its obligations
under the Collateral to the same extent as though this Agreement had not been
made. The Company acknowledges that this Agreement constitutes an assignment of
rights of the Company and not an assignment of any duties or obligations of the
Company with respect to the Collateral, it being understood that neither the
Collateral Agent nor the Under shall in any manner be responsible for the
performance of any such duties or obligations.
-19-
<PAGE>
(f) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each constituting an
original, but all together one and the same instrument.
-20-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed of the date first above written.
WESTMARK MORTGAGE CORPORATION
By:/s/ Mark Shaftlein
--------------------------
Its: Mark Shaftlein
President
Accepted and agreed to in Chicago, Illinois as of the date first above
written.
FIRST UNION BANK OF NORTH CAROLINA,
N.A., as Collateral Agent
By: /s/ illegible
------------------------------
Its: illegible
HOUSEHOLD FINANCIAL SERVICES, INC.
By: /s/ Michael M. Forester
------------------------------
Michael M. Forester
Its: Vice President
-21-
<PAGE>
Schedule of Exhibits
to
Security Agreement
EXHIBIT DOCUMENT
- ------- --------
A Required Review Steps
B Form of Trust Receipt
C Trust Receipt Procedures
D Form of Shipping Request
E Form of Whole Loan Sale Transmittal Letter
F Form of Transmittal for Pool Formation
G Form of Collateral Report
<PAGE>
Exhibit A
Required Review Steps
A. Mortgage Loans
1. All submitted documents, including the report and certificate of
the Company accompanying the pledged Mortgage Loans are consistent
as to borrower name, property address, loan face amount, loan
interest rate, loan term and Company 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 Company of the note in the
event such loan was purchased by Company and (b) the endorsement
in blank of the note by Borrower, neither the note, the
mortgage/deed of trust, nor the assigmnent(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 Company, based on
the current list of such officers supplied by Company.
5. The assignment of the mortgage/deed of trust bears an original
signature of an authorized officer of Company, based on the
current list of such officers supplied by Company.
<PAGE>
Exhibit B
Form of Trust Receipt
Date _______________, 19__
The undersigned, Westmark Mortgage Corporation, a ____________________
corporation (the "Company"), acknowledges receipt from First Union Bank of North
Carolina, acting as agent, bailee and custodian (in such capacity "Collateral
Agent") for the exclusive benefit of the Lender (as such term is defined in the
Security Agreement) pursuant to the Security Agreement (as those terms and
capitalized terms not otherwise defined herein are defined in that certain
Security and Collateral Agency Agreement dated as of ____________, 1997, among
the Lender, the Company, and the Collateral Agent, or from its duly appointed
sub-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
Illinois Uniform Commercial Code in the Collateral hereinabove described and in
the Proceeds of said Collateral has been granted to under pursuant to the
Security Agreement.
The Company hereby represents and warrants that (a) the unpaid
principal amount of the Mortgage Loans the Collateral Documents for which are
requested to be released hereunder when added to the unpaid principal amount of
all other Mortgage Loans included in the computation of the Borrowing Base the
Collateral Documents for which have been similarly released does not exceed
$__________________ and (b) no Default or Event of Default has occurred under
the Credit Agreement.
In consideration of the aforesaid delivery by Collateral Agent (or by
its duly appointed sub-agent), the Company hereby agrees to hold said Collateral
in trust for Collateral Agent on behalf of the Lender as provided under and in
accordance with all provisions of the Security Agreement and to return said
Collateral to Collateral Agent no later than the close of business on the tenth
day following the date hereof or, if such day is not a Business Day, on the
immediately succeeding Business Day.
WESTMARK MORTGAGE CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Exhibit C
Trust Receipt Procedures
The Company and Collateral Agent will adhere to the following procedures with
respect to trust receipts:
Collateral Agent will maintain all original trust receipts in a vault, drawer
or other suitable depositary maintained and controlled solely by Collateral
Agent.
<PAGE>
Exhibit D
Form of Shipping Request
(For Delivery In Connection With Pooled Loan Sales or Securitizations)
Date:________________________
First Union National Bank of North Carolina, as Collateral Agent
_____________________________
_____________________________
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 Take-Out Commitment # _______ (the "Commitment"):
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 Collateral Agent for the Lender under (and as defined in) that certain
Security and Collateral Agency Agreement dated as of ______________, 1997, 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
expires on ________________, 199_, we ask that you deliver the loan documents to
the courier no later than ___________, 199_.
We hereby certify that the net proceeds to be received by us from the
transaction contemplated by the Commitment are not less than $_________________.
D-1
<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
By_________________________________
Name:______________________________
Title:_____________________________
D-2
<PAGE>
Exhibit E
Form of Loan Sale Transmittal Letter
[Letterhead of Collateral Agent]
Date:________________________
[Approved Investor]
_________________________
_________________________
Re: Westmark Mortgage Corporation:
Sale of Mortgage Loans
Attached please find those mortgage loans listed separately on the
attached schedule ("Mortgage Loans"), which Mortgage Loans are owned by Westmark
Mortgage 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 Security and Collateral Agency Agreement (the "Security
Agreement") dated as of _______, 1997, as the same may from time to time be
amended by and among the Company, the Collateral Agent and the Lender
thereunder. Each of the Mortgage Loans is subject to a security interest in
favor of for whom we act as collateral agent for the benefit of the Lender
(the Lender and the Collateral Agent are hereinafter referred to as the "Secured
Parties"), which security interest shall be automatically released upon your
remittance of the full amount of the required Release Price of such Mortgage
Loans (as set forth on the schedule attached hereto) (the "Release Price") by
wire transfer to the following account maintained for the benefit of the
Company:
wire instructions to remittance account:
_______________________________________
_______________________________________
_______________________________________
Pending your purchase of each Mortgage Loan and until the Release Price
therefor is received, the aforesaid security interest therein will remain in
full force and effect, and you shall hold possession of such Collateral and the
documentation evidencing same as custodian, agent and bailee for and on behalf
of the Secured Parties. In the event any Mortgage Loan is unacceptable for
purchase, return the rejected item directly to the Collateral Agent at the
address set forth below. In no event shall any Mortgage Loan be returned or
sales proceeds remitted to the Company except to the extent that such sales
proceeds exceed the Release Price for such Mortgage Loan. The Mortgage Loan must
be so returned or sales proceeds in an amount equal to the Release Price
remitted in full no later than fourteen (14) days from the date hereof. If you
are unable to comply with the above instructions, please so advise the
undersigned immediately.
E-1
<PAGE>
Note: By accepting the Mortgage Loans delivered to you with this letter, you
consent to be the custodian, agent and bailee for the Secured Parties on the
terms described in this letter. The undersigned, as Collateral Agent, 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,
WESTMARK MORTGAGE CORPORATION
By: _________________________
Title: _________________________
Address: _________________________
_________________________
Attention: _________________________
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 Collateral Agent.
_____________________________________, a ________________ corporation
By:____________________________
Title:_________________________
Address:_______________________
Acknowledgement of Receipt
[Approved Investor]
By:____________________________
Title:_________________________
Address:_______________________
Date:__________________________
E-2
<PAGE>
Exhibit F
Form of Transmittal Letter for Pool Formations
[Collateral Agent Letterhead]
[Certificating Custodian]
____________________________
____________________________
Re:____________________________
Shipment of Mortgage Loans for Pool Formation
Attached please find those mortgage loans listed separately on the
attached schedule ("Mortgage Loans"), which are owned by Westmark Mortgage
Corporation (the "Company"), and are being delivered to you, as
custodian/trustee (the "Certificating Custodian"), for certification in
connection with the formation of a mortgage pool supporting the issuance of a
mortgage-backed security (the "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 Security and Collateral Agency Agreement dated as of
1997, as the same may from time to time be amended by and among the Company, the
Collateral Agent, and the Lender. Each of the Mortgage Loans is subject to a
security interest in favor of Lender for whom we act as Collateral Agent for the
benefit of the Lender (the Lender and the Collateral Agent are hereinafter
referred to as the "Secured Parties"), which security interest shall be
automatically released upon your remittance of the full amount of the required
Release Price of such Mortgage Loans (as set forth on the schedule attached
hereto) (the "Release Price") by wire transfer to the following account
maintained for the benefit of the Company:
wire instructions to remittance account:
_______________________________________
_______________________________________
_______________________________________
Pending issuance and sale of the MBS and until the Release Price
therefor is received, the aforesaid security interest in each Mortgage Loan will
remain in full force and effect, and you shall hold possession of such
Collateral and the documentation evidencing the same as custodian, agent and
bailee for and on behalf of the Secured Parties. In the event any Mortgage Loan
is unacceptable for pool formation, return the rejected item directly to the
undersigned, as Collateral Agent, at the address set forth below. Each Mortgage
Loan must be so returned or proceeds from the sale of the MBS in an amount equal
to the Release Price remitted in full no later than fourteen (14) days from the
date hereof. In no event shall any Mortgage Loan be returned or proceeds
relating thereto be remitted to the Company except to the extent that such
proceeds exceed the Release Price for such Mortgage Loan. If you are unable to
comply with the above instructions, please so advise the undersigned
immediately.
F-1
<PAGE>
Note: By accepting the Mortgage Loans delivered to you with this letter, you
consent to be the custodian, agent and bailee for the Secured Parties on the
terms described in this letter. The undersigned, as Collateral Agent, 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,
WESTMARK MORTGAGE CORPORATION
By: _________________________
Title: _________________________
Address: _________________________
_________________________
Attention: _________________________
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 Collateral Agent.
_____________________________________, a ________________ corporation
By:____________________________
Name:__________________________
Title:_________________________
Acknowledgement of Receipt
(Approved Investor)
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
F-2
<PAGE>
Exhibit G
Form of Collateral Report
Westmark Mortgage Corporation as of ___/___/___
1. Unpaid principal amount of aggregate pledged Mortgage $________________
Loans as detailed on Schedule I hereto
2. Less:
(a) Mortgage Loans with a payment more than 30 $________________
days past due _____________
(b) Otherwise Ineligible__________
(c) Included in Borrowing Base more than sixty
(60) days_______
3. Sum of Lines 2(a)-(c) $________________
4. Line 1 minus Line 3 $________________
5. Line 4 x 100% $________________
WESTMARK MORTGAGE CORPORATION
FIRST AMENDMENT TO CREDIT AGREEMENT
AND FIRST AMENDMENT TO REVOLVING CREDIT NOTE
Household Financial Services, Inc.
Prospect Heights, Illinois 60070
Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
April 7, 1997 (the "Credit Agreement") between the undersigned, Westmark
Mortgage Corporation, a California Corporation (the "Borrower") and you (the
"Lender"). All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
The Borrower has requested that the Lender increase the amount of the
Revolving Credit Commitment under the Credit Agreement from $5,000,000 to
$7,000,000 and the Lender is willing to do so under the terms and conditions set
forth in this Amendment.
1. AMENDMENTS.
Upon your acceptance hereof in the space provided for that purpose below.
the Credit Agreement and the Revolving Credit Note shall be and hereby are
amended as follows:
1 . Section 1.1 and Exhibit A of the Credit Agreement and the
Revolving Credit Note shall each be amended by deleting the amount "$5,000,000"
appearing therein and by substituting therefor the amount "$7,000,000".
2. Exhibit A to [he Credit Agreement and the Revolving Credit Note shall
each be amended by deleting the phrase "Five Million Dollars ($5,000,000)"
appearing therein and by substituting therefor the phrase "Seven Million Dollars
($7,000,000)" therefor.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Borrower and the Lender shall have executed and delivered this
Amendment.
(b) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lender and its counsel.
(c) The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection
<PAGE>
with the execution and delivery of this Amendment to the extent the Lender or
its counsel may reasonably request.
3. REPRESENTATIONS.
In order to induce the Lender to execute and deliver this Amendment, the
Borrower hereby represents to the Lender that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Borrower delivered to the Lender) and the Borrower is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. MISCELLANEOUS
(a) The Borrower has heretofore executed and delivered to the Lender that
certain Security and Collateral Agency Agreement dated as of April 7, 1997 (the
"Security Agreement") and the Borrower hereby acknowledges and agrees that,
notwithstanding the execution and delivery of this Amendment, the Security
Agreement remains in full force and effect and the rights and remedies of the
Lender thereunder, the obligations of the Borrower thereunder and the liens and
security interests created and provided for thereunder remain in full force and
effect and shall not be affected, impaired or discharged hereby. Nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for by the Security Agreement as to the
indebtedness which would be secured thereby prior to giving effect to this
Amendment.
(b) Except as specifically amended herein, the Credit Agreement and
Revolving Credit Note shall continue in full force and effect in accordance with
their original terms. Reference to this specific Amendment need not be made in
the Credit Agreement, the Notes, or any other instrument or document executed in
connection therewith, or in any certificate, letter or communication issued or
made pursuant to or with respect to the Credit Agreement or the Revolving Credit
Note, any reference in any of such items to the Credit Agreement or the
Revolving Credit Note being sufficient to refer to the Credit Agreement or the
Revolving Credit Note as amended hereby. The Borrower hereby affirms its promise
to pay all principal of and interest on the Revolving Credit Note as amended
hereby.
(c) The Borrower agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, Preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Lender.
(d) This amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. this
Amendment shall be governed by the internal laws of the State of Illinois.
-2-
Dated as of September 20, 1997.
WESTMARK MORTGAGE CORPORATION
By: /s/ Payton Story, III
-------------------------------
Its: President
Accepted and agreed to in Prospect Heights, Illinois as of the date and
year last above written.
HOUSEHOLD FINANCIAL SERVICES, INC.
By: /s/ Michael M. Forester
-------------------------------
Its: Vice President
CONTINUING LOAN PURCHASE AGREEMENT
BY AND BETWEEN
HOUSEHOLD FINANCIAL SERVICES, INC.
AND
WESTMARK MORTGAGE CORP.
DATED AS OF FEBRUARY 26, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page No
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<S> <C>
SECTION 1 DEFINITIONS
Section 1.1 Defined Terms ...................................................... 1
Section 1.2 Other Terms ........................................................ 6
SECTION 2 PURCHASE OF LOANS AND TRANSFER OF SERVICING
Section 2.1 Offer to Sell ...................................................... 6
Section 2.2 Buyer's Response and Sellers's Acceptance .......................... 6
Section 2.3 Purchase of Loans and Servicing Rights ............................. 7
Section 2.4 Purchase Price ..................................................... 7
Section 2.5 Transfer of Servicing .............................................. 7
SECTION 3 SETTLEMENT
Section 3.1 Place and Time of Settlement ....................................... 8
Section 3.2 Seller's Deliveries at Settlement .................................. 8
Section 3.3 Buyer's Deliveries at Settlement ................................... 8
SECTION 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 General Representations and Warranties of Seller ................... 8
Section 4.2 Representations and Warranties of Seller Regarding the Offered Loans 11
Section 4.3 Representations and Warranties of Seller Regarding the Loans ....... 11
Section 4.4 General Representations and Warranties of Buyer .................... 20
SECTION 5 PRE-SETTLEMENT COVENANTS
Section 5.1 Continued Servicing ................................................ 21
Section 5.2 Preparation of Assignments ......................................... 21
Section 5.3 IRS Reporting ...................................................... 22
Section 5.4 Compliance with Law ................................................ 22
Section 5.5 No Sale of Assets .................................................. 22
Section 5.6 Private Mortgage Insurance ......................................... 22
SECTION 6 POST-SETTLEMENT CONVENANTS
Section 6.1 Notice of Servicing Transfer ...................................... 22
Section 6.2 IRS Examination ................................................... 23
Section 6.3 Tax on Sale ....................................................... 23
Section 6.4 Books and Records ................................................. 23
Section 6.5 On Site Audits .................................................... 23
Section 6.6 Financial Statements .............................................. 23
Section 6.7 Post-Sale Loan Payments ........................................... 23
Section 6.8 Transfer of Servicing Rights ...................................... 24
Section 6.9 Delivery of Mortgage Loan Documents ............................... 24
Section 6.10 Confidentiality ................................................... 24
<PAGE>
SECTION 7 CONDITIONS TO SETTLEMENT
Section 7.1 Conditions to Buyer's Obligations .................................. 25
Section 7.2 Opinion of Counsel ................................................. 26
Section 7.3 Conditions to Seller's Obligations ................................. 26
Section 7.4 Opinion of Counsel ................................................. 27
SECTION 8 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES;
REPURCHASE OBLIGATION OF SELLER
SECTION 9 POST-SETTLEMENT AND ADJUSTMENTS
Section 9.1 Repurchase Obligations ............................................. 28
Section 9.2 Repurchase Price ................................................... 29
Section 9.3 Post-Settlement Adjustment to Purchase Price ....................... 29
SECTION 10 INDEMNIFICATION
Section 10.1 Seller's Indemnification ..............................,........... 29
Section 10.2 Buyer's Indemnification ........................................... 30
Section 10.3 Indemnification Procedures ........................................ 30
SECTION 11 TERMINATION
Section 11.1 Termination by Either Party ....................................... 31
Section 11.2 Termination by Buyer .............................................. 32
Section 11.3 Effect of Termination ............................................. 32
SECTION 12 MISCELLANEOUS
Section 12.1 No Waiver ........................................................ 33
Section 12.2 Amendment and Modification ....................................... 33
Section 12.3 Notices .......................................................... 33
Section 12.4 Expenses ......................................................... 34
Section 12.5 No Remedy Exclusive .............................................. 35
Section 12.6 Independent Contractor ........................................... 35
Section 12.7 Severability ..................................................... 35
Section 12.8 Entire Agreement ................................................. 35
Section 12.9 Assignment ....................................................... 35
Section 12.10 Captions ......................................................... 35
Section 12.11 Governing Law .................................................... 35
Section 12.12 Counterparts ..................................................... 36
Section 12.13 Drafting ......................................................... 36
Section 12.14 Choice of Forum .................................................. 36
Section 12.15 Waiver of Jury Trial ............................................. 36
<PAGE>
EXHIBITS
Exhibit A - Form of Bill of Sale and Assignment ................................ E-1
Schedule 1 to Bill of Sale and Assignment ............................. E-2
Exhibit B - Form of Response and Acceptance .................................... E-3
Schedule A to Response and Acceptance ................................. E-4
Schedule 1 to Response and Acceptance ................................. E-5
Exhibit C - Contents of Legal File ............................................. E-6
Exhibit D - Contents of Credit File ............................................ E-8
Exhibit E - Form of Seller's Officer's Certificate ............................. E-11
SCHEDULES
Schedule 2.1 - Information to be Included in Offered
Loan Schedule ......................................................... S-1
Schedule 4.2(b)(A) - Seller's Underwriting Standards for Pool A................. S-3
Schedule 4.2(b)(B) - Seller's Underwriting Standards for Pool B................. S--
</TABLE>
<PAGE>
CONTINUING LOAN PURCHASE AGREEMENT
THIS CONTINUING LOAN PURCHASE AGREEMENT is made and entered into this
26th day of February, 1996 by an between HOUSEHOLD FINANCIAL SERVICES, INC., a
Delaware corporation ("Buyer"), and WESTMARK MORTGATE CORP., a California
corporation ("Seller").
WHEREAS, Seller is engaged in the business of originating, acquiring
and servicing fixed and adjustable rate, closed-end mortgage loans, and has
proposed to offer to sell portfolios of such loans to Buyer from time to time
subject to Buyer's review and acceptance of all or any part of each such
portfolio; and
WHEREAS, Seller desires from time to time to sell to Buyer, and Buyer
desires from time to time to purchase from Seller certain loans due and to
become due thereunder.
NOW THEREFORE, in consideration of the premises and other covenants
contained herein, Buyer and Seller agree as follows:
SECTION 1 DEFINITIONS
Section 1.1 Defined Terms
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the Person specified.
"Acceptance" means a Response that Seller has executed, indicating
Seller's acceptance of Buyer's proposal to purchase a portfolio of Loans
pursuant to the terms set forth in the Response.
"Accepted Servicing Practices" means with respect to any Loan, those
mortgage servicing practices of prudent mortgage lending institutions that
service mortgage loans of the same type as such Loan in the jurisdiction where
the related Mortgaged Property is located.
"Appraised Value" means the amount set forth in an appraisal in
connection with the origination of each Loan as the value of the Mortgage
Property.
"Assignment of Mortgage" means an assignment of the Mortgage, notice of
transfer of equivalent instrument, in recordable form, which when recorded is
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Buyer,
or its assignee.
"Bid Percentage" means a percentage of the Pool Balance, determined by
Buyer in its sole discretion, on which the Purchase Price is based.
<PAGE>
"Bill of Sale" means the bill of sale and assignment in the form
attached hereto as Exhibit A, which evidences the sale and acquisition of a
portfolio of Loans and to which Seller shall attach, as Schedule 1, the Loan
Schedule, listing the Loans to be purchased pursuant to such Bill of Sale.
"Buyer" means Household Financial Services, Inc., a Delaware
corporation.
"Credit File" means with respect to any Loan, the file containing those
items listed in Exhibit D annexed hereto, and any additional documents required
to be added thereto pursuant to this Agreement.
"Cut-off Date" means, with respect to each Offer, the date as of which
the Principal Balance and the Pool Balance are determined.
"Due Date" means the day of the month on which each Monthly Payment is
due on a Loan, exclusive of any days of grace.
"Due Diligence Period" means the period as agreed to by Buyer and
Seller and ending when Buyer submits a Response unless otherwise agreed to in
writing. During such period seller shall make the Loan Documents and any
information, records and files pertaining to the Offered Loans available to
Buyer at its offices located in Delray Beach, Florida or at any other location
mutually agreed upon by Buyer and Seller.
"ECOA" means the Equal Credit Opportunity Act, 15 U.S.C. SM1601.
"Escrow Payments" means with respect to any Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed
by the Obligor with the mortgagee pursuant to the Mortgage or any other
document.
"Excluded Loans" means the Offered Loans owned by Seller and offered
for sale to Buyer pursuant to an Offer, which Offered Loans Buyer elects not to
purchase, and which Offered Loans shall be listed in Schedule A to the Response.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Governmental National Mortgage Association.
"Interest Rate Adjustment Date" means the date on which the Mortgage
Interest Rate is adjusted to each Loan. The first Interest Rate Adjustment Date
is the date set forth on the Loan Schedule.
"IRS" means the Internal Revenue Service.
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<PAGE>
"Legal Fees" shall mean with respect to any indemnified party, any and
all fees, costs, and expenses of any kind reasonably incurred by such party or
its counsel in investigating, preparing for, defending against, or providing
evidence, producing documents, or taking other action with respect to, any
threatened or asserted claim.
"Legal File" means with respect to any Mortgage Loan, the file
containing those items listed in Exhibit C annexed hereto, and any additional
documents required to be added thereto pursuant to this Agreement.
"Loan" means each loan selected by Buyer to purchase from the Offered
Loans owned by Seller and offered to Buyer pursuant to each Offer, which Loans
collectively, shall be listed in the Loan Schedule, attached as Schedule 1 to
each Acceptance and Bill of Sale.
"Loan Documents" means all of Seller's original agreements with any
Obligor of a Loan, and all of the following in the original (except as otherwise
noted) to the extent they exist in Seller's loan files, for any Loan that Buyer
proposes to buy pursuant to its Response: all loan applications, correspondence,
general credit information, file maintenance information, payment histories,
credit information files, records, executed notes (which may be copies),
documents, disclosures, receipts, drafts, instruments, notices,
acknowledgements, mortgages (which may be copies), deeds of trust (which may be
copies), security deeds (which may be copies), title insurance policies, title
opinions, property appraisals, property surveys, insurance policies, property
insurance policies, mortgage insurance policies, flood insurance policies,
guarantees, and any like and other information relating to the Loans that is
maintained in individual loan files or on a loan-by-loan basis, including such
data stored on microfilm, microfiche, magnetic tape, computer disc, or in any
other form.
"Loan Schedule" means the list of Loans, consisting of the Offered
Loans less any Excluded Loans, attached as Schedule 1 to each Acceptance and
Bill of Sale.
"Loan-To-Value Ratio" or "LTV" means with respect to any Loan, the
ratio of the outstanding principal amount of the Mortgage Loan and, if the Loan
purchased hereunder is secured by a second lien, any lien on the Mortgaged
Property senior to the lien of the Loan as of the origination date to the lesser
of (a) the Appraised Value of the Mortgaged Property and (b) if the Mortgage
Loan was made to finance the acquisition of the related Mortgaged Property, the
purchase price of the Mortgaged Property, expressed as a percentage.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Loan.
"Mortgage" means, with respect to a Loan, any mortgage, deed of trust,
security deed, or other similar instrument creating a lien on residential real
property to secure repayment of such Loan, or a true and correct copy thereof.
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<PAGE>
"Mortgage File" means collectively, the Credit File and the Legal File
for any Loan.
"Mortgage Interest Rate" means the annual rate of interest borne on a
Note, net of any primary mortgage guaranty insurance premium.
"Mortgage Property" means, with respect to each Mortgage, the property
subject to such Mortgage.
"Note" means, with respect to a Loan, the original promissory note
executed by the respective Obligor to evidence such Obligor's indebtedness under
such Loan.
"Obligor" means, with respect to an Offered Loan, any person obligated
for payment of such Offered Loan or who has transferred or assigned any property
interest to Seller to secure payment of such Offered Loan.
"Offer" means each offer from Seller to Buyer to sell a portfolio of
Offered Loans and the right to service each such Offered Loan pursuant to the
procedures set forth in Section 2.1, which Offer shall include an Offered Loan
Schedule.
"Offer Date" means with respect to each Offer, the date on which Seller
sends such Offer to Buyer.
"Offered Loan" means any mortgage loan that is secured by a first or
second position lien on completed, one-to-four family residential real estate,
and that Seller owns and offers to Buyer to purchase pursuant to an Offer.
"Offered Loan Schedule" means the schedule of Offered Loans attached to
the Offer, which lists to the extent and as available the mapping document
information relating to each Offered Loan required to be included in each Offer,
as set forth in Schedule 2.1 to this Agreement, and which shall be in electronic
format and, if requested by Buyer, hard copy.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool A" means with respect to each Offer those Loans secured by a
valid Mortgage that represents a first lien.
"Pool B" means with respect to each Offer those Loans secured by a
Mortgage which represents a second lien.
"Pool Balance" means, with respect to each Offer and each portfolio of
Loans in Pool A and Pool B to be purchased pursuant to this Agreement, the
aggregate outstanding Principal Balance of the Loans in Pool A and Pool B in
such portfolio as of the Cut-off Date.
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<PAGE>
"Principal Balance" means, with respect to a Loan and a particular
Offer the unpaid principal balance if such Loan as of the Cut-off Date, as shown
on the books and records of Seller; provided that the Principal Balance shall
not include any accrued but unpaid fees or charges.
"Purchase Price" means, with respect to each Bill of Sale, the price
paid by Buyer for the Loans acquired pursuant to such Bill of Sale, which shall
be calculated according to the following formula:
(a) the product of
(i) the Bid Percentage and
(ii) the Pool Balance minus the aggregate amount of all payments
of principal made to Seller on the Loans acquired from the
Cut-off Date up to, but not including, the Settlement Date.
(b) plus
(i) accrued but unpaid interest on each of the Loans acquired at
the applicable per annum interest rate, as set forth on the
Loan Schedule from the Cut-off Date up to, but not including
the Settlement Date.
(c) minus
(i) the aggregate amount of all payments of charges and fees in
connection with the Loans made to Seller from the Cut-off
Date up to, but not including, the Settlement Date.
"RESPA" means the Real Estate Settlement Procedures Act, 12 U.S.C.
ss.2601 et seq.
"Response" means the letter from Buyer to Seller setting forth the Bid
Percentage and attaching, as Schedule A, a list of any Offered Loans Buyer
elects not to purchase, which Response shall be in the form attached hereto as
Exhibit B.
"Seller" means Westmark Mortgage Corp., a California corporation.
"Service Transfer Date" means, unless otherwise agreed by the parties,
the date which is 15 days after the date on which Seller sends its notices
pursuant to Section 6.1 and on which Seller transfers to Buyer all servicing
responsibilities related to all the Loans sold on the corresponding Settlement
Date pursuant to Section 2.5.
"Settlement" means, with respect to each portfolio of Loans to be sold
pursuant to this Agreement, the satisfaction of the conditions set forth in
Section 7, and the sale and purchase of, such portfolio of Loans.
-5-
<PAGE>
"Settlement Date" means each date mutually agreed upon by the parties
on which Seller sells and Buyer acquires a portfolio of Loans.
"TILA" means the Truth in Lending Act, 15 U.S.C. ss.1600 et seq.
1.2 Other Terms
(a) Accounting and financial terms used herein and not otherwise
defined in this Agreement shall be construed in accordance with generally
accepted accounting definitions and priciples as consistently applied.
(b) Words used in this Agreement in the singular, where the context so
permits, shall be deemed to include the plural and vice versa.
SECTION 2 PURCHASE OF LOANS AND TRANSFER OF SERVICING
Section 2.1 Offer to Sell.
(a) From time to time, Seller may submit an Offer to Buyer and Buyer
may agree to buy any or all of the Offered Loans listed in such Offer and the
right to service those Offered Loans pursuant to the terms of this Agreement and
any Schedules and Exhibits hereto. Such sale and transfer shall be subject to
the provisions of this Agreement.
(b) Each Offer shall be sent to Buyer by hand delivery or overnight
courier and shall be accompanied by a letter notifying Buyer that Seller is
making an Offer to sell the Offered Loans at a Purchase Price based on a Bid
Percentage, which shall be determined by Buyer, and which shall be subject to
acceptance by Seller. Each Offer shall attach an Offered Loan Schedule, which
shall include mapping document information relating to each Offered Loan
according to the format and criteria set forth in Schedule 2.1 to this
Agreement. Seller shall bear all costs of sending the Offer and Offered Loan
Schedule to Buyer.
Section 2.2 Buyer's Response and Seller's Acceptance.
(a) If Buyer chooses to purchase any or all of the Offered Loans,
Buyer shall send a response to Seller by overnight mail for delivery the
following day or by facsimile within a reasonable period of time after the end
of the Due Diligence Period. If the Response is sent by facsimile, the original
Response shall be sent to Seller by overnight mail for delivery the following
day. the Response shall attach a Schedule A of Excluded Loans, if any, and shall
set forth the Bid Percentage.
(b) To accept Buyer's Response, Seller shall, within 2 business days
after Seller's
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<PAGE>
receipt of the facsimile of the Response, execute and return, by facsimile, an
Acceptance, with an original, which shall have attached thereto a Loan Schedule,
sent by overnight courier for delivery the following day. If Buyer has not
received an executed Acceptance by facsimile within 2 business days after
Seller's receipt of the Response, Buyer's proposal to purchase the Loans
pursuant to the terms of the Response shall automatically expire, unless Buyer
agrees to extend the period for acceptance of the Response.
(c) By executing the Acceptance, Seller agrees to execute the Bill of
Sale and to sell on the Settlement Date the Loans set forth in the Loan Schedule
attached to the Response (as such Loan Schedule may be amended by mutual
agreement of Seller and Buyer to reflect the actual Loans accepted by Buyer as
of the Settlement Date) and the Acceptance for a Purchase Price based on the Bid
Percentage set forth in the Response and the Acceptance.
Section 2.3 Purchase of Loans and Servicing Rights.
(a) By execution of the Bill of Sale on the Settlement Date, subject
to the terms and conditions set forth in this Agreement,
(i) Seller shall sell, transfer, assign, and convey to
Buyer, without recourse, but subject to the terms of this
Agreement, and Buyer shall purchase and take on the Settlement
Date, all of Seller's right, title, and interest in and to the
Loans listed in the Loan Schedule attached to such Bill of Sale;
(ii) Seller shall sell, transfer, assign, and convey to
Buyer, and Buyer shall purchase and take on to Settlement Date,
all of Seller's right, title, and interest in and to all escrow
deposits held in connection with the Loans listed in the Loan
Schedule attached to such Bill of Sale; and
(iii) Seller shall also irrevocably assign to Buyer, and
Buyer shall take on the Settlement Date, Seller's right to
service each Loan sold pursuant to the Bill of Sale and to
collect any servicing fee in connection with such Loan.
Section 2.4 Purchase Price. The Purchase Price for the Loans purchased at
each Settlement shall be based on the Bid Percentage set forth in the Response
and the Acceptance and shall be calculated according to the formula set forth in
the definition of the term Purchase Price.
Section 2.5 Transfer of Servicing. As of each Settlement Date, Seller shall
transfer to Buyer any and all rights to service the Loans sold on the related
Settlement Date, including but not limited to Seller's right to receive all
payments and receivables with respect to the Loans, ownership of Escrow
Payments, and all servicing rights as owner and holder of the Loans.
Notwithstanding the foregoing, Seller shall continue to service the Loans for
Buyer following the Settlement Date and until the corresponding Service Transfer
Date as set forth in Section 5.1, and Buyer shall assume responsibility for
servicing the Loans on and after such Service Transfer Date. Seller shall ensure
that all escrow balances are received by Buyer within thirty (30) days of
Settlement. If such balances are not received by Buyer within thirty (30) days
Seller shall
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<PAGE>
remit to Buyer in immediately available funds, an amount equal to said balances.
SECTION 3 SETTLEMENT
Section 3.1 Place and Time of Settlement. Each Settlement shall take
place at Seller's place of business in Delray Beach, Florida or at such other
place as the parties may agree, on the Settlement Date, which shall be within 2
business days of the satisfaction of all conditions to Settlement, as set forth
herein.
Section 3.2 Seller's Deliveries at Settlement. On or before each
Settlement, Seller shall deliver the following to Buyer:
(a) a Bill of Sale, executed by Seller, substantially in the
form of Exhibit A with respect to the Loans sold at such Settlement;
(b) as required by RESPA, the form of notice of servicing
transfer, to be sent by Seller pursuant to Section 6.1 for each Loan, which form
shall indicate the date on which it shall be sent by Seller;
(c) the Mortgage File with respect to each Loan sold at such
Settlement, the contents of which are subject to the approval of Buyer and
its legal counsel as to proper form and execution; and
(d) all other documents, instruments and writings required to
be delivered by Seller prior to or at such Settlement pursuant to Section 7.1 of
this Agreement or as reasonably requested by Buyer.
Section 3.3 Buyer's Deliveries at Settlement. At each Settlement, Buyer
shall deliver the following to Seller:
(a) the Purchase Price for the Loans sold at such Settlement
by wire transfer of immediately available funds in U.S. dollars to the account
designated by Seller.
SECTION 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 General Representations and Warranties of Seller. As of the
date hereof, and as of each Settlement Date, Seller represents and warrants as
follows:
(a) Organization. Seller is a corporation, duly organized,
validly existing, and in good standing under the laws of the State of
California, and is qualified and authorized to transact business in, and is in
good standing under the laws of, each jurisdiction in which any Mortgaged
Property is located or is otherwise exempt under applicable law from such
qualification. Seller has the requisite corporate power and authority to own and
operate its properties, to carry on its business as it is now being conducted,
and to consummate the transactions contemplated by this Agreement.
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<PAGE>
(b) Authorization of this Agreement. Seller has the requisite
corporate power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and constitutes a legal, valid, and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except that such
enforcement may be affected by bankruptcy, by insolvency laws, or by general
principles of equity.
(c) Ordinary Course of Business. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of Seller, and the transfer, assignment and conveyance of the Notes and
the Mortgages by Seller pursuant to this Agreement are not subject to the bulk
transfer or any similar statutory provisions in effect in any applicable
jurisdiction.
(d) No Conflict or Violation. The execution and delivery of
this Agreement by Seller does not, and the performance of this Agreement by
Seller will not, (i) result in a violation of or conflict with any provisions of
the charter or by-laws or equivalent governing instruments of Seller, (ii)
violate any law, rule, regulation, code, ordinance, judgment, injunction, order,
writ, decree, or ruling applicable to Seller, or (iii) conflict with or violate
any agreement, permit, concession, grant, franchise, license, or other
governmental authorization or approval necessary for sale of the Loans by
Seller. No regulatory approvals or consents are required with respect to
Seller's consummation of the transactions contemplated by this Agreement.
(e) Litigation. No action, suit, proceeding, or governmental
investigation or inquiry is currently pending, or to the knowledge of Seller,
threatened against Seller which, if adversely determined, would have a material
adverse effect on the business, combined assets or financial condition of Seller
or on the Loans or would prevent the consummation of the transactions
contemplated by this Agreement.
(f) Financial Condition. Seller has previously furnished Buyer
with Seller's most recent audited financial statements, together with the
respective reports thereon of the Seller's independent public accountants, and
Seller's most recent unaudited financial statements, each of which has been
prepared in accordance with generally accepted accounting principles. Each of
the balance sheets included in the financial statements sets forth Seller's
financial condition as of the date thereof, and there have been no material
adverse changes in Seller's business or financial condition since that date.
(g) Accuracy of Statements. Neither this Agreement, nor any
statement, report, or other document furnished or to be furnished pursuant to
this Agreement, or in connection with the transaction contemplated hereby,
contains any untrue statement of fact by Seller, or omits to state a fact,
necessary to make the statements of Seller contained therein not misleading.
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<PAGE>
(h) Fidelity Bond. Upon request Seller will deliver to Buyer a
true and correct copy of Seller's fidelity bond and Seller's errors and
omissions policy, as currently in effect, the amounts and coverages of both of
which will be acceptable to Buyer. Seller shall, at its own expense, maintain a
fidelity bond and an errors and omissions policy, in amounts at least as great
as, and with the coverages at least as broad as, those currently in effect.
Seller shall upon request furnish proof of such coverage at or before the first
Settlement and, upon request, annually thereafter.
(i) Ability to Perform; Solvency. Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement. Seller is solvent and sale of the
Mortgage Loans will not cause Seller to become insolvent. The sale of the Loans
is not undertaken with the intent to hinder, delay or defraud any of the
Seller's creditors.
(j) No Consent Required. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by Seller of or compliance by Seller with
this Agreement or the Loans, or the sale of the Loans to the Buyer or the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to each Settlement Date.
(k) Selection Process. The Loans were not intentionally
selected in a manner so as to adversely affect the interests of the Buyer.
(l) Commissions to Third Parties. Seller has not dealt with
any broker or agent or other Person who might be entitled to a fee, commission
or compensation in connection with this transaction other than the Buyer except
as Seller has previously disclosed to Buyer in writing.
(m) Fair Consideration. The consideration received by Seller
upon the sale of the Loans under this Agreement constitutes fair consideration
and reasonably equivalent value for the Loans.
(n) No Personal Solicitation. From and after each Settlement
Date, Seller agrees that it will not take any action or permit or cause any
action to be taken by any of its agents and Affiliates, or by any independent
contractors or independent mortgage brokerage companies on Seller's behalf, to
personally, by telephone or mail, solicit the borrower or Obligor under any Loan
for any purpose whatsoever, including to refinance a Loan, in whole or in part,
without the prior written consent of the Buyer. It is understood and agreed that
all rights and benefits relating to the solicitation of any Obligors and the
attendant rights, title and interest in and to the list of such Obligors and
data relating to their mortgages (including insurance renewal dates) shall be
transferred to the Buyer pursuant hereto on each Settlement Date and Seller
shall take no action to undermine these rights and benefits. Notwithstanding the
foregoing, it is understood and agreed that promotions undertaken by Seller or
any affiliate of Seller which are directed to the general public at large,
including, without limitation, mass mailing based on commercially acquired
mailings lists, newspaper, radio and television advertisements shall not
constitute
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solicitation under this paragraph.
(o) HUD Approval. Seller is a mortgagee approved by the
Secretary of Housing and Urban Development pursuant to Section 203 and 211 of
the National Housing Act, as amended.
Section 4.2 Representations and Warranties of Seller Regarding the
Offered Loans. With respect to each Offer, Seller represents and warrants to,
and covenants with Buyer that, as of the corresponding Offer Date:
(a) Accuracy of Statements. The information contained in the
Offered Loan Schedule and all information provided regarding delinquencies in
the Offered Loans are true and correct in all respects. Neither the Offered Loan
Schedule nor the Loan Documents nor any other document furnished in connection
with the Offer contains any untrue statement of fact by Seller, or omits to
state a fact, necessary to make the statements of Seller contained therein not
materially misleading.
(b) Origination. Each of the Offered Loans in Pool A meets the
underwriting standards of Seller, which standards are set forth in Schedule
4.2(b)(A) to this Agreement and each of the Offered Loans in Pool B, meets the
underwriting Standards of Seller, which standards are or may be set forth in
Schedule 4.2(b)(B) to the Agreement, and were underwritten in strict accordance
therewith. Each Loan was originated by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Section 203 and 211 of the National
Housing Act or a savings and loan association, a savings bank, a commercial
bank, a credit union, an insurance company, or similar institution which is
supervised and examined by a Federal or State authority. The Note, the Mortgage
and all other documents contained in the Legal Files are on FNMA or FHLMC
uniform instruments or are on forms acceptable to FNMA or FHLMC. The documents,
instruments and agreements submitted for loan underwriting were not falsified
and contain no untrue statement of material fact and do not omit to state a
material fact required to be stated therein or necessary to make the information
and statements therein not misleading. Seller has not made any representations
to the Obligor that are inconsistent with the mortgage instruments used.
(c) Genuineness of Signatures. All Loan Documents are genuine
and contain genuine signatures. The Loan Documents that Buyer requires to be
original documents are original documents. All certified copies of original
documents are true copies and meet the applicable requirements and
specifications of this Agreement and any other requirements that Buyer has
reasonably made of Seller.
Section 4.3 Representations and Warranties of Seller Regarding the
Loans. With respect to each Loan, Seller represents and warrants to, and
covenants with Buyer that, as of the Settlement Date on which such Loan is sold:
(a) Title to Loans. Seller has good title to and is the sole
owner of record and holder of the Loan and the indebtedness evidenced by each
Note. Unless otherwise disclosed in
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the Loan Documents or the Offered Loan Schedule, Seller is the original
mortgagee or assignee of the Mortgage, and there has been no more than one prior
assignment and no sale, or hypothecation by Seller of the Loan. The Loan is not
assigned or pledged, and Seller has good, indefeasible and marketable title
thereto, and has full right to transfer and sell the Loan to the Buyer fee and
clear of any encumbrance, equity interest, participation interest, lien, pledge,
charge, claim or security interest, and has full right and authority subject to
no interest or participation of, or agreement with, any other party, to sell and
assign each Loan pursuant to this Agreement and following the sale of each Loan,
Buyer will own such Loan free and clear of any encumbrance, equity interest,
participation interest, lien, pledge, charge, claim or security interest.
(b) Accuracy of the Offered Loan Schedule. The Loan is as
described in the Offered Loan Schedule delivered by Seller to Buyer, and the
information contained in the Offered Loan Schedule is true and correct as of the
Settlement Date.
(c) Payments. As of the Settlement Date, no loan is 30 or more
days delinquent (determined on a contractual basis), no Loan will have been 30
or more days delinquent (determined on a contractual basis) more than once
during the 12 months preceding the Settlement Date, and the first Monthly
Payment has been made, or shall be made, as the case may be, with respect to the
Loan on its Due Date.
(d) No Outstanding Charges. There are no defaults in complying
with the terms of the Mortgage, and all taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold payments or
ground rents which previously became due and owing have been paid, or an escrow
of funds has been established in an amount sufficient to pay for every such item
which remains unpaid and which has been assessed but is not yet due and payable.
Seller has not advanced funds, or induced or solicited or knowingly received any
advance of funds by a party other than the Obligor, directly or indirectly, for
the payment of any amount required under the Loan, except for interest accruing
from the date of the Note or date of disbursement of the Loan proceeds,
whichever occurred later, to the day which precedes by one month the Due Date of
the first Monthly Payment.
(e) Original Terms Unmodified. The terms of the Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
except by a written instrument which has been recorded, if necessary to protect
the interests of the Buyer. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the policy, and its terms and reflected on the Loan Schedule. No Obligor has
been released, in whole or in part, except in connection with an assumption
agreement approved by the title insurer, to the extent required by the policy,
and which assumption agreement is part of the Legal File.
(f) Absence of Defenses. The Loan and the Note are not subject
to any right of rescission, set-off, counterclaim, or defense (including the
defense of usury), based on the invalidity or unenforceability of the Note
and/or Mortgage or on any conduct of Seller or any of its officers, employees,
representatives, or Affiliates in originating or servicing the Loan prior to
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the Settlement Date. Nor will the operation of any of the terms of the Loan or
Note, or the exercise of any right thereunder, render the Loan or Note
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim, or defense (including the defense of usury) based on any
such invalidity, unenforceability or conduct. No right rescission, set-off,
counterclaim, or defense with respect thereto has been asserted to Seller or, to
Seller's knowledge, has been asserted to any other person.
(g) Hazard Insurance. Pursuant to the terms of the Mortgage,
all improvements upon the Mortgaged Property are insured by an insurer
acceptable to FNMA against loss by fire and such other risks (excluding mud
slides and earthquakes) as are usually insured against in the broad form of
extended coverage hazard insurance from time to time available, including flood
hazards if upon origination of the Loan, the Mortgaged Property was in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and if flood insurance was required by federal
regulation and such flood insurance has been made available). All such insurance
policies (collectively, the "hazard insurance policy") meet the requirements of
the current guidelines of the Federal Insurance Administration, conform to the
requirements of the FNMA Sellers' Guide and the FNMA Servicers' Guide, and are a
standard policy of insurance for the locale where the Mortgaged Property is
located. The amount of the insurance is at least in the amount of the full
insurable value of the Mortgaged Property on a replacement cost basis or the
unpaid balance of the Mortgage Loan, whichever is less. The hazard insurance
policy names (and will name) the Obligor as the insured and contains a standard
mortgagee loss payable clause in favor of Seller (or Seller's servicer) and its
successors and assigns. The Mortgage obligates the Obligor thereunder to
maintain the hazard insurance policy at the Obligor's cost and expense, and on
the Obligor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at such Obligor's cost and expense, and to seek
reimbursement therefor from the Obligor. Where required by state law or
regulation, the Obligor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or any hazard
insurance policy covering the common facilities of a planned unit development.
The hazard insurance policy is the valid and binding obligation of the insurer,
is in full force and effect, and will be in full force and effect and inure to
the benefit of the Buyer upon the consummation of the transactions contemplated
by this Agreement. Seller has not engaged in, and has no knowledge of the
Obligor's or any subservicer's having engaged in, any act or omission which
would impair the coverage of any such policy, the benefits of the endorsement
provided for therein, or the validity and binding effect of either. In
connection with the issuance of the hazard insurance policy, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
person or entity, and no such unlawful items have been received, retained or
realized by Seller.
(h) Compliance with Applicable Laws. Any and all requirements
of any federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the Loan have been
complied with by Seller and, if Seller is not the originator of any such Loan,
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by the originator of such Loan, and the consummation of the transactions
contemplated hereby will not involve the violation of any such laws or
regulations.
(i) No Satisfaction of Mortgage or Note. Neither the Mortgage
nor the Note has been satisfied, canceled, subordinated or rescinded, in whole
or in part, and the Mortgaged Property has not been released from the lien of
the Mortgage, in whole or in part, nor has any instrument been executed that
would effect any such release, cancellation, subordination or rescission. Seller
has not waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Mortgage Loan to be in default,
nor has Seller waived any default resulting from any action or inaction by the
Obligor.
(j) Location and Type of Mortgaged Property. The Mortgaged
Property consists of a parcel of real property with a single family residence
erected thereon, or a two to four-family dwelling, or an individual condominium
unit in a low-rise or high-rise condominium project, or an individual unit in a
planned unit development. The Mortgaged Property is either a fee simple estate
or a long-term residential lease. If the Loan is secured by a long-term
residential lease, (A) the terms of such lease expressly permit the mortgaging
of the leasehold estate, the assignment of the lease without the lessor's
consent (or the lessor's consent has been obtained and such consent is in the
Mortgage File) and the acquisition by the holder of the Mortgage of the rights
of the lessee upon foreclosure or assignment in lieu of foreclosure or provide
the holder of the Mortgage with substantially similar protection; (B) the terms
of such lease do not (i) allow the termination thereof upon the lessee's default
without the holder of the Mortgage being entitled to receive written notice of,
and opportunity to cure, such default, (ii) allow the termination of the lease
in the event of damage or destruction as long as the Mortgage is in existence or
(iii) prohibit the holder of the Mortgage from being insured under the hazard
insurance policy relating to the Mortgaged Property; (C) the original term of
such lease is not less than 15 years; (D) the term of such lease does not
terminate earlier than five years after the maturity date of the Note; and (E)
the Mortgaged Property is located in a jurisdiction in which the use of
leasehold estates for residential properties is a widely-accepted practice.
(k) Valid Lien. The Mortgage for any Loan in Pool A creates a
valid, subsisting, enforceable and perfected first lien on the Mortgaged
Property, and the Mortgage for any Loan in Pool B creates a valid, subsisting,
enforceable and perfected second lien on the Mortgaged Property, and in each
case includes all buildings on the Mortgaged Property and all installations and
mechanical, electrical, plumbing, heating and air conditioning systems located
in or annexed to such buildings, and all additions, alterations and replacements
made at any time with respect to the foregoing. The lien of the Mortgage is
subject only to "Permitted Exceptions," which consist of the following:
(1) the lien of current real property taxes and
assessments not yet due and payable;
(2) convenants, conditions and restrictions, rights of
way, easements and other matters of the public record as of the date of
recording acceptable to prudent mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy
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delivered to the originator of the Loan and referred to or otherwise considered
in the appraisal made for the originator of the Loan;
(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 or the use, enjoyment, value or
marketability of the related Mortgaged Property; and
(4) a valid first lien in the case of Loans in Pool B.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Loan in Pool A established and creates a valid,
subsisting, enforceable and perfected first lien and first priority security
interest on the property described therein, and with respect to Pool B a second
lien and second priority security interest, and Seller has full right to sell
and assign the same to the Buyer. Except as noted on the Loan Schedule, for a
Loan in Pool A the Mortgaged Property was not, as of the respective date of
origination of the Loans in Pool A, subject to a mortgage, deed of trust, deed
to secure debt or other security instrument creating a lien, subordinate to the
lien of the Mortgage.
(l) Validity of Mortgage Documents. The Note and the Mortgage and every
other agreement, if any, executed and delivered by the Obligor in connection
with the Loan are genuine, and each is the legal, valid and binding obligation
of the maker thereof enforceable in accordance with its terms. All parties to
the Note, the Mortgage and each other such related agreement had legal capacity
to enter into the Loan and to execute and deliver the Note, the Mortgage and
each other such related agreement, and the Note, the Mortgage and each other
such related agreement have been duly and properly executed by the respective
Obligors. Seller has reviewed all of the documents constituting the Mortgage
File and has made such inquiries as it deems necessary to make and confirm the
accuracy of the representations set forth herein.
(m) Full Disbursement of Proceeds. The Loan has been closed, and in the
case of a Loan in Pool A the proceeds of the Loan have been fully disbursed and
there is no requirement for future advances thereunder, and any and all
requirements as to completion of any on-site or off-site improvement and as to
disbursements of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making or closing the Loan and the recording of
the Mortgage were paid, and the Obligor is not entitled to any refund of any
amounts paid or due under the Note or Mortgage.
(n) Doing Business. All parties which have had any interest in the
Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the
period in which they held and disposed of such interest, were) (1) in compliance
with any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located, and (2) (a) organized under the laws
of such state, or (b) qualified to do business in such state, or (c) federal
savings and loan associations, savings banks, or national banks having principal
offices in such state, or (d) not doing business in such state.
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(o) LTV. The initial principal balance of a Loan in Pool A was equal to
an amount no greater than 90%, and a Loan in Pool B was equal to an amount no
greater than 100%, of the lesser of the appraised value of the Mortgaged
Property at the time the Loan was originated or the sales price of the Mortgaged
Property.
(p) Title Insurance. The Loan is covered by either (a) an attorney's
opinion of title and abstract of title the form and substance of which is
acceptable to FNMA or (b) an ALTA lender's title insurance policy or other
generally acceptable form of policy of insurance issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged Property is
located, insuring Seller, its successors and assigns, as to the first priority
lien of the Mortgage in the original principal amount of the Loan in Pool A, and
as to the second priority lien on the Mortgage in the original principal amount
of the Loan in Pool B, subject only to the Permitted Exceptions and against any
loss by reason of the invalidity or unenforceability of the lien resulting from
the provisions of the Mortgage providing for adjustment in the Mortgage Interest
Rate and Monthly Payment. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress, and against encroachments by or upon
the Mortgaged Property or any Interest therein. Where required by state law or
regulation, the Obligor has been given the opportunity to choose the carrier of
such lender's title insurance policy. Seller, its successors and assigns are the
sole insureds of such lender's title insurance policy, and such lender's title
insurance policy is valid and remains in full force and effect and will be in
full force and effect upon the sale of the Loan to the Buyer. No claims have
been made under such lender's title insurance policy, and no prior holder of the
Mortgage, including Seller, has done, by act or omission, anything which would
impair the coverage of such lender's title insurance policy. In connection with
the issuance of such lender's title insurance policy, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
person or entity, and no such unlawful items have been received, retained or
realized by Seller.
(q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Note or related documents and no
event which, with the passage of time or with notice and the expiration of any
applicable grace or cure period, would constitute a default, breach, violation
or event of acceleration, and neither Seller nor its predecessors have waived
any default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. There are no mechanics' or similar liens or
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
related Mortgaged Property which are or may be liens prior to, or equal or
coordinate with, the lien of the related Mortgage.
(s) Location of Improvements; No Encroachments. All improvements which
were considered in determining the Appraised Value of the Mortgaged Property lay
wholly within the boundaries and building restriction lines of the Mortgaged
Property and no improvements on adjoining properties encroach upon the Mortgaged
Property. No improvement located on or being part of the Mortgaged Property is
in violation of any applicable zoning law or regulation; provided, that in no
event shall a legal non-conforming use of the Mortgaged Property be
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considered a violation of any such zoning law or regulation.
(t) Payment Terms. For fixed-rate Loans, the Note is payable on the
first day of each month in equal monthly installments (other than the last
payment) of principal and interest. For adjustable-rate Loans, the Mortgage
Interest Rate is adjusted in accordance with the terms of the Note and the Note
is payable on the first day of each month and, during an adjustment period or
initial period, in equal monthly installments of principal and interest. All
required notices of interest rate and payment amount adjustments have been sent
to the Obligor on a timely basis and the computations of such adjustments were
properly calculated. Installments of interest are subject to change due to the
adjustments to the Mortgage Interest Rate of each Interest Rate Adjustment Date,
with interest calculated and payable in arrears, sufficient to amortize the
Mortgage Loan fully by the stated maturity date, over an original term of not
more than thirty years from commencement of amortization. All mortgage interest
rate adjustments have been made in strict compliance with state and federal law
and the terms of the related Note. Any interest required to be paid pursuant to
state and local law has been properly paid and credited.
(u) Customary Provisions. The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. Upon default by an Obligor on a Loan and foreclosure on,
or trustee's sale of, the Mortgaged Property pursuant to the proper procedures,
the holder of the Loan will be able to deliver good and merchantable title to
the Mortgaged Property. There is no homestead or other exemption available to
the Obligor which would interfere with the right to sell the Mortgaged Property
at a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption.
(v) Occupancy of the Mortgaged Property. All inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property and with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate authorities.
(w) No Additional Collateral. The Note is not and has not been secured
by any collateral except the lien of the corresponding Mortgage and the security
interest of any applicable security agreement or chattel mortgage referred to
in the "Valid Lien" representation above.
(x) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, authorized and duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is named in the
Mortgage, and no fees or expenses are or will become payable by the Buyer to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Obligor.
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(y) Due on Sale. The Mortgage for a loan in Pool A contains a provision
for the acceleration of the payment of the unpaid principal balance of the Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder, at the option of the
mortgagee. This provision provides that the mortgagee cannot exercise its option
if either (a) the exercise of such option is prohibited by federal law or (b)
(i) the Obligor causes to be submitted to the mortgagee information required by
the mortgagee to evaluate the intended transferee as if a new loan were being
made to such transferee and (ii) the mortgagee reasonably determines that the
mortgagee's security will not be impaired by the assumption of such Loan by the
transferee and that the risk of breach of any covenant or agreement in the Loan
documents is acceptable to the mortgagee. To the best of Seller's knowledge,
such provision is enforceable.
(z) Transfer of Loans. Each of the Mortgage and the Assignment of
Mortgage is in recordable form and is acceptable for recording under the laws of
the jurisdiction in which the Mortgaged Property is located.
(aa) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Loan does not contain provisions pursuant to which Monthly
Payments are paid or partially paid with funds deposited in any separate account
established by Seller, the Obligor or anyone on behalf of the Obligor, or paid
by any source other than the Obligor nor does it contain any other similar
provisions currently in effect which may constitute a "buydown" provision. The
Loan is not a graduated payment mortgage loan and the Loan does not have a
shared appreciation or other contingent interest feature.
(bb) Consolidation of Future Advances. Any future advances made to the
Obligor prior to the Offer Date have been consolidated with the outstanding
principal amount secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having first lien priority, if in Pool A, or as having a second lien
priority, if in Pool B, by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to the Buyer. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan.
(cc) Mortgaged Property Undamaged; No Condemnation Proceedings. There
is no proceeding pending or, to the best of Seller's knowledge upon reasonable
due inquiry and investigation, threatened for the total or partial condemnation
of the Mortgaged Property. The Mortgaged Property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty so as
to affect adversely the value of the Mortgaged Property as security for the Loan
or the use for which the premises were intended and each Mortgaged Property is
in good repair. There have not been any condemnation proceedings with respect to
the Mortgaged Property and Seller has no knowledge of any such proceedings in
the future.
(dd) Collection Practices; Escrow Deposits. The origination, servicing
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and collection practices used by Seller with respect to the Loan have been in
accordance with Accepted Servicing Practices and are in all respects in
compliance with all applicable laws and regulations. With respect to escrow
deposits and Escrow Payments, all such payments are in possession of Seller or
the servicer of such Loan and there exist no deficiencies in connection
therewith for which customary arrangements for repayment thereof have not been
made. All Escrow Payments have been collected in full compliance with state and
federal law. Unless prohibited by applicable law, an escrow of funds has been
established in an amount sufficient to pay for every item which remains unpaid
and which has been assessed but is not yet due and payable. No escrow deposits
or Escrow Payments or other charges or payments due Seller have been capitalized
under the Mortgage or the Note.
(ee) Appraisals. Seller has delivered to Buyer an appraisal of the
Mortgaged Property signed prior to the approval of the Mortgage application by a
qualified appraiser, who (i) is licensed in the state where the Mortgaged
Property is located, (ii) is acceptable to Buyer, (iii) has, no interest, direct
or indirect, in the Mortgaged Property or in any loan on the security thereof,
and (iv) does not receive compensation that is affected by the approval or
disapproval of the Loan. The appraisal shall be completed in compliance with the
Uniform Standards of Profession Appraisal Practice, any additional requirements
set forth for appraisals in Schedule 2.1 to this Agreement, and all applicable
Federal and state laws and regulations
(ff) Soldiers' and Sailors' Relief Act. The Obligor has not notified
the Seller and the Seller has no knowledge of any relief requested or allowed
to, the Obligor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(gg) Environmental Matters. To the best of the Seller's knowledge,
there exists no violation of any local, state or federal environmental law, rule
or regulation in respect of the Mortgaged Property which violation has or could
have a material adverse effect on the market value of such Mortgaged Property.
Seller has no knowledge of any pending action or proceeding directly involving
the related Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue; and, to the best of Seller's knowledge, nothing
further remains to be done to satisfy in full all requirements of each such law,
rule or regulation constituting a prerequisite to the use and enjoyment of such
Mortgaged Property.
(hh) Obligor Acknowledgment. The Obligor has executed a statement to
the effect that the Obligor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage loans.
Seller shall maintain or cause to be maintained such statement in the Credit
File.
(ii) No Construction Loans. The Loan was not made in connection with
(a) the construction or rehabilitation of Mortgaged Property or (b) facilitating
the trade-in or exchange of a Mortgaged Property.
(jj) Selection. The Loans were not selected for inclusion under this
Agreement from among the Seller's mortgage loan portfolio on any basis which
would have an adverse affect on the interests of the Buyer.
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(kk) Circumstances Affecting Value, Marketability or Prepayment.
Except as otherwise disclosed to the Buyer, Seller has no knowledge of any
circumstances or conditions with respect to the Mortgage, the Mortgaged
Property, the Obligor, or the Obligor's credit standing that could reasonably be
expected to adversely affect the value or the marketability of any Mortgaged
Property or Loan, subject to the economic and geological conditions generally
and specifically to the area in which the Mortgaged Property is located.
Section 4.4 General Representations and Warranties of Buyer. As of the
date hereof, and as of each Settlement Date, Buyer represents and warrants as
follows:
(a) Organization. Buyer is a corporation, duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and is
qualified and authorized to transact business in, and is in good standing under
the laws of, each jurisdiction in which any Mortgaged Property is located or is
otherwise exempt under applicable law from such qualification. Buyer has the
requisite corporate power and authority to own and operate its properties, to
carry on its business as it is now being conducted, and to consummate the
transactions contemplated by this Agreement.
(b) Authorization of this Agreement. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes a legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except that such
enforcement may be affected by bankruptcy, by other insolvency laws, or by
general principles of equity.
(c) No Conflict or Violation. The execution and delivery of this
Agreement by Buyer does not, and the performance of this Agreement by Buyer will
not, (i) result in a violation of or conflict with any provisions of the charter
or by-laws or equivalent governing instruments of Buyer, (ii) violate any law,
rule, regulation, code, ordinance, judgment, injunction, order, writ, decree, or
ruling applicable to Buyer, or (iii) conflict with or violate any agreement,
permit concession, grant, franchise, license, or other governmental
authorization or approval necessary for purchase of the Loans by Buyer. No
regulatory approvals or consents are required with respect to Buyer's
consummation of the transactions contemplated by this Agreement.
(d) Litigation. No action, suit, proceeding, or governmental
investigation or inquiry is currently pending, or to the knowledge of Buyer,
threatened against Buyer which, if adversely determined, would have a material
adverse effect on the business, combined assets or financial condition of Buyer
or on the Loans or would prevent the consummation of the transactions
contemplated by this Agreement.
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(e) Financial Condition. Buyer has previously furnished Seller with
Buyer's most recent audited financial statements, together with the respective
reports thereon of the Buyer's independent public accountants, and Buyer's most
recent unaudited financial statements, each of which has been prepared in
accordance with generally accepted accounting principles. Each of the balance
sheets included in the financial statements sets forth Buyer's financial
condition as of the date thereof, and there have been no material adverse
changes in Buyer's business or financial condition since that date.
(f) Accuracy of Statements. Neither this Agreement, nor any
statement, report, or other document furnished or to be furnished pursuant to
this Agreement, or in connection with the transaction contemplated hereby,
contains any untrue statement of fact by Buyer or omits to state a fact
necessary to make the statements of Buyer contained therein not misleading.
(g) Ability to Perform; Solvency. Buyer does not believe, nor does
it have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement. Buyer is solvent and the purchase of the
Mortgage Loans will not cause Buyer to become insolvent.
(h) No Consent Required. No consent, approval, authorization or
order of any court or governmental agency or body is required for the execution,
delivery and performance by Buyer of or compliance by Buyer with this Agreement
or the Loans, or the purchase of the Loans by Buyer or the consummation of the
transactions contemplated by this Agreement, or if required, such approval has
been obtained prior to each Settlement Date.
(i) No Commissions to Third Parties. Buyer has not dealt with any
broker or agent or other Person who might be entitled to a fee, commission, or
compensation in connection with this transaction other than the Buyer.
SECTION 5 PRE-SETTLEMENT COVENANTS
Seller covenants and agrees that:
Section 5.1 Continued Servicing. Seller shall continue servicing the
Loans to be sold on each Settlement Date, until the related Service Transfer
Date, unless otherwise agreed to in writing by the parties, on Seller's system
in conformance with all of the requirements of the Loan Documents and applicable
law and in accordance with Accepted Servicing Practices. Seller shall send out
at its expense the notice required to be provided to Obligors for any Interest
Rate Adjustment scheduled to occur up to 10 days after the Service Transfer
Date.
Section 5.2 Preparation of Assignments. Prior to each Settlement Date,
Seller shall, at its sole expense, prepare and deliver an Assignment of Mortgage
in form and substance acceptable to Buyer and its counsel and any other security
documents corresponding to each Loan to be sold on such Settlement Date. Each
such assignment shall be sufficient to perfect the transfer of Seller's security
interest in the corresponding Mortgaged Property.
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Section 5.3 IRS Reporting. To the extent required by law, Seller shall
report to the IRS and each Obligor the amount of interest paid (including
without limitation, the obligations with respect to Forms 1098 and 1099 and back
up withholding with respect to same, if required) by such Obligor on the Loan on
which he is the Obligor from the date of the advance made by Seller to such
Obligor through and including the Service Transfer Date, and Buyer shall
thereafter report to the IRS and each Obligor the amount of interest paid by
such Obligor on the Loan on which he is the Obligor.
Section 5.4 Compliance with Law. From the date of this Agreement to
each Settlement Date, Seller shall comply with and use its best efforts to cause
each Oblgor to comply with all applicable state and Federal rules and
regulations including those requiring the giving of notices, and where
applicable, Seller warrants that it will comply with the National Housing Act of
1934, as from time to time amended, the Servicemen's Readjustment Act of 1944,
as amended, and with all rules and regulations issued under said either such
act.
Section 5.5 No Sale of Assets. Without the prior written consent of
Buyer, Seller shall not sell, lease, assign, transfer, encumber or permit the
encumbrance of, or otherwise dispose of:
(a) any of the Offered Loans from the date of the Offer until the
earlier of (i) the day on which Seller receives Buyer's Response or (ii) the
close of business on the day after which the Due Diligence Period expires; and
(b) any of the Loans included in the Loan Schedule to Buyer's
Response from the date on which such Response is received until the Settlement
Date.
Section 5.6 Private Mortgage Insurance. Seller shall provide any
notification to private mortgage insurance companies necessary to ensure
continuation of such insurance upon transfer of the Loans to Buyer.
SECTION 6. POST-SETTLEMENT COVENANTS
Section 6.1 Notice of Servicing Transfer. Seller and Buyer shall each
comply with, and Seller shall assist Buyer in complying with, the notice
requirements of the Cranston Gonzalez National Affordable Housing Act of 1990.
Such compliance by each party shall include, without limitation, sending its own
notices of the transfer of servicing from Seller to Buyer, at its sole expense.
For each Loan, Seller shall deposit such notice in the United States mail within
five (5) business days after the Settlement Date on which such Loan is sold.
Seller's notice to each Obligor shall state that any payments due from such
Obligor that are due 15 or more days after the date on which Seller sends such
notice shall be made to Buyer. Seller's assistance to Buyer shall include
providing Buyer with any information that Seller has or has access to and that
Buyer reasonably requires to complete its notices. Buyer shall approve any such
notices sent by Seller, and Seller shall have the right to approve any such
notices sent by Buyer, prior to the date mailed. To enable the parties to
determine the Service Transfer Date, Seller shall, with respect to all Loans
sold on each Settlement Date, send all notices pursuant to this Section 6.1 on
the
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same day, and shall, upon sending such notices, inform Buyer of the date on
which such notices are sent. Within 10 days of each Settlement Date, Seller
shall deliver to Buyer a copy of the notice sent with respect to each Loan sold
on such Settlement Date.
Section 6.2 IRS Examination. Buyer and Seller shall cooperate fully
with each other in connection with any examination conducted by any tax
authority after each Settlement Date, provided that nothing herein shall be
construed as obligating Buyer or Seller to disclose or furnish any tax
information not related to the transfer of the Loans. Buyer and Seller shall
inform each other promptly of any material developments in the course of any
such examination, the results of any such examination, and any proceeding
related thereto.
Section 6.3 Tax on Sale. Each party shall promptly pay in full and when
due any tax or other governmental charge or fee imposed upon it under applicable
law on the sale of the Loans from Seller to Buyer pursuant to this Agreement.
Section 6.4 Books and Records. Seller agrees to keep and maintain such
books and records so as to meet and comply with all applicable laws, and the
requirements or recommendations of ECOA and TILA. The same shall be available to
Buyer at any time, upon reasonable notice, during business hours, for
examination and audit to the extent required to determine compliance with such
laws. Such records shall include a loan register documenting all loan
applications taken by Seller.
Section 6.5 On Site Reviews. Seller agrees, upon reasonable notice and
during regular business hours, to meet with Buyer from time to time to discuss
Seller's business activities related to this Agreement and to allow Buyer to
conduct periodic on-site audits of Seller's business activities related to this
Agreement.
Section 6.6 Financial Statements. Each party shall furnish to the other
for as long as this Agreement is in effect, (i) as soon as available, and in any
event within 90 days after the end of each fiscal year, audited or certified
financial statements consisting of a balance sheet as of the end of such fiscal
year, together with related statements of income or loss and reinvested earnings
and changes in financial position for such fiscal year, prepared by independent
certified public accountants in accordance with generally accepted accounting
principles, and (ii) if available, within 10 days after the end of each
quarterly period unaudited financial statements which may be satisfied by
furnishing a copy of the quarterly report filed with the Securities and Exchange
Commission. In addition, each party shall provide the other, from time to time,
upon reasonable request (which shall include a written statement describing the
reason therefor) and 60 days' notice, any other financial reports or statements
reasonably required by the requesting party.
Section 6.7 Post-Sale Loan Payments. Seller agrees that it will remit
to Buyer, within 48 hours after receipt, any payment on a Loan including,
without limitation, all payments of principal and interest, late charges, and
bad check charges received from an Obligor on or after the Settlement Date at
the following address: 961 Weigel Drive, Elmhurst, Illinois, 60126, Attn: Mark
Eichler, or such other address as Buyer may designate. Seller shall remit such
payment via an overnight delivery service.
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Section 6.8 Transfer of Servicing Rights and PMI. Seller shall use all
efforts to assist Buyer in the transfer from Seller to Buyer of servicing rights
for each Loan, including assisting Buyer with any notices to private mortgage
insurance companies.
Section 6.9 Delivery of Mortgage Loan Documents. With respect to each
Loan, the Seller shall cause by no later than sixty (60) days after the
Settlement Date, the original recorded Mortgage and, if applicable, the prior
Assignment of Mortgage to be delivered to Buyer if they have not yet been
returned from the County Records Office. The Seller shall pay the out-of-pocket
costs incurred in connection with such acts.
Section 6.10 Confidentiality.
(a) Buyer and Seller shall not disclose any confidential or
proprietary information of the other party with respect to such other party, the
Offered Loans, the Loan Documents, the Response, the Acceptance, or this
Agreement that may be in the possession of that party (the "Confidential
Information") to any person who is not a partner, officer, employee, counsel, or
agent of such party except with the consent of such other party or pursuant to a
subpoena or order issued by a court of competent jurisdiction or by a judicial
or administrative or legislative body or committee.
(b) In the event that either party receives a request to disclose
any Confidential Information of the other party under such subpoena or order,
such party shall (i) notify the other party thereof within 10 days after receipt
of such request, (ii) consult with the other party on the advisability of taking
steps to resist or narrow such request, and (iii) if disclosure is required or
deemed advisable, cooperate with the other party in any attempt that it may make
to obtain an order or other reliable assurance that confidential treatment will
be accorded to designated portions of the Confidential Information.
(c) All information and documents that Buyer provides to Seller or
that Seller provides to Buyer pursuant to this Agreement shall be deemed to be
Confidential Information; provided, however, that Buyer and Seller shall not be
required to treat as Confidential Information, any information of the other
party if (i) such information is already in the possession of the party and is
not otherwise subject to an agreement as to confidentiality, (ii) such
information is or becomes generally available in the public domain other than as
a result of a disclosure by the party or its partners, officers, employees,
counsel, or agents, (iii) such information is not acquired from the other party
or persons known to be in breach of an obligation of secrecy to such other
party, or (iv) such information is contained in or derived from the Offered Loan
Documents, or is otherwise information Buyer or Buyer's counsel determines is
reasonably required to be disclosed in connection with the securitization and
sale of interests in the Loans. Any party disclosing any information of the
other party shall have the burden of proving that the disclosed information is
within one of the exceptions in this Section 6.10(c) and therefore need not be
treated as Confidential Information.
(d) Neither of the parties to this Agreement nor any of their
Affiliates shall issue any press release or public announcement concerning the
contemplated transaction, the existence
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of this Agreement, or the terms, conditions, and provisions of this Agreement
(i) unless mutually agreed by the parties or (ii) except as required by law, in
which event the disclosing party shall consult with the other party to the
extent practicable before making such disclosure.
SECTION 7 CONDITIONS TO SETTLEMENT
Section 7.1 Conditions to Buyer's Obligations. The obligations of Buyer
to purchase the Loans at each Settlement are subject to the satisfaction at or
prior to such Settlement, of each of the following conditions (any or all of
which may be waived by Buyer):
(a) Representations and Warranties Correct. Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects in accordance with their terms as of
the date of this Agreement, and on and as of such Settlement Date with the same
force and effect as though made on and as of such Settlement Date, and Seller
shall have delivered to Buyer a certificate to such effect signed on Seller's
behalf by its President or another appropriate officer.
(b) Compliance with Covenants. Seller shall have performed and be
in compliance with, in all material respects, all of its respective covenants,
acts, and obligations to be performed under this Agreement and Seller shall have
delivered to Buyer a certificate to such effect signed on Sellers behalf by its
President or another appropriate officer.
(c) Settlement Documents. Seller shall have executed and delivered
this Agreement and the Agreement shall not have been terminated. Seller shall
have delivered the Mortgage Files and in connection with the Loans to be
purchased on such Settlement Date, and executed all documents required to
transfer the Loans in accordance with the terms of this Agreement.
(d) Corporate Documents. On or before the Settlement Date, if Buyer
so requests, Seller shall have delivered to Buyer:
(i) a certificate of its jurisdiction of incorporation dated
not earlier than the date of the tenth day preceding the Settlement
Date, to the effect that Seller is a corporation validly existing
and in good standing (if applicable) under the laws of such
jurisdiction as of such date;
(ii) a certificate of the Secretary or Assistant Secretary of
Seller attaching (A) evidence of such corporate action or
authorization as is necessary to approve of this Agreement and the
authorization of the officers of Seller to sign this Agreement,
which action or authorization shall continue to be in force as of
the Settlement Date, and (B) specimen signatures of the officers of
Seller authorized to sign this Agreement;
(iii) a copy, certified as true by the Secretary or Assistant
Secretary of Seller, of the charter and the by-laws of Seller; and
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(iv) an Officer's Certificate in the form attached hereto as
Exhibit E.
(v) all other documents, instruments, and writings required to
be delivered by Seller pursuant to this Agreement.
(e) Corporate Actions. All corporate and other acts necessary to
authorize the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereunder shall have been taken
by Seller.
(f) Access to Information; Due Diligence. Buyer and its
representatives shall have had access to such information and records of Seller
as Buyer shall have reasonably requested to ascertain Seller's compliance with
the Agreement, and all such information and records shall be satisfactory to
Buyer and its representatives in accordance with the terms of this Agreement.
(g) No Pending Litigation. There shall not be pending or threatened
any suit, action, injunction, investigation, inquiry, or other proceeding
against either of the parties before any court or government agency, which, in
Buyer's good faith judgment, has resulted or is reasonably likely to result in
an order staying or judgment restraining or prohibiting the transactions
contemplated hereby or subjecting a party to material liability on the grounds
that is has breached any law or regulation or otherwise acted improperly in
connection with the transactions contemplated hereby.
Section 7.2 Opinion of Counsel. The obligations of Buyer to purchase
the Loans at the first Settlement following execution of this Agreement are
subject to Buyer having received an opinion of Seller's in-house counsel in form
and substance satisfactory to Buyer, as to such matters concerning this
Agreement or the Settlement as are reasonably requested by Buyer. Thereafter, at
each Settlement Seller's counsel may furnish a reliance letter relating to the
original opinion or may provide a new opinion.
Section 7.3 Conditions to Seller's Obligations. The obligations of
Seller to sell the Loans at each Settlement are subject to the satisfaction at
or prior to such Settlement, of each of the following conditions (any or all of
which may be waived by Seller):
(a) Purchase Price. The Purchase Price shall have been delivered to
Seller pursuant to Seller's reasonable instructions in accordance with Section
3.3.
(b) Representations and Warranties Correct. Each of the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects in accordance with their terms as of
the date of this Agreement, and on and as of such Settlement Date with the same
force and effect as though made on and as of such Settlement Date, and if Seller
so requests, Buyer shall have delivered to Seller a certificate to such effect
signed on Buyer's behalf by its President or another appropriate officer.
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(c) Compliance with Covenants. Buyer shall have performed and be in
compliance with, in all material respects, all of its respective covenants,
acts, and obligations to be performed under this Agreement, and if Seller so
requests, Buyer shall have delivered to Seller a certificate to such effect
signed on Buyer's behalf by its President or another appropriate officer.
(d) Corporate Documents. On or before the Settlement Date, if Seller
so requests, Buyer shall have delivered to Seller:
(i) a certificate of its jurisdiction of incorporation dated
not earlier than the date of the tenth day preceding the Settlement
Date, to the effect that Buyer is a corporation validly existing and
in good standing (if applicable) under the laws of such jurisdiction
as of such date;
(ii) a certificate of the Secretary or Assistant Secretary of
Seller attaching (A) evidence of such corporate action or
authorization as is necessary to approve this Agreement and the
authorization of the officers of Buyer to sign this Agreement, which
action or authorization shall continue to be in force as of the
Settlement Date, and (B) specimen signatures of the officers of
Buyer authorized to sign this Agreement;
(iii) a copy, certified as true by the Secretary or Assistant
Secretary of Buyer, of the charter and the by-laws of Buyer; and
(iv) all other documents, instruments and writings required to
be delivered by Buyer pursuant to this Agreement.
(e) Corporate Actions. All corporate and other acts necessary to
authorize the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereunder shall have been taken by
Buyer.
(f) No Pending Litigation. There shall not be pending or, to the
best of Buyer's knowledge upon reasonable due inquiry and investigation,
threatened any suit, action, injunction, investigation, inquiry, or other
proceeding against either of the parties before any court or government agency,
which, in Seller's good faith judgment, has resulted or is reasonably likely to
result in an order staying or judgment restraining or prohibiting the
transactions contemplated hereby or subjecting a party to material liability on
the grounds that it has breached any law or regulation or otherwise acted
improperly in connection with the transactions contemplated hereby.
Section 7.4 Opinion of Counsel. The obligations of Seller to sell the
Loans at the first Settlement following the execution of this Agreement are
subject to Seller having received an opinion of Buyer's counsel, in form and
substance satisfactory to Seller, as to such matters concerning this Agreement
or the Settlement as are reasonably requested by Seller.
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SECTION 8 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES;
REPURCHASE OBLIGATION OF SELLER.
It is understood and agreed that the covenants, representations and
warranties set forth in this Agreement shall survive delivery and release of the
Offered Loan Documents to Buyer for a period of ten (10) years from the date on
which such covenant, representation, or warranty is made. It is further
understood that the covenants, representations and warranties set forth in this
Agreement shall inure to the benefit of Buyer, or any holder of any endorsement
of any Note or any examination of the Offered Loan Documents.
SECTION 9 POST-SETTLEMENT REPURCHASE AND ADJUSTMENTS
Section 9.1 Repurchase Obligations.
(a) In the event that
(i) Seller has failed to deliver to Buyer any document
required hereunder with respect to any Loan sold on a Settlement
Date within the applicable time period for delivery therefor and
such failure has materially and adversely affected Buyer's
ability to service or obtain payment on such Loan,
(ii) Seller has, with respect to any Loan, breached any
warranty, representation, or agreement, which is contained in
this Agreement and which concerns the accuracy of information or
statements, including but not limited to those representations
and warranties set forth in Sections 4.1(g), 4.2(a), and 4.3(b).
(iii) Seller has, with respect to any Loan, breached any
warranty, representation, or agreement contained in this
Agreement, other than those described in Section 9.1(a)(i) or
9.1(a)(ii) or,
(iv) Seller or any of Seller's representatives has acted
fraudulently, negligently, or with willful misconduct in the
origination or closing of any Loan.
Buyer shall give Seller notice of, and shall request that Seller cure, such
failure, breach, or action within 30 days of Seller's receipt of such notice.
With respect to 9.1(a)(i), failure to deliver the documents required by Section
6.9 shall be deemed to materially and adversely affect Buyer's ability to
service or obtain payment on a Loan.
(B) If Seller fails to cure such failure, breach or action
within such 30-day period, Seller shall, not later than 30 days after its
receipt of notice thereof, repurchase such Loan at the repurchase price set
forth in Section 9.2.
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Section 9.2 Repurchase Price. In the event Seller repurchases a Loan
from Buyer pursuant to Section 9.1 above, the repurchase price shall be an
amount equal to
(a) the product of
(i) the Bid Percentage and
(ii) the Principal Balance of such Loan,
(b) minus the aggregate amount of all payments of principal
made to Buyer on such Loan from the Settlement Date up to, but not including,
the date of repurchase,
(c) plus accrued but unpaid interest up to and including the
date of repurchase,
(d) plus any reasonable and customary out-of-pocket expenses
paid to third parties relating to such Loan.
Upon payment of the repurchase price as set forth herein, Buyer shall deliver
the Loan Documents relating to such repurchased Loan and shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in Seller title to such repurchased Loan
on a servicing released basis. Seller shall pay all out-of-pocket costs incurred
in delivering the Mortgage File to the Seller. Except for the negligence or
willful misconduct of Buyer or Buyer's representative, the Buyer shall have no
liability for the failure by the courier to deliver the Mortgage File to the
Seller for any reason whatsoever.
Section 9.3 Post-Settlement Adjustments to Purchase Price. Within 60
days after each Settlement Date, the first party shall notify the other party in
writing of any miscalculations, misapplied payments, unapplied payments or other
accounting errors (each, a "Discrepancy") which the first party has discovered
and which affects the Principal Balance of any of the Loans purchased on such
Settlement Date or the Purchase Price for the Loans purchased on such Settlement
Date. Notice to the other party under this Section 9.3 shall include copies of
documents sufficient to describe each Discrepancy. Buyer shall pay Seller or
Seller shall pay Buyer, as the case may be, an amount sufficient to correct such
Discrepancy, with all such adjustments calculated using the Bid Percentage. Any
amounts due hereunder shall be paid within 10 days of notice by the first party
to the other party.
SECTION 10 INDEMNIFICATION
Section 10.1 Seller's Indemnification
(a) Seller agrees to indemnify and hold Buyer, its Affiliates,
officers, directors, employees, agents, successors, and assigns, and related
entities from and to reimburse them for, any loss, cost, expense, damage,
liability, or claim (including, without limitation, all Legal Fees) relating to,
arising out of, based upon, or resulting from:
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(i) Seller's ownership of or actions with respect to the
Loans;
(ii) Seller's breach of any of its representations and
warranties contained in this Agreement; or
(iii) Seller's breach of or failure to perform any of its
covenants or agreements contained in or made pursuant to this
Agreement.
(b) The obligations of Seller under this Section shall survive the
transfer and delivery of the Loans to Buyer and the termination of this
Agreement.
(c) Notwithstanding the foregoing, Seller shall not have any liability
in respect of the representations or warranties on the part of Seller herein
contained to the extent such liability would not have arisen but for Buyer's own
willful misconduct or negligence.
Section 10.2 Buyer's Indemnification.
(a) Buyer agrees to indemnify and hold Seller, its Affiliates,
officers, directors, employees, agents, successors, and assigns, and related
entities from, and to reimburse them for, any loss, cost, expense, damage,
liability, or claim (including without limitation, all Legal Fees) relating to,
arising out of, based upon, or resulting from:
(i) Buyer's ownership of or actions with respect to the
Loans;
(ii) Buyer's breach of any of its representations and
warranties contained in this Agreement; or
(iii) Buyer's breach of or failure to perform any of its
covenants or agreements contained in or made pursuant to this
Agreement.
(b) The obligations of Buyer under this Section shall survive the
transfer and delivery of the Loans to Buyer or the termination of this
Agreement.
(c) Notwithstanding the foregoing, Buyer shall not have any liability
in respect of the representations or warranties on the part of Buyer herein
contained to the extent such liability would not have arisen but for Seller's
own willful misconduct or negligence.
Section 10.3 Indemnification Procedures.
(a) Within 10 days after receipt by a party of a third party claim, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Agreement, deliver a claim notice to the
indemnifying party; provided, however, that the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that the indemnifying party may have to the indemnified party otherwise than
under this
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subsection. In the event that any third party claim is made against the
indemnified party and the indemnified party notifies the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to the indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), which consent shall not be unreasonably withheld. The indemnified party
shall have the right to employ separate counsel in any action or claim and to
participate in the defense thereof at the expense of the indemnifying party, if
the retention of such counsel has been specifically authorized by the
indemnifying party, if such counsel is retained because the indemnifying party
does not notify the indemnified party within 20 days after receipt of a claim
notice that it elects to undertake the defense thereof, or if there is a
reasonable basis on which the indemnified party's interests may differ from
those of the indemnifying party.
(b) The indemnifying party shall remit payment for the amount of a
valid and substantiated claim for indemnification hereunder within 15 business
days of the receipt of a claim notice therefor. Upon the payment in full of any
claim hereunder, the indemnifying party shall be subrogated to the rights of the
indemnified party against any person with respect to the subject matter of such
claim. In the event of a dispute, the parties shall proceed in good faith to
negotiate a resolution of such dispute.
(c) The indemnified party shall have the right to reject any settlement
approved by the indemnifying party if the indemnified party waives its right to
indemnification hereunder. The indemnified party shall have the right to settle
any third party claim over the objection of the indemnifying party; provided,
however, that if the indemnifying party is contesting such claim in good faith
and has assumed the defense of such claim from the indemnified party, the
indemnified party waives any right to indemnify therefor.
(d) In the event that the indemnifying party reimburses the indemnified
party with respect to any third party claim and the indemnified party
subsequently receives reimbursement from another person with respect to that
third party claim, then the indemnified party shall remit such reimbursement
from such other person to the indemnifying party within 30 days of receipt
thereof.
SECTION 11 TERMINATION
Section 11.1 Termination by Either Party.
(a) This Agreement may be terminated with or without cause by either
party upon 30 days' written notice to the other party, provided that the
delivery requirements and other terms of this Agreement have been fully complied
with as prior Settlements.
(b) After termination pursuant to Section 11.1(a), the provisions of
this Agreement shall continue to apply to any Loans previously transferred from
Seller to Buyer pursuant to this Agreement.
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Section 11.2 Termination by Buyer. This Agreement may be immediately
terminated by Buyer, at Buyer's sole option, upon notice to Seller upon the
occurrence of any of the following events ("Termination Events");
(a) Seller breaches or fails to comply with any term or
condition of this Agreement and fails to cure such breach or failure within 60
days of receipt of notice thereof from Buyer;
(b) Any of Seller's representations or warranties in Sections
4.1, 4.2 or 4.3 of this Agreement is untrue in any material respect and is not
cured by Seller within 60 days of receipt of notice thereof from Buyer;
(c) Notwithstanding Section 11.2(a), Seller does not deliver
the Loans or any Loan Document relating to such Loans within the time periods
stated in this Agreement;
(d) Notwithstanding Sections 11.2(a) and 11.2(b), any document
or paper delivered hereunder is incorrect in any material respect or otherwise
does not comply with the terms and provisions of this Agreement;
(e) Any material reduction in Seller's net worth occurs, as
determined solely by Buyer;
(f) A petition for involuntary bankruptcy is filed against
Seller, or Seller is adjudged bankrupt or insolvent by a court of competent
jurisdiction or a regulatory agency, or a court of competent jurisdiction or a
regulatory agency appoints a receiver, liquidator, conservator, or trustee for
Seller or all or substantially all of its assets, or approves any petition filed
against Seller for its reorganization;
(g) Seller institutes proceedings for voluntary bankruptcy,
files a petition seeking reorganization under the Federal Bankruptcy Code, files
under any law for the relief of debtors, consents to the appointment of a
receiver of all or substantially all of its property, makes a general assignment
for the benefit of its creditors, or admits in writing its inability to pay its
debts generally as they become due;
(h) Seller merges with or consolidates into another
corporation, sells or otherwise disposes of all or substantially all of its
property and assets, or permits any change to occur in the stock ownership of
Seller which would transfer effective voting control from the persons now
exercising such control to others; and
(i) The placement of Seller on probation or restriction of its
activities in any manner by a Federal or state government agency, including
FHLMC, FNMA, or GNMA.
Section 11.3 Effect of Termination. Upon expiration of the 30 day
notice period pursuant to Section 11.1(a) or upon written notice to Seller,
pursuant to Section 11.2 that a Termination Event has occurred, this Agreement
shall be of no force and effect and the parties obligations to
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<PAGE>
each other hereunder shall cease; provided, however, that each party shall
continue to have such obligations as may remain with respect to all Loans
acquired by Buyer in Settlements that have occurred prior to the date on which
this Agreement terminates.
SECTION 12 MISCELLANEOUS
Section 12.1 No Waiver. Failure or delay on the part of Buyer to audit
any Loan or to exercise any right provided for herein, shall not act as a waiver
thereof, nor shall any single or partial exercise of any right by Buyer or
Seller preclude any other or further exercise thereof. In no event shall a term
or provision of this Agreement be deemed to have been waived, modified or
amended, unless said waiver, modification or amendment is in writing and signed
by the parties hereto. Notwithstanding any investigation conducted before or
after the purchase of any Loan, and notwithstanding any actual or implied
knowledge or notice of any facts or circumstances which Buyer may have as a
result of such investigation or otherwise, Buyer shall be entitled to rely upon
the warranties, representations, and covenants of Seller in this Agreement, and
the obligations of Seller with respect thereto shall survive the purchase of
said Loans by Buyer and inure to the benefit of all future assignments of said
Loans.
Section 12.2 Amendment and Modification. Subject to applicable law,
this Agreement may not be amended, modified, or supplemented except in writing
signed by both parties. Notwithstanding the foregoing, Seller may unilaterally
amend the underwriting standards set forth in Schedules 4.2(b)(A) and 4.2(b)(B)
upon the thirty (30) days written notice to Buyer.
Section 12.3 Notices. All notices, requests, demands, consents,
approvals, agreements, or other communications to or by a party to this
Agreement shall;
(a) be in writing addressed to the authorized address of the
recipient set out in Section 12.3(c) of this Agreement or to such other
address as such recipient may have notified the sender;
(b) be signed by an authorized officer of the sender; and
(c) be delivered in person or sent by registered or certified
mail return receipt requested, facsimile transmission, or by overnight courier
and be deemed to be duly given or made:
(i) in the case of delivery in person when delivered to
the recipient at such address;
(ii) in the case of registered or certified mail three
days after the date of mailing;
(iii) in the case of overnight courier two days after
shipment or the date of receipt, whichever is earlier; or
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<PAGE>
(iv) in the case of facsimile transmission when received
in legible form by the recipient at such address and in the
event that the recipient has been requested to acknowledge
receipt of the entire facsimile transmission upon the sending
or receiving the acknowledgement of receipt (which
acknowledgement the recipient will promptly give);
but if such delivery or dispatch is later than 5:00 p.m. local time on a day on
which business is generally carried on in the place to which such communication
is sent or occurs on a day on which business is not generally carried on in the
place to which such communication is sent, it will be deemed to have been duly
given or made at the commencement of business on the next day on which business
is generally carried on in that place.
Notices may be sent
to Buyer: Household Financial Services, Inc.
961 Weigel Drive
Elmhurst, IL 60126
Attn: Group Vice President
Facsimile No: (708) 617-7590
with a copy to: Household Finance Corporation
2700 Sanders Road
Prospect Heights, IL 60070
Attn: General Counsel
Facsimile No: (847) 205-7447
To Sellers: Westmark Mortgage Corp.
355 NE 5th Avenue
Suite 4
Delray Beach, FL 33483
Attn: Mark Schaftlein, Executive Vice President
Facsimile No: (407) 243-2999
with a copy to: General Counsel
at the above address
or to such other address as Buyer and Seller shall have specified in writing to
each other.
Section 12.4 Expenses. Each party hereto shall bear its own expenses,
including the fees of any attorneys, accountants, or others engaged by such
party, in connection with this Agreement and the transactions contemplated
hereby, except as otherwise expressly provided herein.
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<PAGE>
Section 12.5 No Remedy Exclusive. No remedy under this Agreement is
intended to be exclusive of any other available remedy, but each remedy shall be
cumulative and shall be in addition to other remedies under this Agreement or
existing at law or in equity.
Section 12.6 Independent Contractor. Nothing herein contained shall be
deemed or construed to create a partnership or joint venture between Seller and
Buyer. In the performance of its duties or obligations under this Agreement or
any other contract, commitment, undertaking, or agreement made pursuant to this
Agreement, neither Seller nor Buyer shall be deemed to be, or permit itself to
be, understood to be the employee or agent of the other and shall at all times
take whatever measures as are necessary to insure that its status shall be that
of an independent contractor operating as a separate entity. None of Seller's or
Buyer's employees, agents or servants is entitled to the benefits that are
provided to the employees of the other party. Each party is solely interested in
the results obtained under this contract and therefore the manner and means of
conducting the other party's business affairs are under the sole control of such
other party and such other party shall be solely and entirely responsible for
its acts and for the acts of its agents, employees, and servants.
Section 12.7 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal, or unenforceable in any respect, unless material to the
purpose of this Agreement.
Section 12.8 Entire Agreement. Seller and Buyer each acknowledges that
no representations, agreements, or promises were made to such party by the other
party or any of its employees other than those representations, agreements, or
promises specifically contained herein. This Agreement and any Schedules and
Exhibits hereto constitute the entire agreement and understanding of the parties
with respect to the matters and transactions contemplated hereby. This Agreement
supersedes any prior agreement and understanding with respect to these matters
and transactions.
Section 12.9 Assignment. Except as set forth in the following sentence,
neither party shall have the right to assign any of its duties, obligations, or
rights under this Agreement without the prior written consent of the other.
Buyer shall have the right to assign its rights under this Agreement to any
Affiliate, and in no such assignment shall relieve either party of any liability
under this Agreement.
Section 12.10 Captions. The captions in this Agreement are for
convenience only, do not form a part hereof, and do not in any way modify,
interpret, or construe the intentions of the parties hereto.
Section 12.11 Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of Illinois, without regard
to the conflicts of laws rules thereof.
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<PAGE>
Section 12.12 Counterparts. This Agreement may be executed in one or
more counterparts, each of which counterparts shall be deemed to be an original,
and all such counterparts shall constitute one and the same instrument.
Section 12.13 Drafting. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any party against the other.
Section 12.14 Choice of Forum. Any judicial proceedings brought against
any of the parties hereto with respect to this Agreement shall be brought in any
court of competent jurisdiction in Cook County, Illinois or Palm Beach County,
Florida, or in the Federal District Court for the Northern District of the State
of Illinois or in the Federal District Court for the District of the State of
Florida encompassing Palm Beach County irrespective of where such party may be
located at the time of such proceeding, and by execution and delivery of this
Agreement, each of the parties to this Agreement hereby consents to the
exclusive jurisdiction of any such court and waives any defense or opposition to
such jurisdiction.
Section 12.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have caused their respective duly
authorized representatives to execute this Agreement as of the date first above
written.
BUYER:
HOUSEHOLD FINANCIAL SERVICES, INC.
/s/ David J. Fatina
By:______________________________________
David J. Fatina
Name:_________________________________
Group Vice President
Title:________________________________
SELLER:
WESTMARK MORTGAGE CORP.
/s/ Mark Schaftlein
By:______________________________________
MARK SCHAFTLEIN
Name:_________________________________
EXECUTIVE VICE PRESIDENT
Title:________________________________
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<PAGE>
EXHIBIT A
Form of Bill of Sale and Assignment
_______________________, a ____________ corporation ("Grantor"), for good
and valuable consideration the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereunder, does hereby
absolutely sell, transfer, assign, set-over and convey to Household Financial
Services, Inc., a Delaware corporation (the "Grantee"), its successors and
assigns, without recourse, (i) all of Grantor's right, title and interest in the
loans described on the list attached hereto as Schedule I (the "Loans"),
including all principal, interest, or other proceeds of any kind with respect to
the Loans; and (ii) all of Grantor's right, title and interest in to all escrow
deposits held in connection with such Loans. In addition, Grantor further
assigns to Grantee its successors and assigns, Grantor's right (i) to service
each Loan on a servicing released basis and (ii) to collect any servicing fee in
connection with such Loan.
This Bill of Sale and Assignment is being executed and delivered pursuant
to the terms of the Continuing Loan Purchase Agreement dated as of ____________,
1996, which is hereby incorporated herein by reference. This Bill of Sale and
Assignment shall be governed by the laws of the State of Illinois without regard
to the conflicts of law rules thereof. Grantee shall have the right to assign
its rights hereunder to any of its Affiliates (as defined in Continuing Loan
Purchase Agreement).
GRANTOR:
----------------------------------
DATE: , 199 By:
------------------------- - ----------------------------------
Name:
----------------------------
Title:
---------------------------
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SCHEDULE 1 TO BILL OF SALE AND ASSIGNMENT
Loans
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<PAGE>
EXHIBIT B
Form of Response and Acceptance
In response to the Offer, by __________________, a ___________ corporation
("Seller"), dated ________, to sell the Offered Loans described in the Loan
Documents, Household Financial Services, Inc., a Delaware corporation ("Buyer"),
hereby proposes to purchase the Loans described in the Offered Loan Schedule
other than the Excluded Loans listed on Schedule A attached hereto.
If this Response is accepted by Seller, the Bid Percentage for the Loans
described in Schedule 1 shall be ___%. The Purchase Price for the Loans will be
calculated according to the formula set forth in the definition of that term.
This Response is being executed and delivered pursuant to the terms of the
Continuing Loan Purchase Agreement dated as of ____________, 1996, which is
hereby incorporated herein by reference. Please indicate your acceptance of this
Response and your agreement to execute the Bill of Sale with respect to the
Loans on the Settlement Date by signing in the space provided and returning an
executed copy of this Response to me.
HOUSEHOLD FINANCIAL SERVICES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Agreed and Accepted; Attached hereto as Schedule 1, is the Loan Schedule
- -------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE>
SCHEDULE A TO RESPONSE AND ACCEPTANCE
[TO BE COMPLETED BY BUYER]
E-4
<PAGE>
SCHEDULE 1 TO RESPONSE AND ACCEPTANCE
[TO BE COMPLETED BY SELLER]
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<PAGE>
EXHIBIT C
CONTENTS OF LEGAL FILE
With respect to each Loan, the Legal File shall include each of the
following items, which shall be delivered to the Buyer.
1. The original Note, bearing all intervening endorsements, endorsed, "Pay to
the order of ______________, without recourse" and signed in the name of
Seller by an authorized officer or by facsimile signature.
2. Either: (i) the original recorded Mortgage with recording information
thereon, together with a certified true copy of the original
power-of-attorney showing the recording information thereon if the Mortgage
was executed by an attorney-in-fact, (ii) a certified true copy of the
Mortgage and of the power-of-attorney (if applicable) the originals of
which have been transmitted for recording, until such time as the originals
are returned by the public recording office in which case the Seller shall
deliver the original recorded Mortgage with 5 business days of receipt from
the County Records Office; or (iii) a copy of the Mortgage certified by the
public recording office in those instances where the public recording
office retains the original or the original is lost, together with a
duplicate original mortgage's certificate of title II the Mortgage is
registered under the Torrens system.
3. The original Assignment of Mortgage for each Loan, in blank, in form and
substance acceptable to Buyer and its counsel, and for recording but not
recorded, signed in the name of Seller by an authorized officer: provided,
however, that certain recording information will not be available if, as of
the Settlement Date, Seller has not received the related recorded Mortgage
from the recorder's office.
4. A copy of the title search and mortgage title insurance commitment or the
original mortgage title insurance policy issued by an approved ALTA title
insurance company on such form and subject to such exceptions as are
approved by Buyer and Buyer's counsel; provided, however, that if the
original is not available as of the date the Mortgage is delivered to
Buyer, Seller shall deliver the original to Buyer within sixty (60) days
after the Settlement Date, or if it has not been received by that date,
within 5 business days after receipt from the title company. Seller shall
make all due efforts to obtain and deliver such title policy within the
above time period.
5. Originals of all intervening assignments, if any, with evidence of
recording thereon, or certified true copies with evidence that the
originals have been transmitted for recording until such time as the
originals are returned by the public recording office, or a copy of each
such assignment certified by the public recording office if such office
retains the originals, or if such original is lost.
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<PAGE>
6. Originals of all assumption, modification, consolidation or extension
agreements with evidence of recording thereon, if any.
7. Original guarantee, if any.
8. The original of any security agreement, chattel mortgage or equivalent,
executed in connection with the Mortgage, if any.
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<PAGE>
EXHIBIT D
CONTENTS OF CREDIT FILE
With respect to each Loan, the Credit File shall include each of the following
items.
1. A copy of the original Note, bearing all intervening endorsements, endorsed,
"Pay to the order of ____________________, without recourse" and signed in
the name of Seller by an authorized officer or by facsimile signature.
2. A copy of either: (i) the original recorded Mortgage with recording
information thereon, together with a certified true copy of the original
power-of-attorney showing the recording information thereon if the Mortgage
was executed by an attorney-in-fact; (ii) a certified true copy of the
Mortgage and of the power-of-attorney (if applicable) the originals of which
have been transmitted for recording, until such time as the originals are
returned by the public recording office; or (iii) a copy of the Mortgage
certified by the public recording office in those instances where the public
recording office retains the original or the original is lost, together with
a duplicate original mortgagee's certificate of title if the Mortgage is
registered under the Torrens system.
3. A copy of the original Assignment of Mortgage for each Loan, in blank, in
form and substance acceptable to Buyer and its counsel, and for recording
but not recorded; provided, however, that certain recording information will
not be available if, as of the Settlement Date, Seller has not received the
related recorded Mortgage from the recorder's office.
4. A copy of the original policy of title insurance (or, if such policy has not
yet been issued by the insurer, the preliminary title report).
5. A copy of all intervening assignments, if any, with evidence of recording
thereon, or certified true copies with evidence that the originals have been
transmitted for recording until such time as the originals are returned by
the public recording office, or a copy of each such assignment certified by
the public recording office if such office retains the original, or if such
original is lost.
6. A copy of all assumption and modification agreements, if any.
7. A survey or plat of the Mortgaged Property (except if the Mortgaged Property
is a condominium unit), unless the title insurance contains a 116 or "no
survey" endorsement.
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<PAGE>
8. Original hazard insurance policy (or certificate of insurance for a
condominium or planned unit development unit) and certificate or original
policy of flood insurance, if applicable. (In lieu of an insurance policy
for each Loan, Seller may carry a Mortgage Impairment Policy meeting the
requirements of FNMA or FHLMC).
9. Loan closing statement or a copy thereof.
10. Residential loan application.
11. Verification of employment and income (if applicable).
12. Verification of evidence of source and amount of down payment (if
applicable).
13. Credit report on the Obligor.
14. Residential appraisal report.
15. Photograph of the property.
16. (a) Payment records and current and historical computerized data files; and
(b) tax receipts, insurance premium receipts, ledger sheets, insurance claim
files and correspondence, correspondence, and all other papers and
records developed or originated by Seller or others, required to
document the Loan or to service the Loan provided, however, that these
items may be provided no later than 15 days after the Service Transfer
Date.
17. A copy of the guarantee, if any.
18. Copies of any security agreement, chattel mortgage or equivalent, executed
in connection with the Mortgage, if any.
19. Copy of each instrument necessary to complete identification of any
exception set forth in the title policy, if any.
20. All required disclosure statements, including a copy of the HUD good faith
estimate, HUD-1 settlement statement and TILA disclosure statement prepared
in connection with the Loan indicating that the Obligor has received all
disclosures required by the RESPA and TILA.
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<PAGE>
21. Termite reports, structural engineer's report, water potability and septic
certification, if any.
22. Sales contract, if any.
23. If the Mortgaged Property is a leasehold estate, a copy of the lease with
evidence or recording thereon (or, is such recorded copy has not yet been
returned to Seller by the applicable recording office, a copy thereof
certified by Seller to be a true, correct and complete copy of such lease
sent for recording).
24. Any and all documents, agreements or instruments related to the Loan or the
Note and Seller's right and benefits therein; all documents related to the
making and closing of the Loan; and any other documents, agreement, or
instruments related to the Loan or required by Buyer, in order to perfect
its right, title and interest in and to the Loan or required by Buyer in
order to enable Buyer to sell the Loan to a private investor or as part of a
securitization or other financing vehicle.
25. A statement showing the account number, customer name, unpaid principal
balance of the Loan, the amount of periodic installments and the date(s) to
which principal, interest and any escrows have been paid, the accrued but
unpaid interest up to and including the Settlement Date provided, however,
that this information may be provided in a tril balance; and, if required by
Buyer, a ledger card or ledger history reflecting all receipts and
disbursements from the inception of the Loan including the date of each
receipt of disbursement, provided, however, that these items may be provided
no later than 15 days after the Service Transfer Date.
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<PAGE>
SCHEDULE 2.1
Information to be Included in Offered Loan Schedule
Attached.
S-1
<PAGE>
SCHEDULE 4.2(b)(A)
Seller's Underwriting Standards for Pool A- (First Mortgages)
Attached.
S-3
<PAGE>
SCHEDULE 4.2(b)(B)
Seller's Underwriting Standards for Pool B- (Second Mortgages)
Attached.
S-47
<PAGE>
EXHIBIT E
FORM OF SELLER'S OFFICER'S CERTIFICATE
________________________ ("________"), in connection with the sale of the
Loans set forth on the Loan Schedule attached as Schedule I to the Bill of Sale
and Assignment, dated _________ 1996 from ___________ pursuant to the Continuing
Loan Purchase Agreement, dated as of ________, 1996 (the "Agreement"), by and
between Household Financial Services, Inc. and __________, hereby certifies
that:
(1) No default exists under the Agreement nor, to the best of ________'s
knowledge after due inquiry, does any condition exist which might become a
breach of the Agreement with the passage of time or giving of notice or
both; and
(2) The representations and warranties of ____________ in Section 4.1, 4.2 and
4.3 of the Agreement (to the extent applicable) are true and correct in all
material respects as of the date thereof.
IN WITNESS WHEREOF, this certificate has been executed this _______ day of
_____________, 199__.
---------------------------
By:
-----------------------
Name:
---------------------
Title:
---------------------
E-11
MORTGAGE WAREHOUSING AND SECURITY AGREEMENT
This Mortgage Warehousing And Security Agreement (the "Agreement"),
dated as of the ____ day of ______ 1997, by and between Westmark Group Holdings
Inc., a Delaware Corporation and Westmark Mortgage Corporation, a California
Corporation (the "Companies"), and Mortgage Corporation of America, a Michigan
Corporation.
RECITALS
WHEREAS, the Companies desire to warehouse certain mortgage loans with
Mortgage Corporation of America pending the sale of such loans; and
WHEREAS, Mortgage Corporation of America has agreed to establish a
revolving line of credit in favor of the Companies to be secured by such
mortgage loans and related collateral;
NOW, THEREFORE, the Companies and Mortgage Corporation of America agree
as follows:
ARTICLE I
DEFINITIONS
The following terms have the meanings setforth in this Article I. Each
definition covers the singular and plural as the context may require.
Section 1.1. The term "Advance" means the funds Mortgage Corporation of
America advances to the Companies under the terms of this Agreement.
Section 1.2. The term "Agreement Period" means the period of time in
which the Facility shall be in effect. The duration of the Agreement Period is
set forth in Section 2.1 of this Agreement
Section 1.3. The term "Attachment" has the meaning set forth in Section
3.5(iv) of this Agreement.
Section 1.4. The term "Authorized Person" means a person who, by a
resolution or other appropriate evidence of corporate authority which has been
furnished to Mortgage Corporation of America in form and substance satisfactory
to Mortgage Corporation of America, is authorized to borrow on behalf of the
Companies and to execute documents which bind the Companies to repay borrowed
funds and perform by obligations. The Companies shall have no more than three(3)
Authorized Persons under this Agreement.
Section 1.5. The term "Borrowing Base" means, as of any date of which it
is determined, an amount equal to (a) the Credit Value of all applicable
Collateral Mortgage Loans, less (b) the Credit Value of any Collateral Mortgage
Loans excluded from the Borrowing Base pursuant to the provisions of this
Agreement.
Section 1.6. The term "Business Day" means any day other than a Saturday
or Sunday, or a day on which banks in Michigan are either authorized or
obligated to close.
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<PAGE>
Section 1.7. The term "Collateral" means all of the property, whether
real, personal, or otherwise, on which the Companies grant to Mortgage
Corporation of America a continuing security interest in order to secure the
Companies' prompt payment and performance of all the Companies' obligations
hereunder and under the Note, and under all renewals, extensions, increases,
modifications, and amendments hereto and thereto. The term "Collateral"
includes, without limitation, (i) all Collateral Mortgage Loans, (ii) all
payments and prepayments of principal, interest, penalties, and other sums due
or to become due on each Collateral Mortgage Loan, (iii) insurance policies and
any payments made pursuant to such policies, (iv) servicing rights as to such
Collateral Mortgage Loans, and (v) Proceeds of all of the foregoing.
Section 1.8. The term "Collateral Mortgage Loan" means each Mortgage
Loan pledged to the Custodian or to Mortgage Corporation of America pursuant to
the terms of this Agreement, and includes, without limitation, all Mortgage
Documents and other documents executed by the mortgagors/borrowers in respect of
each Mortgage Loan. It is expressly understood that only Mortgage Loans (as
defined in Section 1.31) can qualify as Collateral Mortgage Loans.
Section 1.9. The term "Commitment Fee" means that fee set forth in
Section 2.6 of this Agreement.
Section 1.10. The term "Commitment Price" means, in respect of each
Mortgage Loan, the price for such Mortgage Loan which Purchaser has agreed to
pay, as set forth in a Purchase Commitment regarding such Mortgage Loan.
Section 1.11. The term "Credit Line Amount" has the meaning set forth in
Section 2.2 of this Agreement.
Section 1.12. The term "Credit Value" means the lesser of the Note
Amount or 98% of the Commitment Price.
Section 1.13. The term "Custodian" means Mortgage Corporation of
America, at its Southfield, Michigan offices or any other entity or person whom
Mortgage Corporation of America may designate.
Section 1.14. The term "Draw Fee" refers to the fee incurred by the
Companies upon their making a Request for Advance, as set forth in Section
2.7(i) of this Agreement.
Section 1.15. The term "Eastern Time" means either Easterm Standard Time
or Easterm Daylight Time, as either may be in effect from time to time in
Southfield, Michigan.
Section 1.16. The term "Event of Default" has the meaning set forth in
Section 7.1 of this Agreement.
Section 1.17. The term "Expiration Date" means the earlier of the two
times set forth in Section 2.1 of this Agreement.
Section 1.18. The term "Facility" means the revolving line of credit
established pursuant to the terms of this Agreement in favor of the Companies.
Section 1.19. The term "FHA" means the Federal Housing Administration or
a successor agency thereto.
Section 1.20. The term "FHLMC" means the Federal Home Loan Mortgage
Corporation, or any successor agency thereto.
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<PAGE>
Section 1.21. The term "FNMA" means the Federal National Mortgage
Association, or any successor agency thereto.
Section 1.22. The term "FTC" means the Federal Trade Commission, or any
successor agency thereto.
Section 1.23. The term "Funding Amount" means, as to any Mortgage Loan, the
amount required of the Companies to close the Mortgage Loan, usually including
the principal amount of the Mortgage Loan less discount points, origination fee,
prepaid interest and any other amounts required to be paid in cash at loan
closing by the mortgagor/borrower or other party to the transaction.
Section 1.24. The term "Funding Documents" means, with respect to any
Advance to be secured by a Mortgage Loan not closed at the time of the Request
for Advance (and therefore accounted for under the Wet Sublimit): (A) a copy of
the unexecuted Mortgage Note; (B) a copy of the unexecuted Mortgage; (C) a
takeout commitment from the Purchaser, and (D) an assignment to Mortgage
Corporation of America in recordable form.
Section 1.25. The term "Guarantor" has the meaning set forth in Section 6.4
of this Agreement, and includes all persons or entities which execute a
Guaranty.
Section 1.26. The term "Guaranty" means the Continuing Guaranty of other
guaranty agreement executed by a Guarantor, in substantially the form annexed
hereto as Exhibit D.
Section 1.27. The term "Insolvency Proceeding" has the meaning set forth in
Section 7.1(ix)(f) of this Agreement.
Section 1.28. The term "Loan" means the aggregate amount of principal,
interest outstanding under the Note, together with all fees and other amounts
due from the Companies to Mortgage Corporation of America under this Agreement
or the Note.
Section 1.29. The term "Maturity" means, in respect of any Advance, the
earliest of (A) the date any Collateral Mortgage Loan securing the Advance is
sold to a Purchaser, or (B) thirty days from the date of the Advance, or (C) the
date of a mandatory prepayment triggered by an Event of Default, or (D) the
Expiration Date.
Section 1.30. The term "Mortgage Documents" means, in respect to any
Mortgage Loan: (A) the duly executed Mortgage Note made by the
mortgagor/borrower under such Mortgage Loan, properly endorsed by the Companies
in blank; (B) an unrecorded, duly execute and acknowledged assignment of the
mortgage securing such Mortgage Note, by the Companies, as assignor, to
Purchaser, as assignee, in recordable form; (C) either (i) the original recorded
deed of trust or mortgage securing such Mortgage Note, or (ii) or a photocopy of
the original deed of trust or mortgage, certified by a title or escrow company
to be a true copy of the original document delivered for recording; and (D) such
other documents pertaining to such Mortgage Loan as Mortgage Corporation of
America may reasonably require from time to time.
Section 1.31. The term "Mortgage Loan" means a loan secured by a first lien
or real property (A) which is improved by a completed one-to-four family
dwelling unit located in the United States, and (B) which is subject to and
covered by a firm written commitment in the form of an approval letter issued in
favor of the Companies by either Mortgage Corporation of America, its
affiliates, or another investor satisfactory to Mortgage Corporation of America
(collectively referred to as "Purchaser") pursuant to which such Purchaser
commits to purchase such Collateral Mortgage Loan (in each case, a "Purchase
Commitment") within 30 days of Mortgage Corporation of America having made an
Advance secured by such Collateral Mortgage Loan.
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Section 1.32. The term "Mortgage Note" means the duly executed mortgage
note made by the mortgagor/borrower in favor of the Companies under a Mortgage
Loan, properly endorsed by the Companies in blank.
Section 1.33. The term "Mortgage Note Amount" means the unpaid principal
balance of a Mortgage Note at the time such Mortgage Note is delivered to the
Custodian.
Section 1.34. The term "Note" means the note payable to the order of
Mortgage Corporation of America, in substantially the form annexed hereto as
Exhibit A, which evidences the Companies' obligation to repay all Advances.
Section 1.35. The term "Notice" has the meaning set forth in Section
3.5(iv) of this Agreement.
Section 1.36. The term "Obligations" means Companies' obligations hereunder
and under the Note, and under all renewals, extensions, increases,
modifications, and amendments hereto and thereto.
Section 1.37. The term "Prime Rate" means the rate designated as the Prime
Rate in the Wall Street Journal. In the event the Wall Street Journal ceases
publication of the Prime Rate, then Mortgage Corporation of America may, in its
sole discretion, select a similar rate for the purposes of determining the
interest due hereunder, provided that neither the value of this newly chosen
rate nor its fluctuation from time to time is controlled by Mortgage Corporation
of America.
Section 1.38. The term "Proceeds" has the meaning given to it in the
version of the Uniform Commercial Code adopted by the State of Michigan, as the
same is in effect as of the date of this Agreement.
Section 1.39. The term "Purchase Commitment" means a letter which
constitutes a firm commitment by a Purchaser to purchase a specific Mortgage
Loan at a specific price within thirty days after Mortgage Corporation of
America makes an Advance secured by such Mortgage Loan.
Section 1.40. The term "Purchaser" means an entity which issues a Purchase
Commitment. As indicated in Section 1.31 above, the class of Purchasers is
limited to the following entities: Mortgage Corporation of America; one of
Mortgage Corporation of America's affiliates; and other investors satisfactory
to Mortgage Corporation of America.
Section 1.41. The term "Request for Advance" means a request for an Advance
conveyed to Mortgage Corporation of America by an Authorized Person either in
writing, by mail or telecopy and in substantially the form set forth in Exhibit
E hereto.
Section 1.42. The term "UCC" means the Uniform Commercial Code adopted by
the State of Michigan, as amended from time to time.
Section 1.43. The term "VA" means the Veterans Administration or any
successor agency thereto.
Section 1.44. The term "We Sublimit" means the dollar amount set forth in
Section 2.3, which is the maximum amount of Advances Mortgage Corporation of
America will extend against unexecuted Mortgage Notes delivered to Mortgage
Corporation of America.
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ARTICLE II
THE FACILITY
Section 2.1 - The Agreement Period. The Agreement Period shall continue
from the date hereof until the Expiration Date, which is defined as the earlier
of (A) the termination of this Agreement by Mortgage Corporation of America or
the Companies pursuant to Section 8.3 of this Agreement, or (B) ____________
Upon the Expiration Date, (X) any amounts owned by the Companies to Mortgage
Corporation of America under the Note or otherwise in connection with this
Agreement that are not paid in full shall become immediately due and payable
without demand on or notice to the Companies, and (Y) Mortgage Corporation of
America's obligations to make Advances, whether under Section 2.7 or otherwise,
shall terminate.
Section 2.2 - Maximum of Advances. Subject to the terms and conditions
of this Agreement, Mortgage Corporation of America agrees during the Agreement
Period to make Advances to the Companies up to an aggregate principal amount not
to exceed at any one time outstanding the lesser of Two Million Dollars
($2,000,000) (this amount being the "Credit Line Amount") or the Borrowing Base.
Section 2.3 - The Wet Sublimit. The Wet Sublimit applicable to the
Companies is Five Hundred Thousand Dollars ($500,000). This is a maximum amount
of Advances outstanding at any one time which Mortgage Corporation of America
will make against unexecuted Mortgage Notes delivered to Mortgage Corporation of
America.
Section 2.4 - The Note.
(i) The obligation of the Companies to repay the Advances hereunder
shall be evidenced by a Note of even date herewith, duly executed on behalf of
the Companies by an Authorized Person and payable to the order of Mortgage
Corporation of America, in full on the Expiration Date or in full or in part on
such earlier date or dates as any Advance evidenced thereby shall be prepayable
pursuant to the provisions of this Agreement.
(ii) The Companies shall repay the entire outstanding amount of each
Advance hereunder prior to Maturity and in no event later than the Expiration
Date.
(iii) Proceeds received from the sales or other dispositions of
Collateral Mortgage Loans shall be applied to repay any outstanding Advances
plus interest and fees due. Mortgage Corporation of America shall apply such
Proceeds in the following order: (A) to pay in full any fees or penalties owing
by the Companies to Mortgage Corporation of America, (B) then to pay in full all
outstanding interest accrued pursuant to the terms of the Note as of the date of
Mortgage Corporation of America's receipt of the Proceeds, (C) then to pay
principal outstanding under the Note.
(iv) In the event that the Borrowing Base is at any time less than
the sum of all outstanding Advances plus accrued interest and fees due but not
paid, the Companies shall immediately, without demand or notice, repay
outstanding Advances in an amount sufficient to cause the Borrowing Base to
equal or exceed the amount of all outstanding Advances, after giving effect to
such repayment.
(v) The Companies may at any time prepay outstanding amounts under
the Facility without penalty.
(vi) Whenever any payment to be made by the Companies either
hereunder (including the payment of the Commitment Fee or other fees described
herein) or under the Note shall be due on a day which is not a Business Day, the
payment shall be due, and the Companies shall make the payment, no later than
the next succeeding
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Business Day and such extension of time shall be included in the computation of
interest hereunder or under the Note.
(vii) Any payment received by Mortgage Corporation of America after
2:00 pm Eastern Time shall be deemed to have been received by Mortgage
Corporation of America on the next Business Day.
Section 2.5 - Interest.
(i) Interest on each Advance as provided for in the Note shall begin
to accrue as of the date an Advance is made by Mortgage Corporation of America
to the Companies. Interest and Draw Fees shall be due and payable in arrears on
the date a loan is purchased by a Purchaser, and the total amount of these two
will be deducted from Proceeds received from the Purchaser and paid to Mortgage
Corporation of America before any funds are applied to pay down the principal
balance of the Loan. Any deficiency in payment of interest and/or Draw Fees must
be paid by the Companies on the date funds are received by the Purchaser.
(ii) Any Advance accounted for as part of the Wet Sublimit will
bear an interest rate equal to the Prime Rate plus One percent (1%). All other
Advances will bear an interest rate of Prime Rate plus One percent (1%).
(iii) From and after Maturity as to any Advance, and as to the
entire Loan upon the Expiration Date, to the extent not paid in full as required
herein, the unpaid principal balance of all Loans shall, to the extent permitted
by applicable law, bear interest at a rate per annum equal to the Prime Rate
plus seven percent (7.0%), payable on demand, whether before or after the entry
of any judgment thereon, computed and adjusted as set forth in Section 2.5(ii).
(iv) All interest and fees payable hereunder shall be calculated on
a 360-day year basis for the actual number of days elapsed. In computing
interest on any Advance, the date of the making of the Advance and the date of
payment shall be included in the calculation. If an Advance is repaid on the
same day on which it is made, one day's interest shall be paid on the Loan.
Section 2.6 - Commitment Fee. As additional consideration for Mortgage
Corporation of America to make Advances, the Companies shall pay to Mortgage
Corporation of America a Commitment Fee equal to Zero percent (0%) of the Credit
Line Amount as of the first day of the Agreement Period, payable in full upon
the execution of this Agreement. Mortgage Corporation of America reserves the
right, subject to a 30 day written notice, to assess other fees relating to
services performed in relation to this agreement pursuant to such schedule of
fees as Mortgage Corporation of America may hereafter publish.
Section 2.7 - Procedure for Requesting an Advance.
(i) Any Authorized Person may convey to Mortgage Corporation of
America a Request for Advance hereunder in writing, by mail or telecopy and in
substantially the form set forth in Exhibit E hereto. Each Request for Advance
shall incur a non-refundable Draw Fee of Fifty Dollars ($50.00), or One Hundred
Fifty Dollars ($150.00) if the Mortgage Loan(s) pledged to secure the Advance
is/are to be sold to a Purchaser other than Mortgage Corporation of America or
one of its affiliates.
(ii) Each Request for Advance must be received no later than
forty-eight hours prior to the proposed closing of the Mortgage Loan(s), and
shall specify (A) the date the proposed Advance is to be made (which day shall
be a Business Day), (B) the amount of the proposed Advance, (C) the name and
address of the mortgagor/borrower,
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(D) the address of the property securing the proposed Mortgage Loan to such
mortgagor/borrower, (E) the date, time and place of the closing and (F)
instructions to Mortgage Corporation of America for wiring the funds comprising
the Advance to the financial institution that the Companies designate in the
Request for Advance.
(iii) Companies shall attach to each Request for Advance a copy of
the Purchase Commitment (regardless of whether the Purchaser is Mortgage
Corporation of America, one of its affiliates, or a third party) which Purchase
Commitment specifically states the terms of the Purchase as well as the date for
the purchase and sale of the Mortgage Loan. In addition, Companies shall attach
to its Request for Advance a certificate confirming the continued existence,
truth, and validity of the matters set forth in Article IV (Representations and
Warranties) and Article V (Covenants) herein. Any Request for Advance received
by Mortgage Corporation of America after 2:00 pm Eastern Time shall be deemed to
have been received by it on the next Business Day. The Companies agree that, in
implementing the arrangements described in this Section 2.7, Mortgage
Corporation of America is authorized to honor, and the Companies shall be
obligated to repay under the terms of this Agreement, any Request for Advance
which it believes in good faith to emanate from an Authorized Person for whom
the Companies have furnished a resolution or other appropriate evidence of
corporate authority.
Section 2.8 - Procedure for Making Advances.
(i) Prior to the making of any requested Advance hereunder, the
Companies shall cause to be delivered to the Custodian the Mortgage Documents or
Funding Documents in respect of Mortgage Loans having a Credit Value of not less
than the amount of such requested Advance.
(ii) Provided that Mortgage Corporation of America is satisfied that
the Request for Advance and all requirements with respect thereto are complete
and provided that, in the sole judgment of Mortgage Corporation of America, the
Mortgage Documents or Funding Documents are in good order, Mortgage Corporation
of America shall be obligated to make an Advance hereunder. Mortgage Corporation
of America shall make such Advance by wiring funds in a commercially reasonable
manner pursuant to such instructions as the Companies shall provide in the
Request for Advance.
Section 2.9 - Amount of Advances. The Companies shall not permit the
aggregate outstanding principal balance of all (i) Advances, plus (ii) Requests
for Advances, plus (iii) interest and fees due but unpaid to exceed at any time
the lesser of the Borrowing Base or the Credit Line Amount. In the event that
the sum of the foregoing amounts exceeds the applicable limit set forth in this
Section 2.9, the Companies shall immediately repay such excess or withdraw any
Request for Advance so that Companies shall not violate this Section 2.9. At no
time shall Mortgage Corporation of America be required to advance sums in excess
of the limit set forth in this Section. However, Mortgage Corporation of America
shall have no liability in the event it advances sums in excess of such limit,
and any amounts so advanced shall be repaid as provided in this section.
ARTICLE III
SECURITY INTEREST
Section 3.1 - Grant of Security Interest. The Companies hereby grant
to Mortgage Corporation of America a continuing security interest in and to all
of the Companies' right, title and interest in and to: (i) each Collateral
Mortgage Loan, including, without limitation, all Mortgage Documents and other
documents executed by the mortgagors/borrowers in respect of each Mortgage Loan,
and all other documents which the Companies has title to or an interest in which
are related to any Mortgage Loan, together with all payments and prepayments of
principal, interest, penalties and other sums due or to become due on each
Collateral Mortgage Loan, insurance policies, servicing rights as to such
Collateral Mortgage Loans, and the Proceeds thereof of any kind in connection
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with each Mortgage Loan; (ii) each Purchase Commitment currently existing or
hereafter acquired in respect of any Mortgage Loan; and (iii) the Proceeds of
all of the foregoing (the foregoing collectively referred to herein as the
"Collateral"), in order to secure the prompt payment and performance of all the
Companies' Obligations.
Section 3.2 - Companies Remain Liable. Anything herein to the contrary
notwithstanding.
(i) the Companies shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed;
(ii) the exercise by Mortgage Corporation of America of any of its
rights hereunder shall not release the Companies from any of their duties or
obligations under the contracts and agreements included in the Collateral; and
(iii) Mortgage Corporation of America shall not, individually or
collectively, have any obligation or liability under the contracts or agreements
included in the Collateral by reason of this Agreement, nor shall Mortgage
Corporation of America be obliged to perform any of the obligations or duties of
the Companies thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
Section 3.3 - Authority to Collect. Except as otherwise set forth in
this Agreement and except for prepayments received on a Mortgage Loan, unless
and until the occurrence of an event which constitutes an Event of Default
hereunder, the Companies shall continue to collect all amounts due and to become
due under the Collateral Mortgage Loans and in connection therewith may take
such action as the Companies may deem necessary, advisable, convenient or proper
for the enforcement thereof to the extent consistent with the Companies'
covenants and agreements set forth in Section 3.5. Upon receipt of any
prepayments on any Mortgage Loan, the Companies shall immediately pay such
amount as a payment on the Note.
Section 3.4 - Release of Collateral. The Companies and Mortgage
Corporation of America hereby agree that in the event any party obligated under
any contract or agreement included in the Collateral notifies the Companies in
writing that the sale, transfer or assignment of such contract or agreement
pursuant to the terms of this Agreement constitutes a default under such
contract or agreement, or if the Companies declare a default under any contract,
agreement, or mortgage to which Companies are a party and which is included in
the Collateral, and that, as a result of such sale, transfer or assignment, or
default such party or the Companies have elected to terminate such contract or
agreement, the affected Collateral shall be deemed ineligible as Collateral
under this Agreement and shall be immediately replaced with eligible Collateral
or, in the alternative, Companies shall make such payments of principal
sufficient to reduce the amount outstanding under the Note to an amount
permitted under Section 2.9 hereof.
Section 3.5 - Security Covenants. To protect the security afforded by
this Article III, the Companies covenant and agree as follows:
(i) The Companies will comply with, perform and discharge each and
every obligation, covenant, condition, duty and agreement contained in the
Purchase Commitments, which are to be performed by the Companies;
(ii) Without the prior written consent of Mortgage Corporation of
America, the Companies will not waive, excuse, condone, or forgive any breaches,
defaults, or failures of performance (however defined), or in any manner release
or discharge any party to any agreement from the obligations, covenants,
conditions, duties and requirements contained in any such agreement or amend,
modify or otherwise change, terminate or assign any
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agreement or agree to do any of the foregoing, if the consequences of any of the
foregoing acts would be to adversely affect the Companies' condition, financial
or otherwise or to adversely affect the security provided hereby;
(iii) At their sole cost and expense, the Companies will promptly
and diligently exercise each and every material right it may have with respect
to any Collateral Mortgage Loans and will appear in and defend in good faith any
action or proceeding arising under, growing out of or in any manner connected
with the obligations, covenants, conditions, duties, agreements or liabilities
of the Companies under any of the Collateral Mortgage Loans;
(iv) In the event of receipt of actual, record or constructive
notice ("Notice") of attachment, execution, lien, security interest, claim,
encumbrance or other levy or legal process (each an "Attachment") against all or
any part of the Collateral Mortgage Loan(s) or the real property covered by
it/them, the companies shall (i) immediately notify Mortgage Corporation of
America in writing of receipt of any such Notice, and (ii) immediately take all
steps necessary to vigorously defend against such Attachment. Within ten (10)
days of receipt of any Notice, and in no event later than five (5) days before a
sale (or any removal from the Companies' control) of all or any part of the
Collateral Mortgage Loan(s) or the real property covered by it/them, the
Companies shall eliminate any such Attachment asserted against it or all or any
part of the Collateral Mortgage Loan(s). In the event that Mortgage Corporation
of America has received any Notice or has been notified of receipt by the
Companies of same, Mortgage Corporation of America may, but shall be under no
obligation to, take any action it deems advisable, in its sole, absolute and
unfettered discretion, to eliminate any such Attachment, and the Companies shall
immediately reimburse Mortgage Corporation of America for all costs and expenses
incurred in connection therewith. Failure by Companies to reimburse Mortgage
Corporation of America within two (2) days of demand by Mortgage Corporation of
America shall constitute an Event of Default under Section 7.1(iv) hereof.
Section 3.6 - Purchase of Collateral Mortgage Loans.
(i) In the event Mortgage Corporation of America becomes a Purchaser
of a Collateral Mortgage Loan, the Proceeds of the purchase price shall be
applied in the following order: (A) to pay in full any outstanding fees owed by
the Companies to Mortgage Corporation of America under the terms of this
Agreement, the Note, or any other document or agreement contemplated herein or
therein or associated herewith or therewith; (B) to pay in full any outstanding
interest owed by the Companies to Mortgage Corporation of America under the
terms of this Agreement, the Note, or any other document or agreement
contemplated herein or therein or associated herewith or therewith; (C) to pay
in full any outstanding principal (but first from the Advance made against the
Collateral Mortgage Loan and then from any other Advances due or past due). The
remainder of funds constituting the Proceeds, if any, shall be paid to the
Companies at its discretion.
(ii) In the event a Purchaser other than Mortgage Corporation of
America commits to purchase any Collateral Mortgage Loan, the Proceeds of the
purchase shall be remitted directly to Mortgage Corporation of America and
applied in the same manner as under Section 3.6(i).
Section 3.7 - Warehousing Time Limitations; Mandatory Prepayment. If
with respect to any Collateral Mortgage Loan:
(i) such Collateral Mortgage Loan remains pledged to Mortgage
Corporation of America in excess of sixty (60) days; or
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(ii) such Collateral Mortgage Loan (A) is or becomes ineligible for
purchase under the Purchase Commitment in respect thereof, or (B) is rejected
(for any reason and regardless of whether such rejection is permitted under the
terms of the Purchase Commitment of any other document) by the party otherwise
obligated to purchase the Collateral Mortgage Loan under the applicable Purchase
Commitment; or
(iii) any payment owing with respect to such Collateral Mortgage
Loan becomes thirty (30) days or more past due; or
(iv) Mortgage Documents relating to such Mortgage Loan has been
delivered to the Companies for correction and have not been redelivered within
seven(7) days to Mortgage Corporation of America or the Custodian, as
applicable; then, in any such case, the amount warehoused for that particular
Advance must be repaid immediately.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Companies represent and warrant to Mortgage Corporation of America
that:
Section 4.1 - Corporate Existence. Companies are duly organized,
validly existing, and in good standing as a corporation under the laws of the
State of Delaware and California; are qualified to do business in each
jurisdiction where their ownership of property or conduct of business requires
such qualification and where failure to qualify would have a material adverse
effect on the Companies or their property and/or business or on the ability of
the Companies to pay or perform the Obligations; and has the corporate power and
authority and the legal right to own and operate their property and to conduct
business in the manner in which they do and propose so to do.
Section 4.2 - Due Authorization. Companies' execution, delivery, and
performance under this Agreement and the Note have been approved by all
necessary corporate action, and this Agreement and the Note have been duly
authorized, executed and delivered by an Authorized Person on behalf of the
Companies, and each of this Agreement and the Note constitutes the valid and
binding obligation of the Companies enforceable in accordance with its
respective terms, except as the enforceability of any thereof may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium of other laws
affecting the enforcement of creditors' rights, or by general principles of
equity.
Section 4.3 - Enforceability. The Loan, and each Advance, made by
Mortgage Corporation of America pursuant to this Agreement will constitute a
valid, binding and enforceable obligation of the Companies except as the
enforceability of any thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights, or by general principles of equity.
Section 4.4 - Authority. The Companies have all requisite legal and
corporate authority to execute, deliver, and perform their obligations as set
forth in this Agreement and the Note and no consent, approval or waiver of or
from any entity which has not been obtained is necessary in connection
therewith.
Section 4.5 - Legality. The execution, delivery, and performance of
this Agreement and the Note will not violate or conflict with any law, rule,
regulation, order, judgement, organizational document, indenture, instrument or
agreement by which the Companies or any of its property or assets is bound.
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Section 4.6 - Consents. No consent or approval of any holder of any
indebtedness or obligation of the Companies, and no consent, permission,
authorization, order or license of any governmental authority, is necessary in
connection with its execution, delivery, and performance of this Agreement and
the Note or any transaction contemplated hereby or thereby.
Section 4.7 - Contravention. There is no provision of any instrument or
agreement, written or oral, to which the Companies are a party or under which
the Companies are obligated or under which any of the Companies' properties or
assets may be bound, nor is there any statute, rule or regulation (including,
without limitation, any usury or other similar law), or any judgment, decree or
order of any court or agency binding on the Companies, which would be
contravened by the execution and delivery of this Agreement or the Note or by
the performance of any provision, condition, covenant or other term hereof or
thereof.
Section 4.8 - No Event of Default. No event has occurred and is
continuing or would result from the making of a Loan or advance hereunder which
constitutes an Event of Default as defined below in Article VII.
Section 4.9 - Material Misrepresentation. No representation or warranty
contained herein or in the Note, and no certificate or report furnished by the
Companies in connection with the transactions contemplated hereby or thereby,
contains a misstatement of material fact, or omits to state any material fact.
Section 4.10 - Security Interest. Except for the due filing of any
financing statement or other security document with respect to the Collateral
and except for delivery to the Custodian of any Collateral as to which
possession is the only manner of perfecting a security interest in such
Collateral and insurance proceeds, no further action need be taken in order to
establish and perfect Mortgage Corporation of America's first priority security
interest in the Collateral.
Section 4.11 - Licenses. Companies are licensed under the Mortgage
Brokers, Lenders, and Servicers Licensing Act and other applicable federal,
state, and local laws, and will provide proof satisfactory to Mortgage
Corporation of America of such license(s) and will continue to maintain such
license(s) in good standing during the term of this Agreement and any renewal,
extension, modifications, and/or amendment hereto.
Section 4.12 - Compliance. Companies represent and warrant that, to the
extent required, each Collateral Mortgage Loan and all documents related thereto
comply with all provisions of all applicable state and federal laws regulations,
including without limitation:
1. the Truth in Lending Act;
2. the Equal Credit Opportunity Act;
3. the Real Estate Settlement Procedures Act;
4. the National Flood Insurance Act;
5. the Fair Credit Reporting Act;
6. the Fair Housing Act;
7. the Right to Financial Privacy Act;
8. the Community Reinvestment Act;
9. the Home Mortgage Disclosure Act;
10. all applicable federal and/or state usury laws or regulations;
11. all FHA/VA, FNMA, FHLMC, or GNMA regulations, guidelines, or
procedures;
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It is expressly understood that the regulations (if any) which
correspond to and/or implement the laws listed immediately above are included
within the scope of this representation/warranty.
Section 4.13 - Litigation. Except as set forth in Exhibit C annexed
hereto and made a part hereof, there are no unsatisfied judgments, suits,
arbitrations, investigations, enforcement actions, cease and desist orders,
injunctive actions or other judicial, administrative or arbitration proceedings
pending or threatened (i) relating to any of the Collateral Mortgage Loans or
(ii) against the Companies.
Section 4.14 - General. Companies represent and warrant that the
Agreement is valid and enforceable that all signatures on the Agreement are
genuine, and that the Agreement, the extension of credit evidenced by the
Agreement, and all transactions and circumstances related thereto comply with
all applicable federal, state and local laws and regulations.
ARTICLE V
COVENANTS
The Companies covenant and agree with Mortgage Corporation of America
that;
Section 5.1 - Enforcement. Companies shall, at their sole cost and
expense:
(i) exercise promptly and diligently each and every material
right it may have under any Collateral Mortgage Loan which, if not so
exercised, might materially and adversely affect the interests of the Companies
or Mortgage Corporation of America thereunder, and
(ii) appear in and defend in good faith any action or
proceeding arising under, growing out of or in any manner connected with the
obligations, covenants, conditions, duties, agreements or liabilities of the
Companies under any Collateral Mortgage Loan.
Section 5.2 - Settlement. Mortgage Corporation of America shall be
under no duty to demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose, or realize upon the Collateral.
Section 5.3 - Notices. At all times during the Agreement Period, the
Companies shall promptly give written notice to Mortgage Corporation of
America of:
(i) any item of litigation affecting the Companies in which
the amount in controversy is Fifty Thousand Dollars ($50,000.00) or more, and
all items of litigation wherein the aggregate amounts in controversy for all
litigation equals or exceeds One Hundred Thousand Dollars ($100,000.00) and,
upon Mortgage Corporation of America's request, deliver to Mortgage Corporation
of America copies of all pleadings served on or filed by the Companies; and
(ii) any Event of Default; and
(iii) any material adverse change in the financial condition,
prospects or operations of the Companies; and
(iv) warehouse lines of credit with lenders other than
Mortgage Corporation of America; and
(v) the receipt of any notice from the FHA, or the VA, or
FNMA, or FHLMC (if the Companies are an approved Seller/Servicer of FHA, VA,
FNMA, and/or FHLMC obligations) that such agency intends to put the
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Companies or any officer or employee of Companies on probation or other
supervisory review status, or that it will cease purchasing mortgage loans from
the Companies, and any notice from FHA or VA that the Companies may lose its
status as an approved mortgagee or lender in good standing eligible to
participate in the FHA insurance or the VA guaranty programs; and
(vi) any notification from the FTC or the applicable state
agency that Companies have violated any law or regulation.
Section 5.4 - Representations and Warranties. The Companies shall cause
the representations and warranties contained in Article IV hereof to be true and
correct at all times during the Agreement Period.
Section 5.5 - Records.
(i) The Companies shall maintain adequate books, accounts and
records and prepare or cause to be prepared all financial statements required
hereunder in accordance with generally accepted accounting principles and, with
reasonable notice during normal business hours and as often as may be reasonably
requested but not more frequently than quarterly, permit employees and any
authorized representatives of Mortgage Corporation of America at any reasonable
time to inspect the properties of the Companies and to examine or audit their
books, accounts and records and make copies and memoranda thereof and to discuss
them and their affairs, finances and accounts with them and their officers and
independent public accountants, and the Companies shall pay the reasonable out
of pocket costs and expenses incurred by Mortgage Corporation of America up to a
maximum of $1,000 in any calendar year in connection with their exercise of the
rights set forth in this section 5.5; and
(ii) The Companies will maintain originals or copies if the
original has been delivered to Mortgage Corporation of America, of surveys,
certificates, correspondence, appraisals, computer programs, tapes, disks,
cards, accounting and other records, information or data relating to the
Collateral and will give Mortgage Corporation of America prompt written notice
of the place where such records will be maintained or of any change in the
location of such records.
Section 5.6 - Further Assurances. The Companies shall execute,
acknowledge, deliver, file, notarize and register at its own expense all such
further agreements, instruments, certificates, documents and assurances and
perform such acts as Mortgage Corporation of America shall deem necessary or
appropriate to effectuate the purposes of this Agreement.
Section 5.7 - Liens. The Companies shall not sell or otherwise dispose
of any Collateral except as contemplated by the Agreement, or create or permit
to exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Collateral except for the security interests created by
this Agreement.
Section 5.8 - Financial Covenants. In the following financial
covenants, the Companies's total liabilities, net worth, adjusted net worth,
current assets, and current liabilities shall be calculated in accordance with
generally accepted accounting principles, consistently applied.
The Companies shall at no time cause or permit:
(i) its ratio of total liabilities to net worth, to exceed
ten to one (10:1);
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<PAGE>
(ii) its ratio of current assets to current liabilities to be
less than one half to one (0.5:1); and
(iii) its net worth at any time to be less than Twenty-Five
Thousand Dollars ($25,000.00).
Section 5.9 - Financial Statements.
(i) As soon as available, but no later than thirty (30) days
after the close of each calendar quarter, the Companies shall deliver to
Mortgage Corporation of America the balance sheet of the Companies as at the end
of such calendar quarter, together with the related statements of income,
changes in financial position or cash flows, as the case may be, and
stockholders' equity, each prepared in accordance with generally accepted
accounting principles and accompanied by a certificate of the chief financial
officer of the Companies certifying that such statements are true, accurate and
complete. Each of the foregoing shall be prepared and delivered in such form and
detail as is satisfactory to Mortgage Corporation of America, in as many copies
as Mortgage Corporation of America may request, and with respect to all
financial statements, comparative to the preceding quarter.
(ii) As soon as available, but no later than ninety (90) days
after the close of each calendar year, the Companies shall deliver to Mortgage
Corporation of America the balance sheet of the Companies as at the end of such
calendar year, together with the related statements of income, changes in
financial position or cash flows, as the case may be, and stockholders' equity,
each prepared in accordance with generally accepted accounting principles and
accompanied by a certificate of the chief financial officer of the Companies
certifying that such statements are true, accurate and complete. Each of the
foregoing shall be prepared and delivered in such form and detail as is
satisfactory to Mortgage Corporation of America, in as many copies as Mortgage
Corporation of America may request, and with respect to all financial
statements, comparative to the preceding year.
ARTICLE VI
CONDITIONS PRECEDENT
In addition to the other conditions precedent contained in this
Agreement, prior to the making of the first Advance hereunder, and as conditions
precedent to the obligations of Mortgage Corporation of America hereunder, the
Companies shall furnish to Mortgage Corporation of America or cause to be
delivered thereto, the following, each in form and substance satisfactory to
Mortgage Corporation of America.
Section 6.1 - Secretary's Certificate. A Secretary's Certificate of the
Companies, substantially in the form of Exhibit B attached hereto, with
appropriate insertions, attachments and signatures, and containing the seal of
the Companies.
Section 6.2 - Corporate Action. Certified copies of all corporate
action taken by the Companies to authorize this Agreement and the Note, and all
other documents executed by the Companies in connection herewith and therewith.
Section 6.3 - Note. The Note dated hereof in substantially the form of
Exhibit A duly executed by an Authorized Person.
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<PAGE>
Section 6.4 - Guaranty. The Guaranty dated the date hereof in
substantially the form of Exhibit D executed by Mark Schaftlein (hereinafter
referred to as the "Guarantor"). The Guaranty shall be supported by the Annual
Statement of each Guarantor prepared in accordance with generally accepted
accounting principals.
Section 6.5 - Financing Statements. UCC Financing Statements, duly and
properly executed by an Authorized Person, in form and substance satisfactory to
Mortgage Corporation of America.
Section 6.6 - Forms. Companies shall use forms customarily used by
firms in the mortgage origination business and shall submit copies of all such
forms to Mortgage Corporation of America for review, if so requested by Mortgage
Corporation of America.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 - Events of Default. Each of the following events shall
constitute an Event of Default.
(i) In each case where Mortgage Corporation of America makes
Advance(s) against unexecuted Mortgage Notes (as provided for in Section 2.2 of
this Agreement), the failure by Companies for any reason to deliver executed
Mortgage Note(s) within five (5) Business Days of the Advance;
(ii) The failure of the Companies to make payment of any
installment of principal or interest on the Note on a date when due and payable;
(iii) The failure of the Companies to make any payment in
respect of the Commitment Fee, the Draw Fee or other fee or expense payable
hereunder on the date when due and payable;
(iv) The Companies shall default in any of its obligations
under any Purchase Commitment, or fail to observe or perform any covenant or
agreement contained therein;
(v) The failure of the Companies to observe or perform any
term, covenant or agreement contained in this Agreement or the Note;
(vi) Any representation or warranty of the Companies made in
this Agreement, or in any certificate, report, opinion (other than an opinion of
their counsel) or other document or written instrument delivered or to be
delivered pursuant to this Agreement shall have been incorrect or misleading
(whether because of misstatement or omission) in any material respect at any
time during the term of this agreement; or
(vii) Any obligation(s) of the Companies (other than their
obligations under the Note), whether as principal, guarantor, surety or other
obligor, for the payment of any indebtedness for borrowed money in excess of
Twenty-Five Thousand Dollars ($25,000.00) in the aggregate:
(a) shall become or shall be declared to be due and
payable prior to the expressed maturity thereof, or
(b) shall not be paid when due or within any grace
period for the payment thereof; or
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(viii) The holder(s) of any obligation(s) of the Companies
(other than their obligations under the Note) in excess of Twenty-Five Thousand
Dollars ($25,000.00) in the aggregate shall have the right to declare such
obligation(s) due and payable prior to the expressed maturity thereof; or
(ix) The Companies shall fail to maintain their corporate
existence, or the Companies or Guarantor, or either/any of them, as the case may
be, shall;
(a) suspend or discontinue their business,
(b) make an assignment for the benefit of creditors,
(c) admit in writing their or his/her inability to pay
their or his/her debts as they become due,
(d) file a voluntary petition in bankruptcy,
(e) become insolvent (however such insolvency shall be
evidenced),
(f) file any petition or answer seeking for themselves
or himself/herself any reorganization, arrangement,
composition, readjustment of debt, liquidation, dissolution or
similar relief under any present or future statute, law or
regulation of any jurisdiction (any of the foregoing being
hereinafter referred to as an "Insolvency Proceeding"),
(g) petition or apply to any tribunal for any receiver,
custodian or any trustee for any substantial part of their or
his/her property,
(h) be the subject of any Insolvency Proceeding filed
against them or him/her which remains undismissed for a period
of thirty (30) days.
(i) file any answer admitting or not contesting the
material allegations of any petition filed against them or
him/her, or of any order, judgment or decree approving such
petition, in any Insolvency Proceeding, or seek, approve,
consent to, or acquiesce in any Insolvency Proceeding, or in
the appointment of any trustee, receiver, custodian,
liquidator, or fiscal agent for them or him/her, of any
substantial part of their or his/her property,
(j) be subject to any order appointing a trustee,
receiver, custodian, liquidator or fiscal agent for the
Companies or the Guarantor or any substantial part of their or
his/her property and such order remains in effect for thirty
(30) days, or
(k) take any formal action for the purpose of effecting
any of the foregoing or looking to the liquidation or
dissolution of the Companies or any of the Guarantors; or
(x) An order for relief is entered under the United States
bankruptcy laws, or any other decree or order is entered by a court having
jurisdiction;
(a) adjudging the Companies or the Guarantor a bankrupt
or insolvent,
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<PAGE>
(b) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or
composition of or in respect of the Companies or the Guarantor
under the United States bankruptcy laws or any other
applicable Federal or state law,
(c) appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official)
of the Companies or the Guarantor or of any substantial part
of their or his/her property, or
(d) ordering the winding up or liquidation of the
affairs of the Companies and any such order continues unstayed
and in effect for a period of thirty (30) days; or
(xi) Any judgment(s) or decree(s) against the Companies in an
amount in excess of Twenty-Five Thousand Dollars ($25,000.00) in the aggregate
shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed
for a period of thirty (30) days; or
(xii) Any regulatory enforcement action by any state or
federal agency is entered against the Companies or the Guarantor.
(xiii) Guarantor revokes or otherwise disavows the Guaranty.
Section 7.2 - Occurrence. Upon the occurrence and at any time during
the continuance of any Event of Default, Mortgage Corporation of America may
notify the Companies that the Facility has been terminated and that the Note has
been declared immediately due and payable, provided that upon the occurrence of
any Event of Default under Sections 7.1 (viii) or 7.1 (ix), the Facility shall
automatically terminate and the Note and all the Obligations shall become
immediately due and payable without demand on or notice to the Companies. Except
for the notices expressly provided for in this Agreement, the Companies hereby
expressly waive any presentment, demand, protest, notice of protest or other
notice of any kind. The Companies hereby further expressly waive and covenant
not to assert any appraisal, valuation, stay, extension, redemption or similar
laws, now or at any time hereafter in force, which might delay, prevent or
otherwise impede the performance or enforcement of this Agreement or the Note.
Section 7.3 - Remedies.
(i) In the event that the Note shall have become or been
declared due and payable, Mortgage Corporation of America may, without notice
except as may be required by applicable law:
(a) proceed to protect and enforce its rights under this
Agreement and the Note by suit in equity, action at law and/or
appropriate proceedings, whether for specific performance of
any covenant herein contained, in aid of the execution of any
power herein granted, for the foreclosure or other realization
upon the Collateral, or for the enforcement of any right to
the appointment of a receiver for all or any part of the
Collateral if it so chooses;
(b) exercise any and all rights and remedies provided to
a secured party by the UCC as in effect on the date hereof,
and Companies hereby waive any right to require it to proceed
against any person, to proceed against or exhaust any of the
Collateral or pursue their rights and remedies as against the
Collateral in any particular order or to pursue any other
remedy in their power;
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<PAGE>
(c) take any action the Companies are required to take,
or any other reasonably necessary action, to maintain and
preserve the Collateral, but Mortgage Corporation of America
shall be under no duty to take any such action except as
required by law;
(d) notify (i) the mortgagor(s) under any Collateral
Mortgage Loan, (ii) any maker(s) of any Mortgage Note, and/or
(iii) any other persons obligated on any Mortgage Document or
item of Collateral, in each case to make payments and deliver
other moneys in respect of the Mortgage Documents or other
items of Collateral directly to Mortgage Corporation of
America and Mortgage Corporation of America shall be entitled
to deduct reasonable expenses incurred in connection with the
realization from such collections whether administered by
Mortgage Corporation of America, the Custodian or other agent
for Mortgage Corporation of America, and the Companies shall
be liable for any deficiency;
(e) take possession of all the Mortgage Documents and
other items of Collateral, either directly or through the
Custodian or other agent, and may require the Companies to
assemble Mortgage Documents and other items of Collateral and
make same available to Mortgage Corporation of America, the
Custodian or other agent of Mortgage Corporation of America at
any place designated by Mortgage Corporation of America which
is reasonably convenient to the Companies;
(f) upon no fewer than seven (7) days written notice to
the Companies, which the parties hereto each deem to be
commercially reasonable, (i) sell the Mortgage Documents and
other items of Collateral individually or in parcels at any
time, at any place within the United States, and on any terms,
including, without limitation (but only to the extent not
prohibited by law) on credit or through the selling or
granting of options to purchase, and such sales may be
conditional in such manner as Mortgage Corporation of America
deems appropriate, any such disposition may be by public or
private proceedings and Mortgage Corporation of America or any
of its affiliates may buy at any public sale and, if not
prohibited by law, at any private sale, and shall be entitled
to apply any and all amounts owing to Mortgage Corporation of
America by the Companies in full or partial satisfaction of
the purchase price therefor, and upon compliance with the
terms of such sale or other disposition, may hold, retain
and/or dispose of such Mortgage Documents and other items of
Collateral without further accountability therefor, or (ii)
sell Collateral Mortgage Loans to any third party or retain
them itself on substantially the terms contained in the
applicable Purchase Commitment corresponding to such
Collateral Mortgage Loans, in which case such sale shall be
conclusively deemed to be commercially reasonable by virtue of
the fact that each such Purchase Commitment has been bargained
for and entered into by the Companies; and
(g) retain all of the Mortgage Documents and other items
of Collateral in satisfaction of the unpaid obligations,
(ii) The Companies agree that upon the occurrence and during
the continuance of an event which constitutes an Event of Default hereunder, all
cash, proceeds, and instruments received by the Companies on account of any
Purchase Commitments or as a result of the sale or other disposition of the
Collateral, whether received by the Companies in the exercise of their
collection rights thereunder or otherwise, shall be remitted to Custodian in the
form received (properly endorsed to the order of Custodian or for collection in
accordance with the Custodian's instructions) not later than the Business Day
following the day of receipt, to be held as security for the payment of the
Obligations secured hereby. The Companies agree not to commingle any such
collections or proceeds following the receipt of notice from the Custodian
requesting that it not do so with any of its other funds or
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<PAGE>
property and agrees to hold the same upon an express trust for Mortgage
Corporation of American until remitted to Custodian.
(iii) Any funds received by Mortgage Corporation of America
resulting from the sale of Mortgage Loans and other items of Collateral pursuant
to the provisions of this Section 7.3, shall be applied by Mortgage Corporation
of America in the following manner and order; first, to reimburse Mortgage
Corporation of America for the reasonable expenses incurred in connection with
the retaking, holding, preparing for sale and selling of such Mortgage Loans and
other items of Collateral (including, without limitation, reasonable attorney
and legal fees, costs, and disbursements); second, to the payment of interest
due on the Note; third, to the payment of all fees and expenses due from the
Companies; fourth, to the payment of the outstanding principal balance of the
Note; fifth, to the payment of all other amounts due hereunder; and the excess
to whomever is entitled thereto.
(iv) Upon the completion of any sale or other disposition of
Mortgage Loans or other items of Collateral under this Section 7.3, full title
and right of possession to such Mortgage Loans and other items of Collateral
shall pass to such purchaser or purchasers forthwith. Nevertheless, if so
requested by Mortgage Corporation of America or by any purchaser, the Companies
shall confirm any such sale or transfer by executing and delivering to such
purchaser all instruments of conveyance and transfer and releases reasonably
requested by Mortgage Corporation of America as (A) shall be necessary or
desirable to divest all right, title, interest, claim and demand whatsoever of
the Companies of, in and to the Collateral so sold or disposed of an (B) shall
be a perpetual bar, both at law and in equity, against the Companies, all
persons claiming the Mortgage Loans or other items of Collateral sold or
disposed of, or any part thereof, through the Companies, and them and their
successors and assigns.
(v) The Companies agree, to the fullest extent that they may
lawfully so agree, that neither they nor anyone claiming from, through or under
them, will claim, seek or take advantage of any appraisement, valuation, stay,
extension or redemption law now or hereafter in force in order to prevent,
hinder or delay (A) the enforcement or foreclosure of this Agreement and/or the
interests granted pursuant to this Agreement, or (B) the absolute sale or other
disposition of Mortgage Loans or other items of Collateral or any part thereof,
immediately after such sale or other disposition, the purchaser thereof or
Mortgage Corporation of America shall be entitled to notify all obligers on the
Collateral that the Collateral has been assigned to the purchase or to Mortgage
Corporation of America and that all payments thereon are to be made directly to
the purchaser, to Mortgage Corporation of America, or such other party as may be
designated by the purchaser or Mortgage Corporation of America. The Companies,
for themselves and all who may at any time claim from, through or under them,
hereby waive, to the fullest extent that they may lawfully do so, the benefit of
all debtor protection laws, and any and all right to have any of the property
comprising the Mortgage Loans or other items of Collateral marshaled upon any
such sale, and agree that Mortgage Corporation of America or any court having
jurisdiction to foreclose the security interest granted herein may sell the
Collateral as an entirety or in such portions as Mortgage Corporation of America
may determine.
(vi) No moneys received by Mortgage Corporation of America
pursuant to this Section 7.3 need be segregated by Mortgage Corporation of
America in any manner except to the extent required by law, and any such moneys
may be deposited in a non-interest-bearing account held by Mortgage Corporation
of America under such general conditions as may be prescribed by law applicable
to Mortgage Corporation of America.
(vii) In connection with the exercise of its rights pursuant
to this Section 7.3, Mortgage Corporation of America may, but shall be under no
duty to, demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize upon the Mortgage Loans or other items of Collateral, its
own name or in the name of the
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Companies, as it may in its sole discretion may determine, provided that
Mortgage Corporation of America shall not be liable for:
(a) the failure to collect any payment of interest or
principal on any Collateral Mortgage Loan, or
(b) the failure to enforce any contract right, or
(c) any action or omission, other than willful
misconduct, in connection with the collection of any payment
of interest or principal on any Collateral Mortgage Loan or
the enforcement of any contract right, on the part of Mortgage
Corporation of America or any of its directors, officers,
agents, or employees.
(viii) Mortgage Corporation of America and the Companies
further agree that it should be deemed commercially reasonable if Mortgage
Corporation of America proceeds in the manner described herein but that such
procedures are not intended to be exclusive nor shall they be deemed to limit or
prohibit any other procedure which may be commercially reasonable or otherwise
permitted by applicable law.
ARTICLE VIII
MISCELLANEOUS
Section 8 - Indemnification. The Companies shall indemnify and hold
Mortgage Corporation of America harmless from and against any and all claims,
damages and liabilities and all costs and expenses Mortgage Corporation of
America may incur (including reasonable attorney and legal fees, costs, and
disbursements) relating to violations or alleged violations of law or
governmental regulations with respect to each Collateral Mortgage Loan, unless
caused by the willful misconduct of Mortgage Corporation of America or any of
its directors, officers, agents or employees.
Section 8.2 - Fees and Expenses. The Companies agree to reimburse
Mortgage Corporation of America for all reasonable costs and out-of-pocket
expenses paid or incurred by Mortgage Corporation of America (including
reasonable attorney and legal fees, costs, and disbursements) in connection with
the collection and enforcement of this Agreement, the Note and any other
documents prepared in connection herewith and therewith, and the Mortgage
Documents and other items of Collateral and the administration thereof.
Section 8.3 - Termination. Either the Companies or Mortgage Corporation
of America may terminate this Agreement upon thirty (30) days written notice to
the other party.
Section 8.4 - Notices. Except as otherwise specifically provided
herein, all notices, requests, consents, demands, waivers and other
communications hereunder and under the Note and all statements, reports,
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documents, certificates and papers required to be delivered hereunder shall be
in writing and shall be mailed by first class mail or sent by telegram, telecopy
or telex or delivered in person or by reputable overnight delivery service, to
the respective parties to this Agreement as follows:
<TABLE>
<S> <C>
to Companies: Westmark Group Holdings, Inc. and Westmark Mortgage Corporation, Inc.
355 NE 5th Ave.
Delray Beach, FL 33483
with Copies to: Mark Schaftlein
to Mortgage Corp. of America: Mortgage Corporation of America
23999 Northwestern Hwy., Ste. 102
Southfield, MI 48075
Attention: Ann Schwartz
</TABLE>
or such other person or address as a party hereto shall designate to the other
parties hereto from time to time in writing forwarded in like manner. Any
notice, request, consent, demand, waiver or communications given in accordance
with the provisions of this Section 8.4 shall be conclusively deemed to have
been received by a party hereto and to be effective on the day on which
delivered to such party at its address specified above, or, if sent by first
class mail, on the third Business Day after the day when deposited in the mail,
postage prepaid, and addressed to such party at such address, provided that
notices of change of address shall be deemed to be effective when actually
received.
Section 8.5 - [Reserved]
Section 8.6 - Integration. This Agreement supersedes all prior
agreements and understandings of the parties hereto relating to the subject
matter hereof.
Section 8.7 - CHOICE OF LAW; JURISDICTION AND VENUE, THIS AGREEMENT,
THE NOTE, AND THE ADVANCES AND LOANS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS, IF ANY SUIT IS INSTITUTED IN CONNECTION WITH
THIS AGREEMENT, THE NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE COMPANIES
AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION AND TO THE LAYING OF VENUE IN THE
COUNTY OF OAKLAND, STATE OF MICHIGAN, OR THE FEDERAL DISTRICT COURT FOR THE
EASTERN DISTRICT OF MICHIGAN.
Section 8.8 - Set Off. Regardless of the adequacy of any collateral
security held by Mortgage Corporation of America and in addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, any sums credited by or due from Mortgage Corporation of
America to the Companies, and all sums credited by or due from any affiliate of
Mortgage Corporation of America to the Companies, shall at all times constitute
collateral security for all Obligations of the Companies to Mortgage Corporation
of America and, upon the occurrence of an Event of Default (after giving any
notice and the expiration of any grace period contained in the definition
thereof and without notice to the Companies, or to any other person, such notice
being herein expressly waived) such sums may be set off by Mortgage Corporation
of America against, or delivered
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over by such affiliate to Mortgage Corporation of America in respect of, any and
all liabilities, direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, of the Companies to Mortgage Corporation
of America.
Section 8.9 - Headings, etc. The section headings are inserted in this
Agreement for convenience of reference only and are not to affect the
construction of or be taken into consideration in interpreting this Agreement or
any of the other documents executed and delivered in connection with the
transaction contemplated by this Agreement.
Section 8.10 - Independence of Covenants, All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of an Event of Default or potential Event of Default if
such action is taken or condition exists.
Section 8.11 - Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or of the Note, or
consent to any departure by Companies therefrom, shall in any event be effective
without the written concurrence of Mortgage Corporation of America (other than
termination of this entire Agreement pursuant to Section 8.3). Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given, No notice to or demand on the Companies in any
case shall entitle the Companies to any other or further notice or demand in
similar or other circumstances except as specifically required herein, in the
Note, or in applicable law,
Section 8.12 - Survival of Warranties and Certain Agreements.
(i) All covenants, agreements, representations and
warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans
hereunder and the execution and delivery of the Note,
(ii) Notwithstanding anything in this Agreement or
implied by law to the contrary, the agreements of the
Companies set forth in Sections 8.1 and 8.,2 shall survive
the payment of the Advances and the Note and the termination
of this Agreement.
Section 8.13 - Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of Mortgage Corporation of America in the exercise
of any power, right or privilege hereunder or under the Note shall impair such
power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. Mortgage Corporation of America shall not be
liable for consequential or incidental damages or lost profits due to its
refusal to extend credit or make any Advance hereunder, All rights and remedies
existing under this Agreement and/or the Note are cumulative to and not
exclusive of, any rights or remedies otherwise available.
Section 8.14 - Severability. In case any provision in or obligation
under this Agreement or the Note shall be invalid, illegal or unenforceable in
any jurisdiction where enforcement is sought, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby,
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Section 8.15 - Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto and written or telephonic notification of such
execution and authorization of delivery thereof has been received by the other
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
Companies: Westmark Group Holdings, Inc. and
Westmark Mortgage Corporation, Inc.
-------------------------------------------
by: Mark Schaftlein
-------------------------------------------
Signature: /s/ Mark Schaftlein
-------------------------------------------
its: CEO
-------------------------------------------
Mortgage Corporation of America
by:
-------------------------------------------
Signature:
-------------------------------------------
its:
-------------------------------------------
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EXHIBIT A
Form of Note
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NOTE
FOR VALUE RECEIVED, Westmark Group Holdings, Inc., a Delaware
Corporation and Westmark Mortgage Corporation, a California Corporation (the
"Companies"), hereby promise to pay to the order of Mortgage Corporation. of
America at its offices at 23999 Northwestern Highway, Ste. 102, Southfield,
Michigan 48075, in lawful money of the United States that is immediately
available to Mortgage Corporation of America the lesser of (i) the principal sum
of Two Million Dollars and Zero Cents ($2,000,000), or (ii) the aggregate
outstanding principal balance of the Advances and/or Loan made by Mortgage
Corporation of America to the Companies pursuant to that certain Mortgage
Warehousing and Security Agreement, dated as of ____________, 1997, between the
Companies and Mortgage Corporation of America (as same may be amended from time
to time, the "Agreement"). This note is the Note referred to in the Agreement to
which reference is hereby made for a more complete statement of the terms and
conditions under which the Advances and/or Loan evidenced hereby are made and
are to be repaid. Capitalized terms used herein which are defined in the
Agreement shall have the same meanings as therein defined.
Proceeds received from sales or other dispositions of Collateral
Mortgage Loans shall be applied to repay any outstanding Advances plus interest
and fees, due. Mortgage Corporation of America shall apply such proceeds in the
following order: (A) to pay in full any fees or penalties owing by the Companies
to Mortgage Corporation of America, (B) then to pay in full all outstanding
interest accrued pursuant to the terms of the Note as of the date of Mortgage
Corporation of America's receipt of the Proceeds, (C) the to pay principal
outstanding under the Note.
The aggregate principal balance of all Advances outstanding from time to
time and accounted for as part of the Wet Sublimit shall bear interest at a
floating rate equal to the Prime Rate plus Two percent (2.0%), and the aggregate
principal balance of all other Advances outstanding from time to time shall bear
interest at a floating rate equal to the Prime Rate plus One percent (1.0%). The
Prime Rate referred to in this Note, which is the Prime Rate as published in the
Wall Street Journal, shall be adjusted on and as of the effective date of any
change in the Prime Rate as published in the Wall Street Journal. In the event
that the Wall Street Journal ceases publication of the Prime Rate, then Mortgage
Corporation of America may, in its sole discretion, select a similar rate for
the purposes of determining the interest rate due under this Note, provided that
neither the value of this newly chosen rate nor its fluctuations from time to
time is controlled by Mortgage Corporation of America.
After Maturity as to any Loan or after the Expiration Date, or in any
event as of ________________, 1998, to the extent not paid in full as required
herein, the unpaid principal balance of all Loans shall, to the extent permitted
by applicable law, bear interest at a rate per annum equal to the Prime Rate
plus Seven Percent (7.0%), payable on demand, whether before or after the entry
of any judgment thereon, computed and adjusted as set forth above.
All interest hereon shall be calculated based on a 360 day year for the
actual number of days elapsed,
If any sum hereunder becomes due and payable on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of interest.
The Companies hereby waive presentment, demand, protest and notice of
any kind in connection with this Note.
<PAGE>
This Note is subject to mandatory principal prepayments upon the terms
provided in the Agreement, and is entitled to the benefits and collateral
security provided by the pledge of Mortgage Loans and other Collateral pursuant
to the Agreement and by the Guaranty executed by Mark Schaftlein.
The Agreement and this Note shall be governed by, and shall be construed
and enforced in accordance with, the laws of the State of Michigan, without
regard to principles of conflict of laws.
Upon the Expiration Date, the occurrence or an Event of Default, or in
any event on _____________, 1998, the unpaid balance of the principal amount of
this Note and all other amounts due hereunder shall become, and shall be
declared to be, due and payable it the manner, upon the conditions, and with the
effect provided in the Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Agreement,
No reference herein to the Agreement and no provision of this Note or
the Agreement shall alter or impair the obligation of the Companies, which is
absolute and unconditional, to pay the principal and interest on this Note and
all other amounts due hereunder in the manner provided herein and in the
Agreement,
The Companies promise to pay all costs and expenses, including
reasonable attorney fees, incurred in the collection and enforcement of this
Note.
Usury: It is the intention of the Companies and Mortgage Corporation of
America to conform in good faith with all applicable usury laws. In furtherance
thereof, the Companies and Mortgage Corporation of America, for themselves and
their successors and assigns, stipulate and agree that the terms and provisions
contained herein or in any other instrument evidencing the indebtedness
described herein or securing such debt shall never be construed to create a
contract for the use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum permitted under applicable law. The
Companies shall never be liable for unearned interest and shall never be
required to pay interest on the Note in excess of the maximum permitted by
applicable law. In the event the holder hereof shall collect monies which arc
determined by a court of competent jurisdiction to constitute interest in excess
of the maximum lawful rate, the collection of such excess shall be deemed to be
a mistake and said excess shall at once be credited upon the principal then
outstanding and, if such credit does not eliminate the excess, any additional
amount shall be immediately refunded to the Companies.
IN WITNESS WHEREOF, the Companies have caused this Note to be executed
on the date first written above.
Westmark Group Holdings, Inc. and
Westmark Mortgage Corporation ("Companies")
by: Mark Schaftlein
---------------------------------------
signature: /s/ Mark Schaftlein
--------------------------------
Title: CEO
------------------------------------
Date:
-------------------------------------
<PAGE>
EXHIBIT B
Secretary's Certificate
25
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EXHIBIT C
Litigation List
26
<PAGE>
EXHIBIT D
Form of Guaranty
27
<PAGE>
CONTINUING GUARANTY
This Continuing Guaranty is entered into as of the _____ day of __________,
__________ by the undersigned (the "Guarantor"), in favor of Mortgage
Corporation of America, a Michigan Corporation.
Mortgage Corporation of America is willing to extend credit to Westmark
Group Holdings, Inc. and Westmark Mortgage Corporation (hereafter, the
"Companies") as provided in the Mortgage Warehousing and Security Agreement
dated as of the _____ day of __________, 1997, between the Companies and
Mortgage Corporation of America (the "Agreement") upon the condition that the
indebtedness of the Companies thereunder is guaranteed by the Guarantor. The
Guarantor has an interest in the financial success of the Companies and
recognizes and agrees that the financial accommodations from Mortgage
Corporation of America to the Companies as evidenced by the Agreement are
necessary and desirable to promote Guarantor's interest.
Based upon the foregoing, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Guarantor
agrees as follows:
ARTICLE I
DEFINITIONS
Section 1.1 -- Certain Defined Terms. As used in this Continuing Guaranty, the
following terms shall have the following meanings, unless the context otherwise
requires:
(i) "Guaranty" means this guaranty of the Guarantor.
(ii) "Obligations" means indebtedness of the Companies and the Guarantor in its
most comprehensive sense and includes:
(A) any and all notes, advances, debts, fees, costs, expenses and
liabilities of the Companies (including, without limitation, reasonable
attorney and legal fees, costs, disbursements and the obligations of the
Companies under Sections 8.1 and 8.2 of the Agreement) now and hereafter
made, incurred or created, whether absolute or contingent, liquidated or
unliquidated, whether due or not due, and however arising out of the
Agreement and whether recovery on such Obligations may be or hereafter
become barred by any statute of limitations, or whether such Obligations
may be or hereafter become otherwise unenforceable;
(B) an amount equal to interest on such amounts (including any interest
which would have accrued but for the commencement of a case or proceeding
under the federal bankruptcy laws) as the post-Maturity rate applicable to
the Note(s); and
(C) those expenses set forth in Section 3.5 of this Guaranty.
(iii) "Payment in full", "paid in full" or any such similar term, with respect
to the Obligations, means payment in full of the Obligations, including, without
limitation, all principal, interest, costs, fees and expenses (including,
without limitation, legal fees and disbursement) of Mortgage Corporation of
America or its agent(s). (iv) "Person" means and includes natural persons,
corporations, limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof.
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Section 1.2 -- Other Definitional Provisions.
(i) All capitalized terms used herein and not otherwise defined herein have the
meanings given such terms in the Agreement.
(ii) In the event of any conflict or inconsistency between the terms, conditions
and provisions of this Guaranty and the terms, conditions and provisions of the
Agreement, the terms, conditions and provisions of the Agreement shall prevail.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 -- Representations and Warranties. The Guarantor hereby makes the
following representations and warranties to Mortgage Corporation of America.
(i) Binding Agreement. This Guaranty constitutes the valid and legally binding
obligation of the Guarantor, enforceable in accordance with its terms, except as
the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other laws relating to or affecting
the enforcement of creditors' rights, or by general equitable principles.
(ii) Litigation. There are no actions, suits or arbitration proceedings (whether
or not purportedly on behalf of the Guarantor) pending or, to the knowledge of
such Guarantor, threatened against him/her or maintained by him/her, at law or
in equity, before any governmental body which have a material adverse effect on
his/her financial condition, business or property. There are no proceedings
pending or, to the knowledge of the Guarantor, threatened against him/her which
call into question the validity or enforceability of this Guaranty.
(iii) No Conflicting Agreements. The Guarantor is not in default under any
agreement to which he/she is a party or by which any of his/her property is
bound the effect of which might have a material adverse effect on his/her
financial condition, business or property. No provision of any existing
mortgage, indenture, contract, agreement, statute (including, without
limitation, any applicable usury or similar law), rule, regulation, judgment,
decree or order binding on the Guarantor or affecting his/her property conflicts
with, or requires any consent under, or would in any way prevent the execution,
delivery or performance of the terms of, this Guaranty, and such execution,
delivery or performance will not constitute a default under, or result in the
creation or imposition of, or obligation to create, any lien upon his/her
property pursuant to the terms of any such mortgage, indenture, contract or
agreement.
(iv) Compliance with Applicable Laws and Legal Process. The Guarantor is not in
default with respect to any judgment, order, writ, injunction, decree or
decision of any governmental body which default could have a material adverse
effect on his/her financial condition, business or property.
(v) Receipt of Documents. The Guarantor has received copies of the Agreement and
all exhibits and schedules thereto (collectively, the "Documents") and has read
the Documents, knows and understands their contents, and has approved of same.
If evidence of approval has not yet been given, execution of this Guaranty
constitutes such approval.
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ARTICLE III
THE GUARANTY
Section 3.1 -- The Obligations. The Guarantor hereby unconditionally guaranties
and promises to pay and perform in full to Mortgage Corporation of America in
lawful money of the United States, on demand, after an Event of Default or the
breach of any material covenant under the Agreement, any and all of the
Obligations.
Section 3.2 -- Liability of Guarantor. The Guarantor shall be liable as follows:
(i) This Guaranty is a guaranty of payment and not of collection or
collectibility.
(ii) This is a continuing guaranty relating to the Obligations, including
Obligations arising under successive borrowing transactions under the Agreement
which shall either continue the Obligations or from time to time renew them
after they have been satisfied. In the case of a Guarantor which revokes this
Guaranty, this Guaranty shall not include any Obligations created after actual
receipt by Mortgage Corporation of America of written notice of said Guarantor's
revocation as to future transactions; provided, however, that any such
revocation shall not affect (A) such Guarantor's liability for the Obligations
outstanding at the time of actual receipt of such written notice or any
extension of such outstanding Obligations or any other modification of the time
or manner of payment thereof following any such revocation, or (B) the liability
of the non-revoking Guarantor(s) under this Guaranty (or one similar to it
executed on separate pages).
(ii) The obligations of the Guarantor hereunder are independent of the
Obligations of the Companies and the obligations of any other guarantor of the
Obligations of the Companies, and a separate action or actions may be brought
and prosecuted against the Guarantor (and each of them separately, or some of
them and not others, all within Mortgage Corporation of America's sole and
unfettered discretion) whether any action is brought against the Companies
relative to the Obligation(s).
Section 3.3 -- Waivers by Guarantor.
(i) The Guarantor hereby waives any right to require Mortgage Corporation of
America (A) to proceed against or exhaust any Collateral Mortgage Loan(s), (B)
to proceed against the Companies, any other guarantor of the obligations of the
Companies or any other Person, (C) to proceed against or exhaust any other
security held from the Companies and other guarantor of the obligations of the
Companies or any other Person, and/or (D) to pursue any remedy whatsoever in the
power of Mortgage Corporation of America.
(ii) The Guarantor waives any defense arising by reason of any disability or any
other defense of the Companies including, without limitation, (A) any defense
based on or arising out of the enforceability of the Obligation(s) of the
Companies to Mortgage Corporation of America or by reason of the cessation from
any cause whatsoever of the liability of the Companies other than payment in
full of the Obligation(s), and (B) to the full extent permitted by law, all
defenses, rights and benefits the Guarantor may have under federal law, Michigan
law, the law of any other state or territory, or other applicable law.
(iii) Until the Obligation(s) shall have been paid in full, the Guarantor shall
withhold exercise of (A) any right of subrogation, (B) any right to enforce any
remedy which Mortgage Corporation of America now has or may hereafter have
against the Companies or (C) any benefit of, and any right to participate in,
any security now or hereafter held by Mortgage Corporation of America. The
Guarantor hereby waives all set-offs, counterclaims, presentments, protests,
notices of protests, notices of dishonor, notices of any action or non-action,
including acceptance of this Guaranty, notices of default under the Agreement or
any agreement related thereto, and notice of any other extension of credit to
the Companies and any right to deferral or modification of the Guarantor's
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obligations hereunder by reason of any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding. Mortgage Corporation of America
agrees that at such time as the Obligation(s) has been paid in full and the
Agreement has been terminated, Mortgage Corporation of America shall endorse and
assign the Notes representing the Obligation(s) to the Guarantor to the extent
that the Guarantor has made payment on the Obligation(s), and, in addition,
shall assign to the Guarantor any and all rights to any Collateral then held by
for payment of the Obligation(s).
Section 3.4 -- Subordination of Other Obligation(s). Any obligation(s) of the
Companies for borrowed money now or hereafter held by the Guarantor is hereby
subordinated to the Companies's obligation to pay in full the Obligation(s)
owing (now or hereafter) to Mortgage Corporation of America under the Agreement,
and in the event the Companies shall default in the payment of the
Obligation(s), any indebtedness of the Companies to Guarantor collected or
received by the Guarantor after such default (regardless of whether Guarantor is
aware of such default) shall be held in trust for Mortgage Corporation of
America and shall be paid over to Mortgage Corporation of America immediately
upon demand. The Guarantor agrees that amounts paid over to Guarantor pursuant
to the subordination provisions of the Section 3.4 shall be separate and apart
from the liability of the Guarantor pursuant to Section 3.2 of this Guaranty.
Section 3.5 -- Expenses. The Guarantor hereby agrees to pay on demand to
Mortgage Corporation of America all fees, costs and expenses (including, without
limitation, reasonable attorney and legal fees, costs, and disbursements) which
may be incurred by Mortgage Corporation of America in the enforcement of this
Guaranty.
Section 3.6 -- Termination of this Guaranty. This Guaranty shall remain in
effect until (A) all of the Obligation(s) shall have been in full, and (B) no
portion of any payment(s) or performance(s) is subject to avoidance or recovery
directly or indirectly from Mortgage Corporation of America as a preference,
fraudulent transfer or otherwise in any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of the Companies, and (C) the Agreement has been terminated. At
such time, this Guaranty shall automatically terminate without any action on the
part of any part hereto, subject to automatic revival only if the Obligation(s)
are at any time and for any reason revived.
Section 3.7 -- Loans to Companies. Loans may be made to the Companies or be
continued from time to time without notice to or authorization from the
Guarantor regardless of the financial or other condition of the Companies at the
time of any such grants or continuations. Such grants or continuations shall be
within the scope of this Guaranty except as provided in Section 3.2(ii) hereof.
Neither Mortgage Corporation of America nor any other Person shall have any
obligation to disclose or discuss with the Guarantor its/their assessment of the
financial condition of the Companies. Guarantor assumes the responsibility for
being and staying informed of the financial condition of the Companies and of
all circumstances bearing upon the risk of non-payment of the indebtedness
guaranteed hereunder.
Section 3.8 -- Rights Cumulative. The rights, powers and remedies given to
Mortgage Corporation of America by and under this Guaranty are cumulative and
shall be in addition to and independent of all rights, powers and remedies given
to Mortgage Corporation of America by virtue of any statute or rule of law, or
in the Agreement, any other agreement between the Companies and Mortgage
Corporation of America or any other agreement between the Guarantor and Mortgage
Corporation of America.
Section 3.9 -- Real Property Security. The Guarantor agrees that if all or a
portion of the Obligation(s) or this Guaranty is at any time secured by a
mortgage or deed of trust covering interests in real property, Mortgage
Corporation of America, in its sole discretion, without notice or demand and
without affecting the liability of the
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Guarantor under this Guaranty, may (pursuant to the terms of the Agreement
or the terms of the mortgage or deed of trust, or otherwise) foreclose the
mortgage or deed of trust and the interests in real property secured thereby by
nonjudicial sale, and the Guarantor hereby waives any defense to the recovery by
Mortgage Corporation of America against the Guarantor of any deficiency after a
nonjudicial sale and the Guarantor expressly waives any defense or benefits that
may be derived from applicable law.
Section 3.10 -- Bankruptcy. So long as any Obligation(s) shall be owing to
Mortgage Corporation of America, the Guarantor shall not commence or join with
any other Person in commencing any bankruptcy, reorganization or insolvency
proceedings of or against the Companies. The obligations of the Guarantor under
this Guaranty shall not be altered, limited or affected by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of the Companies or by an defense
which the Companies may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding. Mortgage
Corporation of America shall have the sole right to accept or reject any plan
proposed in such proceeding and to take any other action which a party filing a
claim is entitled to take. The Guarantor acknowledges and agrees that any
interest on the Obligation(s) which accrues after the commencement of any such
proceeding (or, if interest on any portion of the Obligation(s) ceases to accrue
by operation of law by reason of commencement of said proceeding, such interest
as would have accrued on any such portion of the Obligation(s) if said
proceeding had not been commenced) shall be included in the Obligation(s)
because it is the intention of the parties that the Obligation(s) which is
guaranteed by the Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve the Companies of
any portion of such Obligation(s). The Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Mortgage Corporation of America, or allow the
claim of Mortgage Corporation of America in respect of, any such interest
accruing after the date of which such proceeding is commenced. In the event that
all or any portion of the Obligation(s) is paid or performed by the Companies,
the obligations of the Guarantor hereunder shall continue and remain in full
force and effect in the event that all or part of such payment(s) or
performance(s) is avoided or recovered directly or indirectly from Mortgage
Corporation of America as a preference, fraudulent transfer or otherwise in such
proceeding.
Section 3.11 -- Set Off. In addition to all liens upon, and rights of set off
against the moneys, securities or other property of the Guarantor given to
Mortgage Corporation of America by law, Mortgage Corporation of America shall
have a lien upon and a right of set off against all moneys, securities and other
property of the Guarantor now or hereafter in the possession of Mortgage
Corporation of America or any of its affiliates whether held in a general or
special account of deposit, or for safekeeping or otherwise, and every such lien
and such right of set off may be (i) exercised without demand upon or notice to
the Guarantor or (ii) delivered over by such affiliate to Mortgage Corporation
of America in respect thereof. No lien or right of set off shall be deemed to
have been waived by any act or conduct on the part of the Mortgage Corporation
of America or by any neglect to enforce such lien or exercise such right of set
off, or by any delay in so doing, and every lien and right of set off shall
continue in full force and effect until such lien or right of set off is
specifically waived or released by an instrument in writing executed by Mortgage
Corporation of America.
Section 3.12 -- Events of Default.
(ii) Unless and until all of the Obligations have been paid in full and all of
the Companies's duties, liabilities and obligations under the Agreement have
been paid, performed, and/or terminated, it shall be an Event of Default under
the Agreement for any Guarantor to:
(A) Sell, assign, convey, transfer or otherwise dispose of any of the
Guarantor's ownership interest in the Companies (whether represented by
capital stock, partnership interest or otherwise) now owned or
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hereafter acquired by such Guarantor beneficially or of record (the
"Ownership Interest") or any interest of such Guarantor in the Ownership
Interest now existing or hereafter acquired;
(B) Suffer or permit the transfer, disposition, sale, conveyance or loss of
the Ownership Interest or any interest of such Guarantor therein by or
through any voluntary or involuntary means, including, without limitation,
pursuant to any attachment, foreclosure or other enforcement of any
voluntary or involuntary lien, security interest, claim or encumbrance, or
any execution, sheriff sale or other action to enforce any judgment, order
of decree, or any confiscation or forfeiture pursuant to any law, contract
or any other legal process or otherwise; or
(C) Mortgage, pledge, hypothecate or create, suffer or permit to exist any
security interest, lien, claim or encumbrance of any kind or nature upon
the Ownership Interest or any interest of such Guarantor therein.
(ii) Each Guarantor shall defend his/her right and title to the Ownership
Interest and take every possible action to ensure that his/her right, title and
interest in and to such Ownership Interest shall remain unattached, unencumbered
and free from any lien, security interest, levy or any other legal process.
(iii) In the event of receipt of Notice by any Guarantor of Attachment against
the Ownership Interest, such Guarantor shall immediately notify Mortgage
Corporation of America in writing of receipt of the Notice, and immediately
defend against such Attachment. Within 10 days of receipt of Notice, and in no
event later than 5 days before a sale (or any removal from such Guarantor's
possession of control) of such Ownership Interest, such Guarantor shall
eliminate any Attachment asserted against any of such Ownership Interest. In the
event the Mortgage Corporation of America has received Notice as provided in
this Section 3.12 (iii), Mortgage Corporation of America may, but shall be under
no obligation to, take any action it deems advisable, in its sole discretion, to
eliminate any such Attachment, and the applicable Guarantor shall immediately
reimburse the Mortgage Corporation of America for all costs and expenses
incurred in connection therewith.
Section 3.13 -- Notice of Event of Default. Each Guarantor agrees to notify
Mortgage Corporation of America of the occurrence of an Event of Default under
the Agreement or under this Guaranty promptly after he/she has obtained
knowledge thereof.
Section 3.14 -- Remedies.
(i) Upon the occurrence and at any time during the continuance of an Event Of
Default, Mortgage Corporation of America may notify the Companies that the
Facility has been terminated and that the Note has been declared immediately due
and payable, provided that upon the occurrence of any Event of Default under
Section 7.1(viii) or 7.1(xi) of the Agreement or Section 3.12 of the Guaranty,
the Facility shall automatically terminate and the Note and all the Obligations
shall become immediately due and payable without demand on or notice to the
Companies.
(ii) In the Event that the Note shall have become or been declared due and
payable, Mortgage Corporation of America may, without notice except as may be
required by applicable law, take action as described and provided for in Section
7.3 of the Agreement and/or may proceed against the Guarantor to collect all of
the Obligations hereunder which Guarantor agrees to pay promptly upon demand.
ARTICLE IV
MISCELLANEOUS
Section 4.1 -- Notices. Any notice or other communication herein required or
permitted to be given shall be in writing or by telex, telephone or telecopy
transmission with subsequent written confirmation, and may be personally served
or sent by first class United States mail and shall be deemed to have been given
upon
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receipt by the party notified. For the purposes hereof, the address of the
Guarantor and Mortgage Corporation of America (until notice of a change thereof
is delivered as provided in this Section 4.1) shall be as follows:
GUARANTOR(S): Mark Schaftlein
217B Gleason St.
Delray Beach, FL
33483
Mortgage Corporation of America: Mortgage Corporation of America
23999 Northwestern Hwy. Ste. 102
Southfield, MI 48075
Attention: Ann Schwartz
Section 4.2 -- Taxes. All tax returns of each Guarantor required to be filed by
him/her have been and will be timely filed and all taxes, assessments, fees and
other governmental charges upon such Guarantor and his/her properties, assets
and income have been and will be paid when due and payable except to the extent
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and a reserve or other appropriate provision as shall be
required in conformity with generally accepted accounting principles shall have
been made therefor.
Section 4.3 -- Successors and Assigns. This Guaranty shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Guarantor shall not assign this Guaranty or any of
the rights or obligations of the Guarantor hereunder without prior written
consent of Mortgage Corporation of America.
Section 4.4 -- Failure or Delay Not a Waiver. No delay or omission by Mortgage
Corporation of America to exercise any right under this Guaranty shall impair
any such right, nor shall it be constructed to be a waiver thereof. No waiver of
any single breach or default under this Guaranty shall be deemed a waiver of any
other breach or default or a waiver of the same breach or default at a
subsequent time.
Section 4.5 -- Entire Guaranty. This Guaranty and any agreement, document or
instrument attached hereto or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto, and supersede all oral
negotiations and prior writings in respect to the subject matter hereof.
Section 4.6 -- Waiver. No waiver of any term, condition or requirement under
this Guaranty shall be effective unless upon written consent of Mortgage
Corporation of America. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
Section 4.7 -- CHOICE OF LAW: JURISDICTION AND VENUE. THIS AGREEMENT, THE NOTE,
AND THE ADVANCES AND LOANS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS. IF ANY SUIT IS INSTITUTED IN CONNECTION WITH THIS
AGREEMENT, THE NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE COMPANIES AGREE
TO SUBMIT TO THE EXCLUSIVE JURISDICTION AND TO THE LAYING OF VENUE IN THE COUNTY
OF OAKLAND, STATE OF MICHIGAN, OR THE FEDERAL DISTRICT COURT FOR THE EASTERN
DISTRICT OF MICHIGAN. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT SHALL BE CONCLUSIVE AND
BINDING UPON HIM/HER.
Section 4.8 -- Headings. Section headings are for reference only, and shall not
affect the interpretation or meaning of any provision of this Guaranty.
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Section 4.9 -- Severability of Provisions. The illegality or unenforceability of
any provision of the Agreement or this Guaranty or any instrument or agreement
required hereunder shall not in any way affect or impair the legality of
enforceability of the remaining provisions of this Guaranty or any instrument or
agreement required hereunder.
Section 4.10 -- No Effect on Other Agreements. Nothing herein shall in any way
limit the effect of the conditions set forth in any other agreement executed by
the Guarantor, but each and every condition hereof shall be in addition thereto.
Section 4.11 -- Service of Process. Process may be served in any suit, action,
or proceeding of the nature referred to in Section 4.11 either (i) by the
mailing of copies thereof by registered or certified mail, postage prepaid,
return receipt requested, to the address of each Guarantor set forth herein or
to any other address of which such Guarantor shall have given written notice as
set forth herein or in the Agreement, or (ii) without affecting the efficacy of
the service, if any, made pursuant to clause, by serving a copy thereof in any
other manner consistent with Michigan law. Each Guarantor agrees that any such
service shall be deemed in every respect effective service of process upon such
Guarantor in any such suit, action or proceeding, and shall to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to him/her.
Section 4.12 -- No Limitation on Service or Suit. Nothing in this Guaranty shall
affect the right of Mortgage Corporation of America to serve process in any
matter permitted by law or limit the right of Mortgage Corporation of America to
bring proceedings against Guarantor in the courts of any jurisdiction or
jurisdictions.
Guarantor: Mark Schaftlein
Signature: /s/ Mark Schaftlein
------------------------
Mark Schaftlein
/s/ Payton Story III
------------------------
Payton Story III
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EXHIBIT E
Form of Request for Advance
28
MASTER PURCHASE AGREEMENT
THIS MASTER PURCHASE AGREEMENT ("Agreement") is made this 2nd day of
June, 1997, by and between Westmark Mortgage Corp, a corporation established
under the laws of the state of California ("Seller"), having its principal
office at 355 NE 5th Avenue, Delray Beach, FL and Mortgage Corporation of
America organized and existing under the Constitution and laws of the United
States ("Purchaser"), having its principal offices at 23999 Northwestern
Highway, Southfield, MI 48075.
The circumstances under which this Agreement is made are as follows:
A. Seller intends to originate mortgage loans, as hereinafter defined.
In certain circumstances, Seller desires to be assured upon taking an
application for a mortgage loan that, in the event the loan transaction is
consummated, Seller can sell the mortgage loan. In other circumstances, Seller
may desire to sell mortgage loans after the loan is closed for which no
commitment has been obtained prior to the closing.
B. Purchaser is willing to purchase such loans and the associated
servicing rights; provided, Seller complies with all terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. The following words and phrases as used in this Agreement shall have the
following meanings:
(a) Application: The written application for a Mortgage Loan submitted by a
prospective borrower in a form acceptable to Purchaser, together with a
credit report on the applicant, property appraisal report, written
verification of employment and income, written verification of applicant
having sufficient funds for the down payment and costs associated with the
Mortgage Loan, copy of the agreement to purchase the Mortgaged Property,
if applicable, Truth-In-Lending Loan Disclosure Statement, RESPA Good
Faith Estimate of Closing Costs, acknowledgment of receipt of RESPA
booklet Settlement Costs and You", acknowledgment of receipt of notice of
possible transfer of servicing, acknowledgment of receipt of variable rate
loan disclosure statements and Consumer Handbook on Adjustable Rate
Mortgage, if applicable, photos of Mortgaged Property and other
appropriate preliminary documents which would enable a lender to determine
whether it would make the Mortgage Loan for which the applicant has
applied.
(b) Commitment: Purchaser's agreement to purchase, and Seller's agreement
to sell, a specific Mortgage Loan, which agreement shall be in the form
attached hereto as Exhibit A.
(c) Correspondent Operating Manual: The procedures and requirements
adopted by Purchaser for the submission by Seller to Purchaser of proposed
Mortgage Loans to be purchased and for the origination and transfer of
such Mortgage Loans by Purchaser which procedures and requirements may be
<PAGE>
modified from time to time by Purchaser. Such modifications shall be
binding upon Seller for all Mortgage Loans submitted to Purchaser after
Seller receives the modification, other than any specific Loans subject to
an existing Commitment at the time Seller receives the modification. The
Correspondent Operating Manual, as modified from time to time, is
incorporated in and made a part of this Agreement.
(d) Flood Insurance Policy: A federal flood insurance policy on the
Mortgaged Property.
(e) Mortgage: A mortgage, deed of trust, deed to secure debt or similar
instrument on the Mortgaged Property securing a Mortgage Loan which
mortgage shall be in the form required by Purchaser.
(f) Mortgage File: The documents listed in Exhibit B to this Agreement
pertaining to a particular Mortgage Loan.
(g) Mortgage Loan: A loan evidenced by a Mortgage Note, secured by the
related Mortgage, which loan is originated by Seller and sold to the
Purchaser pursuant to this Agreement.
(h) Mortgage Note: A promissory note or similar instrument executed by the
Mortgagor to evidence the Mortgagor's obligation to repay a Mortgage Loan
which Mortgage Note shall be in the form required by Purchaser.
(i) Mortgaged Property: The Single Family Residence subject to a Mortgage.
(j) Mortgagor: The maker of, or any other party obligated on, a Mortgage
note.
(k) RESPA: Real Estate Settlement Procedures Act, 12 U.S.C. 2601, as amended
from time to time.
(l) Single Family Residence: A structure which is permanently affixed to
real property, including a detached structure (which may be factory-made
housing which is permanently affixed to real property), a condominium or a
townhouse, to be used as residential housing containing one to four
dwelling units, and the land appurtenant to the structure. The term
"Single Family Residence" shall not include property which under
applicable local law is not a fixture. The term "factory-made housing
which is permanently affixed to real property" shall be deemed to include
only factory-made housing (A) which is permanently affixed to a foundation
system, including the removal of the wheels and axles, if any, from the
factory-made housing; and (B) which is taxed, together with the land on
which the factory-made housing is located, as real property.
(m) Standard Hazard Insurance Policy: A standard homeowner's policy of
fire insurance with extended coverage on the Mortgaged Property with a
standard mortgage loss payable endorsement naming Purchaser as the loss
payee issued by an insurance company acceptable to Purchaser.
2. COMMITMENT. If Seller desires to sell a Mortgage Loan to Purchaser, Seller
shall submit to Purchaser the documents and information required by the
Correspondent Operating Manual. Promptly after receipt of such documents and
<PAGE>
information, Purchaser shall determine whether it is willing to purchase the
Mortgage Loan at the purchase price and so advise Seller by issuing a Commitment
to Seller. Although Seller complies with the terms and conditions of this
Agreement, Purchaser shall not be obligated to issue a Commitment. Upon the
issuance of a Commitment, Purchaser shall have agreed to purchase from Seller
the Mortgage Loan identified therein and the associated servicing rights and,
if Seller does not reject the Commitment by written notice to Purchaser within
five (5) business days after issuance of the Commitment, Seller shall have
agreed to sell to Purchaser the Mortgage Loan and associated servicing rights.
Notwithstanding anything Contained herein, Purchaser shall not be
obligated to Purchase a Mortgage Loan, whether or not a Commitment has been
issued, if at any time there has been a material adverse change in the
creditworthiness of Mortgagor or in any element of the transaction as
represented by Mortgagor, Seller or anyone whatsoever.
3. Purchase Price. The purchase price for the Mortgage Loan shall be the sum of
the following:
(a) the outstanding principal balance for the Mortgage Loan on the date the
purchase price is paid;
(b) interest which has accrued on the Mortgage Loan and is unpaid through
the date prior to the date the purchase price is paid;
(c) the premium, if any, stated in the Commitment.
The foregoing sum shall be decreased by the discount stated in the
Commitment, if any. The premium or discount shall be a percentage of the
outstanding principal balance of the Mortgage Loan on the date the purchase
price is paid by Purchaser.
The Seller agrees to comply with all Federal and State requirements for
the receipt of any premium from the Purchaser under this agreement.
Notwithstanding anything contained herein to the contrary, Seller shall not
receive an any premium in addition to the Purchase Price on any Mortgage Loan
which Purchaser includes in a pool of Mortgage Loans against which Purchaser or
an affiliate of Purchaser issues securities and sells such securities to third
parties.
4. POST PURCHASE ADJUSTMENTS. In the event that Purchaser pays to Seller a
premium in connection with the purchase of a Mortgage Loan, Seller shall rebate
the following pro rata share of such premium to Purchaser if the Mortgage Loan
is prepaid in full:
(a) For a Mortgage Loan which has a fixed rate of interest and is prepaid
in full within one (1) year after the date the Mortgage Loan was closed,
the pro rata share shall be a fraction in which the numerator is the
number of months between the date the Mortgage Loan is paid in full and
the first annual anniversary of the date the Mortgage Loan was closed and
the denominator is 12. All fractions of months shall be rounded up to the
next higher month.
<PAGE>
(b) For a Mortgage Loan which has an adjustable rate of interest and is
prepaid in full by the Borrower, within one (1) year after the date the
Mortgage Loan was closed, the pro rata share shall be a fraction in which
the numerator is the number of months between the date the Mortgage Loan
is paid in full and the second annual anniversary of the date the Mortgage
Loan was closed and the denominator is 12. All fractions of months shall
be rounded up to the next higher month.
(c) Notwithstanding anything contained herein to the contrary, in the
event the Mortgage Loan prepaid contains a prepayment penalty and
Purchaser receives the prepayment penalty from the borrower, the amount
rebated as hereinabove provided shall be reduced by the amount of the
prepayment penalty received by Purchaser in a percentage equal to the
amount of gross fees received by seller at the time of purchase. Any funds
due to Seller under this Agreement may be reduced by the amount of any
rebate due to Purchaser under this paragraph 4. In the event the amount of
the rebate exceeds the amount due to Seller under this Agreement, Seller
shall pay to Purchaser the difference within five (5) days after written
notice by Purchaser to Seller.
5. DELIVERY OF MORTGAGE FILE. Seller shall deliver the Mortgage File to
Purchaser within ten (10) business days after the date on which Seller
originates the Mortgage Loan. In the event the Mortgage File is not delivered to
Purchaser by such date, the Commitment shall be terminated and of no further
force or effect and Purchaser shall have no further obligations thereunder.
Purchaser shall pay the purchase price for the Mortgage Loan within five (5)
business days after receipt of the Mortgage File, excluding the recorded
Mortgage and title insurance policy. Seller shall deliver the foregoing excluded
items to Purchaser within fifty (50) days after delivery of the Mortgage File
due date.
6. COMPLIANCE WITH COMMITMENT. Notwithstanding anything contained in this
Agreement to the contrary, Purchaser shall only be obligated to purchase the
Mortgage Loan for which a Commitment has been issued if Seller and the Mortgage
Loan strictly conform with the terms of the Commitment, this Agreement and the
Correspondent Operating Manual. in the event a Mortgage Loan or Seller do not
strictly comply with the terms of the Commitment, this Agreement and the
Correspondent Operating Manual, Purchaser may, in its sole discretion, terminate
the Commitment or modify the terms of the Commitment to conform with the terms
of the Mortgage Loan by written notice to Seller.
7. TERM OF MORTGAGE LOAN. Each Mortgage Loan shall comply with the following
terms and conditions:
(a) Each Mortgage Loan shall be evidenced by a Mortgage Note and secured
by a Mortgage on forms previously approved by Purchaser.
(b) Each Mortgage Loan shall be a loan with a maturity greater that or
equal to ten (10) years and which is secured by a Single Family Residence.
(c) The Mortgaged Property shall be covered by a Standard Hazard Insurance
Policy with an endorsement in favor of the Purchaser, in an amount which
is not less than the unpaid principal amount of the Mortgage Loan. The
Standard Hazard insurance Policy shall be written by an insurance company
qualified to do business in the state in which the Mortgaged Property is
<PAGE>
located which company is acceptable to Purchaser. Mortgaged Property
located in a federally designated special flood hazard area shall be
covered by a Flood Insurance Policy in an amount which is not less than
(A) the unpaid principal amount of the Mortgage Loan; or (B) the maximum
amount of coverage of such insurance then permitted by applicable law,
whichever is less.
(d) No mortgage Loan shall have an original principal amount greater than the
percentage of the appraised value of the Mortgaged Property stated in the
Commitment.
8. TRANSFER OF MORTGAGE LOAN. Transfer of Seller's right, title and interest in
a Mortgage Loan to the Purchaser shall be in the following manner:
(a) Each Mortgage Note shall be endorsed on the back thereof by the Seller to
the order of the Purchaser.
(b) Each Mortgage shall be assigned to the Purchaser by a document executed in
recordable form which is acceptable to Purchaser.
(c) The title insurance policy, Standard Hazard Insurance Policy and all
other agreements between Seller and Mortgagor shall be assigned to
Purchaser on forms acceptable to Purchaser in its sole and absolute
discretion.
<PAGE>
(d) Seller shall pay to Purchaser all funds of Mortgagor held in escrow,
including, without limitation, funds held for the payment of property
taxes, insurance premiums or repairs.
(e) The assignment of the Mortgage shall be forthwith recorded and then
delivered to Purchaser.
9. PAYMENTS. All payments by Mortgagor collected, by Seller with respect to a
Mortgage Loan after the date upon which the Mortgage Loan is assigned to
Purchaser shall be the property of Purchaser and shall be immediately delivered
in kind to Purchaser by Seller endorsed payable to Purchaser.
10. REPRESENTATIONS AND WARRANTIES. Seller represents and warrants, and shall be
deemed to represent and warrant on the date each Mortgage Loan is assigned to
Purchaser, as follows:
(a) The Mortgage Loan is evidenced by all instruments contained in the
Mortgage File, which instruments are in a form acceptable to Purchaser in
its sole and absolute discretion.
(b) The Mortgage Loan is a loan with a maturity greater that or equal to
ten (10) years and which is secured by a Single Family Residence.
(c) The original principal balance of the Mortgage Loan is not greater
than the percentage of the value of the Mortgaged Property stated in the
commitment which value is based upon an appraisal acceptable to Purchaser
in its sole discretion.
(d) To the best of the knowledge, information and belief of Seller, the
information set forth in each Application is true and correct on the date
the Mortgage File is delivered.
(e) The full principal amount of the Mortgage Loan has been advanced to
the Mortgagor or on Mortgagor's account; all costs, fees and expenses,
including recording fees, documentary stamps, intangible taxes, hazard
insurance premiums and any other taxes or assessments due and payable have
been paid.
(f) Seller had good title to and is the sole owner of the Mortgage Loan,
free and clear of any lien, claim or encumbrance. Seller has no
obligation to sell the Mortgage Loan or any interest therein to any third
party. The transfer of the Mortgage Loan to Purchaser vests title to the
Mortgage Loan in Purchaser, free and clear of any lien, claim or
encumbrance.
(g) The improvements on the Mortgaged Property are insured at a minimum
against fire with "extended coverage" (and flood insurance where required
by law or regulation), in an amount equal to the full replacement value
of the improvements or the unpaid principal balance of the Mortgage Loan,
whichever is less, provided the insurance policy contains an inflation
guard guarantee endorsement on the dwelling or, if the policy does not
contain an inflation guard guarantee endorsement, the insurance amount
equals the full replacement value of the improvements or the unpaid
principal balance of the Mortgage Loan, whichever is greater; the
insurance is without coinsurance provision and contains a standard
mortgagee clause and loss payable endorsement in favor of the originator
and its successors and assigns.
(h) All improvements lie wholly within the boundaries and building restriction
lines of the Mortgaged Property, and no improvements on adjoining
properties encroach upon the Mortgaged Property. If the Mortgagor is the
first user of the Mortgaged Property, then all permits and certificates
for use and occupancy thereof have been obtained. if required by law or
regulation, all environmental permits have been secured. There are no
encroachments, overlaps, strips, gores, boundary line disputes or other
matters which would be disclosed by an accurate survey or inspection of
the Mortgaged Property which materially interfere with the benefits
intended to be provided by the Mortgage, or the use, enjoyment, value or
marketability of the Mortgaged Property.
(i) The appraisal of the Mortgaged Property was signed prior to the
approval of the Application by a qualified appraiser, duly approved by
Purchaser, who has no interest, direct or indirect, in the Mortgaged
Property or in the Mortgage Loan, and who does not receive compensation
which is affected by the approval or declining of the Mortgage Loan.
(j) No counterclaim, offset, defense or right of rescission exists which
can be asserted and maintained by the Mortgagor against the Purchaser, as
assignee of said Mortgage Loan.
(k) The mortgage, assignment, financing statement, if any, and any other
document required to be filed or recorded in a public office to perfect
<PAGE>
the lien of the Mortgage against third partakes has been duly and timely
filed or recorded by the Seller, at Seller's expense.
(1) With respect to each Mortgage constituting a deed of trust, a trustee
duly qualified under applicable law to serve as such has been properly
designated and currently so serves and is named in such deed of trust.
(m) Except for the security interest granted by Seller under a mortgage
warehouse agreement which shall be released upon delivery of the Mortgage
File, the Mortgage Loan is not subject to any existing assignment or
pledge other than the assignment to Purchaser.
(n) The Mortgage Loan is secured by a valid first lien on the Mortgaged
Property, which lien may be subject to recorded covenants, conditions and
restrictions, rights-of-way, and easements as of the date of recording of
the related Mortgage; but which lien is not subject to any lien, or right
to a lien, for taxes which have been billed, or for services, labor or
material furnished before or after the date of recording of the
Mortgage, imposed by law and not shown by the public records, unless the
title insurance specified in the subsequent subparagraph insures against
such risks.
(o) The Mortgage Loan is covered by a paid-up mortgagee title insurance
policy written on the standard form of the American Land Title
Association (or a commitment for the issuance of the same so long as such
policy is to be delivered in due course), together with any necessary
assignment or endorsement thereof, issued by a title insurer acceptable
to Purchaser in an amount at least equal to the outstanding principal
balance of the Mortgage Loan, naming the Seller and its successors and
assigns as an insured, and insuring that the Mortgage constitutes a first
lien on the Mortgaged Property, subject to the permitted exceptions set
forth in the preceding subparagraph. The assignment of such policy to
Purchaser does not require the consent or notification of the insurer.
(p) With respect to the Mortgage Loan, there has been prepared a survey of
the Mortgaged Property by a registered surveyor or licensed engineer
certified to Seller and its successors and assigns which shall be
satisfactory to cause the title insurance company issuing the title
insurance policy required in the preceding subparagraph to eliminate the
standard printed exceptions of the title insurance policy or commitment
therefor as to discrepancies, conflicts in boundary lines, shortage in
area, encroachments and any facts which a correct survey and inspection of
the Mortgaged Property would disclose and which are not shown by the
public records, showing all matters of record customarily shown by
surveys, location of all improvements and location of all easements
whether or not of public record, encroachments, if any, upon
the Mortgaged Property by adjoining buildings or structures, and
encroachments, if any, upon adjoining premises by the buildings and
improvements erected or installed upon the Mortgaged Property, and all
matters of which the registered, surveyor or licensed engineer has
knowledge, including, but not limited to, all matters referred to in the
typed exceptions appearing in the title policy or commitment therefor
required in the preceding subparagraph.
<PAGE>
(q) The Mortgaged Property has ingress and egress to a public street over
dedicated streets or irrevocable easements which the title insurance
company insures are for the benefit of the Mortgaged Property. Storm and
sanitary sewer, utility lines, etc., serving the Mortgaged Property are
established and located so as to run directly from the Mortgaged Property
to publicly-used facilities without running over lands or property of
others or, if over lands of others, only under title insured easements or
other forms of rights to use lands of others acceptable to Purchaser. The
same are not to be located under or through any building, structure or
improvement (except paving). Adequate sewer, water, electrical power and
other public utilities are available in such capacities as to adequately
service the Mortgaged Property.
(r) The Mortgage Loan is evidenced by a properly executed Mortgage Note made
payable to the order of the Seller and endorsed by the Seller to Purchaser
and by a properly executed and recorded Mortgage assigned by the Seller
to the Purchaser. The Mortgage Loan and all instruments in the Mortgage
File are the legal, valid and binding obligations of the makers thereof
and are enforceable in accordance with their terms.
(s) Neither Seller nor any previous holder of the Mortgage Loan has modified
in any respect, satisfied, cancelled, subordinated or compromised in
whole or in part the Mortgage Loan or released the Mortgaged Property in
whole or in part from the lien of the Mortgage, and the terms, covenants
and conditions of the Mortgage Note evidencing the Mortgage Loan and the
Mortgage securing the same have not been waived, altered, impaired or
modified in any respect.
(t) There is no default or delinquency under the terms and covenants of the
Mortgage Loan; no payments are, as of the date of delivery of the Mortgage
File to the Purchaser, more than fifteen (15) calendar days past due and
unpaid under the Mortgage Loan; and all costs, fees and expenses incurred
in making, closing and recording the Mortgage Loan have been paid.
(u) There is no proceeding pending for a total or Partial condemnation of
the Mortgaged Property and the Mortgaged Property has not been damaged by
fire, windstorm or other casualty to an extent which would materially
adversely affect the value of the Mortgaged Property.
(v) The Mortgage Loan complies and conforms with all federal, state and
local laws and regulations applicable thereto, including, without
limitation, the Equal Credit Opportunity Act, RESPA, the Federal
Truth-In-Lending Act, Fair Credit Reporting Act, Fair Housing Act,
Community Reinvestment Act, if applicable, mortgage lender, broker or
servicer laws and state usury laws.
(w) With respect to the Mortgage Loan, to the knowledge of Seller, the
Mortgagor has not conveyed his or her right, title or interest to the
Mortgaged Property to any party.
(x) There are no actions, suits or proceedings pending or threatened
against Seller in any court or before any administrative agency the
adverse outcome of which would have any effect an its title to the
Mortgage Loan and the right to service the Mortgage Loan.
<PAGE>
(y) Seller has no knowledge that either the Mortgaged Property or
appurtenances thereto, or the subjection thereof to use and enjoyment
for the purposes intended, is, or will be, violative of any other
applicable law, rule or regulation in effect on the date the Mortgage
File is delivered to Purchaser and Seller has no knowledge of any pending
case or proceeding directly involving the Mortgaged Property in which
compliance with any law, rule or regulation is an issue or that anything
further remains to be done to satisfy in full all requirements of each
law, rule or regulation constituting a prerequisite to the use and
enjoyment of the Mortgaged Property for the purpose intended by Mortgagor.
(z) No refund, rebate or discount is due or payable to Mortgagor or any
other party in the event of prepayment of the Mortgage Loan or for any
other reason.
(aa) Seller has taken all action, including a resolution by the Board of
Directors, if necessary, to permit Seller to enter into this Agreement and
any other agreements or transactions contemplated herein, and same are
valid and binding upon the Seller. No officer or agent of Purchaser
shall be required to make any inquiry concerning the validity or any
transaction purported to be made by Seller, when made by any officer
or agent of Seller; and purchaser may conclusively assume that every
obligation contract, instrument, act or thing done and executed by any
person purportedly on behalf of Seller has been so executed or done in
the official capacity as the agent or officer for Seller.
(bb) Seller is duly organized, validly existing and in good standing under the
laws stated in the first paragraph of this Agreement, and is qualified to
transact business in and is in good standing under the laws of each state
in which any Mortgaged Property is located or is otherwise exempt under
applicable law from such qualification, and no demand for such
qualification has been made upon Seller by any such state and, in any
event, the Seller is or will be in compliance with the laws of any such
state to the extent necessary to ensure the enforceability of each
Mortgage Loan, including, without limitation, being duly licensed under
all applicable laws of such state.
(cc) Neither this Agreement, nor any statement, report or other document
furnished or to be furnished pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any materially untrue
statement of fact or omits to state a fact necessary to make the
statements contained therein not materially misleading.
(dd) Seller has, and will maintain, at its own expense, a Fidelity Bond
with broad coverage and an Errors and Omissions Policy in accordance with
the requirements of Purchaser.
(ee) The Mortgage File contains the original documents duly executed by
the applicable party, except the Mortgage and assignment thereof, which
shall be true copies thereof.
(ff) The terms of each Mortgage Loan comply with the terms of this
Agreement.
II. COMPLIANCE WITH STATUTES, ETC. Seller shall comply with and use its best
efforts to cause each Mortgagor to comply with all applicable state and federal
<PAGE>
rules and regulations or requirements of the private mortgage insurance
companies, including those requiring the giving of notices.
12. DEFECTS IN MORTGAGE LOAN. If any document or documents constituting a part
of the Mortgage File in connection with the origination and sale of the Mortgage
Loan are found at any time by the Seller or Purchaser to be defective in any
material respect or upon discovery by the Seller or Purchaser of the existence
of a misrepresentation of a material fact by the Seller or any other person in
connection with the origination and sale of the Mortgage Loan which affects the
value of any Mortgage Loan or the interest of the Purchaser in any Mortgage
Loan, the Seller shall cure the defect or misrepresentation within a period of
thirty (30) days from (i) the date the Seller discovers such defect or
misrepresentation or (ii) the date Purchaser notifies the Seller of the defect
or misrepresentation, whichever is sooner. If any such defect or
misrepresentation is not cured such thirty (30) day period, the Seller shall,
not later than ten (10) days after the expiration of such thirty (30) day cure
period, purchase the related Mortgage Loan from Purchaser at a price equal to
the sum of: the principal balance remaining unpaid on such Mortgage Loan, unpaid
interest accruing on the unpaid principal balance to the date of such purchase,
and an amount equal to the Premium for the Mortgage Loan. Upon such purchase,
Purchaser shall assign its interest in all appropriate Mortgage Loan documents
to the Seller.
13. PURCHASER'S APPROVAL; ATTORNEY FEES. All instruments and documents required
hereby or affecting the Mortgaged Property or relating to Mortgagor's capacity
and authority to make the Mortgage Loans and to execute the Mortgage Loan
documents and such other documents, instruments, opinions and assurances as
Purchaser may request and all procedures in connection with the Mortgage Loans
shall be subject to approval as to form and substance by Purchaser. Seller shall
pay all fees of attorney(s) retained by Purchaser for the preparation and review
of all documents and instruments required hereby or affecting the Mortgaged
Property or Mortgagor. In the event any cause referred to in Paragraph 14 hereof
shall have occurred and Purchaser shall employ attorneys or incur other expenses
for the enforcement of the performance or observance of any obligation or
agreement on the part of Seller herein contained, Seller shall pay or reimburse
Purchaser on demand the reasonable fees of such attorneys and such other
expenses incurred.
14. DEFAULT. Upon the happening of any one or more of the following events,
Purchaser may terminate this Agreement and any Commitments, and shall have the
other remedies specified herein:
(a) Failure by Seller duly to observe or perform in any respect any
covenant, condition or agreement in this Agreement to be observed or
performed by Seller for a period of thirty (3Q) days after written notice,
specifying such failure and requesting that it be remedied, given to
Seller by Purchaser
(b) Any representation by Seller proves to be false or Seller breaches any
warranty given to Purchaser.
(c) A decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
<PAGE>
marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Seller.
(d) Seller shall consent to the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to Seller or
of or relating to all or substantially all of its property.
(e) Seller shall admit in writing its inability to pay its debts generally
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit
of its creditors, or voluntarily suspend payment of its obligations.
(f) Any document, instrument, agreement or other paper delivered by Seller
to Purchaser contains a material inaccuracy or fails to conform with the
terms of this Agreement.
(g) Seller solicits any Mortgagor to refinance a Mortgage Loan (except for
a solicitation which is incidental to a solicitation directed to the
general public and not to a specific Mortgagor).
If Seller defaults under this Agreement for any reason stated above, Purchaser
shall not be obligated to purchase any Mortgage Loan covered by an outstanding
Commitment. Nevertheless, Purchaser may, at its option, in the event of default
by Seller, terminate this Agreement and purchase one or more of the Mortgage
Loans covered by Commitments issued prior to the date of termination. In
addition, Purchaser shall have the right to offset from any amount due to Seller
any amount Seller owes to Purchaser under any provision of this Agreement.
15. TERMINATION. Upon the happening of any one or more of the following events,
Purchaser may terminate for cause this Agreement (but may not terminate
outstanding Commitments), and shall have the other remedies specified in
connection with events described in paragraph 14 hereof:
(a) Without the prior written consent of Purchaser, Seller merges with any
other entity, sells or otherwise disposes of all or substantially all of
its property and assets or permits a change to occur in the ownership of
Seller which would transfer effective control (voting or otherwise) from
persons who, on the date hereof, have control (voting or otherwise) of
Seller.
(b) In the sole opinion of Purchaser, there is a substantial reduction in the
net worth of Seller as compared to the net worth on the date hereof.
In addition to the foregoing, this Agreement may be terminated without cause by
either party upon written notice to the other party. Upon termination without
cause, Purchaser may, at its sole option, purchase Mortgage Loans covered by
previously issued Commitments or refuse to purchase such Mortgage Loans. The
termination of the Agreement shall not relieve Seller from liability accruing
hereunder for breach of any provision hereof or any representation proving to be
false.
<PAGE>
16. NONEXCLUSIVE REMEDIES; WAIVER. Unless otherwise expressly provided, no
remedy herein conferred or reserved is intended to be exclusive of any other
available remedy, but each remedy shall be cumulative and shall be in addition
to other remedies given under this Agreement or existing at law or in equity. No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle Purchaser to exercise any remedy in
this Agreement, it shall not be necessary for Purchaser to give any notice to
Seller except in those situations in which Seller has a right to cure a default.
17. INDEMNIFICATION
(a) Seller shall indemnify and hold Purchaser harmless from and against
any and all loss, damage, cost and expense, including attorney fees, that
Purchaser may sustain as a result of a breach by Seller of any of the warranties
or representation contained in this Agreement or as a result of the failure by
Seller to otherwise perform properly its services, duties and obligations under
this Agreement, which indemnity and agreement to hold harmless shall survive the
termination of this Agreement. Seller further agrees to indemnify and hold
Purchaser harmless from and against any and all loss, damage, costs, expenses
(including attorney fees), obligations and liabilities that Purchaser may
sustain because of the violation of any Federal or State law or for tax
penalties applicable to property taxes which become delinquent prior to delivery
of the Mortgage File to Purchaser.
(b) In addition to the foregoing indemnity and hold harmless provisions,
in the event any Mortgage Loan purchased from Seller under this Agreement is
declared in default by Purchaser for non-payment of the first, installment due
Purchaser, and such default results in the initiation of foreclosure action by
Purchaser, or in the event Purchaser determines that there has been fraud or
misrepresentation by Seller with respect to any Mortgage Loan, Seller shall have
the option upon receiving written notice of the default and foreclosure action,
fraud or misrepresentation to: (A) repurchase the Mortgage Loan or (B) indemnify
and hold Purchaser harmless from and against any and all loss, damage, cost and
expense, including attorney fees, sustained by Purchaser by reason of the
default and foreclosure action, fraud or misrepresentation.
(c) In addition to the foregoing indemnity and hold harmless provisions,
in the event that within the time period described herein the Purchaser
performs, or has performed on its behalf, a quality control review or other
similar review of any mortgage Loan purchased from Seller under the Agreement
and this First Amendment, if an appraisal done as part of such review shows a
property value for a Mortgaged Property to be any more than 14.999% lower than
an appraisal relied upon by Purchaser in issuing its Commitment, the Purchaser
shall have the right to require the Seller to repurchase the Mortgage Loan, and
Seller shall repurchase within ten (10) days of receiving written notice from
Purchase that repurchase is required under this paragraph. The time period for
Purchaser's exercise of this right shall be, as to any Mortgage Loan, from the
date on which Purchaser issues a Commitment until thirty (30) days after the
last of the event to occur described in paragraph 8 (a) through 8(d),
inclusive.
<PAGE>
18. BOOKS AND RECORDS. Seller shall keep and maintain books and records required
to meet and comply with all applicable laws or as specified by Purchaser, and
same shall be available for inspection and copying by Purchaser at any time,
without notice, during business hours.
19. FINANCIAL STATEMENTS. Seller shall furnish to Purchaser for as long as this
Agreement is in effect, as soon as available, and in any event within ninety
(90) days after the and of each fiscal year of Seller, the financial statement
of Seller consisting of a balance sheet as of the end of such fiscal year,
together with related statements of income or loss and retained earnings and
changes in financial position of Seller for such fiscal year, prepared by
independent certified public accountants in accordance with generally accepted
accounting principles. The statements shall either be audited or certified as
true by the Chief Executive Officer of Seller. In addition, Seller shall also
provide Purchaser, from time to time, upon reasonable request and thirty (30)
days notice, any other financial reports or statements reasonably required by
Purchaser. Seller shall promptly advise Purchaser of any substantial charge in
Seller's ownership, financial condition or senior management.
20. INDEPENDENT CONTRACTOR. In the performance of its duties or obligations
under this Agreement or any other contract, commitment, undertaking or agreement
made pursuant to or in connection with this Agreement, Seller shall not be
deemed to be, or permit itself to be understood to be, the employee or agent of
Purchaser and shall at all times take whatever measures are necessary to ensure
that its status shall be that of an independent contractor operating as a
separate entity. None of Seller's employees or agents are entitled to the
benefits that are provided to the employees of Purchaser. Purchaser is solely
interested in the results obtained under this Agreement and therefore the manner
and means of conducting Seller's business affairs are under the sale control of
Seller and Seller shall be solely responsible for its acts and for the acts of
its agents and employees. Seller may engage in any activity contemplated
hereunder for a buyer other than Purchaser should Purchaser not have comparable
loan programs available.
21. MERGER, ASSIGNMENT. Seller acknowledges that no representations, agreements
or promises were made to Seller by Purchaser or any of its employees other than
those representations, agreements or promises specifically contained herein.
This Agreement sets forth the entire understanding between the parties hereto
and shall be binding upon all successors of both parties. Nevertheless, neither
party shall have the right to assign any of its duties, obligations or rights
under this Agreement without the prior written consent of the other; provided,
however, that Purchaser may assign its interest in the Agreement to any company
controlling, controlled by or under common control with Purchaser.
22. GOVERNING LAW. This Agreement shall not be bin4ng on Purchaser until
Purchaser's acceptance of same at its offices in Michigan. Acceptance of the
Agreement by Purchaser shall be deemed to have occurred in Michigan when the
Agreement is signed by an authorized representative of Purchaser and mailed or
delivered to Seller. This Agreement shall be construed in accordance with the
laws of the State of Michigan and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws. Any lawsuits
brought to enforce this Agreement shall be brought in a Circuit Court of
Michigan, or in the United States District Court for a District of Michigan,
and in no other court and shall not be transferred to any other forum. Seller
and
<PAGE>
Purchaser agree that jurisdiction and venue is proper in any of those
aforementioned courts.
23. PARTIAL INVALIDITY. If any term, covenant, condition or provision of this
Agreement shall, at any time or to any extent, be determined by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby and each other term, covenant, condition
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
24. TIME; SURVIVAL; CAPTIONS. Time is of the essence hereof. All agreements,
representations and warranties made herein shall survive the purchase of any and
all Mortgage Loans hereunder. The captions of the Paragraphs of this Agreement
have been inserted only for the purpose of convenience and such captions are not
a part of this Agreement and shall not be deemed in any manner to modify,
explain, enlarge or restrict any of the provisions of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which counterpart shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.
26. AMENDMENT. This Agreement may not be amended, changed or modified except by
an instrument in writing duly executed and delivered by the parties hereto. This
Agreement and any Commitment may not be assigned by Seller without the prior
written consent of Purchaser.
27. FURTHER ASSURANCES. Seller shall, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as may reasonably be required
for carrying out the intention of or facilitating the performance of this
Agreement.
28. NOTICES. All notices, certificates, documents, instruments or other
communications hereunder shall be sufficiently given and shall be deemed given
when delivered or mailed by certified mail, postage prepaid, return receipt
requested, to the address of the party stated at the beginning of this Agreement
or to such different address as such party shall designate by subsequent written
notice.
Signed the day and year first above written.
Mortgage Corporation of America ("Purchaser")
By: /s/ illegible
- ------------------------------
Its: EVP
Westmark Mortgage Corporation, Inc. ("Seller")
By: /s/ Payton Story III
- ------------------------------
Payton Story III
Its: President
Westmark Mortgage Corporation
-----------------------------
Seller
and
MorCap, Inc.
Buyer
CONTINUING AGREEMENT FOR SALE
AND PURCHASE OF MORTGAGES - SERVICING RELEASED
February 6, 1997
----------------
Fixed and Adjustable First and Second Lien Residential Mortgage Loans
<PAGE>
CONTINUING AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
This CONTINUING AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES is made this 6th
day of February, 1997, by and between MorCap, Inc. located at 7000 Central
Parkway, Suite 1570, Atlanta, GA 30328 a Delaware corporation ("Buyer") and
Westmark Mortgage Corporation, located at 355 N.E. 5th Avenue Suite 4, Delray
Beach, FL, a corporation organized and existing under the laws of the state of
California ("Seller").
WHEREAS, the Seller desires from time to time to offer for sale to the Buyer and
the Buyer desires from time to time to purchase from the Seller of the terms and
subject to the conditions set forth herein and subject to Buyer's review and
acceptance certain closed-end single-family residential Loans owned by the
Seller evidenced by notes and secured by mortgages of the agreed-upon (first or
second) priority on real property owned by the borrowers ("Borrowers"), and
WHEREAS, the Buyer and the Seller desire to enter into this agreement to govern
the sale and purchase of said Loans.
NOW, THEREFORE, in consideration of the above recitals and mutual covenants
contained herein, the parties hereto hereby agree as follows:
Section 1. Definitions
Whenever used in this Agreement the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
Acceptance Seller's acceptance of Buyer's Offer.
Agreement: This Agreement as same may be amended and supplemented from time
to time. The parties agree that this Agreement shall be used as the continuing
sale and purchase agreement for those Loans purchased by Buyer from Seller in
the future and identified on each Schedule of Mortgage Loans, unless otherwise
agreed in writing by the parties.
Appraised Value: The value of the Mortgage Property as determined by an
appraisal made for the Seller at the time of origination of the Loan by an
appraiser.
Appraiser: An appraiser who satisfies the requirements of the Financial
Institutions Reform Recovery and Enforcement Act of 1989, is licensed by the
state in which the appraiser does business and is on the Buyer's approved
appraiser list.
Assignment of Mortgage. An assignment of the Mortgage, notice of transfer
or equivalent instrument, in recordable form, which when recorded is sufficient
under the laws of the jurisdiction where the related Mortgaged Property is
located to reflect of record the sale of the Mortgage to Buyer, or its assignee.
Bill of Sale: Each bill of sale and assignment in the form attached hereto
as Exhibit A, which evidences the sale and acquisition of a portfolio of Loans
and to which Seller shall attach, as Schedule 1, the Schedule of Mortgage Loans,
listing the loans to be purchased pursuant to such Bill of Sale.
Buy-Back Price: As defined in Section 4(c)
Credit File: The file containing those items listed in Exhibit B attached
hereto, and any additional documents required to be added thereto pursuant to
this Agreement.
Essential Mortgage File Documents: As to each Mortgage Loan, the original
Note and Mortgage, or in the event the original Mortgage is out for recordation,
a certified true copy thereof, title insurance policy including endorsements or
"Marked-up" title commitment. Related Assets and the additional documents as
described in Exhibit "A", attached hereto and made a part hereof, as applicable.
Loan: The Note, the related Mortgage and the Related Assets are referred to
as "Loan," and collectively as "Loans" and which term shall include Mortgage
Loans.
Loan to Value Ratio: The sum of the original principal amount of the
Mortgage Loan and the outstanding principal balance of any first Mortgage (the
"First Mortgage") with priority over the Mortgage securing the Loan at the time
of origination of the Mortgage Loan divided by the lesser of the original
purchase price of the Mortgaged Property if Borrower purchased the Mortgaged
Property within twelve (12) months of the Mortgage Loan origination date or the
Appraised Value of the Mortgaged Property.
"Marked-Up" Title Insurance Policy, Binder or Certificate. A title
insurance policy as further defined in Section 4(b)(9) of this Agreement in
which all liens, mortgages, claims, assessments, defects, encumbrances and other
exceptions affecting or against the
1
<PAGE>
Mortgaged Property have been removed and are insured against in favor of Buyer
by the title insurance company unless otherwise agreed or approved by the Buyer
in writing.
Mortgage: Any Note, bond, deed or trust, mortgage, mortgage warranty,
extension agreement, assumption of indebtedness, assignment and any other
documents constituting the basic instruments of real estate security on real
property owned by the Borrower in the state in which the Mortgaged Property is
located.
Mortgage Loans: The Loans identified in the Schedule of Loans
delivered as from time to time are subject to this Agreement.
Mortgaged Property or Mortgaged Property: The residential real property
subject to the Mortgage which secures the Mortgage Loan.
Mortgagor or Borrower: The obligor under a Mortgage Loan.
Note: The original Note, bond or other evidence of indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
Purchase Price: The purchase price for the Loan(s) described on each
Schedule of Loans delivered shall be an amount as of the Settlement Date equal
to the sum of the: (1) unpaid principal balances of the Note(s); (2) all
interest accrued (up to but not including the Settlement Date) but unpaid on the
Note(s) (prorated on a 360-day year); and (3) any premiums due Seller, if
applicable in accordance with the Approval Advice or Schedule of Loans
delivered; (4) less any discount due Buyer, if applicable, in accordance with
the Approval Advice or Schedule of Loans delivered.
Related Assets: The documents as further defined in Section 3(a)(iv) of
this Agreement.
Settlement Date: The date of the funding or payment or Purchase Price by
the Buyer for Loans purchased pursuant to this Agreement. Each Settlement shall
be held at the offices of Buyer located at 7000 Central Parkway, Suite 1570,
Atlanta, GA 30328.
Underwriting Guidelines/Product Descriptions: These certain written
guides as provided by Buyer to Seller which may from time to time be amended by
Buyer. Such guidelines include, but are not limited to, underwriting guidelines,
appraisal guidelines, credit and income documentation and loan programs.
Section 2. Purchase and Sale of Loans
(a) Delivery of Loans
On or before the business day immediately preceding each Settlement Date, the
Seller shall deliver to the Buyer the following for each Loan purchased:
(i) Those Loans described by the Buyer on each Schedule of Loans
delivered which are purchased by Buyer pursuant to this Agreement.
(ii) The agree-upon priority liens and/or Mortgages, or a true
certified copy thereof, on Mortgaged Property.
(iii) The original Note(s) and the Mortgage(s), or a true certified
copy of the Mortgage, endorsed by an authorized officer of Seller to the
Buyer as following: "Pay to the Order of MorCap, Inc., Without Recourse"
(unless otherwise notified in writing by Buyer); together with an
individual Assignment of Mortgage to Buyer and original of all
interviewing assignments, if any of the Seller's beneficial interest in
the Mortgage, showing a complete chain of title of the Loan from
origination to the Seller, including warehouse assignment, with
evidencing of recording thereon, or a release of any intervening
assignee's interest, if any, to the extent that such assignment was not
recorded.
(iv) Any and all documents, instruments, collateral agreements, and
assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Notes and/or Mortgages or
related thereto, including, without limitation, current insurance
policies (private mortgage insurance, if applicable; flood insurance, if
applicable; hazard insurance; title insurance; and other applicable
insurance policies) covering the Mortgaged Property or relating to the
Notes and all files, books, papers, ledger cards, reports and records
including, without limitation, loan application. Borrower financial
statements, separate assignment of rents, if any, credit reports and
appraisals, relating to the Loans (the "Related Assets"). In all cases,
the Related Assets shall be in the original documents.
(v) The Credit Files. In all cases, these documents shall be the
original documents.
(vi) In the event that Seller cannot deliver to Buyer a duly recorded
assignment of Mortgage or any other document required to be recorded
under this Agreement on the Settlement Date solely because of a delay
caused by the public recording office when such document(s) has been
delivered for recordation, Seller shall deliver to the Buyer a certified
copy of each document(s) with a statement thereon signed by an Officer
of the Seller certifying each to be a true and correct copy of
document(s) delivered to the appropriate public recording official for
recordation. Seller shall deliver to Buyer such recorded document(s)
with evidence of recording indicated thereon no later than 15 days after
Seller receives such document, but in any event, no later than 120 days
from the Settlement Date. In the event that missing documents are not
received by the Buyer within the above-stated time frame, strictly as a
result of a delay caused by the public recording office(s), Buyer may
2
<PAGE>
Rider 3A
In the event of the prepayment of a Loan (other than by a refinancing by
the Buyer of any of its subsidiaries or affiliates or a refinancing by Seller
which is repurchased by the Buyer) made pursuant to this Agreement with respect
to which a premium was paid to the Seller, the Seller shall refund to Buyer a
portion of the premium paid by the Buyer on the Loan determined on the following
basis.
The amount refunded to Buyer shall equal the premium paid to the Seller
by Buyer multiplied times the number of months remaining in the standard
prepayment period (the "Prepayment Period") and divided by the full Prepayment
Period. The total number of months remaining in a Prepayment Period will include
the month in which the Loan prepays.
Premium Refund = premium paid by Buyer x number of months remaining in
Prepayment Period
-----------------------------------------------------
12 month total Prepayment Period
3
<PAGE>
the Loans to the Buyer or the consummation of the transactions
contemplated by this Agreement, or if required, such approval has been
obtained prior to each Statement Date.
(vi) This Agreement constitutes, when duly executed and delivered by
the Seller, a legal, valid and binding obligation of the Seller
enforceable against the Seller according to its terms.
(vii) There are no actions, suits or proceedings pending or, to the
knowledge of the Seller, threatened against or affecting the Seller or
the properties of the Seller before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which if determined adversely to the Seller, would
have a material adverse effect on the financial condition, properties or
operation of the Seller. Any acceptance, agreement or consent by the
Buyer to purchase pursuant to this Agreement will automatically
terminate if: (a) a decree or order of a court or agency supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities, bankruptcy proceeding or any
similar proceedings, or for the winding up or liquidation of its
affairs, shall have been entered against the Seller or a Borrower and
such decree or order shall have remained in force undischarged or
unstated for a period of 60 days; or (b) the Seller or a Borrower shall
consent to the appointment of a conservator or receiver or liquidator in
any solvency, readjustment of debt, marshalling of assets and
liabilities bankruptcy or similar proceedings relating to the Seller or
relating to all or substantially all of its creditors, or voluntarily
suspend payment of its obligations.
(viii) Neither this Agreement, nor any statement, report, or other
document furnished or to be furnished pursuant to this Agreement, or in
connection with this transaction contemplated hereby, contains any
untrue statement of fact by Seller, or omits to state a material fact
necessary to make the statements of Seller contained therein not
misleading.
(ix) Upon request, Seller will deliver to Buyer a true and correct
copy of Seller's fidelity bond an Seller's errors and omissions policy,
and/or certificates evidencing the same as currently in effect, the
amounts and coverages of both of which will be acceptable to Buyer.
Seller shall, at it own expense, maintain a fidelity bond and an errors
and omissions policy, in amounts at least as great as, and with the
coverages at least as broad as, those currently in effect. Seller,
shall, upon request, furnish proof of such coverage at or before the
first Settlement and, upon request, annually thereafter.
(x) Seller has not dealt with any broker or agent or other Person who
might be entitled to a fee, commission or compensation in connection
with this transaction other than the Buyer except as Seller has
previously disclosed to Buyer in writing.
(b) Representations and Warranties of the Seller as to Each Loan. It is
understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this Agreement the Seller hereby represents and warrants to the
buyer as of each Settlement Date with respect to each Loan purchased:
(i) The Seller is the Payee and Holder of each note within the
meaning of the Uniform Commercial Code and is the sole owner of the Loan
and has the right to assign and transfer the Loan to the Buyer. The
Seller has not sold, assigned or otherwise transferred any right or
interest in or to the Loan and has not pledged the Loan as collateral
for any Loan or obligation of Seller or other purpose. The assignment of
the Loan by the Seller to Buyer validly transfers such Loan to Buyer
free and clear of any pledges, liens, claims, encumbrances, Mortgages,
charges, exceptions and/or security interests.
(ii) Except as expressly disclosed to and agreed to by the Buyer in
writing, each Loan conforms to: (a) Underwriting guidelines/Products
Descriptions of Buyer, and (b) the conditions of the Approval Advice (if
applicable).
(iii) All information set forth in the Schedule of Loans is true and
correct in all respects, and all other information furnished to Buyer by
Seller with respect to the Loan(s) purchased is true and correct as of
the Settlement Date. Neither the Schedule of Loans nor the Mortgage File
nor any other documents furnished in connection with this transaction
contains any untrue statement of material fact by Seller or its
Affiliates, or omits to state a fact, necessary to make the statements
of Seller or its Affiliates contained therein not materially misleading.
(iv) Each Note and Mortgage and the Related Assets are din every
respect genuine, contain genuine signatures, are the valid instrument
they purport on their face to be, are the legal, valid, binding and
enforceable obligation of the Borrower thereunder and not subject to any
discount, allowance, setoff, counterclaim, presently pending bankruptcy
or other defenses, none of the Notes, Mortgages, or Related Assets are
forged or have affixed thereto any unauthorized signature or have been
entered into by any persons without the required legal capacity and no
foreclosure (including any non-judicial foreclosure) or any other legal
action has been brought by the Seller or any senior lienholder in
connection therewith.
(v) No instruments other than those delivered therewith are required
under applicable law to evidence the indebtedness represented by the
Loan(s) or to perfect the lien of the Mortgage(s).
(vi) Except as has been disclosed to and agreed to by the Buyer in
writing, there is no agreement with the Borrower regarding any variation
of the interest rate and schedules of payment (except as described in
the Note and Mortgage) or other terms and conditions of the Loan, no
Borrower has been released from liability on the Note, and no property
has been released from the Mortgage. If the Loan is a variable rate
loan, the Seller represents and warrants as of each Settlement Date that
all applicable notices required by law or regulation have been provided
to the borrower and that the right to future changes in the interest
rate and payment schedule has not been waived by the Seller or any
previous holder of the Loan.
4
<PAGE>
(vii) The Loan is secured by a valid Mortgaged/Deed of Trust, of the
agreed-upon priority on real property, and such Mortgage has been
properly received by the appropriate public recording official, in
recordable form, to be filed, recorded or otherwise perfected in due
course in accordance with applicable law in the appropriate
jurisdiction. The Note is not secured by any other collateral other than
the Mortgaged Property.
(viii) There are no violations of any applicable federal or state law
or regulation, including, without limitation, Fair Credit Reporting Act
and Regulations, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Federal Real
Estate Settlement Procedures Act and Regulations, the Federal Debt
Collection Practices Act and any federal or state usury laws and
regulations. All disclosures required by law, federal, state or local,
were properly made by the Seller prior to the closing of the Loan.
(ix) The Seller holds a Marked Up title policy or title insurance
binder or title certificate which is in full force and effect; which has
an issuance limit at least as great as the outstanding principal balance
of the Loan; which names the Seller, its successors and assigns as the
insured party and which is issued by a title insurer which has been
approved by the Buyer in writing and is qualified to do business in the
jurisdiction where the Mortgaged Property is located. Said policy shall:
(A) insure the absence of any lien for taxes and other assessments
which are due and payable;
(B) disclose whether all taxes and other assessments due as of the
date of the policy have been paid in full; and
(C) disclose all other matters to which like properties are commonly
subject.
If the Buyer purchases a Loan having relied on a Marked-Up title
insurance binder or title certificate rather than a title insurance policy, the
Seller shall have thirty (30) days to deliver to the Buyer the title insurance
policy.
(x) As of the Settlement Date the Seller has transferred to Buyer all
of its right, title and interest in the Note(s), Mortgage(s) and Related
Assets for each Loan purchased free and clear of any pledge, liens,
claims, encumbrances, Mortgages, charges, exceptions or security
interests other than as is disclosed in the title insurance policy to
each Loan, together with an individual flood insurance policy (to the
extent required by the Flood Disaster Protection Act) and an individual
current hazard insurance policy (including fire and extended coverage
and other manners as are customary in the area of the Mortgaged
Property), or a blanket policy in lieu thereof, or a certificate if the
Buyer agrees in writing to accept a certificate, insuring the Mortgaged
Property, with a loss payable clause in favor of the Seller, its
successors and assigns in an amount equal to the lower of: (a) the
replacement value of the Mortgaged Property, or (b) the unpaid principal
balance of the Loan and any senior mortgage loan; provided, however,
that the amount is sufficient to protect the insured and mortgage from
co-insurers in the event of a partial loss.
(xi) The Note and Mortgage contain customary, valid, legal and
enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security created thereby.
(xii) The proceeds of the Loan have been fully disbursed and any and
all requirements as to completion of on-site and off-site improvements
and disbursement of any escrow funds therefor have been complied with.
(xiii) There are no mechanic's liens or similar liens or claims which
have been filed for work, labor or material affecting the Mortgaged
Property which are or may be liens prior to or equal with the lien of
the Mortgage and senior mortgage loans.
(xiv) The Mortgaged Property is free of material damage and waste and
is in average repair and there is no proceeding pending or threatened
for the total or partial condemnation of the Mortgaged Property, and the
Mortgaged Property is free and clear of all hazardous material.
(xv) All matured obligations pursuant to the Note and Mortgage have
been paid or performed and the Seller has not waived any defaults,
breach, violation or event of acceleration nor has the Seller released
any portion of the Mortgaged Property from the lien of the Mortgage.
(xvi) The Seller has no knowledge of any facts as to such Loan which
it has failed to disclose which would materially and adversely affect
the value of marketability of such Loan; and all information set forth
in any application for such Loan together with all matters continuing
and/or verifying faces contained in the file relating to such Loan are
genuine, true and correct in all material respects.
(xvii) The Seller has no knowledge of any impediments to ride that
adversely affect the value, enjoyment or marketability of the Mortgaged
Property.
(xviii) Where required by state law, the Seller has filed for record
a request for notice of any action by a senior lienholder under a senior
lien, and the Seller has notified any superior lienholder in writing of
the existence of the Loan and requested notification of any action to be
taken against the Borrower by the Superior lienholder. The Seller shall,
upon request of the Buyer, cooperate in recording a new request for
action in favor of the Buyer and in providing superior lienholders with
written requests for notification by the Buyer of action against the
Borrower.
(xix) There is no default, breach, violation or event of acceleration
existing under any senior mortgage loan which, with notice, and the
expiration of any grace or cure period, would constitute a default,
breach violation or event of acceleration.
5
(xx) Each Note and Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the Mortgage Loan in
the event the related Mortgaged Property is sold without the prior
consent of the mortgagee thereunder, or applicable by state law.
(xxi) All real estate appraisals made in connection with each Loan
shall have been performed in accordance with industry standards in the
appraising industry in the area where the appraised property is located
and have been performed by an Appraiser.
(xxii) To the best of Seller's knowledge, no hazardous or toxic
materials or wastes products regulated by any law or ordinance or
asbestos or asbestos products or materials or polychlorinated biphenyls
or urca formaldehyde insulation have been used or employed in the
construction, use or maintenance of the Mortgaged Property or have ever
been stored, treated at or disposed of on the Mortgaged Property.
However, in the event it has been determined that asbestos or asbestos
products or asbestos materials have been used or employed in
construction, use, or maintenance in the Mortgaged Property, a duly
qualified Appraise or engineer must state that the material is in good
repair or removed.
(xxiii) To the best of Seller's knowledge, there has not nor has any
person or entity alleged that there has occurred, upon the Mortgaged
Property any spillage, leakage, discharge or release into the air, soil
or groundwater of any hazardous material or regulated wastes.
(xxiv) The Seller has not, in connection with each Loan purchased by
Buyer, incurred any obligation, made any commitment or taken any action
which might result in a claim against the Buyer or an obligation by the
Buyer to pay a sales brokerage commission, finder's fee or similar fee
in respect to the transactions between Buyer and Seller as described in
this Agreement. The Seller agrees to indemnify and hold the Buyer
harmless from and against any claims, liabilites, damages or costs
(including reasonable attorney fees) relating to any broker, agent or
finder or other person, who shall claim to have dealt on behalf of the
Seller in connection with the transactions contemplated by this
Agreement.
(xxv) Seller agrees not to take any action nor to permit or to cause
any action to be taken by any of its agents or independent contractors
on Seller's behalf to solicit Borrowers individually in order to affect
the refinancing of any Loans previously purchased by Buyer from Seller
or to sell any other products to the Borrowers. In the event a Borrower
elects to refinance with Seller a Loan purchased by Buyer from Seller,
the provisions of Section 3(e) shall apply. General advertising to the
public, not utilizing a list of Borrowers, not to be deemed to violate
this non-solicitation provision.
(xxvi) As of the Settlement Date, no loan is 30 or more days
delinquent (determined on a contractual basis), no Loan will have been
30 or more days delinquent (determined on a contractual basis) more than
once during the 12 months preceding the Settlement Date, and the first
Monthly Payment has been made, or shall be made, as the case may be,
with respect to the loan on its Due Date.
(xxvii) There are no defaults in complying with the terms of the
Mortgage. As of the closing of the Loan, all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges,
leasehold payments or ground rents which previously became due and owing
have been paid. Seller has not advanced funds, or induced or solicited
or knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount
required under the Loan, except for interest accruing from the date of
the Note or date of disbursement of the Loan proceeds, whichever
occurred later, to the day which precedes by one month the Due Date of
the first Monthly Payment.
(xxviii) Neither the Mortgage nor the Note has been satisfied,
canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage,
in whole or in part, nor has any instrument has been executed that would
affect any such release, cancellation, subordination or rescission.
Seller has not waived the performance by the Mortgagor of any action, if
the Mortgagor's failure to perform such action would cause the Loan to
be in default, nor has Seller waived any default resulting from any
action or inaction by the Mortgagor.
(xxix) The Mortgaged Property consists of a parcel of real property
with a single family residence erected thereon, or a two to four-family
dwelling, or an individual condominium unit in a low-rise or high-rise
condominium project, or an individual unit in a planned unit
development. The Mortgaged Property is either a fee simple estate or a
long-term residential lease. If the Loan is secured by a long-term
residential lease, (A) the terms of such lease expressly permit the
mortgaging of the leasehold estate, the assignment of the lease without
the lessor's consent (or the lessor's has been obtained and such consent
is in the Mortgage File) and the acquisition by the holder of the
Mortgage with substantially similar protection; (B) the terms of such
lease do not (i) allow the termination thereof upon the lessee's default
without the holder of the Mortgage being entitled to receive written
notice of, and opportunity to cure, such default (ii) allow the
termination of the lease is not less than 15 years; (D) the term of such
lease does not terminate earlier than five years after the maturity the
maturity date of the Note; and (E) the Mortgaged Property is located in
a jurisdiction in which the use of leasehold estates for residential
properties is a widely accepted practice.
(xxx) All parties which have had any interest in the Loan, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period in
which they held and disposed of such interest, were) (1) in compliance
with any and all applicable licensing requirements of the laws of the
state where the Mortgaged Property is located, and (2)(a) organized
under the laws of such state, or (b) qualified to do business in such
state, or (c) federal savings and loan associations, savings banks, or
national banks having principal offices in such state, or (d) not doing
business in such state, or not required to qualify to do business in
such state.
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(xxxi) All improvements which were considered in determining the
Appraised Value of the Mortgaged Property lay wholly within the
boundaries and building restriction lines of the Mortgaged Property and
no improvements on adjoining properties encroach upon the Mortgaged
Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation;
provided, that in no event shall a legal non-conforming use of the
Mortgaged Property be considered a violation of any such zoning law or
regulation.
(xxxii) The Mortgagor has not notified Seller and Seller has no
knowledge of any relief requested or allowed to the Mortgagor under the
Soldier's and Sailor's Civil Relief Act of 1940.
(xxxiii) The Mortgagor has executed a statement to the effect that
the Mortgagor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage
loans. Seller shall maintain or cause to be maintained such statement in
the Credit File.
It is understood and agreed that the covenants, representations and warranties
set forth in this Agreement shall survive delivery and release of the Mortgage
Files to Buyer for a period of ten (10) years from the date on which such
covenant, representation, or warranty is made or the date that the breach or
misrepresentation was discovered, whichever is later. it is further understood
that the covenants, representations and warranties set forth in this Agreement
shall inure to the benefit of Buyer, its successors and assigns, or any holder
of any endorsement of any Note or any assignment of the Loan Documents.
Section 4. Breach of Representation and Warranties
(a) Remedy for Breach. In addition to any rights or remedies the Buyer has at
law or in equity, if at any time there is a breach of any representation or
warranty set forth herein by Seller, the Buyer shall give written notice thereof
to Seller. If after thirty (30) days following Seller's receipt of such notice
the breach has not been cured by Seller, the Seller shall upon demand of the
Buyer and at the sole option and absolute discretion of Buyer, immediately
repurchase the Loan affected for the Buy-Back Price (as defined in subsection
(c) below). If the Loan has been sold by Buyer or the Mortgaged has been
liquidated or sold by Buyer, the Seller shall, within thirty (30) days of the
aforementioned notification, pay the Buyer the amount of Loss (as defined in
subsection(d) below). It is understood and agreed that once the first Monthly
payment on a Loan is 30 days or more delinquent, Section 4(b)(xxvi) shall be
breached.
(b) Reassignments. Upon receipt of the Buy-Back Price, in full, in immediately
available funds, the buyer shall reassign the Loan affected and any right it may
have in the relevant Mortgaged Property, as well as other documents necessary to
reflect the assignment of any title protection and insurance policies.
(c) Buy-Back Price. The term "Buy-Back Price" shall mean the sum of: (1) the
outstanding principal balance of the Loan, with accrued interest thereon through
the date the Loan is repurchased by Seller; (2) all advances made by Buyer or
the New Servicer on behalf of Buyer and all charges due from the Borrower; (3)
the total amount, including accrued interest and other expenses paid by the
Buyer to any senior lienholders, if any, to secure a priority lien position; (4)
all reasonable and necessary expenses, losses and damages paid or incurred by
the Buyer in connection with the Loan or an investigation of said Loan and/or
the related collateral, including but not limited to, property taxes,
maintenance costs, interest expense, insurance appraisals, advertising, sales
commissions, reasonable attorney fees, expenses, and costs, fines and penalties;
and (5) rebate of premium due Buyer, if applicable.
(d) Definition of "Loss"; The Term "Loss" shall mean the negative result, if
any, of the following calculations: (a) the sum total of: (i) the outstanding
principal balance of the Loan, with accrued interest thereon and not paid
through the date the Loan is sold or date the collateral is liquidated; (ii) all
advances by Buyer and all charges due from the Borrower; (iii) the total amount
paid by the Buyer to any senior lienholders, if any, to secure a first lien
position: (iv) accrued interest on all Mortgage Loans purchased from senior
lienholders from the date such Mortgage Loans were purchased through the date
the Loan is sold or the date the collateral is liquidated; and (v) all other
reasonable and necessary expenses, losses and damages incurred by and/or the
related collateral, including, but not limited to, reasonable attorneys fees,
expenses and costs, property taxes, maintenance costs, insurance, appraisals,
advertising, sales commissions, fines and penalties; less the (b) net proceeds
from the sale of the Loan or the sale or liquidation of the Mortgaged Property
or the collateral.
(e) Remedy for Non-Delivery of Documents. However, anything to the contrary
notwithstanding, in the event that the Seller is required to deliver to the
Buyer any documents related to a purchased Loan and the Seller fails to deliver
such document in the proper form on the date or within the time period specified
by the controlling section of this Agreement, Buyer shall notify the Seller of
the breach and the Seller shall have thirty (30) days from the date of notice to
cure the breach. If the Seller has not cured the breach within the thirty (30)
day cure period, the Seller shall immediately repurchase the Loan upon the
Buyer's demand. The Buy-Back Price shall be determined in accordance with
subsection (c). Any loan returned by the Buyer pursuant to this paragraph shall
be without recourse, representation or warranty; however, Buyer represents and
warrants to Seller, that Buyer, its affiliates, subsidiaries, servicers, or
employees have done nothing to cause the Loan to become uncollectible in whole
or in part.
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(f) Indemnity, Seller hereby agrees, in addition to any other remedy available
to Seller hereunder, to indemnify and hold harmless, Buyer, its officers,
directors, employees, agents and affiliates (the "Indemnified Parties") from any
damages, losses, demands, offsets, defenses, counterclaims, actions or
proceedings, and costs of defense, including reasonable attorney's fees arising
from or in any way relating to (i) any breach of any of Seller's
representations, warranties or covenants hereunder, and/or (ii) any claim
brought by any third party against any Indemnified party based upon any
allegation which, if true, would constitute a breach of any of Seller's
representations, warranties or covenants hereunder.
Section 5. Relationship of the Parties
The execution of this Agreement and the carrying out of its terms does not and
will not make the Seller and the Buyer partners or joint tenants, nor is the
Seller to act as an agent of the Buyer in originating, administering or
collecting any Loan, but shall have the status of and shall be in all matters
hereunder as an independent contractor.
Section 6. Opinion of Counsel
The Seller shall deliver to the Buyer in form and substance satisfactory to the
Buyer and its counsel on or before the first Settlement Date hereunder an
opinion of the Seller's independent outside counsel generally to the affect of
Section 3(a)(i)-(vi).
Section 7. Designation of Authorized Officers
The Seller shall have delivered to Buyer an officer's certificate, attested to
by the Secretary of the Seller, stating the names and showing the facsimile
signatures of the officers of Seller authorized to execute and deliver this
Agreement; endorse Note(s), Mortgage(s) and Assignment(s); and authorize the
bank accounts for Buyer to utilize for funding Loans.
Section 8. Miscellaneous
(a) Additional Covenants.
(i) Each party shall, from time to time, execute and deliver or
cause to be executed and delivered, such additional instruments,
assignments, endorsements, papers, and documents as the other party may at
any time reasonably request for the purpose of carrying out the terms of
this Agreement and the transfers provided for herein.
(ii) The Seller shall, upon request of the Buyer, sign a letter in
form to approved by the Buyer and in conformity with the terms and
conditions hereof, addressed to all the borrowers on the loans, announcing
the sale evidenced hereby and instructing such Borrowers to recognize the
Buyer as the Seller's successor in interest to such Loans.
(iii) After any Settlement Date hereunder, the Seller will hold in
trust for the Buyer all sums received by the Seller from Borrower(s) on
any Loan purchased pursuant to this Agreement and pay them to the Buyer
within three (3) business days of the receipt of those sums.
(iv) Any and all decisions made by Buyer in good faith to take
action or not take action relative to a Loan, including, but not limited
to, the sale or liquidation in a commercially reasonable manner of a Loan,
Mortgaged Property or collateral shall be final and conclusively binding
upon Seller in the event Seller does not repurchase a Loan within ten(10)
days of notification by Buyer pursuant to Section 4 of this Agreement.
(v) In order to enforce Buyer's rights under this Agreement, Seller
shall, upon the request of Buyer or is assigns, do and perform or cause to
be done and performed, every reasonable act and thing necessary or
advisable to put Buyer or its assigns in position to enforce the payment
of the Loans and to carry out the intent of this Agreement, including the
execution of and, if necessary, the recordation of additional documents
including separate endorsements and assignments upon request of Buyer. In
addition, Seller hereby irrevocably appoints any officer or employee of
Buyer or its assigns its true and lawful attorney to do and perform every
act necessary, requisite, proper, or advisable to be done to put Buyer or
its assigns in position to enforce the payment of the Loans, its rights
under this Agreement, and to carry out the intent of this Agreement,
including, but not limited to, the right to sign, execute, endorse/and or
assign and deliver to Buyer or its assigns on behalf of Seller any
Mortgage Note, Mortgage, security interest, and any other Loan document
and also any other writing of any other kind or nature whatsoever which
may be used in connection therewith to evidence any obligation of Seller
or any Borrower to Buyer or its assigns, pursuant to this Agreement and to
endorse any check or other instrument for the payment thereof. This power
of attorney is coupled with an interest and Seller does hereby forever
renounce all rights to revoke this power of attorney or any of the above
conferred upon buyer or its assigns hereby or to appoint any other person
to execute the said power.
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(vi) Each January 1 during the term of this Agreement, commencing
January 1, 1998. Seller shall provide to Buyer copies of all current
licenses that the Seller then maintains with any state relating to the
Seller's mortgage lending business. Each March 1 during the term of this
Agreement, commencing March 1, 1998. Seller shall also provide to buyer
audited financial statements for the year ended on the immediately
preceding December 31.
(b) survival of Covenants, Agreements, Representations and Warranties;
successors and assigns. all warranties, representations and covenants made by
either party in this Agreement or in any other instrument delivered by either
party to the other, including those made by third parties for the benefit of
either party, shall be considered to have been relied upon by the other party
(unless otherwise agreed in writing by the parties) and shall survive the
termination of this Agreement, as set forth in Section 3. The Buyer reserve the
right to proceed against third parties to enforce any representations,
warranties and covenants made by them for the benefit of the Seller.
(c) Severability. If any provision or part thereof, of this Agreement is invalid
or unenforceable under any law, such provision, or part thereof, is and will be
totally ineffective to the extent, but the remaining provisions, or part
thereof, will be unaffected.
(d) Attorney's Fees. However, anything to the contrary notwithstanding, in the
event of any action of law, in equity, arbitration or otherwise between the
parties in relation to this Agreement or any Loan or other instrument or
agreement required or purchased or sold hereunder, the non-prevailing party, in
addition to any other sums which such party shall be required to pay pursuant to
the terms and conditions of this Agreement, at law, in equity, arbitration or
otherwise shall also be required to pay to the prevailing party all costs and
expenses of such litigation, including reasonable attorneys fees.
(e) Waivers. No waivers of any term, provision or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as a further or continuing waiver of any such term,
provision or condition, or of any other term, provision or condition of this
Agreement.
Buyer: MorCap, Inc.
700 Central Parkway, Suite 1570
Atlanta, GA 30328
Phone: (770) 551-9090
Fax: (770) 551-0390
Seller: Westmark Mortgage Corporation
355 N.E. 5th Avenue, suite 4
Delray Beach, Fl 33483
Attention: Mark Schaftlein
the above address may be changed from time to time by written notice from one
party to the other.
(g) Insurance Prepayment. Insurance refund or credits of any kind whatsoever,
for insurance of any kind sold by Seller (or Seller's originating source,
whether a loan Broker or correspondent) in conjunction with the Loan, shall be
the sole responsibility of the Seller in the event of prepayment of any Loan,
cancellation of insurance or any other event requiring refunding or crediting of
unearned insurance premiums. Upon the Buyer's demand, Seller shall pay to the
Buyer, from the Seller's own funds, any required insurance premium rebate
resulting from the prepayment, cancellation, refinancing or other termination of
any Mortgage Loan. Upon such payment, Buyer shall assign in writing any rights
it had to require that the insurer reimburse user for any rebate made to
Borrower.
(h) Assignment. The seller shall not, without the prior written consent of the
Buyer, assign any of its right or obligations hereunder.
(i) captions. Paragraph or other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Entire Agreement. This Agreement and the Exhibits attached hereto, and the
documents referred to herein or executed concurrently herewith regard to the
subject matter hereof, and there are no prior agreements. Understanding,
restrictions, warranties or representations between the parties with respect
thereto.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia. This provisions of this
paragraph shall not affect the provisions of any Note, Mortgage or Related
Assets which cause the laws of the United States or other state to be
applicable. Each party hereto is sophisticated and represented by legal counsel.
Accordingly, this Agreement shall be interpreted fairly in accordance with it
provisions and without regard to which party drafted it.
(l) Termination. Buyer has the option of terminating its obligations to purchase
Loans hereunder immediately upon notice to the Seller upon the seller's breach
of any of the Representations and Warranties contained in Section 3 of this
Agreement; however, subject
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to the rights to cure as outlined in Section 4. Buyer shall have no
obligation to honor any commitment of Approval Advice after such termination.
(m) Arbitration, Jurisdiction and Venue. with respect to any controversy,
argument or claim arising out of or relating to this Agreement, or any breach
thereof (including, but not limited to a request for emergency relief), the
parties hereby consent to the exclusive jurisdiction of the state and federal
courts having juridiction over Buyer at the time any such controversy, argument
or claim arises, and waive personal service of any and all process upon them and
consent that all such service of process made by registered or certified mail
directed to them at the address stated herein and service so made shall be
deemed to be completed five (5) days after mailing. The parties waive trial by
jury and waive any objection to jurisdiction and venue of any action instituted
hereunder, agree not so assert any defense based on lack of jurisdiction or
venue and consent to the granting of such legal or equitable relief as is deemed
appropriate by the court, including, but not limited to, any emergency relief,
injunctive or otherwise.
However, anything to the contrary notwithstanding, except with respect to
emergency relief. buyer shall have the sole and exclusive option and discretion
to have any controversy, argument or claim arising out of or relating to this
Agreement, or any breach thereof, settled in the county and state of Buyer's
principal office, in accordance with the rules of the American Arbitration
Association (as modified below), and judgment upon the award may be entered in
any Court having jurisdiction thereof.
The arbitration panel shall be made up of three members which shall be
appointed: one by Buyer, one by Seller and a third by the first two arbitrators.
Each arbitrator shall be a lawyer experienced in matters relating to real estate
and mortgage banking. discovery shall be permitted in connection with the
arbitration proceeding within the reasonable discretion of the arbitration
panel. The decision (award) shall be in writing and shall set forth the
rationale and legal basis therefor, and such decision may be appealed by either
party if the party believes that the written decision (award) is based upon an
error of law. The facts determined by the original panel will be final and no
appear of such findings may be made. Such appeal shall be taken to a three
member arbitration panel, the members of which shall be selected in accordance
with the above-described procedures, and the panel's review shall be limited to
the application of the statutory and decision law of the State of Georgia (as
modified by (k) above) to the facts of the dispute as determined in writing by
the original arbitration panel.
(n) Endorsements. In the event that the remedies or other terms outlined in this
Agreement conflict with the terms of any endorsement by the Seller of any Note
evidencing a Loan Purchased by the Buyer from the Seller, including, but not
limited to, and endorsement stating that the assignment of the Note is without
recourse, the remedies and terms of this Agreement shall govern and control.
(o) Indemnification (Holder in due course). In the event Buyer purchase a Loan
purchases a Loan from seller in which all or part of the proceeds of such Loan
were paid to a home improvement or building contractor (including if proceed
checks were made payable to the Borrower and the contractor jointly) for the
purpose of repairs or improvements to the subject property. Seller agrees to
indemnify Buyer against any loss, damages, forefeitures, legal fees and other
cases resulting from any demand, defense or assertion based, grounded upon or
arising from Borrower' rights, claimed or granted, to withhold payment of the
Loan due to the incompletion or unsatisfactory completion of said repairs or
improvements.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written:
Seller: Westmark Mortgage Corporation Buyer: MORCAP, INC.
By: /s/ Mark Schaftlein By:
---------------------------------- ------------------------------
Name: Mark Schaftlein Name :----------------------------
Title: President Title:----------------------------
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EXHIBIT A
Form of Bill of sale and Assignment
-----------------------------------
Westmark Mortgage Corp, California Corporation ("Grantor"), for good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereunder, does hereby
absolutely sell, transfer, assign, setover and convey to Mor Cap, Inc., a
Delaware corporation ("Grantee"), its successors and assigns, without recourse,
(i) all of Grantor's right, title and interest in the loans described on the
list attached hereto as Schedule 1 (the "Loans"), including all principal,
interest, or other proceeds of any kind with respect to the Loans: and 9i) all
of Grantor's right, title and interest on and to all escrow deposits held in
connection with such Loans. In addition, Grantor further conveys/assigns to
Grantee, its successors and assigns, Grantor's right (i) to assign each Loan on
a servicing-released basis, and (ii) to collect any servicing fee in connection
with such Loan.
This Bill of sale and Assignment is being executed and delivered pursuant to the
terms of the Continuing Agreement for the Purchase and Sale of Mortgages dated
as of February 6, 1997 (the "Agreement"), between MorCap, Inc. and Westmark
Mortgage which is hereby incorporated herein by reference. this Bill of sale and
assignment shall be governed by the laws of the State of Georgia without regard
to the conflicts of law rules thereof. Grantee shall have the right to assign
its rights hereunder. The Grantor hereby reaffirms to Buyer the representations
and warranties contained in Section 3 of the Agreement.
GRANTOR:
Westmark Mortgage Corporation
Dated: February 6, 1997 By: /s/ Mark Schaftlein
------------------------
Name: Mark Schaftlein
Title: President
(Schedule of Mortgage Loan - Attached hereto)
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EXHIBIT B
CONTENTS OF CREDIT FILE
-----------------------
With respect to each Loan, the Credit File shall include each of the following
items, which shall be delivered to Buyer.
1. A copy of the original Note, bearing all intervening endorsements,
endorsed, "Pay to the order of Mor-Cap, Inc., without recourse or warranty
except as provided for in that certain Continuing Loan Purchase Agreement
and between Mor-Cap, Inc. and Westmark Mortgage dated February 7 1997" and
signed in the name of Seller by an authorized officer or by facsimile
signature.
2. A copy of either: (i) the original recorded Mortgage with recording
information thereof, together with a certified true copy of the original
power-of-attorney showing the recording information thereon if the Mortgage
was executed by an attorney-in-fact, (ii) a certified true copy of the
Mortgage and of the power-of-attorney (if applicable) the originals of
which have been transmitted for recording, until such time as the originals
are returned by the public recording office: or (iii) a copy of the
Mortgage certified by the public recording office in those instances where
the public recording office retains the original or the original is lost,
together with a duplicate original mortgagee's certificate of tide if the
Mortgage is registered under the Torrens System.
3. A copy of the original Assignment of Mortgage for each Loan, in blank,
in form and substance acceptable to Buyer and its counsel, and for
recording but not recorded; provided, however, that certain recording
information will not be available if, as of the Settlement Date, Seller has
not received the related recorded Mortgage from the recording office.
4. A copy of the original mortgage policy of title insurance (or, if such
policy has not yet been issued by the insurer, the preliminary title
report).
5. A copy of all intervening assignments, if any, with evidence of
recording thereon, or certified true copies with evidence that the
originals have been transmitted for recording until such times as the
originals are returned by the public recording office, or a copy of each
such assignment certified by the public recording office if such office
retains the original, or if such original is lost.
6. A copy of all assumption, modification, consolidation or extension
agreements, if any.
7. A survey or plat of the Mortgaged Property (except if the Mortgaged
Property is a condominium unit), unless the title insurance contains a 116
or "no survey" endorsement.
8. Original hazard insurance policy (or certificate of insurance for a
condominium or planned unit development unit) and certificate or original
policy of flood insurance, if applicable. In lieu of an insurance policy
for each Loan, Seller may carry a Mortgage Impairment Policy meeting the
requirements of FNMA or FHLMC).
9. Loan closing statement or a copy thereof.
10. Residential loan application.
11. Verification of employment and income (if applicable).
12. Verification of evidence of source and amount of down payment (if
applicable).
13. Credit report on the Obligor.
14. Residential appraisal report.
15. Photograph of the Mortgaged Property.
16. a. Payment records and current and historical computerized data files;
and
b. tax receipts, insurance premium receipts, ledger sheets,
correspondence, insurance claim files and correspondence, and all
other papers and records developed or originated by Seller or
others, required to document the Loan or to Service the Loan
provided, however, that these items may be provided no later than 15
days after the Service Transfer Date.
17. A copy of the guarantee(s), if any.
18. Copies of each security agreement, (?) Mortgage or equivalent, executed
in connection with the Mortgage, if any.
19. Copy of each instrument necessary to complete identification of any
exception set forth in the title policy, if any.
20. All required disclosure statements, including a copy of the HUD good
faith estimate, HUD-1 settlement statement and TILA disclosure statement
prepared in connection with the Loan indicating that the Obligor has
received all disclosures required by RESPA and TILA.
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21. Termite reports, structural engineer's report, water portability and
septic certification, if any.
22. Sales contract, if any.
23. If the Mortgaged Property is a leasehold estate, a copy of the lease
with evidence of recording thereon (or, if such recorded copy has not yet
been returned to Seller by the applicable recording office, a copy thereof
certified by Seller to be a true, correct and complete copy of such lease
sent for recording).
24. Any and all documents, agreements or instruments related to the Loan or
the Note and Seller's right and benefits therein; all documents related to
the making and closing of the Loan; and any other documents, agreements, or
instruments related to the Loan or required by Buyer, in order to enable
Buyer to sell the Loan to a private investor or as part of a securitization
or other financing vehicle.
25. A statement showing the account number, customer name, unpaid principal
balance of the Loan, the amount of periodic installments and the date(s) to
which principal, interest and any escrows have been paid, the accrued but
unpaid interest up to and including the Settlement Date provided, however,
that this information may be provided in a trial balance; and, if required
by Buyer, a ledger card or ledger history reflecting all receipts and
disbursements, provided, however, that these items may be provided no later
than 15 days after the Servicing Transfer Date.
26. The original Primary Insurance Policy or certificate, if any is
specified on the Loan Schedule.
27. The federal and State Fair Lending and Equal Credit Notices, including
the truth-in-lending statement and recession notices.
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SCHEDULE 2.1
CONTENTS OF LOAN SCHEDULE
With respect to each Loan Package, the Loan Schedule shall include each of
the following items, if applicable, with respect to each Loan in the Loan
Package:
1. the Seller's Loan identifying number;
2. the Obligor's first and last name;
3. the street address of the Mortgaged Property;
4. the state in which the Mortgaged Property is located;
5. the city in which the Mortgaged Property is located;
6. the five digit zip code in which the Mortgaged Property is located;
7. a code indicating whether the Mortgaged Property is occupied as the owner's
primary residence or as a second home or is an investment property;
8. the original months to maturity;
9. the original principal amount of the Loan;
10. the Loan-to-Value Ratio at origination of the Loan being sold to the Buyer;
11. the Mortgage Interest Rate at origination;
12. the date on which the first Monthly Payment was due on the Loan;
13. the stated maturity date;
14. the amount of the Monthly Payment at origination;
15. the original closing date of the Mortgage (origination date);
16. with respect to each Adjustable Rate Loan, the next Rate Adjustment Date;
17. with respect to each Adjustable Rate Loan, the period between resets,
stated in months;
18. with respect to each Adjustable Rate Loan, the Gross Margin;
19. with respect to each Adjustable Rate Loan, the number of days prior to the
Adjustment Date on which the value of Index is determined, ie., the
look-back;
20. with respect to each Adjustable Rate Loan, a code indicating the rounding
factor, if any, applied to the Mortgage Interest Rate, e.g. the nearest
1/8%, or up to the nearest 1/8%;
21. with respect to each Adjustable Rate Loan, the Maximum Mortgage Interest
Rate under the terms of the Note;
22. with respect to each Adjustable Rate Loan, the Minimum Mortgage Interest
Rate under the terms of the Note;
23. with respect to each Adjustable Rate Loan, the Periodic rate Cap (if the
initial periodic cap is different from the subsequent Periodic caps, this
field should state the initial periodic cap);
24. a code indicating if the Loan is a Convertible Mortgage Loan;
25. a code indicating if the Loan is an assumable Mortgage Loan;
26. the Appraised Value of the Mortgaged Property at origination;
27. the sale price of the Mortgage Property, if applicable;
28. a code indicating the Mortgage Loan Program pursuant to which the Loan was
delivered to the Buyer, e.g., whether the Mortgage Loan is a fixed rate,
or one of the Adjustable Rate Loans;
29. a code indicating if the Loan is a balloon mortgage;
30. a code indicating if the Loan has a prepayment penalty;
31. with respect to each Loan that is not a first lien, the principal balance
of the senior lien on the Mortgaged Property at the time the Loan being
sold to the Buyer is originated; $0 will be entered for first lien Loans
sold to the Buyer;
32. the principal balance of any liens subordinate to the Loan being sold to
the Buyer, at the time the Loan is originated;
33. a code indicating the lien position of the Loan; and
34. a code indicating which, if any, primary mortgage insurance company has
insured the Loan.
MASTER AGREEMENT
FOR
SALE AND PURCHASE OF MORTGAGES
This Master Agreement for Sale and Purchase of Mortgages is made this
29th day of February 1996, by and between Industry Mortgage Company, L.P.
located at 3450 Buschwood Park Drive, Ste. 250, Tampa, FL 33618 a limited
partnership organized and existing under the laws of the State of Delaware
("Buyer") and Westmark Mortgage Corp., located at 355 NE 5th Ave., Suite 4,
Delray Beach, FL 33483, a corporation organized and existing under the laws of
the state of California (a "Seller").
I. RECITALS
WHEREAS, the Seller desires from time to time to offer for sale to the
Buyer and the Buyer desires from time to time to purchase from the Seller on the
terms and subject to the conditions set forth herein certain Loans owned by the
Seller evidenced by notes and secured by mortgages of the agreed-upon priority
on real property owned by the borrowers ("Borrowers").
WHEREAS, the Buyer and the Seller desire to enter into this agreement
to govern the sale and purchase of said Loans.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
II. DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(A) Agreement: shall mean this Agreement as same may be amended and
supplemented from time to time. The parties agree that this Agreement shall be
used as the master sale and purchase agreement for those Loans, purchased by
Buyer from Seller in the future, unless otherwise agreed in writing by the
parties.
(B) Loan to Value Ratio: shall mean the sum of the original principal
amount of the Mortgage Loan and the outstanding principal balance of the first
Mortgage (the "First Mortgage"), if any, at the time of origination of the
Mortgage Loan divided by the lesser of the original purchase price of the
N4ortgaaed Property if Borrower purchased the Mortgaged Property within twelve
(12) months of the Mortgage Loan origination date or the appraised value of the
Mortgaged Property.
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(C) Loan: the Note, the related Mortgage and the Related Assets are
referred to as "Loan," and collectively as "Loans."
(D) "Marked-Up" Title Insurance Policy, Binder or Certificate: a title
insurance policy as further defined in Article V(B)9 of this Agreement in which
all liens, mortgages, claims, assessments, defects, encumbrances and other
exceptions affecting or against the Mortgaged Property have been removed and are
insured against in favor of Buyer by the title insurance company unless
otherwise agreed or approved by the Buyer in writing.
(E) Mortgage: the Note, bond, deed of trust, Mortgage, mortgage
warranty, extension agreement, assumption of indebtedness, assignment and any
other documents constituting the basic instruments for real estate security on
real property owned by the Borrower in the state in which the Mortgaged Property
is located.
(F) Essential Mortgage File Documents: as to each Mortgage Loan, the
original Note and Mortgage, or in the event the original Mortgage is out for
recordation, a certified true copy thereof, title insurance policy including
endorsements or "marked-up" title commitment, Related Assets and the additional
documents as described in Exhibit "A." attached hereto and made a part hereof,
as applicable.
(G) Mortgage Loans: the Loans identified in the Schedule of Loans
delivered as from time to time are subject to this Agreement.
(H) Mortgaged Property or Subject Property: the residential real
property subject to the Mortgage which secures the Mortgage Loan.
(I) Mortgagor or Borrower: the obligor under a Mortgage Loan.
(J) Note: the original Note or bond or other evidence of indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
(K) Purchase Price: the purchase price for the Loan(s) described on
each Schedule of Loans delivered shall be an amount as of the Settlement Date
equal to the sum of the: (1) unpaid principal balances of the Note(s); (2) all
interest accrued (up to but not including the Settlement Date) but unpaid on the
Note(s) (prorated on a 365-day year); and (3) any premiums due Seller, if
applicable, in accordance with the Approval Advice or Schedule of Loans
delivered; (4) less any discount due Buyer, if applicable, in accordance with
the Approval Advice or Schedule of Loans delivered.
(L) Related Assets: the documents as further defined in Article
IV(A)(iv) of this Agreement.
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(M) Settlement Date: the date of the funding or payment of Purchase
Price by the Buyer for Loans purchased pursuant to this Agreement. Each
Settlement shall be held at the offices of Buyer located at 3450 Buschwood Park
Drive, Ste 250, Tampa, FL 33618.
(N) Underwriting Guidelines/Purchasing Guidelines: Exhibit "B"
attached hereto and made a part hereof as may from time to time be amended by
Buyer.
III. OFFER TO SELL AND ACCEPTANCE OF OFFER
(A) Offer. The Seller may offer from time to time to submit to the
Buyer a list of the Loans, along with the Essential Mortgage File Documents, as
defined herein, for each of the Loans, for the Buyer's review. The Buyer shall
then deliver to the Seller a Schedule of Loans delivered on which the Buyer has
indicated which Loans, if any, the Buyer is offering to purchase from the Seller
and the Purchase Price for the Loans Buyer is willing to purchase.
(B) Acceptance. The Seller shall endorse the Notes and provide a blank
assignment of Mortgages in recordable form signed by Seller, evidencing the
Loans on which the Seller agrees to accept the Buyer's offer to purchase. Such
endorsement shall constitute the Seller's acceptance of the Buyer's offer to
purchase the indicated Loans pursuant to the terms and conditions of this
Agreement.
On occasion, Buyer may issue to Seller a written Approval Advice in the
form attached hereto, made a part hereto and marked Exhibit "C," to cover a
specific Loan purchase by Buyer hereunder which is approved by Buyer in advance
of said specific Loan being made by Seller. Any purchase made hereunder that is
subject to an Approval Advice shall be governed first by the terms of such
Approval Advice and then by the terms of this Agreement, and to the extent of a
conflict between the Approval Advice and this Agreement, the Approval Advice
shall govern for that purchase and only that purchase.
Buyer shall have the absolute and sole discretion and Option to agree
or decline to purchase any Loan(s) submitted by Seller for review.
IV. PURCHASE AND SALE OF LOANS
(A) Delivery of Loans.
On or before the business day immediately preceding each Settlement
Date, the Seller shall deliver to the Buyer the following for each Loan
purchased:
(i) Those Loans described by the Buyer on each Schedule of Loans
delivered which are purchased by Buyer pursuant to this Agreement.
(ii) The agreed-upon priority liens and/or Mortgages, or a true
certified copy thereof, on Subject Property.
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(iii) The original Note(s) and the Mortgage(s), or a true certified
copy thereof, endorsed by an authorized Officer of Seller to the Buyer pursuant
to the language set forth on Exhibit "D" attached hereto and made a part hereof
together with an individual assignment to the Buyer (certified copy of the
recorded assignment) and originals of all intervening assignments, if any, of
the Seller's beneficial interest in the Mortgage, showing a complete chain of
title from origination to the Seller, including warehousing assignment, with
evidence of recording thereon and a release of any intervening assignee's
interest, if any, in the event that such assignment was not recorded.
(iv) Any and all documents, instruments, collateral agreements, and
assignments and endorsements for all documents, instruments and collateral
agreements, referred to in the Notes and/or Mortgages or related thereto,
including, without limitation, current insurance policies (private mortgage
insurance, if applicable; flood insurance, if applicable; hazard insurance;
title insurance; and other applicable insurance policies) covering the Subject
Property or relating to the Notes and all files, books, papers, ledger cards,
reports and records including, without limitation, loan applications, Borrower
financial statements, separate assignment of rents, if any, credit reports and
appraisals, relating to the Loans (the "Related Assets"). In all cases, the
Related Assets shall be the original documents.
(v) The Essential Mortgage File Document List, including all writings
evidencing the Loan(s) purchased by Buyer. In all cases, these documents shall
be the original documents.
(vi) In the event that Seller cannot deliver to Buyer a duly recorded
assignment of Mortgage or any other document required to be recorded under this
Agreement on the Settlement Date solely because of a delay caused by the public
recording office when such document(s) has been delivered for recordation,
Seller shall deliver to the Buyer a certified copy of each such (document(s)
with a statement thereon signed by an Officer of the Seller certifying each to
be a true and correct copy of documents(s) (delivered to the appropriate public
recording official for recordation. Seller shall deliver to Buyer such recorded
document(s) with evidence of recording indicated thereon no later than 15 days
after Seller receives such document, but in any event, no later than 120 days
from the Settlement Date. In the event that missing documents are not received
by the Buyer within the above-stated time frame, strictly as a result of a
delay caused by the public recording office(s), Buyer may extend this period of
document delivery time by written consent if in Buyer's sole opinion the Seller
is using prudent and diligent follow-up.
(B) Purchase and Sale. On each Settlement Date hereunder, Seller shall
sell, assign, transfer, convey and deliver to Buyer all of its right, title and
interest in and to the Loans, assets and documents as more fully enumerated and
set forth in Article IV(A)(i) through (vi) inclusive, which is incorporated
herein by reference.
(C) Purchase Price. The Purchase Price for the Loans described on each
Schedule of Loans delivered shall be an amount as defined in Article II(K)
above. The Purchase Price shall be payable as set forth in Article IV(D) below.
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(D) Payment of Purchase Price. On each Settlement Date, the Purchase
Price shall be paid as follows: The Buyer shall deposit funds by wire to the
Seller's bank, at: CHEMICAL BANK, NEW YORK, NEW YORK-ABA #021-000-128 - Westmark
Mortgage Corp.-Acct.#3233-09348.
(E) Premium Rebate. In the event that a premium is paid by the Buyer to
the Seller on a Loan and such Loan is prepaid by the Borrower, other than by a
refinancing by the Buyer or any of its subsidiaries or affiliates or a
refinancing by the Seller which is purchased by the Buyer, (Seller agrees to
give Buyer a right of first refusal to repurchase the aforementioned refinance,
and in the event Buyer repurchases said refinance, Buyer agrees to pay Seller a
premium, if any on the new advance over and above the refinanced amount
only. In the event Buyer elects not to purchase said refinance, then Seller
shall pay to Buyer the premium rebate as set forth below), within twenty-four
(24) months of Settlement Date, the Seller shall, upon demand by the Buyer,
refund to the Buyer, in the appropriate percentage specified below, the premium
paid by the Buyer to the Seller. In the event such Loan is prepaid within one
hundred eighty (180) days of the Settlement date of such Loan, the refund due
Buyer from Seller will equal one hundred (100%) percent of the premium paid to
Seller by Buyer for such Loan. In the event such Loan is prepaid during the
period of one hundred eighty-one (181) days to three hundred and sixty (360)
days of the Settlement Date of such Loan, the refund due Buyer from Seller will
equal seventy-five (75%) percent of the premium paid to Seller by Buyer. In the
event such Loan is prepaid during the period of three hundred and sixty-one
(361) days to five-hundred and forty (540) days of the Settlement Date of such
loan, the refund due Buyer from Seller will equal fifty (50%) percent of the
premium paid to Seller by Buyer. In the event such loan is prepaid during the
period of five hundred and forty-one (541) days to seven hundred and thirty
(730) days of the Settlement Date of such loan, the refund due Buyer from
Seller will equal twenty-five (25%) percent of the premium paid by Buyer to
Seller. In the event such Loan is prepaid later than twenty-four (24) months of
the Settlement Date of such Loan, no refund shall be due; however, in the event
any Loan contract provides for a prepayment penalty, and said prepayment penalty
is collected by Buyer (Buyer agrees to use its best efforts to collect said
prepayment penalty), then Buyer agrees to offset the amount of any prepayment
penalty against any Premium Rebate due Buyer from Seller.
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER
(A) Representations and Warranties of the Seller - General. It is
understood and agreed by Seller and Buyer that as a material inducement to
Buyer to enter into this Agreement the Seller hereby represents and warrants to
the Buyer as follows:
1. The Seller is an organization as set forth in the introductory
paragraph of this Agreement and is duly organized, validly existing and in good
standing under the laws of the state of its organization and existence, and is
duly qualified as a **CORPORATION** in all jurisdictions wherein the character
of the property owned or ]eased or the nature of the business transacted by it
makes qualification as a foreign organization necessary.
2. The execution and delivery of the Agreement by the Seller and the
performance by the Seller of the obligations to be Performed by it hereunder
have been duly
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authorized by all necessary corporate or other similar action. Prior to the
first Settlement Date, the Seller shall deliver to the Buyer certified copies of
relevant corporate or similar resolutions and a good standing certificate for
the state of its organization and, as requested by Buyer, for each state in
which Seller is registered to do business. It is within Buyer's discretion to
periodically request good standing certificates for all states in which Seller
is registered to do business.
3. The execution and delivery of this Agreement by the Seller and the
performance by the Seller of the obligations to be performed by it hereunder do
not, and will not, violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Seller or to the charter or bylaws of the Seller.
All parties which have had any interest in the Mortgages, whether as Mortgagee,
assignee (other than Buyer or assignee of Buyer) or pledgee are (or during the
period in which they held and disposed of such interest, were) in compliance
with all applicable licensing requirements of the federal, state, and local
government wherein the Subject Property is located.
4. The execution and delivery of this Agreement by the Seller and the
performance by the Seller of the obligations to be performed by it hereunder do
not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Seller is a party or by which it or its properties be
bound or affected.
5. This Agreement constitutes, when duly executed and delivered by the
Seller, a legal, valid and binding obligation of the Seller enforceable against
the Seller according to its terms, except as such enforcement be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium, or similar
laws affecting creditors' rights in general, including, equitable remedies.
6. There are no actions, suits or proceedings pending or, to the
knowledge of the Seller, threatened against or affecting the Seller or the
properties of the Seller before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Seller, would have a material adverse
effect on the financial condition, properties or operation of the Seller. Any
consent by the Buyer to purchase pursuant to this Agreement shall automatically
terminate if: (a) a decree or order of a court or agency supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities, bankruptcy proceeding or any similar proceedings, or for the
winding up or liquidation or its affairs, shall have been entered against the
Seller or a Borrower and such decree or order shall have remained in force
undischarged or unstated for a period of 60 days; or (b) the Seller or a
Borrower shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling, of assets and
liabilities, bankruptcy or similar proceedings relating to the Seller or
relating to all or substantially all of its property; or (c) the Seller or
Borrower shall admit in writing its inability to pay its debts as they are due,
file a petition to take advantage of any applicable insolvency, reorganization
or bankruptcy statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations.
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(B) Representations and Warranties of the Seller as to Each Loan. It is
understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this Agreement the Seller hereby represents and warrants to the
Buyer as of each Settlement Date with respect to each Loan purchased:
1. The Seller is the Payee and Holder of each Note within the meaning
of the Uniform Commercial Code and is the sole owner of the Loan and has the
right to assign and transfer the Loan to the Buyer. The Seller has not sold,
assigned or otherwise transferred any right or interest in or to the Loan and
has not pledged the Loan as collateral for any Loan or obligation of Seller or
other purpose. The assignment of the Loan by the Seller to Buyer validly
transfers such Loan to Buyer free and clear of any pledges, liens, claims,
encumbrances, Mortgages, charges, exceptions and/or security interests.
2. Except as expressly disclosed to and agreed to by the Buyer in
writing, each Loan conforms to: (a) Underwriting Guidelines of Buyer, and (b)
the conditions of the Approval Advice (if applicable).
3. All information set forth in any Schedule of Loans delivered is true
and correct in all respects, and all other information furnished to Buyer by
Seller with respect to the Loan(s) purchased is true and correct as of the
Settlement Date.
4. Each Note and Mortgage and the Related Assets are in every respect
genuine, are the valid instrument they purport on their face to be, are the
legal, valid, binding and enforceable obligation of the Borrower thereunder and
not subject to any discount, allowance, setoff, counterclaim, presently pending
bankruptcy or other defenses; none of the Notes, Mortgages, or Related Assets
are forged or have affixed thereto any unauthorized signature or have been
entered into by any persons without the required legal capacity; and no
foreclosure (including any non-judicial foreclosure) or any other legal action
has been brought by the Seller or any senior lienholder in connection
therewith.
5. No instruments other than those delivered herewith are required
under applicable law to evidence the indebtedness represented by the Loan(s) or
to perfect the lien of the Mortgage(s).
6. Except as has been disclosed to and agreed to by the Buyer in
writing, there is no agreement with the Borrower regarding any variation of the
interest rate and schedules of payment (except as described in the Note and
Mortgage) or other terms and conditions of the Loan, no Borrower has been
released from liability on the Note, and no property has been released from the
Mortgage. If the Loan is a variable rate loan, the Seller represents and
warrants as of each Settlement Date that all applicable notices required by law
or regulation have been provided to the Borrower and that the right to future
chances in the interest rate and payment schedules has not been waived by the
Seller or any previous holder of the Loan.
7. The Loan is secured by a valid Mortgage/Deed of Trust, of the
agreed-upon priority, on real property, and such Mortgage has been properly
received by the appropriate public recording official to be filed, recorded or
otherwise perfected in due course in accordance with applicable law in the
appropriate jurisdiction.
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8. There are no violations of any applicable federal or state law or
regulation, including, without limitation, Fair Credit Reporting Act and
Regulations, the Federal Truth-in-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Federal Real Estate
Settlement Procedures Act and Regulations, the Federal Debt Collection Practices
Act and any federal or state usury laws and regulations. All disclosures
required by law, federal, state or local, were properly made by the Seller prior
to the closing of the Loan.
9. The Seller holds a marked-up title policy or title insurance binder
or title certificate which is in full force and effect; which has an insurance
limit at least as great as the outstanding principal balance of the Loan; which
names the Seller, its successors and assigns as the insured party; and which is
issued by a title insurer which has been approved by the Buyer in writing and is
qualified to do business in the jurisdiction where the Subject Property is
located. Said policy shall:
(i) insure the absence of any lien of taxes and other
assessments which are due and payable;
(ii) disclose whether all taxes and other assessments due as
of the date of the policy have been paid in fall; and
(iii) disclose all other matters to which like properties are
commonly subject.
If the Buyer purchases a Loan having relied on a marked-up
title insurance binder or title certificate rather than a title insurance
policy, the Seller shall have sixty (60) days to deliver to the Buyer the title
insurance policy. In the event that missing documents are not received by the
Buyer within the above-stated time frame, strictly as a result of a delay caused
by the public recording office(s), Buyer may extend this period of document
delivery time by written consent if in Buyer's sole opinion the Seller is using
prudent and diligent follow-up.
10. As of the Settlement Date the Seller has transferred to Buyer all
of its right, title and interest in the Note(s), Mortgage(s) and Related Assets
for each Loan purchased free and clear of any pledge, liens, claims,
encumbrances, Mortgages, charges, exceptions or security interests other than as
is disclosed in the title insurance policy to each Loan, together with an
individual flood Insurance policy (to the extent required by the Flood Disaster
Protection Act) and an individual current hazard insurance policy (including
fire and extended coverage and other matters as are customary in the area of the
Subject Property), or a blanket policy in lieu thereof, or a certificate if the
Buyer agrees in writing to accept a certificate, insuring the Subject
Property, with a loss payable clause in favor of the Seller, its successors and
assigns in an amount equal to the lower of: (a) the replacement value of the
Subject Property, or (b) the unpaid principal balance of the Loan and the senior
mortgage deed(s) of trust loan, provided, however, that the amount is sufficient
to protect the insured and mortgage from co-insurers in the event of a partial
loss.
11. The Note and Mortgage contain customary, valid legal and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Subject Property of the
benefits of the security created thereby.
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12. The proceeds of the Loan have been fully disbursed and any and all
requirements as to completion of on-site and off-site improvements and
disbursement of any escrow funds therefore have been complied with.
13. To the best of Seller's knowledge, there are no mechanic's liens or
similar liens or claims which have been filed for work, labor or material
affecting the Subject Property which are or may be liens prior to or equal with
the lien of the Mortgage and senior Mortgage(s).
14. To the best of Seller's knowledge, the Subject Property is free of
material damage and waste and is in average repair and there is no proceeding
pending or threatened for the total or partial condemnation of the Subject
Property, and the Subject Property is free and clear of all hazardous material.
15. All matured obligations pursuant to the Note and Mortgage have been
paid or performed and the Seller has not waived any defaults, breach, violation
or event of acceleration.
16. The Seller has no knowledge of any fact as to such Loan which it
has failed to disclose which would materially and adversely affect the value or
marketability of such Loans.
17. The Seller has no knowledge of any impediments to title that
adversely affect the value, enjoyment or marketability of the Subject Property.
18. When required by state law, the Seller has filed for record a
request for notice of any action by a senior lienholder under a senior lien, and
the Seller has notified any superior lienholder in writing, of the existence of
the Loan and requested notification of any action to be taken against the
Borrower by the superior lienholder. The Seller shall, upon request of the
Buyer, cooperate in recording a new request for action in favor of the Buyer
and in providing superior lienholders with written requests for notification to
the Buyer of action against the Borrower.
19. There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with notice, and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration.
20. Each Note and Mortgage contains a provision for the acceleration of
the payment of the unpaid principal balance of the Mortgage Loan in the event
the related Mortgaged Property is sold without the prior consent of the
mortgage thereunder, or applicable by state law.
21. All real estate appraisals made in connection with each Loan shall
have been performed in accordance with industry standards in the appraising
industry in the area where the appraised property is located and have been
performed by an appraiser who satisfies the requirements of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. Appraisers must be
state licensed and must be on IMC's approved appraiser list.
22. To the best of Seller's knowledge, no hazardous or toxic materials
or wastes or products regulated by any law or ordinance or asbestos or asbestos
products or materials or
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polychlorinated biphenyls or urea formaldehyde insulation have been used or
employed in the construction, use or maintenance of the Subject Property or have
ever been stored, treated at or disposed of on the Subject Property. However,
in the event it has been determined that asbestos or asbestos products or
asbestos materials have been used or employed in construction, use, or
maintenance in Subject Property, a duly qualified appraiser or engineer must
state that the material is in good repair or removed.
23. To the best of Seller's knowledge, there has not nor has any person
or entity alleged that there has occurred, upon the Subject Property any
spillage, leakage, discharge or release into the air, soil or groundwater of any
hazardous material or regulated wastes.
24. The Seller has not, in connection with each Loan purchased by
Buyer, incurred any obligation, made any commitment or taken any action which
might result in a claim against the Buyer or an obligation by the Buyer to pay a
sales brokerage commission, finder's fee or similar fee in respect to the
transactions between Buyer and Seller as described in this Agreement. The Seller
agrees to indemnify and hold the Buyer harmless from and against any claims,
liabilities, damages or costs (including reasonable attorney fees) relating to
any broker, agent or finder or other person, who shall claim to have dealt on
behalf of the Seller in connection with the transactions contemplated by this
Agreement.
25. Seller agrees not to take any action to solicit Borrowers
individually in order to effect the refinancing of any Loans previously
purchased by Buyer from Seller. In the event a Borrower elects to refinance with
Seller a Loan purchased by Buyer from Seller, and such Loan is currently owned
or serviced by Buyer or Buyer otherwise retains a financial interest in the
Loan, Buyer will have the right of first refusal on the purchase of the
refinancing. Buyer will pay to Seller the normal premium percentage on the
refinanced Loan, but only on the amount that the refinanced Loan balance exceeds
the balance of the original Loan purchased by Buyer from Seller. General
advertising to the public shall not be deemed to violate this non-solicitation
provision.
VI. BREACH OF REPRESENTATION AND WARRANTIES
A. Remedy For Breach. In addition to any rights or remedies the Buyer
has at law or in equity, if at any time there is a breach of any representation
or warranty set forth herein by Seller, the Buyer shall give written notice to
Seller of the breach. If after thirty (30) days following Seller's receipt of
such notice the breach has not been cured by Seller, the Seller shall upon
demand of the Buyer and at the sole option and absolute discretion of Buyer,
immediately repurchase the loan affected for the Buy-Back Price (as defined in
VI(C) below). If the loan has been sold by Buyer or the subject property has
been liquidated or sold by Buyer, the Seller shall, within thirty (30) days of
the aforementioned notification, pay the Buyer the amount of loss (as defined in
VI(D) below).
B. Reassignments. Upon receipt of the Buy-Back Price, in full, in
immediately available funds, the Buyer shall reassign the Loan affected and any
right it may have in the relevant Subject Property, as well as other documents
necessary to reflect the reassignment of any title protection and insurance
policies.
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C. "Buy-Back Price". The term "Buy-Back Price" shall mean the sum total
of: (1) the outstanding principal balance of the Loan, with accrued interest
thereon through the date the Loan is repurchased by Seller; (2) all advances
made by Buyer and all charges due from the Borrower; (3) the total amount,
including accrued interest and other expenses paid by the Buyer to any senior
lienholders, if any, to secure a priority lien position; (4) all reasonable and
necessary expenses, losses and damages paid or incurred by the Buyer in
connection with the Loan or an investigation of said Loan and/or the related
collateral, including, but not limited to, property taxes, maintenance costs,
interest expense, insurance, appraisals, advertising, sales commissions,
reasonable attorney fees, expenses and costs, fines and penalties; and (5)
rebate of premium due Buyer, if applicable.
D. Definition of "Loss". The term "Loss" shall mean the negative
result, if any, of the following calculations: (a) the sum total of: (i) the
outstanding principal balance of the Loan, with accrued interest thereon and not
paid through the date the Loan is sold or date the collateral is liquidated;
(ii) all advances by Buyer and all charges due from the Borrower; (iii) the
total amount paid by the Buyer to any senior lienholders, if any, to secure a
first lien position; (iv) accrued interest on all Mortgage Loans purchased from
senior lienholders from the date such Mortgage Loans were purchased through the
date the Loan is sold or the date the collateral is liquidated; and (v) all
other reasonable and necessary expenses, losses and damages incurred by and/or
paid by the Buyer in connection with the Loan or an investigation of said Loan
or the sale or liquidation of the Loan and/or the related collateral, including,
but not limited to, reasonable attorney fees, expenses and costs, property
taxes, maintenance costs, insurance, appraisals, advertising, sales commissions,
fines and penalties; less the (b) net proceeds from the sale of the Loan or the
sale or liquidation of the Subject Property or the collateral.
E. Remedy For Non-Delivery of Documents. However, anything, to the
contrary notwithstanding, in the event that the Seller is required to deliver to
the Buyer any documents related to a purchased Loan and the Seller fails to
deliver such document in the proper form on the date or within the time period
specified by the controlling section of this Agreement, Buyer shall notify the
Seller of the breach, and the Seller shall have thirty (30) days from the date
of notice to cure the breach. If the Seller has not cured the breach within the
thirty (30) days cure period, the Seller shall immediately repurchase the Loan
upon Buyer's demand. The Buy-Back Price shall be determined in accordance with
Article VI(C). Any Loan returned by the Buyer pursuant to this paragraph shall
be without recourse, representation or warranty; however, Buyer represents and
warrants to Seller, that Buyer, its affiliates, subsidiaries, servicers, or
employees have done nothing to cause the Loan to become uncollectible in whole
or in part.
F. Remedy to Insure Accuracy of Real Estate Appraisals.
Buyer may, at its own expense, in order to verify the accuracy of real
property appraisals prepared for Seller, order a reappraisal of the property
secured by a Mortgage. If the reappraisal obtained by Buyer indicates a fair
market value which is more than ten(10) percent less than the original
appraisal value, then upon receipt by Seller from Buyer of a signed copy of the
reappraisal, Seller shall repurchase the Loan by the Buy-Back Price (as defined
in Article VI(c)) and reimburse Buyer for the cost of the appraisal subject to
the following: If Seller disputes the validity of the reappraisal prepared by
Buyer's appraiser, Seller may, at its own expense, request
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Buyer to obtain a third appraisal, and only if such third appraisal is also more
than ten (10) percent less than the original appraisal value shall the Seller be
required to repurchase the Loan at the Buy-Back Price. Buyer shall choose the
appraiser for the third appraisal with Seller's approval, which shall not be
unreasonably withheld, but such appraiser must possess the minimum
qualifications specified in Buyer's Underwriting Guidelines. The appraisal must
be performed in accordance with industry standards for the appraising industry
in the area in which the property is located, and the appraiser must be
independent with respect to both parties unless otherwise agreed to by the
parties. In determining the appropriate appraisal value, the review appraiser
must determine the fair market appraised value as of the original appraisal date
using comparable sales that were available as of the date of the original
appraisal. The original reappraisal must be ordered within four (4) years of the
Buyer's purchase of the Loan from the Seller. After four (4) years, the above
variance does not apply unless it can be proved that there was fraud.
However, anything to the contrary notwithstanding, the Buyer reserves
the sole right not to request the Seller to repurchase the Loan should the
reappraisal cause the combined loan-to-value not to exceed the maximum allowable
combined loan-to-value of the loan class under which the Loan was purchased.
VII. RELATIONSHIP OF THE PARTIES
Solely by virtue of the parties' execution of this Agreement, it is
agreed that the Seller and the Buyer are not partners or joint venturers and
that the Seller is not to act as an agent of the Buyer in originating,
administering or collecting any Loan, but shall have the status of and shall act
in all matters hereunder as an independent contractor.
VIII. OPINION OF COUNSEL
The Seller shall deliver to the Buyer in form and substance
satisfactory to the Buyer and its counsel on or before the first Settlement Date
hereunder, an opinion of the Seller's independent outside counsel pursuant to
Exhibit "E." attached hereto and made a part hereof, opining on the provisions
of Articles V(A)1 through V(A)6, inclusive and the Opinion of Counsel will
cover all Loans purchased by Buyer under this Agreement unless the opinion is
rescinded or revoked by the Law Firm rendering the Opinion.
IX. DESIGNATION OF AUTHORIZED OFFICERS
The Seller shall have delivered to Buyer an officer's certificate,
attested to by the Secretary of the Seller, stating the names and showing the
facsimile signatures of the officers of Seller authorized to execute and deliver
this Agreement; endorse Note(s), Mortgage(s), and Assignment(s); and authorize
the bank accounts for Buyer to utilize for funding Loans.
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X. MISCELLANEOUS
A. Additional Covenants.
1. Each party shall, from time to time, execute and deliver or cause to
be executed and delivered, such additional instruments, assignments,
endorsements, papers and documents as the other party may at any time reasonably
request for the purpose of carrying out the terms of this Agreement and the
transfers provided for herein.
2. The Seller shall, upon request of the Buyer, sign a letter in form
to be approved by the Buyer and in conformity with the terms and conditions
hereof, addressed to all the Borrowers on the Loans, announcing the sale
evidenced hereby and instructing such Borrowers to recognize the Buyer as the
Seller's successor in interest to such Loans.
3. After any Settlement Date hereunder, the Seller will hold in trust
for the Buyer all sums received by the Seller from Borrower(s) on any Loan
purchased pursuant to this Agreement and pay them to the Buyer within three (3)
business days of the receipt of those sums.
4. Any and all decisions made by Buyer in good faith to take action or
to not take action relative to a Loan, including, but not limited to, the sale
or liquidation of a Loan in a commercially reasonable manner, Subject Property
or collateral shall be final and conclusively binding upon Seller in the event
Seller does not repurchase a Loan within ten (10) days of notification by Buyer
pursuant to Section VI of this Agreement.
5. In order to enforce Buyer's rights under this Agreement, Seller
shall, upon the request of Buyer or its assigns, do and perform or cause to be
done and performed, every reasonable act and thing necessary, or advisable to
put Buyer or its assigns in position to enforce the payment of the Loans and
to carry out the intent of this Agreement, including the execution of and, if
necessary, the recordation of additional documents including separate
endorsements and assignments upon request of Buyer. In addition, Seller hereby
irrevocably appoints any officer or employee of Buyer or its assigns its true
and lawful attorney to do and perform every act necessary, requisite, proper, or
advisable to be done to put Buyer or its assigns in position to enforce the
payment of the Loans, its rights under this Agreement, and to carry out the
intent of this Agreement, including. but not limited to, the right to sign,
execute, endorse and/or assign. and deliver to Buyer or its assigns on behalf of
Seller any Mortgage Note, Mortgage, security interest, or any other Loan
document and also any other writing of any other kind or nature whatsoever which
may be used in connection therewith to evidence any obligation of Seller or any
Borrower to Buyer or its assigns, pursuant to this Agreement and to endorse any
check or other instrument for the payment thereof. Seller does hereby forever
renounce all rights to revoke this power of attorney or any of the above
conferred upon Buyer or its assigns hereby or to appoint any other person to
execute the said power.
B. Survival of Covenants, Agreements, Representations and Warranties;
Successors and Assigns. All warranties, representations and covenants made by
either party in this Agreement or in any other instrument delivered by either
party to the other, including those made by third parties for the benefit of
either party, shall be considered to have been relied upon by the other party
(unless otherwise agreed in writing by the parties) and shall survive the
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termination of this Agreement. The Buyer reserves the right to proceed against;
third parties to enforce any representations, warranties and covenants made by
them for the benefit of the Seller.
C. Severability. If any provision, or part thereof, of this Agreement
is invalid or unenforceable under any law, such provision, or part thereof, is
and will be totally ineffective to that extent, but the remaining provisions, or
part thereof, will be unaffected.
D. Attorneys' Fees. However, anything to the contrary notwithstanding,
in the event of any action at law, in equity, arbitration or otherwise between
the parties in relation to this Agreement or any Loan or other instrument or
agreement required or purchased or sold hereunder, the non-prevailing party, in
addition to any other sums which such party shall be required to pay pursuant to
the terms and conditions of this Agreement, at law, in equity, arbitration or
otherwise shall also be required to pay to the prevailing party all costs and
expenses of such litigation, including reasonable attorney fees.
E. Waivers. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as a further or continuing waiver of any such
term, provision or condition, or of any other term, provision or condition of
this Agreement.
F. Notice. Any notice or other communication in this Agreement provided
or permitted to be given by one party to the other must be in writing and given
by personal delivery or by depositing the same in the United States mail
(certified mail, return receipt requested), addressed to the other party to be
notified, postage prepaid. For purposes of notice, the addresses of the parties
shall be as follows:
BUYER: Industry Mortgage Company, L.P.
3450 Buschwood Park Drive, Suite 250
Tampa, Florida 33618
ATTENTION: George Nicholas
SELLER: Westmark Mortgage Corporation -
355 NE 5th Ave., Suite 4
Delray Beach, Florida 33483
ATTENTION: Mark Schaftlein
The above address may be changed from time to time by written notice
from one party to the other.
G. Insurance Prepayment. Insurance refund or credits of any kind
whatsoever, for insurance of any kind sold by Seller (or Seller's originating
source, whether a loan Broker or Correspondent) in conjunction with the Loan,
shall be the sole responsibility of the Seller in the event of prepayment of any
Loan, cancellation of insurance or any other event requiring refunding or
crediting of unearned insurance premiums. Upon the Buyer's demand, Seller shall
pay to the Buyer, from the Seller's own funds, any required insurance premium
rebate resulting
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from the prepayment, cancellation, refinancing or other termination of any
Mortgage Loan. Upon such payment, Buyer shall assign in writing any rights it
had to require that the insurer reimburse user for any rebate made to Borrower.
H. Assignment. The Seller shall not, without the prior written consent
of the Buyer, assign any of its rights or obligations hereunder.
I. Captions. Paragraph or other headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
J. Entire Agreement. This Agreement and the Exhibits attached hereto,
and the documents referred to herein or executed concurrently herewith regard to
the subject matter hereof, and there are no prior agreements, understandings,
restrictions, warranties or representations between the parties with respect
thereto.
K. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. The provisions of this
paragraph shall not affect the provisions of any Note, Mortgage or Related
Assets which cause the laws of the United States or other state to be
applicable. This Agreement shall be interpreted fairly in accordance with its
provisions and without regard to which party drafted it.
L. Termination. Buyer has the option of terminating this Agreement
immediately upon notice to the Seller upon the Seller's breach of any of the
Representations and Warranties contained in Article V of this Agreement,
however, subject to the rights to cure as outlined in Article VI. Buyer shall
have no obligation to honor any commitment or Approval Advice after such
termination.
M. Arbitration, Jurisdiction and Venue.
With respect to any controversy, argument or claim arising out of or
relating to this Agreement, or any breach thereof including, but not limited to,
a request for emergency relief). the parties hereby consent to the exclusive
jurisdiction of the state and federal courts having jurisdiction over Buyer at
the time any such controversy, argument or claim arises, and waive personal
service of any and all process upon them and consent that all such service of
process made by registered or certified mail directed to them at the address
stated herein and service so made shall be deemed to be completed five (5)
days after mailing. The parties waive trial by jury and waive any objection to
jurisdiction and venue of any action instituted hereunder, agree. not to assert
any defense based on lack of jurisdiction or venue and consent to the granting
of such legal or equitable relief as is deemed appropriate by the court,
including, but not limited to, any emergency relief, injunctive or otherwise.
However, anything to the contrary notwithstanding, except with
respect to emergency relief, Buyer shall have the sole and exclusive option and
discretion to have any controversy, argument or claim arising out of or relating
to this Agreement, or any breach thereof, settled in the county and state of
Buyer's principal office, in accordance with the Rules of the American
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Arbitration Association (as modified below), and judgment upon the award may be
entered in any Court having jurisdiction thereof
The arbitration panel shall be made up of three members which shall be
appointed: one by Buyer, one by Seller and the third by the first two
arbitrators. Each arbitrator shall be a lawyer experienced in matters relating
to real estate and mortgage banking. Discovery shall be permitted in connection
with the arbitration proceeding within the reasonable discretion of the
arbitration panel. The decision (award) shall be in writing and shall set forth
the rationale and legal basis therefor, and such decision may be appealed by
either party if the party believes that the written decision (award) is based
upon an error of law. The facts determined by the original panel will be final
and no appeal of such findings may be made. Such appeal shall be taken to a
three-member arbitration panel, the members of which shall be selected in
accordance with the above-described procedures, and the panel's review shall be
limited to the application of the statutory and decisional law of the state of
Florida (as modified by Paragraph XI(K) above) to the facts of the dispute as
determined in writing by the original arbitration panel.
N. Endorsements.
In the event that the remedies or other terms outlined in this
Agreement conflict with the terms of any endorsement by the Seller of any Note
evidencing a Loan purchased by the Buyer from the Seller, including, but not
limited to, an endorsement stating that the assignment of the Note is without
recourse, the remedies and terms of this Agreement shall govern and control.
O. Indemnification (Holder in Due Course)
In the event Buyer purchases a Loan from Seller in which all or part of
the proceeds of such Loan were paid to a home improvement or building contractor
(including if proceed checks were made payable to the Borrower and the
contractor jointly) for the purpose of repairs or improvements to the subject
property, Seller agrees to indemnify Buyer against any loss, damages,
forfeitures, legal fees and other costs resulting from any demand, defense or
assertion based, grounded upon or arising from Borrower's rights, claimed or
granted, to withhold payment of the Loan due to the incompletion or
unsatisfactory completion of said repairs or improvements.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written:
BUYER: Industry Mortgage Company, L.P.
By: Industry Mortgage Corporation,
General Partner
By: /s/ George Nicholas
------------------------------------------------
George Nicholas, Chief Executive Officer
SELLER: /s/ Mark Schaftlein
-----------------------------------------
Mark Schaftlein
By: Mark Schaftlein
17
MASTER MORTGAGE LOAN PURCHASE AGREEMENT
SOUTHERN PACIFIC FUNDING CORPORATION
Initial Purchaser
WESTMARK MORTGAGE CORPORATION
Seller
Dated as of March 11, 1997
Mortgage Loans
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions ............................................... 1
SECTION 2. Agreement to Purchase ..................................... 8
SECTION 3. Mortgage Loan Schedules ................................... 9
SECTION 4. Purchase Price ............................................ 9
SECTION 5. Examination of Mortgage Files ............................. 9
SECTION 6. Conveyance from Seller to Initial Purchaser................ 10
Subsection 6.01. Conveyance of Mortgage Loan ............... 10
Subsection 6.02 Books and Records ......................... 10
Subsection 6.03. Delivery of Mortgage Loan Documents ....... 11
SECTION 7. Representations, Warranties and Covenants of the Seller:
Remedies for Breach ....................................... 12
Subsection 7.01. Representations and Warranties Respecting
the Seller ................................ 12
Subsection 7.02 Representations and Warranties Regarding
Individual Mortgage Loans ................. 14
Subsection 7.03. Remedies for Breach of Representations
and Warranties ............................ 20
SECTION 8. Closing ................................................... 21
SECTION 9. Closing Documents ......................................... 22
SECTION 10. Costs ..................................................... 23
SECTION 11. Seller's Servicing Obligations............................. 23
SECTION 12. Removal of Mortgage Loans from Inclusion Under this
Agreement Upon a Whole Loan Transfer or a Pass-Through
Transfer on One or More Reconstitution Dates .............. 23
SECTION 13. The Seller ................................................ 25
Subsection 13.01. Additional Indemnification by the Seller .. 25
Subsection 13.02 Merger or Consolidation of the Seller ..... 25
Subsection 13.03. Limitation on Liability of the Seller
and Others ................................ 26
Subsection 13.04. Seller Not to Resign ...................... 26
SECTION 14. Financial Statements ...................................... 27
<PAGE>
SECTION 15. Mandatory Delivery: Grant of Security Interest ............ 27
SECTION 16. Notices ................................................... 27
SECTION 17. Severability Clause ....................................... 28
SECTION 18. Counterparts .............................................. 28
SECTION 19. Governing Law ............................................. 28
SECTION 20. Intention of the Parties .................................. 29
SECTION 21. Successors and Assigns .................................... 29
SECTION 22. Waivers ................................................... 29
SECTION 23. Exhibits .................................................. 29
SECTION 24. General Interpretive Principles ........................... 29
SECTION 25. Reproduction of Documents ................................. 30
SECTION 26. Further Agreements ........................................ 30
EXHIBITS
EXHIBIT 1 SELLER'S OFFICER'S CERTIFICATE
EXHIBIT 2 FORM OF OPINION OF COUNSEL TO THE SELLER
EXHIBIT 3 SECURITY RELEASE CERTIFICATION
EXHIBIT 4 ASSIGNMENT AND CONVEYANCE
EXHIBIT 5 CONTENTS OF EACH MORTGAGE FILE
EXHIBIT 6 FORM OF CONFIRMATION
EXHIBIT 7 INTERIM SERVICING AGREEMENT
SCHEDULE I MORTGAGE LOAN SCHEDULE
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MASTER MORTGAGE LOAN PURCHASE AGREEMENT
This is a MASTER MORTGAGE LOAN PURCHASE AGREEMENT (the "Agreement"), dated
as of March 11, 1997, by and between Southern Pacific Funding Corporation,
having an office at 1 Centerpointe Drive, Suite 500, Lake Oswego, Oregon 97035
(the "Initial Purchaser", and the Initial Purchaser or the Person, if any, to
which the Initial Purchaser has assigned its rights and obligations hereunder as
Purchaser with respect to a Mortgage Loan, and each of their respective
successors and assigns, the "Purchaser") and Westmark Mortgage Corporation
having an office at 355 N.E. 5th Avenue, Suite 4, Delray Beach, Florida 33483
(the "Seller").
WITNESSETH:
WHEREAS, the Seller desires to sell, from time to time, to the Purchaser,
and the Purchaser desires to purchase, from time to time, from the Seller,
certain conventional residential first lien and second lien mortgage loans (the
"Mortgage Loans") as described herein on a servicing released basis, and which
shall be delivered in groups of whole loans on various dates as provided herein
(each a "Closing Date");
WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or
other security instrument creating a first lien or second lien on a residential
dwelling located in the jurisdiction indicated on the Mortgage Loan Schedule for
the related Mortgage Loan Package, which is to be annexed hereto on each Closing
Date as Schedule I;
WHEREAS, the Purchaser and the Seller wish to prescribe the manner of the
conveyance and control of the Mortgage Loans; and
WHEREAS, following its purchase of the Mortgage Loans from the Seller, the
Purchaser desires to sell some or all of the Mortgage Loans to one or more
purchasers as a whole loan transfer in a whole loan or participation format or a
public or private mortgage-backed securities transaction;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Purchaser and the Seller agree
as follows:
SECTION 1. Definitions. For purposes of this Agreement the following
capitalized terms shall have the respective meanings set forth below.
Adjustable Rate Mortgage Loan: Any Mortgage Loan with a Mortgage Interest
Rate that is subject to adjustment in accordance with the terms of the related
Mortgage Note.
Adjustment Date: With respect to each Adjustable Rate Mortgage Loan, the
date set forth in the related Mortgage Note on which the Mortgage Interest Rate
on the Mortgage Loan is
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adjusted in accordance with the terms of the Mortgage Note.
Agreement: This Mortgage Loan Purchase Agreement including all exhibits,
schedules, amendments and supplements hereto.
Appraised Value: With respect to any Mortgaged Property, the lesser of (i)
the value thereof as determined by an appraisal made for the originator of the
Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser
who met the minimum requirements of FNMA and FHLMC, and (ii) the purchase price
paid for the related Mortgaged Property by the Mortgagor with the proceeds of
the Mortgage Loan, provided, however, in the case of a Refinanced Mortgage Loan,
such value of the Mortgaged Property is based solely upon the value determined
by an appraisal made for the originator of such Refinanced Mortgage Loan at the
time of origination of such Refinanced Mortgage Loan by an appraiser who met the
minimum requirements of FNMA and FHLMC.
Assignment and Conveyance: An assignment and conveyance of the Mortgage
Loans purchased on a Closing Date in the form annexed hereto as Exhibit 4.
Assignment of Mortgage: An individual assignment of the Mortgage, notice of
transfer or equivalent instrument in recordable form, sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to give
record notice of the sale of the Mortgage to the Purchaser.
Business Day: Any day other than a Saturday or Sunday, or a day on which
banking and savings and loan institutions in the State of California or the
State of New York are authorized or obligated by law or executive order to be
closed.
Cash-Out Refinancing: A Refinanced Mortgage Loan the proceeds of which were
in excess of the principal balance of any existing first mortgage on the related
Mortgaged Property and related closing costs, (and were used to pay any such
existing first mortgage), related closing costs and subordinate mortgages on the
related Mortgaged Property.
Closing Date: The date or dates on which the Purchaser from time to time
shall purchase and the Seller from time to time shall sell to the Purchaser, the
Mortgage Loans listed on the related Mortgage Loan Schedule with respect to the
related Mortgage Loan Package.
Closing Documents: With respect to any Closing Date, the documents required
pursuant to Section 9.
Code: The Internal Revenue Code of 1986, or any successor statute thereto.
Combined Loan-to-Value Ratio: As of any date for any Second Mortgage Loan,
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the fraction, expressed as a percentage, the numerator of which is the sum of
(a) the original principal balance of the Mortgage Loan, plus (b) the unpaid
principal balance of any first mortgage loan secured by the Mortgaged Property
as of such date, and the denominator of which is the lesser of (i) the Appraised
Value of the related Mortgaged Property as of the date of the appraisal used by
or on behalf of the Seller to underwrite such Mortgage Loan or (ii) the sale
price of the related Mortgaged Property if such a sale occurred at origination
of the Mortgage Loan.
Condemnation Proceeds: All awards, compensation and settlements in respect
of a taking of all or part of a Mortgaged Property by exercise of the power of
condemnation or the right of eminent domain.
Confirmation: With respect to the Mortgage Loan Package purchased and sold
on any Closing Date, the letter agreement between the Purchaser and the Seller,
in the form annexed hereto as Exhibit 6 (including any exhibits, schedules and
attachments thereto), setting forth the terms and conditions of such transaction
and describing the Mortgage Loans to be purchased by the Purchaser on such
Closing Date.
Convertible Mortgage Loan: An Adjustable Rate Mortgage Loan that by its
terms and subject to certain conditions contained in the related Mortgage or
Mortgage Note allows the Mortgagor to convert the adjustable Mortgage Interest
Rate on such Mortgage Loan to a fixed Mortgage Interest Rate.
Cut-off Date: The first day of the month in which the related Closing Date
occurs.
Escrow Payments: The amounts constituting ground rents, taxes, assessments,
water charges, sewer rents, Primary Insurance Policy premiums, fire and hazard
insurance premiums and other payments required to be escrowed by the Mortgagor
with the Mortgagee pursuant to the terms of any Mortgage Note or Mortgage.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHLMC: Federal Home Loan Mortgage Corporation or any successor thereto.
Final Closing Date: The Closing Date with respect to the purchase and sale
of the final Mortgage Loan Package purchased hereunder, which shall be a date
not later [FINAL DATE].
First Mortgage Loan: A Mortgage Loan which is secured by a first lien on
the Mortgaged Property securing the related Mortgage Note.
Fixed Rate Mortgage Loan: Any Mortgage Loan with respect to which the
Mortgage Interest Rate set forth in the Mortgage Note is fixed for the term of
such Mortgage Loan.
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FNMA: Federal National Mortgage Association or any successor thereto.
Gross Margin: With respect to any Mortgage Loan, the fixed percentage
amount set forth in the related Mortgage Note and the related Mortgage Loan
Schedule that is added to the Index on each Adjustment Date in accordance with
the terms of the related Mortgage Note to determine the new Mortgage Interest
Rate for such Mortgage Loan, as provided in the related Confirmation.
HUD: The United States Department of Housing and Urban Development or any
successor thereto.
Index: With respect to any Adjustable Rate Mortgage Loan, a rate per annum,
identified on the related Mortgage Loan Schedule to which the Gross Margin is
added on each Adjustment Date to determine the new Mortgage Interest Rate for
such Mortgage Loan.
Initial Closing Date: The Closing Date on which the Initial Purchaser
purchases and the Seller sells the first Mortgage Loan Package hereunder.
Initial Purchaser: Southern Pacific Funding Corporation or any successor.
Insurance Proceeds: With respect to each Mortgage Loan, proceeds of
insurance policies insuring the Mortgage Loan or the related Mortgaged Property.
Liquidation Proceeds: Amounts, other than Insurance Proceeds and
Condemnation Proceeds, received in connection with the liquidation of a
defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise,
other than amounts received following the acquisition of REO Property.
Loan-to-Value Ratio or LTV: With respect to any First Mortgage Loan as of
any date of determination, the ratio on such date of the outstanding principal
amount of the Mortgage Loan, to the Appraised Value of the Mortgaged Property.
Maximum Mortgage Interest Rate: With respect to each Adjustable Rate
Mortgage Loan, a rate that is set forth on the related Mortgage Loan Schedule
and in the related Mortgage Note and is the maximum interest rate to which the
Mortgage Interest Rate on such Mortgage Loan may be increased on any Adjustment
Date.
Minimum Mortgage Interest Rate: With respect to each Adjustable Rate
Mortgage Loan, a rate that is set forth on the related Mortgage Loan Schedule
and in the related Mortgage Note and is the minimum interest rate to which the
Mortgage Interest Rate on such Mortgage Loan may be decreased on any Adjustment
Date.
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Monthly Payment: With respect to any Mortgage Loan, the scheduled combined
payment of principal and interest payable by a Mortgagor under the related
Mortgage Note on the due date under such Mortgage Note, which may be changed in
the case of any Adjustable Rate Mortgage Loan on any Adjustment Date as provided
in the related Mortgage Note.
Mortgage: The mortgage, deed of trust or other instrument creating a first
lien or second lien on Mortgaged Property securing the Mortgage Note.
Mortgagee: The mortgagee or beneficiary named in the Mortgage and the
successors and assigns of such mortgagee or beneficiary.
Mortgage File: The items pertaining to a particular Mortgage Loan referred
to in Exhibit 5 annexed hereto, and any additional documents required to be
added to the Mortgage File pursuant to this Agreement or the related
Confirmation.
Mortgage Interest Rate: With respect to each Fixed Rate Mortgage Loan,
the annual rate at which interest accrues on such Mortgage Loan. With respect to
each Adjustable Rate Mortgage Loan, the annual rate at which interest accrues on
such Mortgage Loan from time to time in accordance with the provisions of the
related Mortgage Note, which rate, (i) as of any date of determination until the
first Adjustment Date following the related Cut-off Date shall be the rate set
forth in the related Mortgage Loan Schedule as the Mortgage Interest Rate in
effect immediately following the Cutoff Date and (ii) as of any date of
determination thereafter shall be the rate as adjusted on the most recent
Adjustment Date, to equal the sum of the applicable Index plus the related Gross
Margin; provided that the Mortgage Interest Rate on such Mortgage Loan on any
Adjustment Date shall never be (a) more than the lesser of (1) the sum of the
Mortgage Interest Rate in effect immediately prior to the Adjustment Date plus
the related Periodic Rate Cap, if any, and (2) the related Maximum Mortgage
Interest Rate or, (b) less than the greater of (1) the remainder of the Mortgage
Interest Rate in effect immediately prior to the Adjustment Date minus the
related Periodic Rate Cap, if any, and (2) the related Minimum Mortgage Interest
Rate.
Mortgage Loan: Each mortgage loan sold, assigned and transferred to the
Purchaser pursuant to this Agreement and the related Confirmation and identified
on the Mortgage Loan Schedule annexed to this Agreement on such Closing Date,
which Mortgage Loan includes without limitation the Mortgage File, the Monthly
Payments, principal prepayments, Liquidation Proceeds, Condemnation Proceeds,
Insurance Proceeds, REO Disposition proceeds, and all other rights, benefits,
proceeds and obligations arising from or in connection with such Mortgage Loan.
Mortgagee Loan Documents: As defined in Section 6.03 of this Agreement.
Mortgage Loan Package: The Mortgage Loans listed on a Mortgage Loan
Schedule, delivered to the Purchaser at least five (5) Business Days prior to
the related Closing Date and attached to this Agreement as Schedule I on the
related Closing Date.
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Mortgage Loan Schedule: With respect to each Mortgage Loan Package, the
schedule of Mortgage Loans to be annexed hereto as Schedule I (or a supplement
thereto) on each Closing Date for the Mortgage Loan Package delivered on such
Closing Date in both hard copy and floppy disk, such schedule setting forth the
following information with respect to each Mortgage Loan in the Mortgage Loan
Package: (1) the Seller's Mortgage Loan identifying number; (2) the Mortgagor's
first and last name; (3) the street address of the Mortgaged Property including
the state and zip code; (4) a code indicating whether the Mortgaged Property is
owner-occupied; (5) the type of Residential Dwelling constituting the Mortgaged
Property; (6) the original months to maturity; (7) the original date of the
Mortgage; (8) with respect to each First Mortgage Loan, the Loan-to-Value Ratio
at origination and with respect to each Second Mortgage Loan, the Combined
Loan-to-Value Ratio at origination; (9) the Mortgage Interest Rate at
origination; (10) the date on which the first Monthly Payment was due on the
Mortgage Loan; (11) the stated maturity date; (12) the amount of the Monthly
Payment at origination; (13) the last Due Date on which a Monthly Payment was
actually applied to the unpaid Stated Principal Balance; (14) the original
principal amount of the Mortgage Loan; (15) the Stated Principal Balance of the
Mortgage Loan as of the close of business on the Cut-off Date; (16) a code
indicating the purpose of the loan (i.e., purchase financing, Rate/Term
Refinancing, Cash-Out Refinancing); (17) the first Adjustment Date; (18) a code
indicating the documentation style (i.e., full, alternative or reduced); (19) a
code indicating if the Mortgage Loan is subject to a Primary Insurance Policy;
(20) the sale price of the Mortgaged Property, if applicable; (21) the actual
unpaid principal balance of the Mortgage Loan as of the Cut-off Date; (22)
whether such Mortgage Loan is a first lien or second lien and (23) with respect
to each Adjustable Rate Mortgage Loan: (A) the Maximum Mortgage Interest Rate
under the terms of the Mortgage Note; (B) the Minimum Mortgage Interest Rate
under the terms of the Mortgage Note; (C) the Mortgage Interest Rate in effect
immediately following the Cut-off Date; (D) the Periodic Rate Cap; (E) the Gross
Margin; (F) a code indicating if the Mortgage Loan is a Convertible Mortgage
Loan; (G) the first Adjustment Date immediately following the Cut-off Date; (H)
the Index; and (I) the amount of the Monthly Payment at origination; With
respect to the Mortgage Loan Package in the aggregate, the Mortgage Loan
Schedule shall set forth the following information, as of the related Cut-off
Date: (1) the number of Mortgage Loans; (2) the current principal balance of the
Mortgage Loans; (3) the weighted average Mortgage Interest Rate of the Mortgage
Loans; and (4) the weighted average maturity of the Mortgage Loans. Schedule I
hereto shall be supplemented as of each Closing Date to reflect the addition of
the Mortgage Loan Schedule with respect to the related Mortgage Loan Package.
Mortgage Note: The original executed note or other evidence of the Mortgage
Loan indebtedness of a Mortgagor.
Mortgaged Property: The Mortgagor's real property securing repayment of a
related Mortgage Note, consisting of a fee simple interest in a single parcel of
real property improved by a Residential Dwelling.
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Mortgagor: The obligor on a Mortgage Note, the owner of the Mortgaged
Property and the grantor or mortgagor named in the related Mortgage and such
grantor's or mortgagor's successor's in title to the Mortgaged Property.
Non-Convertible Mortgage Loan: A Mortgage Loan that does not, by its terms,
permit the Mortgagor to convert the adjustable Mortgage Interest Rate thereunder
to a fixed Mortgage Interest Rate.
Officer's Certificate: A certificate signed by the Chairman of the Board or
the Vice Chairman of the Board or a President or a Vice president and by the
Treasurer or the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Person on behalf of whom such certificate is being delivered.
Opinion of Counsel: A written opinion of counsel, who may be salaried
counsel for the Person on behalf of whom the opinion is being given, reasonably
acceptable to each Person to whom such opinion is addressed.
Pass-Through Transfer: The sale or transfer of some or all of the Mortgage
Loans by the Purchaser to a trust to be formed as part of a publicly issued or
privately placed mortgage-backed securities transaction.
Periodic Rate Cap: With respect to each Adjustable Rate Mortgage Loan and
any Adjustment Date therefor, a number of percentage points per annum that is
set forth in the related Mortgage Loan Schedule and in the related Mortgage
Note, which is the maximum amount by which the Mortgage Interest Rate for such
Mortgage Loan may increase (without regard to the Maximum Mortgage Interest
Rate) or decrease (without regard to the Minimum Mortgage Interest Rate) on such
Adjustment Date from the Mortgage Interest Rate in effect immediately prior to
such Adjustment Date, as provided in the related Confirmation.
Person: An individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Primary Insurance Policy: A policy of primary mortgage guaranty insurance
issued by a Qualified Insurer.
Purchase Price: The price paid on the related Closing Date by the Purchaser
to the Seller pursuant to the related Confirmation in exchange for the Mortgage
Loans purchased on such Closing Date as calculated as provided in Section 4.
Qualified Insurer: General Electric Mortgage Insurance Company or PMI
Mortgage Insurance Company.
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Rate/Term Refinancing: A Refinanced Mortgage Loan, the proceeds of which
are not in excess of the existing first mortgage loan on the related Mortgaged
Property and related closing costs, and were used exclusively to satisfy the
then existing first mortgage loan of the Mortgagor on the related Mortgaged
Property and to pay related closing costs.
Reconstitution Agreements: The agreement or agreements entered into by the
Seller and the Purchaser and/or certain third parties on the Reconstitution Date
or Dates with respect, to any or all of the Mortgage Loans serviced hereunder,
in connection with a Whole Loan Transfer or a Pass-Through Transfer as provided
in Section 12.
Reconstitution Date: The date or dates on which any or all of the Mortgage
Loans serviced under this Agreement shall be removed from this Agreement and
reconstituted as part of a Whole Loan Transfer or Pass-Through Transfer pursuant
to Section 12 hereof.
Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were not
used to purchase the related Mortgaged Property.
REMIC: A "real estate mortgage investment conduit" within the meaning of
Section 860D of the Code.
REO Disposition: The final sale by the Seller of any REO Property.
REO Property: A Mortgaged Property acquired as a result of the liquidation
of a Mortgage Loan.
Repurchase Price: With respect to any Mortgage Loan, a price equal to
(i)(A) prior to the Reconstitution Date with respect to the Mortgage Loan, the
product of the Stated Principal Balance of such Mortgage Loan times the
Purchase Price percentage as stated in the related Confirmation, and (B)
thereafter, the Stated Principal Balance of such Mortgage Loan, plus (ii)
interest on such Stated Principal Balance at the Mortgage Interest Rate from and
including the last date through which interest has been paid by or on behalf of
the Mortgagor to the date of repurchase.
Residential Dwelling: Any one of the following: (i) a detached one-family
dwelling, (ii) a detached two- to four-family dwelling, (iii) a one-family
dwelling unit in a FNMA eligible condominium project, or (iv) a detached
one-family dwelling in a planned unit development, and unless included in the
Confirmation, none of which is a co-operative, mobile or manufactured home.
Second Mortgage Loan: A Mortgage Loan which is secured by a
second lien on the Mortgaged Property securing the related Mortgage Note.
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Servicing File: With respect to each Mortgage Loan, the file retained by
the Seller consisting of originals of all documents in the Mortgage File which
are not delivered to the Purchaser and copies of the Mortgage Loan Documents.
Stated Principal Balance: As to each Mortgage Loan as of any date of
determination the unpaid principal balance of the Mortgage Loan after giving
effect to payments of principal collected on or before such date.
Whole Loan Transfer: Any sale or transfer of some or all of the Mortgage
Loans by the Purchaser to a third party, which sale or transfer is not a
Pass-Through Transfer.
SECTION 2. Agreement to Purchase. The Seller agrees to sell, and the
Purchaser agrees to purchase, from time-to-time on or before the Final Closing
Date, Mortgage Loans having an aggregate principal balance on the related
Cut-off Date in an amount as set forth in the related Confirmation, or in such
other amount as agreed by the Purchaser and the Seller as evidenced by the
actual aggregate principal balance of the Mortgage Loans accepted by the
Purchaser on the related Closing Date.
SECTION 3. Mortgage Loan Schedules. The Seller shall deliver the Mortgage
Loan Schedule for a Mortgage Loan Package to be purchased on a particular
Closing Date to the Purchaser at least five (5) Business Days prior to the
related Closing Date.
SECTION 4. Purchase Price. The Purchase Price for each Mortgage Loan listed
on the related Mortgage Loan Schedule shall be the percentage of par as stated
in the related Confirmation (subject to adjustment as provided therein),
multiplied by its Stated Principal Balance as of the related Cut-off Date. If so
provided in the related Confirmation, portions of the Mortgage Loans shall be
priced separately.
The Purchaser shall own and be entitled to receive with respect to each
Mortgage Loan purchased, (1) all scheduled principal due after the related
Cut-off Date, (2) all other recoveries of principal collected after the related
Cut-off Date (provided, however, that all scheduled payments of principal due on
or before the related Cut-off Date and collected by the Seller after the related
Cut-off Date shall belong to the Seller), and (3) all payments of interest on
the Mortgage Loans (minus that portion of any such interest payment that is
allocable to the period prior to the related Cut-off Date). The Stated Principal
Balance of each Mortgage Loan as of the related Cut-off Date is determined after
application to the reduction of principal of payments of principal due on or
before the related Cut-off Date whether or not collected. Therefore, for the
purposes of this Agreement, payments of scheduled principal and interest prepaid
for a Due Date beyond the related Cut-off Date shall not be applied to the
principal balance as of the related Cut-off Date. Such prepaid amounts shall be
the property of the Purchaser. The Seller shall remit any such prepaid amounts
to the Purchaser on Closing Date. All payments of principal and interest due on
a Due Date following the related Cut-off Date shall belong to the Purchaser.
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In addition, until one year after the Closing Date, the Seller shall remit
to the Purchaser by certified check within fifteen (15) Business Days following
notification by the Purchaser, the premium paid by the Initial Purchaser to the
Seller for each Mortgage Loan which does not have a prepayment penalty and which
prepays in full, the following: If prepayment in full is within one (1) month of
the Purchase Date, 12/12ths of the premium shall be refunded; if prepayment in
full is within two (2) months of the Purchase Date, 11/12ths of the premium
shall be refunded; if prepayment in full is within three (3) months of the
Purchase Date, 10/12ths of the premium shall be refunded; if prepayment in full
is within four (4) months of the Purchase Date, 9/12ths of the premium shall be
refunded; If prepayment in full is within five (5) months of the Purchase Date
8/12ths of the premium shall be refunded; if prepayment in full is within six
(6) months of the Purchase Date, 7/12ths of the premium shall be refunded; if
prepayment in full is within seven (7) months of the Purchase Date 6/12ths of
the premium shall be refunded; if prepayment in full is within eight (8) months
of the Purchase Date; 5/12ths of the premium shall be refunded; if prepayment in
full is within nine (9) months of the Purchase Date, 4/12ths of the premium
shall be refunded; if prepayment in full is within ten (10) months of the
Purchase Date, 3/12ths of the premium shall be refunded; if prepayment in full
is within eleven (11) months of the Purchase Date, 2/12ths of the premium shall
be refunded; if prepayment in full is within twelve (12) months of the Purchase
Date, 1/12ths of the premium shall be refunded. In the event any Loan is prepaid
in full later than (12) months from the Purchase Date of such Loan, no refund
shall be due.
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In addition to the Purchase Price as described above, the Initial Purchaser
shall pay to the Seller, at closing, accrued interest on the Stated Principal
Balance of each Mortgage Loan as of the related Cut-off Date at its Mortgage
Interest Rate from the related Cut-off Date through the day prior to the related
Closing Date, both inclusive, pro rated on the basis of a 30-day month.
SECTION 5. Examination of Mortgage Files. In addition to the rights granted
to the Initial Purchaser under the related Confirmation to underwrite the
Mortgage Loans and review the Mortgage Files prior to the Closing Date, prior to
the related Closing Date, the Seller shall (a) deliver to the Purchaser in
escrow, for examination with respect to each Mortgage Loan to be purchased on
such Closing Date, the related Mortgage File, including the Assignment of
Mortgage, pertaining to each Mortgage Loan, or (b) make the related Mortgage
File available to the Initial Purchaser for examination at the Seller's offices
or such other location as shall otherwise be agreed upon by the Initial
Purchaser and the Seller. Such examination may be made by the Initial Purchaser
or its designee at any reasonable time before or after the related Closing Date.
If the Initial Purchaser makes such examination prior to the related Closing
Date and identifies any Mortgage Loans that do not conform to the terms of the
related Confirmation, such Mortgage Loans may, at the Initial Purchaser's
option, be rejected for purchase by the Initial Purchaser. If not purchased by
the Initial Purchaser, such Mortgage Loans shall be deleted from the related
Mortgage Loan Schedule. The fact that the Initial Purchaser has conducted or has
determined not to conduct any partial or complete examination of the Mortgage
Files shall not affect the Initial Purchaser's (or any of its successors')
rights to demand repurchase or other relief or remedy provided for in this
Agreement.
SECTION 6. Conveyance from Seller to Initial Purchaser.
Subsection 6.01. Conveyance of Mortgage Loans.
The Seller, simultaneously with the payment of the Purchase Price, shall
execute and deliver to the Initial Purchaser an Assignment and Conveyance with
respect to the related Mortgage Loan Package in the form attached hereto as
Exhibit 4. In the event that the servicing of the Mortgage Loans is not
transferred to the Purchaser on the related Closing Date, the Servicing File
retained by the Seller with respect to each Mortgage Loan pursuant to this
Agreement shall be appropriately identified in the Seller's computer system to
reflect clearly the sale of such related Mortgage Loan to the Purchaser. The
Seller shall release from its custody the contents of any Servicing File
retained by it only in accordance with this Agreement.
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Subsection 6.02. Books and Records.
Record title to each Mortgage and the related Mortgage Note as of the
related Closing Date shall be in the name of the Seller, the Purchaser or one or
more designees of the Purchaser, as the Purchaser shall designate.
Notwithstanding the foregoing, beneficial ownership of each Mortgage and the
related Mortgage Note shall be vested solely in the Purchaser or the appropriate
designee of the Purchaser, as the case may be. All rights arising out of the
Mortgage Loans including, but not limited to, all funds received by the Seller
after the related Cut-off Date on or in connection with a Mortgage Loan as
provided in Section 4 shall be vested in the Purchaser or one or more designees
of the Purchaser; provided, however, that all such funds received on or in
connection with a Mortgage Loan as provided in Section 4 shall be received and
held by the Seller in trust for the benefit of the Purchaser or the assignee of
the Purchaser, as the case may be, as the owner of the Mortgage Loans pursuant
to the terms of this Agreement.
It is the express intention of the parties that the transactions
contemplated by this Agreement be, and be construed as, a sale of the Mortgage
Loans by the Seller and not a pledge of the Mortgage Loans by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. Consequently, the
sale of each Mortgage Loan shall be reflected as a sale on the Seller's business
records, tax returns and financial statements.
Subsection 6.03. Delivery of Mortgage Loan Documents.
Prior to the Initial Closing Date, and from time to time in
connection with each Closing Date, at least five (5) Business Days prior to such
Closing Date, deliver and release to the Purchaser each of the following items
with respect to each Mortgage Loan (the "Mortgage Loan Documents"):
1. The original Mortgage Note, endorsed by the Seller without recourse in the
following form: "Pay to the order of Southern Pacific Funding Corporation,
without recourse" and signed, by facsimile or manual signature, in the name
of the Seller by an officer, together with all intervening endorsements
showing a complete chain of endorsement from the originator to the Seller;
2. the original recorded Mortgage or, if the original Mortgage has not been
returned from the applicable public recording office, a copy of the
Mortgage certified by an appropriate officer of the Seller to be a true and
complete copy of the original Mortgage submitted for recording;
3. a duly executed original Assignment of the Mortgage, in blank, from the
Seller, which assignment shall be in form and substance acceptable for
recording or, if as a result of the related Mortgage not having been
returned from the applicable
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recording office, a copy of the Assignment of the Mortgage excluding
information to be provided by the recording office;
4. the original recorded intervening Assignment or Assignments of the
Mortgage, if any, showing a complete chain of assignment from the
originator to the Seller or, if any such intervening Assignment has not
been returned from the applicable public recording office, a copy of such
intervening Assignment certified by the Seller to be a true and complete
copy of the original intervening Assignment submitted or to be submitted
for recording;
5. the original or duplicate original title insurance policy (or a commitment
(binder) to issue same) relating to the Mortgage Loan; and
6. the original or copies of each assumption, modification, written assurance
or substitution agreement, if any.
In the event that the original Mortgage cannot be delivered pursuant to (b)
above, the original title insurance policy cannot be delivered pursuant to (e)
above, the duly executed Assignment of the Mortgage cannot be delivered
pursuant to (c) above or the original recorded intervening Assignment or
Assignments of the Mortgage, if any, showing a complete chain of assignment
from the originator to the Seller cannot be delivered pursuant to (d) above,
the Seller shall use best reasonable efforts to promptly secure the delivery of
such originals and shall cause such originals to be delivered to the Purchaser
promptly upon receipt thereof. In the event that the Seller cannot deliver the
original Mortgage, the Seller shall deliver a copy of such Mortgage certified
as true and complete by the appropriate recording office in those instances
where a copy thereof certified by the Seller was delivered pursuant to clause
(b) above. In the event that the original Mortgage or a certified copy thereof
or the original policy of tide insurance is not so delivered to the Purchaser
within 365 days following the Closing Date, the related Mortgage Loan shall,
upon the written request of the Purchaser, be repurchased by the Seller at the
price and in the manner specified in Section 7.03 of this Agreement.
The Purchaser shall certify its receipt of all such Mortgage Loan Documents
required to be delivered for the related Closing Date.
SECTION 7. Representations, Warranties and Covenants of the Seller:
Remedies for Breach.
Subsection 7.01. Representations and Warranties Respecting the Seller.
The Seller represents, warrants and covenants to the Purchaser as of the
initial Closing Date and each subsequent Closing Date or as of such date
specifically provided herein or in the applicable Assignment and Conveyance:
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(i) The Seller is duly organized, validly existing and in good standing
under the laws of California and is and will remain in compliance with the laws
of each state in which any Mortgaged Property is located to the extent necessary
to ensure the enforceability of each Mortgage Loan and the servicing of the
Mortgage Loan in accordance with the terms of this Agreement;
(ii) The Seller has the full power and authority to hold each Mortgage
Loan, to sell each Mortgage Loan, and to execute, deliver and perform, and to
enter into and consummate, all transactions contemplated by this Agreement. The
Seller has duly authorized the execution, delivery and performance of this
Agreement, has duly executed and delivered this Agreement, and this Agreement,
assuming due authorization, execution and delivery by the Purchaser, constitutes
a legal, valid and binding obligation of the Seller, enforceable against it in
accordance with its terms except as the enforceability thereof may be limited by
bankruptcy, insolvency or reorganization;
(iii) The execution and delivery of this Agreement by the Seller and the
performance of and compliance with the terms of this Agreement will not violate
the Seller's articles of incorporation or by-laws or constitute a default under
or result in a breach or acceleration of, any material contract, agreement or
other instrument to which the Seller is a party or which may be applicable to
the Seller or its assets;
(iv) The Seller is not in violation of, and the execution and delivery of
this Agreement by the Seller and its performance and compliance with the terms
of this Agreement will not constitute a violation with respect to, any order or
decree of any court or any order or regulation of any federal, state, municipal
or governmental agency having jurisdiction over the Seller or its assets, which
violation might have consequences that would materially and adversely affect the
condition (financial or otherwise) or the operation of the Seller or its assets
or might have consequences that would materially and adversely affect the
performance of its obligations and duties hereunder;
(v) The Seller does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained in this
Agreement;
(vi) The Mortgage Note, the Mortgage, the Assignment of Mortgage and any
other documents required to be delivered with respect to each Mortgage Loan
pursuant to this Agreement, have been delivered to the Purchaser all in
compliance with the specific requirements of this Agreement. With respect to
each Mortgage Loan, the Seller is in possession of a complete Mortgage File in
compliance with Exhibit 5;
(vii) Immediately prior to the payment of the Purchase Price for each
Mortgage Loan, the Seller was the owner of record of the related Mortgage and
the indebtedness evidenced by the related Mortgage Note, upon the payment of the
Purchase Price by the Purchaser, in the event that the Seller retains record
title, the Seller shall retain such record title to each Mortgage,
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each related Mortgage Note and the related Mortgage Files with respect thereto
in trust for the Purchaser as the owner thereof for the purpose of servicing and
supervising the servicing of each Mortgage Loan;
(viii) There are no actions or proceedings against, or investigations of,
the Seller before any court, administrative or other tribunal (A) that might
prohibit its entering into this Agreement, (B) seeking to prevent the sale of
the Mortgage Loans or the consummation of the transactions contemplated by this
Agreement or (C) that might prohibit or materially and adversely affect the
performance by the Seller of its obligations under, or validity or
enforceability of, this Agreement;
(ix) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Seller of, or compliance by the Seller with, this Agreement
or the consummation of the transactions contemplated by this Agreement, except
for such consents, approvals, authorizations or orders, if any, that have been
obtained prior to the Closing Date;
(x) The consummation of the transactions contemplated by this Agreement
are in the ordinary course of business of the Seller, and the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by the Seller
pursuant to this Agreement are not subject to the bulk transfer or any similar
statutory provisions: and
(xi) Neither this Agreement nor any written statement, report or other
document prepared and furnished or to be prepared and furnished by the Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading.
Subsection 7.02. Representations and Warranties Regarding Individual
Mortgage Loans.
The Seller hereby represents and warrants to the Purchaser that, as to each
Mortgage Loan, as of the related Closing Date for such Mortgage Loan:
(i) The information set forth in the related Mortgage Loan Schedule is
complete, true and correct;
(ii) The Mortgage Loan is in compliance with all requirements set forth in
the related Confirmation, and the characteristics of the related Mortgage Loan
Package as set forth in the related Confirmation are true and correct;
(iii) All payments required to be made up to the close of business on the
Cut-off
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Date for such Mortgage Loan under the terms of the Mortgage Note have been made;
the Seller has not advanced funds, or induced, solicited or knowingly received
any advance of funds from a party other than the owner of the related Mortgaged
Property, directly or indirectly, for the payment of any amount required by the
Mortgage Note or Mortgage; and there has been no delinquency, exclusive of any
period of grace, in any payment by the Mortgagor thereunder during the last
twelve months; unless, in each case, such Mortgage Loan has been approved in
writing by the Purchaser;
(iv) There are no delinquent taxes, ground rents, water charges,
sewer rents, assessments, insurance premiums, leasehold payments, including
assessments payable in future installments or other outstanding charges
affecting the related Mortgaged Property;
(v) The terms of the Mortgage Note and the Mortgage have not been impaired,
waived, altered or modified in any respect, except by written instruments,
recorded in the applicable public recording office if necessary to maintain the
lien priority of the Mortgage, and which have been delivered to the Purchaser;
the substance of any such waiver, alteration or modification has been approved
by the insurer under the Primary Insurance Policy, if any, and the title
insurer, to the extent required by the related policy, if required by the
Certification, and is reflected on the related Mortgage Loan Schedule. No
instrument of waiver, alteration or modification has been executed, and no
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the insurer under the Primary Insurance Policy,
if any, and the title insurer, to the extent required by the policy, and which
assumption agreement has been delivered to the Purchaser and the terms of which
are reflected in the related Mortgage Loan Schedule;
(vi) The Mortgage Note and the Mortgage are not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the Mortgage Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(vii) All buildings upon the Mortgaged Property are insured by a generally
acceptable insurer against loss by fire, hazards of extended coverage and such
other hazards as are customary in the area where the Mortgaged Property is
located, pursuant to insurance policies issued by insurance companies that
currently reflect a General Policy Rating of A:Vl in Best's Key Rating Guide and
that are licensed to do business in the state wherein the property subject to
the policy is located. Such policies provide coverage in an amount which is at
least equal to the lesser of (i) the amount necessary to fully compensate for
any damage or loss to the improvements which are a part of such property on a
replacement cost basis or (ii) the outstanding principal balance of the Mortgage
Loan, in each case in an amount not less than such amount as is necessary to
prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer. All such
insurance policies
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contain a standard mortgagee clause naming the Seller, its successors and
assigns as mortgagee and all premiums thereon have been paid. If the Mortgaged
Property is in an area identified on a Flood Hazard Map or Flood Insurance Rate
Map issued by the Federal Emergency Management Agency as having special flood
hazards (and such flood insurance has been made available) a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration is in effect which policy conforms to the requirements
of FNMA and FHLMC. The Mortgage obligates the Mortgagor thereunder to maintain
all such insurance at the Mortgagor's cost and expense, and on the Mortgagor's
failure to do so, authorizes the holder of the Mortgage, to maintain such
insurance at Mortgagor's cost and expense and to seek reimbursement therefor
from the Mortgagor;
(viii) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the origination and servicing of Mortgage Loan have been
complied with;
(ix) The Mortgage has not been satisfied, cancelled, subordinated or
rescinded, in whole or in part, and the Mortgaged Property has not been released
from the lien of the Mortgage, in whole or in part, nor has any instrument been
executed that would effect any such satisfaction, cancellation, subordination,
rescission or release;
(x) The Mortgage is a valid, existing and enforceable first lien or second
lien on the Mortgaged Property, including all improvements on the Mortgaged
Property subject only to (a) the lien of current real property taxes and
assessments not yet due and payable, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of the public record as of the date
of recording being acceptable to mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy delivered to the
originator of the Mortgage Loan and which do not adversely affect the Appraised
Value of the Mortgaged Property, and (c) 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 or the use, enjoyment, value or
marketability of the related Mortgaged Property. Any security agreement, chattel
mortgage or equivalent document related to and delivered in connection with the
Mortgage Loan establishes and creates a valid, existing and enforceable first
lien or second lien and first or second priority security interest on the
property described therein and the Seller has full right to sell and assign the
same to the Purchaser. The Mortgaged Property was not, as of the date of
origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to
secured debt or other security instrument creating a lien subordinate to the
lien of the Mortgage;
(xi) The Mortgage Note and the related Mortgage are genuine and each is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms;
(xii) All parties to the Mortgage Note and the Mortgage had legal capacity
to enter
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into the Mortgage Loan and to execute and deliver the Mortgage Note and the
Mortgage, and the Mortgage Note and the Mortgage have been duly and properly
executed by such parties;
(xiii) The proceeds of the Mortgage Loan have been fully disbursed to or
for the account of the Mortgagor and there is no obligation for the Mortgagee to
advance additional funds thereunder and any and all requirements as to
completion of any on-site or off-site improvement and as to disbursements of any
escrow funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing the Mortgage Loan and the recording of the
Mortgage have been paid, and the Mortgagor is not entitled to any refund of any
amounts paid or due to the Mortgagee pursuant to the Mortgage Note or Mortgage;
(xiv) The Seller is the sole legal, beneficial and equitable owner of the
Mortgage Note and the Mortgage and has full right to transfer and sell the
Mortgage Loan to the Purchaser free and clear of any encumbrance, equity, lien,
pledge, charge, claim or security interest;
(xv) All parties which have had any interest in the Mortgage Loan, whether
as mortgagee, assignee, pledgee or otherwise, are (or, during the period in
which they held and disposed of such interest, were) in compliance with any and
all applicable "doing business" and licensing requirements of the laws of the
state wherein the Mortgaged Property is located;
(xvi) The Mortgage Loan is covered by an ALTA lender's title insurance
policy acceptable to FNMA or FHLMC, issued by a title insurer acceptable to FNMA
and FHLMC and qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring (subject to the exceptions contained in (x)(a) and
(b) above) the Seller, its successors and assigns as to the first priority lien
or second priority lien of the Mortgage in the original principal amount of the
Mortgage Loan and against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage
providing for adjustment in the Mortgage Interest Rate and Monthly Payment.
Additionally, such lender's title insurance policy affirmatively insures ingress
and egress to and from the Mortgaged Property, and against encroachments by or
upon the Mortgaged Property or any interest therein. The Seller is the sole
insured of such lender's title insurance policy, and such lender's title
insurance policy is in full force and effect and will be in full force and
effect upon the consummation of the transactions contemplated by this Agreement.
No claims have been made under such lender's title insurance policy, and no
prior holder of the related Mortgage, including the Seller, has done, by act or
omission, anything which would impair the coverage of such lender's title
insurance policy;
(xvii) There is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event which, with the
passage of time or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of acceleration, and the
Seller has not waived any default, breach, violation or event of acceleration;
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(xviii) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material (and no rights are outstanding that
under law could give rise to such lien) affecting the related Mortgaged Property
which are or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;
(xix) All improvements which were considered in determining the Appraised
Value of the related Mortgaged Property lay wholly within the boundaries and
building restriction lines of the Mortgaged Property, and no improvements on
adjoining properties encroach upon the Mortgaged Property;
(xx) Principal payments on the Mortgage Loan commenced no more than sixty
days after the proceeds of the Mortgage Loan were disbursed. The Mortgage Loan
bears interest at the Mortgage Interest Rate. With respect to each Mortgage
Loan, the Mortgage Note provides for Monthly Payments which are changed on each
Adjustment Date to an amount which will fully amortize the Stated Principal
Balance of the Mortgage Loan over its remaining term at the Mortgage Interest
Rate. The Mortgage Note does not permit negative amortization;
(xxi) The origination and collection practices used by the
Seller with respect to each Mortgage Note and Mortgage have been in all respects
legal, proper, prudent and customary in the mortgage origination and servicing
industry. The Mortgage Loan has been serviced by the Seller and any predecessor
servicer in accordance with the terms of the Mortgage Note. With respect to
escrow deposits and Escrow Payments, if any, all such payments are in the
possession of, or under the control of, the Seller and there exist no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or Escrow Payments or
other charges or payments due the Seller have been capitalized under any
Mortgage or the related Mortgage Note;
(xxii) The Mortgaged Property is free of damage and waste and there is no
proceeding pending for the total or partial condemnation thereof;
(xxiii) The Mortgage and related Mortgage Note contain customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (a) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by
judicial foreclosure. The Mortgaged Property has not been subject to any
bankruptcy proceeding or foreclosure proceeding and the Mortgagor has not filed
for protection under applicable bankruptcy laws. There is no homestead or other
exemption available to the Mortgagor which would interfere with the right to
sell the Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage. The Mortgagor has not notified the Seller and the Seller has no
knowledge of any relief requested or allowed to the Mortgagor under the Soldiers
and Sailors Civil Relief Act of 1940;
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(xxiv) The Mortgage Note is not and has not been secured by any collateral
except the lien of the corresponding Mortgage on the Mortgaged Property and the
security interest of any applicable security agreement or chattel mortgage
referred to in (ix) above;
(xxv) The Mortgage File contains an appraisal of the related Mortgaged
Property made and signed, prior to the approval of the Mortgage Loan
application, by a qualified appraiser, duly appointed by the Seller, who had no
interest, direct or indirect in the Mortgaged Property or in any loan made on
the security thereof, whose compensation is not affected by the approval or
disapproval of the Mortgage Loan and who met the minimum qualifications of FNMA
and FHLMC. Each appraisal of the Mortgage Loan was made in accordance with the
relevant provisions of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989;
(xxvi) In the event the Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Purchaser to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor;
(xxvii) No Mortgage Loan contains provisions pursuant to which Monthly
Payments are (a) paid or partially paid with funds deposited in any separate
account established by the Seller, the Mortgagor, or anyone on behalf of the
Mortgagor, (b) paid by any source other than the Mortgagor or (c) contains any
other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature;
(xxviii) The Mortgagor has executed a statement to the effect that the
Mortgagor has received all disclosure materials required by applicable law with
respect to the making of mortgage loans and rescission materials with respect to
Refinanced Mortgage Loans, and such statement is and will remain in the Mortgage
File;
(xxix) No Mortgage Loan was made in connection with (a) the construction or
rehabilitation of a Mortgaged Property or (b) facilitating the trade-in or
exchange of a Mortgaged Property;
(xxx) The Seller has no knowledge of any circumstances or condition with
respect to the Mortgage, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that can reasonably be expected to cause the
Mortgage Loan to be an unacceptable investment, cause the Mortgage Loan to
become delinquent, or adversely affect the value of the Mortgage Loan;
(xxxi) Each First Mortgage Loan with an LTV at origination in excess of
90% is and will be subject to a Primary Mortgage Insurance Policy, issued by a
Qualified Insurer, which
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insures that portion of the Mortgage Loan in excess of 75% of the Appraised
Value of the Mortgaged Property. All provisions of such Primary Insurance Policy
have been and are being complied with, such policy is in full force and effect,
and all premiums due thereunder have been paid. Any Mortgage subject to any such
Primary Insurance Policy obligates the Mortgagor thereunder to maintain such
insurance and to pay all premiums and charges in connection therewith. The
Mortgage Interest Rate for the Mortgage Loan does not include any such insurance
premium;
(xxxii) The Combined Loan-to-Value Ratio of any Second Mortgage
Loan, at origination was not more than -N/A__%;
(xxxiii) Unless identified in the Confirmation, the Mortgaged Property is
lawfully occupied under applicable law; all inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property and, with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy, have been made or
obtained from the appropriate authorities;
(xxxiv) (a) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Mortgage Loan has taken place on the part
of any person, including without limitation the Mortgagor, any appraiser, any
builder or developer, or any other party involved in the origination of the
Mortgage Loan or in the application of any insurance in relation to such
Mortgage Loan and (b) no action has been taken or failed to be taken, no event
has occurred and no state of facts exists or has existed on or prior to the
Closing Date (whether or not known to the Seller on or prior to such date) which
has resulted or will result in an exclusion from, denial of, or defense to
coverage under any Primary Insurance Policy (including, without limitation, any
exclusions, denials or defenses which would limit or reduce the availability of
the timely payment of the full amount of the loss otherwise due thereunder to
the insured) whether arising out of actions, representations, errors, omissions,
negligence, or fraud of the Seller, the related Mortgagor or any party involved
in the application for such coverage, including the appraisal, plans and
specifications and other exhibits or documents submitted therewith to the
insurer under such insurance policy, or for any other reason under such
coverage, but not including the failure of such insurer to pay by reason of such
insurer's breach of such insurance policy or such insurer's financial inability
to pay;
(xxxv) The Assignment of Mortgage is in recordable form and is acceptable
for recording under the laws of the jurisdiction in which the Mortgaged Property
is located;
(xxxvi) Any principal advances made to the Mortgagor prior to the Cut-off
Date have been consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term. The lien of the Mortgage securing the
consolidated principal amount is expressly insured as having first lien priority
or second lien priority by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to FNMA and FHLMC. The
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consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan;
(xxxvii) No Mortgage Loan has a balloon payment feature, unless approved
in writing by the Purchaser; and
(xxxviii) If the Residential Dwelling on the Mortgaged Property is a
condominium unit or a unit in a planned unit development (other than a de
minimis planned unit development) such condominium or planned unit development
project meets the applicable Qualified Insurer's eligibility requirements.
Subsection 7.03. Remedies for Breach of Representations and Warranties.
It is understood and agreed that the representations and warranties set
forth in Subsections 7.01 and 7.02 shall survive the sale of the Mortgage Loans
to the Purchaser and shall inure to the benefit of the Purchaser,
notwithstanding any restrictive or qualified endorsement on any Mortgage Note or
Assignment of Mortgage or the examination or lack of examination of any Mortgage
File. Upon discovery by either the Seller or the Purchaser of a breach of any of
the foregoing representations and warranties which materially and adversely
affects the value of the Mortgage Loans or the interest of the Purchaser (or
which materially and adversely affects the interests of the Purchaser in the
related Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan), the party discovering such breach shall give prompt
written notice to the other.
Within 60 days of notice to the Seller of any breach of a representation or
warranty which materially and adversely affects the value of a Mortgage Loan or
the Mortgage Loans, the Seller shall use its best efforts promptly to cure such
breach in all material respects and, if such breach cannot be cured, the Seller
shall, at the Purchaser's option, repurchase such Mortgage Loan at the
Repurchase Price. In the event that a breach shall involve any representation or
warranty set forth in Subsection 7.01 and such breach cannot be cured within 60
days of notice to the Seller of such breach, all of the Mortgage Loans shall, at
the Purchaser's option, be repurchased by the Seller at the Repurchase Price.
Any repurchase of a Mortgage Loan(s) pursuant to the foregoing provisions of
this Subsection 7.03 shall occur on a date designated by the Purchaser and shall
be accomplished by wire transfer of immediately available funds on the
repurchase date to an account designated by the Purchaser.
At the time of repurchase, the Purchaser and the Seller shall arrange for
the reassignment of the repurchased Mortgage Loan to the Seller and the delivery
to the Seller of any documents held by the Purchaser relating to the repurchased
Mortgage Loan. Upon such repurchase the related Mortgage Loan Schedule shall be
amended to reflect the withdrawal of the repurchased Mortgage Loan from this
Agreement.
In addition to such cure and repurchase obligation, the Seller shall
indemnify the
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Purchaser and hold it harmless against any losses, damages, penalties, fines,
forfeitures, reasonable and necessary legal fees and related costs, judgments,
and other costs and expenses resulting from any claim, demand, defense or
assertion based on or grounded upon, or resulting from, a breach of the
Seller's representations and warranties contained in this Section 7. It is
understood and agreed that the obligations of the Seller set forth in this
Subsection 7.03 to cure or repurchase a defective Mortgage Loan and to
indemnify the Purchaser as provided in this Subsection 7.03 constitute the sole
remedies of the Purchaser respecting a breach of the foregoing representations
and warranties.
Any cause of action against the Seller relating to or arising out of the
breach of any representations and warranties made in Subsections 7.01 or 7.02
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the
Seller to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
Subsection 7.04 Repurchase of Certain Mortgage Loans.
In the event that (i) the first due date for a Mortgage Loan under the
terms of the related Mortgage Note is subsequent to the Cut-off Date and the
initial Monthly Payment is not made within 30 days of such due date, (ii) a
Monthly Payment due prior to the related Cut-off Date is not made within 30 days
of the related due date or (iii) the principal balance due on a Mortgage Loan is
paid in full within 30 days of the related Closing Date, then, in each such
case, the Seller shall repurchase the affected Mortgage Loans at the Repurchase
Price, which shall be paid as provided for in Subsection 7.03.
SECTION 8. Closing. The closing for each Mortgage Loan Package
shall take place on the related Closing Date. At the Purchaser's option, the
closing shall be either: by telephone, confirmed by letter or wire as the
parties shall agree, or conducted in person, at such place as the parties shall
agree.
The closing for the Mortgage Loans to be purchased on each Closing Date
shall be subject to each of the following conditions:
(a) all of the representations and warranties of the Seller under this
Agreement shall be true and correct as of the related Closing Date and
no event shall have occurred which, with notice or the passage of time,
would constitute a default under this Agreement;
(b) the Initial Purchaser shall have received, or the Initial Purchaser's
attorneys shall have received in escrow, all Closing Documents as
specified in Section 9, in such forms as are agreed upon and acceptable
to the Purchaser, duly executed by all signatories other than the
Purchaser as required pursuant to
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the terms hereof, and
(c) all other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Initial purchaser shall pay to the
Seller on the related Closing Date the Purchase Price, plus accrued interest
pursuant to Section 4, by wire transfer of immediately available funds to the
account designated by the Seller.
SECTION 9. Closing Documents.
(a) On or before the Initial Closing Date, the Seller shall submit to the
Initial Purchaser fully executed originals of the following documents:
1. this Agreement, in two counterparts;
2. an Officer's Certificate, in the form of Exhibit 1 hereto, including
all attachments thereto;
3. an Opinion of Counsel to the Seller, in the form of Exhibit 2 hereto;
and
4. the Seller's underwriting guidelines.
(b) The Closing Documents for the Mortgage Loans to be purchased on each
Closing Date shall consist of fully executed originals of the following
documents:
1. the related Confirmation;
2. the related Mortgage Loan Schedule, one copy to be attached hereto;
3. an Officer's Certificate, in the form of Exhibit 1 hereto, including
all attachments thereto;
4. if requested by the Initial Purchaser, an Opinion of Counsel to the
Seller, in the form of Exhibit 2 hereto;
5. a Security Release Certification, in the form of Exhibit 3 hereto
executed by any Person, as requested by the Initial Purchaser, if any
of the Mortgage Loans has at any time been subject to any security
interest, pledge or hypothecation for the benefit of such Person;
6. a certificate or other evidence of merger or change of name, signed or
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stamped by the applicable regulatory authority, if any of the Mortgage
Loans were acquired by the Seller by merger or acquired or originated
by the Seller while conducting business under a name other than its
present name, if applicable; and
7. an Assignment and Conveyance in the form of Exhibit 4 hereto.
SECTION 10. Costs. The Purchaser shall pay any commissions due its salesmen
and the legal fees and expenses of its attorneys. All other costs and expenses
incurred in connection fee with the transfer and delivery of the Mortgage Loans,
including without limitation recording fees, fees for title policy endorsements
and continuations, fees for recording Assignments of Mortgage and the Seller's
attorney's fees, shall be paid by the Seller.
SECTION 11. Seller's Servicing Obligations. The Seller hereby agrees to
transfer the servicing of each Mortgage Loan to the Initial Purchaser or its
designee on the Closing Date or such later date designated by the Initial
Purchaser. In the event that the servicing of any Mortgage Loan is transferred
to the Initial Purchaser or its designee following the Closing Date, the Seller,
as independent contract servicer, shall service and administer the Mortgage
Loans prior to the transfer date on an actual/actual basis in accordance with
the Interim Servicing Agreement attached hereto as Exhibit 7.
On the Closing Date or such other date designated by the Initial Purchaser,
the Seller shall transfer the servicing of the Mortgage Loans to the Initial
Purchaser or its designee in accordance with customary procedures and the
servicing transfer instructions provided by the Initial Purchaser or its
designee. The Seller shall prepare, execute and deliver, any and all documents
and other instruments, place in the Initial Purchaser's or its designee's
possession all Mortgage Files, and do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement or assignment of the Mortgage
Loans and related documents, or otherwise, at the Seller's sole expense. The
Seller agrees to cooperate with the Purchaser and such successor in effecting
the termination of the Seller's responsibilities and rights hereunder as
servicer, including, without limitation, the transfer to such successor for
administration by it of all cash amounts which shall at the time be credited by
the Seller to any account maintained by the Seller or thereafter received with
respect to the Mortgage Loans.
The Seller shall execute and deliver such instruments and do such other
things all as may reasonably be required to more fully and definitely vest and
confirm in the successor all such rights, powers, duties, responsibilities,
obligations and liabilities of the Seller as servicer.
SECTION 12. Removal of Mortgage Loans from Inclusion Under this Agreement
Upon a Whole Loan Transfer or a Pass-Through Transfer on One or
More Reconstitution Dates.
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The Seller acknowledges and the Initial Purchaser agrees that with respect
to some or all of the Mortgage Loans, the Initial Purchaser shall effect either:
(1) one or more Whole Loan Transfers; and/or
(2) one or more Pass-Through Transfers,
With respect to each Whole Loan Transfer or Pass-Through Transfer, as the
case may be, entered into by the Initial Purchaser, the Seller agrees:
(1) to cooperate fully with the Initial Purchaser and any prospective
purchaser with respect to all reasonable requests and due diligence
procedures, including participating in meetings with rating agencies,
bond insurers and such other parties as the Initial Purchaser shall
designate and participating in meetings with prospective purchasers of
the Mortgage Loans or interests therein and providing information
reasonably requested by such purchasers;
(2) to execute all Reconstitution Agreements, provided that both the Seller
and the Initial Purchaser are given an opportunity to review and
reasonably negotiate in good faith the content of such documents not
specifically referenced or provided for herein;
(3) to make the representations and warranties regarding the Seller and, if
such Whole Loan Transfer or Pass-Through Transfer occurs within [twelve
(12)] months of the Closing Date or such later period as specified in
the Confirmation Letter, the Mortgage Loans, as of the date of the
Whole Loan Transfer or Pass-Through Transfer, modified to the extent
necessary to accurately reflect the pool statistics of the Mortgage
Loans as of the date of such Whole Loan Transfer or Pass-Through
Transfer and any events or circumstances existing subsequent to the
related Closing Date;
(4) to deliver to the Initial Purchaser for inclusion in any prospectus or
other offering material such publicly available information regarding
the Seller, its financial condition and its mortgage loan delinquency,
foreclosure and loss experience and any additional information
requested by the Initial Purchaser, and to deliver to the Initial
Purchaser any similar non public, unaudited financial information
(which the Initial Purchaser may, at its option and at its cost, have
audited by certified public accountants) and such other information as
is reasonably requested by the Purchaser and which the Seller is
capable of providing without unreasonable effort or expense, and to
indemnify the Initial Purchaser and its affiliates for material
misstatements
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contained in such information;
(5) to deliver to the Initial Purchaser and to any Person designated by the
Initial Purchaser, at the Initial Purchaser's expense, such statements
and audit letters of reputable, certified public accountants pertaining
to information provided by the Seller pursuant to paragraph 4 above as
shall be reasonably requested by the Initial Purchaser;
(6) to deliver to the Initial Purchaser, and to any Person designated by
the Initial Purchaser, such legal documents and in-house opinions of
counsel as are customarily delivered by originators or servicers, as
the case may be, and reasonably determined by the Initial Purchaser to
be necessary in connection with Whole Loan Transfers or Pass-Through
Transfers, as the case may be, such in-house opinions of counsel for a
Pass-Through Transfer to be in a form reasonably acceptable to the
Initial Purchaser, it being understood that the cost of any opinions of
outside special counsel that may be required for a Whole Loan Transfer
or Pass-Through Transfer, as the case may be, shall be the
responsibility of the Initial Purchaser; and
(7) to cooperate fully with the Initial Purchaser and any prospective
purchaser with respect to the preparation (including, but not limited
to, the endorsement, delivery, assignment, and execution) of the
Mortgage Loan Documents and other related documents.
SECTION 13. The Seller.
Subsection 13.01. Additional Indemnification by the Seller.
In addition to the indemnification provided in Subsection 7.03, the Seller
shall indemnify the Purchaser and hold the Purchaser harmless against any and
all claims, losses, damages, penalties, fines, forfeitures, reasonable and
necessary legal fees and related costs, judgments, and any other costs, fees and
expenses that the Purchaser may sustain in any way related to the failure of the
Seller to perform its obligations under this Agreement including but not limited
to its obligation to maintain, service and administer the Mortgage Loans in
strict compliance with the terms of this Agreement or any Reconstitution
Agreement entered into pursuant to Section 12.
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Subsection 13.02. Merger or Consolidation of the Seller.
The Seller shall keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the state of its incorporation
except as permitted herein, and shall obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans, and to enable the
Seller to perform its duties under this Agreement.
Any Person into which the Seller may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Seller shall be a party, or any Person succeeding to the business of the Seller,
shall be the successor of the Seller hereunder, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided, however, that the
successor or surviving Person shall be an institution whose deposits are insured
by FDIC or a company whose business is the origination and servicing of mortgage
loans.
Subsection 13.03. Limitation on Liability of the Seller and Others.
Neither the Seller nor any of the officers, employees or agents of the
Seller shall be under any liability to the Purchaser for any action taken or for
refraining from the taking of any action in good faith in connection with the
servicing of the Mortgage Loans pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Seller or
any such person against any breach of warranties or representations made herein,
or failure to perform its obligations in strict compliance with any standard of
care set forth in this Agreement, or any liability which would otherwise be
imposed by reason of any breach of the terms and conditions of this Agreement.
The Seller and any officer, employee or agent of the Seller may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Seller shall not be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its obligation to sell or duty to service the Mortgage Loans
in accordance with this Agreement and which in its opinion may involve it in any
expenses or liability; provided, however, that the Seller may, with the consent
of the Purchaser, undertake any such action which it may deem necessary or
desirable in respect to this Agreement and the rights and duties of the parties
hereto. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities for which
the Purchaser shall be liable, the Seller shall be entitled to reimbursement
therefor from the Purchaser upon written demand except when such expenses, costs
and liabilities are subject to the Seller's indemnification under Subsections
7.03 or 13.01.
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Subsection 13.04. Seller Not to Resign.
The Seller shall not assign this Agreement or resign from the obligations
and duties hereby imposed on it except by mutual consent of the Seller and the
Purchaser or upon the determination that its servicing duties hereunder are no
longer permissible under applicable law and such incapacity cannot be cured by
the Seller in which event the Seller may resign as servicer. Any such
determination permitting the resignation of the Seller as servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Purchaser
which Opinion of Counsel shall be in form and substance acceptable to the
Purchaser.
Subsection 13.05. Seller Not to Solicit. From and after the effective date
of this Agreement, the Seller shall not directly or indirectly solicit, and the
Seller shall exercise reasonable efforts to prevent any of its affiliates from
directly or indirectly soliciting, by means of direct mail, or telephonic or
personal solicitation, the Mortgagors of any of the Mortgage Loans for purposes
of prepayment or refinance or modification of such Mortgage Loans; it being
understood and agreed that all rights and benefits relating to the direct
solicitation of such Mortgagors and attendant rights, title and interest in and
to the list of such Mortgagors and data relating to their Mortgage Loans
(including insurance renewal dates) shall be transferred to the Purchaser
pursuant hereto on the Closing Date, and the benefits of such transfer shall
inure to the Purchaser from and after the effective date of this Agreement, and
the Seller and its affiliates shall take no action after the date hereof to
adversely affect such rights and benefits. It is understood and agreed that (1)
promotions undertaken by the Seller or any affiliate of the Seller which are
directed to the general public at large, including without limitation mass
mailings based on commercially acquired mailing lists, newspaper, radio and
television advertisements, and (ii) unsolicited requests made by customers to
retail branches or offices of the Seller or its affiliates shall not constitute
solicitation under this Subsection 13.05.
SECTION 14. Financial Statements. The Seller understands that in
connection with the Purchaser's marketing of the Mortgage Loans, the Purchaser
shall make available to prospective purchasers the Seller's financial statements
for the most recently completed three fiscal years respecting which such
statements are available. The Seller also shall make available any comparable
interim statements to the extent any such statements have been prepared by the
Seller (and are available upon request to members or stockholders of the Seller
or the public at large). The Seller, if it has not already done so, agrees to
furnish promptly to the Purchaser copies of the statements specified above. The
Seller also shall make available information on its servicing performance with
respect to mortgage loans serviced for others, including delinquency ratios.
The Seller also agrees to allow access to knowledgeable
financial, accounting, origination and servicing officers of the Seller for the
purpose of answering questions asked by any prospective purchaser regarding
recent developments affecting the Seller, its loan origination or servicing
practices or the financial statements of the Seller.
-29-
<PAGE>
SECTION 15. Mandatory Delivery: Grant of Security Interest. The sale and
delivery of each Mortgage Loan on or before the related Closing Date is
mandatory from and after the date of the execution of the related Confirmation,
it being specifically understood and agreed that each Mortgage Loan is unique
and identifiable on the date hereof and that an award of money damages would be
insufficient to compensate the Initial Purchaser for the losses and damages
incurred by the Initial Purchaser (including damages to prospective purchasers
of the Mortgage Loans) in the event of the Seller's failure to deliver each of
the related Mortgage Loans or one, or more Mortgage Loans otherwise acceptable
to the Initial Purchaser on or before the related Closing Date. The Seller
hereby grants to the Initial Purchaser a lien on and a continuing security
interest in each Mortgage Loan and each document and instrument evidencing each
such Mortgage Loan to secure the performance by the Seller of its obligation
hereunder, and the Seller agrees that it holds such Mortgage Loans in custody
for the Initial Purchaser subject to the Initial Purchaser's (i) right to reject
any Mortgage Loan under the terms of this Agreement and the related
Confirmation, and (ii) obligation to pay the related Purchase Price for the
Mortgage Loans. All rights and remedies of the Purchaser under this Agreement
are distinct from, and cumulative with, any other rights or remedies under this
Agreement or afforded by law or equity and all such rights and remedies may be
exercised concurrently, independently or successively.
SECTION 16. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed, by
registered or certified mail, return receipt requested, or, if by other means,
when received by the other party at the address as follows:
(i) if to the Seller:
Westmark Mortgage Corporation
355 N.E. 5th Avenue, Suite 4
Delray Beach, FL 33483
Attn.: Mark Schaftlein
(ii) if to the Purchaser:
Southern Pacific Funding Corporation
1 Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
Attention: Bulk Acquisitions
or such other address as may hereafter be furnished to the other party by like
notice. Any such demand, notice or communication hereunder shall be deemed to
have been received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt).
-30-
<PAGE>
SECTION 17. Severability Clause. Any part, provision, representation or
warranty of this Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation or warranty of this Agreement which is prohibited or
unenforceable or is held to be void or unenforceable in any jurisdiction shall
be ineffective, as to such jurisdiction, to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereto
waive any provision of law which prohibits or renders void or unenforceable any
provision hereof. If the invalidity of any part, provision, representation or
warranty of this Agreement shall deprive any party of the economic benefit
intended to be conferred by this Agreement, the parties shall negotiate, in
good-faith, to develop a structure the economic effect of which is nearly as
possible the same as the economic effect of this Agreement without regard to
such invalidity.
SECTION 18. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts. Each counterpart shall be deemed to be an original,
and all such counterparts shall constitute one and the same instrument.
SECTION 19. Governing Law. The Agreement shall be construed in accordance
with the laws of the State of California and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California, except to the extent preempted by Federal law.
SECTION 20. Intention of the Parties. It is the intention of the parties
that the Initial Purchaser is purchasing, and the Seller is selling, the
Mortgage Loans and not a debt instrument of the Seller or another security.
Accordingly, the parties hereto each intend to treat the transaction for Federal
income tax purposes as a sale by the Seller, and a purchase by the Purchaser, of
the Mortgage Loans. The Initial Purchaser shall have the right to review the
Mortgage Loans and the related Mortgage Loan Files to determine the
characteristics of the Mortgage Loans which shall affect the Federal income tax
consequences of owning the Mortgage Loans and the Seller shall cooperate with
all reasonable requests made by the Initial Purchaser in the course of such
review.
-31-
<PAGE>
SECTION 21. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by the Seller and the Purchaser and the
respective successors and assigns of the Seller and the Purchaser. The Purchaser
may assign this Agreement to any Person to whom any Mortgage Loan is transferred
whether pursuant to a sale or financing and to any Person to whom the servicing
or master servicing of any Mortgage Loan is sold or transferred. Upon any such
assignment and written notice thereof to the Seller, the Person to whom such
assignment is made shall succeed to all rights and obligations of the Purchaser
under this Agreement to the extent of the related Mortgage Loan or Mortgage
Loans and this Agreement, to the extent of the related Mortgage Loan or Loans,
shall be deemed to be a separate and distinct Agreement between the Seller and
such Purchaser, and a separate and distinct Agreement between the Seller and
each other Purchaser to the extent of the other related Mortgage Loan or Loans.
This Agreement shall not be assigned, pledged or hypothecated by the Seller to a
third party without the consent of the Purchaser.
SECTION 22. Waivers. No term or provision of this Agreement may be waived
or modified unless such waiver or modification is in writing and signed by the
party against whom such waiver or modification is sought to be enforced.
SECTION 23. Exhibits. The exhibits to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 24. General Interpretive Principles. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to them
in this Agreement and include the plural as well as the singular, and the use of
any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to "Articles," "Sections," "Subsections,"
"Paragraphs," and other Subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
(d) reference to a Subsection without further reference to a Section is a
reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(e) the words "herein," "hereof," "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular provision;
and
-32-
<PAGE>
(f) the term "include" or "including" shall mean without limitation by
reason of enumeration.
SECTION 25. Reproduction of Documents. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
SECTION 26. Further Agreements. The Seller and the Purchaser each agree to
execute and deliver to the other such reasonable and appropriate additional
documents, instruments or agreements as may be necessary or appropriate to
effectuate the purposes of this Agreement.
Without limiting the generality of the foregoing, the Seller shall
cooperate with the Purchaser in connection with any Whole Loan Transfer or
Pass-Through Transfer contemplated by the Initial Purchaser pursuant to Section
12 hereof. In such connection, the Seller shall (a) execute any agreement in
accordance with the provisions of Section 12, and (b) provide to the Initial
Purchaser or any prospective purchaser: (i) any and all information and
appropriate verification of information, whether through letters of its auditors
and counsel or otherwise, as the Initial Purchaser shall reasonably request; and
(ii) such representations, warranties, covenants, opinions of counsel, letters
from auditors, and certificates of public officials or officers of the Seller as
are reasonably believed necessary by the Initial Purchaser in connection with
such transactions. The requirement of the Seller pursuant to (ii) above shall
terminate on the final Reconstitution Date. Prior to incurring any out-of-pocket
expenses pursuant to this paragraph, the Seller shall notify the Initial
Purchaser in writing of the estimated amount of such expense. The Initial
Purchaser shall reimburse the Seller for any such expense following its receipt
of appropriate details thereof.
-33-
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to
be signed hereto by their respective officers thereunto duly authorized as of
the date first above written.
SOUTHERN PACIFIC FUNDING CORPORATION
(Initial Purchaser)
By: /s/ Donna Mae Jones
----------------------------------
Name: Donna Mae Jones
Title: Senior Vice President
WESTMARK MORTGAGE CORPORATION
(Seller)
By: /s/ Mark Schaftlein
----------------------------------
Name: Mark Schaftlein
Title: President
-34-
<PAGE>
EXHIBIT I
SELLER'S OFFICER'S CERTIFICATE
1, Mark Schaftlein, hereby certify that I am the duly elected President of
WESTMARK MORTGAGE CORPORATION, a California corporation (the "Seller"), and
further certify, on behalf of the Seller as follows:
1. Attached hereto as Attachment I are a true and correct copy of the
Certificate of Incorporation and by-laws of the Seller as are in full
force and effect on the date hereof. No event has occurred since November
6, 1996 which has affected the good standing of the Seller under the laws
of the State of California.
2. No proceedings looking toward merger, liquidation, dissolution or
bankruptcy of the Seller are pending or contemplated.
3. Each person who, as an officer or attorney-in-fact of the Seller,
signed (a) the Master Mortgage Loan Purchase Agreement (the "Purchase
Agreement"), dated as of March 11, 1997, by and between the Seller and
Southern Pacific Funding Corporation (the "Purchaser"); (b) the
Confirmation, dated _____________, 199_, between the Seller and the
Purchaser (the "Confirmation"); and (c) any other document delivered prior
hereto or on the date hereof in connection with the sale and servicing of
the Mortgage Loans in accordance with the Purchase Agreement and the
Confirmation was, at the respective times of such signing and delivery, and
is as of the date hereof, duly elected or appointed, qualified and acting
as such officer or attorney-in-fact, and the signatures of such persons
appearing on such documents are their genuine signatures.
4. Attached hereto as Attachment 11 is a true and correct copy of the
resolutions duly adopted by the board of directors of the Seller on
______________, 199_. (the "Resolutions") with respect to the authorization
and approval of the sale and servicing of the Mortgage Loans; said
Resolutions have not been amended, modified, annulled or revoked and are in
full force and effect on the date hereof.
5. Attached hereto as Attachment III is a Certificate of Good Standing
of the Seller dated ______________, 199_.
6. All of the representations and warranties of the Seller contained in
Subsections 7.01 and 7.02 of the Purchase Agreement were true and correct
in all material respects as of the date of the Purchase Agreement and are
true and correct in all material respects as of the date hereof.
7. The Seller has performed all of its duties and has satisfied all the
material conditions on its part to be performed or satisfied prior to the
related Closing Date pursuant
<PAGE>
to the Purchase Agreement and the related Confirmation.
All capitalized terms used herein and not otherwise defined shall have the
meaning assigned to them in the Purchase Agreement.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of
the Seller.
Dated:
----------------------
[Seal]
WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein
----------------------------------
Name: Mark Schaftlein
Title: President
I, Barbara Nola, Secretary of Westmark Mortgage Corp. hereby certify that
Mark Schaftlein is the duly elected, qualified and acting President of the
Seller and that the signature appearing above is his genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated:_______________________
[Seal]
[NAME IN CAPS]
By: /s/ Barbara Nola
----------------------------------
Name: Barbara Nola
Title: [Assistant] Secretary
-36-
<PAGE>
EXHIBIT 2
---------
[FORM OF OPINION OF COUNSEL TO THE SELLER]
________________________________
(Date)
Southern Pacific Funding Corporation
1 Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
Re: Master Mortgage Loan Purchase Agreement, dated as of March 11,
1997.
Gentlemen:
I have acted as counsel to WESTMARK MORTGAGE CORPORATION, a California
corporation (the "Seller"), in connection with the sale of certain mortgage
loans by the Seller to Southern Pacific Funding Corporation (the "Purchaser")
pursuant to (i) a Master Mortgage Loan Purchase Agreement, dated as of March 11,
1997, between the Seller and the Purchaser (the "Purchase Agreement") [and the
Confirmation, dated ___________, 1995, between the Seller and the Purchaser (the
"Confirmation")]. Capitalized terms not otherwise defined herein have the
meanings set forth in the Purchase Agreement.
In connection with rendering this opinion letter, I, or attorneys working
under my direction, have examined, among other things, originals, certified
copies or copies otherwise identified to my satisfaction as being true copies of
the following:
A. The Purchase Agreement;
B. [The Confirmation;]
C. The Seller's Certificate of Incorporation and Bylaws, as amended to
date; and
D. Resolutions adopted by the Board of Directors of the Seller with
specific reference to actions relating to the transactions covered by
this opinion (the "Board Resolutions")
For the purpose of rendering this opinion, I have made such documentary,
factual
<PAGE>
and legal examinations as I deemed necessary under the circumstances. As to
factual matters, I have relied upon statements, certificates and other
assurances of public officials and of officers and other representatives of the
Seller, and upon such other certificates as I deemed appropriate, which factual
matters have not been independently established or verified by me. I have also
assumed, among other things, the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
me as originals, and the conformity to original documents of all documents
submitted to me as copies and the authenticity of the originals of such copied
documents.
On the basis of and subject to the foregoing examination, and in reliance
thereon, and subject to the assumptions, qualifications, exceptions and
limitations expressed herein, I am of the opinion that:
1. The Seller has been duly incorporated and is validly existing and in
good standing under the laws of the State of California with corporate power and
authority to own its properties and conduct its business as presently conducted
by it. The Seller has the corporate power and authority to service the Mortgage
Loans, and to execute, deliver, and perform its obligations under the Purchase
Agreement [and the Confirmation] (sometimes collectively, the "Agreements").
2. The Purchase Agreement [and the Confirmation] have been duly and validly
authorized, executed and delivered by the Seller.
3. The Purchase Agreement [and the Confirmation] constitute valid, legal
and binding obligations of the Seller, enforceable against the Seller in
accordance with their respective terms.
4. No consent, approval, authorization or order of any state or federal
court or government agency or body is required for the execution, delivery and
performance by the Seller of the Purchase Agreement [and the Confirmation], or
the consummation of the transactions contemplated by the Purchase Agreement [and
the Confirmation], except for those consents, approvals, authorizations or
orders which previously have been obtained.
5. Neither the servicing of the Mortgage Loans by the Seller as provided in
the Purchase Agreement [and the Confirmation,] nor the fulfillment of the terms
of or the consummation of any other transactions contemplated in the Purchase
Agreement [and the Confirmation] will result in a breach of any term or
provision of the certificate of incorporation or bylaws of the Seller, or, to
the best of my knowledge, will conflict with, result in a breach or violation
of, or constitute a default under, (i) the terms of any indenture or other
agreement or instrument known to me to which the Seller is a party or by which
it is bound, (ii) any State of ____________________________ or federal statute
or regulation applicable to the Seller, or (iii) any order of any State of
___________________________ or federal court, regulatory body, administrative
agency or governmental body having jurisdiction over the Seller, except in any
such case where the default, breach or violation
-2-
<PAGE>
would not have a material adverse effect on the Seller or its ability to perform
its obligations under the Purchase Agreement.
6. There is no action, suit, proceeding or investigation pending or, to the
best of my knowledge, threatened against the Seller which, in my judgment,
either in any one instance or in the aggregate, would draw into question the
validity of the Purchase Agreement or which would be likely to impair materially
the ability of the Seller to perform under the terms of the Purchase Agreement.
7. The sale of each Mortgage Note and Mortgage as and in the manner
contemplated by the Purchase Agreement is sufficient fully to transfer to the
Purchaser all right, title and interest of the Seller thereto as noteholder and
mortgagee.
18. The Assignments of Mortgage are in recordable form and upon completion
will be acceptable for recording under the laws of the State of
______________________ . When endorsed, as provided in the Purchase Agreement,
the Mortgage Notes will be duly endorsed under _______________________ law.
The opinions above are subject to the following additional assumptions,
exceptions, qualifications and limitations:
A. I have assumed that all parties to the Agreements other than the Seller
have all requisite power and authority to execute, deliver and perform their
respective obligations under each of the Agreements, and that the Agreements
have been duly authorized by all necessary corporate action on the part of such
parties, have been executed and delivered by such parties and constitute the
legal, valid and binding obligations of such parties.
B. My opinion expressed in paragraphs 3 and 7 above is subject
to the qualifications that (i) the enforceability of the Agreements may be
limited by the effect of laws relating to (1) bankruptcy, reorganization,
insolvency, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances or
preferential transfers, and (2) general principles of equity upon the specific
enforceability of any of the remedies, covenants or other provisions of the
Agreements and upon the availability of injunctive relief or other equitable
remedies and the application of principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) as such
principles relate to, limit or affect the enforcement of creditors' rights
generally and the discretion of the court before which any proceeding for such
enforcement may be brought; and (ii) I express no opinion herein with respect
to the validity, legality, binding effect or enforceability of (a) provisions
for indemnification in the Agreements to the extent such provisions may be held
to be unenforceable as contrary to public policy or (b) Section 15 of the
Purchase Agreement.
-3-
<PAGE>
C. I have assumed, without independent check or certification, that there
are no agreements or understandings among the Seller, the Purchaser and any
other party which would expand, modify or otherwise affect the terms of the
documents described herein or the respective rights or obligations of the
parties thereunder.
I am admitted to practice in the State of __________________________, and I
render no opinion herein as to matters involving the laws of any jurisdiction
other than the State of and the Federal laws of ___________________________ the
United States of America.
Very truly yours,
-4-
<PAGE>
EXHIBIT 3
---------
SECURITY RELEASE CERTIFICATION
I. Release of Security Interest
Westmark Mortgage Corporation, hereby relinquishes any and all right, title
and interest it may have in and to the Mortgage Loans described in Exhibit A
attached hereto upon purchase thereof by Southern Pacific Funding Corporation
from the Seller named below pursuant to that certain Master Mortgage Loan
Purchase Agreement, dated as of March,____________, as of the date and time of
receipt by _____________________________ of $ ________________________________
for such Mortgage Loans (the "Date and Time of Sale"), and certifies that all
notes, mortgages, assignments and other documents in its possession relating to
such Mortgage Loans have been delivered and released to the Seller named below
or its designees as of the Date and Time of Sale.
Name and Address of Financial Institution
- --------------------------------
(Name)
- --------------------------------
(Address)
By:
-----------------------------
-5-
<PAGE>
II. Certification of Release
----------------------------
The Seller named below hereby certifies to Southern Pacific
Funding Corporation that, as of the Date and Time of Sale of the above
mentioned Mortgage Loans to Southern Pacific Funding Corporation, the security
interests in the Mortgage Loans released by the above named corporation
comprise all security interests relating to or affecting any and all such
Mortgage Loans. The Seller warrants that, as of such time, there are and will
be no other security interests affecting any or all of such Mortgage Loans.
WESTMARK MORTGAGE CORPORATION
(Seller)
By: /s/ Mark Schaftlein
----------------------------------
Name: Mark Schaftlein
Title: President
-2-
<PAGE>
EXHIBIT 4
---------
ASSIGNMENT AND CONVEYANCE
On this day of March, 11, 1997, WESTMARK MORTGAGE CORPORATION ("Seller") as
the Seller under that certain Master Mortgage Loan Purchase Agreement, dated as
of March 11, 1997 (the "Agreement") does hereby sell, transfer, assign, set over
and convey to Southern Pacific Funding Corporation as Purchaser under the
Agreement, without recourse, but subject to the terms of the Agreement, all
rights, title and interest of the Seller in and to the Mortgage Loans listed on
the Mortgage Loan Schedule attached hereto, together with the related Mortgage
Files and all rights and obligations arising under the documents contained
therein. Pursuant to Section 6.03 of the Agreement, the Seller has delivered to
the Purchaser the documents for each Mortgage Loan to be purchased as set forth
in the Agreement. The contents of each related Servicing File required to be
retained by the Seller to service the Mortgage Loans pursuant to the Agreement
and thus not delivered to the Purchaser are and shall be held in trust by the
Seller for the benefit of the Purchaser as the owner thereof. The Seller's
possession of any portion of each such Servicing File is at the will of the
Purchaser for the sole purpose of facilitating servicing of the related Mortgage
Loan pursuant to the Agreement, and such retention and possession by the Seller
shall be in a custodial capacity only. The ownership of each Mortgage Note,
Mortgage, and the contents of the Mortgage File and Servicing File is vested in
the Purchaser and the ownership of all records and documents with respect to the
related Mortgage Loan prepared by or which come into the possession of the
Seller shall immediately vest in the Purchaser and shall be retained and
maintained, in trust, by the Seller at the will of the Purchaser in such
custodial capacity only.
The Seller confirms to the Purchaser that the representation and warranties
set forth in Sections 7.01 and 7.02 of the Agreement are true and correct as of
the date hereof, and that all statements made in the Seller's Officer's
Certificates and all Attachments thereto remain complete, true and correct in
all respects as of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein
----------------------------------
Name: Mark Schaftlein
Title: President
<PAGE>
EXHIBIT 5
---------
CONTENTS OF EACH MORTGAGE FILE
With respect to each Mortgage Loan, the Mortgage File shall include each of
the following items, which shall be available for inspection by the Purchaser
and which shall be retained by the Seller or delivered to the Purchaser:
1. Mortgage Loan Documents.
2. Residential loan application.
3. Mortgage Loan closing statement.
4. Verification of employment and income.
5. Verification of acceptable evidence of source and amount of
downpayment.
6. Credit report on Mortgagor.
7. Residential appraisal report.
8. Photograph of the Mortgaged Property.
9. Survey of the Mortgaged Property.
10. Copy of each instrument necessary to complete identification of any
exception set forth in the exception schedule in the tide policy, i.e.,
map or plat, restrictions, easements, sewer agreements, home
association declarations, etc.
11. All required disclosure statements and statement of Mortgagor
confirming receipt thereof.
12. If available, termite report, structural engineer's report, water
potability and septic certification.
13. Sales Contract.
14. Hazard insurance policy,
15. Tax receipts, insurance premium receipts, ledger sheets, payment
history from date of origination, insurance claim files,
correspondence, current and historical computerized data files, and all
other processing, underwriting and closing papers and records which are
customarily contained in a mortgage
<PAGE>
loan file and which are required to document the Mortgage Loan or to
service the Mortgage Loan.
16. Amortization schedule, if available.
17. Payment history for Mortgage Loans that have been closed for more than
90 days.
-2-
<PAGE>
EXHIBIT 6
---------
FORM OF CONFIRMATION
-3-
<PAGE>
EXHIBIT 7
---------
INTERIM SERVICING AGREEMENT
<PAGE>
SCHEDULE I
----------
MORTGAGE LOAN SCHEDULE
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into as of the
_____ day of April, 1997, by and between WESTMARK GROUP HOLDINGS, INC., a
Delaware corporation (the "Company"), and MARK SCHAFTLEIN ("Executive").
W I T N E S S E T H:
WHEREAS, Company desires to employ Executive as provided herein; and
WHEREAS, Executive desires to accept such employment. NOW, THEREFORE,
for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Company hereby employs Executive and Executive hereby
accepts employment with Company upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Company to
elect and remove officers, Executive will serve Westmark Mortgage Corporation
and Westmark Group Holdings, Inc. as its President and Chief Executive Officer
and will faithfully and diligently perform the services and functions relating
to such offices or otherwise reasonably incident to such offices, provided that
all such services and functions will be reasonable and within Executive's area
of expertise. Executive will, during the term of this Agreement (or any
extension thereof), devote his full business time, attention and skills and best
efforts to the promotion of the business of Company. The foregoing will not be
construed as preventing Executive from making investments in other businesses or
enterprises provided that (a) Executive agrees not to become engaged in any
other business activity that interferes with his ability to discharge his duties
and responsibilities to Company and (b) Executive does not violate any other
provision of this Agreement.
3. TERM. Subject to the terms and conditions hereof, the term of
employment of Executive will commence as of the date hereof (the "Commencement
Date") and will end on that date in the year, 2000, unless earlier terminated by
either party pursuant to the terms hereof. The term of this Agreement is
referred to herein as the "Term." Assuming all conditions of this Agreement have
been satisfied and there has been no breach of the Agreement during its initial
term, the Company at may extend the term for additional one (1) year terms at
its election ("Extended Term"), written notice of which must be given at least
sixty (60) days prior to the end of such preceding term. In the event the
Company does not elect to extend the Term of this
<PAGE>
Agreement, Executive shall be entitled to severance pay equal to six months
Salary as defined below.
4. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT TERM. (a) SALARY.
Commencing upon the date of this Agreement, Executive
will be paid the first year an annual base salary of $150,000, the second year
an annual base salary of $162,000, the third year an annual base salary of
$174,000, payable in accordance with the then current payroll policies of
Company or as otherwise agreed to by the parties (the "Salary"). At any time and
from time to time the Salary may be increased for the remaining portion of the
term if so determined by the Board of Directors of Company after a review of
Executive's performance of his duties hereunder. Executive will not be entitled
to receive sales commissions.
(b) AUTOMOBILE ALLOWANCE. In addition the Executive's Salary, the
Executive shall receive a $400 per month car allowance. The Company shall also
pay all expenses and insurance relevant to the use of the automobile. The
Company shall provide the Executive with the use of a cellular telephone and the
use of a home personal computer and home fax machine.
(b) INCENTIVE STOCK OPTIONS. On the Commencement Date, the
Company and the Executive shall enter into a Stock Option Agreement (the "Stock
Option Agreement") pursuant to which the Company shall grant to the Executive
options (the "Options") as follows: 150,000 shares of Common Stock at the
exercise price of $1.00 per share, 75,000 shares of Common Stock at the exercise
price of $1.25 per share ,150,000 shares of Common Stock at the exercise price
of $1.50 per share, 75,000 shares of Common Stock at the exercise price of $1.75
per share and 150,00 shares of Common Stock at the exercise price of $2.00. The
Options shall be issued pursuant to the Company's 1996 Stock Option Plan (the
"Plan").
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Company will reimburse Executive in the same manner as
other executive officers for all reasonable and necessary or appropriate
out-of-pocket travel and other expenses incurred by Executive in rendering
services required under this Agreement.
(d) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Executive and his dependents will be entitled to receive such
group medical, dental and vision benefits as Company may provide to its
other Executives, provided such coverage is reasonably available, or be
reimbursed if Executive is carrying his own similar insurance.
Additionally, the Company shall obtain and maintain a Key Man Life
Insurance Policy in the amount of $500,000 on Executive.
(ii) BENEFIT PLANS. The Executive will be entitled to
participate in any benefit plan or program of the Company which may
currently be in place or implemented in the future.
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<PAGE>
(iii) OTHER BENEFITS. During the Term, Executive will be
entitled to receive, in addition to and not in lieu of base salary,
bonus or other compensation, such other benefits and normal perquisites
as Company currently provides or such additional benefits as Company may
provide for its executive officers in the future.
(e) VACATION. Executive will be entitled to four weeks of paid
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Executive's
duties hereunder, Executive recognizes and acknowledges that Executive may have
access to certain confidential and proprietary information of Company or any of
its affiliates. Without the prior written consent of Company, Executive shall
not disclose any such confidential or proprietary information to any person or
firm, corporation, association, or other entity for any reason or purpose
whatsoever, and shall not use such information, directly or indirectly, for
Executive's own behalf or on behalf of any other party. Executive agrees and
affirms that all such information is the sole property of Company and that at
the termination and/or expiration of this Agreement, at Company's written
request, Executive shall promptly return to Company any and all such information
so requested by Company.
The provisions of this Section 5 shall not, however, prohibit
Executive from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain
other than by acts, omissions or fault of Executive;
(b) has been furnished or made known to Executive by third
parties (other than those acting directly or indirectly for or on behalf of
Executive) as a matter of legal right without restriction on its use or
disclosure;
(c) was in the possession of Executive prior to obtaining such
information from Company in connection with the performance of this Agreement;
or
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted
by law indemnify, defend and hold harmless Executive from and against any and
all claims, demands, liabilities, damages, loses and expenses (including
reasonable attorney's fees, court costs and disbursements) arising out of the
performance by him of his duties hereunder except in the case of his willful
misconduct.
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<PAGE>
7. TERMINATION. A termination of this Agreement is either (i) for the
death or disability under section 7 (a) or 7 (b); (ii) with cause under Section
7 (c); or (iii) for good reason under Section 7 (d). All other terminations
shall be considered a breach of this Agreement.
(a) DISABILITY. The Company shall have the right to terminate the
employment of the Executive under this Agreement for disability in the event
Executive suffers an injury, illness, or incapacity of such character as to
substantially disable him from performing his duties without reasonable
accommodation by the Company hereunder for a period of more than one hundred
eighty (180) consecutive days upon the Company giving at least thirty (30) days
written notice of termination; provided, however, that if the Executive is
eligible to receive disability payments pursuant to a disability policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) DEATH. This Agreement will terminate on the Death of the Executive.
(c) WITH CAUSE. The Company may terminate this Agreement at any time
because of (i) Executive's material breach of any term of the Agreement, or (ii)
the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 7(c) unless
the Company shall first have delivered to the Executive, a notice which
specifically identifies such breach or misconduct and the executive shall not
have cured the same within fifteen (15) days after receipt of such notice.
(d) GOOD REASON. The Executive may terminate his employment for "Good
Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities, or status with
the Company as of the date hereof, or a change in his reporting responsibilities
or titles as in effect as of the date hereof;
(ii) his compensation is reduced;
(iii) The Company shall file a petition in bankruptcy or
re-organization under the federal bankruptcy statutes or an involuntary petition
is filed against the Company and not removed or withdrawn within thirty (30)
days, or the Company does not pay any material amount of compensation due
hereunder and then fails either to pay such amount within the ten (10) day
notice period required for termination hereunder or to contest in good faith
such notice. Further, if such contest is not resolved within thirty (30) days,
the Company shall submit such dispute to arbitration under Section 13.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of
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<PAGE>
this Agreement will not operate or be construed as a waiver of any subsequent
breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and personally
delivered or within two days if sent by mail, registered or certified, postage
prepaid with return receipt requested, as follows:
If to Company: Westmark Group Holdings, Inc.
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Board of Directors
If to Executive: Mark Schaftlein
355 N.E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. ARBITRATION. If a dispute should arise regarding this Agreement, all
claims, disputes controversies, differences or other matters in question arising
out of this relationship shall be settled finally, completely and conclusively
in accordance with the substantive law of the
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<PAGE>
State of Florida by arbitration, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). A decision of the
arbitrator shall be final, conclusive and binding on the Company and Executive.
Any arbitration held in accordance with this paragraph shall be private and
confidential and no person shall be entitled to attend the hearings except the
arbitrator, Executive, Executive's attorneys, a representative of the Company,
the Company's attorneys, and advisors to or witnesses for any party. The matters
submitted to arbitration, the hearings and proceedings and the arbitration award
shall be kept and maintained in the strictest confidence by Executive and the
Company and shall not be discussed, disclosed or communicated to any persons
except as may be required for the preparation of expert testimony. On request of
any party, the record of the proceeding shall be sealed and may not be disclosed
except insofar, and only insofar, as may be necessary to enforce the award of
the arbitrator and any judgement enforcing an award. The prevailing party shall
be entitled to recover reasonable and necessary attorneys' fees and costs from
the non-prevailing party and the determination of such fees and costs and the
award thereof shall be included in the claims to be resolved by the arbitrator
hereunder.
14. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter and the number
of all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMPANY:
WESTMARK GROUP HOLDINGS, INC.
By________________________________
Name:_____________________________
Title: ___________________________
EXECUTIVE:
MARK SCHAFTLEIN
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AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is entered into on the 27th day of August, 1997 by and
between WESTMARK GROUP HOLDINGS, INC., a Delaware corporation, and WESTMARK
MORTGAGE CORPORATION, California corporation (hereinafter collectively referred
to as "the Company"), and MARK SCHAFTLEIN ("Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
on April 25, 1997 and;
WHEREAS, the Company and Executive desire to modify said Employment
Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, said
Employment Agreement is hereby modified in the following respects:
1. Paragraph 4. Compensation and Benefits During the Employment Term,
(c) Incentive Stock Options shall be modified to read in its entirety as
follows:
Immediately upon the execution of this Agreement, the Company and
Executive shall enter into a Stock Option Agreement, pursuant to
which the Company shall issue options to Executive to acquire
600,000 shares of the common stock of Westmark Group Holdings,
Inc. Said options shall vest immediately at an exercise price of
$1.00. Said vested options may be exercised on or after the
following dates:
150,000 shares on March 31, 1998
75,000 shares on October 31, 1998
150,000 shares on March 31, 1999
75,000 shares on October 31, 1999
150,000 shares on March 31, 2000
In the event of a sale, divestiture, spin-off or transfer of all
or substantially all of the assets or stock of Westmark Mortgage
Corporation, all options granted hereunder to Executive shall
immediately become exercisable. Provided, however, that no option
shall be exercisable after the expiration of ten years from the
date said option was granted.
1
<PAGE>
2. Paragraph 7. Termination, (d) Good Reason, (v) shall be modified to
read in its entirety as follows;
In the event Executive terminates his employment for good reason
as hereinabove set forth, Executive shall be entitled to a lump
sum payment equal to the monthly compensation provided for in
this agreement multiplied by the number of months remaining in
the term of this agreement or any extension thereof, together
with all benefits, reimbursements or other rights to which
Employee has become entitled.
3. Paragraph 7. Termination, (e) Change of Control shall be added to
said agreement and shall read in its entirety as follows:
In the event of a change of control as set forth below, while
Executive is employed by the Company after the initial term of
employment, and in the further event Executive's employment is
terminated without cause, as defined herein above, the Company
shall pay to Executive a lump sum payment equal to the monthly
compensation provided for in this agreement multiplied by the
number of months remaining in the term of this agreement or any
extension thereof, together with all benefits, reimbursements or
other rights to which Executive has become entitled. Change of
control shall be defined as follows:
i. Any "person," including a "group" as determined in
accordance with Section 13, (d), (3) of the Securities
Exchange Act of 1934 (the "Exchange Act"), becomes, in a
single transaction or series of transactions, the beneficial
owner, directly or indirectly, of securities representing a
Control Percentage (as hereinafter defined) of the combined
voting power of the then outstanding securities of the
corporation not including a transaction caused by or
resulting from the affirmative vote of a majority of the
current members of the Board of Directors of Westmark Group
Holdings, Inc. (subject to Paragraph 3, ii);
ii. The membership of the board of directors as it exists at
the time of this Agreement changes such that the current
members of the board no longer constitute a majority of the
board of directors not including a change caused by or
resulting from any current board member's death or
resignation pursuant to Paragraph 7, (d) hereinafter, or the
affirmative vote of a majority of the current members of the
Board of Directors of Westmark Group Holdings, Inc.;
iii. The corporation is merged or consolidated with other
corporations in a single transaction or series of
transactions and as a result of such merger or consolidation
a Control Percentage of the outstanding voting securities of
2
<PAGE>
the surviving or resulting corporation shall no longer be
owned in the aggregate by the stockholders who owned stock
in the corporation as of the date prior to the merger or
consolidation not including a merger or consolidation caused
by or resulting from the affirmative vote of a majority of
the current members of the Board of Directors of Westmark
Group Holdings, Inc. (subject to Paragraph 3, ii). The term
"Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the
Securities Exchange Act of 1934, as amended ("Exchange
Act"), or at least 35% in the event the applicable
securities are not registered are not registered under the
Exchange Act;
iv. The corporation transfers all of its assets to another
corporation or to any other person or entity, including but
not limited to the transfer of the mortgage operations
through a sale of assets or stock, spin-off, divestiture or
initial public offering not including a transfer of assets
or stock caused by or resulting from the affirmative vote of
a majority of the current members of the Board of Directors
of Westmark Group Holdings, Inc. (subject to Paragraph 3,
ii).
v. In the event of a change of control as set forth above,
and Executive is requested to remain with the surviving or
successor corporation or business, with the same
compensation and commensurate duties as previously retained
by Executive subject to the same terms and conditions of
this agreement, and Executive rejects such request for
continuing employment, said Executive shall be entitled to a
lump sum severance payment equal to the compensation
provided in Paragraph 7, (d), (v) regarding termination for
good reason. Provided, however, that Executive shall not
inject such request for continuing employment without a
reasonable basis.
4. Paragraph 4. Compensation and Benefits During the Employment
Term, (f) Vacation shall be modified to read in its entirety as follows:
Executive will be entitled to four (4) weeks paid vacation
per year subject to the policies and procedures of the
Company. Unused accrued vacation time may be carried forward
to subsequent years and/or will be paid in full upon
termination of this agreement.
5. Paragraph 7. Termination, (d) Voluntary Termination by Executive:
Said paragraph shall read in its entirety as follows:
3
<PAGE>
Executive shall have the right to terminate this agreement
for any reason other than change of control or good reason
as set forth hereinabove upon sixty (60) days written notice
to the Company. In the event of voluntary termination by
Executive other than change of control or good reason,
Executive shall be entitled to any compensation or benefits
due and owing to Executive up to the date of termination.
6. Paragraph 6. The following miscellaneous paragraphs are
incorporated herein:
18. Loyal and Conscientious Performance of Duties: Executive
agrees that to the best of his ability and experience he
will at all times loyally and conscientiously perform all of
the duties and obligations required of him, either express
or implied, by the terms of this agreement.
19. Satisfaction of Performance of Duties: Executive's
performance of his duties hereunder shall at all times be
rendered to the Company's Satisfaction. Executive expressly
agrees that the Company shall determine whether the services
of Executive are satisfactory pursuant to the performance
guidelines established by the Board of Directors.
20. Adherence to Employer's Rules: At all times during the
performance of this contract, Executive shall strictly
adhere to and obey all of the Company's rules and
regulations governing the conduct of its Executives now in
effect or as subsequently modified, consistent with
Executive's rights as set forth herein.
21. Devotion of Entire Time to Employer's Business:
Executive shall devote his full productive time, ability and
attention to the business of the Company during the term of
this agreement. Furthermore, during the term of this
agreement, Executive shall not, whether directly or
indirectly, render any services of commercial or
professional nature to any other person or organization,
whether for compensation or otherwise, without the prior
consent of the Company's President or Chief Executive
Officer. This agreement shall not be interpreted to prohibit
Executive from making passive personal investments or
conducting private business affairs if those activities do
not in any way interfere with the services required under
this agreement. However, Executive shall not directly or
indirectly acquire, hold or retain any interest in any
business competing with or similar in nature to the business
of Employer.
22. Non-Competition during Term of Employment Contract:
During the term of this contract Executive shall not,
directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or
representative capacity, engage or participate in any
business that is in competition in any matter whatsoever
with the business of the Company, unless approved, in
advance, by the Company's Board of Directors.
4
<PAGE>
23. Confidentiality: In the course of the performance of
Executive's duties hereunder, Executive recognizes and
acknowledges that Executive may have access to certain
confidential and proprietary information of Employer or any
of its affiliates. Without the prior written consent of the
Company, Executive shall not disclose any such confidential
or proprietary information to any person or firm,
corporation, association, or other entity for any reason or
purpose whatsoever, and shall not use such information,
directly or indirectly, for Executive's own behalf or on
behalf of any other party. Executive agrees and affirms that
all such information is the sole property of the Company and
that at the termination and/or expiration of this agreement,
at the Company's written request, Executive shall promptly
return to the Company any and all such information so
requested by the Company. Executive shall not be precluded
from utilizing and maintaining any contacts Executive may
have with the capital, equity and financial market industry.
The provisions of this section shall not, however,
prohibit Executive from disclosing to others or using in
any manner information that:
A. Has been published or has become part of the public
domain;
B. Has been furnished or made known to Executive by
third parties (other than those acting directly or
indirectly for or on behalf of Executive) as a matter
of legal right without restriction on its use or
disclosure;
C. Was in the possession of Executive prior to
obtaining such information from the Company in
connection with the performance of this agreement; or
D. Is required to be disclosed by law.
Except as hereinabove modified or amended, said Employment Agreement
shall continue in full force and effect.
5
<PAGE>
COMPANY:
- -------
WESTMARK MORTGAGE CORPORATION WESTMARK GROUP HOLDINGS, INC.
By:/s/ Payton Story III By: /s/ I. H. Bowen
- ---------------------- --------------------------
Name: Payton Story III Name: CFO
Title: President Title: I. H. Bowen
EXECUTIVE:
/s/ Mark Schaftlein
- ------------------------------
Mark Schaftlein
6
<PAGE>
HARRY C. COOLIDGE
ATTORNEY AT LAW
Twin Palms Financial Center
1260 41st Avenue, Suite N
Capitola, California 95010
(408) 475-3112, FAX (408) 464-1251
FAX COVER SHEET
DATE: Match 16, 1998 TIME: 10:00 a.m. PST
TO: BARBARA NOLA
CO: Westmark Group Holdings, Inc.
FAX NO: (561) 279-1810
PAGES: 7 (INCLUDING COVER PAGE)
COPY SENT BY U.S. MAIL ( ) YES (X) NO
IF TRANSMISSION IS INCOMPLETE, PLEASE CALL ROXANNE AT 408-475-3112.
COMMENTS:
Dear Barbara:
Following this fax cover sheet, please find Mark's Amendment to Employment
Agreement dated August 27, 1997. According to the list you gave me, you have the
most current agreements and/or amendments for the other executives, Please feel
free to call me if you have any questions.
Thank you,
/s/ Roxanne Clair
- -----------------------------------
Roxanne Clair
Secretary to Harry Coolidge
PLEASE NOTE: The information contained in this facsimile message is attorney
privileged and confidential information intended only for the use of the
individual named above. If the reader of this message is not the intended
recipient, or the employee or agent responsible to deliver it to the intended
recipient, you are hereby notified that dissemination, distribution or copying
of this communication is strictly prohibited. If you have received this
communication in error, please immediately notify us by telephone, and return
the original message to us at the above address via the U.S. Postal Service.
Thank You.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into as of the
_____ day of April, 1997, by and between WESTMARK GROUP HOLDINGS, INC., a
Delaware corporation (the "Company"), and PAYTON STORY ("Executive").
W I T N E S S E T H:
WHEREAS, Company desires to employ Executive as provided herein; and
WHEREAS, Executive desires to accept such employment.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Company hereby employs Executive and Executive hereby
accepts employment with Company upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Company to
elect and remove officers, Executive will serve Westmark Mortgage Corporation as
its Executive Vice President and will faithfully and diligently perform the
services and functions relating to such offices or otherwise reasonably incident
to such offices, provided that all such services and functions will be
reasonable and within Executive's area of expertise. Executive will, during the
term of this Agreement (or any extension thereof), devote his full business
time, attention and skills and best efforts to the promotion of the business of
Company. The foregoing will not be construed as preventing Executive from making
investments in other businesses or enterprises provided that (a) Executive
agrees not to become engaged in any other business activity that interferes with
his ability to discharge his duties and responsibilities to Company and (b)
Executive does not violate any other provision of this Agreement.
3. TERM. Subject to the terms and conditions hereof, the term of
employment of Executive will commence as of the date hereof (the "Commencement
Date") and will end on that date in the year, 2000, unless earlier terminated by
either party pursuant to the terms hereof. The term of this Agreement is
referred to herein as the "Term." Assuming all conditions of this Agreement have
been satisfied and there has been no breach of the Agreement during its initial
term, the Company at may extend the term for additional one (1) year terms at
its election ("Extended Term"), written notice of which must be given at least
sixty (60) days prior to the end of such preceding term. In the event the
Company does not elect to extend the Term of this Agreement, Executive shall be
entitled to severance pay equal to six months Salary as defined
<PAGE>
below.
4. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT TERM.
(a) SALARY. Commencing upon the date of this Agreement, Executive
will be paid the first year an annual base salary of $126,000, the second year
an annual base salary of $138,000, the third year an annual base salary of
$150,000, payable in accordance with the then current payroll policies of
Company or as otherwise agreed to by the parties (the "Salary"). At any time and
from time to time the Salary may be increased for the remaining portion of the
term if so determined by the Board of Directors of Company after a review of
Executive's performance of his duties hereunder. Executive will not be entitled
to receive sales commissions.
(b) AUTOMOBILE ALLOWANCE. In addition the Executive's Salary, the
Executive shall receive a $400 per month car allowance. The Company shall also
pay all expenses and insurance relevant to the use of the automobile. The
Company shall provide the Executive with the use of a cellular telephone and the
use of a home personal computer and home fax machine.
(c) INCENTIVE STOCK OPTIONS. On the Commencement Date, the
Company and the Executive shall enter into a Stock Option Agreement (the "Stock
Option Agreement") pursuant to which the Company shall grant to the Executive
options (the "Options") as follows: 100,000 shares of Common Stock at the
exercise price of $1.00 per share, 50,000 shares of Common Stock at the exercise
price of $1.25 per share, 100,000 shares of Common Stock at the exercise price
of $1.50 per share, 50,000 shares of Common Stock at the exercise price of $1.75
per share and 100,00 shares of Common Stock at the exercise price of $2.00 per
share. The Options shall be issued pursuant to the Company's 1996 Stock Option
Plan (the "Plan").
(d) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Company will reimburse Executive in the same manner as
other executive officers for all reasonable and necessary or appropriate
out-of-pocket travel and other expenses incurred by Executive in rendering
services required under this Agreement.
(e) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Executive and his dependents will be entitled to receive such
group medical, dental and vision benefits as Company may provide to its
other Executives, provided such coverage is reasonably available, or be
reimbursed if Executive is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Executive will be entitled to
participate in any benefit plan or program of the Company which may
currently be in place or implemented in the future.
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<PAGE>
(iii) OTHER BENEFITS. During the Term, Executive will be
entitled to receive, in addition to and not in lieu of base salary,
bonus or other compensation, such other benefits and normal perquisites
as Company currently provides or such additional benefits as Company may
provide for its executive officers in the future.
(e) VACATION. Executive will be entitled to four weeks of paid
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Executive's
duties hereunder, Executive recognizes and acknowledges that Executive may have
access to certain confidential and proprietary information of Company or any of
its affiliates. Without the prior written consent of Company, Executive shall
not disclose any such confidential or proprietary information to any person or
firm, corporation, association, or other entity for any reason or purpose
whatsoever, and shall not use such information, directly or indirectly, for
Executive's own behalf or on behalf of any other party. Executive agrees and
affirms that all such information is the sole property of Company and that at
the termination and/or expiration of this Agreement, at Company's written
request, Executive shall promptly return to Company any and all such information
so requested by Company.
The provisions of this Section 5 shall not, however, prohibit
Executive from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain
other than by acts, omissions or fault of Executive;
(b) has been furnished or made known to Executive by third
parties (other than those acting directly or indirectly for or on behalf of
Executive) as a matter of legal right without restriction on its use or
disclosure;
(c) was in the possession of Executive prior to obtaining such
information from Company in connection with the performance of this Agreement;
or
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted
by law indemnify, defend and hold harmless Executive from and against any and
all claims, demands, liabilities, damages, loses and expenses (including
reasonable attorney's fees, court costs and disbursements) arising out of the
performance by him of his duties hereunder except in the case of his willful
misconduct.
7. TERMINATION. A termination of this Agreement is either (i) for the
death or
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<PAGE>
disability under section 7 (a) or 7 (b); (ii) with cause under Section 7 (c); or
(iii) for good reason under Section 7 (d). All other terminations shall be
considered a breach of this Agreement.
(a) DISABILITY. The Company shall have the right to terminate the
employment of the Executive under this Agreement for disability in the event
Executive suffers an injury, illness, or incapacity of such character as to
substantially disable him from performing his duties without reasonable
accommodation by the Company hereunder for a period of more than one hundred
eighty (180) consecutive days upon the Company giving at least thirty (30) days
written notice of termination; provided, however, that if the Executive is
eligible to receive disability payments pursuant to a disability policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) DEATH. This Agreement will terminate on the Death of the Executive.
(c) WITH CAUSE. The Company may terminate this Agreement at any time
because of (i) Executive's material breach of any term of the Agreement, or (ii)
the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily or otherwise; provided, in each case,
however, that the Company shall not terminate this Agreement pursuant to this
Section 7(c) unless the Company shall first have delivered to the Executive, a
notice which specifically identifies such breach or misconduct and the executive
shall not have cured the same within fifteen (15) days after receipt of such
notice.
(d) GOOD REASON. The Executive may terminate his employment for "Good
Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities, or status with
the Company as of the date hereof, or a change in his reporting responsibilities
or titles as in effect as of the date hereof;
(ii) his compensation is reduced;
(iii) The Company shall file a petition in bankruptcy or
re-organization under the federal bankruptcy statutes or an involuntary petition
is filed against the Company and not
-4-
<PAGE>
removed or withdrawn within thirty (30) days, or the Company does not pay any
material amount of compensation due hereunder and then fails either to pay such
amount within the ten (10) day notice period required for termination hereunder
or to contest in good faith such notice. Further, if such contest is not
resolved within thirty (30) days, the Company shall submit such dispute to
arbitration under Section 13.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and personally
delivered or within two days if sent by mail, registered or certified, postage
prepaid with return receipt requested, as follows:
If to Company: Westmark Group Holdings, Inc.
355 N. E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Attention: Board of Directors
If to Executive: Payton Story
355 N.E. Fifth Avenue, Suite 4
Delray Beach, Florida 33483
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or
-5-
<PAGE>
unenforceable provision there will be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
13. ARBITRATION. If a dispute should arise regarding this Agreement, all
claims, disputes controversies, differences or other matters in question arising
out of this relationship shall be settled finally, completely and conclusively
in accordance with the substantive law of the State of Florida by arbitration,
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). A decision of the arbitrator shall be final,
conclusive and binding on the Company and Executive. Any arbitration held in
accordance with this paragraph shall be private and confidential and no person
shall be entitled to attend the hearings except the arbitrator, Executive,
Executive's attorneys, a representative of the Company, the Company's attorneys,
and advisors to or witnesses for any party. The matters submitted to
arbitration, the hearings and proceedings and the arbitration award shall be
kept and maintained in the strictest confidence by Executive and the Company and
shall not be discussed, disclosed or communicated to any persons except as may
be required for the preparation of expert testimony. On request of any party,
the record of the proceeding shall be sealed and may not be disclosed except
insofar, and only insofar, as may be necessary to enforce the award of the
arbitrator and any judgement enforcing an award. The prevailing party shall be
entitled to recover reasonable and necessary attorneys' fees and costs from the
non-prevailing party and the determination of such fees and costs and the award
thereof shall be included in the claims to be resolved by the arbitrator
hereunder.
14. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter and the number
of all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMPANY:
WESTMARK GROUP HOLDINGS, INC.
By_________________________________
Name:______________________________
Title: ____________________________
EXECUTIVE:
PAYTON STORY
-6-
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is entered into on the 27th day of August, 1997 by and
between WESTMARK MORTGAGE CORPORATION, a California corporation ("Company"), and
PAYTON STORY ("Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
on April 25, 1997 and;
WHEREAS, the Company and Executive desire to modify said Employment
Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, said
Employment Agreement is hereby modified in the following respects:
1. Paragraph 4. Compensation and Benefits During the Employment Term,
(c) Incentive Stock Options shall be modified to read in its entirety as
follows:
Immediately upon the execution of this Agreement, Westmark Group
Holdings, Inc. and Executive shall enter into a Stock Option
Agreement, pursuant to which Westmark Group Holdings, Inc. shall
issue options to Executive to acquire 500,000 shares of the common
stock of Westmark Group Holdings, Inc. Said options shall vest
immediately at an exercise price of $1.00. Said vested options may
be exercised on or after the following dates:
125,000 shares on March 31, 1998
75,000 shares on October 31, 1998
125,000 shares on March 31, 1999
75,000 shares on October 31, 1999
100,000 shares on March 31, 2000
In the event of a sale, divestiture, spin-off or transfer of all or
substantially all of the assets or stock of Westmark Mortgage
Corporation, all options granted hereunder to Executive shall
immediately become exercisable. Provided, however, that no option
shall be exercisable after the expiration of ten years from the
date said option was granted.
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2. Paragraph 7. Termination, (d) Good Reason, (v) shall be modified to
read in its entirety as follows:
In the event Executive terminates his employment for good reason as
hereinabove set forth, Executive shall be entitled to a lump sum
payment equal to the monthly compensation provided for in this
agreement multiplied by the number of months remaining in the term
of this agreement or any extension thereof, together with all
benefits, reimbursements or other rights to which Employee has
become entitled.
3. Paragraph 7. Termination, (e) Change of Control shall be added to
said agreement and shall read in its entirety as follows:
In the event of a change of control as set forth below, while
Executive is employed by the Company after the initial term of
employment, and in the further event Executive's employment is
terminated without cause, as defined herein above, the Company
shall pay to Executive a lump sum payment equal to the monthly
compensation provided for in this agreement multiplied by the
number of months remaining in the term of this agreement or any
extension thereof, together with all benefits, reimbursements or
other rights to which Executive has become entitled. Change of
control shall be defined as follows:
i. Any "person," including a "group" as determined in accordance
with Section 13, (d), (3) of the Securities Exchange Act of 1934
(the "Exchange Act'), becomes, in a single transaction or series
of transactions, the beneficial owner, directly or indirectly,
of securities representing a Control Percentage (as hereinafter
defined) of the combined voting power of the then outstanding
securities of the corporation not including a transaction caused
by or resulting from the affirmative vote of a majority of the
current members of the Board of Directors of Westmark Group
Holdings, Inc. (subject to Paragraph 3, ii);
ii. The membership of the board of directors as it exists at the
time of this Agreement changes such that the current members of
the board no longer constitute a majority of the board of
directors not including a change caused by or resulting from any
current board member's death or resignation pursuant to
Paragraph 7, (d) hereinafter, or the affirmative vote of a
majority of the current members of the Board of Directors of
Westmark Group Holdings, Inc.;
iii. The corporation is merged or consolidated with other
corporations in a single transaction or series of transactions
and as a result of such merger or consolidation a Control
Percentage of the outstanding voting securities of the surviving
or resulting corporation shall no longer be owned in the
2
<PAGE>
aggregate by the stockholders who owned stock in the corporation
as of the date prior to the merger or consolidation not
including a merger or consolidation caused by or resulting from
the affirmative vote of a majority of the current members of the
Board of Directors of Westmark Group Holdings, Inc. (subject to
Paragraph 3, ii). The term "Control Percentage" shall mean at
least 35% in the event the applicable securities are registered
under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or at least 35% in the event the applicable securities
are not registered under the Exchange Act;
iv. The corporation transfers all of its assets to another
corporation or to any other person or entity, including but not
limited to the transfer of the mortgage operations through a
sale of assets or stock, spin-off, divestiture or initial public
offering not including a transfer of assets or stock caused by
or resulting from the affirmative vote of a majority of the
current members of the Board of Directors of Westmark Group
Holdings, Inc, (subject to Paragraph 3, ii);
v. In the event of a change of control as set forth above, and
Executive is requested to remain with the surviving or successor
corporation or business, with the same compensation and
commensurate duties as previously retained by Executive subject
to the same terms and conditions of this agreement, and
Executive rejects such request for continuing employment, said
Executive shall be entitled to a lump sum severance payment
equal to the compensation provided in Paragraph 7, (d), (v)
regarding termination for good reason. Provided, however, that
Executive shall not reject such request for continuing
employment without a reasonable basis.
4. Paragraph 4. Compensation and Benefits During the Employment Term, (f)
Vacation shall be modified to read in its entirety as follows:
Executive will be entitled to four (4) weeks paid vacation per year
subject to the policies and procedures of the Company. Unused accrued
vacation time may be carried forward to subsequent years and/or will
be paid in full upon termination of this agreement.
5. Paragraph 7. Termination, (d) Voluntary Termination by Executive, Said
paragraph shall read in its entirety as follows:
Executive shall have the right to terminate this agreement for any
reason other than change of control or good reason as set forth
hereinabove upon sixty (60) days written notice to the Company. In the
event of voluntary termination by Executive other than for change of
control or good reason, Executive shall be
3
<PAGE>
entitled to any compensation or benefits due and owing to Executive up
to the date of termination.
6. Paragraph 6. The following miscellaneous paragraphs are incorporated
herein:
18. Loyal and Conscientious Performance of Duties: Executive agrees
that to the best of his ability and experience he will at all times
loyally and conscientiously perform all of the duties and obligations
required of him, either express or implied, by the terms of this
agreement.
19. Satisfaction of Performance of Duties: Executive's performance of
his duties hereunder shall at all times be rendered to the Company's
satisfaction, Executive expressly agrees that the Company shall
determine whether the services of Executive are satisfactory pursuant
to the performance guidelines established by the Board of Directors.
20. Adherence to Employer's Rules: At all times during the
performance of this contract, Executive shall strictly adhere to and
obey all of the Company's rules and regulations governing the conduct
of its Executives now in effect or as subsequently modified,
consistent with Executive's rights as set forth herein.
21. Devotion of Entire Time to Employer's Business: Executive shall
devote his full productive time, ability and attention to the business
of the Company during the term of this agreement. Furthermore, during
the term of this agreement, Executive shall not, whether directly or
indirectly, render any services of commercial or professional nature
to any other person or organization, whether for compensation or
otherwise, without the prior consent of the Company's President or
Chief Executive Officer. This agreement shall not be interpreted to
prohibit Executive from making passive personal investments or
conducting private business affairs if those activities do not in any
way interfere with the services required under this agreement.
However, Executive shall not directly or indirectly acquire, hold or
retain any interest in any business competing with or similar in
nature to the business of Employer.
22. Non-Competition during Term of Employment Contract: During the
term of this contract Executive shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other
individual or representative capacity, engage or participate in any
business that is in competition in any matter whatsoever with the
business of the Company, unless approved, in advance, by the Company's
Board of Directors.
4
<PAGE>
23. Confidentiality: In the course of the performance of Executive's
duties hereunder, Executive recognizes and acknowledges that Executive
may have access to certain confidential and proprietary information of
Employer or any of its affiliates. Without the prior written consent
of the Company, Executive shall not disclose any such confidential or
proprietary information to any person or firm, corporation,
association, or other entity for any reason or purpose whatsoever, and
shall not use such information, directly or indirectly, for
Executive's own behalf or on behalf of any other party. Executive
agrees and affirms that all such information is the sole property of
the Company and that at the termination and/or expiration of this
agreement, at the Company's written request, Executive shall promptly
return to the Company any and all such information so requested by the
Company. Executive shall not be precluded from utilizing and
maintaining any contacts Executive may have with the capital, equity
and financial market industry.
The provisions of this section shall not, however, prohibit
Executive from disclosing to others or using in any manner information
that:
A. Has been published or has become part of the public domain;
B. Has been furnished or made known to Executive by third
parties (other than those acting directly or indirectly for or
on behalf of Executive) as a matter of legal right without
restriction on its use or disclosure;
C. Was in the possession of Executive prior to obtaining such
information from the Company in connection with the
performance of this agreement; or
D. Is required to be disclosed by law.
Except as hereinabove modified or amended, said Employment Agreement
shall continue in full force and effect.
5
<PAGE>
COMPANY:
- -------
WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein
- ------------------------------
Name: Mark Schaftlein
Title: C.E.O.
EXECUTIVE:
- ---------
/s/ Payton Story III
- ----------------------
PAYTON STORY III
6
BOARD OF DIRECTORS SERVICE AGREEMENT
This Agreement made and entered into by the undersigned on the 13 day of
December 1996, in the City of Baton Rouge, the State of Louisiana.
WHEREAS, WESTMARK GROUP HOLDINGS, INC., (hereinafter referred to as
"Company"), wishes to secure the services of LOUIS J. RESWEBER (hereinafter
referred to as the "Board Member") to serve on its Board of Directors, subject
to the terms and conditions set forth in this document; and
NOW, THEREFORE, in consideration of the mutual promises and agreement set
forth herein, the parties agree to the following terms and conditions:
1.
SERVICE ON THE BOARD OF DIRECTORS. Considering the Board Member's knowledge,
expertise and reputation in the fields of investor relations and equity markets,
the Company desires the Board Member to serve on its Board of Directors.
2.
DUTIES AND RESPONSIBILITIES OF BOARD MEMBER. The Board Member shall attend the
regularly scheduled meetings of the Company's Board of Directors, the frequency
of which shall not be more than once per month; failure to attend meetings,
where due to exigent circumstances or due to conflicts beyond the control of the
Board Member shall not be considered a breach of this provision. The Company
acknowledges that the Board Member is an officer of another corporation with
full time employment with that corporation, and that the Board Member also
serves in the capacity of director of other corporations, which corporations may
be in the same or similar business as the Company, which employment and board
service require material amounts of the Board Member's time and service, and
which employment and board service may in certain instances require that the
board Member recuse himself from participation in discussion, deliberation and
voting on certain matters. This Agreement shall not be construed as preventing
Board Member from serving as an employee, officer or director of other
companies, including companies in the same or similar business as the Company;
the Company further acknowledges that as an officer and/or director of other
corporations, the Board Member may be required to present to such other
corporations business opportunities which otherwise would have been presented to
the Company for consideration. Further, this Agreement shall not be construed as
preventing Board Member from engaging in reasonable volunteer services for
charitable, educational or civic organizations, or from investing his assets in
such form or manner as will require his services in the operation of the
companies or businesses in which such investments are made.
3.
COMPENSATION. Upon the execution of this Agreement, Board Member shall
immediately receive options to acquire shares of the Common Stock of the Company
<PAGE>
("Common Stock") as follows:
a. 50,000 shares, exercise price $.75, fully vested and exercisable
immediately.
b. 200,000 shares, exercise price $1.00, fully vested and exercisable
immediately.
The options shall terminate and be of no force and effect with respect to
any shares of common stock not previously purchased by Board Member upon the
first to occur of (i) the expiration of five (5) years from the date of signing
of this Agreement, or (ii) ninety (90) days from the date of termination of
Board Member's relationship with the Company, as a director, officer or
employee.
In the event that the fair market value of the Common Stock is altered by
stock splits, stock dividends, or similar transactions, the effect of which
decreases the per share value of the Common Stock, an appropriate adjustment of
the option price and/or the number of shares upon which such options are granted
under this Agreement, shall be made to preserve the absolute value of the
options in comparison to the per share market value of the Common Stock on the
date immediately proceeding the announcement of the stock split, stock dividend,
or sii-nilar transaction.
4. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse Board Member
for all reasonable travel, lodging, entertainment and other reasonable expenses
paid or incurred by Board Member in performing his obligations hereunder,
including travel and lodging expenses associated with the attendance of meetings
of the Company's Board of Directors.
5. DIRECTOR'S LIABILITY INSURANCE, INDEMNIRICATION AND PROTECTION AGAINST
SHAREHOLDER LITIGATION:
a. Company agrees to use its best efforts to obtain and maintain in full force
and effect a Director's and Officer's liability policy with limits of liability
of $1,000,000 providing full coverage to the Board Member for all liability
arising out of his capacity as a director, including coverage for liability
arising out of his own sole or joint negligence, and for liability arising out
of the intentionally wrongful, dishonest, or criminal acts of another; the
coverage provided shall continue in force after the termination of this
Agreement and shall cover the Board Member for all claims arising out of his
capacity a director of the company, including claims made or litigation
commencing after termination of his service on the Board of Directors.
b.Company agrees to list the Board Member as an additional insured on its
Comprehensive General Liability policy with a broad form endorsement providing
coverage for contractual liability and personal injury liability for all claims
arising out of his
<PAGE>
capacity as an officer, director or employee of the Company, including claims
made or litigation commencing after termination of employment.
C. Company agrees to indemnify, defend and hold harmless Board Member, to the
fullest extent permitted by law and in accordance with its By-Laws and Articles
of Incorporation, against any and all claims against the Board Member arising
out of any act, error or omission in his capacity as an officer, director, or
employee of Company or of any of its affiliates or subsidiaries, including any
claims arising out of his own sole or joint negligence, this indemnification
agreement is in addition to the obligation of the Company to purchase insurance
as set forth above, and the purchase of the aforementioned insurance shall not
diminish or effect the obligation of the company to indemnify the Board Member;
this indemnification agreement shall continue in force after the termination of
the employee of the Board Member for all claims arising out of his capacity as
an officer, director, or employee of the Company, including claims made or
litigation commencing after termination of employment; if any officer or
director has entered or hereafter enters an indemnification agreement with the
Company that provides greater indemnification or protection than provided in
this Agreement, this subparagraph c. shall be deemed automatically reformed to
provide the Board Member the full extent of indemnification and protection
provided under such officer's or director's indemnification agreement.
6. EFFECT OF PRIOR AGREEMENTS. This Agreement contains the entire understanding
between the parties hereto and supersedes any prior agreement between Board
Member and the Company, except that this Agreement shall not affect or operate
to reduce any benefit or compensation inuring to Board Member of a kind
elsewhere provided and not expressly provided in this Agreement.
7. REIMBURSEMENT OF FEES INCURRED IN DEVELOPMENT OF AGREEMENT HEREWITH. As
further consideration of this Agreement, by January 10, 1997 or as soon
thereafter as this Agreement is signed, the Company shall issue to Daniel A.
Rees (or his assigns), as consultant to the Board Member in connection with the
development of this Agreement, 3,000 shares of the Company's common stock, and
additionally shall issue to Daniel A. Rees (or his assigns) warrants to purchase
an additional 3,000 shares of the Company's common stock at a warrant price of
$1.00. Said warrant shall be fully vested, transferrable and exercisable
immediately. The warrants shall terminate and be of no force and effect with
respect to any shares of common stock not previously exercised within the
expiration of five (5) years of the issuance. The Company is not the client of
Daniel A. Rees and does not rely on any opinions or work product of Daniel A.
Rees. Issuance of the aforementioned stock and warrants pursuant to this
Agreement shall not constitute the creation of any relationship between
<PAGE>
the Company and Daniel A. Rees other than as corporation and shareholder.
8. GENERAL PROVISIONS:
a.
WAIVER SEVERABILITY AND AMENDMENT OF AGREEMENT. This Agreement may not be
modified or amended except by an instrument in writing signed by the parties
hereto. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically state therein, and each such waiver shall operate only as to
the specific term or condition for the future or as to any act other than that
speci 'fically waived. If, for any reason, any provision of this Agreement is
held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall be to the
full extent consistent with law continue in full force and effect. If this
Agreement or any portion thereof conflicts with any law or regulation governing
the activities of the Company, the Agreement or appropriate portion thereof
shall be deemed reformed to provide for its enforcement to the fullest extent
allowed under the law,
b.
READINGS: GOVERNING LAW: JURISDICTION. The headings of paragraphs herein
are included solely for convenience and reference and shall not control the
meaning or interpretations of any of the provisions of this Agreement. This
Agreement has been executed and delivered in the State of Louisiana, and its
validity, interpretation, performance and enforcement shall be governed by the
laws of Louisiana. Any litigation brought for enforcement or of declaration of
rights in relation to this Agreement shall be brought in the Nineteenth Judicial
District Court, Parish of East Baton Rouge, State of Louisiana. The Company
hereby waives any objections to jurisdiction or venue of any such proceeding in
said court.
c.
This Agreement shall survive the termination of the Board Member's service
on the Company's Board of Directors including, but not limited to, the Company's
obligations to provide insurance coverage and indemnification as set forth in
paragraph 5, and the reimbursement for all expenses under paragraph 4 provided
such expenses were incurred by the Board Member in his capacity as director.
d.
The Board Member's right to compensation provided hereunder shall be
absolute, and shall not be subject to any offset or credit by the Company.
<PAGE>
/s/ LOUIS J. RESWEBER /s/ MARK SCHAFTLEIN
- ------------------------ -------------------------------
LOUIS J. RESWEBER MARK SCHAFTLEIN
Director & Chief Operating Officer,
EMPLOYMENT AGREEMENT
WESTMARK GROUP HOLDING, INC., a Delaware corporation, located at 355 N.E.
Fifth Avenue, Suite 4, Delray Beach, Florida 33483, (hereinafter referred to as
"Employer") and LOUIS J. RESWEBER (hereinafter referred to as "Executive") in
consideration of the mutual promises made herein agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
Section 1.01 Specified Term: The Employer hereby employs Executive and
Executive hereby accepts employment with employer for a term commencing July 1,
1997 and terminating April 24, 2000.
Section 1.02 Earlier Termination: This agreement may be terminated earlier
as hereinafter provided.
ARTICLE II
DUTIES AND OBLIGATIONS OF EXECUTIVE
Section 2.01 Title and Description of Duties: Executive shall serve as the
Executive Vice President to Employer and specifically will serve as Executive
Vice President, Mergers and Acquisitions/Capital Markets of Westmark Group
Holdings, Inc. Executive shall do and perform all services, acts or things
necessary or advisable to fulfill the duties hereinabove set forth and shall be
subject to the direction of the policies established by the Board of Directors
of Employer. Executive shall report directly to Mark Schaftlein. Executive
currently serves as Chairman of the Board of Directors of Employer and shall be
nominated by the Board for re-election by the shareholders of Employer at the
next annual Shareholders Meeting. In the event of the subsequent formation of
Westmark Acquisition Corporation, Executive shall serve as the initial Chief
Executive Officer and President of said corporation.
Section 2.02 Loyal and Conscientious Performance of Duties: Executive
agrees that to the best of his ability and experience. he will at all times
loyally and conscientiously perform all of the duties and obligations required
of him, either express or implied, by the terms of this agreement.
Section 2.03 Satisfaction of Performance of Duties: Executive's
performance of his duties hereunder shall at all times be rendered to
Employer's satisfaction.
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<PAGE>
Executive expressly agrees that Employer shall determine whether the services of
Executive are satisfactory pursuant to the performance guideline established by
the Board of Directors.
Section 2.04 Adherence to employer's Rules: At all times during the
performance of this contract, Executive shall strictly adhere to and obey all of
Employer's rules and regulations governing the conduct of its Executives now in
effect or as subsequently modified consistent with Executive's rights as set
forth herein.
Section 2.05 Devotion of Entire Time to Employer's Business: Executive
shall devote his full productive time, ability and attention to the business of
Employer during the term of this agreement. Furthermore, during the term of this
agreement, Executive shall not, whether directly or indirectly, render any
services of commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior consent
of Employer's President or Chief Executive Officer. This agreement shall not be
interpreted to prohibit Executive from making passive personal investments or
conducting private business affairs if those activities do not in any way
interfere with the services required under this agreement. However, Executive
shall not directly or indirectly acquire, hold or retain any interest in any
business competing with or similar in nature to the business of Employer.
Provided, however, that Executive may, from time to time, serve as a member of
the Board of Directors or as a consultant to other corporations both now and in
the future, provided that said other corporation shall not be in the same or
similar business as Employer. Employer further acknowledges that Executive may
be required to present to such other corporations business opportunities,
provided such opportunities are not in the same or similar business of Employer.
Executive currently serves on the Board of Directors of, or provides consulting
services to, the companies itemized in Exhibit "A" which is attached hereto and
incorporated herein. Executive and Employer believe that the reputation and
exposure to additional capital market sources resulting from Executive's service
as an outside board member or consultant for other companies will inure to the
benefit of Employer.
Section 2.06 Non-Competition during Term of employment contract: During the
term of this contract Executive shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity, engage or participate in any business that is in competition in any
matter whatsoever with the business of Employer, unless approved, in advance, by
Employer's Board of Directors.
Section 2.07 Confidentiality: In the course of the performance of
Executive's duties hereunder, Executive recognizes and acknowledges that
Executive may have access to certain confidential and proprietary information of
Employer or any of its affiliates. Without the prior written consent of
Employer, Executive shall not disclose any such confidential or proprietary
information to any person or firm, corporation,
2
<PAGE>
association, or other entity for any reason or purpose whatsoever, and
shall not use such information, directly or indirectly, for Executive's own
behalf or on behalf of any other party. Executive agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this agreement, at Employer's written request, Executive
shall promptly return to Employer any and all such information so requested by
Employer. Executive shall not be precluded from utilizing and maintaining any
contacts Executive may have with the capital, equity and financial market
industry.
The provisions of this section shall not, however, prohibit Executive
from disclosing to others or using in any manner information that:
A. Has been published or has become part of the public domain;
B. Has been furnished or made known to Executive by third parties (other
than those acting directly or indirectly for or on behalf of Executive)
as a matter of legal right without restriction on its use or disclosure;
C. Was in the possession of Executive prior to obtaining such
information from Employer in connection with the performance of this
agreement; or
D. Is required to be disclosed by law.
ARTICLE III
OBLIGATIONS OF EMPLOYER
Section 3.01 General Description: Employer shall provide Executive with the
compensation, incentives and benefits specified elsewhere in this agreement or
as established by Employer from time to time.
Section 3.02 Office and Staff: Employer shall provide Executive with an
administrative assistant, office equipment and supplies and other facilities
and services suitable to Executive's position and adequate for the performance
of his duties including but not limited to the employment of Jill W. Cantrell
at an annual base salary of $35,000. Employer shall lease, as its Louisiana
corporate offices, approximately 2,100 square feet of Class A office space in
Baton Rouge, Louisiana, located at Suite 101 323rd Street, Baton Rouge,
Louisiana, at a rental rate of approximately $2,100 per month or compatible
office space in the event said location is unavailable.
Section 3.03 Cellular Service: Employer shall furnish Executive with two
cellular phones, including a portable hand phone and mounted mobile phone.
Employer shall be responsible for all expenses pertaining to the repair and
maintenance of said
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phones and all expenses of service, long distance and other related charges with
respect to said cellular phones.
ARTICLE IV
COMPENSATION OF EXECUTIVE
Section 4.01 Monthly Salary: As compensation for the services to be
rendered by Executive hereunder, Employer shall pay Executive an annual salary
in the sum of $120,000 in weekly, semimonthly or monthly installments in
accordance with the standard payment policies of Employer. Executive agrees to
accrue $9,000 per month of said salary for the months of July, August and
September of 1997 and thereafter to accrue $5,000 of said salary for the months
of October, November and December of 1997. The accrued salary, in the sum of
$42,000, shall be paid to Executive in six equal monthly installments commencing
in January, 1998 in the sum of $7,000 per month in addition to the payment of
Executive's regular base salary. Executive shall be paid a base salary of
$132,000 during the second year of employment and $144,000 in the third year of
employment, payable in accordance with the then current payroll policies of
Employer. At any time, from time to time, said salary may be increased for the
remaining portion of the term if so determined by the Board of Directors of
Employer after review of Executive's performance of duties hereunder.
Section 4.02 Deductions: Employer shall have the right to deduct or
withhold from the compensation due to Executive hereunder any and all sums
required for federal income and social security taxes and all state or local
taxes now applicable or that may be enacted and become applicable in the future.
ARTICLE V
EXECUTIVE BENEFITS
Section 5.01 Health Care Benefits: Employer shall provide Executive and
Executive shall be entitled to participate in the hospital, surgical, medical
and dental plan in existence through Westmark Group Holdings, Inc. as of the
date of this agreement or such other hospital, surgical, medical and dental plan
as may be provided by Employer from and after the date of this agreement. In
lieu of the hospital, surgical, medical and dental benefits provided by
Employer, Executive shall have the right to maintain his existing hospital,
surgical, medical and dental policies at Employer's expense provided, however,
that said expense shall not exceed the expense that Employer would otherwise
incur to maintain Executive on Employer's health care benefit policies.
Section 5.02 Life Insurance: Employer agrees to include Executive
and Executive shall participate in the group term life insurance policy in
effect as of the
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date of this agreement through Westmark Group Holdings, Inc., if any, or such
other group life insurance policy provided by Employer from and after the date
of this agreement.
Section 5.03 Automobile Allowance: Executive, shall be entitled to an
automobile allowance of $400 per month during the term of this agreement or any
extension thereof. Employer shall also pay all expenses and insurance relevant
to the use of said automobile. Employer shall have the option to provide
Executive with an automobile during the term of this employment with the
expenses thereof to be paid by Employer.
Section 5.04 Stock Option: Immediately upon the execution of this
Agreement, Employer and Executive shall enter into a Stock Option Agreement,
pursuant to which Employer shall issue options to Executive to acquire 150,000
shares of the common stock of Westmark Group Holdings, Inc. Said options shall
vest immediately at an exercise price of $1.00. Said vested options may be
exercised on or after the following dates:
50,000 shares on March 31, 1998
20,000 shares on October 31, 1998
30,000 shares on March 31, 1999
20,000 shares on October 31, 1999
30,000 shares on March 31, 2000
In the event of a sale, divestiture, spin-off or transfer of all or
substantially all of the assets or stock of Westmark Mortgage Corporation, all
options granted hereunder to Executive shall immediately become exercisable.
Provided, however, that no option shall be exercisable after the expiration of
ten years from the date said option was granted.
The foregoing options are in addition to the options previously issued to
Executive, to wit: 50,000 shares with an exercise price of $.75 per share and
200,000 shares at an exercise price of Sl.00. All of the options issued or to be
issued to Executive shall be subject to Employer's 1994 Stock Option Plan.
Section 5.05 Vacation: Executive will be entitled to four weeks paid
vacation per year subject to the policies and procedures of Employer. Unused
accrued vacation time may be carried forward to subsequent years and/or will be
paid in full upon termination of this agreement.
Section 5.06 Other Benefits: During the term of this agreement or any
extension thereof, Executive shall be entitled to receive, in addition to and
not in lieu of base salary, bonus or other compensation, such other benefits and
normal perquisites
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as Employer currently provides or such other additional benefits as the company
may Provide for its executive officers in the future. Executive shall be
entitled to participate in a bonus plan which shall be promulgated by the Board
of Directors of Employer.
Section 5.07: Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Executive in the same manner
as other executive officers for all reasonable, necessary or appropriate
out-of-pocket travel and other expenses incurred by Executive in rendering
services pursuant to this agreement.
ARTICLE VI
TRADE SECRETS
Section 6.01 Restrictions on Use of Trade Secrets and Records: During the
term of employment under this agreement, Executive will have access to and
become acquainted with various trade secrets consisting of formulas, patterns.
devices, secret inventions, processes, and compilations of information, records
and specifications all of which are owned by Employer and regularly used in the
operation of Employer's business. All files, records, documents, drawings,
specifications, equipment and similar items relating to the business of
Employer, whether they are prepared by Executive or come into Executive's
possession in any other way and whether or not they contain or constitute trade
secrets owned by Employer, are and shall remain the exclusive property of
Employer and shall not be removed from the premises of Employer under any
circumstances whatsoever without the prior written consent of Employer.
Executive promises and agrees that he shall not misuse, misappropriate or
disclose any of the trade secrets described herein, directly or indirectly, or
use them in any way either during the term of this agreement or at any time
thereafter, except as required in the course of his employment. Trade secrets
shall not include any contacts developed, acquired or maintained by Executive in
equity, financial and capital markets.
ARTICLE VII
TERMINATION OF EMPLOYMENT
Section 7.01 Termination for Cause: Employer reserves the right to
terminate this agreement if Executive willfully breaches or willfully neglects
the duties which he is required to perform under the terms of this agreement.
Employer shall not terminate this agreement pursuant to the foregoing unless
Employer shall first deliver to Executive a notice which specifically identifies
such breach or neglect and Executive shall have ceased to continue such breach
or neglect within 30 days after receipt of the written notice. Employer shall
further have the right to terminate Executive if Executive commits acts of
dishonesty, fraud or misrepresentation that would prevent the effective
performance of Executive's duties. This agreement shall further terminate
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immediately on the occurrence of any of the following events:
A. The death of Executive;
B. Executive becomes permanently disabled because, of sickness, physical
or mental disability or any other reason so that Executive shall be
unable to complete duties under this agreement. "Permanently disabled"
shall mean any disability that continues for 180 days in any twelve
month period, certified by a licensed physician mutually agreed upon by
Employer and Executive.
Employer may at its option terminate this agreement for the reasons stated
in this section by giving written notice of termination to Executive without
prejudice to any other remedy to which Employer may be entitled either at law,
in equity, or under this agreement. The notice of termination required by this
section shall specify the ground for the termination and shall be supported by
statement of all relevant facts. In the event of termination for cause by
Employer, Executive shall be entitled to compensation or benefits earned up to
and including the date of termination. In the event a court of competent
jurisdiction determines that Executive was wrongfully terminated, said
termination shall be deemed to have been without cause and Employer shall pay to
executive all compensation and benefits provided for termination without cause
as set forth hereinafter, together with Executive's reasonable attorney's fees,
expert fees and court costs.
Section 7.02 Termination without Cause: This agreement is a guaranteed
contract and is not subject to termination by Employer other than for cause as
set forth herein above. In the event of termination by Employer, without cause,
prior to the end of the term of employment, Executive shall be entitled to a
lump sum payment equal to the monthly compensation provided for in this
agreement multiplied by the number of months remaining in the term of this
agreement or any extension thereof, together with all benefits, reimbursements
or other rights to which Executive has become entitled.
Section 7.03 Change of Control: In the event of a change of control as set
forth below, subject to the provisions of paragraph 7.03,(E), Executive may
elect at anytime within one year, subsequent to the change of control, to
terminate his services hereunder. In such event, Employer shall pay to Executive
a lump sum payment equal to the monthly compensation provided for in this
agreement multiplied by the number of months remaining in the term of this
agreement or any extension thereof, together with all benefits, reimbursements
or other rights to which Executive has become entitled. Change of control shall
be defined as follows:
A. Any "person," including a "group" as determined in accordance with
Section 13(d)(3) of the Securities Exchange Act of 1934 (the
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"Exchange Act"), becomes, in a single transaction or series of
transactions, the beneficial owner, directly or indirectly, of
securities representing a Control Percentage (as hereinafter defined)
of the combined voting power of the then outstanding securities of the
corporation not including a transaction caused by or resulting from the
affirmative vote of a majority of the current members of the Board of
Directors of Westmark Group Holdings, Inc. (subject to Section 7.03,
B.);
B. The membership of the board of directors as it exists at the time of
this Agreement changes such that the current members of the board no
longer constitute a majority of the board of directors not including a
change caused by or resulting from any current board member's death or
resignation pursuant to Section 7.05 hereinafter, or the affirmative
vote of a majority of the current members of the Board of Directors of
Westmark Group Holdings, Inc.;
C. The corporation is merged or consolidated with other corporations or
entities in a single transaction or series of transactions and as a
result of such merger or consolidation a Control Percentage of the
outstanding voting securities of the surviving or resulting corporation
shall no longer be owned in the aggregate by the stockholders who owned
stock in the corporation as of the date prior to the merger or
consolidation not including a merger or consolidation caused by or
resulting from the affirmative vote of a majority of the current
members of the Board of Directors of Westmark Group Holdings, Inc.
(subject to Section 7.03, B.). The term "Control Percentage" shall mean
at least 35% in the event the applicable securities are registered
under the Securities Exchange Act of 1934, as amended ("Exchange Act"),
or at least 35% in the event the applicable securities are not
registered under the Exchange Act;
D. The corporation transfers all or substantially all of its assets and/or
stock to another corporation, person or entity, including but not
limited to the transfer of the mortgage operations through a sale of
assets or stock, spin-off, divestiture or initial public offering not
including a transfer of assets or stock caused by or resulting from the
affirmative vote of a majority of the current members of the Board of
Directors of Westmark Group Holdings, Inc., (subject to Section 7.03,
B.). In the event of a transfer of the mortgage operations, Executive
shall have the right to exercise one of the following options:
(i) Assume the position of Executive Vice President, Mergers and
Acquisitions/Capital Markets, for the mortgage operations
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pursuant to the same terms and conditions of this contract; or
(ii) Continue to serve as Chairman of the Board of Directors of
Westmark Group Holdings, Inc. and, shall be duly elected, to serve
as President and Chief Executive Officer of Westmark Group
Holdings, Inc. in the event said positions are vacated.
E. in the event of a change of control as set forth above, and Executive
is requested to remain with the surviving or successor corporation or
business, with the same compensation and commensurate duties as
previously retained by Executive subject to the same terms and
conditions of this agreement, and Executive rejects such request for
continuing employment, said Executive shall be entitled to a lump sum
severance payment equal to the compensation provided in Paragraph 7.02
regarding termination without cause. Provided, however, that Executive
shall not reject such request for continuing employment without a
Reasonable basis.
Section 7.04 Termination by Executive for "Good Reason":
A. The Executive may terminate his employment for "good reason" if:
(i) He is assigned, without his express written consent, any duties
inconsistent with his positions, duties, responsibilities, or
status with Employer as of the date hereof, or a change in his
reporting responsibilities or titles in effect as of the date
hereof, with the exception of a transfer of the mortgage
operations as set forth hereinabove in Section 7.03, D;
(ii) His compensation is reduced:
(iii) Employer shall file a petition in bankruptcy or re-organization
under the federal bankruptcy statutes or an involuntary petition
is filed against Employer and not removed or withdrawn within
sixty (60) days, or Employer does not pay any salary or expense
due hereunder and then fails either to pay such amount within
thirty days after written notice from Executive, or to contest in
good faith such notice, Further, if such contest is not resolved
within sixty (60) days, the dispute shall be submitted to
arbitration pursuant to the then existing rules of the American
Arbitration Association, or
(iv) Employer commits any material breach of this agreement, which
breach is not cured by Employer within thirty (30) days of
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written notice of said breach from Executive.
(v) Executive is required to relocate his business address from Baton
Rouge, Louisiana.
B. In the event Executive terminates his employment for "good reason" as
hereinabove set forth, Executive shall be entitled to a lump sum
payment equal to the monthly compensation provided for in this
agreement multiplied by the number of months remaining in the term of
this agreement or any extension thereof, together with all benefits,
reimbursements or other rights to which Executive has become entitled.
Section 7.05 Voluntary Termination by Executive: Executive shall have the
right to terminate this agreement for any reason other than change of control or
good reason as set forth hereinabove, upon sixty (60) days written notice to
Employer. In the event of voluntary termination by Executive other than for good
reason or change of control, Executive shall be entitled to any compensation or
benefits due and owing to Executive up to the date of termination.
Section 7.06 Effect on Compensation: In the event that this agreement is
terminated prior to the completion of the term of employment specified herein,
Executive shall be entitled to the compensation earned by and vested in him
prior to the date of termination as provided for in this agreement, computed
pro-rata up to and including that date. Executive shall be entitled to no
further compensation or benefits as of the date of termination, except as
hereinabove set forth.
ARTICLE VIII
INSURANCE AND INDEMNIFICATION
Section 8.01 Insurance: Employer agrees to make a best effort to obtain and
maintain a Directors and Officers liability policy with limits established by
the Board of Directors of Employer for all liability arising out of Executive's
capacity as an officer and/or director of Employer. Employer further agrees to
make a best effort to obtain and maintain a comprehensive general liability
policy with broad form endorsements providing coverage for contractual
liability and personal injury with limits established by the Board of Directors
of Employer.
Section 8.02 Indemnification: Employer shall, to the full extent permitted
by law, indemnify, defend and hold harmless Executive from and against any and
all claims, demands, liabilities, losses and expenses (including reasonable
attorneys fees, court costs and disbursements) arising out of the performance by
Executive of Executive's duties hereunder, including ordinary negligence,
except in the case of Executive's gross negligence.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Notices: Any notices to be given by either party to the other
shall be in writing and may be transmitted either by personal delivery or by
mail, registered or certified, postage prepaid, with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing on
the signature page of this agreement. Each party may change their address by
written notice in accordance with this section. Notices delivered personally
shall be deemed communicated as of the date of actual receipt.
Section 9.02 Attorney's Fees and Costs:
A. In the event of any action at law or in equity with respect to any of
the terms or conditions of this agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which that party may
be entitled. This provision shall be construed as applicable to the
entire contract.
B. Employer shall pay up to but not exceeding two thousand dollars
($92,000) for the attorney's fees incurred by Executive in connection
with the negotiation and preparation of this agreement. It is expressly
understood that any attorney's fees charged to Executive in excess of
two thousand dollars ($2,000) remain the responsibility of Executive
and notwithstanding Employer's payment of attorney's fees as aforesaid,
no attorney/client relationship shall exist between Employer and
Executive's attorney.
Section 9.03 Entire Agreement: With the exception of the Board Service
Agreement previously entered into between Employer and Executive, this agreement
supersedes any and all other agreements either oral or in writing between the
parties hereto with respect to the employment of Executive by Employer and
contains all of the covenants and agreements between the parties with respect
to that employment in any manner whatsoever. Each party to this agreement
acknowledges that no representations, inducements, promises or agreements orally
or otherwise have been made by any party or anyone acting on behalf of any party
which are not embodied herein and that no other agreement, statement or promise
not contained in this agreement shall be valid or binding.
Section 9.04 Modification: Any modifications to this agreement will be
effective only if it is in writing signed by the party to be charged.
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Section 9.05 Effect of Waiver: The failure of either party to insist on
strict compliance with any of the terms, covenants or conditions of this
agreement by the other party shall not be deemed a waiver of that term, covenant
or condition, nor shall any waiver or relinquishment of any right or power at
any one time or times be deemed a waiver or relinquishment of that right or
power for all or any other times.
Section 9.06: If any provision in this agreement is held by a Court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
Section 9.07 Law Governing Agreement: This agreement shall be governed by
and construed in accordance with the laws of the State of Florida, and venue for
any action between the parties shall be in the County of Palm Beach.
Section 9.08 Sums due Deceased Executive: If Executive dies prior to the
expiration of the term of his employment, any sums that may be due him from
Employer under this agreement as of the date of death shall be paid to
Executive's executors, administrators, heirs, personal representatives,
successors and assigns.
Executed on the 1st day of July, 1997 at Delray Beach, Florida.
EMPLOYER: EXECUTIVE:
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein /s/ Louis J. Resweber
------------------------- ----------------------------
Its: C.E.O. Louis J. Resweber
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EMPLOYMENT AGREEMENT
WESTMARK GROUP HOLDINGS, INC., a Delaware corporation, and WESTMARK
MORTGAGE CORPORATION, a California corporation, located at 355 N.E. Fifth
Avenue, Suite 4, Delray Beach, Florida 33483 (hereinafter collectively referred
to as the "Employer") and IRV BOWEN (hereinafter referred to as "Employee") in
consideration of the mutual promises made herein agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
Section 1.01 Specified Term: The Employer hereby employs Employee and
Employee hereby accepts employment with Employer for a period of three (3)
months commencing July 1, 1997 and terminating September 30, 1997 as an advisor
as set forth below. The term of employment will be extended by mutual agreement
for an additional thirty (30) months.
Section 1.02 Earlier Termination: This agreement may be terminated
earlier as hereinafter provided.
ARTICLE II
DUTIES AND OBLIGATIONS OF EMPLOYEE
Section 2.01 Title and Description of Duties: Employee shall serve as
an Adviser to Westmark Group Holdings, Inc. and its subsidiaries, specifically
with regard to corporate finance, mergers and acquisitions, capital raises,
financial audits, accounting due diligence and miscellaneous tax and legal
matters. In that capacity Employee shall do and perform all services, acts or
things necessary or advisable to fulfill the duties of Advisor and shall be
subject to the direction of the policies established by the Board of Directors
of Employer.
Section 2.02 Loyal and Conscientious Performance of Duties: Employee
agrees that to the best of his ability and experience he will at all times
loyally and conscientiously perform all of the duties and obligations required
of him, either express or implied, by the terms of this agreement.
Section 2.03 Satisfaction of Performance of Duties: Employee's
performance of his duties hereunder shall at all times be rendered to Employer's
satisfaction. Employee expressly agrees that Employer shall be the sole judge as
to whether the services of Employee are satisfactory pursuant to the performance
guidelines established by the board of directors.
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Section 2.04 Adherence to Employer's Rules: At all times during the
performance of this contract, Employee shall strictly adhere to and obey all of
Employer's rules and regulations governing the conduct of its Employee's now in
effect or as subsequently modified.
Section 2.05 Devotion of Entire Time to Employer's Business: Employee
shall devote his full productive time, ability and attention to the business of
Employer during the term of this contract. Furthermore, during the term of this
agreement, Employee shall not, whether directly or indirectly, render any
services of commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior consent
of Employer's Board of Directors. This agreement shall not be interpreted to
prohibit Employee from making passive personal investments or conducting private
business affairs if those activities do not in any way interfere with the
services required under this agreement. However, Employee shall not directly or
indirectly acquire, hold or retain any interest in any business competing with
or similar in nature to the business of Employer.
Section 2.06 Non-Competition during Term of Employment Contract:
During the term of this contract Employee shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any matter whatsoever with the business of Employer.
Section 2.07 Unfair Competition after Termination of Employment:
Employee acknowledges and agrees that the sale or unauthorized use or disclosure
of any of Employer's trade secrets obtained by Employee during his employment
with Employer, including information concerning Employer's current products and
any future or proposed products or services, the fact that those products or
services are planned, under the consideration, or in production, as well as any
description of the features of those products or services, constitutes unfair
competition. Employee promises and agrees not to engage in any unfair
competition with Employer either during the term of this agreement or at any
time thereafter.
Section 2.08 Soliciting Customers after Termination of Employment:
Employee acknowledges and agrees that the names and addresses of Employer's
customers constitute trade secrets of Employer and that the sale or unauthorized
use or disclosure of any of Employer's trade secrets obtained by Employee during
his employment with Employer constitutes unfair competition. Employee promises
and agrees not to engage in any unfair competition with Employer for a period of
two (2) years immediately following the termination of said employment with
Employer. Employee shall not, directly or indirectly, make known to any person,
firm or corporation the names or addresses of the customers of Employer or any
other information pertaining to them or call on, solicit, take away or attempt
to call on, solicit or take away any of the
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customers of Employer on whom Employee called or with whom Employee became
acquainted during his employment with Employer, either for himself or for any
other person, firm or corporation.
Section 2.09 Uniqueness of Employee's Services: Employee hereby
represents and agrees that the services to be performed under the terms of this
contract are of a special, unique, unusual, extraordinary and intellectual
character that gives them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law. Employee
therefore expressly agrees that Employer, in addition to any other rights or
remedies which Employer may possess, shall be entitled to injunctive and other
equitable relief to prevent or remedy a breach of this contract by Employee.
Section 2. 10 Confidentiality: In the course of the performance of
Employee's duties hereunder, Employee recognizes and acknowledges that Employee
may have access to certain confidential and proprietary information of Employer
or any of its affiliates. Without the prior written consent of Employer,
Employee shall not disclose any such confidential or proprietary information to
any person or firm, corporation, association, or other entity for any reason or
purpose whatsoever, and shall not use such information, directly or indirectly,
for Employee's own behalf or on behalf of any other party. Employee agrees and
affirms that all such information is the sole property of Employer and that at
the termination and/or expiration of this agreement, at Employer's written
request, Employee shall promptly return to Employer any and all such information
so requested by Employer.
The provisions of this section shall not, however, prohibit Employee
from disclosing to others or using in any manner information that:
A. Has been published or has become part of the public domain;
B. Has been furnished or made known to Employee by third parties
(other than those acting directly or indirectly for or on behalf of
Employee) as a matter of legal right without restriction on its use
or disclosure;
C. Was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of
this agreement; or
D. Is required to be disclosed by law.
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ARTICLE III
OBLIGATIONS OF EMPLOYER
Section 3.01 General Description: Employer shall provide Employee
with the compensation, incentives and benefits specified elsewhere in this
agreement or as established by Employer from time to time.
Section 3.02 Office and Staff: Employer shall provide Employee with
stenographic help, office equipment and supplies and other facilities and
services suitable to Employee's position and adequate for the performance of his
duties.
ARTICLE IV
COMPENSATION OF EMPLOYEE
Section 4.01 Monthly Salary: As compensation for the services to be
rendered by Employee hereunder, Employer shall pay Employee a monthly salary in
the sum of $10,000 in weekly, semimonthly or monthly installments in accordance
with the standard payment policies of Employer. Employer and Employee mutually
agree that Employee shall receive $9,000 per month of the total salary and
$1,000 per month shall accrue for no more than a total of three (3) months. Said
accrued salary shall be paid in full at the end of the initial term of the
employment agreement. Employee shall receive such annual increases in salary as
may be determined in Employer's sole discretion. In the event of an extension of
the employment term, Employee shall be entitled to an annual salary of one
hundred thirty-two thousand dollars ($132,000) after twelve months and one
hundred forty-four thousand dollars ($144,000) after twenty-four months.
Section 4.02 Deductions: Employer shall have the right to deduct or
withhold from the compensation due to Employee hereunder any and all sums
required for federal income and social security taxes and all state or local
taxes now applicable or that may be enacted and become applicable in the future.
ARTICLE V
EMPLOYEE BENEFITS
Section 5.01 Health Care Benefits: Employer shall provide Employee and
Employee shall be entitled to participate in the hospital, surgical, medical and
dental plan in existence through Westmark Group Holdings, Inc. as of the date of
this agreement or such other hospital, surgical, medical and dental plan as may
be provided by Employer from and after the date of this agreement. In lieu of
the hospital, surgical, medical and dental benefits provided by Employer,
Employee shall have the right to maintain his existing hospital, surgical,
medical and dental policies at Employer's expense provided, however, that said
expense shall not exceed the expense
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that Employer would otherwise incur to maintain Employee on Employer's health
care benefit policies.
Section 5.02 Life Insurance: Employer agrees to include Employee and
Employee shall participate in the group term life insurance policy in effect as
of the date of this agreement through Westmark Group Holdings, Inc., if any,
or such other group life insurance policy provided by Employer from and after
the date of this agreement.
Section 5.03 Automobile Allowance: Employee shall be entitled to an
automobile allowance of $400 per month during the term of this agreement or any
extension thereof. Employer shall also pay all expenses and insurance relevant
to the use of said automobile. Employer shall have the option to provide
Employee with an automobile during the term of this employment with the expenses
thereof to be paid by Employer.
Section 5.04 Stock Option: Immediately upon the execution of this
Agreement, Employer and Employee shall enter into a Stock Option Agreement,
pursuant to which Employer shall issue options to Executive to acquire 400,000
shares of the common stock of Westmark Group Holdings, Inc. Said options shall
vest immediately at an exercise price of $1.00. Said vested options may be
exercised on or after the following dates:
100,000 shares on March 31, 1998
50,000 shares on October 31, 1998
100,000 shares on March 31, 1999
50,000 shares on October 31, 1999
100,000 shares on March 31, 2000
In the event of a sale, divestiture, spin-off or transfer of all or
substantially all of the assets or stock of Westmark Mortgage Corporation, all
options granted hereunder to Executive shall immediately become exercisable.
Provided, however, that no option shall be exercisable after the expiration of
ten years from the date said option was granted.
Section 5.05 Vacation: Employee will be entitled to four weeks paid
vacation per year subject to the policies and procedures of Employer. Unused
accrued vacation time may be carried forward to subsequent years and/or will be
paid in full upon termination of this agreement.
Section 5.06 Other Benefits: During the term of this agreement or any
extension thereof, Employee shall be entitled to receive, in addition to and not
in lieu of base salary, bonus or other compensation, such other benefits and
normal perquisites
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as Employer currently provides or such other additional benefits as the company
may provide for its executive officers in the future. Employee shall be entitled
to participate in a bonus plan which shall be promulgated by the Board of
Directors of Employer prior to the expiration of the initial term of this
agreement.
Section 5.07 Expenses: Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Employee in the same manner as
other executive officers for all reasonable, necessary or appropriate
out-of-pocket travel and other expenses incurred by Employee in rendering
services pursuant to this agreement.
ARTICLE VI
TRADE SECRETS
Section 6.01 Restrictions on Use of Trade Secrets and Records: During
the term of employment under this agreement, Employee will have access to and
become acquainted with various trade secrets consisting of formulas, patterns,
devices, secret inventions, processes, and compilations of information, records
and specifications all of which are owned by Employer and regularly used in the
operation of Employer's business. All files, records, documents, drawings,
specifications, equipment and similar items relating to the business of
Employer, whether they are prepared by Employee or come into Employee's
possession in any other way and whether or not they contain or constitute, trade
secrets owned by Employer, are and shall remain the exclusive property of
Employer and shall not be removed from the premises of Employer under any
circumstances whatsoever without the prior written consent of Employer. Employee
promises and agrees that he shall not misuse, misappropriate or disclose any of
the trade secrets described herein, directly or indirectly, or use them in any
way either during the term of this agreement or at any time thereafter, except
as required in the course of his employment.
ARTICLE VII
TERMINATION OF EMPLOYMENT
Section 7.01 Termination for Cause: Employer reserves the right to
terminate this agreement if Employee willfully breaches or neglects the duties
which he is required to perform under the terms of this agreement. Employer
shall not terminate this agreement pursuant to the foregoing unless Employer
shall first deliver to Employee a notice which specifically identifies such
breach or neglect and Employee shall have cured the same within 30 days after
receipt of the written notice. Employer shall further have the right to
terminate Employee if Employee commits acts of dishonesty, fraud or
misrepresentation that would prevent the effective performance of Employee's
duties. This agreement shall further terminate immediately on the
6
<PAGE>
occurrence of any of the following events:
A. The death of Employee;
B. The loss by Employee of legal capacity;
C. Employee becomes permanently disabled because of sickness,
physical or mental disability or any other reason so that
Employee shall be unable to complete duties under this agreement.
"Permanently disabled" shall mean any disability that continues
for 180 days in any twelve month period, certified by a licensed
physician mutually agreed upon by, Employer and Employee.
Employer may at its option terminate this agreement for the reasons
stated in this section by giving written notice of termination to Employee
without prejudice to any other remedy to which Employer may be entitled either
at law, in equity, or under this agreement. The notice of termination required
by this section shall specify the ground for the termination and shall be
supported by statement of all relevant facts. In the event of termination for
cause by Employer, Employee shall be entitled to compensation or benefits earned
up to and including the date of termination.
Section 7.02 Termination without Cause: This agreement is a guaranteed
contract and is not subject to termination by Employer other than for cause as
set forth herein above. In the event of termination by Employer, without cause,
prior to the end of the term of employment, Employee shall be entitled to a lump
sum payment equal to the monthly compensation provided for in this agreement
multiplied by the number of months remaining in the term of this agreement or
any extension thereof, together with all benefits, reimbursements or other
rights to which Employee has become entitled.
Section 7.03 Change of Control: In the event of a change of control as
set forth below, while Employee is employed by Employer after the initial term
of employment, and in the further event Employee's employment is terminated
without cause, as defined herein above, Employer shall pay to Employee a lump
sum payment equal to the monthly compensation provided for in this agreement
multiplied by the number of months remaining in the term of this agreement or
any extension thereof, together with all benefits, reimbursements or other
rights to which Employee has become entitled. Change of control shall be defined
as follows:
A. Any "person," including a "group" as determined in accordance
with Section 13 (d) (3) of the Securities Exchange Act of 1934
(the "Exchange Act"), becomes, in a single transaction or series
of transactions, the beneficial owner, directly or indirectly, of
securities representing a Control Percentage (as hereinafter
defined) of the
7
<PAGE>
combined voting power of the then outstanding securities of the
corporation not including a transaction caused by or resulting
from the affirmative vote of a majority of the current members of
the Board of Directors of Westmark Group Holdings, Inc. (subject
to Section 7.03, B.);
B. The membership of the board of directors as it exists at the
time of this Agreement changes such that the current members of
the board no longer constitute a majority of the board of
directors not including a change caused by or resulting from any
current board member's death or resignation pursuant to Section
7.05 hereinafter, or the affirmative vote of a majority of the
current members of the Board of Directors of Westmark Group
Holdings, Inc.;
C. The corporation is merged or consolidated with other
corporations in a single transaction or series of transactions
and as a result of such merger or consolidation a Control
Percentage of the outstanding voting securities of the surviving
or resulting corporation shall no longer be owned in the
aggregate by the stockholders who owned stock in the corporation
as of the date prior to the merger or consolidation not including
a merger or consolidation caused by or resulting from the
affirmative vote of a majority of the current members of the
Board of Directors of Westmark Group Holdings, Inc. (subject to
Section 7.03, B.). The term "Control Percentage" shall mean at
least 35% in the event the applicable securities are registered
under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or at least 35% in the event the applicable securities
are not registered under the Exchange Act.
D. The corporation transfers all of its assets to another
corporation or to any other person or entity, including but not
limited to the transfer of the mortgage operations through a sale
of assets or stock, spin-off, divestiture or initial public
offering not including a transfer of assets or stock caused by or
resulting from the affirmative vote of a majority of the current
members of the Board of Directors of Westmark Group Holdings,
Inc. (subject to Section 7.03, B.).
E. In the event of a change of control as set forth above, and
Employee is requested to remain with the surviving or successor
corporation or business, with the same compensation and
commensurate duties as previously retained by Employee subject to
the same terms and conditions of this agreement, and Employee
rejects such request for continuing employment, said Employee
shall be entitled to a lump sum severance payment equal to the
compensation provided in Paragraph 7.02 regarding termination
without cause. Provided, however, that
8
<PAGE>
Employee shall not reject such request for continuing employment
without a reasonable basis.
Section 7.04 Termination by Employee: Employee may terminate his
employment for "good reason" upon the occurrence of any one or more of the
following:
A. The Employee may terminate his employment for "Good Reason"
if:
(i) He is assigned, without his express written consent,
any duties inconsistent with his positions, duties,
responsibilities, or status with Employer as of the date
hereof, or a change in his reporting responsibilities or
titles in effect as of the date hereof;
(ii) His compensation is reduced;
(iii) Employer shall file a petition in bankruptcy or
re-organization under the federal bankruptcy statutes or an
involuntary petition is filed against Employer and not
removed or withdrawn within sixty (60) days, or Employer
does not pay any salary or expense due hereunder and then
fails either to pay such amount within thirty (30) days
after written notice from Employee, or to contest in good
faith such notice. Further, if such contest is not resolved
within sixty (60) days, the dispute shall be submitted to
arbitration pursuant to the then existing rules of the
American Arbitration Association; or
(iv) Employer commits any material breach of this
agreement, which breach is not cured by Employer within
thirty (30) days of written notice of said breach from
Employee.
(v) In the event Employee terminates his employment for
good reason as hereinabove set forth, Employee shall be
entitled to a lump sum payment equal to the monthly
compensation provided for in this agreement multiplied by
the number of months remaining in the term of this
agreement or any extension thereof, together with all
benefits, reimbursements or other rights to which Employee
has become entitled.
B. Voluntary Termination By Employee: Employee shall have the
right to terminate this agreement for any reason other than
change of control or good reason as set forth hereinabove, upon
sixty (60) days written notice to Employer. In the event of
voluntary termination by Employee other than for good reason or
change of control, Employee shall be entitled to
9
<PAGE>
any compensation or benefits due and owing to Employee up to the
date of termination.
Section 7.05 Effect on Compensation: In the event that this agreement is
terminated prior to the completion of the term of employment specified herein,
Employee shall be entitled to the compensation earned by and vested in him prior
to the date of termination as provided for in this agreement, computed pro-rata
up to and including that date. Employee shall be entitled to no further
compensation or benefits as of the date of termination, except as hereinabove
set forth.
ARTICLE VII
GENERAL PROVISIONS
Section 8.01 Notices: Any notices to be given by either party to the
other shall be in writing and may be transmitted either by personal delivery or
by mail, registered or certified, postage prepaid, with return receipt
requested. Mailed notices shall be addressed to the parties at the addresses
appearing on the signature page of this agreement. Each party may change their
address by written notice in accordance with this section. Notices delivered
personally shall be deemed communicated as of the date of actual receipt. Mailed
notices shall be deemed communicated as of three (3) days after the date of
mailing.
Section 8.02 Attorney's Fees and Costs: In the event of any action at
law or in equity with respect to any of the terms or conditions of this
agreement, the prevailing party shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to which that
party may be entitled. This provision shall be construed as applicable to the
entire contract.
Section 8.03 Entire Agreement: This agreement supersedes any and all
other agreements either oral or in writing between the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect to that employment in
any manner whatsoever. Each party to this agreement acknowledges that no
representations, inducements, promises or agreements orally or otherwise have
been made by any party or anyone acting on behalf of any party which are not
embodied herein and that no other agreement, statement or promise not contained
in this agreement shall be valid or binding.
Section 8.04 Modifications: Any modifications to this agreement will be
effective only if it is in writing signed by the party to be charged.
Section 8.05 Effect of Waiver: The failure of either party to insist on
strict compliance with any of the terms, covenants or conditions of this
agreement by the other party shall not be deemed a waiver of that term, covenant
or condition, nor shall
10
<PAGE>
any waiver or relinquishment of any right or power at any one time or times be
deemed a waiver or relinquishment of that right or power for all or any other
times.
Section 8.06 Partial Invalidity: If any provision in this agreement is
held by a Court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
Section 8.07 Law Governing Agreement: This agreement shall be governed
by and construed in accordance with the laws of the State of Florida, and venue
for any action between the parties shall be in the County of Palm Beach.
Section 8.08 Sums Due Deceased Employee: If Employee dies prior to the
expiration of the term of his employment, any sums that may be due him from
Employer under this agreement as of the date of death shall be paid to
Employee's executors, administrators, heirs, personal representatives,
successors and assigns.
Executed on the 1st day of July, 1997 at Delray Beach, Florida.
EMPLOYER:
WESTMARK GROUP HOLDINGS, INC. WESTMARK MORTGAGE CORPORATION
By: /s/ Mark Schaftlein By: /s/ Payton Story III
- ---------------------------- -----------------------------
Mark Schaftlein Payton Story III
Its: C.E.O. Its: President
EMPLOYEE:
/s/ Irv Bowen
- ----------------------------
Irv Bowen
11
AMENDED AND RESTATED
CONSULTING SERVICES AGREEMENT
This Consulting Services Agreement dated June 7, 1996 effective January
24, 1996 ("Agreement") is by and between, WESTMARK GROUP HOLDINGS INC., a
Colorado corporation ("Company") and HARRY COOLIDGE, an individual
("Consultant").
WITNESSETH:
WHEREAS, the parties hereto entered into that certain Consulting
Agreement dated January 24, 1996; and
WHEREAS, the parties wish to amend said Consulting Agreements;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements, and considerations herein contained, the parties hereto
agree as follows:
1. Engagement. Subject to the terms and provisions of this Agreement,
the Company hereby engages Consultant, as an independent contractor, to provide
consulting services ("Services") as set forth in Section 2 below. Consultant
hereby accepts such engagement and shall, during the term of the Agreement,
perform the Services as herein provided.
2. Services. Subject to the terms and conditions of this Agreement, the
term "Services" shall mean providing certain consulting services to the Company
as may be mutually agreed upon by the parties. Such services are outlined in
Schedule "A" attached hereto. Consultant agrees to provide such Services on a
non-exclusive basis and as an independent contractor and not as an employee of
the Company. Nothing in this Agreement shall be construed to prevent Consultant
from performing services on behalf of himself or any person or entity.
3. Compensation. For the Services performed by Consultant for the
Company, the Company will issue to Consultant 80,000 shares of common stock of
the Company pursuant to a S-8 Registration Statement. The Consultant agrees to
provide the Company 24 hours advance written notice prior to an attempted sale
of shares of Common Stock to be issued hereunder and the Company will have the
right of first refusal for a period of 24 hours to purchase from Consultant such
shares at the then market value.
Consultant shall be restricted from selling more than 8,000 shares of
Common Stock per month for a ten month period.
4. Status Reports. For the term of this Agreement, at the Company's
written Request, Consultant shall prepare and submit to the Company a written
status report describing the status of any and all projects for which Consultant
has provided Services.
5. Term. The term of this Agreement shall commence an January 24, 1996
and
<PAGE>
shall continue in full force and effect for a period of two years.
6. Authority. Consultant understands and agrees that under the terms
and provisions of this Agreement, Consultant is not an employee, representative
or agent of the Company or any of its affiliates and therefore has no power or
authority whatsoever to act on behalf of, or bind the Company or any of its
affiliates, with respect to any matter or contract. Furthermore, this Agreement
does not create and shall not be construed to create any joint venture or
partnership relationship between the parties. No officer, employee, agent or
independent contractor of either party or their respective affiliates shall be
deemed at any time to be an employee, servant, agent or contractor of the other
for any purpose whatsoever.
7. Confidentiality. In the course of the performance of Consultant's
duties hereunder, Consultant recognizes and acknowledges that Consultant may
have access to certain confidential and proprietary information of the Company
or any of its affiliates. Without the prior written consent of the Company,
Consultant shall not disclose any such confidential or proprietary information
to any person or firm, corporation, association, or other entity for any reason
or purpose whatsoever, and shall not use such information, directly or
indirectly, for Consultant's own behalf or on behalf of any other party.
Consultant agrees and affirms that all such information is the sole property of
the Company and that at the termination and/or expiration of this Agreement at
the Company's written request, Consultant shall promptly return to the Company
any and all such information so requested by the Company.
The provisions of this Section 7 shall not, however, prohibit
Consultant from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Consultant;
(b) has been furnished or made known to Consultant by third parties
(other than those acting directly or indirectly for or on behalf of Consultant)
as a matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Consultant prior to obtaining such
information from the Company in connection with the performance of this
Agreement; or
(d) is required to be disclosed by law.
8. Miscellaneous.
(a) Assignment. All of the terms, provisions and conditions of this
Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns. This
2
<PAGE>
Agreement shall not be assigned or transferred by either party, nor shall any
interest herein be assigned, transferred, pledged or hypothecated by either
party without the prior written consent of the other party.
(b) Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Florida.
(c) Entire Agreement Amendments and Waivers. This Agreement constitutes
the entire agreement of the parties hereto and expressly supersedes all prior
and contemporaneous understandings and commitments, whether written or oral,
with respect to the subject matter hereof, including the Consulting Agreement
dated January 24, 1996. No variations, modifications, changes or extensions of
this Agreement or any other terms hereof shall be binding upon any party
hereto unless set forth in a document duly executed by such party or an
authorized agent or such party.
In WITNESS WHEREOF, the parties hereof have executed this Agreement as
of the day and year first written above.
WESTMARK GROUP HOLDINGS, INC.
By:/s/ Norman J. Bermingham
------------------------------
Name: Norman J. Bermingham
Title: President
CONSULTANT
/s/ Harry Coolidge
------------------------------
Harry Coolidge
3
<PAGE>
SCHEDULE A
"Services" include, but are not limited to, the following:
1. Advising the Company upon potential leasing opportunities, secure
mortgage credit, warehouse lines of credit, computer and other equipment
leasing, office rentals and other related opportunities.
2. Perform preliminary analysis on potential merger and acquisition
candidates.
3. Providing any other services as shall be mutually agreed upon by
Consultant and Company.
4
AMENDMENT TO CONSULTING AGREEMENT
This Amendment to Consulting Agreement ("Amendment") is entered into by
and between Westmark Group Holdings, Inc. ("WGHI") and Harry C. Coolidge. Esq.
("Coolidge") and is made in reference to the following:
1) On or about January 24, 1996, WGHI and Coolidge entered into a
Consulting Agreement ("Agreement"). The Parties desire to modify said Agreement
as hereinafter set forth.
2) Said Agreement is hereby extended for a term of one (1) year
commencing February 1, 1997 through and including January 31, 1998.
3) Compensation shall continue at the same rate including $4,500
payable each pay period ("$9,000 per month") and the issuance of S-8 stock with
a net value of $6,000 per month.
4) Paragraph 4(c) of the Agreement shall be deleted effective February
1, 1997.
5) Coolidge acknowledges the satisfaction of paragraph 5(a, b & d) of
said Agreement.
6) Coolidge is hereby appointed Corporate Counsel for WGHI effective
February 1, 1997.
7) Except as hereinabove and modified, said Agreement shall continue in
full force and effect.
Dated: Dated: 2/4/97
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein
------------------------ -------------------------------
HARRY C. COOLIDGE, ESQ. Its: Chief Operating Officer
SECOND AMENDMENT TO CONSULTING AGREEMENT
This Second Amendment to Consultant Agreement ("Second Amendment") is entered
into by and between WESTMARK GROUP HOLDINGS, INC., a Delaware corporation, and
WESTMARK MORTGAGE CORPORATION, a California corporation (hereinafter
collectively "Westmark") and HARRY C. COOLIDGE, ESQ. ("Coolidge"), and is made
in reference to the following:
WHEREAS, Westmark Group Holdings, Inc. and Coolidge entered into a
Consulting Agreement on January 24, 1996 and a subsequent Amendment on February
4, 1997, and;
WHEREAS, Westmark Mortgage Corporation desires to adopt, ratify,
approve and confirm said Consulting Agreement as amended, and;
WHEREAS, Westmark and Coolidge desire to further amend said Consulting
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained therein, said Consulting Agreement is hereby amended and modified in
the following respects:
1. Term: The term of this Consulting Agreement shall be extended and
continue to and including April 24, 2000, subject to termination as hereinafter
set forth.
2. Termination Without Cause: This Agreement is a guaranteed contract
and is not subject to termination by Westmark other than for cause as set forth
hereinafter. Termination by Westmark for any reason other than for cause,
including but not limited to termination due to insolvency, bankruptcy,
liquidation or winding down of operation shall be deemed to be termination
without cause for the purpose of this Agreement. In the event of termination by
Westmark, without cause, prior to the end of the term of this Consulting
Agreement, Coolidge shall be entitled to a lump sum payment equal to the monthly
compensation provided for in this Agreement as amended multiplied by the number
of months remaining in the term of this Agreement or any extension thereof
together with all benefits, reimbursements or other rights to which Coolidge
has become entitled,
3. Termination for Cause: Westmark reserves the right to terminate this
agreement if Coolidge willfully breaches or willfully neglects the duties which
he is required to perform under the terms of this agreement. Westmark shall not
terminate this agreement pursuant to the foregoing unless Westmark shall first
deliver to Coolidge a notice which specifically identifies such breach or
neglect and Coolidge shall have cured the same within 30 days after receipt of
the written notice. Westmark shall further have the right to terminate Coolidge
if Coolidge commits acts of dishonesty, fraud or misrepresentation that would
prevent the effective performance of Coolidge's duties. This agreement shall
further terminate immediately on the occurrence of any of the following events:
1
<PAGE>
A. The death of Coolidge;
B. Coolidge becomes permanently disabled because of sickness, physical
or mental disability or any other reason so that Coolidge shall be
unable to complete duties under this agreement. "Permanently disabled"
shall mean any disability that continues for 180 days in any twelve
month period, certified by a licensed physician mutually agreed upon by
Westmark and Coolidge.
Westmark may at its option terminate this agreement for the reasons
stated in this section by giving written notice of termination to Coolidge
without prejudice to any other remedy to which Westmark may be entitled either
at law, in equity, or under this agreement. The notice of termination required
by this section shall specify the ground for the termination and shall be
supported by statement of all relevant facts. In the event of termination for
cause by Westmark, Coolidge shall be entitled to compensation or benefits earned
up to and including the date of termination. In the event a court of competent
jurisdiction determines that Coolidge was wrongfully terminated, said
termination shall be deemed to have been without cause and Westmark shall pay to
executive all compensation and benefits provided for termination without cause
as set forth hereinafter, together with Coolidge's reasonable attorney's fees,
expert fees and court costs.
4. Change of Control: In the event of a change of control as set forth
below, while Coolidge is under contract to Westmark, and in the further event
Coolidge's contract is terminated without cause, as defined herein above,
Westmark shall pay to Coolidge a lump sum payment equal to the monthly
compensation provided for in this agreement as amended multiplied by the number
of months remaining in the term of this agreement or any extension thereof,
together with all benefits, reimbursements or other rights to which Coolidge has
become entitled. Change of control shall be defined as follows:
A. Any "person," including a "group" as determined in accordance with
Section 13 (d) (3) of the Securities Exchange Act of 1934 (the "Exchange
Act"), becomes, in a single transaction or series of transactions, the
beneficial owner, directly or indirectly, of securities representing a
Control Percentage (as hereinafter defined) of the combined voting power
of the then outstanding securities of the corporation not including a
transaction caused by or resulting from the affirmative vote of a
majority of the current members of the Board of Directors of Westmark
Group Holdings, Inc. (subject to Paragraph 4, B);
B. The membership of the board of directors as it exists at the time of
this Agreement changes such that the current members of the board no
longer constitute a majority of the board of directors not including a
change caused by or resulting from any current board member's death or
resignation pursuant to Paragraph 5, B hereinafter, or the affirmative
vote
2
<PAGE>
of a majority of the current members of the Board of Directors of
Westmark Group Holdings, Inc.,
C. The corporation is merged or consolidated with other corporations in
a single transaction or series of transactions and as a result of such
merger or consolidation a Control Percentage of the outstanding voting
securities of the surviving or resulting corporation shall no longer be
owned in the aggregate by the stockholders who owned stock in the
corporation as of the date prior to the merger or consolidation not
including a merger or consolidation caused by or resulting from the
affirmative vote of a majority of the current members of the Board of
Directors of Westmark Group Holdings, Inc. (subject to Paragraph 4, B).
The term "Control Percentage" shall mean at least 35% in the event the
applicable securities are registered under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), or at least 35% in the event the
applicable securities are not registered are not registered under the
Exchange Act.
D. The corporation transfers all of its assets and or stock to another
corporation or to any other person or entity, including but not limited
to the transfer of the mortgage operations through a sale of assets or
stock, spin-off, divestiture or initial public offering not including a
transfer of assets or stock caused by or resulting from the affirmative
vote of a majority of the current members of the Board of Directors of
Westmark Group Holdings, Inc. (subject to Paragraph 4, B).
E. In the event of a change of control as set forth above, and Coolidge
is requested to remain with the surviving or successor corporation or
business, with the same compensation and commensurate duties as
previously retained by Coolidge subject to the same terms and conditions
of this agreement, and Coolidge rejects such request for continuing
employment, said Coolidge shall be entitled to a lump sum severance
payment equal to the compensation provided hereinabove in Paragraph 3
regarding termination without cause. Provided, however, that Coolidge
shall not reject such request for continuing employment without a
reasonable basis.
5. Termination by Coolidge: Coolidge may terminate his employment for
"good reason" upon the occurrence of any one or more of the following:
A. Termination for "Good Reason": Coolidge may terminate his employment
for "Good Reason" if:
(i) He is assigned, without his express written consent, any duties
inconsistent with his positions, duties, responsibilities, or
status
3
<PAGE>
with Westmark as of the date hereof, or a change in his reporting
responsibilities or titles in effect as of the date hereof;
(ii) His compensation is reduced;
(iii) Westmark shall file a petition in bankruptcy or re-organization
under the federal bankruptcy statutes or an involuntary petition is
filed against Westmark and not removed or withdrawn within sixty
(60) days, or Westmark does not pay any salary or expense due
hereunder and then fails either to pay such amount within thirty
(30) days after written notice from Coolidge, or to contest in good
faith such notice. Further, if such contest is not resolved within
sixty (60) days, the dispute shall be submitted to arbitration
pursuant to the then existing rules of the American Arbitration
Association; or
(iv) Westmark commits any material breach of this agreement, which
breach is not cured by Westmark within thirty (30) days of written
notice of said breach from Coolidge.
(v) In the event Coolidge terminates his employment for good reason
as hereinabove set forth, Coolidge shall be entitled to a lump sum
payment equal to the monthly compensation provided for in this
agreement multiplied by the number of months remaining in the term
of this agreement or any extension thereof, together with all
benefits, reimbursements or other rights to which Coolidge has
become entitled.
B. Voluntary Termination By Coolidge: Coolidge shall have the right to
terminate this agreement for any reason other than change of control or
good reason as set forth hereinabove, upon sixty (60) days written
notice to Westmark. In the event of voluntary termination by Coolidge
other than for good reason or change of control, Coolidge shall be
entitled to any compensation or benefits due and owing to Coolidge up
to the date of termination.
6. Vacation: Coolidge shall be entitled to four (4) weeks paid vacation
per year subject to the policies and procedures of Employer. Unused accrued
vacation time may, be carried forward to subsequent years and/or paid in full
upon termination of this agreement.
7. Stock Options: Immediately upon the execution of this Agreement,
Westmark and Coolidge shall enter into a Stock Option Agreement, pursuant to
which Westmark shall issue options to Coolidge to acquire 400,000 shares of the
common stock of Westmark Group Holdings, Inc. Said options shall vest
immediately at an exercise price of $1.00. Said vested
4
<PAGE>
options may be exercised on or after the following dates:
100,000 shares on March 31, 1998
50,000 shares on October 31, 1998
100,000 shares on March 31, 1999
50,000 shares on October 31, 1999
100,000 shares on March 31, 2000
In the event of a sale, divestiture, spin-off or transfer of all or
substantially all of the assets or stock of Westmark Mortgage Corporation, all
options granted hereunder to Executive shall immediately become exercisable.
Provided, however, that no option shall be exercisable after the expiration of
ten years from the date said option was granted.
8. WestMark Mortgage Corporation: Westmark Mortgage Corporation does
hereby adopt, ratify, approve and confirm the terms and conditions of the
aforementioned Consulting Agreement and all amendments thereto, and agrees to
be bound thereby.
Except as hereinabove amended or modified, said Agreement shall continue
in full force and effect.
Dated: 8-27-97 Dated: 8-27-97
/s/ Mark Schaftlein /s/ Harry C. Coolidge, Esq.
- -------------------------------- ------------------------------
WESTMARK GROUP HOLDINGS, INC. HARRY C. COOLIDGE, ESQ.
By: /s/ Mark Schaftlein
- --------------------------------
Its: C.E.O.
________________________________
WESTMARK MORTGAGE CORPORATION
By: /s/ Payton Story 2
- --------------------------------
Its: President
5
NETWORK REAL ESTATE OF CALIFORNIA, INC.
1990 NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1990 Non-Qualified Stock Option Plan (the
"Plan") is to advance the interests of Network Real Estate of California,
Inc. (the "Company") and its shareholders by affording certain officers,
key employees, affiliates and non- affiliates (collectively "Optionees")
of the Company and its subsidiaries (collectively the "Company"), upon
whose judgment, initiative, and efforts and Company is largely dependent
for the successful conduct of its business, an opportunity for investment
in the Company and the incentive advantages inherent in stock ownership in
the Company.
2. ADMINISTRATION. The Plan shall be administered by a Committee consisting
solely of not less than one nor more than five members of the Board of
Directors of the Company (the "Committee" and the "Board," respectively)
who are "disinterested persons" as defined in Rule 16b-3 of the Rules and
Regulations of the Securities and Exchange Commission. Members of the
Committee shall be appointed from time to time by the Board, shall serve
at the pleasure of the board, and may resign at any time upon written
notice to the board. In accordance with the provisions of the Plan, the
Committee shall (I) select the Optionees to whom options shall be granted,
(ii) determine the number of shares to be subject to each option, the time
at which the option is to be granted, the option exercise price, the
option period and, subject to the provisions of Section 7, the manner in
which the option becomes exercisable, and (iii) fix such other provisions
of the option as the Committee may deem necessary or desirable. The
Committee shall determine the form of the option agreement to evidence
each option. The Committee from time to time may adopt such rules and
regulations for carrying out the purpose of the Plan as it may deem proper
and in the best interests of the Company. The Committee shall keep minutes
of its meetings and shall provide copies to the Board.
The Board may from time to time make such changes in and additions to the Plan
as it may deem proper and in the best interests of the Company provided that no
such change or addtion shall impair any option previously graned under the Plan
or alter the method of detrmining the option exercise price described in Section
6, and that no change or addition shall be made by the Board which would cause
the Plan not to meet the requirements of Rule 16b-3 of the Rules and Regualtions
of the Securiteies and Exchange Commission. Each detemination, interpretation,
or other action made or taken by the Committee shall be final, conclusive, and
binding on all persons including, without limitation, the Company, the
shareholders, the Committee and each of the members thereof, and the directors,
officers, and employees of the Company, and the Optionees and their respective
successors in interest.
<PAGE>
3. THE SHARES. For the purpose of the Plan, the Board is authorized to issue
and sell up to 60,000,000 of the Company's Common Shares, par value $.001
per share ("Common Shares"), either treasury or authorized but unissued
shares, or the number and kind of shares of stock or other securities
which, in accordance with Section 9, shall be substituted for such shares
or to whcih such shares shall be adjusted. The Committee is authorized to
grant opinions hereunder with respect to such shares. All or any unsold
shares subject to an option which for any reason expires or otherwise
trminates may again be made subject to option under the Plan.
4. ELIGIBILITY. Options shall be granted only to elected or appointe
offficers or other key employees or affiliates and non-affitliates of the
Company designated by the Committee from time to time as Otionees,
including, without limitation, members of the Board who are also such
officers or key employees. Any Optionee may hold more than one option to
purchase Common Shares, whether such options is held pursuant to the Plan
or otherwise.
5. GRANT OF OPTIONS. Upon termination by the Committee that an option is to
be granted to an optionee, written notice shall be given such Optionee,
specifying, the number of the other terms and conditions of such option.
The option shall be deemed granted as of the date specified in the grant
resolution of the committee, and the related option agreement evidencing
such option shall be dated as of the date of such resolution.
6. OPTION EXERCISE PRICE. The per share price to be paid by the Optionee at
the time an option is exercised shall range from a minimum of 25% to 100%
of the Fair Market Value of one share of the optioned Common Shares on the
date the option is granted. The amount of discount form the Fair Market
Value of the optioned Common Shares shall be detrmined by the Committee at
the time of grant. In no evnet shall the price per share to be paid by the
Optionee be elss than 25% of the Fair Market Value determined by the
Committee for employees shall be based upon, among other things, the
Optionee's position and responsiblitities within the Company, the
Optionee's performance over the specified time period, the Optionee's
years of service with the Company, and the compensation received by
individuals employed by other firms in positions comparable to the
Optionee's postions. Non-empoyee optionees may be granted a discount from
Fair Market Value based upon, among other things, the value of services
rendered to the Company and the Compensation Committee's judgment of such
optionees' importance to the business and operations of the Company. For
purposes of theis Plan, "Fari Market Value' means, with respect to the
date concerned (or the next following trading day if the date concerned is
not a trading day); (a) if the Common Shares are then reported on the
National Association of Securities Dealers Automated Quotation System, the
mean between the bid and asked prices on such date; or (b) if the Common
shares are then listed on a national securities exchange, the closing
price on such date; or (c) the average of the highes tor lowest reported
by such other responsible reporting service as the Compensation Committee
may select.
7. DURATION OF OPTIONS.
<PAGE>
A. The option period shall be fixed by the Committee, but in no event
shall such period be more than ten years from the date the option is
granted. No option may be exercised during the first year after its grant.
During each of the next four years of the option period, the option may be
exercised for no more than 50% of the total shares subject to option,
provide however that such rights to exercise the option shall be
cumulative. The number of options exercisable during each year of the
option period may reduced to as little as 10% per year at the discretion
of the Compensation Committee. Notwithstanding the foregoing, if during
the term of an option (but not within six months of the date of grant) (i)
the company shall merge or consolidate with any other Company and shall
not be the surviving Company; (ii) the Company shall transfer all or
substantially all of its assets to any other persons; or (iii) more than
50% of the Company's outstanding voting shares shall have been purchased
by any other person, the Committee may provide for the acceleration of the
right to exercise such option prior to the anticipated effective date of
any of such transactions.
B. All options granted hereunder shall terminate and may no longer be
exercised if the Optionee is an employee on the date of grant and ceases
to be an employee of the Company or a member of the Board, except (i) if
an Optionee who is not also a member of the Board shall be terminated
involuntarily for any reason other than death, he may, at any time before
expiration of 30 days after such termination or before expiration of the
option, whichever shall first occur, exercise the option to the extent
that the option was exercisable by him on the date of the termination of
his employment; and (ii) if the Optionee dies while an employee of the
Company or a member of the Board or within 30 days after the involuntary
termination of his employment with the Company, such option may be
exercised by the Optionee's heir(s) or legal representative(s) before the
expiration of 12 months after his death or of the option's full term,
whichever shall first occur, to the extent that the Optionee was entitled
to exercise the option on the date of his death; however, notwithstanding
the provisions of Section 7(a), the committee may, in its sole direction,
provide for the acceleration of the right to exercise any portion of such
option to any date within such 12-month period, but no such acceleration
shall extend the term of any such option. Options granted to non-employees
may not be terminated, except in the event of death of the Optionee, in
which case the options will be exercisable by the Optionee's heir(s) or
legal representative(s) as set forth above.
8. MANNER OF OPTION EXERCISE.
A. An option may be exercised by the Optionee, in whole or in part from
time to time, subject to the conditions contained herein, and in the
agreement evidencing such option, by giving written notice of exercise to
the company at its principal executive office and by paying in full the
total purchase price for the shares purchased. Thereupon, the Optionee's
name shall be recorded on the books of the Company as the owner of the
shares, and the Company shall deliver to the Optionee one or more duly
issued stock certificates evidencing such ownership.
<PAGE>
B. At the time of the option exercise, the Optionee may determine whether
the total purchase price of the shares to be purchase shall be paid solely
in cash or by transfer from the Optionee to the Company of previously
acquired Common Shares, or by a combination total purchase price in while
or in part with previously acquired Common Shares, the value of such
shares shall be equal to their Fair Market Value on the date of exercise.
The Committee shall have the discretion to reject an Optionee's election
to pay all or part of the exercise purchase price of an option with
previously acquired Common Shares and may require such purchase price to
be paid entirely in cash.
C. The exercise of an option shall be conditioned upon the receipt from
the Optionee (or, in the event of death, his heirs(s) or legal
representative (s)) of a representation that at the time of such exercise,
it is the intent of such person(s) to acquire the shares for investment
and not with a view to distribution; provided, however, that the receipt
of this representation shall not be required upon exercise of the option
in the event that at the time of such exercise, the shares subject to the
option shall be covered by an effective and current registration statement
under the Securities Act of 1933, as amende. The certificates for
unregistered shares issued for investment shall be restricted by the
company as to transfer unless the Company receives an opinion of counsel
satisfactory to the Company. Further, the company shall not be required to
sell or issue any shares under any outstanding option of in the sole
opinion of the Committee, (I) the issuance of such shares would constitute
a violation by the Optionee or the Company of any applicable law or
regulation of any governmental authority, or (ii) the consent or approval
of any governmental body is necessary or desirable as a condition of, or
in connection with, the issuance of such shares.
9. ADJUSTMENTS FOR CHANGES IN COMMON SHARES. In the event that the
outstanding Common Shares of the company (other than shares held by
dissenting stockholders) should be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
company, or if further changes or exchanges of any stock or other
securities into which such Common Shares shall have been changed, or for
which it shall have been changed, or for which it shall have been
exchanges, shall be made (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividends, reclassification, split
up, combination of shares, or otherwise), then for each Common Share of
the company subject to the Plan (whether or not such shares are at the
time subject to outstanding options) there shall be substituted and
exchanged therefore the number and kind of shares of stock or other
securities into which each outstanding Common Shares of the Company (other
than shares held by dissenting stockholders) shall be so changed ore
exchanged. In the event of any such changes or exchanges, then if the
Committee in its sole discretion should determine that in order to prevent
dilution or enlargement of right under the Plan, an adjustment should be
made in the number, kind, or option exercise price of the shares of stock
or other securities then subject or potentially subject to an option or
options, such adjustment shall be made and shall be effective and binding
for all purposes of the Plan.
<PAGE>
10. SUPPLEMENTAL BONUS. As to each option granted pursuant to the Plan, the
company may grant a supplemental bonus to the Optionee in respect of 50%
of the total shares covered by such options which are purchased earliest
in time pursuant to exercise(s) of such option (the "Qualifying Shares:).
Such supplemental bonus will be granted at such time (s) as such option is
exercised as to Qualifying Shares in an amount equal to 60% of the
difference between the exercise price and the Fair Market Value of such
Qualifying Shares in an amount equal to 60% of the difference between the
exercise price and the Fair Market Value of such Qualifying Shares on the
date of exercise. Such supplemental bonus shall not be paid directly to
the Optionee but shall be credited to the appropriate referral and state
income tax withholding accounts maintained on the books and records of the
company for such Optionee in the following manner: whatever applicable
taxes are required to be withheld on the date of exercise shall be so
credited on such date (not toe exceed the mental bonus, if any, shall be
so credited at the end of the calendar year in which such exercise date
occurs. Amount so credited shall in due course be paid to the appropriate
federal and state tax authorities. To be eligible for this supplemental
bonus, the Optionee must be an employee to the Company at the time of
exercise.
11. FINANCIAL ASSISTANCE. In the event the Optionee receives the supplemental
bonus described in paragraph 10 hereof and requires additional financial
assistance in order to exercise option (s) granted, the committee shall be
empowered to grant, at any time or form time to time, loans in an amount
equal to 50% of the total Option Exercise Price. The Optionee shall not be
required to grant financial assistance in the form of loans to any
Optionee and shall have complete discretion to accept or deny any loan
application, such decision will be final and binding on the Optionee. All
loans shall carry interest at the "statutory" rate, which rate shall be
that imputed on non-interest bearing loans by nus Code of 1986, as
amended. The terms of repayment of any loans granted by the Committee
shall be established at the time of grant by the committee, subject to the
requirement that any loan made to an employee Optionee shall be
immediately due and payable in the event the Optionee leaves the
employment of the Company while any principal or interest shall be
outstanding.
12. NON-TRANSFERABILITY OF OPTION. No option granted under the Plan shall be
transferable by the Optionee, either voluntarily or involuntarily, except
by will or the laws of descent and distribution, and then only to the
extent provided in Section 7 (b) (ii). Any attempt to transfer any option
shall void the option. An option shall be exercisable during the
Optionee's lifetime only by the Optionee or by the Optionee's guardian or
other legal representative.
13. RIGHTS AS A SHAREHOLDER. No person shall have any rights as a shareholder
with respect to any Common Shares covered by an option granted pursuant to
the Plan until the person shall have become the holder of record of such
shares, and no adjustments shall be made for cash dividends or other
distribution or other rights as to which there is a record date preceding
the date such person becomes the holder of record of such shares.
<PAGE>
14. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended to
amend, modify, or rescind any previously approved compensation plans or
programs entered into by the Company. This plan shall be construed to be
an addition to any and all such other plans or programs. Neither the
adoption of the Plan by the board nor the submission of the Plan to the
shareholders of the company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such
additional compensation arrangements as the board may deem necessary or
desirable.
15. EFFECTIVE DATE AND TERMINATION DATE OF PLAN. The Plan shall be effective
on the date it is approved by a resolution adopted by the affirmative vote
of the holders of a majority of the outstanding Common Shares. Except as
to options previously granted and outstanding under the Plan, the Plan
Options then outstanding may continue to be exercised in accordance with
their terms. The Plan may be abandoned or terminated at any earlier time
by the Board, except with respect to any options then outstanding under
the Plan.
16. GOVERNING LAWS. The Plan and all rights and obligations hereunder shall be
construed in accordance with and governed by the laws of the State of
Colorado.
NETWORK FINANCIAL SERVICES, INC.
OMNIBUS STOCK PLAN OF 1993
1. Purpose
The purpose of the Plan Is to provide a long-term incentive vehicle to
promote the Company's success under which a variety of stock-based
incentive and other awards may be granted to employees, and Directors of
the Company and its Subsidiaries and to selected consultants who, in the
course of their business activities, direct a significant amount of
business to the Company.
2. Definitions
A. "Award" means any form of stock option, restricted stock, Performance
Unit, Performance Sbare. stock appreciation right, dividend equivalent or other
incentive award granted under the Plan,
B. "Award Notice" means any written notice from the Company to a
Participant or agreement between the Company and a Participant that establishes
the terms applicable to an Award.
C. "Board of Directors" means the Board of Directors of the Company.
D. "Code" means the Internal Revenue Code of 1986, as amended.
E. "Committee" means the Compensation Committee of the Board of
Directors,or such other committee designated by the Board of Directors, which is
authorized to administer the Plan under Section 3 hereof. The Committee, and any
separate committee to which It delegates any of its authority and duties under
the Plan, shall each have membership composition which enables the Plan to
qualify under Rule 16b-3 with regard to Awards to persons who are subject to
Section 16 of the Exchange Act.
F. 'Common Stock' means common stock of the Company, no par value.
G. "Company" means Network Financial Services, Inc.
H. 'Consultant' means any individual who renders services directly to the
Company or to the Company's customers as dafined and designated from time to
time by the Committee.
<PAGE>
I. "Director' means a member of the Board of Directors.
J. 'Exchange Act' means the Securities Exchange Act of 1934, as amended.
K. "Fair Market Value' MEANS, AS of a specified date, the mean of the
closing bid and ask prices of the Common Stock on the National Association of
Securities Dealers Automated Quotation (NASDAQ) system for listed securities, or
if not traded on that date, then on the date last traded. If for any reason the
Company's stock ceases to be listed on the NASDAQ system, the Committee shall
establish the method for determining the Fair Market Value of the Common Stock.
L. 'Employee' means any employee of the Company or a Subsidiary whose
performance the Committee determines can have a significant effect on the
success of the Company.
M. "Participant" means any individual to whom an Award is granted under
the Plan.
N. "Performance Share' means a Unit expressed in terms of, or valued by
reference to, a share of Common Stock.
0. 'Perfomance Unit' means a Unit valued by reference to designated
criteria established by the Committee, other than Common Stock.
P. 'Plan" means this Plan, which shall be known as the Network Financial
Services Omnibus Stock Plan of 1993.
Q. 'Rule 16b-3' means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
R. 'Subsidiary- means a corporation or other business entity (i) of which
the Company directly or indirectly has an ownership interest of 50% or more, or
(ii) of which It has a right to elect or appoint 50% or more of the board of
directors or other governing body.
S. "Unit' means a bookkeeping entry used by the Company to record the
grant of an Award until such time as the Award is paid, cancelled, forfeited or
terminated.
3. Administration
A. The Plan shall be administered by the Committee. The Committee shall
have the authority to-.
(i) construe and interpret the Plan;
<PAGE>
(ii) promulgate, amend and rescind rules relating to the implementation of
the Plan;
(iii) make ail determinations necessary or advisable for the administration
of the Plan, including the selection of employees and affiliated
Individuals who shell be granted Awards, the number of shares of
Common Stock or Units to be.subject to each Award, the Award price,
if any, the vesting or duration of awards, and the designation of
stock options as incentive stock options or non-qualified stock
options;
(iv) determine the disposition of Awards in the event of a Participant"s
divorce or dissolution of marriage;
(v) determine whether Awards will be granted alone or in combination. or
in tandem with other Awards:
(vi) determine whether cash will be paid or Awards will be granted in
replacement of, or as alternatives to, other grants under the Plan or
any other incentive or compensation plan of the Company, a Subsidiary
or an acquired business unit;
B. Subject to the requirements of applicable law, the Committee may
correct any defect, supply any omission, or reconcile any Inconsistency in the
Plan, any Award, or any Award Notice, take any and all other actions it deems
necessary or advisable for the proper administration of the Plan, designate
persons other then mambers of the Committee to carry out its responsibilwas and
may prescribe such conditions and limitations as it may deem appropriate, except
that the Committee may not delegate its authority with regard to the selection
for participation of or the granting of Awards to persons under Section 16 of
the Exchange Act. Any determination, decision, or action of the Committee in
connection with the construction, interpretation, administration, or application
of the plan shall be final, conclusive and binding upon all persons validly
claiming under or through persons participating in the Plan.
C. The Committee may at any time, and from time to time, amend or cancel
any outstanding Award, but only with the consent of the person to whom the Award
was granted.
4. Eligibility
A. Any Employee is eligible to become a Participant in the Plan.
B. Directors who are not employees of the Company or a Subsidiary shall receive
Awards in accordance with Section 7.
C. Consultants who are not Directors of the Company shall be eligible to receive
Awards in accordance with Section S.
<PAGE>
5. Shares Available
A. Subject to Section 1 6 of the Plan, the maximum number of shares of
Common Stock available for Award grants (Including incentive stock options)
shall be 2,500,000. Not with standing the foregoing sentence,the maximum number
of sharas of Common Stock that may be awarded under this plan in the form of
restricted stock awards pursuant to Section 10 shall be 500,000.
B. The shares of Common Stock available under the Plan shall be either.
authorized and unissued shares or treasury shares.
6. Term
The Plan shall become effective upon approval of the Plan by the Company"S
stockholders not later then the 1993 annual meeting of stockholders, and shall
continue in effect until May 25, 2003.
7. Awards to Non-Employse Directors
Directors who are not employees of the COMPANY OR a Subsidiary shall
receive Awards in accordance with the following terms:
A. On the first business day following adoption of the Plan by the
Shareholders subject to approval of the Plan by the shareholders, each such
Director shall receive a non-quatified option for 25,000 shares of stock, and
thereafter on the first business day of each fiscal year shall receive a
non-qualified option for 12,000 shares. In the event that other non-Employee
Directors are appointed by the Board and elected by the shareholders, on the
first business day following his/her election by the shareholders, each such
Director shall receive a non-qualified option for 26,000 shares of stock, and
thereafter on the first business day of each fiscal year shall receive a
non-qualified option for 12,000 shares.
B. Options to such non-Employee Directors shall be subject to the
following terms:
(i) The exercise price shall be equal to 100% of the Fair Market Value of
the shares on the date of the grant, payable In accordance with the
alternatives stated in Sections 9.B.(ii) of the Plan;
(ii) The term of the options shall be tan (10) years;
(iii) The options shall be exercisable beginning 6 months after the date of
the grant; and
(iv) The options shall be subject to Section 14 of the Plan.
C. Not with standing Section 18 of the Plan, the provisions of this
Section 7 shall not be amended more frequently than permitted
<PAGE>
for formula plans meeting the conditions of Rule 16-b3.
8. Awards to Consultants
Consultants shall receive Awards in accordance with the following terms:
A. No Awards of Incentive Stock Options shall be made to Consultants.
B. Awards of non-qualified stock options to such Consultants shall be
subject to the following terms:
(i) The exercise price shall be not less then 50% of the Fair Market
Value of the shares on the date of the grant, payable in accordance
with the alternatives stated In Sections 9.B.(ii) and (iii) of the
Plan;
(ii) The term of the options shall be ten (I 0) years;
(iii) The options shall be exercisable beginning 12 months
after the date of the grant; and
(iv) The options shall be subject to Section 14 of the Plan.
9. Stock Options
A. Awards may be granted In the form of stock options. Stock options may
be incentive stock options within the meaning of Section 422A of the Code or
nonqualified stock options (i.e., stock options which are not Incentive stock
options).
B. Subject to Section 9.C. relating to incentive stock options, options
shall be in such form and contain such terms as the Committee deems appropriate.
While the terms of options need not be identical, each option shall be subject
to the following terms:
(i) The exercise price shall be the price set by the Committee but may
not be less than 85% of the Fair Market Value of the shares an the
date of the grant.
(ii) The price shall be paid in cash (including check, bank draft, or
money order), or at the discretion of the Committee, all or part of
the purchase price may be paid by delivery of the optiones's full
recourse promissory note, delivery of Common Stock already owned by
the Participant for at least six (6) months and valued at its Fair
Market Value, or any combination of the foregoing methods of payment.
In the case of incentive stock options, the terms of payment shall be
determined at the time of grant.
<PAGE>
(iii) Promissory notes given as payment of the price, if permitted by the
Committee, shall contain such terms as set by the Committee which are
not inconsistent with the following: the unpaid principal shall bear)
interest at a rate set from time to time by the Committee; payments
of principal and interest shall be made no less frequently then
annually; no part of the note shall be payable later then ten (1 0)
years from the date of purchase of the shares; and the op-tionee
shall give such security as the Committee deems necessary to ensure
full payment.
(iv) The term of an option may not be greater than ten (1 0) years from
the date of the grant.
(v) Neither a person to whom an option is granted nor his legal
representative, heir, legatee or distributes shall be deemed to be
the holder of, or to have any of the rights of a holder with respect
to, any shares subject to such option unless and until he has
exercised his option.
C. The following special terms shall apply to grants of incentive stock
options-
(i) Subject to Section S.C.(iii) of the Plan, the price under each
incentive stock option shall not be less than 100% of the Fair Market
Value of the shares on the date of the grant.
(ii) No incentive stock option shall be granted to any employee who
directly or Indirectly owns stock possessing more then 10% of the
total combined voting power of all classes of stock of the Company,
unless at the time of such grant the option price is at least 1 1 0%
of the Fair Market Value of the stock subject to the option and such
option is not exercisable after the expiration of five (5) years from
the date of the grant.
(iii) No incentive stock option shall be granted to a person in his
capacity as a key employee of a Subsidiary if the Company has less
than a 50% ownership interest in such Subsidiary.
(iv) Options shall contain such other terms as may be necessary to qualify
the options granted therein as incentive stock options pursuant to
Section 422A of the Code, or any successor statute.
10. Restricted Stock
A. Awards may be granted in the form of restricted stock.
B. Grants of restricted stock shall be awarded in exchange for consideration
equal to an amount from 0% to 50% of the aggregate Fair Market Value of such
stock, as determined by the Committee.
<PAGE>
The price, if any, of such restricted stock shall be paid In cash, or at the
discretion of the Committee, all or part of the purchase price may be paid by
delivery of the Participant's full recourse PROMISSORY NOTE, delivery of Common
Stock already owned by the Participant for at least six (6) months and valued at
its Fair Market Value, or any combination of the foregoing methods of payment,
provided no less than the par value of the stock is paid in cash, and the
Participant has rendered no less than three (3) months prior service to the
Company.
C. Restricted stock awards shall be subject to such restrictions an the
Committee may impose and include, if the Committee shall so determine,
restrictions on transferability and restrictions relating to continued
employment.
D. The Committee shall have the discretion to grant to a Participant
receiving restricted shares all or any of the rights of a stockholder while such
shares continue to be subject to restrictions.
11. Performance Units and Performance Shares
A. Awards may be granted in the form of Performance Units or Performance
Shares. Awards of Performance Units and Performance Shares shall refer to a
commitment by the Company to make a distribution to the Participant or to his
beneficiary depending on (1) the attainment of the performance objective(s) and
other conditions established by the Committee and (ii) the bass value of the
Performance Unit or Performance Share, respectively, as established by the
Committee.
B. Settlement of Performance Units and Performance Shares may be in cash,
in shares of Common Stock, or a combination thereof The Committee may designate
a method of converting Performance Units into Common Stock, including but not
limited to a method based on the Fair Market Value of Common Stock over a series
of consecutive trading days.
C. Participants shall not be entitled to exercise any voting rights with
respect to Performance Units or Performance Shares, but the Committee in its
sole discretion may attach dividend equivalents to such Awards. 12. Stock
Appreciation Rights
A. Awards may be granted in the form of stock appreciation rights. Stock
appreciation rights may be awarded in tandem with a stock option, in addition to
a stock option, or may be free-standing and unrelated to a stock option.
B. A stock appreciation right entitles the Participant to receive from the
Company an amount equal to the positive difference between (i) the Fair Market
Value of Common Stock onthe date of
<PAGE>
exercise of the stock appreciation right and (ii) the grant price or some other
amount as the Committee may determine at the time of grant.
C. With respect to persons subject to section 15 of the Exchange Act, a
stock appreciation right may only be exercised during a period which (i) begins
on the third business day following a date when the Company's quarterly summary
- -statement of sales and earnings is released to the public and (ii) ends on the
12th business day following such date. This Section 1l.C. shall not apply if the
exercise or-curs automatically on the date when a related stock option expires.
D. Settlement of stock appreciation rights may be in cash, In shares of
Common Stock, or a combination thereof, as determined by the Committee. 13.
Deferral of Awards
At the discretion of the Committee, payment of an Award, dividend
equivalent,or any portion thereof may be deferred until a time established
by the Committee. Deferrals shall be made in accordance with guidelines
established by the Committee to ensure that such def errais comply with
applicable requirements of the Code and its regulations. Deferrals shall
be initiated by the delivery of a written, irrevocable election by the
Participant to the Committee or its nominee. Such election shall be made
prior to the date specified by the Committee. The Committee may also (A)
credit interest equivalents on cash payments that are deferred and set the
rates of such interest equivalents and (B) credit dividends or dividend
equivalents an deferred payments denominated in the form of shares.
14. Exercise of Stock Options Upon Termination of Employment or Services.
A. Options granted under Sections 8 and 9 shall be exercisable upon the
Participant's (i.e., Non-Employee Directors or Employees) termination of service
within the following periods only. The definition of termination of service
applicable to Consultants shall be defined and determined by the Committee in
its sole discretion. Subject to Section 22, stock options granted to other
Participants may permit the exercise of options upon the P@cipant's termination
of employment within the following periods, or such shorter PERIODS AS
determined by the Committee at the TIME of grant:
(i) If on account of death, within twelve (1 2) months of such event by
the person or persons to whom the Participant's rights pass by will
or the laws of descent or distribution.
<PAGE>
(ii) If on account of retirement (as defined from time to time by Company
policy), stock options may be exercised within 3 months of such
termination.
(iii) If an account of resignation, options may be exercised within one(1)
month of such termination.
(iv) If for cause (as defined from time to time by Company poliry), no
unexercised option SHALL be exercisable to any extent after
termination.
(v) If an account of disability or leave of absence for the purpose of
serving the government or the country In which the principal place of
employment of the Participant is located, either in a military or a
civilian capacity, or for such other purpose or reason as the
Committee may approve, a Participant shall not be deemed during the
period of any such absence alone, to have terminated his service,
except as the Committee may otherwise expressly provide.
(vi) If for any reason other than death, retirement, resignation, cause,
or disability, options may be exercised within three (3) months of
such termination.
B. An unexercised option shall be exercisable only to the extent that such
option was exercisable an the date the Participant's employment or service
terminated. Not withstanding the foregoing, and except as provided in Section
14-A.above, terms relating to the exercisability of options may be amended by
the Committee before or after such termination, except in respect to options
granted under Section 7.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
15. Nonassignability
The rights of a Participant under the Plan shall not be assignable by such
Participant, by operation of law or otherwise, except by will or the laws
of descent and distribution, During the lifetime of the person to whom a
stock option or similar right (including a stock appreciation right) is
granted, he or she alone may exercise it. No Participant may create a lion
on any funds, securities, rights or other property to which he or she may
have an interest under the Plan, or which is held by the Company for the
account of the Participant under the Plan.
16. Adjustment of Shares Available
The Committee shall make appropriate and equitable adjustments in the
shares available for future Awards and the number of shares
<PAGE>
covered by unexercised, unvested or unpaid Awards upon the subdivision of the
outstanding shares of Common Stock; the declaration of a dividend payable in
Common Stock; the declaration of a dividend payable in a form other then Common
Stock in an amount that has a material effect on the price of the shares of
Common Stock; the combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a lesser number of shares
of Common Stock; a recapitalization; or a similar event.
17. Payment of Withholding Taxes
As a condition to receiving or exercising an Award, as the case may be,
the Participant shall pay to the Company or the employer Subsidiary the
amount of all applicable Federal, state, local and foreign taxes required
by law to be paid or withheld relating to receipt or exercise of the
Award. Alternatively, the Company may withhold shares of Common Stock with
an aggregate Fair Market Value equal to such withholding taxes, from any
Award in Common Stock, to the extent the withholding is required by law.
The Company also may deduct such WITHHOLDING TEXAS FROM ANY Award paid in
cash.
18. Amendments
The Board of Directors may amend the Plan at any time and from time to
time, provided however that the Board shall not amend the terms of the
Plan more frequently than permitted under Rule 16b-3 in regard to
provisions that affect persons receiving Awards under Section 7. Rights
and obligations under any Award granted before amendment of the Plan shall
not be materially altered or irnpaired adversely by such amendment, except
with consent of the person to whom the Award was granted.
19. Regulatory Approvals and Listings Notwithstanding any other provision
In the Plan, the Company shall have no obligation to issue or deliver
certificates of Common Stock under the Plan prior to (A) obtaining
approval from any governmental agency which the Company determines Is
necessary or advisable, (6) admission of such shares to l@ng on the stock
exchange on which the Common Stock may be listed and (C) completion of any
registration or other qualification of such shares under any state or
Federal law or ruling of any governmental body which the Company
determines to be necessary or advisable.
20. No Right to Continued Employment or Grants Participation in the Plan
shall not give any key employee any right to remain in the employ of the
Corgpany or any Subsidiary. Further, the adoption of this Plan shall not
be deemed to give any key employee or other individual the right to be
selected as a Participant or
<PAGE>
to be granted an Award.
21. No Right, Title, or Interest In Company Assets
No Participant shall have any rights as a stockholder of the Company until
he acquires an unconditional right under an Award to have shares of Common
Stock issued to him. To the extent any person acquires a right to receive
payments from the Company under this Plan, such rights shall be no greater
than the rights of an unsecured creditor of the Company.
22. Special Provision Pertaining to Persons Subject to Section 16
Notwithstanding any other term of this Plan, the following shall apply to
persons subject to Section 16 of the Exchange Act, except in the case of
death or disability:
A. No restricted stock or other equity security (within the meaning used
in Rule 16b-3 of the Exchange Act or any successor rule) offered pursuant to
this Plan may be transferred for at least 6 months after acquisition; and
B. No stock option, Performance Unit, Performance Share, stock
appreciation right or other derivative security (within the meaning used in Rule
16b-3 of the Exchange Act or any successor rule) issued pursuant to the Plan may
be exercisable for at least six (6) months after the date of issue. 23.
Indemnification In addition to such other rights of indemnification as they may
have as directors, the members of the Board of Directors or Committee
administering the Plan shall be indemnified by the Company against the
reasonable expenses, including attornevs'fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any
<PAGE>
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any
option granted thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit
or proceeding except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such member is liable for negligence or
misconduct in the performance of his duties: provided that within 60 days after
institution of any such action, suit or proceeding, the member shall in writing
offer the. Company the opportunity, at its own expense, to handle and defend the
same.
24. Governing Law
The Plan shall be governed by and construed In accordance with the laws of
the State of Colorado.
EXHIBIT "C"
WESTMARK GROUP HOLDINGS, INC.
1994 STOCK OPTION PLAN
1. PURPOSE. This 1994 SOP(1) ("Plan") is established as a compensatory
plan to attract, retain and provide equity incentives to selected persons to
promote the financial success of WGHI, a Delaware corporation (the "Company").
Capitalized terms not previously defined herein are defined in Section 18 of
this plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this PLAN (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares" are shares of the common stock of the C.
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 10,000,000 Shares, subject to
adjustment as provided in this PLAN. If any Option expires or is terminate
without being exercised in whole or in part, the unexercised or released S from
such Option shall be available for future grant and purchase under this plan. At
all time during the term of this PLAN, the C shall reserve and keep available
such number of S as shall be required to satisfy the requirements of outstanding
Options under this PLAN.
4. ELIGIBILITY.
(a) GENERAL RULES OF ELIGIBILITY. Options may be granted to employees,
officers, directors, consultants, independent contractors and advisors (provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction) of the C or any PLAN, Subsidiary, or Affiliate of the C. ISOs may
be granted only to employees (including officers and directors who are also
employees) of the C or a PLAN or Subsidiary of the C. The Committee (as defined
in Section 15) in its sole discretion shall select the recipients of Options
("Optionees"), other than Options granted pursuant to Section 6 of this PLAN.
The foregoing notwithstanding, Options may be granted to directors of the C who
are not employees of either the C or a Subsidiary and who are not California
residents (a "Qualified Non-Employee Director") only pursuant to Section 6 of
this PLAN. An Optionee may be granted more than one Option under this PLAN.
(b) COMPANY ASSUMPTION OF OPTIONS. The C may also, from time to time,
assume outstanding options granted by another company, whether in connection
with an acquisitions of such other company or otherwise, by either (I) granting
an Option under the PLAN in replacement of the option assumed by the C, or (ii)
treating the assumed option as if it had been granted under the PLAN if the
terms of such assumed option could be applied to an option granted under this
PLAN. Such assumption shall be permissible if the holder of the assumed option
would have been eligible to be granted an option hereunder if the other company
had applied the rules of this PLAN to such grant.
- --------
(1) Approved by the Company Board of Directors on February ,1996.
<PAGE>
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
each Option (other than Options granted pursuant to Section 6 of this PLAN) is
to be an ISO or an NQSO, the number of S subject to the Option, the exercise
price of the Option, the period during which the Option may be exercised, and
all other terms and conditions of the Option, subject to the following:
(a) FORM OF OPTION GRANT. Each Option granted under this PLAN shall be
evidence by a written Stock Option Grant (the "Grant") in substantially the form
attached hereto as Exhibit A or such other form as shall be approved by the
Committee.
(b) DATE OF GRANT. The date of grant of an Option shall be the date on
which the Committe makes the determination to grant such Option unless otherwise
specified by the Committe and subject to applicable provisions of the Code. The
Grant representing the Option will be delivered to the Optionee with a company
of this P within a reasonable time after the date of grant; provided, however
that with respect to Options other tan Options granted pursuant to Section 6 of
this PLAN if, for any reason, including a unilateral decision by the Committe
not to execute an agreement evidencing such option, a written Grant is not
executed within sixty (60) days after the date of grant, such option shall be
deemed null and void. No Option shall be exercisable until such Grant is
executed by the Company and the Optionee.
(c) EXERCISE PRICE. The exercise price of an NQSO shall be no less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Option is granted. The exercise price of an ISO shall be not less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date the
Option is granted. The exercise price of any ISO granted to person owning more
than ten percent (!)%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary or the Company ("Ten Percent
Shareholder") shall not be less than one hundred and ten percent (110%) of the
Fair Market Value of the Shares on the date the Option is granted.
(d) EXERCISE PERIOD. Options shall be exercisable within the times or upon
the events determined by the COMMITTEE as set forth in the Grant; provide,
however that each Option must become exercisable at a rate of at least twenty
percent (20%) per year over five (5)( years from the date the Option is granted;
and provided, however, that no Option shall be exercisable after the expiration
of ten (10) years from the date the Option is granted, and provided further that
no ISO granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
(e) LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined as of
the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed on hundred thousand
dollars ($100,000). If the Fair Market Value of stock with respect to which ISO
are exercisable for the first time by an Optionee during any calendar year
exceeds $100,000, the Options for the first $100,000 that becomes exercisable in
that year shall be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the effective date of this Plan to
provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISOs, such different limit shall be incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
(f) OPTIONS NON-TRANSFERABLE. Options granted under this Plan, and any
interest therein, shall not be transferable or assignable by the Optionee, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution any shall be exercisable
during the lifetime of the Optionee only by the Optionee or any permitted
transferee.
(g) ASSUMED OPTIONS. In the event the Company assumes an option granted by
another company in accordance with Section 4(b) above, the terms and conditions
of such option shall remain unchanged (except the exercise price and the number
and nature of shares issuable upon exercise, which will be adjusted
appropriately pursuant to Section 424 of the Code and the Treasury Regulations
applicable thereto). In the event the Company elects to grant a new option
rather assuming an existing option (as specified in Section 4), such new option
need not be granted at Fair Market Value on the date of grant and may instead by
granted with similarly adjusted exercise price.
6. DIRECTOR FORMULA GRANTS.
2
<PAGE>
Qualified Non-Employee Directors of the Company shall receive Options in
accordance with the following terms:
(a) FORMULA GRANT. On the first business day following approval of this
Plan by the shareholders of the Company, each Qualified Non-Employee Director
shall receive a NQSO for 25,000 Shares, and thereafter ion the first business
day of each fiscal year of the Company shall receive a NQSO for 12,000 Shares.
In the event any additional Qualified Non-Employee Director is appointed by the
Board and elected by the shareholders, on the first business day following
election by the shareholders, each such Qualified Non-Employee Director shall
receive a NQSO for 25,000 Shares, and thereafter on the first business day of
each fiscal year shall receive a NQSO for 12,000 Shares.
(b) TERMS OF GRANT. Options granted pursuant to this Section 6 shall be
subject to the following terms:
(i) EXERCISE PRICE AND PAYMENT TERMS. The exercise price for the
Options granted pursuant to this Section 6 shall be equal to 100% of the Fair
Market Value of the Shares on the grant, payable in cash or otherwise in
accordance with the alternatives specified in clauses (i), (ii), (iv), (v) and
(vi) of Section 7(b) of this Plan.
(ii) TERM. The term of the Options shall be eighteen months.
(iii) EXERCISE PERIOD. The Options shall be exercisable beginning
six months after the date of the grant.
(iv) OTHER TERMS. The Options granted pursuant to this Section 6
shall be evidenced by a written Stock Option Grant in substantially the form of
Exhibit A or such other form of Stock Options Grant as is approved by the
Committee and the Options are otherwise subject to the limitations of Section
5(f) of this Plan.
(c) AMENDMENTS. Notwithstanding Section 17 of this Plan, the provisions of
this Section 6 shall not be amended more frequently than permitted for formula
plans meeting the conditions of Rule 16b-3 as promulgated by the Securities and
Exchange Commission (Rule 16b-3")
7. EXERCISE OF OPTIONS
(a) NOTICES. Options may be exercised only by delivery to the Company of a
written exercise agreement in a form approved by the Committee (which need not
be the same for each Optionee), stating the number of Shares being purchased,
the restrictions imposed on the Shares, if any, and such representations and
agreements regarding the Optionee's investment intent and access to information,
if any, as may be required by the to company to comply with applicable
securities laws, together with payment inn full of the exercise price for the
number of Shares being purchased.
(b) PAYMENT. Payment for the Shares may be made in cash (by check) or,
where approved by the Committee in its sole discretion at the time of grant and
where permitted by law: (I) by cancellation of indebtedness of the Company to
the Optionee; (ii) by surrender of shares of Common Stock of the Company already
owned by the Optionee, having a Fair Market Value equal to the exercise price of
the Option; (iii) by waiver of compensation due or accrued to Optionee for
services rendered; (iv) provided that a public market for the Company's stock
exist, thorough a "same day sale" sale commitment from the Optionee and a
broker-dealer that is a member of the National association of Securities
Dealers, Inc, (an "NASD Dealer") whereby the Optionee irrevocably elects to
exercise the Option and to sell a portion of the h so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (v) provided
that a public market for the Company's stock exist, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchase to the NASD
Dealer in a margin account as security for a loan form the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (vi) by any combination of the foregoing. Payment of the exercise
price for Options granted pursuant to Section 6 shall be determined in
accordance with Section 6.
3
<PAGE>
(c) WITHHOLDING TAXES. Prior to issuance of the Shares upon exercise of an
Option, the Optionee shall pay or make adequate provisions for any federal or
state withholding obligations of the Company, if applicable. Where approved by
the Committee in its sole discretion, the Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the minimum amount of taxes
required to be withheld. In such case, the Company shall issue the net number of
Shares to the Optionee by deducting the Shares retained from the Shares
exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by
Optionees to have Shares withheld for this purpose shall be made writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval
of the Committee;
(iv) if the Optionee is an officer or director of the c or other
person (in each case, an "Insider") whose transactions in the Company's Common
Stock are subject to Section 16(b) of the Securities Exchange Act of 1934 as
amended (the "Exchange Act") and if the Company is subject to Section 16(b) of
the Exchange Act, the election must be made at least six (6) months prior to the
Tax Date and must otherwise comply with Rule 16b-3.
(d) LIMITATIONS ON EXERCISE. Notwithstanding anything else to the contrary
in the Plan or any Grant, no Option may be exercisable later than the expiration
date of the Option.
8. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Grant a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party. The provisions of this Section 8 shall not
apply to any Option granted pursuant to Section 6 of this Plan.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefore, provided that any such
action may not without the written consent of the Optionee, impair any rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered shall be treated in accordance with
Section 424(h) of the Code. The Committee shall have the power to reduce the
exercise price of outstanding Options; provided, however, that the exercise
price per share may not be reduced below the minimum exercise price that would
be permitted under Section 5(c) of this Plan for options granted on the date the
action is taken to reduce the exercise price. Notwithstanding any other
provision of this Plan, the Committee may accelerate the earliest date or dates
on which outstanding Options I or any installments thereof( are exercisable. The
provisions of this Section 9 shall not apply to Options granted pursuant to
Section 6 of this Plan.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the right
of a shareholder with respect to any Shares subject to an Option until such
Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee a
copy of the annual financial statements of the Company, at such time after the
close of each fiscal year of the Company as such statements are released by the
Company to its shareholders.
4
<PAGE>
11. NO OBLIGATION TO EMPLOY; NO RIGHT FUTURE GRANTS. Nothing in this Plan
or any Option granted under this Plan shall confer on any Optionee any right (a)
to continue in the employ of, or other relationship with, the Company or any
Parent or Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause or (b) to
have any Option(s) granted to such Optionee under this Plan, or nay other plan,
or to acquire nay other securities of the Company, in the future.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding share of Common Stock of the c is changed by a stock dividend, stock
split, reverse stock splits, combination, reclassification or similar change in
the capital structure of the Company without consideration, or if a substantial
portion of the assets of the Company are distributed, without consideration in a
spin-off or similar transaction, to the shareholders of the Company, the number
of Shares, available under this Plan and the number number of Shares subject to
outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Stock that would have recruited shall either
be cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded up to the nearest whole number, as determined by the
Committee and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
13. ASSUMPTION OF OPTIONS BY SUCCESSORS.
(a) In the event of (I) a merger or consolidation in which the Company is
not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary or a Parent or where there is no substantial change in
the shareholders of the corporation and the Options granted under this Plan are
assumed by the successor corporation), or (ii) the sale of all or substantially
all of the assets of the Company, any or all outstanding Options shall be
assumed by the successor corporation, which assumption shall be binding on all
Options, an equivalent option shall be substituted by such successor corporation
or the successor corporation shall provide substantially similar consideration
to Optionees as was provided to shareholders (after taking into account the
existing provisions of the Optionees options such as the exercise price and the
vesting schedule), and, in the case of outstanding shares subject to a
repurchase option, issue substantially similar shares or other property subject
to repurchase restrictions no less favorable to the Optionee.
(b) In the event such successor corporation, if any, refuses to assume or
substitute, as provided above, pursuant to an event described in subsection (a)
above, or in the event of a dissolution or liquidation of the Company, the
Options shall, notwithstanding any contrary terms in the Grant, expire on a date
specified in a written notice given by the Committee to the Optionees specifying
the terms and conditions of such termination (which date must be at least twenty
(20) days after the date the Committee gives the written notice).
14. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on
the date that it is adopted by the Board of the Company (the "Board"). This Plan
shall be approved by the shareholders of the c, in any manner permitted by
applicable corporate law, within twelve (12) months before or after the date
this Plan is adopted by the Board. The Company will comply with this Plan is
adopted by the Board. The Company will comply with the requirements of Rule
16b-3 (or its successor) with respect to shareholder approval.
15. ADMINISTRATION. This Plan may be administered by the Board or a
Company consisting of not less than two directors appointed by the Board (the
"Committee"). As used in this Plan, the references to the "Committee" shall mean
either such Committee or the Board if Option committee has been established. the
interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any shares purchased pursuant to
an Option.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time on or prior to May 12, 2004, a date which is less than ten years after
the earlier of the date of approval of this Plan by the Board or the
shareholders of the Company pursuant to Section 14 of this Plan.
5
<PAGE>
17. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors or Committee
may, at any time, amend, alter, suspend or discontinue the Plan, but no
amendment, alteration, suspension or discontinuation shall be made which would
impair the rights of any Optionee under any Option theretofore granted, without
his or her consent, or which, without the approval of the shareholders of the
Company would:
(a) except as provided in Section 12 of the Plan, increase the total
number of Shares reserved for the purposes of the Plan;
(b) extend the duration of the Plan;
(c) change the class of persons eligible to receive Options granted
hereunder. Without limiting the foregoing, the Committee may at any time or form
time to time authorize the Company, with the consent of the respective Optionee,
to issue new options in exchange for the surrender and cancellation of any or
all outstanding Options.
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
(a) "PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the granting of
the Option, each of the corporations other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(b) "AFFILIATE" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(c) "FAIR MARKET VALUE" shall mean the fair market value of the Shares as
determined by the Committee fro time to time in good faith. If a public market
exists for the Shares, the Fair Market Value shall be the average of the last
reported bid and asked prices for Common Stock of the Company on the last
trading day prior to the date of determination or in the event the common Stock
of the Company is listed on a stock exchange or is a NASDAQ National Market
security, the Fair Market Value shall be the closing price on such exchange or
system on the last trading day prior to the date of determination.
6
SETTLEMENT AGREEMENT
AND MUTUAL RELEASE OF ALL CLAIMS
This Settlement Agreement and Mutual Release of All Claims ("Agreement"),
dated February 22, 1996, is executed by and between Jackson Tufts Cole & Black,
LLP ("Jackson Tufts"), a California limited liability partnership, and Westmark
Group Holdings, Inc., a Colorado corporation ("Westmark"), and is made with
reference to the following:
RECITALS
WHEREAS, Westmark retained Jackson Tufts to represent it in various legal
matters beginning in 1993 and continuing into 1994, and agreed to pay Jackson
Tufts on an hourly basis for services provided; and
WHEREAS, Jackson Tufts performed legal services on behalf of Westmark and
billed it for such services on an hourly basis;
WHEREAS, Jackson Tufts resigned as counsel to Westmark in November 1994
and Westmark has informed Jackson Tufts that it is unable to pay in cash the
amounts owed to Jackson Tufts for such services and has requested that Jackson
Tufts accept the form of payment as set forth herein;
WHEREAS, the parties hereby wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising from Jackson Tufts' representation of Westmark and Jackson Tufts' claims
for payments owed by Westmark to Jackson Tufts for legal representation of
Westmark.
NOW, THEREFOR, in consideration of the terms set forth below in Sections I
through 3 of this Agreement, and the other covenants and conditions contained
herein, Jackson Tufts and Westmark mutually agree as follows.: 1 . On or before
March 31, 1996, Westmark at its own cost and expense will file with the U.S.
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1
or SBI ("Registration Statement") covering the issuance to Jackson Tufts of such
number of shares of Westmark common stock (the "Westmark Shares") as calculated
pursuant to the terms of Section 2 hereof and the stock warrant set forth in
Section 3 hereof Westmark will cause the SEC to declare the Registration
Statement effective under Section 5 of the Securities Act of 1933 on or before
June 1, 1996. The issuance of such Westmark
<PAGE>
Shares and stock warrant shall also be qualified under the California Corporate
Securities Laws of 1968 or exempt from such qualification.
2. Immediately upon the effectiveness and qualification of the Registration
Statement, Westmark will issue to Jackson Tufts 75,000 Westmark Shares. All such
Westmark Shares shall be fully paid, nonassessable, duly authorized and validly
issued and will be free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and encumbrances. Jackson Tufts
agrees that it will sell the Westmark Shares in an orderly manner (not to exceed
1,000 shares per day without the consent of Westmark) through the brokerage firm
designated by Westmark, or such other brokerage firm as agreed to by the
parties, The sale of the Westmark Shares by Jackson Tufts shall conclude on or
before December 31, 1996, provided that sufficient Westmark Shares are
registered and qualified under the terms of Section 1 hereof and issued by
Westmark to Jackson Tufts in sufficient time to allow Jackson, Tufts to net
$170,000 through the sale of such Shares as contemplated hereunder. Westmark
agrees that the number of Westmark Shares registered and issued to Jackson Tufts
shall equal the number necessary to net Jackson Tufts $170,000 upon the sale
thereof (after payment of all brokerage fees). Westmark agrees to register,
qualify and issue to Jackson Tufts additional Westmark Shares to the extent the
number of Westmark Shares originally registered, qualified and issued are
insufficient to net Jackson Tufts $170,000. Once Jackson Tufts has netted
$170,000, any remaining Westmark Shares will be returned to Westmark and shall
be retired.
3. Westmark shall also issue a stock warrant ("Warrant") to Jackson Tufts in the
form attached hereto as Exhibit A. The Warrant shall entitle Jackson Tufts to
purchase 3,333 Westmark Shares at an exercise price of $2.875 per share. The
Warrant shall be exercised on or before December 31, 1996 by Jackson Tufls and
the Registration Statement relating thereto shall remain effective and qualified
until such date.
4. If at any time Westmark fails to perform its obligations as set forth in
sections 1, 2, or 3 above,Westmark shall be in default of this Agreement. If
Westmark is in default at any time duringthe operation of this Agreement,
Jackson Tufts may obtain judgment by confession against Westmark in the Superior
Court of California, County of Santa Clara, pursuant to the following documents:
CONFESSION OF YMGMENT STATEMENT, attached hereto as Exhibit B; ATTORNEY'S
DECLARATION IN SUPPORT OF CONFESSION OF JUDGMENT STATEMENT, attached hereto as
Exhibit C; and JUDGMENT, attached hereto as Exhibit D. An officer of Westmark
with authority to do so shall execute the CONFESSION OF J-UDGNffiNT STATEMENT in
connection with this
<PAGE>
Agreement. An independent attorney representing Westmark, with authority to do
so, shall execute the ATTORNEY'S DECLARATION IN SUPPORT OF CONFESSION OF
JUDGMENT STATEMENT in connection with this Agreement.
5. Jackson Tufts hereby releases and forever discharges Westmark, and all of its
past, present and future attorneys, agents, insurers, successors and assigns
from any and all claims, demands, obligations or causes of action of any nature
whatsoever, whether in law or in equity, or whether for contractual,
compensatory or punitive damages, which have arisen or may arise out of
Westmark's alleged failure to pay for legal services rendered on its behalf by
Jackson Tufts, and any past, present or future partners or employees; provided,
however, that the release, set forth herein does not in any way pertain to
Westmark's obligations to Jackson Tufts set forth herein, including without
limitation the obligations set forth in sections 1, 2 or 3 hereof
6. Westmark hereby releases and forever discharges Jackson Tufts, and all of its
past, present and future partners, employees, attorneys, agents, insurers,
successors and assigns, from any and all claims, demands, obligations or causes
of action of any nature whatsoever, whether in law or in equity, or whether for
contractual, compensatory or punitive damages, which have or may arise out of
Jackson Tufts' performance of legal services on behalf of Westmark, or failure
thereof, and any and all other claims or causes of action Westmark may have
against Jackson Tufts, whether real or imaginary or known or unknown at this
time. In this regard, Westmark agrees to defend, indemnify and hold harmless
Jackson Tufts (and any partner, employee or agent thereof) from any claim, suit
or cause of action brought by any employee or agent of Westmark relating to any
legal services Jackson Tufts performed on behalf of Westmark, as referenced
herein.
7. Subject to satisfaction of the terms set forth in Sections 1, 2 and 3, all
parties hereto acknowledge that they execute and agree to this Agreement, and
accept the terms set forth herein, as a complete compromise of all matters
involving disputed issues of law and fact and fully assume, thereby, the risk
that the facts or law may be other than they believe.
8. The parties hereto acknowledge and understand that this Agreement creates new
obligations and rights between them. Except as otherwise provided for in this
Agreement, each party expressly waives and assumes the risk of any and all
claims for damages which exist as of this date, but of which it is unaware,
whether through ignorance, oversight, error, negligence or otherwise, and which,
if known to Jackson Tufts or to Westmark, would materially
<PAGE>
affect their decision to enter into this Agreement. Each party further assumes
the risk that it may suffer damages in the future which it does not now
anticipate nor suspect. Each party waives all rights under California Civil Code
section 1542, which states as follows:
A general release does not extend to claims which the creditor does not
know or expect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with
the debtor.
9. Each party warrants and represents to the other that it has not assigned,
conveyed or transferred any of the claims or possible claims against any of the
parties hereto (or any interest therein) which are released or referred to
herein and that the releases herein are what they purport to be. In the event of
an adjudication that either party is in breach of this Section, the party in
breach agrees to indemnify and hold harmless the other party from any resulting
liability, claim, demand, damage, cost, expense and/or attomey's fees incurred
by the other party as a result of the breach
10. Jackson Tufts agrees and acknowledges that it will accept delivery of the
Westmark Shares and Warrant specified in Sections 1, 2 and 3 of this Agreement
as a full and complete compromise of matters involving disputed issues as to
Jackson Tufts. Each of Jackson Tufts and Westmark agrees and acknowledges that
neither this Agreement, nor delivery of the Westmark Shares or Warrant by
Westmark herein, or any event occurring during the negotiations for this
Agreement (nor any statement or communication made in connection therewith) by
either party, or their attorneys or representatives, shall be considered an
admission by any party of any act or omission to act, or of any responsibility
or liability for any claims, suits, actions or any facts, representations or
misrepresentations regarding any of the parties, and that no past nor present
wrongdoing on the part of either party shall be implied therefrom.
11.Each party represents and warrants that it has full authority to enter into
this Agreement and to release all of the claims, known or unknown, which are the
subject matter of the releases herein.
12. This Agreement is binding upon, and shall inure to the benefit of, each of
the parties and their respective officers, directors, investors, agents,
representatives, partners, predecessors, successors and assigns.
<PAGE>
13. Westmark hereby represents and warrants that as of the date of its execution
of this Agreement it has sufficient shares of common stock duly autho@ and
available in order to comply with the terms of Sections 1, 2 and 3 hereof
Westmark agrees that it will reserve and keep available for issuance sufficient
shares of its conunon stock so that it can comply with its obligations set forth
in Sections 1, 2 and 3 hereof
14. This Agreement contains the entire agreement between the parties and
supersedes and replaces any and all prior or contemporaneous agreements or
understandings, whether written or oral, with regard to the matters set forth
herein. This Agreement may be amended or modified in whole or in part at any
time, but only by a written agreement executed by both parties in the same
manner as this Agreement.
15. This Agreement has been negotiated, and is entered into, in the State of
California, County of Santa Clara. The validity, interpretation, construction
and enforcment of this Agreement shall be construed, interpreted and governed
pursuant to California law.
16. In entering into this Agreement, each party represents that:
(a) It has read the Agreement and has had the opportunity to consult with its
attorneys, who are the attorneys of its own choice, during the negotiation
and preparation of this Agreement,
(b) It fwly understands and is aware of the terms of this Agreement, and the
legal consequences thereof, and voluntarily accepts them; and
<PAGE>
Its counsel has reviewed and revised, or has had the opportunity to
review and revise, this Agreement, and accordingly the normal rule
of construction, which states to the effect that any ambiguities are
to be resolved against the drafting party, shall not be emoloyed in
the interpretation of this Agreement.
17. Each party represents and warrants that no other person or entity has or has
had any interest in the claims, demands, obligations or causes of action
referred to in this Agreement. Each party further warrants and represents that
the individuals execu@g the Agreement are duly authorized by the respective
parties to bind the parties to the terms of the Agreement.
18. Failure by either party at any time to require performance of any provision
of this Agreementshall not limit the right of that party to enforce such
performance or provision at any time, norshall either party's waiver of any
breach by the other party of any provision of thi Agreement be a waiver of any
succeeding breach by that other party of that same provision, or of any other
provision of this Agreement. 19. The parties agree that any notices to be
provided pursuant to this Agreement shall be addressed to the respective parties
as follows:
JACKSON TUFTS COLE & BLACK, LLP
Attn: Richard Scudellari, Esq.
60 south Market Street I Oth Floor
San Jose, California 95113
WESTMARK GROUP HOLDINGS, INC.
Attn: Norman Birmingham, President
355 NE. Fifth Avenue Suite 4
Delray Beach, Florida 33483
Each party shall notify the other party by certified mail of any change of
address or change of the person designated herein to receive notices to be
provided pursuant to this Agreement. Once a party has received notice of a
change of address or designated person, that party shall send all future notices
to be provided pursuant to this
<PAGE>
Agreement to that address and designated person.
20. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall together constitute one and the same
document. It shall not be necessary, in making proof of this Agreement, to
produce or account for more than one counterpart.
IN WITNESS WEEREOF, the parties have duly executed this Agreement on
the dates set forth below.
WESTMARK GROUP HOLDINGS, INC. JACKSON TUFTS COLE & BLACK, LLP
By:/s/ By:/s/
NORMAN BIRMINGHAM Richard Scudellarie
President
FIRST ADDENDUM TO
AGREEMENT OF SETTLEMENT AND COWRONHSE
This First Addendum to Agreement of Settlement and Compron-dse (the
"Addendum') is entered into this 26th day of March, 1996, by and between
Westmark Group Holdings, Inc., formerly Network Financial Services Inc., a
Colorado corporation with offices at 355 Northeast Fifth Avenue, #4, Delray
Beach, Florida 33483 ("Company'), and Howard Rice, Nemerovski, Canady, Falk &
Rabkin, a Professional Corporation with offices at 3 Embarcadero Center, 7th
Floor, San Francisco, CA 94111 ('Howard Rice').
WHEREAS, the Company and Howard Rice have heretofore entered into an
Agreement of Settlement and Compron-dse dated September 19, 1994 (the
"Settlement Agreement"); and
WHEREAS, the Company has not performed its obligations under the
Settlement Agreement, and is in default under the Settlement Agreement;
WHEREAS, Howard Rice has given Company notice of such default, and has
exercised its rights under paragraph 9 of the Settlement Agreement to accelerate
all amounts due under the Settlement Agreement; and
WHEREAS, the spreadsheet attached hereto as Exhibit "A" states the amount
that is due and payable to Howard Rice under the Settlement Agreement as of the
date hereof;
WHEREAS, the parties wish to supplement the Settlement Agreement with the
terms set forth herein, to provide Company with an alternative means of
fulfilling its obligations under the Settlement Agreement;
NOW, THEREFORE, the parties agree as follows-.
1. ALTERNATIVE PERFORMANCE UNDER THE SETTLEMENT AGREEMENT. a. Company will
make the following payments to Howard Rice, which payments will be
received by Howard Rice by the dates shown:
Date Payment Due
1996 $10,000 April 5,
1996 $10,000 May 3, 1996
$10,000 June 5,
1996 $10,000 July 5,
$10,000 August 5,
<PAGE>
1996 $10,000 September 5, 1996
$10,000 October 4, 1996
$10,000 November 5, 1996
$10,000 December 5, 1996
$10,000 January 3, 1997
TOTAL: $100,000
b. Company may satisfy its obligation to make the payments due on December
5,1996 and January 3, 1997 (the 'Final Payments'), in whole or in part, by
thefollowing alternative procedure. Company may issue to Howard Rice shares of
the Company's Common Stock. Provided that Howard Rice concludes that the resale
of such shares by Howard Rice has either been registered or qualified under
applicable state or federal securities laws and regulations or that such resale
is exempt therefrom, Howard Rice will in good faith attempt to sell such shares
on the open market through a broker-dealer or market maker acceptable to
Company. Howard Rice will cooperate with Company in connection with the
Company's preparation and filing of any registration statement covering such
shares. If the registration statement covering such shares pertains to the
resale of such shares by Howard Rice (as distinguished from the issuance of such
shares by the Company to Howard Rice), Howard Rice will have the right to
approve of the structure of the offering and to review and approve the
registration statement filed by Company. Company's obligation to make the Final
Payments win be reduced, dollar for dollar, by any cash proceeds, net of
brokerage commissions and other costs, actually received by Howard Rice from the
sale of shares of the Company's stock issued pursuant to this paragraph on or
prior to the respective payment dates for such Final Payments. Company will
defend, indemnify, and hold Howard Rice and its directors, officers, and
employees harn-dess from and against any claims, liabilities, damages, or costs
(including reasonable attorney's fees and costs of suit) arising out of any
claim that the sale of such shares by Howard Rice violated any state or federal
securities laws, or that the registration statement or prospectus prepared by
Company relating to shares so sold was materially untrue or on-dtted to state
facts necessary to make the facts stated therein not misleading.
2. NO GRACE PERIOD. There will be no grace period with respect to the
payments set forth above. In all cases, Company will ensure that Howard Rice is
in possession of good funds in the amounts shown by the dates shown. If Howard
Rice shall not have actually received good funds for any payment by the due date
shown, a default shall exist under this Addendum, and Howard Rice may pursue any
and all remedies available to it under the Settlement Agreement and as
contemplated herein.
-2-
<PAGE>
3. SATISFACTION OF OBLIGATIONS UNDER SETTLEMENT AGIEE@. Upon timely
payment of all amounts set forth in paragraph 1, Company will be deemed to have
satisfied all of its obligations under the Settlement Agreement and this
Addendum.
4. CONFESSION OF JUDGM@. Concurrently with execution and delivery of this
Addendum, Company will execute and deliver to Howard Rice a Confession of
Judgment Statement in the form attached hereto AS Exhibit "B.' Company agrees
that in the event Company fails to make any of the payments required in
paragraph 1 hereof, Howard Rice may without further notice to Company file such
Confession of judgment Statement in a court of appropriate jurisdiction and
cause judgment to be entered thereon. For purposes of the entry of such
judgment, Company hereby consents to the jurisdiction of the Superior Court in
and for the City and County of San Francisco.
5. NO WAIVER. Howard Rice is entering into this Addendum solely as a
financial accommodation to the Company. In doing so, Howard Rice is not waiving
or excusing any of Company's obligations or defaults under the Settlement
Agreement.
6. COUNTERL2ARTS. TNs Addendum may be signed by the parties in several
counterparts, each of which will constitute an original, but all of which
together will constitute one and the same instrument.
7. RATIFICATION OF SETTLEMENT AGREEMENT. The Settlement Agreement is
ratified and affirmed in all respects.
WESTMARK GROUP HOLDINGS, INC., formerly HOWARD, RICE,
NENffiROVSIU, NETWORK FINANCIAL SERVICES, INC.
CANADY, FALK & RABKIN
A Professional Corporation
By: /s/ By: /s/
Title: President Title:
-3-
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into on the 23rd day of
January, 1997 by and between, Westmark Group Holdings, Inc., a Delaware
corporation ("WGHI") and Medical Industries of America, Inc., a Florida
corporation ("MIOA"), and is made in reference to the following:
RECITALS
WHEREAS, WGHI and MIOA (formally Heart Labs of America, Inc.) entered into
a Stock Purchase Agreement on or about November 21, 1995 together with
amendments thereto and;
WHEREAS, WGHI is the owner and holder of 200,000 shares of convertible
preferred stock of MIOA and;
WHEREAS, MIOA is the owner and holder of 1,667,284 shares of unregistered
common stock of WGHI and;
WHEREAS, MIOA is the owner and holder of 200,000 shares of convertible
preferred stock of WGHI and;
WHEREAS, from time to time, since November 27, 1995, MIOA has provided
additional financing to WGHI in the approximate sum of One Million Nine Hundred
Fifty-Three Thousand Dollars ($1,953,000) and;
WHEREAS, various disputes have arisen by and between the parties with
regard to loans, liabilities, stock ownership and enforcement of the terms and
conditions of the aforementioned Stock Purchase Agreement as amended and;
WHEREAS, the parties hereto wish to settle and resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between the
parties arising from the aforementioned Stock Purchase Agreement, loans,
liabilities and stock ownership;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, and other covenants and conditions contained herein, WGHI and MIOA
mutually agree as follows:
1. CLOSING DATE. WGHI covenants and agrees that WGHI is diligently
negotiating a financing proposal that would provide additional capitalization to
WGHI in a minimum amount of $3,000,000 and a maximum amount of $6,000,000. For
the purpose of this Agreement, "Additional Capitalization" shall be defined as
gross proceeds. The parties hereto further mutually agree that the terms and
conditions of this Agreement and the duties and responsibilities herein
contained are subject to and expressly conditioned upon the receipt by
1
<PAGE>
WGHI of minimum Additional Capitalization in the sum of $3,000,000 by March 15,
1997 ("First Tranche"). Upon receipt of said Additional Capitalization WGHI and
MIOA agree to do and perform the following no later than April 15, 1997 (the
"Closing Date"):
a. WGHI shall pay MIOA as follows:
(i) $1.5 million cash on or before April 15, 1997, provided
that WGHI shall have received no less than $6,000,000 in gross
proceeds as a result of Additional Capitalization. In the
event the Additional Capitalization received by WGHI is less
than $6,000,000 but more than $5,000,000, MIOA shall receive
all proceeds in excess of $5,000,000. In the further event the
Additional Capitalization received by WGHI is less than
$5,000,000 but more than $3,000,000, MIOA shall receive ten
percent (10%) of said Additional Capitalization. If WGHI
receives no more than $3,000,000 in Additional Capitalization
by March 15, 1997, MIOA shall receive a cash payment of
$300,000 on March 28, 1997.
(ii) WGHI shall execute a promissory note pursuant to the
schedule set forth on Exhibit "A" which is attached hereto and
by this reference made a part hereof. Said promissory note
shall bear interest at ten percent (10%) per annum. Payments
of principal and interest shall be amortized equally over ten
(10) years, with payments commencing July 31, 1997. All unpaid
principal and accrued interest shall be due and payable no
later than three (3) years from the date of execution of this
Agreement. The form of the promissory note is attached hereto
as Exhibit "B" and incorporated herein. On the Closing Date an
amortization schedule will be prepared, attached hereto as
Exhibit "C" and incorporated herein.
(iii) Said promissory note shall also provide for a principal
reduction in the sum of $500,000 in the event of the sale or
disposition by WGHI of its wholly owned subsidiary, Green
World Technologies, Inc. prior to the maturity date of the
note, provided, however, that WGHI shall have
2
<PAGE>
received a minimum of $500,000 cash from said sale or
disposition. MIOA shall be entitled to all cash received by
WGHI up to $500,000. Said principal reduction will occur
contemporaneously with the closing of the sale or disposition
of Green World Technologies, Inc. WGHI represents that it is
diligently pursuing the sale of Green World technologies Inc.
and that said company will not be sold or disposed for less
than fair market value. The parties mutually agree that WGHI
may elect to "spin off" Green World Technologies in which
event MIOA shall not be entitled to a principal reduction
unless said "spin-off" shall result in the payment of cash to
WGHI.
(iv) Said promissory note shall further provide that if prior
to the maturity date of the note, WGHI sells its note
receivable or other collateral resulting from the Green World
Technologies, Inc. sale, or disposition, the balance of the
MIOA promissory note shall be paid in full to the extent of
the proceeds received from the sale of said note receivable or
other collateral.
(v) Said promissory note may be pre-paid in part or in full by
WGHI without penalty.
(vi) Said promissory note shall be secured by a mortgage on
the real property described on Exhibit "D" attached hereto and
incorporated herein and if necessary, by an assignment by WGHI
to MIOA of the Green World Technologies' note receivable or
other collateral referred to hereinabove, or a pledge of the
shares of Green World Technologies stock retained by WGHI in
the event of a "spin off" of Green World Technologies, Inc.
MIOA shall have no proprietary rights or voting rights with
respect to the collateral in the absence of a default by WGHI.
The value of the security shall not exceed the balance of the
principal and interest due pursuant to the MIOA promissory
note.
b. WGHI shall endorse, assign, transfer and convey to MIOA any and
all MIOA convertible preferred stock owned by WGHI.
3
<PAGE>
c. WGHI shall waive any and all rights, claims, demands or
entitlements with respect to the aforementioned Stock Purchase
Agreement, as amended.
d. WGHI shall provide quarterly financial statements of WGHI and its
subsidiaries to MIOA.
2. MIOA OBLIGATIONS. In consideration of the foregoing, MIOA covenants and
agrees to do the following:
a. MIOA shall endorse, assign, transfer and convey to WGHI any and
all WGHI shares of convertible preferred stock owned by MIOA. b.
MIOA shall endorse, assign, transfer and convey to WGHI any and all
WGHI shares of common stock owned by MIOA. Upon receipt of
certificates representing all of the common stock of WGHI owned by
MIOA, WGHI shall reissue a certificate for 70,000 shares of common
stock to MIOA in full and final satisfaction and settlement of any
and all claims with respect to WGHI shares owned by MIOA except as
hereinafter set forth. WGHI further agrees that certain other shares
of common stock of WGHI shall be reissued to MIOA pursuant to the
schedule set forth on Exhibit "A" which is incorporated herein. MIOA
shall have demand registration rights and "piggyback" registration
rights with respect to said shares at the expense of WGHI. All
re-issued shares shall be deemed to have been re-issued on the date
of the original issuance. MIOA covenants and agrees that upon
registration of said reissued shares of common stock, MIOA shall not
sell, transfer or convey more than 60,000 shares of said common
stock per month, or fifteen percent (15%) of the total reissued
shares per month, whichever is less. In the event WGHI completes a
reverse stock split within seven (7) months of the Closing Date and
prior to the sale, transfer or conveyance of all the reissued shares
held by MIOA, WGHI shall register and issue additional shares of
common stock to MIOA in the event of any diminution in the value of
the remaining reissued shares thirty (30) days after the date of the
reverse stock split. MIOA shall assume the market risk with respect
to said shares prior to and thirty-one (31) days after any reverse
stock split.
c. MIOA shall waive any and all rights, claims, demands or
entitlements with respect to the aforementioned Stock Purchase
Agreement, as amended.
4
<PAGE>
d. MIOA shall release and forever discharge WGHI with respect to any
rights, claims, demands or entitlements pertaining to any money,
financing, loans or other consideration given or provided to WGHI by
MIOA.
3. UNENCUMBERED SHARES. WGHI and MIOA mutually covenant and agree that
each and every share of common and preferred stock to be transferred, assigned
and conveyed by one party to the other, shall be free and clear of all liens,
encumbrances and restrictions on transfer other than restrictions, pursuant to
applicable state and federal securities laws.
4. ACCRUED DIVIDENDS AND INTEREST. On the Closing Date, WGHI and MIOA
mutually agree to waive any and all claims or demands with respect to dividends
or interest arising out of the ownership of preferred stock or any other
business relationship by and between the parties.
5. MUTUAL RELEASE. Subject to the Closing Date as hereinabove set forth
and the performance of the terms and conditions contained in this Agreement,
each party hereby forever releases and discharges the other party and each of
its heirs, officers, directors, shareholders, employees, agents, affiliates,
subsidiaries, attorneys, successors and assigns of and from any and all claims,
rights, duties, obligations, debts, liabilities, damages, injuries, actions and
causes of action of every kind and nature, foreseen and unforeseen, contingent
and actual, liquidated and unliquidated, suspected and unsuspected, disclosed
and undisclosed, whether direct or by way of indemnity, contribution or
otherwise, arising out of or related to the aforementioned Stock Purchase
Agreement and amendments thereto, the ownership of shares of common and
preferred stock as hereinabove set forth and the business relationship by and
between the parties.
6. EXCEPTIONS TO MUTUAL RELEASE. Nothing contained in this Agreement shall
operate to release or discharge either party or its successors or assigns from
any claims, rights or causes of action arising out of or relating to a breach of
any of the obligations of the parties contained in this Agreement.
7. SURVIVAL OF MIOA WARRANT OBLIGATION. The parties acknowledge that the
aforementioned Stock Purchase Agreement, as amended, provided for the issuance
of warrants by MIOA for the benefit of WGHI shareholders and that said warrants
will not expire until November 21, 1997. MIOA covenants and agrees that MIOA
will have a continuing responsibility to the shareholders of WGHI with respect
to the terms and conditions of the Warrant Agreement contained in said Stock
Purchase Agreement. Said warrant terms and conditions shall survive the
termination of the Stock Purchase Agreement and amendments thereto.
8. NATURE OF AGREEMENT. The provisions contained in this Agreement
constitute a compromise of disputed issues. This Agreement shall not, in any
way, be construed
5
<PAGE>
as an admission by either party of any unlawful, wrongful or invalid act.
9. AUTHORITY TO EXECUTE. Each party to this Agreement represents that all
necessary corporate action has been taken to authorize the execution, delivery
and performance by each party to this Agreement. This Agreement is the legal,
valid and binding obligation of each party, enforceable against each party in
accordance with its terms, subject as to enforcement only as to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application relating to or affecting the rights of creditors generally
and to general equitable principals. This Agreement does not violate any
agreement or contract to which either party is a party thereto.
10. PUBLICITY. No press release or public disclosure, written or oral, of
the transactions contemplated by this Agreement shall be made by either of the
parties hereto without the written consent of both parties and until the parties
have jointly issued a press release or otherwise publicly disclosed the
transactions. This prohibition shall not apply to any disclosure required by
law.
11. ORGANIZATION, GOOD STANDING AND QUALIFICATIONS. WGHI and MIOA are
corporations duly organized, validly existing and in good standing under the
laws of the state of incorporation for each incorporation. Each party has all
the requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business, to execute and deliver this Agreement
and to carry out the provisions of this Agreement. Both WGHI and MIOA are duly
qualified to transact business and are in good standing in each jurisdiction in
which the failure to so qualify would have a material and adverse effect on the
business, properties, condition (financial or otherwise) or operations of each
party to perform its obligations under this Agreement.
12. GOVERNMENTAL CONSENTS. No consent, approval, qualification, order or
authorization of or filing with any local, state or federal governmental
authority is required on the part of either WGHI or MIOA in connection with the
execution and performance of this Agreement.
13. NO VIOLATION, CONFLICT OR DEFAULT. The execution, delivery and
performance by WGHI and MIOA of this Agreement and consummation of the
transactions contemplated hereby will not result in any violation or default of
any provision of either corporations' Certificate of Incorporation or By-Laws,
any statute, law, regulation, order or decree applicable to either party or any
contract, commitment, agreement, arrangement or restriction of any kind to which
either WGHI or MIOA, is a party. WGHI has not entered into nor does WGHI
contemplate entering into any agreement that would alter or change the intent of
this Agreement.
14. LITIGATION. WGHI and MIOA each warrant that there are no legal
administrative, governmental or arbitration proceedings pending by or before any
court, governmental administrative agency or commission or arbitrator against
WGHI or MIOA that
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<PAGE>
would prevent a consummation of the transactions contemplated in this Agreement.
The parties further mutually agree that either party may terminate this
Agreement by giving written notice of termination to the other party, if the
other party, prior to the Closing Date has: (i) a receiver of its assets or
property appointed because of insolvency; (ii) filed a voluntary or involuntary
petition in bankruptcy; (iii) made a general assignment for the benefit of
creditors or (iv) been adjudged a bankrupt; (v) instituted or suffered to be
instituted any proceeding for the reorganization or rearrangement of its
affairs.
This right of termination may be exercised without prejudice to any
other remedy to which either party may be entitled to at law or in equity under
this Agreement.
15. FURTHER COOPERATION. Each party hereto agrees to execute, acknowledge,
and/or deliver any and all documents reasonably necessary to carry out and
perform its obligations hereunder.
16. ENTIRE AGREEMENT. This Agreement contains the entire Agreement and
understanding between the parties as to the settlement of all claims and
supersedes and replaces all prior settlement negotiations and proposed
agreements, written and oral. The parties hereto acknowledge that no other party
or agent or attorney of any other party has made any promise, representation or
warranty whatsoever express or implied not contained in this Agreement
concerning the subject matter hereof to induce either party to enter into this
Agreement, and each party acknowledges that it has not executed this Agreement
in reliance upon any such promise, representation or warranty not contained
herein.
17. SEVERABILITY. Every provision of this Agreement is intended to be
severable. In the event any term or provision hereof is declared to be illegal
or invalid for any reason whatsoever by a tribunal of competent jurisdiction,
such illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
18. NO WAIVER. The waiver, either expressed or implied, by any party
hereto of any term or condition of this Agreement, shall not constitute a
relinquishment by said party of its right to enforce the term or condition at
any later date unless this Agreement is amended in writing to so provide for an
unconditional waiver.
19. NO ASSIGNMENT. As a condition of this Agreement, the parties represent
and warrant that there has been no actual assignment or purported assignment or
other transfer of any claims or other matter or any interest which has been
released by any provision of this Agreement. The parties represent and warrant
that they are the sole owners and real-party-in- interest regarding their
respective claims and matters being released by this Agreement. In the event
that any representation or warranty made by any of the parties in this paragraph
is false or incorrect, it is agreed that the party making such representation or
warranty shall indemnify the other party for any and all claims, demands, causes
of action, obligations, set-offs, liabilities, damages, losses, injuries, costs,
expenses and attorneys' fees incurred by them or any of them
7
<PAGE>
as a result of such a false or incorrect representation or warranty. Further, it
is agreed by the parties that the foregoing indemnity does not require the party
seeking the indemnification to have made a payment to a third party claimant as
a condition precedent to recovery of the indemnity granted pursuant to this
action.
20. ADVICE OF COUNSEL. Prior to the execution of this Agreement and any
other document to which reference is made herein, each party hereto and thereto
has fully understood and carefully read all of the provisions of this Agreement.
That each party has consulted with or alternatively has had opportunity to
consult with, legal counsel of its own choice concerning the terms and
conditions of this Agreement and any other document to which reference is made
herein, and such other opportunity to participate in the drafting of this
Agreement and such other document, and that each such party to this Agreement
and such other document is voluntarily entering into this Agreement.
21. COUNTERPARTS. This Agreement may be executed in any number of original
counterparts. Any such counterpart, when executed shall constitute an original
of this Agreement, and all such counterparts together shall constitute one and
the same Agreement.
22. NO MODIFICATION. No waiver, modification or amendment of any term,
condition or provision of this Agreement shall be valid or have any force or
effect unless made in writing and signed by the parties against whom the waiver,
modification or amendment is asserted.
23. GOVERNING LAW. This Agreement shall be governed by and interpreted
according to the laws of the State of Florida.
24. INTERPRETATION. None of the parties hereto, nor their respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, not strictly for
or against any of the parties hereto.
25. ATTORNEYS' FEES TO ENFORCE THIS AGREEMENT. In the event that any
action is commenced to seek enforcement of this Agreement or a declaration of
rights thereunder, the prevailing party in such action shall be entitled to
recover its reasonable attorneys' fees and costs incurred in connection with
that action.
26. JURISDICTION AND VENUE. In the event that any action is commenced to
seek enforcement of this Agreement or a declaration of rights thereunder, the
jurisdiction and venue for any such action shall be in Palm Beach County,
Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first stated above.
WESTMARK GROUP HOLDINGS, INC. MEDICAL INDUSTRIES OF AMERICA
By:_________________________ By:________________________
Its:________________________ Its:_______________________
8
MODIFICATION TO SETTLEMENT AGREEMENT
This Modification to Settlement Agreement ("Modification") is entered into
on the day of March, 1997 by and between, Westmark Group Holdings, Inc., a
Delaware corporation ("WGHI") and Medical Industries of America, Inc., a Florida
corporation ("MIOA"), and is made with reference to the following:
RECITALS
WHEREAS, WGHI and MIOA entered into a Settlement Agreement ("Agreement")
on the 23rd day of January, 1997 and;
WHEREAS, the parties desire to modify said Agreement;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, WGHI and MIOA mutually agree to modify the Agreement as follows:
1. Paragraph 1 is hereby modified to read as follows:
WGHI covenants and agrees that WGHI is diligently negotiating a
financing proposal that would provide additional capitalization to
WGHI in a minimum amount of $3,000,000 and a maximum amount of
$6,000,000. For the purpose of this Agreement, "Additional
Capitalization" shall be defined as gross proceeds. The parties
hereto further mutually agree that the terms and conditions of this
Agreement and the duties and responsibilities herein contained are
subject to and expressly conditioned upon the receipt by WGHI of
minimum Additional Capitalization in the sum of $3,000,000 by April
21, 1997 ("First Tranche"). Upon receipt of said Additional
Capitalization WGHI and MIOA agree to do and perform the following
no later than May 21, 1997 (the "Closing Date").
2. Paragraph 1a.(i) is hereby modified to read as follows: a. WGHI
shall pay MIOA as follows:
(i) $1.5 million cash on or before May 21, 1997, provided that
WGHI shall have received no less than $6,000,000 in gross
proceeds as a result of Additional Capitalization. In the
event the Additional Capitalization received by WGHI is less
than $6,000,000 but more than $5,000,000, MIOA shall receive
all proceeds in excess of $5,000,000.
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In the further event the Additional Capitalization received by
WGHI is less than $5,000,000 but more than $3,000,000, MIOA
shall receive ten percent (10%) of said Additional
Capitalization. If WGHI receives no more than $3,000,000 in
Additional Capitalization by April 21, 1997, MIOA shall
receive a cash payment of $300,000 on May 1, 1997.
3. Except as hereinabove modified, said Agreement shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Modification as of the
date first stated above.
WESTMARK GROUP HOLDINGS, INC. MEDICAL INDUSTRIES OF AMERICA
By: By:
Its: Its:
2
AMENDMENT TO MODIFIED SETTLEMENT AGREEMENT
This Amendment is entered into on the 26th day of June, 1997 by and
between Westmark Group Holdings, Inc., a Delaware corporation ("WGHI") and
Medical Industries of America, Inc., a Florida corporation ("MIOA"), and is made
with reference to the following:
RECITALS
WHEREAS, WGHI and MIOA entered into a Settlement Agreement ("Agreement")
on the 23rd day of January, 1997 and;
WHEREAS, the parties modified said Settlement Agreement on March 31, 1997
("Modified Settlement Agreement"), and;
WHEREAS, the parties further desire to amend said Modified Settlement
Agreement;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, WGHI and MIOA mutually agree to amend the Modified Settlement
Agreement as follows:
1. Paragraphs 1, 2 and 3 of the aforementioned Modified Settlement
Agreement are hereby deleted in their entirety.
2. DEBT REPAYMENT. WGHI acknowledges an indebtedness to MIOA in the sum of
$1,953,000, less interest in the sum of $47,000 which represents interest
forgiveness for the second quarter, 1997. Said indebtedness shall be satisfied
as follows:
A. WGHI shall execute a Promissory Note in the sum of $1,953,000
together with interest at 10% per annum. WGHI shall pay no
less than $25,000 per month commencing June 30, 1997 and
continuing on the 30th day of each month thereafter until June
30, 2000 at which time the entire balance of unpaid principal
and accrued interest shall be paid in full.
B. MIOA shall be entitled to the first $300,000 received by WGHI
with respect to the receipt of additional capitalization by
WGHI in the minimum amount of $300,000 and maximum amount of
$1.5 million. In the event of the receipt of additional
capitalization by WGHI in excess of $1.5 million, MIOA shall
be entitled to receive the first $500,000 of additional
capitalization above $1.5 million.
C. MIOA shall be entitled to 50% of any additional capitalization
received by WGHI in excess of $3 million until said
indebtedness shall have been paid in full.
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D. MIOA shall also be entitled to 15% of the net cash flow of
WGHI in excess of operating expenses and settlement payments
on a consolidated basis during the calendar year 1997 and 20%
of said net cash flow in the calendar year 1998.
E. In the event WGHI shall sell either Westmark Mortgage
Corporation or Green World Technologies, Inc., wholly owned
subsidiaries of WGHI, or in the alternative event of a
"spin-off" of either subsidiary, MIOA shall be entitled to
receive and WGHI agrees to pay to MIOA 50% of the cash
proceeds received by WGHI resulting from a sale or "spin-off."
3. CLOSING DATE. For the purpose of this Agreement, the closing date shall
be June 30, 1997.
4. ANTI-DILUTION AND DEFAULT. WGHI and MIOA mutually covenant and agree
that Paragraph 1.6 of the Stock Purchase Agreement entered into by and between
the parties on November 21, 1995 as amended, is hereby deleted and terminated in
its entirety and shall be of no further force or effect. In the event of any
default with regard to the terms and conditions of the aforementioned Promissory
Note, WGHI shall issue to MIOA, shares of common stock of WGHI with a value
equivalent to the unpaid balance of principal and accrued interest pursuant to
said Promissory Note. The unpaid indebtedness as hereinabove set forth shall
also be secured by the preferred shares of MIOA stock owned by WGHI. In the
event of default as hereinabove setforth, said preferred shares shall be
assigned, transferred and conveyed to MIOA and WGHI shall have no further rights
to conversion.
5. MIOA shall have demand registration rights with respect to the WGHI
shares of common stock owned by MIOA. Said demand registration rights shall be
incorporated in a separate agreement between WGHI and MIOA.
6. After satisfaction of the indebtedness referred to herein above, MIOA
shall repurchase the shares of MIOA preferred and common stock owned by WGHI and
WGHI shall repurchase the shares of WGHI preferred and common stock owned by
MIOA. The purchase price for the preferred shares shall be the stated value and
the purchase price for the common shares shall be the closing bid price on the
day prior to the repurchase.
7. Except as hereinabove amended, said Modified Settlement Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Modification as of the
date first stated above.
WESTMARK GROUP HOLDINGS, INC. MEDICAL INDUSTRIES OF AMERICA
By:_________________________ By:_________________________________
Its:________________________ Its:________________________________
2
REVISED SETTLEMENT AGREEMENT
This Revised Settlement Agreement ("Agreement") is entered into on
the____________ day of October, 1997 by and between, Westmark Group Holdings,
Inc., a Delaware corporation ('WGHI') and Medical Industries of America, Inc., a
Florida corporation ('MIOA"), and is made in reference to the following:
RECITALS
WHEREAS, WGHI and MIOA (formally Heart Labs of America, Inc.) entered into
a Stock Purchase Agreement on or about November 21, 1995, together with
amendments thereto, and;
WHEREAS, WGHI and MIOA entered into a Settlement Agreement on January 23,
1997 and;
WHEREAS, WGHI and MIOA entered into a Modification to Settlement Agreement
on March 31, 1997 and;
WHEREAS, WGHI and MIOA entered into an Amendment to Modified Settlement
Agreement on June 26, 1997 and;
WHEREAS, WGHI is the owner and holder of 200,000 shares of convertible
preferred stock of MIOA with a stated value of two million dollars ($2,000,000)
and;
WHEREAS, MIOA is the owner and holder of 333,457 shares of unregistered
common stock of WGHI and;
WHEREAS, MIOA is the owner and holder of 200,000 shares of convertible
preferred stock of WGHI with a stated value of seven hundred thousand dollars
($700,000) and;
WHEREAS, the parties desire to terminate all prior settlement agreements,
modifications and amendments thereto and enter into a Revised Settlement
Agreement;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth and other covenants and conditions contained herein, WGHI and MIOA
mutually agree as follows:
1. DEBT REPAYMENT. WGHI acknowledges an indebtedness to MIOA in the sum
of one million, eight hundred sixty-eight thousand, two hundred forty-three
dollars and sixty-seven cents ($1,868,243.67). Said indebtedness shall be
satisfied as follows:
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A. WGHI shall pay no less than twenty-five thousand dollars ($25,000) per
month commencing October 31, 1997 and continuing on the last day of each
month thereafter until June 30, 2000 at which time the entire balance of
unpaid principal and accrued interest shall be paid in full. Interest shall
accrue on the unpaid balance at 10% per annum.
B. MIOA shall be entitled to the first three hundred thousand dollars
($300,000) received by WGHI with respect to the receipt of additional
capitalization by WGHI in the minimum amount of three hundred thousand
dollars ($300,000) and maximum amount of $1.5 million, In the event of the
receipt of additional capitalization by WGHI between $1.5 million and $3
million, MIOA shall be entitled to receive thirty-three and one-third per
cent (33-1/3%) of additional capitalization above $1.5 million but less
than three million dollars ($3,000,000).
C. MIOA shall be entitled to 50% of any additional capitalization received by
WGHI in excess of three million dollars ($3,000,000) but less than four
million dollars ($4,000,000). In the event of the receipt of additional
capitalization by WGHI of four million dollars ($4,000,000) or more, the
balance of said indebtedness shall be paid in full. MIOA covenants and
agrees that in the event WGHI elects to satisfy the balance of the
indebtedness prior to June 30, 2000, WGHI shall be entitled to a discount
of 30% and MIOA agrees to accept 70% of the then-existing balance of unpaid
principal and accrued interest in full and final settlement and
satisfaction of said indebtedness.
D. MIOA shall also be entitled to 15% of the net cash flow of WGHI in excess
of operating expenses and settlement payments on a consolidated basis
during the calendar year 1997 and 20% of said net cash flow in the calendar
year 1998. Said net cash flow payments to MIOA shall not exceed the then
existing balance of said indebtedness.
E. In the event WGHI shall sell either Westmark Mortgage Corporation or Green
World Technologies, Inc.. wholly owned subsidiaries of WGHI, or in the
alternative event of a 'spin-off' of either subsidiary, MIOA shall be
entitled to receive, and WGHI agrees to pay to MIOA, 50% of the cash
proceeds received by WGHI resulting from a sale or 'spin-off. " In no event
shall said cash proceeds payable to MIOA exceed the then existing balance
of the indebtedness.
2. WGHI ADDITIONAL CAPITALIZATION. In the event WGHI receives additional
capitalization in the minimum sum of three million dollars ($3,000,000) on or
before March 31, 1998, WGHI and MIOA agree to the following:
2
<PAGE>
A. WGHI shall endorse, assign, transfer and reconvey to MIOA, 200,000 shares
of convertible preferred MIOA stock owned by WGHI.
B. MIOA shall endorse, assign, transfer and reconvey to WGHI, 190,000 shares
of post-reverse WGHI common stock owned by MIOA.
C. 200,000 shares of WGHI convertible preferred stock owned by MIOA, with a
stated value of seven hundred thousand dollars ($700,000), will be
converted to common stock of WGHI. Thereafter, said shares of common stock
shall be sold through a private transaction.
D. In the event MIOA elects to sell all or any portion of the remaining' WGHI
common stock owned by MIOA, WGHI will have, and is hereby granted, an
option to purchase said shares of common stock at a price mutually
agreeable to the parties.
3. ANTI-DILUTION AND DEFAULT. WGHI and MIOA mutually covenant and agree
that Paragraph 1.6 of the Stock Purchase Agreement entered into by and between
the parties on November 21, 1995 as amended, is void, and is hereby deleted and
terminated in its entirety and shall be of no further force or effect. In the
event of any default with respect to the terms and conditions of the repayment
of indebtedness, WGHI shall issue to MIOA, shares of common stock of WGHI with a
value equivalent to the unpaid balance of said indebtedness and accrued
interest. The unpaid indebtedness as hereinabove set forth shall also be secured
by the preferred shares of MIOA stock owned by WGHI. In the event of default as
hereinabove set forth, said preferred shares shall be assigned. transferred and
conveyed to MIOA and WGHI shall have no further rights to conversion.
4. MUTUAL RELEASE. Subject to the performance of the terms and conditions
contained in this agreement, each party hereby forever releases and discharges
the other party and each of its heirs, officers, directors, shareholders,
employees, agents, affiliates, subsidiaries, attorneys, successors and assigns
of and from any and all claims, rights, duties, obligations, debts, liabilities,
damages, injuries, actions and causes of action of every kind and nature,
foreseen and unforeseen, contingent and actual, liquidated and unliquidated,
suspected and unsuspected, disclosed and undisclosed, whether direct or by way
of indemnity, contribution or otherwise, arising out of or related to the
aforementioned Stock Purchase Agreement, Settlement Agreement, Modification to
Settlement Agreement, Amendment to Modified Settlement Agreement, Revised
Settlement Agreement, ownership of shares of common and preferred stock as
hereinabove set forth and the business relationship by and between the parties.
5. EXCEPTIONS TO MUTUAL RELEASE. Nothing contained in this Agreement shall
operate to release or discharge either party or its successors or assigns from
any claims, rights or causes of action arising out of or relating to a breach of
any of the obligations of the parties contained in this Agreement.
3
<PAGE>
6. SURVIVAL OF MIOA WARRANT OBLIGATION. The parties acknowledge that
the aforementioned Stock Purchase Agreement, as amended, provided for the
issuance of warrants by MIOA for the benefit of WGHI shareholders and that said
warrants will not expire until November 21, 1997. MIOA covenants and agrees that
MIOA will have a continuing responsibility to the shareholders of WGHI with
respect to the terms and conditions of the Warrant Agreement contained in said
Stock Purchase Agreement. Said warrant terms and conditions shall survive the
termination of the Stock Purchase Agreement and amendments thereto.
7. NATURE OF AGREEMENT. The provisions contained in this Agreement
constitute a compromise of disputed issues. This Agreement shall not, in any
way, be construed as an admission by either party of any unlawful, wrongful or
invalid act.
8. AUTHORITY TO EXECUTE. Each party to this Agreement represents that all
necessary corporate action has been taken to authorize the execution, delivery
and performance by each party to this Agreement. This Agreement is the legal,
valid and binding obligation of each party, enforceable against each party in
accordance with its terms, subject as to enforcement only as to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application relating to or affecting the rights of creditors generally
and to general equitable principals. This Agreement does not violate any
agreement or contract to which either party is a party thereto.
9. ORGANIZATION, GOOD STANDING AND QUALIFICATIONS. WGHI and MIOA are
corporations duly organized, validly existing and in good standing under the
laws of the state of incorporation for each incorporation, Each party has all
the requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business, to execute and deliver this Agreement
and to carry out the provisions of this Agreement. Both WGHI and MIOA are duly
qualified to transact business and are in good standing in each jurisdiction in
which the failure to so qualify would have a material and adverse effect on the
business, properties, condition (financial or otherwise) or operations of each
party to perform its obligations under this Agreement.
10. GOVERNMENTAL CONSENTS. No consent, approval, qualification, order or
authorization of or filing with any local, state or federal governmental
authority is required on the part of either WGHI or MIOA in connection with the
execution and performance of this Agreement.
11. NO VIOLATION, CONFLICT OR DEFAULT. The execution, delivery and
performance by WGHI and MIOA of this Agreement and consummation of the
transactions contemplated hereby will not result in any violation or default of
any provision of either corporations' Certificate of Incorporation or By-Laws,
any statute, law, regulation, order or decree applicable to either party or any
contract, commitment, agreement, arrangement or restriction of any kind to which
either WGHI or MIOA, is a party. WGHI has not entered into nor does WGHI
contemplate entering into any agreement that would alter or change the intent
4
<PAGE>
of this Agreement.
12. FURTHER COOPERATION. Each party hereto agrees to execute, acknowledge,
and/or deliver any and all documents reasonably necessary to carry out and
perform its obligations hereunder.
13. ENTIRE AGREEMENT. This Agreement contains the entire Agreement and
understanding between the parties as to the settlement of all claims and
supersedes and replaces all prior settlement negotiations and proposed
agreements, written and oral. The parties hereto acknowledge that no other party
or agent or attorney of any other party has made any promise, representation or
warranty whatsoever express or implied not contained in this Agreement
concerning the subject matter hereof to induce either party to enter into this
Agreement, and each party acknowledges that it has not executed this Agreement
in reliance upon any such promise, representation or warranty not contained
herein.
14. SEVERABILITY. Every provision of this Agreement is intended to be
severable. In the event any term or provision hereof is declared to be illegal
or invalid for any reason whatsoever by a tribunal of competent jurisdiction,
such illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
15. NO WAIVER. The waiver, either expressed or implied, by any party hereto
of any term or condition of this Agreement, shall not constitute a
relinquishment by said party of its right to enforce the term or condition at
any later date unless this Agreement is amended in writing to so provide for an
unconditional waiver.
16. NO ASSIGNMENT. As a condition of this Agreement, the parties represent
and warrant that there has been no actual assignment or purported assignment or
other transfer of any claims or other matter or any interest which has been
released by any provision of this Agreement. The parties represent and warrant
that they are the sole owners and real-pariy-in-interest regarding their
respective claims and matters being released by this Agreement. In the event
that any representation or warranty made by any of the parties in this paragraph
is false or incorrect, it is agreed that the party making such representation or
warranty shall indemnify the other party for any and all claims, demands, causes
of action, obligations, set-offs, liabilities, damages, losses, injuries, costs,
expenses and attorneys' fees incurred by them or any of them as a result of such
a false or incorrect representation or warranty. Further, it is agreed by the
parties that the foregoing indemnity does not require the party seeking the
indemnification to have made a payment to a third party claimant as a condition
precedent to recovery of the indemnity granted pursuant to this action.
17. ADVICE OF COUNSEL. Prior to the execution of this Agreement and any
other document to which reference is made herein, each party hereto and thereto
has fully understood and carefully read all of the provisions of this Agreement.
That each party has consulted with or alternatively has had opportunity to
consult with, legal counsel of its own
5
<PAGE>
choice concerning the terms and conditions of this Agreement and any other
document to which reference is made herein, and such other opportunity to
participate in the drafting of this Agreement and such other document, and that
each such party to this Agreement and such other document is voluntarily
entering into this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of original
counterparts, Any such counterpart, when executed shall constitute an original
of this Agreement, and all such counterparts together shall constitute one and
the same Agreement.
19. NO MODIFICATION. No waiver, modification or amendment of any term,
condition or provision of this Agreement shall be valid or have any force or
effect unless made in writing and signed by the parties against whom the waiver,
modification or amendment is asserted.
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
according to the laws of the State of Florida.
21. INTERPRETATION. None of the parties hereto, nor their respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, not strictly for
or against any of the parties hereto.
22. ATTORNEYS'FEES TO ENFORCE THIS AGREEMENT. In the event that any action
is commenced to seek enforcement of this Agreement or a declaration of rights
thereunder, the prevailing party in such action shall be entitled to recover its
reasonable attorneys' fees and costs incurred in connection with that action.
23. JURISDICTION AND VENUE. In the event that any action is commenced to
seek enforcement of this Agreement or a declaration of rights thereunder, the
jurisdiction and venue for any such action shall be in Palm Beach County,
Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first stated above.
WESTMARK GROUP HOLDINGS, INC. MEDICAL INDUSTRIES OF AMERICA
By: By:
-------------------------- --------------------------
Its: Its:
------------------------- -------------------------
6
SETTLEMENT AGREEMENT
AND
MUTUAL RELEASE OF ALL CLAIMS
This Settlement Agreement and Mutual Release of All Claims ("Settlement
Agreement"), is entered into on the 3rd day of November, 1997 by and between
Westmark Group Holdings, Inc. ("WGHI"), a Delaware corporation ("WGHI"), and
Gail E. Harden, Boyd E. Harden, E. Shea Harden (Naporano), Graham Harden II and
Holmes Harden, Jr. (hereinafter collectively "Harden') and is made with
reference to the following:
RECITALS
WHEREAS, Harden invested the sum of $165,000 into WGHI on or about
October 17, 1995 (the "Investment"); and
WHEREAS, WGHI and Harden have entered into various promissory notes and
written agreements with respect to the repayment of the Investment ("prior
agreements"); and
WHEREAS, various disputes have arisen between the parties with regard to
the Investment and prior agreements pertaining to the Investment; and
WHEREAS, the parties hereto wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between them
arising out of or pertaining to the aforementioned Investment and prior
agreements;
NOW, THEREFORE, in consideration of the terms and conditions herein
contained, WGHI and Harden mutually agree as follows:
1. CONSIDERATION TO HARDEN. WGHI covenants and agrees to do and perform
the following:
A. Payment of the sum of $165,000. WGHI shall pay to Harden the sum
of $9,167 per month commencing November 20, 1997 and continuing on
the 20th day of each month thereafter until the entire sum of
$165,000 is paid in full. In the event of a capital raise by WGHI in
the sum of $3,000,000 or more, prior to the maturity date of the
installment payments as set forth above, the entire remaining
balance shall be paid in full, within ten (10) business days after
said capital raise.
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B. WGHI shall issue 12,383 shares of post-reverse common stock of
WGHI, bearing a restrictive legend. Said shares shall be registered
in connection with the current SB-2 Registration Statement on file
with the Securities and Exchange Commission, in addition to 40,740
shares of post-reverse common stock previously issued to Harden.
Said 53,123 shares shall be issued immediately upon execution of
this agreement.
C. WGHI shall issue to Harden, warrants to purchase 125,000 shares
of post-reverse common stock of WGHI at a price of $5 per share of
common stock. Said warrants shall expire eighteen (18) months from
the date of this Settlement Agreement. Said warrants shall be issued
immediately upon execution of this agreement.
D. Interest shall continue to accrue and be paid by WGHI at the rate
of 10% per annum on the remaining balance until paid in full.
Harden covenants and agrees to accept the aforementioned cash payments,
common stock and warrants to purchase common stock of WGHI in full and final
settlement and satisfaction of any and all claims, demands, rights, entitlements
or causes of action with regard to the aforementioned Investment and all prior
agreements as set forth above.
2. RELEASE OF ALL CLAIMS. Subject to the performance of the terms and
conditions contained in this Settlement Agreement by WGHI, Harden hereby forever
releases and discharges WGHI, and its officers, directors, shareholders,
employees, agents, attorneys, affiliates, subsidiaries, successors and assigns
of and from any and all claims, rights, duties, obligations, debts, liabilities,
damages, injuries, actions and causes of action of every kind and nature
foreseen and unforeseen, contingent and actual, liquidated and unliquidated,
suspected and unsuspected, disclosed and undisclosed, whether direct or by way
of indemnity, contribution or otherwise, arising out of or relating to the
aforementioned investment and all prior agreements, written or oral, between
WGHI and Harden. Nothing contained in this Release shall operate to release or
discharge WGHI from any claims, rights or causes of action arising out of or
relating to a breach of any of the obligations hereinabove set forth.
3. NATURE OF SETTLEMENT AGREEMENT. The provisions contained in this
Settlement Agreement constitute a compromise of disputed issues. This Settlement
Agreement shall not, in any way, be construed as an admission by either party of
any unlawful, wrongful or invalid act.
4. AUTHORITY TO EXECUTE. WGHI represents that all necessary corporate
action has been taken to authorize the execution, delivery and performance by
each party to this Settlement Agreement. This Settlement Agreement is the legal,
valid and binding obligation of each party, enforceable against each party in
accordance with its terms, subject as to enforcement only as to applicable
bankruptcy, insolvency, reorganization, moratorium and other
2
<PAGE>
similar laws of general application relating to or affecting the rights of
creditors generally and to general equitable principals. This Settlement
Agreement does not violate any agreement or contract to which either party is a
party thereto.
5. GOVERNMENTAL CONSENTS. No consent, approval, qualification, order
or authorization of or filing with any local, state or federal governmental
authority is required on the part of WGHI in connection with the execution and
performance of this Settlement Agreement.
6. NO VIOLATION, CONFLICT OR DEFAULT. The execution, delivery and
performance by WGHI of this Settlement Agreement and consummation of the
transactions contemplated hereby will not result in any violation or default of
any provision of WGHI's Certificate of Incorporation or By-Laws, any statute,
law, regulation, order or decree applicable to either party or any contract,
commitment, agreement, arrangement or restriction of any kind to which WGHI, is
a party. WGHI has not entered into nor does WGHI contemplate entering into any
agreement that would alter or change the intent of this Settlement Agreement.
7. FURTHER COOPERATION. Each party hereto agrees to execute,
acknowledge, and/or deliver any and all documents reasonably necessary to carry
out and perform its obligations hereunder.
8. ENTIRE SETTLEMENT AGREEMENT. This Settlement Agreement contains the
entire Settlement Agreement and understanding between the parties as to the
settlement of all claims and supersedes and replaces all prior settlement
negotiations and proposed agreements, written and oral. The parties hereto
acknowledge that no other party or agent or attorney of any other party has made
any promise, representation or warranty whatsoever express or implied not
contained in this Settlement Agreement concerning the subject matter hereof to
induce either party to enter into this Settlement Agreement, and each party
acknowledges that it has not executed this Settlement Agreement in reliance upon
any such promise, representation or warranty not contained herein.
9. SEVERABLITY. Every provision of this Settlement Agreement is intended
to be severable. In the event any term or provision hereof is declared to be
illegal or invalid for any reason whatsoever by a tribunal of competent
jurisdiction, such illegality or invalidity shall not affect the balance of the
terms and provisions hereof, which terms and provisions shall remain binding and
enforceable.
10. NO WAIVER. The waiver, either expressed or implied, by any party
hereto of any term or condition of this Settlement Agreement, shall not
constitute a relinquishment by said party of its right to enforce the term or
condition at any later date unless this Settlement Agreement is amended in
writing to so provide for an unconditional waiver.
3
<PAGE>
11. ADVICE OF COUNSEL. Prior to the execution of this Settlement
Agreement and any other document to which reference is made herein, each party
hereto and thereto has fully understood and carefully read all of the provisions
of this Settlement Agreement. That each party has consulted with or
alternatively has had opportunity to consult with, legal counsel of its own
choice concerning the terms and conditions of this Settlement Agreement and any
other document to which reference is made herein, and such other opportunity to
participate in the drafting of this Settlement Agreement and such other
document, and that each such party to this Settlement Agreement and such other
document is voluntarily entering into this Settlement Agreement.
12. COUNTERPARTS. This Settlement Agreement may be executed in any
number of original counterparts. Any such counterpart, when executed shall
constitute an original of this Settlement Agreement, and all such counterparts
together shall constitute one and the same Settlement Agreement.
13. NO MODIFICATION. No waiver, modification or amendment of any term,
condition or provision of this Settlement Agreement shall be valid or have any
force or effect unless made in writing and signed by the parties against whom
the waiver, modification or amendment is asserted.
14. GOVERNING LAW. This Settlement Agreement shall be governed by and
interpreted according to the laws of the State of Florida.
15. INTERPRETATION. None of the parties hereto, nor their respective
counsel, shall be deemed the drafter of this Settlement Agreement for purposes
of construing the provisions hereof. The language in all parts of this
Settlement Agreement shall in all cases be construed according to its fair
meaning, not strictly for or against any of the parties hereto.
16. STOCK SPLITS AND STOCK DIVIDENDS. The number of warrants to be
issued and the underlying common shares shall be adjusted in the event of any
stock splits or stock dividends.
17. ATTORNEYS FEES. In the event Harden is required to initiate
litigation to enforce any of the provisions of this Settlement Agreement, and as
a part of any judgement obtained by Harden, Harden shall be entitled to
reasonable attorneys fees, court costs, travel expenses and other fees incurred
by Harden in connection with said litigation, in addition to any other relief
provided by law.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Settlement Agreement
as of the date first stated above.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ illegible /s/ Gail E. Harden
- ------------------------ ------------------------------
Its: C.E.O.
/s/ Boyd E. Harden
By: /s/ I. H. Bowen ------------------------------
- ------------------------
I. H. Bowen /s/ E. Shea Harden
Executive Vice President ------------------------------
E. Shea Harden (NAPORANO)
/s/ Graham Harden II
------------------------------
Graham Harden II
/s/ Holmes Harden, Jr.
------------------------------
Holmes Harden, Jr.
5
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into on the 23rd day
of January, 1997 by and between Westmark Group Holdings, Inc., a Delaware
corporation ("WGHI") and Michael F. Morrell ("Morrell") and Linda Moore
("Moore"), and is made in reference to the following:
RECITALS
WHEREAS, Morrell and Moore were former employees of WGHI and previously
entered into employment agreements, termination agreements, and consulting
agreements with WGHI and;
WHEREAS, Morrell is the Lessor and WGHI is the Lessee of the premises
located at 355 Northeast 5th Avenue, Suites 2, 3, and 4, Delray Beach, Florida
and;
WHEREAS, various disputes have arisen by and between the parties with
regard to the aforementioned agreements;
WHEREAS, the parties hereto wish to settle and to resolve any and all
disputes, debts, damages, accounts, claims and demands whatsoever between the
parties arising from the aforementioned agreements;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth and other covenants and conditions contained herein, WGHI,
Morrell, and Moore mutually agree as follows:
1. MORRELL UNPAID SALARY AND EXPENSES. WGHI covenants and agrees to pay
unpaid salary and expenses to Morrell as follows:
a. $115,000 shall be paid contemporaneously with the close of any
transaction wherein WGHI shall receive additional capitalization in the
minimum sum of $3,000,000 dollars. If no additional capitalization
closure shall occur within ninety (90) days from date of this
agreement, said $115,000 shall be paid by the issuance of S-8 shares in
the same manner as set forth in paragraph 1b hereafter.
b. The balance in the sum of $114,000 shall be paid through the
issuance of registered S-8 shares of WGHI common stock with a net value
of $114,000. A form S-8 Registration Statement shall be filed by WGHI
no later than January 30, 1997 and shares shall be issued immediately
thereafter.
1
<PAGE>
c. Interest in the sum of $31,000 shall be satisfied by the partial
assignment of a promissory note receivable or shares of common stock
of Green World Technologies, Inc., received by WGHI in the event of
either a sale or "spin-off" of Green World Technologies, Inc.
d. Unpaid business expenses in the sum of $1,000 shall be reimbursed by
WGHI within thirty (30) days from the date of this Agreement.
2. RENTAL OBLIGATION. WGHI acknowledges that pursuant to the terms and
conditions of an existing lease agreement between WGHI and Morrell, regarding
the premises located at 355 Northeast 5th Avenue, suites 2, 3 and 4, Delray
Beach, Florida. WGHI owes monthly rental for suites 2, 3 and 4, for the months
of August through December 1996 and January 1997 in the total sum of $13,800.
WGHI covenants and agrees to pay the sum of $13,800 as follows:
a. WGHI shall pay the sum of $4,600 on or before February 5, 1997.
b. WGHI shall pay the balance in the sum of $9,200 no later than
February 23, 1997.
3. MORRELL CONSULTING FEES. WGHI acknowledges that pursuant to a
consulting agreement entered into by and between WGHI and Morrell, WGHI is
obligated for the payment of $45,000 for accrued consulting fees through
January, 1997. WGHI covenants and agrees to pay the sum of $45,000 through the
issuance of registered S-8 shares with a net value of $45,000. A form S-8
Registration Statement shall be filed by WGHI no later than January 30, 1997 and
shares shall be issued immediately thereafter. The parties acknowledge that
during the remaining term (22 months) of the consulting agreement, consulting
fees shall be paid in cash or through the issuance of S-8 common stock on a
monthly basis in the sum of $7,500 per month.
4. MORRELL AUTOMOBILE. WGHI covenants and agrees to reimburse Morrell
for various automobile lease expenses in the total sum of $5,400. WGHI shall pay
Morrell aforesaid lease expenses in the sum of $5,400 no later than thirty (30)
days from the date of this Agreement. Morrell shall have possession of said
vehicle, a 1995 Mercedes, until February 1, 1997 at which time said vehicle
shall be returned to WGHI and WGHI will hold Morrell free and harmless and
indemnify Morrell from any and all liability with respect to said lease
agreement other than property damage or personal injury that may occur while
said vehicle is in the possession of Morrell. Morrell agrees to indemnify and
hold WGHI harmless therefrom. WGHI shall cause the release of Morrell from the
existing lease agreement or satisfy the balance owing pursuant to said lease
agreement within thirty (30) days of the date of this Agreement.
2
<PAGE>
5. MORRELL STOCK OPTIONS. WGHI shall grant to Morrell an option to
purchase 125,000 shares of the common stock of WGHI at a price of $1 per share.
Said stock option shall vest upon execution of this Agreement and must be
exercised within one (1) year thereafter. Said stock option shall be pari passu
with the terms and conditions of the stock option granted to Mark Schaftlein,
C.O.O., WGHI. The underlying shares shall be included in the current SB-2
Registration Statement or registered pursuant to a form S-8 Registration
Statement.
6. MORRELL WARRANTS. WGHI hereby grants to Morrell 100,000 warrants to
purchase the common stock of WGHI at a strike price of $.81 per share. Said
warrants will expire one (1) year from the date of this Agreement.
7. MOORE UNPAID SALARY. WGHI covenants and agrees to pay the sum of
$80,000 to Moore as follows:
a. $40,000 shall be paid contemporaneously with the close of any
transaction wherein WGHI shall receive additional capitalization in the
minimum sum of $3,000,000. If no additional capitalization closure
shall occur within ninety (90) days from the date of this Agreement,
said $40,000 shall be paid by the issuance of S-8 shares in the manner
set forth in paragraph 7b hereinafter.
b. The balance in the sum of $40,000 shall be paid through the issuance
of registered S-8 shares of WGHI common stock with a net value of
$40,000. A form S-8 Registration Statement shall be filed by WGHI no
later than January 30, 1997 and shares shall be issued immediately
thereafter.
c. Interest in the sum of $9000 shall be satisfied by the partial
assignment of a promissory note receivable or shares of common stock
of Green World Technologies, Inc. received by WGHI in the event of
either a sale or "spin-off" of Green World Technologies, Inc.
8. MOORE CONSULTING FEES. WGHI acknowledges that pursuant to a
consulting agreement entered into by and between WGHI and Moore, WGHI is
obligated for the payment of $24,000 for accrued consulting fees through January
1997. WGHI covenants and agrees to pay the sum of $24,000 through the issuance
of registered S-8 shares of WGHI common stock with a net value of $24,000. A
form S-8 Registration Statement shall be filed by WGHI no later than January 30,
1997 and shares shall be issued immediately thereafter. The parties acknowledge
that during the remaining term (4 months) of the consulting agreement,
consulting fees shall be paid in cash or through the issuance of S-8 common
stock on a monthly basis of the sum of $4,000.
3
<PAGE>
9. MOORE STOCK OPTIONS. WGHI shall grant to Moore an option to purchase
67,000 shares of the common stock of WGHI at a price of $1 per share. Said stock
option shall vest upon execution of this Agreement and must be exercised within
one (1) year thereafter. Said stock option shall be pari passu with the terms
and conditions of the stock option granted to Mark Schaftlein, C.O.O., WGHI. The
underlying shares shall be included in the current SB-2 Registration Statement
or registered pursuant to a form S-8 Registration Statement.
10. MOORE WARRANTS. WGHI hereby grants to Moore 53,333 warrants to
purchase the common stock of WGHI at a strike price of $.81 per share. Said
warrants will expire one (1) year from the date of this Agreement.
11. RELEASE. Subject to the receipt of the consideration hereinabove
provided, each of the parties hereto forever releases and discharges the other
party and its officers, directors, shareholders, employees, agents affiliates,
subsidiaries, attorneys, successors and assigns, of and from any and all claims,
rights, duties, obligations, debts liabilities, damages, injuries, actions, and
causes of action of every kind in nature, foreseen and unforeseen, contingent
and actual, liquidated and unliquidated, suspected and unsuspected, disclosed
and undisclosed, whether direct or by way of indemnity, contribution or
otherwise arising out of or relating to the aforementioned employment
agreements, terminations agreements, consulting agreements through January 31,
1997, lease agreement through January 31, 1997, together with any other written
or oral agreements or the ownership of common stock, warrants or options to
purchase common stock of WGHI. Nothing contained herein shall operate to release
or discharge any party or its successors and assigns from any claims arising out
of or relating to a breach of any of the obligations contained in this
Agreement.
12 NATURE OF AGREEMENT. The provisions contained in this Agreement
constitute a compromise of disputed issues. This Agreement shall not, in any
way, be construed as an admission by either party of any unlawful, wrongful or
invalid act.
13. AUTHORITY TO EXECUTE. Westmark represents that all necessary
corporate action has been taken to authorize the execution, delivery and
performance by each party to this Agreement. This Agreement is the legal, valid
and binding obligation of each party, enforceable against each party in
accordance with its terms, subject as to enforcement only as to applicable
bankruptcy, insolvency reorganization, moratorium and other similar laws of
general application relating to or affecting the rights of creditors generally
and to general equitable principals. This Agreement does not violate any
agreement or contract to which either party is a party thereto.
14. FURTHER COOPERATION. Each party hereto agrees to execute,
acknowledge, and/or deliver any and all documents reasonably necessary to carry
out and perform its obligations hereunder.
15. ENTIRE AGREEMENT. This Agreement contains the entire Agreement and
understanding between the parties as to the settlement of all claims and
supersedes and replaces
4
<PAGE>
all prior settlement negotiations and proposed agreements, written and oral. The
parties hereto acknowledge that no other party or agent or attorney of any other
party has made any promise, representation or warranty whatsoever express or
implied not contained in this Agreement concerning the subject matter hereof to
induce either party to enter into this Agreement, and each party acknowledges
that it has not executed this Agreement in reliance upon any such promise,
representation or warranty not contained herein.
16. SEVERABILITY. Every provision of this Agreement is intended to be
severable. In the event any term or provision hereof is declared to be illegal
or invalid for any reason whatsoever by a tribunal of competent jurisdiction,
such illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
17. NO WAIVER. The waiver, either expressed or implied, by any party
hereto of any term or condition of this Agreement, shall not constitute a
relinquishment by said party of its right to enforce the term or condition at
any later date unless this Agreement is amended in writing to so provide for an
unconditional waiver. Prior to the execution of this Agreement and any other
document to which reference is made herein, each party hereto and thereto has
fully understood and carefully read all of the provisions of this Agreement.
That each party has consulted with or alternatively has had opportunity to
consult with, legal counsel of its own choice concerning the terms and
conditions of this Agreement and any other document to which reference is made
herein, and such other opportunity to participate in the drafting of this
Agreement and such other document, and that each such party to this Agreement
and such other document is voluntarily entering into this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
original counterparts. Any such counterpart, when executed shall constitute an
original of this Agreement, and all such counterparts together shall constitute
one and the same Agreement.
19. NO MODIFICATION. No waiver, modification or amendment of any term,
condition or provision of this Agreement shall be valid or have any force or
effect unless made in writing and signed by the parties against whom the waiver,
modification or amendment is asserted.
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
according to the laws of the State of Florida.
21. INTERPRETATION. None of the parties hereto, not their respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, not strictly for
or against any of the parties hereto.
22. ATTORNEY'S FEES TO ENFORCE THIS AGREEMENT. In the event that any
action is commenced to seek enforcement of this Agreement or a declaration of
rights.
5
<PAGE>
thereunder, the prevailing party in such action shall be entitled to recover its
reasonable attorney's fees and costs incurred in connection with that action.
23. JURISDICTION AND VENUE. In the event that any action is commenced
to seek enforcement of this Agreement or a declaration of rights thereunder, the
jurisdiction and venue for any such action shall be in Palm Beach County,
Florida.
24. TIME OF THE ESSENCE. Time is expressly of the essence.
25. LATE FEE. In the event any payment is not paid within fifteen (15)
days of its due date, WGHI shall pay a late fee equal to 10% (ten) percent of
the amount of such late payment, which shall be due immediately.
26. WARRANT PROCEDURE. The warrants referred to herein shall expire 18
months from the date of this Agreement. WGHI agrees to register the underlying
shares within 6 months from the date herein and in the absence of registration
Moore and or Morrell shall have the right to "put" the warrants to WGHI in which
event WGHI shall pay to Moore and or Morrell the difference between 81 cents and
the closing bid price on the date of the "put" demand. The "put" shall expire 18
months from the date of this agreement or the earlier date of an effective
registration statement registering the underlying shares.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first stated above.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein /s/ Michael F. Morrell
- ---------------------------- ----------------------------
MARK SCHAFTLEIN MICHAEL F. MORRELL
Its: Chief Operating Officer
-----------------------
____________________________
LINDA MOORE
6
AMENDMENT TO SETTLEMENT AGREEMENT
This Amendment to Settlement Agreement ("Amendment") is entered into on
the 19th day of November, 1997 by and between Westmark Group Holdings, Inc., a
Delaware Corporation, ("WGHI") and Michael F. Morrell ("Morrell") and Linda
Moore ("Moore") and is made in reference to the following:
RECITALS
WHEREAS, WGHI, Morrell and Moore entered into a Settlement Agreement on
or about January 23rd, 1997, and
WHEREAS, WGHI is in default with respect to said Settlement Agreement,
and
WHEREAS, WGHI desires to amend said Settlement Agreement and Morrell
and Moore have agreed to the request of WGHI to so modify,
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth and other covenants and conditions contained herein, WGHI,
Morrell and Moore agree as follows:
1. PRIOR PAYMENTS TO MORRELL. Morrell acknowledges receipt of the
following payments from WGHI:
A. RENTAL OBLIGATIONS. $13,800 in full and final settlement and
satisfaction of the rental obligations set forth in Paragraph 2 of
the aforementioned Settlement Agreement.
B. CONSULTING FEES. Morrell and WGHI mutually agree that the accrued
consulting fees through September 30, 1997 total $105,000. Morrell
acknowledges the receipt of $104,281.87 with respect to said
consulting fees and WGHI and Morrell acknowledge a balance due of
$718.30 through September 30th, 1997. Consulting fees for the
month of October have been paid in full. Consulting fees for the
balance of the consulting agreement shall be paid twice monthly in
the sum of $3,750 per payment.
C. ACCRUED CONSULTING FEES: $718.13 in full and final settlement and
satisfaction of all unpaid consulting fees through September 30,
1997.
1
<PAGE>
D. BUSINESS EXPENSES. $1,000 in full and final settlement and
satisfaction of unpaid business expenses referred to in Paragraph
1(d) of the Settlement Agreement.
E. AUTOMOBILE LEASE EXPENSES. $5,400 in full and final settlement and
satisfaction of all automobile lease expenses referred to in
Paragraph 4 of said Settlement Agreement.
2. MORRELL UNPAID SALARY. WGHI and Morrell mutually agree that the
balance of unpaid salary referenced in Paragraph 1 of said Settlement Agreement
is $229,000, which amount has been due and owing since November of 1995 and has
been convertible into common stock of WGHI since said date. Morrell covenants
and agrees to convert said obligation into a sufficient number of shares of
restricted common stock of WGHI to realize net proceeds in the sum of $215,532
in full and final settlement and satisfaction of all unpaid salary pursuant to
Paragraph 1 of the Settlement Agreement. Said shares shall be sold in two
traunches as follows:
A. The first traunche shall be sold no later than two weeks from the
issuance by Corporate Stock Transfer, Inc. of an unrestricted
certificate with a new value of $160,075
B. The second traunche, with a net value of $55,457, shall be sold
within two weeks from the sale of the shares referenced in
subparagraph A hereinabove.
C. WGHI shall cooperate with Morrell to cause the issuance of
unrestricted shares and the sale thereof.
3. MORRELL TERMINATION OF STOCK OPTIONS. WGHI and Morrell mutually
agree that the option to purchase 125,000 shares of pre-reverse common stock of
WGHI is hereby terminated. Said options were previously granted pursuant to
Paragraph 5 of the Settlement Agreement.
4. MORRELL WARRANTS. In addition to the prior grant of a warrant to
purchase 20,000 shares of common stock of WGHI at an exercise price of $4.05 per
share, post reverse, pursuant to Paragraph 5 of the Settlement Agreement, WGHI
hereby grants to Morrell an additional warrant to purchase 25,000 shares of
common stock of WGHI at an exercise price of %5.00 per share. Said additional
warrant shall expire on January 23, 1998 and must be exercised no later than
said date.
5. PRIOR PAYMENTS TO MOORE. Moore acknowledges receipt of the following
payments of WGHI:
2
<PAGE>
A. CONSULTING FEES: $40,000 in full and final settlement and
satisfaction of all accrued consulting fees through May 31, 1997
in full and final satisfaction of the consulting fees referenced
in Paragraph 8 of the aforementioned Settlement Agreement.
B. UNPAID SALARY. $5,000 in partial satisfaction of the unpaid salary
referrred to in Paragraph 7 of said Settlement Agreement.
6. MOORE UNPAID SALARY. WGHI and Moore mutualy agree that the balance
of unpaid salary referenced in Paragraph 7 of said Settlement Agreement is
$75,000, which amount has been due and owing since November of 1995 and has been
convertible into the common Stock of WGHI since said date. Moore covenants and
agrees to convert said obligation into a sufficient number of shares of
restricted common stock of WGHI to realize net proceeds in the sum of $70,586 in
full and final settlement and satisfaction of all unpaid salary pursuant to
Paragraph 7 of the Settlement Agreement. Said shares shall be sold in two
trunches as follows:
A. The first traunche shall be sold no later than two weeks from the
issuance by Corporate Stock Transfer, Inc. of an unrestricted
certificate with a new value of $52,424
B. The second traunche, with a net value of $18,162, shall be sold
within two weeks from the sale of the shares referenced in
subparagraph A hereinabove.
C. WGHI shall cooperate with Morrell to cause the issuance of
unrestricted shares and the sale thereof.
7. MORRELL TERMINATION OF STOCK OPTIONS. WGHI and Morrell mutually
agree that the option to purchase 67,000 shares of pre-reverse common stock of
WGHI is hereby terminated. Said options were previously granted pursuant to
Paragraph 9 of the Settlement Agreement.
8. MORRELL WARRANTS. In addition to the prior grant of a warrant to
purchase 10,667 shares of common stock of WGHI at an exercise price of $4.05 per
share, post reverse, pursuant to Paragraph 10 of the Settlement Agreement, WGHI
hereby grants to Morrell an additional warrant to purchase 13,400 shares of
common stock of WGHI at an exercise price of $5.00 per share. Said additional
warrant shall expire on January 23, 1998 and must be exercised no later than
said date.
3
<PAGE>
Except as hereinafter amended or modified, said Settlement Agreement
shall continue in full force and effect.
Dated November 19, 1997
WASTMARK GROUP HOLDINGS, INC.
By:
-----------------------------
Its:
----------------------------
---------------------------------
MICHAEL F. MORRELL
---------------------------------
LINDA MORRELL
4
Westmark Group Holdings, Inc. and Subsidiary
STATEMENT RE: COMPUTATION OF NET LOSS PER COMMON SHARE
Year Year
Ended Ended
December 31, December 31,
1997 1996
Net Loss $1,468,070 $3,800,995
Preferred stock dividends 122,198 126,00
---------- ----------
Loss applicable to common stockholders $1,590,268 $3,926,995
========== ==========
Total weighted average number of common
shares and equivalents 1,506,204 732,058
========== ==========
Net loss per common share $(1.06) $(5.36)
========== ==========
LIST OF SUBSIDIARIES
1. Westmark Group Holdings, Inc.
1.1 Westmark Mortgage Corporation
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated March 11, 1997 with respect to
the audited financial statements of Westmark Group Holdings, Inc. for the year
ended December 31, 1996 in the Annual Report on Form 10-KSB for Westmark Group
Holdings, Inc. for the year ended December 31, 1997.
/s/ COMISKEY & COMPANY
PROFESSIONAL CORPORATION
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-KSB FOR
THE YEAR ENDING DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 100
<SECURITIES> 7,788
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,888
<PP&E> 999
<DEPRECIATION> 355
<TOTAL-ASSETS> 12,821
<CURRENT-LIABILITIES> 10,984
<BONDS> 1,774
<COMMON> 12
0
800
<OTHER-SE> (750)
<TOTAL-LIABILITY-AND-EQUITY> 12,821
<SALES> 0
<TOTAL-REVENUES> 8,343
<CGS> 0
<TOTAL-COSTS> 7979
<OTHER-EXPENSES> 590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1054
<INCOME-PRETAX> (1218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1218)
<DISCONTINUED> (250)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,468)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
