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, 1998
[ ] 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.)
8000 NORTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33487
(Address of principal executive offices)(Zip Code)
(561) 526-3300
(Issuer's telephone number, including area code)
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. [ ]
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Issuer's revenues for the 12 months ended December 31, 1998: $17,300,099.
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 1,
1999 $6,374,464.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 1999: 3,318,332 (one class).
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders which will be filed pursuant to
Regulation 14A not later than April 30, 1999
is incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format: Yes [ ] No [XX]
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TABLE OF CONTENTS
ITEMS PAGE
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PART I
ITEM 1. BUSINESS............................................................................................. 1
ITEM 2. PROPERTIES........................................................................................... 3
ITEM 3. LEGAL PROCEEDINGS.................................................................................... 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................. 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................ 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 6
ITEM 7 FINANCIAL STATEMENTS................................................................................. 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL DISCLOSURE.................... 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT EXECUTIVE OFFICERS AND DIRECTORS 12
ITEM 10. EXECUTIVE COMPENSATION ............................................................................ 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................... 12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................... 12
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K..................................................................... 12
SIGNATURES............................................................................................................... 15
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PART I
ITEM 1. BUSINESS
We underwrite, originate, and purchase sub-prime mortgage loans through
our wholly-owned subsidiary, Westmark Mortgage Corporation. Our sub-prime
mortgage loans are secured by single family, multi-family and condominium
residences. Sub-prime loans carry higher interest rates than conventional
mortgages because the individuals applying for them have impaired credit
histories, high levels of debt, or other sub-prime characteristics. This means
they cannot qualify for conventional, or prime loans. We pool these loans and
sell them to other companies.
We began marketing our sub-prime mortgage loan products in January
1995. In 1996, sub-prime loans accounted for approximately 54% of our loan
production compared to approximately 15% of our production in 1995. Sub-prime
loans accounted for over 95% of our loan production in 1997 and over 99% in
1998.
We are registered, exempt from registration, or licensed to originate,
purchase closed loans, underwrite, fund or sell residential mortgage loans in
Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan,
Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North
Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah and
Washington.
We do not service the mortgage loans we originate and purchase except
for occasional collection of the initial mortgage payment and a small number of
second mortgage loans for which there is a limited market. Instead, we pool and
sell mortgage loans on a "servicing released" basis to institutional investors.
These investors include Household Financial Services, Inc., Green Tree Financial
Corporation, First City Capital Corp., Conti Mortgage Corp. and The Associates.
We generally sell the mortgage loans within thirty days of origination or
purchase. The primary purchasers of our mortgage loans were Household Financial
Services and The Money Store, which purchased 74% of our loans in 1997, and 82%
in 1998. The Money Store, which accounted for 11% of our loan purchases in 1998,
stopped purchasing mortgage loans altogether in 1999. We have replaced the Money
Store with another investor. During 1998, Household Financial Services purchased
over 70% of the mortgage loans the Company sold. The capital to fund our new
loans and loan purchases comes mostly from institutional lenders under lines of
credit which allow us to "warehouse" loans until we can sell them to our
investors. Our primary lenders are First Union National Bank and Household
Financial Services, Inc.
Marketing
We market our products and services through outside account executives
based in local loan centers and inside account executives based in regional loan
centers. We have determined that outside account executives based near major
metropolitan markets can be highly effective because they can develop personal
relationships with potential broker clients. Our inside account executives
operating out of regional loan centers reduce our marketing costs in smaller
markets where loan sizes are generally smaller by concentrating on telephone
contacts.
Each of our outside account executives is responsible for cultivating
relationships face-to-face with brokers in a specific target market. A primary
goal of each of our outside account executives is to establish a base of 25 to
30 brokers as sources of repeat business. Our outside account executives review
existing loans and loan applications from their target market brokers. If a loan
or loan application appears to meet our underwriting criteria, the account
executive obtains the loan or mortgage application documentation and forwards it
to our underwriters.
Our inside account executives use telemarketing techniques to prospect
for desirable broker accounts in less densely populated areas. Brokers in these
areas send their loan and mortgage application submissions directly to the
appropriate loan center. In sparsely populated areas, we have found this process
to be more cost effective than traditional account executive visits.
We are considering creation of an internet web site for our existing
brokers and prospective brokers to contact us and do business with us.
Competition
We face 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 us. 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 profit realized by us and our
competitors on the sale of the type of loans we originate and purchase may
attract additional competitors. This additional competition could result in
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lower profits on our future loan sales. Competition may be affected by
fluctuations in interest rates and general economic conditions. During periods
of rising interest rates, competitors which have "locked in" low borrowing costs
on their warehouse lines of credit may have a competitive advantage. During
periods of declining rates, we lose some potential sub-prime mortgage customers
who become eligible for prime loans because of the lower payments. However,
during economic slowdowns or recessions, some borrowers who had been eligible
for prime mortgage loans experience financial difficulty and can only qualify
for sub-prime loans.
We depend primarily on independent mortgage brokers, financial
institutions and other mortgage bankers for our loan originations and purchases
of new loans. Our competitors also try to establish relationships with our
independent mortgage brokers, financial institutions and other mortgage bankers,
none of whom is obligated by contract or otherwise to continue to do business
with us.
We expect the volume of wholesale loans purchased by us to continue to
go up. We also expect purchased loans to represent an increasing percentage of
the total of our originated and purchased loans. If the competition from other
purchasers for these loans increases, we may have to adjust the prices we offer
to purchase them more often. If we are unable to adjust our prices rapidly
enough, the number of loans we purchase may be reduced. Even if we are able to
adjust our prices rapidly, the effect may be to reduce our profit margins on
these loan purchases.
Regulation
Our business is subject to extensive regulation, supervision and
licensing by Federal, state and local governmental authorities. Various laws and
judicial and administrative decisions also impose requirements and restrictions
on our operations. These rules and regulations, among other things, impose
licensing obligations on us, 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, rights of rescission for mortgage
loans, class action lawsuits and administrative enforcement actions.
Although we believe that we have systems and procedures to facilitate
compliance with these requirements and believe that we are 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.
Employees
As of December 31, 1998, we had 27 full-time administrative employees
and 138 full-time production and operations employees. To date, we have been
able to recruit and retain enough qualified personnel to meet our needs. None of
our employees are represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
Green World Sale
Effective July 1996, we acquired all of the issued and outstanding
capital stock of Green World Technologies, Inc., a provider of air conditioner
enhancement products, from GTB Company. GTB had recently acquired Green World
from Medical Industries of America, Inc., an affiliate of the Company. We
subsequently decided to focus our resources exclusively on our mortgage
operations. In December 1997, we divested substantially all of our interest in
Green World pursuant to an exchange agreement between us, GTB and Green World.
As a result of the Exchange Agreement, we have reduced our ownership interest in
Green World to Green World Series A Preferred Stock. The preferred stock
represents approximately 18.5% of Green World's capital stock on a fully diluted
basis. This 18.5% interest in Green World is reflected in our financial
statements as an investment in preferred stock. At the end of 1998, we wrote
down the value of our investment in Green World from $876,778 to $76,778.
Westmark - Medical Industries Agreement
On October 20, 1998, we executed an exchange agreement with our largest
equity and debt holder, Medical Industries of America, Inc., settling pending
litigation with Medical Industries and resolving all outstanding issues relating
to our stock and debt held by Medical Industries. The agreement supersedes all
prior agreements entered into between us and Medical Industries.
The agreement, among other things, provides for: (1) the conversion of
200,000 shares of Westmark Series C Convertible Preferred Stock ($3.50 stated
value per share) held by Medical Industries into 350,000 shares of our common
stock, at a conversion ratio of $2.00 per share - as a result, Medical
Industries now owns 683,458 shares of our common stock, or approximately 20.7%
of our 3.316 million shares of common stock outstanding at December 31, 1998;
(2) the issuance to Medical Industries of two-year warrants to buy 100,000
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shares of our common stock at $3.25 per share; (3) elimination of Medical
Industries' claim to a guaranteed 49% ownership interest in us; (4) satisfaction
of our Promissory Note payable to Medical Industries with a principal balance as
of September 30, 1998 of approximately $1,707,555 in exchange for the return by
us to Medical Industries of 172,750 shares of Medical Industries Series B
Convertible Preferred Stock with a $10.00 stated value per share, and payment of
$112,500 to Medical Industries; (6) our waiver of the right to payment of
approximately $350,000 of Medical Industries Series B Convertible Preferred
Stock accrued dividends, and waiver by Medical Industries of the right to
payment of approximately $179,000 of Westmark Series C Preferred Stock accrued
dividends.
The agreement provides us the right to repurchase our common stock held
by Medical Industries at varying prices. The agreement also provides for our
potential obligation to repurchase up to $666,667 of our stock at $5.73 per
share from Medical Industries, if our fully diluted earnings per share,
excluding non-recurring gains and losses, are less that $0.45 per share in the
first half of 1999 or less than $0.55 per share in the second half of 1999. This
potential obligation is secured by a contingency reserve fund and the 27,250
shares of Medical Industries Series B Convertible Preferred Stock we still own.
History
We were incorporated in Colorado in 1986 under the name Eagle Venture
Acquisitions, Inc. Until May 1990, we were not in the mortgage finance business.
In May 1990, we changed our name to Network Real Estate of California, Inc. We
then began providing a variety of real estate services through our 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, we changed our name to Network Financial Services, Inc.
From May 1990 through August 1993, we conducted substantially all of our
business operations through our subsidiary, Network Real Estate.
In August 1993, we 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 our mortgage servicing portfolio. In
September 1994, we sold our entire mortgage servicing portfolio to Crown Bank.
Pursuant to an April 1994 agreement, effective December 31, 1993, we
sold Network Real Estate to a former president of ours.
In April 1996, we combined our California and Florida operations
centers into one facility in Delray Beach, Florida, to increase efficiency and
lower overhead expenses. In August 1998, we moved our operations center to a
larger facility in Boca Raton, Florida. We continue to maintain satellite
offices in the following locations: Santa Ana, California; Downers Grove,
Illinois; Orlando, Florida; and Atlanta, Georgia.
ITEM 2. PROPERTIES
The Company maintains its executive and production offices in 27,000
square feet of leased space at 8000 North Federal Highway, Boca Raton, Florida
33487. Lease expense is $39,860 per month.
The Company also leases space for its satellite offices in Santa Ana,
California (4,819 square feet), Downers Grove, Illinois (1,100 square feet),
Orlando, Florida (400 square feet) and Atlanta, Georgia (6,215 square feet). The
total lease expense for these offices is approximately $16,178.80 per month
which is considered market.
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
County, California Superior Court, Case No. 95887. The plaintiff alleges fraud,
negligent misrepresentation, breach of fiduciary duty, negligence, quiet title,
RICO violations and conversion. The Company previously finalized a settlement
with defendants Raiche and Ryals, and causes of action against the remaining
defendants were dismissed. Defendants McCurdy and Moss Land Company initiated a
Cross-Complaint naming, among others, the Company as a Cross-Defendant. The
Cross-Complaint sought damages for breach of a stock option agreement, breach of
contract, and declaratory relief. The Company filed a Motion to Dismiss the
Cross-Complaint of Cross-Defendants Roger McCurdy and Moss Land Company. The
Cross-Complaint was dismissed on July 20, 1998 and a Judgment of Dismissal filed
on July 21, 1998. On September 18, 1998 the Cross-Defendants filed a Notice of
Appeal asserting that the lower court's dismissal of the Cross-Complaint was an
abuse of discretion. The appeal is pending. The Company does not anticipate any
liability with regard to this matter.
The Company was a defendant in AMBER CAPITAL CORPORATION, UNIVERSAL
SOLUTIONS, INC., PYRAMID HOLDINGS, INC. and AFFILIATED SERVICES, INC. VS.
WESTMARK GROUP HOLDINGS, INC., American Arbitration Case #33-199-00127-97-DO,
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filed June 10, 1997. A Settlement Agreement was entered into on August 25, 1998
pursuant to which the Company paid the Claimants $20,000 in cash and executed a
Promissory Note in favor of the Defendants in the principal amount of $100,000
payable in twelve (12) monthly installments commencing August 3, 1998. In
addition, the Company issued a "cashless" Warrant to the Defendants to purchase
up to 60,000 shares of the Company's common stock at a price of $3.00 per share.
The Warrant expires on May 25, 2000.
The Company was a defendant/appellee in CONWAY VS. DANNA ET AL filed in
Santa Clara County Superior Court No. CV 737589 in January of 1994. The Court
had ordered the action dismissed upon motion of the Company and three of the
original plaintiffs filed an appeal from the trial court order. On October 28,
1998, the Court of Appeal of the State of California, Sixth Appellate District,
affirmed the lower Court's ruling, dismissing the Plaintiff's action against the
Company. On January 20, 1999, the California Supreme Court dismissed the
Plaintiff's petition for review of the lower court's dismissal of the
Plaintiff's action against the Company.
The Company was a defendant in FAIRBANKS VS. WESTMARK MORTGAGE
CORPORATION, ET AL. filed on June 20, 1997 in Orange County, California Superior
Court Case #780765. Plaintiff was 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.
Counsel for the plaintiff has stated that the Company was erroneously joined as
a Defendant in the above action and has orally agreed to dismiss Westmark from
the law suit. 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. Although
negotiations are pending between the parties, discovery is ongoing and the
extent of the Company's liability, if any, cannot be ascertained until further
discovery has been completed.
The Company was a defendant in ECS INTERNATIONAL, INC. ("ECS") VS.
WESTMARK GROUP HOLDINGS, INC. filed in United States District Court, Eastern
District of California on March 5, 1998, Case # CIVS-98-0386 LKK PAN. The
Plaintiff contended Westmark was obligated to convert and/or redeem 35,000
shares of Series D preferred stock of the Company. On January 15, 1999, the
Company agreed to entry of a Stipulation and Order for Entry of Conditional
Dismissal pursuant to which the Company shall pay ECS the sum of $135,000
payable in twelve (12) equal monthly installments of $11,250 commencing January
15, 1999.
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 1995 through December 1998, totaling
$24,506.56. The agreement between the Company and the Debtor has been approved
by the Bankruptcy Court.
The Company is a defendant in BLACK V. MCCORKINDALE, ET AL. filed on
February 13, 1998 in Baldwin County, Alabama, Circuit Court Case #CV98-147. The
Company's wholly-owned subsidiary, Westmark Mortgage Corporation, was initially
named as a defendant in an action filed by Plaintiff alleging breach of
contract, fraud and emotional distress. The Plaintiff has filed a Motion to
Dismiss the Company.
The Company is a defendant in CROWN BANK VS. WESTMARK MORTGATE
CORPORATION filed on March 25, 1998 in the Circuit Court of Seminole County,
Florida, Case #199898625CA15A. Plaintiff alleges that Westmark is obligated to
repurchase multiple loans. Westmark has filed an Answer to the Complaint.
Discovery has not begun. The extent of the Company's liability, if any, cannot
be ascertained until discovery has been completed.
The Company is a defendant in IMPERIAL CREDIT INDUSTRIES, INC. VS.
WESTMARK MORTGAGE CORPORATION, American Arbitration Association Case
#804880004597X filed in Irvine, California on December 2, 1996. Plaintiff
alleges that Westmark Mortgage Corporation is obligated to repurchase various
loans. Discovery is ongoing but inconclusive with respect to the liability of
the Company.
The Company was a defendant in COUNTRYWIDE HOME LOANS VS. WESTMARK
MORTGAGE CORPORATION filed on May 19, 1998 in the Superior Court of Los Angeles
County, California, Case # GC021232. Plaintiff alleged that Westmark Mortgage
Corporation was obligated to repurchase various loans. A Settlement Agreement
was executed by the parties on December 14, 1998, pursuant to which the Company
will pay a total of $180,884 in installments of $15,073 per month commencing
January 10, 1999.
The Company is a defendant in RICHARD J. KRENN VS. WESTMARK GROUP
HOLDINGS, INC., filed in the Circuit Court in Palm Beach County, Florida, Case
#98-007190AN on August 12, 1998. The Plaintiff alleges that the Company
fraudulently induced plaintiff to enter into an employment contract and that the
Company subsequently breached the contract. The Company filed a Motion to
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Dismiss which was heard on October 16, 1998 and the Court granted the Motion to
Dismiss in part, dismissing all breach of contract related claims in the initial
Complaint. The Plaintiff filed an Amended Complaint alleging fraud in the
inducement and breach of contract. The Company has filed an Answer to the
Amended Complaint. The case is currently in discovery and we are unable to
determine the probable outcome at this time.
The Company is a defendant in WHITEHALL FINANCIAL SERVICES, INC. VS.
WESTMARK GROUP HOLDINGS, INC. filed on October 2, 1998 in the Circuit Court of
the Fifteenth Judicial District in Palm Beach County, Florida, Case #988770AD.
Plaintiff claims an entitlement to various shares of Preferred Stock of the
Company, convertibility rights with respect to the Preferred Stock, and
purported breach of contract by the Company with respect to a prior written
agreement between Plaintiff and the Company. The Company filed a Motion to
Dismiss on Plaintiff's complaint and the Motion to Dismiss was denied. The
Plaintiff filed an Amended Complaint. The Company has filed an Answer to the
Amended Complaint and a Counterclaim alleging Plaintiff breached the written
agreement between Plaintiff and the Company. The case is currently in discovery
and we are unable to determine the probable outcome of the suit at this time.
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
Our 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 shown below are 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, 1998 $3.25 $1.875
June 30, 1998 $4.438 $2.656
September 30, 1998 $3.625 $1.719
December 31, 1998 $3.125 $1.00
As of March 1, 1999, there were approximately 675 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.
We have never declared or paid any cash dividends. We currently intend
to retain any future earnings to finance the growth and development of our
business and future operations, and therefore do not anticipate paying any cash
dividends in the foreseeable future.
Issuance of Unregistered Securities
Between January 1 and August 31, 1998, the Company issued 100,000
shares of Series G Preferred Stock to MCA Financial Corp. in exchange for
$500,000, pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Between February 21 and June 30, 1998, the Company issued 512,930
shares of common stock to certain executives, directors and consultants of the
Company for $600,000 cash, $250,000 promissory notes, and in satisfaction of
$237,500 of performance bonuses, pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
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In April 1998, the Company issued First Union National Bank warrants to
purchase 146,979 shares of common stock at an exercise price of $2.50 per share,
which expire April 15, 2000, in consideration for an agreement entered into with
First Union for a secured $20 million revolving warehouse line of credit,
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In April 1998, the Company issued 2,587 shares of common stock to MCA
Financial Corporation in exchange for $9,167.26 of accrued dividends due on
Westmark Series G Preferred Stock, pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
In April 1998, the Company issued 5,399 shares of common stock to
Generation Capital in exchange for $14,683.25 of accrued dividends on the
Company's Series B Preferred Stock, pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
In May 1998, the Company issued 12,427 shares of common stock to Dr.
Eugene Snowden in exchange for $24,853 of debt, pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
In July 1998 the Company issued a warrant to purchase 60,000 of the
Company's common stock at an exercise price of $3.00 per share, expiring May 25,
2000, to Infusion Capital Investment Corp., in connection with the settlement of
AMBER CAPITAL CORPORATION, UNIVERSAL SOLUTIONS, INC., PYRAMID HOLDINGS, INC. AND
AFFILIATED SERVICES, INC. VS. WESTMARK GROUP HOLDINGS, INC., a lawsuit described
under Item 3 of this Form 10-KSB, pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
In August 1998, the Company issued 79,888 shares of common stock to
Generation Capital in exchange for $179,749 of debt, pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
In August 1998, the Company issued 4,060 shares of common stock to MCA
Financial Corporation in exchange for $9,103.20 of accrued dividends due on
Westmark Series G Preferred Stock, pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
In October 1998, in connection with the Exchange Agreement between the
Company and Medical Industries of America described under Item 1 of this Form
10-KSB, the Company issued 350,000 shares of common stock in exchange for
200,000 shares of Westmark Series C Convertible Preferred Stock, pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In November 1998, the Company issued 7,588 shares of common stock to
MCA Financial Corp in exchange for $11,697 in accrued dividends on the Company's
Series G Preferred Stock, pursuant to Section 4(2) of the Securities Act of
1933, as amended.
In November 1998, the Company issued 20,142 shares of common stock to
Dr. Eugene Snowden in exchange for the cashless exercise of a warrant to
purchase 97,838 shares of common stock at an exercise price of $2.25, pursuant
to Section 4(2) of the Securities Act of 1933, as amended.
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 in it that are not statements of
historical fact should be regarded forward-looking statements. For example, the
words "believes," "anticipates," "plans," and "expects" 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, those shown at the end
of this section 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 along with the Company's Financial Statements
listed in Item 7 and the Notes to them 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 81% and 79% of total revenues in 1997 and 1998, respectively.
Investment income earned on loans held for sale constituted 10% and 11% of total
revenues in 1997 and 1998, respectively. Loan origination fees and related
revenue represented 8% and 10% of total revenues in 1997 and 1998, respectively.
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The Company sells all of the loans it funds, generally within 30 days
of origination. The loans are sold through purchase agreements with Household
Financial Services, Green Tree Mortgage Services, Conti Mortgage Corp.,
Associates Home Equity Services, Inc., and various non-conforming mortgage
conduits. These agreements are for specific terms or are open ended, and require
the loans to satisfy the underwriting criteria described therein. During 1997
and 1998, the Company sold loans totaling $124 million and $276 million,
respectively. The Company does not retain the servicing rights for any of the
loans it sells, and sells all loans primarily in whole loan sales. The gain on
sale of loans was $6,735,709 and $13,592,080 in 1997 and 1998, respectively.
The Company does service a small portfolio of approximately $1,000,000
of second mortgage loans with an average loan amount of $40,000 and an average
age of one year. These loans were made mostly to high net worth individuals and
are secured by property with total mortgage loans of 100 to 125 per cent of the
appraised value. The Company intends to sell these loans.
Loans held for sale were comprised of 2% conforming prime loans and 98%
sub-prime loans at December 31, 1997 and 100% sub-prime loans at December 31,
1998. 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.
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 Company's borrowing cost. This
results in a positive revenue differential between cost to borrow (at the time
the loan funds) and the loan sale. However, 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.
The Company assigns credit grades to its sub-prime loans during the
underwriting process. These grades range from "A+" to "D". At December 31, 1998,
the credit grades assigned to mortgage loans held for sale was approximately 75%
"A+", "A" and "A-", 15% "B", 8% "C", and 2% "D". About 60% of these loans were
adjustable rate mortgages and 40% were fixed rate. The weighted average interest
rate of these loans was approximately 10.4%.
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 Boca Raton 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:
o 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);
o 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;
o 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;
o 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;
o and, 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.
See Notes to Consolidated Financial Statements of the Company (included
in Item 7) for further discussion of accounting policies and other significant
items.
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Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Total revenues increased 107% to $17,300,099 in 1998 from $8,342,506 in
1997. This increase was primarily due to the Company's increased ability to
acquire and sell non-conforming mortgages.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 102% to $13,592,080 in 1998 from $6,735,709 in 1997. This
increase was the result of increased sales volume and management's strategy to
concentrate on originating and selling non-conforming loans. The volume of
non-conforming loans acquired during 1998 was approximately $290 compared to
$128 million in 1997 and $41 million in 1996. Because of the Company's strategy
of selling loans prior to the first payment, management believes that there is
no greater substantive risk in originating non-conforming loans than conforming
loans.
Beginning in October 1998 margins on the sale of loans and the rate of
growth in the Company's whole loan sales were both reduced. This was the result
of many investors deciding to invest in more liquid securities with higher
yields. At the same time several investors who historically had acquired
mortgage loans for resale in credit enhanced and non-enhanced packages went out
of business or lost their funding sources. Since the October correction, the
Company has been able to maintain reduced margins and continue growing,
primarily because the investors purchasing a significant majority of the
Company's mortgages buy mortgages to hold for investment rather than resale. As
a result of this investment approach they are less concerned with liquidity and
have continued to purchase the Company's loans in the same or greater quantities
as during 1998, although at somewhat reduced premiums.
Loan origination fees increased 147% to $1,650,143 in 1998 from
$667,029 in 1997. This increase is primarily due to increased loan volume and
management adjusting the loan origination pricing structure to provide for an
increase in per loan origination fees. Initially, this change could reduce the
cash requirements at the time of loan funding.
Investment income, comprised primarily of interest earned on loans held
for sale, increased 133% to $1,881,755 in 1998 from $808,975 in 1997. This
increase is due primarily to more loan sales in 1998 as compared with 1997.
Total expenses increased 73% to $15,583,452 in 1998 from $9,032,329 in
1997. This increase is primarily due to (i) an increase in general and
administrative expenses and (ii) an increase in direct loan fees.
Direct loan fee expenses increased 299% to $4,154,060 in 1998 from
$1,041,631 in 1997, due primarily to the increase in loan volume, fees paid to
brokers and loan processing fees charged by the Company's warehouse lenders.
Interest expense increased 72% to $1,811,529 in 1998 from $1,053,671 in
1997, 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 79% to $9,127,825 in 1998
from $5,109,177 in 1997, due primarily to increased personnel costs as a result
of increased loan volume.
Depreciation and amortization expenses increased in 1998 to $252,538
from $160,497 in 1997, primarily due to increased purchases of computer hardware
and software, and leasehold improvements.
In 1998, the Company had net income of $1,186,718, compared to a net
loss of ($1,468,070) in 1997, resulting in net income per share of $0.37 in 1998
as compared with a net loss per share of ($1.06) in 1997.
Liquidity and Capital Resources
During 1997 and early 1998, the Company experienced certain significant
cash flow problems and did, from time to time, experience difficulties meeting
its obligations as they became due. In addition, the Company 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 had net income of $1,186,718 in 1998 and a net loss of
$1,468,070 in 1997, and as of December 31, 1998, the Company's consolidated
financial position reflects a working capital of $770,920. The Company was not
in compliance with a covenant relating to reporting of financial information
under one of its warehouse lines of credit. Subsequent to the year end, the
Company received a waiver of the covenant. We intend to fund our operations
during 1999 from our warehouse lines of credit and cash from operations.
During 1998, the Company provided for an estimated impairment of its
investment in preferred stock and in land of $800,000 and $110,000,
respectively, to adjust the investments to net realizable value. The Company
also recorded a loss of $349,945 in its settlement with Medical Industries of
America, Inc. In addition, the Company recorded a deferred tax asset on its
balance sheet of $1,275,000 to recognize an asset for estimated tax savings in
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the future as a result of net operating loss carry forwards. The income tax
benefit shown on the income statement of $710,784 is net of $32,000 of current
income tax expense, and does not include the reclassification to deferred tax
asset of the unamortized excess purchase price (goodwill) of $532,216 recorded
when the Company purchased Westmark Mortgage Corporation.
Year 2000 Compliance
Computer-based systems that utilize two digits rather than four digits
to define the applicable year may fail to properly recognize date sensitive
information when the year changes to 2000. The Company is in the process of
completing a comprehensive review of its computer-based systems to determine if
they will be affected by resulting Year 2000 related compliance issues, that is
whether those systems have Year 2000 related "computer bugs." So far this review
has revealed no material Year 2000 related compliance issues. Because the
Company has developed or purchased most of its computer hardware and software
systems within the last four years, it does not expect to be affected by Year
2000 issues because of computer-based systems installed before the problem was
recognized. Because most of the Company's systems are relatively new, we do not
expect to incur Year 2000 compliance related costs that would be material to it.
The Company is asking for confirmation from outside vendors, financial
institutions and others that they are Year 2000 compliant or that they are
developing and implementing plans to become Year 2000 compliant. However, there
is no assurance that these outside vendors, financial institutions and others
will timely resolve their own Year 2000 compliance issues or that any such
failure would not have an adverse effect on the Company. The Company is in the
process of completing contingency plans to assure the continuation of its
operations if these outside vendors, financial institutions or others fail to
timely resolve their own Year 2000 compliance issues. These contingency plans
will be completed by March 31, 1999. The Company believes it is devoting the
necessary resources to timely address all Year 2000 compliance issues over which
we have control
Certain Factors That May Affect Future Results
o We may make smaller and fewer loans if real estate values decline. If
real estate values go down significantly in a recession or for any other
reason, potential borrower's property would be worth less and the amount
they could borrow by mortgaging their property reduced. This means our
potential mortgage loans would be smaller. Additionally, fewer property
owners would qualify as borrowers. Existing loans would drop in value
because the value of the properties which secure them would go down.
Reductions in the size and value of our loans could have a material
adverse effect on us.
o We may suffer losses if the unemployment rate goes up. If unemployment
increases due to a recession or for any other reason, delinquencies and
foreclosure rates on our loans could go up. An increase in delinquency and
foreclosure rates could have a material adverse effect on us.
o We may suffer losses if interest rates rise. If sub-prime mortgage
interest rates go up significantly, potential sub-prime borrowers will
tend to make fewer and smaller loans. A material increase in sub-prime
mortgage interest rates resulting in fewer and smaller loans could have a
material adverse effect on us.
o We may not be able to renew or replace the warehouse lines of credit
that enable us to fund and purchase our mortgage loans. We depend on our
warehouse lines of credit to fund originations of new mortgage loans and
to purchase existing mortgage loans. If we are unable to renew any of our
warehouse lines of credit on similar terms or replace them with other
lenders on similar terms, we would have to reduce the number and size of
our loan originations and loan purchases, or earn a lower profit margin on
each loan we fund or purchase. A reduction in the number and size of our
loan originations and loan purchases, or a lower profit margin on loans we
fund or purchase because of higher borrowing rates on the money we borrow,
could have a material adverse effect on us.
o We may not be able to locate buyers for the resale of our sub-prime
loans, and we may not be able to earn a high profit margin from these
sales. We charge higher loan origination fees and higher mortgage interest
rates than conforming mortgage market lenders do because our sub-prime
borrowers have impaired credit histories, higher amounts of debt, or other
sub-prime characteristics. There is no guarantee that we will continue to
be able to find buyers for these loans or that the resale value of our
loans, compared to our cost of funding or purchasing those loans, will
continue to be as profitable as it is today. Our inability to find buyers
for our loans, or a fall in the resale value of our loans, could have a
material adverse effect on us.
o We may have to repurchase some of the loans that we sell. We promise some
of the buyers of our sub-prime loans that we will repurchase a loan if the
borrower commits fraud or fails to make the first payment on the loan. If
we were required to repurchase a significant number of loans, it could
have a material adverse effect on us.
o During the period of time after we purchase or originate a loan and
before we sell it, we are subject to interest rate and foreclosure risk.
While we are holding a loan pending its resale, the borrower could
default, requiring us to sell the property at a potential loss. During
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this period, there might be a rapid increase in mortgage interest rates
resulting in a decline in the value of our loans to potential purchasers.
A high incidence of foreclosures or rapid increases in interest rates
during this period could have a material adverse effect on us.
o The majority of our loans are purchased by two investors. In 1998, two
investors purchased approximately 82% of all the loans we sold. One of
those investors purchased over 70% of the loans we sold. The other
investor has stopped purchasing mortgage loans altogether. We have
replaced that investor with another investor. If the larger investor
stopped purchasing our loans, or materially decreased the number of loans
purchased from us, it could have a material adverse effect on us.
o We could incur significant liabilities or legal expenses as a result of
claims against us. In the ordinary course of doing business with us,
borrowers and private investors make claims against us and sue us. They
claim, for example, that our employees, officers, appraisers and other
agents are responsible for losses caused by breach of fiduciary duties,
misrepresentations, incomplete documents, or failure to comply with
applicable regulations. These claims could result in legal expenses or
judgments which could have a material adverse effect on us.
o We may experience a decline in our ability to fund or buy new mortgages
in a particular geographic region after a hurricane, tornado, or
earthquake. Natural disasters could cause increases in mortgage insurance
and homeowners' insurance rates. These rate increases could result in
fewer home sales and new mortgages. Structural damage to homes may also
cause higher regional delinquency and foreclosure rates. Extensive damage
from natural disasters to widespread areas, or areas with a high
concentration of our potential sub-prime borrowers, could have a material
adverse effect on us.
o We may not be able to retain our key executives. Our success depends upon
our senior management, particularly Mark Schaftlein, our President, Chief
Executive Officer and Chairman of the Board, Payton Story, III, the
President of our operating company, and Irving Bowen, our Chief Financial
Officer. Although we have entered into employment agreements with all
three, any one or all of them could nonetheless leave us. The loss of any
one of their services could have a material adverse affect on us.
o Computer-based systems that utilize two digits rather than four digits to
define the applicable year may fail to properly recognize date sensitive
information when the year changes to 2000. We are in the process of
completing a comprehensive review of our computer-based systems to
determine if they will be affected by resulting Year 2000 related
compliance issues, that is whether those systems have Year 2000 related
"computer bugs." So far this review has revealed no material Year 2000
related compliance issues. Because we have developed or purchased most of
our computer hardware and software systems within the last four years, we
do not expect to be affected by Year 2000 issues because of computer-based
systems installed before the problem was recognized. Because most of our
systems are relatively new, we do not expect to incur Year 2000 compliance
related costs that would be material to us. We are asking for confirmation
from outside vendors, financial institutions and others that they are Year
2000 compliant or that they are developing and implementing plans to
become Year 2000 compliant. However, there is no assurance that these
outside vendors, financial institutions and others will timely resolve
their own Year 2000 compliance issues or that any such failure would not
have an adverse effect on us. We are in the process of completing
contingency plans to assure the continuation of our operations if these
outside vendors, financial institutions or others fail to timely resolve
their own Year 2000 compliance issues. These contingency plans will be
completed by March 31, 1999. We believe we are devoting the necessary
resources to timely address all Year 2000 compliance issues over which we
have control.
o Members of Congress and government officials occasionally suggest
elimination of all or part of the mortgage interest deduction for federal
income tax purposes. Because many of our loans are made to borrowers for
consolidating consumer debt or financing consumer purchases, our
competitive advantage of tax deductible interest, when compared with other
sources of financing, could be eliminated or impaired if Congress actually
eliminated or restricted the mortgage interest deduction. Accordingly, the
reduction or elimination of the mortgage interest deduction could have a
material adverse effect on us.
o Our Certificate of Incorporation requires us to indemnify any of our
directors, officers, employees or agents for expenses incurred in actions,
suits or proceedings relating to us. This indemnification includes
attorneys' fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred. It applies if the director, officer, employee or
agent is named, or threatened to be named in any action, suit or
proceeding because he or she serves as a director, officer, employee or
agent of ours, or served or serves, at our request, as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
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ITEM 7. FINANCIAL STATEMENTS
Information with respect to this item is set forth in the "Index" to
Consolidated Financial Statements on Page F-1 through F-21.
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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 and the Company's 1997 Form 10-KSB filed on
March 31, 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 is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than April 30, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
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 (See Exhibit 2.1(a) to
Form 10-KSB filed with the Commission on March 31, 1998).
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).
2.1(c)* Exchange Agreement between the Company and Medical Industries of America, Inc. dated October 20,
1998. (See Exhibit 99.1 to Form 8-K filed with the Commission on November 9, 1998).
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. (See Exhibit
3.1(c) to Form 10-KSB filed with the Commission on March 31, 1998).
3.1(d)* Articles of Amendment to Articles of Incorporation of Network Real Estate of California, Inc. (See
Exhibit 3.1(d) to Form 10-KSB filed with the Commission on March 31, 1998).
3.1(e)* Articles of Amendment to Articles of Incorporation of Network Real Estate of California, Inc. (See
Exhibit 3.1(e) to Form 10-KSB filed with the Commission on March 31, 1998).
3.1(f)* Articles of Amendment to Articles of Incorporation of Network Real Estate of California, Inc. (See
Exhibit 3.1(f) to Form 10-KSB filed with the Commission on March 31, 1998).
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).
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3.1(h)* Articles of Amendment to Articles of Incorporation of Westmark Group Holdings, Inc. (See Exhibit 3.1(h)
to Form 10-KSB filed with the Commission on March 31, 1998).
3.2(a)* Certificate of Incorporation of Westmark Group Holdings, Inc.- Delaware (See Exhibit 3.2(a) to Form
10-KSB filed with the Commission on March 31, 1998).
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 (See Exhibit 3.3 to Form 10-KSB filed with the Commission on March 31, 1998).
4.1* Form of Specimen Common Stock Certificate (See Exhibit 4.1 to Form 10-KSB filed with the Commission
on March 31, 1998).
4.2* Series A Preferred Stock Designation (See Exhibit 4.2 to Form 10-KSB filed with the Commission on March
31, 1998).
4.3* Series B Preferred Stock Designation (See Exhibit 4.3 to Form 10-KSB filed with the Commission on March
31, 1998).
4.4* Series C Preferred Stock Designation (See Exhibit 4.4 to Form 10-KSB filed with the Commission on March
31, 1998).
4.5* Series D Preferred Stock Designation (See Exhibit 4.5 to Form 10-KSB filed with the Commission on March
31, 1998).
4.6* Series E Preferred Stock Designation (See Exhibit 4.6 to Form 10-KSB filed with the Commission on March
31, 1998).
4.7* Series F Preferred Stock Designation (See Exhibit 4.7 to Form 10-KSB filed with the Commission on March
31, 1998).
4.8 Series G Preferred Stock Designation.
10.1* Warehouse Credit and Security Agreement between the Company and Princap Mortgage Warehouse, Inc. dated
October 26, 1997 (See Exhibit 10.1 to Form 10-KSB filed with the Commission on March 31, 1998).
10.2* Warehouse and Security Agreement between the Company and TMS Mortgage, Inc. dated March 3, 1997 (See
Exhibit 10.2 to Form 10-KSB filed with the Commission on March 31, 1998).
10.3* Sales and Purchase Agreement between the Company and TMS Mortgage, Inc. dated March 25, 1995 (See
Exhibit 10.3 to Form 10-KSB filed with the Commission on March 31, 1998).
10.4* $5,000,000 Warehouse Line Revolving Credit Agreement between the Company and Household Financial
Services, Inc. dated April 7, 1997 (See Exhibit 10.4 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.5* Security and Collateral Agency Agreement between the Company and Household Financial Services, Inc.
dated April 7, 1997 (See Exhibit 10.5 to Form 10-KSB filed with the Commission on March 31, 1998).
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 (See Exhibit 10.6 to Form 10-KSB filed with the
Commission on March 31, 1998).
10.7* Continuing Loan Purchase Agreement between the Company and Household Financial Services, Inc. dated
February 26, 1996 (See Exhibit 10.7 to Form 10-KSB filed with the Commission on March 31, 1998).
10.8* Mortgage Warehousing and Security Agreement between the Company and Mortgage Corporation of America (See
Exhibit 10.8 to Form 10-KSB filed with the Commission on March 31, 1998).
10.9* Master Purchase Agreement between the Company and Mortgage Corporation of America dated June 2, 1997
(See Exhibit 10.9 to Form 10-KSB filed with the Commission on March 31, 1998).
10.10 Master Agreement for Sale and Purchase of Mortgages between the Company and Conti Mortgage Corporation
dated June 3, 1997.
10.11 Amendment to Master Agreement for Sale and Purchase of Mortgages between the Company and ContiMortgage
Corporation dated June 3, 1997.
10.12* Mortgage Loan Warehousing Agreement between the Company and First Union National Bank (See Exhibit 10.1
to Form 10-QSB filed with the Commission on May 14, 1998).
10.13* Security Agreement between the Company and First Union National Bank (See Exhibit 10.2 to Form 10-QSB
filed with the Commission on May 14, 1998).
10.14 Warehouse Line of Credit and Security Agreement between the Company and Republic Bank dated October 6,
1998.
10.15 Second Amendment to Credit Agreement, Second Amendment to Revolving Note and First Amendment to
Security Agreement between the Company and Household Financial Services, Inc. dated October 7, 1998.
10.16 Third Amendment to Credit Agreement and Second Amendment to Security Agreement between the Company and
Household Financial Services, Inc. dated February 4, 1999.
10.17* Mark Schaftlein Employment Agreement (See Exhibit 10.15 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.18* Mark Schaftlein Amendment to Employment Agreement (See Exhibit 10.16 to Form 10-KSB filed with the
Commission on March 31, 1998).
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10.19* Payton Story Employment Agreement (See Exhibit 10.17 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.20* Payton Story Amendment to Employment Agreement (See Exhibit 10.18 to Form 10-KSB filed with the
Commission on March 31, 1998).
10.21* Louis Resweber Director Agreement (See Exhibit 10.19 to Form 10-KSB filed with the Commission on March
31, 1998).
10.22* Louis Resweber Employment Agreement (See Exhibit 10.20 to Form 10-KSB filed with the Commission on March
31, 1998).
10.23* Irving Bowen Employment Agreement (See Exhibit 10.21 to Form 10-KSB filed with the Commission on March
31, 1998).
10.24* Harry Coolidge Amended and Restated Consulting Agreement (See Exhibit 10.22 to Form 10-KSB filed with
the Commission on March 31, 1998).
10.25* Harry Coolidge Amendment to Consulting Agreement (See Exhibit 10.23 to Form 10-KSB filed with the
Commission on March 31, 1998).
10.26* Harry Coolidge Second Amendment to Consulting Agreement (See Exhibit 10.24 to Form 10-KSB filed with the
Commission on March 31, 1998).
10.27 Amendment to Employment Agreement of Mark Schaftlein dated March 31, 1998.
10.28 Amendment to Employment Agreement of Payton Story III dated March 31, 1998.
10.29 Amendment to Employment Agreement of Louis Resweber dated March 31, 1998.
10.30 Amendment to Employment Agreement of Irving H. Bowen dated March 31, 1998.
10.31 Amendment to Consulting Agreement of Harry Coolidge dated March 31, 1998.
10.32 Stock Purchase Agreement between the Company and Mark Schaftlein.
10.33 Stock Purchase Agreement between the Company and Payton Story, III.
10.34 Stock Purchase Agreement between the Company and Irving Bowen.
10.35* Form of Indemnification Agreement between the Company and each of its Directors (See Exhibit 10.1 to
Form 8-K filed with the Commission on November 9, 1998).
10.36* 1990 Non-Qualified Stock Option Plan (See Exhibit 10.25 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.37* 1993 Non-Qualified Stock Option Plan (See Exhibit 10.26 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.38* 1994 Non-Qualified Stock Option Plan (See Exhibit 10.27 to Form 10-KSB filed with the Commission on
March 31, 1998).
10.39* Settlement Agreement between the Company and Medical Industries of America, Inc. dated January 23, 1997
(See Exhibit 10.30* to Form 10-KSB filed with the Commission on March 31, 1998).
10.40* Modification to Settlement Agreement between the Company.
and Medical Industries of America, Inc. dated March 31, 1997(See Exhibit 10.31 to Form 10-KSB filed
with the Commission on March 31, 1998).
10.41* Amendment to Modified Settlement Agreement between the Company and Medical Industries of America dated
June 26, 1997 (See Exhibit 10.32 to Form 10-KSB filed with the Commission on March 31, 1998).
10.42* Revised Settlement Agreement between the Company and Medical Industries of America, Inc. (See Exhibit
10.33 to Form 10-KSB filed with the Commission on March 31, 1998).
10.43* Settlement Agreement and Mutual Release of All Claims between the Company and Harden dated November 3,
1997(See Exhibit 10.34 to Form 10-KSB filed with the Commission on March 31, 1998).
10.44* Settlement Agreement by and among the Company and Michael Morrell and Linda Moore dated January 23, 1997
(See Exhibit 10.35 to Form 10-KSB filed with the Commission on March 31, 1998).
10.45* Amendment to Settlement Agreement by and among the Company and Michael Morrell and Linda Moore dated
November 19, 1997 (See Exhibit 10.36 to Form 10-KSB filed with the Commission on March 31, 1998).
10.46 Green Tree Mortgage Services Correspondent Agreement between Westmark Mortgage Corporation and Green
Tree Financial Corporation, dated May 21, 1997.
10.47 Master Purchase and Sale Agreement between Westmark Mortgage Corporation and FC Capital Corporation,
dated November 2, 1998.
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 (See Exhibit 21.1 to Form 10-KSB filed with the Commission on March 31, 1998).
23.1 Consent of Rachlin Cohen & Holtz, LLP.
27.1 Financial Data Schedule.
</TABLE>
* 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.
14
<PAGE>
(b) REPORTS ON FORM 8-K
Form 8-K filed on January 6, 1998 reported the change of the Company's
Certifying Account
Form 8-K filed on November 9, 1998 reported the following items: (1) the Company
entering into an Indemnification Agreement with each of its Directors; and (2)
the Company executing an Exchange Agreement with Medical Industries of America,
Inc.
15
<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>
<S> <C>
WESTMARK GROUP HOLDINGS, INC.
(Registrant)
Date: March 29, 1999 By: /s/ Mark Schaftlein
-----------------------
Mark Schaftlein
President, Chief Executive Officer and
Chairman of the Board of Directors
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.
SIGNATURE TITLE DATE
/s/ MARK SCHAFTLEIN President, Chief Executive March 29, 1999
- -------------------
Mark Schaftlein Officer and Chairman of the Board
of Directors (Principal Executive Officer)
/S/ IRVING BOWEN Treasurer, Chief Financial March 29, 1999
Irving Bowen Officer and Director (Principal
Financial Officer and
Accounting Officer)
/S/ PAYTON STORY, III Director March 29, 1999
- ---------------------
Payton Story, III
/S/ LOUIS RESWEBER Director March 29, 1999
Louis Resweber
/S/ ALLAN C. SORENSEN Outside Director March 29, 1999
- ---------------------
Allan C. Sorensen
/S/ JOHN O. HOPKINS Outside Director March 29, 1999
- -------------------
John O. Hopkins
16
</TABLE>
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Stockholders' Equity F4 - F-5
Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-21
<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, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westmark Group
Holdings, Inc. and Subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
March 19, 1999
F-1
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current Assets:
Cash and cash equivalents $ 7,111,373
Accounts receivable 1,259,252
Mortgage loans held for sale 21,741,557
Deferred tax asset 1,275,000
-----------
Total current assets 31,387,182
Property and Equipment 578,382
Investments in Preferred Stock 349,028
Investments in Real Estate 511,500
Other Assets 315,982
-----------
Total assets $33,142,074
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Warehouse lines of credit $29,006,951
Notes payable and current maturities of capital leases 304,525
Settlements payable 309,746
Accounts payable 723,765
Accrued liabilities 221,775
Income taxes payable 32,000
Dividends payable 17,500
-----------
Total current liabilities 30,616,262
-----------
Long-Term Portion of Capital Lease Obligations 39,749
-----------
Commitments, Contingencies, Subsequent Event and Other Matters -
Stockholders' Equity:
Preferred stock $.001 par value; 10,000,000 shares authorized;
150,005 shares issued and outstanding; stated at liquidation value 600,010
Common stock, $0.005 par value; 15,000,000 shares authorized;
3,315,824 shares issued and outstanding 16,579
Additional paid-in capital 29,293,091
Deficit (27,173,617)
Stock subscription receivable (250,000)
-----------
Total stockholders' equity 2,486,063
-----------
Total liabilities and stockholders' equity $33,142,074
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Gain on sale of loans $13,592,080 $ 6,735,709
Loan origination fees 1,650,143 667,029
Interest income 1,881,755 808,975
Other income 176,121 130,793
----------- -----------
17,300,099 8,342,506
----------- -----------
Costs and Expenses:
Direct loan fees 4,154,060 1,041,631
Interest expense (warehouse interest $1,773,048 and $783,697) 1,811,529 1,053,671
General and administrative 9,127,825 5,109,177
Common stock issued for services 237,500 1,667,353
Depreciation 153,622 69,824
Amortization 98,916 90,673
----------- -----------
15,583,452 9,032,329
----------- -----------
Income (Loss) from Operations 1,716,647 (689,823)
----------- -----------
Other Income (Expense):
Dividend income 105,000 140,000
Provision for estimated impairment in value of investment in preferred stock (800,000) -
Provision for estimated impairment in value of investment in land (110,000) (590,000)
Loss arising from exchange agreement with MIOA (349,945) -
Other (85,768) 68,978
----------- -----------
(1,240,713) (381,022)
----------- -----------
Income (Loss) from Continuing Operations Before Income Taxes 475,934 (1,070,845)
Income Tax Expense (Benefit) (710,784) 147,000
----------- -----------
Income (Loss) from Continuing Operations 1,186,718 (1,217,845)
----------- -----------
Discontinued Operations:
Loss on disposal of subsidiary, net of tax effect of $147,000 - (250,225)
----------- -----------
Net Income (Loss) $ 1,186,718 $(1,468,070)
=========== ===========
Earnings (Loss) Per Common Share:
Basic:
From continuing operations $ 0.37 $ (0.89)
From discontinued operations - (0.17)
----------- -----------
Net Income (Loss) $ 0.37 $ (1.06)
=========== ===========
Diluted:
From continuing operations $ 0.37
From discontinued operations -
-----------
Net Income (Loss) $ 0.37
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- -------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 780,000 $3,250,000 966,600 $ 4,833
Year Ended December 31, 1997:
Conversion of Series A preferred shares including cumulative
dividends to common stock (100,000) (400,000) 197,800 989
Conversion of Series B preferred shares including cumulative
dividends to common stock (249,995) (499,990) 345,264 1,726
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
Conversion of callable preferred stock into common stock - - 30,000 150
Cumulative preferred dividends - - - -
Issuance of common stock for services and debt conversions - - 680,822 3,404
Sale of common stock - - 131,669 658
Amortization of unearned shares - - - -
Net loss - - - -
-------- --------- --------- -------
Balance, December 31, 1997 250,005 $ 800,010 2,389,655 $11,948
======== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Additional Other
Paid-In Equity
Capital Reductions Deficit Total
------- ---------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $24,801,364 $(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 444,011 - - $ 45,000
Conversion of Series B preferred shares including cumulative
dividends to common stock 564,803 - - 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. 74,812 - - (1,225,000)
Conversion of callable preferred stock into common stock 74,850 - - 75,000
Cumulative preferred dividends - - (122,198) (122,198)
Issuance of common stock for services and debt conversions 1,192,993 - - 1,196,397
Sale of common stock 343,198 - - 343,856
Amortization of unearned shares - 1,200,254 - 1,200,254
Net loss - - (1,468,070) (1,468,070)
----------- ----------- ------------- ----------
Balance, December 31, 1997 $27,496,031 $ - $(28,245,684) $ 62,305
=========== =========== ============= ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 250,005 $ 800,010 2,389,655 $11,948
Year Ended December 31, 1998:
Conversion of Series C preferred shares to common stock (200,000) (700,000) 350,000 1,750
Sale of Series G preferred shares and conversion of
common stock into Series G preferred stock 100,000 500,000 (48,624) (243)
Sale of common stock to management - - 400,000 2,000
Conversion of debt into common stock - - 92,315 469
Cumulative preferred dividends - - - -
Payment of dividend in common stock - - 19,634 98
Issuance of common stock for management bonus - - 112,930 558
Cancellation of stock - - (20,228) (102)
Exercise of cashless warrant - - 20,142 101
Net income - - - -
-------- --------- --------- -------
Balance, December 31, 1998 150,005 $ 600,010 3,315,824 $16,579
======== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Additional Stock
Paid-In Subscriptions
Capital Receivable Deficit Total
------- ------------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $27,496,031 $ - $(28,245,684) $ 62,305
Year Ended December 31, 1998:
Conversion of Series C preferred shares to common stock 698,250 - - -
Sale of Series G preferred shares and conversion of
common stock into Series G preferred stock (193,613) - - 306,144
Sale of common stock to management 848,000 (250,000) - 600,000
Conversion of debt into common stock 206,971 - - 207,440
Cumulative preferred dividends - - (70,000) (70,000)
Payment of dividend in common stock 44,553 - (44,651) -
Issuance of common stock for management bonus 236,942 - - 237,500
Cancellation of stock (43,942) - - (44,044)
Exercise of cashless warrant (101) - - -
Net income - - 1,186,718 1,186,718
----------- ---------- ------------ ----------
Balance, December 31, 1998 $29,293,091 $ (250,000) $(27,173,617) $2,486,063
=========== ========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ( loss) $ 1,186,718 $(1,468,070)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 153,622 69,824
Amortization 98,916 90,673
Deferred income taxes (742,784) -
Common stock issued for services 237,500 1,667,353
Loss on disposal of assets 105,877 397,225
Impairment in value of investment in land and preferred stock 910,000 590,000
Loss on exchange agreement with MIOA 349,945 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,234,102) -
Mortgage loans held for sale (13,978,333) (2,793,181)
Other assets (144,145) (441,547)
Increase (decrease) in:
Accounts payable 238,144 (1,159,792)
Accrued liabilities (137,512) (272,262)
Settlements payable (424,233) 326,419
Warehouse lines of credit 21,273,459 2,985,471
Income taxes payable 32,000 -
----------- -----------
Net cash provided (used) by operating activities 7,925,072 (7,887)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment (576,373) (115,015)
Proceeds from sale of buildings 394,078 -
Investment in intangible assets (171,837) -
----------- -----------
Net cash used by investing activities (354,132) (115,015)
----------- -----------
Cash Flows from Financing Activities:
Sale of Series G preferred stock 306,144 -
Proceeds from issuance of notes payable 346,311 152,238
Payments on debt (1,812,032) (291,715)
Sale of common stock 600,000 343,856
----------- -----------
Net cash (used) provided by financing activities (559,577) 204,379
----------- -----------
Net Increase in Cash and Cash Equivalents 7,011,363 81,477
Cash and Cash Equivalents, Beginning 100,010 18,533
----------- -----------
Cash and Cash Equivalents, Ending $ 7,111,373 $ 100,010
=========== ===========
Supplemental Disclosures:
Cash paid for interest $ 1,654,348 $ 986,284
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Westmark Group Holdings, Inc. ("the Company"), through its
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 outside the
conforming guidelines).
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. This stock split has been given retroactive effect in these
consolidated financial statements.
The Company has established and has issued and has outstanding the
following shares of Preferred Stock Series:
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, not to exceed $1.35 per share.
Series G, $5.00 stated value, 10% cumulative, convertible,
100,000 shares authorized, issued and outstanding. Convertible
into 123,212 shares of common stock.
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.
F-7
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. No allowance for market losses on mortgage loans held
for sale at December 31, 1998 was considered necessary.
Property and Equipment
Property and equipment are stated at cost and depreciated 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. Gain
or loss on disposition of assets is recognized currently.
Cost in Excess of Net Assets Acquired
Cost in excess of assets purchased ("goodwill"), which represents
the excess purchase price over the fair value of net assets
acquired, was amortized on a straight-line basis over a ten-year
period. As of December 31, 1998 pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the
carrying value of goodwill has been reduced to zero as a result of
recognizing tax benefits relating to net operating loss
carryforwards existing at the time of the acquisition. (See
Note 12)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents,
accounts receivable, 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.
At December 31, 1998, the Company had deposits in excess of
federally insured limits of approximately $11,560,000. The Company
maintains its cash with high quality financial institutions which
the Company believes limits these risks.
Accounts receivable arise from net fees receivable from title
companies for closed loans, interest receivable on mortgage loans
held for sale, and the sale of mortgage loans to investors where
payment in full has not been received as of the date of these
consolidated financial statements. The Company believes risk is
limited by the quality of the investors (see Note 15) and the
short-term nature of the receivables.
F-8
<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 (Continued)
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 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 valuation allowance for deferred tax assets, 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 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.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
incurred for the years ended December 31, 1998 and 1997 were not
material.
Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments
include cash, accounts receivable, mortgage loans held for sale,
warehouse lines of credit, debt and capital leases, and accounts
and settlements payable. Fair values were assumed to approximate
carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair
values or they are receivable or payable on demand.
F-9
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying
comprehensive income, its components, and accumulated balances.
SFAS No. 131 establishes standards for the way that public
companies report information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to
the public. Both SFAS No. 130 and SFAS No. 131 are effective for
periods beginning after December 15, 1997. The Company adopted
these new accounting standards in 1998, and their adoption had no
effect on the Company's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
Reclassifications
Certain reclassifications have been made to the 1997 consolidated
financial statements to conform to the 1998 presentation.
NOTE 2. PROPERTY AND EQUIPMENT
Equipment and furniture $1,050,807
Less accumulated depreciation 472,425
-------------
$ 578,382
=============
F-10
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. PROPERTY AND EQUIPMENT (Continued)
During 1998, the Company relocated the headquarters of the Company and
sold the buildings it previously occupied. These sales resulted in a
net loss to the Company of approximately $106,000.
In 1998, the Company incurred a capital lease obligation of $58,026 in
connection with the purchase of furniture and equipment.
NOTE 3. EXCHANGE AGREEMENT - MEDICAL INDUSTRIES OF AMERICA, INC.
As of December 31, 1997, the Company owned 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 4).
Additionally, MIOA had an equity investment in the Company, as well as
having advanced the Company funds in exchange for promissory notes.
MIOA owned 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 had a $3.50 per share stated value, earned a 10%
cumulative dividend, and was 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.
The Company and MIOA disputed certain rights and obligations under the
various agreements that existed between the Companies and as a result,
in October 1998, all disputes between the Company and MIOA were
resolved pursuant to an exchange agreement which provided the
following:
A promissory note of approximately $1,707,555 due to MIOA by the
Company was satisfied in full with the assignment back to MIOA of
172,750 shares of Series B MIOA preferred stock and $112,500 in
cash;
The 200,000 shares of the Company's Series C preferred stock owned
by MIOA was converted into 350,000 shares of common stock;
Required payment of accrued but unpaid dividends receivable and
payable was waived;
MIOA received a warrant to purchase 100,000 shares of Company
common stock for $3.25 per share which expires September 30, 2000;
The Company agreed to repurchase up to $1 million dollars of common
stock owned by MIOA at prices ranging from $4.82 to $5.73 per share
if diluted earnings per share criteria, as defined by the
agreement, are not attained. As of December 31, 1998, the Company
has met the criteria, as defined, and no obligation to repurchase
currently exists. The potential obligation to repurchase Company
common stock is secured by a contingency reserve fund and the
shares of Series B preferred MIOA stock held by the Company (see
Note 4). The contingency reserve is held in a short-term
certificate of deposit in the amount of $200,000, which is included
in cash and cash equivalents in these consolidated financial
statements.
F-11
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. EXCHANGE AGREEMENT - MEDICAL INDUSTRIES OF AMERICA, INC. (Continued)
The Company has the right, but not the obligation, to repurchase all
Company common stock owned by MIOA at $5.73 per share, subject to
certain restrictions contained in the agreement.
As a result of this transaction, the Company recorded a loss of
$349,945, which is presented in the statement of operations as "loss
arising from exchange agreement with MIOA."
NOTE 4. INVESTMENTS IN PREFERRED STOCK
Medical Industries of America, Inc.
Subsequent to the recording of the above described exchange
agreement, the Company is the owner of 27,250 shares of Medical
Industries of America, Inc. ("MIOA") convertible, redeemable,
non-voting Series B preferred stock (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
$272,250, 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 1998 or
1997.
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").
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 retained Green World Series A Preferred
Stock representing approximately 18.5% of the capital stock of
Green World on a fully diluted basis and at December 31, 1997, had
an obligation to pay Green World, pursuant to a promissory note,
$380,000. This obligation was paid in full during 1998.
F-12
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN PREFERRED STOCK (Continued)
Green World Technologies, Inc. (Continued)
The Series A cumulative, voting, preferred stock earns a dividend
of 7%, is convertible into common stock of Green World on 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 stated at a net carrying amount of
approximately $76,000, which is net of an estimated impairment of
value of $800,000.
NOTE 5. INVESTMENTS 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 $110,000 and
$590,000 in 1998 and 1997, respectively, for an estimated impairment in
value, to an estimated fair market value of $300,000 at December 31,
1998.
The Company also acquired properties in settlement of loan repurchases
due to foreclosure. The two properties are recorded at the unpaid
principal balance of the loans of $211,500, which is considered to be
lower than the estimated fair value as determined by an appraisal.
NOTE 6. ACQUISITIONS OF ASSETS AND ASSEMBLED WORKFORCE
Prestige Financial Services
In October 1998, the Company acquired selected property and
equipment, a covenant not to compete, and an assembled workforce
from a competitor, Prestige Financial Services Corporation for a
total of approximately $172,000 which was paid in a series of
payments. As of December 31, 1998, $111,000 remained to be paid in
1999, which is included in accrued liabilities in the accompanying
consolidated financial statements. The purchase price was allocated
as follows:
Assembled workforce $121,400
Covenant not to compete 40,600
Property and equipment 10,000
--------
$172,000
========
The covenant not to compete is being amortized over the term of the
agreement, one year. The assembled workforce is being amortized over
three years. Both of these assets, net of amortization are included in
other assets.
F-13
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. ACQUISITIONS OF ASSETS AND ASSEMBLED WORKFORCE (Continued)
Credit Depot Corporation
In December, 1998, the Company entered into an Employee Solicitation
and Loan Funding Agreement with a competitor, Credit Depot Corporation
("CD"). Pursuant to the agreement, the Company had the right for a
period of thirty days, to solicit certain of CD's employees for
employment with the Company. The Company agreed to pay CD 1% of the
principal amount of all mortgage loans originated by each hired CD
employee, which are closed and funded, for a period of one year.
During December 1998, the Company incurred a liability pursuant to this
agreement to CD of approximately $28,000, which was paid in January
1999.
NOTE 7. WAREHOUSE LINES OF CREDIT
The Company has warehouse agreements with six lending institutions. The
lines of credit vary from $2 to $20 million per lender, totaling $56.5
million. The lines are fully collateralized by the assignment and
pledge of funded mortgage loans. Interest on the lines vary from a high
of 2% above the prime rate of interest to a low of 1.25% above the
Federal Funds rate or 1.125% above the one month LIBOR rate. The
warehouse agreements have certain loan covenants which require the
Company to maintain certain minimum financial and operating
requirements. The Company was not in compliance with a covenant to
report certain financial information at December 31, 1998, and,
subsequently, received a waiver from the warehouse lender.
In connection with a $20 million warehouse line secured during 1998,
the Company issued warrants to purchase 146,979 shares of the Company's
common stock for $2.50 per share. The warrants, expire April 15, 2000
and have not been recorded in these financial statements, due to the
fact that the exercise price, when the warrants were granted, exceeded
the market value of the common stock.
NOTE 8. SETTLEMENTS PAYABLE
The Company has negotiated settlement agreements allowing extended
monthly payments with various creditors totaling approximately $171,000
in 1998 and $734,000 in 1997. These agreements resolve prior defaults
and unsatisfied judgments for amounts past due. In addition, during
1997 the Company had negotiated several settlement agreements with
creditors to settle outstanding obligations through the issuance of
stock. As of December 31, 1998 monthly payments pursuant to these
settlements approximate $34,000.
F-14
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
NOTE 9. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<S> <C>
Unsecured demand notes payable with interest at 10% $ 36,286
Unsecured notes payable, interest at 15% due June 30, 1999 160,000
Unsecured note payable due in monthly payments, including interest at 10% through
December 31, 1999. 65,239
Note payable, with interest at 12% per annum, due June, 1999 11,311
Unsecured notes payable, interest at 10%, due and paid January, 1999 13,412
---------
Total notes payable 286,248
Current maturities of capital lease obligations 18,277
---------
$304,525
=========
</TABLE>
Capital Leases
The Company is obligated under a lease for equipment through the
year 2001. Future minimum capital lease payments at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31:
1999 $21,050
2000 21,050
2001 21,049
--------
Total minimum lease payments 63,149
Less amount representing interest 5,123
--------
Present value of net minimum capital lease payments 58,026
Less current maturities 18,277
--------
$39,749
========
</TABLE>
NOTE 10. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Litigation
The Company is involved in certain 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.
F-15
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (Continued)
Employment Agreements (Continued)
The aggregate commitment for future salaries at December 31, 1998,
excluding bonuses, are as follows:
Year Ending December 31:
1990 $ 650,000
2000 217,000
-----------
Total $ 867,000
===========
Operating Leases
The Company leases certain of its facilities and equipment under
operating leases. The leases, which expire at various dates through
June 2008, require monthly payments of approximately $65,000. 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:
Year Ending December 31:
1999 $ 796,000
2000 797,000
2001 712,000
2002 639,000
2003 620,000
-----------
Total $3,564,000
===========
Rent expense was approximately $210,000 and $200,000 for 1998 and
1997, 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.
Purchase of Building from Related Party
During 1997, the Company acquired a building from a related party
in exchange for cash of $29,000 and mortgages of $306,000. This
building was sold in 1998.
F-16
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. STOCK OPTION PLAN AND WARRANTS
Stock Option Plan
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 900,000 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, 1998, a total of 527,500 options have been
granted pursuant to this Plan. All the options have an exercise
price which was at least equal to market value at the date of
grant. All options have an expiration date of June 30, 2004.
<TABLE>
<CAPTION>
Weighted Weighted
1998 Average 1997 Average
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Beginning Balance 563,383 $2.94 38,583 $9.10
Options granted 10,000 $2.50 525,600 $2.50
Options exercised - - - -
Options canceled (45,883) $9.02 (800) $10
------- ---------
Ending Balance 527,500 $2.50 563,383 $2.94
======= =========
</TABLE>
Stock-Based Compensation
The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the
excess of the estimated market price of the Company's common stock
at the date of grant, over the amount the recipient must pay to
acquire the common stock.
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting
and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company
has elected to retain its current method of accounting as described
above, and has adopted the disclosure requirements of SFAS No. 123.
Warrants
Warrants have been issued to officers and employees of the Company
providing for the issuance of up to 68,000 shares of common stock
at an exercise price of $2.50 per share. The warrants expire on
various dates through January 2003.
Warrants have been issued to non-employees to purchase a total of
814,472 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.
F-17
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. STOCK OPTION PLAN AND WARRANTS (Continued)
Fair Value Disclosures
Had compensation cost for the plan been determined based on the
fair value at the grant date consistent with SFAS No. 123, the
Company's net earnings would have been as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Income (Loss):
As Reported $ 1,186,718 $ (1,468,070)
============= =============
Pro Forma $ 311,280 $ (2,052,350)
============= =============
Earnings (Loss) Per Share:
Basic:
As Reported $ .37 $ (1.06)
============= ==============
Pro Forma $ .11 $ (1.36)
============= ==============
Diluted:
As Reported $ .37
=============
Pro Forma $ .10
=============
</TABLE>
The Company used the Black-Scholes option pricing model to
determine the fair value of grants made in 1998 and 1997. The
following assumptions were applied in determining the pro forma
compensation cost:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk Free Interest Rate 6.0% 6.0%
Expected Dividend Yield -0- -0-
Expected Option Life 2-3 years 2-3 years
Expected Stock Price Volatility 65% 65%
</TABLE>
NOTE 12. INCOME TAXES
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Current:
Federal $ 32,000 $ -
----------- ------------
Deferred:
Federal (683,784) -
State (59,000) -
------------ ------------
(742,784) -
----------- ------------
Income tax benefit $(710,784) $ -
=========== ============
</TABLE>
F-18
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. INCOME TAXES (Continued)
The following table reconciles the income tax provision (benefit) at
the U.S. Statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Taxes (benefit) computed at 37% $439,086 $(543,186)
Discontinued operations - 147,000
Net operating loss carryforward (439,086) -
Valuation allowance (742,784) 543,186
Alternative minimum taxes 32,000 -
--------- ------------
Income tax provision (benefit) $(710,784) $147,000
========= ============
</TABLE>
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, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Benefit of net operating loss carryforwards $3,670,000
Less valuation allowance 2,395,000
------------
Net deferred tax asset $1,275,000
============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
and capital loss carryforwards for federal income tax purposes of
approximately $10,000,000 and $120,000 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 income tax return limitations.
As of December 31, 1998, sufficient uncertainty exists regarding the
realizability of the full amount of these operating loss carryforwards,
and accordingly, a valuation allowance of $2,395,000 has been
established. The remaining deferred tax asset of $1,275,000 relates to
management's assertion that the profitable operations of the Company
will continue for at least the next two years. During 1998, the
carrying value of goodwill has been reduced by approximately $532,000
relating to the reduction in the valuation allowance in connection with
the net operating loss carryforward of the subsidiary in existence at
the time of acquisition.
The valuation allowance for deferred tax assets as of December 31, 1998
and 1997 was $2,395,000 and $4,700,000, respectively. The net change in
valuation allowance for the years ended December 31, 1998 and 1997 was
a decrease of $2,305,000 and $4,193,000, respectively.
F-19
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. INCOME TAXES (Continued)
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 $5,000,000 of the
net operating loss carryforward existing as of December 31, 1998. 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 13. EARNINGS (LOSS) PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS
128 provides for the calculation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share assumes exercising warrants and options granted and
convertible preferred stock and debt. Earnings per share is computed by
dividing income available to common stockholders by the basic and
diluted weighted average number of common shares. Diluted loss for 1997
is not presented, as the effect of the conversion is anti-dilutive.
<TABLE>
<CAPTION>
Weighted Average
Number of Shares
Years Ended December 31, Basic Diluted
------------------------ ----- -------
<S> <C> <C> <C>
1997 1,506,204
1998 2,891,820 3,229,314
Income (Loss) Available to Common Stockholders
----------------------------------------------
1998 1997
---- ----
Basic:
Net income (loss) $1,186,718 $(1,468,070)
Cumulative preferred stock dividend (114,651) (122,198)
----------- -----------
Basic earnings (loss) available to common stockholders 1,072,067 $(1,590,268)
----------- ===========
Diluted:
Cumulative preferred stock dividend 114,651
Interest on convertible debt 13,448
-----------
Diluted earnings available to common stockholders $1,200,166
===========
</TABLE>
F-20
<PAGE>
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. 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 satisfy the underwriting criteria described
therein. During 1998 and 1997, the Company sold loans totaling $276
million and $124 million, respectively. The Company does not retain
servicing rights on any of the loans it sells in whole loan sales. Two
investors represented 82% of the outstanding loans sold during 1998,
and two investors represented 74% of the outstanding loans sold during
1997.
NOTE 16. SUBSEQUENT EVENT
In January 1999, the Company agreed to settle some pending litigation
filed by ECS International, Inc. ("ECS"), rather than incur the costs
involved in pursuing the litigation. The Company is obligated to pay
ECS $135,000, payable in twelve equal monthly installments of $11,250
commencing January 15, 1999.
F-21
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES G CONVERTIBLE EXCHANGEABLE 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 Certificate 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 August 6, 1998 adopted a resolution providing for and ratifying the
issuance of a series of 100,000 shares of Series G Convertible Exchangeable
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 Certificate of Incorporation, the Series G Convertible
Exchangeable Preferred Stock, $5 stated value per share ("Series G Preferred
Stock"), is hereby authorized and created, said series to consist of up to
100,000 shares of Series G 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 G Preferred Stock.
(a) The holders of the Series G 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, which shall begin to accrue and shall cumulate from the
date of original issue of such shares ("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) or on the Conversion Date (as defined in Section 2(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 G 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 last day of December, March, June
and September, beginning June 30, 1998.
1
<PAGE>
(c) Dividends payable on the Conversion Date of the Series G
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 G Preferred Stock into Common Stock
(a) Each holder of shares of Series G Preferred Stock may,
at his option, convert any or all of such shares plus accrued and unpaid
dividends on the terms and conditions set forth in this Section 2, into fully
paid and non-assessable shares of the Corporation's common stock ("Common
Stock"). The Series G Preferred Stock shall be convertible into shares of the
Company's Common Stock on a 1 for 1.23212 basis (the "Conversion Ratio").
(b) to exercise his conversion privilege, the holder of any
shares of Series G 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 G 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 G
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
Ratio shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares of Series G 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 G Preferred Stock representing the
unconverted portion of the certificate or certificates so surrendered. In the
event the holder does not wish to convert any accrued and unpaid dividends, the
Corporation shall pay such accrued and unpaid dividends on the Conversion Date.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of shares of Series G Preferred Stock. If more
than one share of Series G 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 G Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
2
<PAGE>
conversion of any shares of Series G 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 market 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
sale 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 G Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay an 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 G 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 G Preferred Stock, the
full number of shares of Common Stock deliverable upon the conversion of all
Series G 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 G 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 G 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
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delivery 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 G 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 Ratio 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 Ratio 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 Ratio 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 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 or involuntary
dissolution, liquidation or winding up of the
Corporation;
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then, and in such case, the Corporation shall cause to be mailed to the holders
of record of the outstanding Series G 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
Certificate 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 times in good faith assist in the carrying out of
all of 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 G Preferred Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment
of the Conversion Ratio 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 G
Preferred Stock a certificate signed by the chief financial officer of the
Corporation setting forth (i) such adjustment or readjustment, (ii) the
Conversion Ratio 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 G 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 G Preferred Stock.
3. Voting.
(a) Except as otherwise required by law, the shares of
Series G Preferred Stock shall not be entitled to vote on any matters presented
at any annual or special meeting of the stockholders of the Corporation or to be
taken by written consent of the stockholders of the Corporation.
4. Exchange and Liquidation Rights.
(a) The holders of Series G Preferred Stock will be entitled
to exchange all, but not part, of the aggregate number of outstanding shares of
Series G Preferred Stock for shares of common stock of Westmark Mortgage Company
("WMC") a subsidiary of the Corporation, upon the basis described in 5(b), upon
the occurrence of the following events: the Corporation shall (i) apply for or
consent to the appointment of a receiver, trustee or liquidator of the
Corporation or any of its assets, (ii) make a general assignment for the benefit
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of creditors, (iii) file a voluntary petition in bankruptcy, reorganization,
insolvency, readjustment of debt, moratorium, dissolution, liquidation, or
debtor relief law, or any chapter of any such law, or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law or chapter, or corporate action shall be taken by the Corporation for
the purpose of effecting any of the foregoing, or (iv) an order, judgment, or
decree shall be entered, without the application, approval or consent of the
Corporation, by any court of competent jurisdiction, approving a petition
seeking liquidation or reorganization of the Corporation of all or a substantial
part of the assets of the Corporation, and provided that such order, judgment,
or decree remains in effect for more than 90 days, whether or not consecutive.
(b) To determine the shares of Common Stock deliverable upon
exchange of shares of the Series G Preferred Stock, the Holder and the
Corporation shall jointly select a single appraiser to determine the fair market
value of WMC as of the date of the event giving rise to the right to exchange
the Series G Preferred Stock. If the Holder and the Corporation are unable to
agree on a single appraiser, the Holder and Corporation shall each designate its
own appraiser who shall jointly determine the fair market value of WMC as of the
date of the event giving rise to the right to exchange Series G Preferred Stock.
If the two appraisers so chosen are unable to agree upon the fair market value
of WMC as of such date, those appraisers shall appoint a third appraiser to
assist them in arriving at such fair market value. If the three appraisers so
chose are unable to agree on the fair market value as of such date, MCAF and
Corporation agree to submit the issue to binding arbitration in accordance with
the rules of the American Arbitration Association. The arbitration proceedings
shall be held in the State of Florida and the decision of the arbitrator may be
enforced and judgment thereon entered, by any court of competent jurisdiction.
The aggregate Stated Value Per Share of the Series G Preferred Stock shall be
divided by the appraised fair market value of the Corporation as so determined,
and the resulting percentage shall equal the percentage of the number of
outstanding shares of WMC's Stock on a Fully Diluted Basis which shall be
deliverable by the Corporation to the Holder upon exchange of the Series G
Preferred Stock.
(c) In the event that a holder of shares of Series G
Preferred Stock does not wish or is not entitled, in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, to receive shares of WMC Common Stock, said holder 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 G
Preferred Stock as to liquidation, an amount equal to $5 per share (the "Stated
Value Per Share") plus accrued and unpaid dividends. It is understood that the
Series G Preferred Stock shall be junior in rank to the Series A Preferred
Stock, Series B Preferred Stock, Series C 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
G Preferred Stock and any other shares of stock of the Corporation ranking as to
any such distribution on a parity with the Series G Preferred Stock are not paid
in full, the holders of the Series G Preferred Stock and of such other shares
shall share ratably in any such distribution of assets of the Corporation in
proportion to the full respect preferential amounts to which they are entitled.
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After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of shares of Series G Preferred Stock shall not be
entitled to any further participation in any distribution of assets by the
Corporation.
(d) 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.
(e) In the event of a voluntary or involuntary 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 G 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 G 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 G Preferred Stock of such material change. Upon receipt of the notice,
the holder of Series G Preferred Stock shall have 15 days in which to give the
Corporation written election to receive shares of WMC. In the event the
Corporation has not received a written election within the fifteen day period,
it will be assumed that the holder does not elect to receive shares of WMC. 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 G Preferred Stock.
(f) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation which will involve 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 G 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 G Preferred Stock of the appraiser's valuation.
(g) On or after the date of exchange of Series G Preferred
Stock for Common Stock, the Series G Preferred Stock will cease to accrue
dividends, will no longer be deemed to be outstanding and will represent only
the right to receive the Common Stock.
5. Limitations.
(a) So long as any shares of Series G 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 G 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 G
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 G
Preferred Stock and other obligations, and to incur
indebtedness to banks and 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 Wendy Riggs, its
assistant secretary, this 10th day of August 1998.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein
----------------------
MARK SCHAFTLEIN
Chief Executive Officer
8
MASTER AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
This Master Agreement for Sale and Purchase of Mortgages is made this
3rd day of June, 1997, by and between ContiMortgage Corporation, located at 500
Enterprise Road, Horsham, PA 19044, a Corporation organized and existing under
the laws of the State of Delaware ("Buyer") and Westmark Mortgage Corporation,
located at 355 N.E. Fifth Avenue, Suite 4, Delray Beach, FL 33483, a Corporation
organized and existing under the laws of California ("Seller").
I. RECITALS
WHEREAS, the Seller desires from time to time to offer for sale to the
Buyer and the Buyer desire 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
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.
(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 of the Note, Mortgage, 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 Purchase Schedule
(exhibit "B") 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 Purchase Schedule 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)
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(prorated on a 30-day month - 360-day year); and (3) any premiums due Seller, if
applicable, in accordance with the Approval Advice or Purchase Schedule; (4)
less any discount due Buyer, if applicable, in accordance with the Approval
Advice or Purchase Schedule; and (5) less the fee for recordation of
assignments, if applicable.
(L) Related Assets: the documents as further defined in Article
IV(A)(iv) of this Agreement.
(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 ContiMortgage Corporation, 500
Enterprise Road, Horsham, PA 19044.
(N) Underwriting Guidelines/Purchasing Guidelines: Exhibit "C" 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 Purchase Schedule 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 Mortgages
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 "D," 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 Purchase Schedule
which are purchased by Buyer pursuant to this Agreement.
(ii) The agreed-upon priority liens and/or Mortgages on Subject
Property.
(iii) The Note(s) and the Mortgage(s) endorsed by an authorized
officer of Seller to the Buyer pursuant to the language set forth on Exhibit "E,
" attached hereto and made a part hereof together with an executed individual
assignment to the Buyer, in recordable form 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.
(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
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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 IS days after Seller receives such document, but in any event, no
later than 120 days from the Settlement Date.
(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
Purchase Schedule shall be an amount as deemed in Article II(K) above. The
Purchase Price shall be payable as set forth in Article IV(D) below.
(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 as outlined on the Wire Transfer Authorization (Exhibit "F").
(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 in full by the Borrower, other
than by a refinancing by the Buyer or any of its subsidiaries or affiliates,
within twelve (12) months of Settlement Date, the Seller shall, upon demand by
the Buyer, refund to the Buyer the premium paid by the Buyer to the Seller as
follows: if prepayment in full is within one (1) month of the Settlement Date,
12/12ths of the premium shall be refunded; if prepayment in full is within two
(2) months of the Settlement Date, 11/12ths of the premium shall be refunded; if
prepayment in full is within three (3) months of the Settlement Date, 10/12ths
of the premium shall be refunded; if prepayment in full is within four (4)
months of the Settlement Date, 9/12ths of the premium shall be refunded; if
prepayment in full is within five (5) months of the Settlement Date, 8/12ths of
the premium shall be refunded; if prepayment in full is within six (6) months of
the Settlement Date, 7/12ths of the premium shall be refunded; if prepayment in
full is within seven (7) months of the Settlement Date, 6/12ths of the premium
shall be refunded; if prepayment in full is within eight (8) months of the
Settlement Date, 5/12ths of the premium shall be refunded; if prepayment in full
is within nine (9) months of the Settlement Date, 4/12ths of the premium shall
be refunded; if prepayment in full is within ten (10) months of the Settlement
Date, 3/12ths of the premium shall be refunded; if prepayment in full is within
eleven (11) months of the Settlement Date, 2/12ths of the premium shall be
refunded; if prepayment in full is within twelve (12) months of the Settlement
Date, 1/12th of the premium shall be refunded. In the event any Loan is prepaid
in full later than twelve (12) months from the Settlement Date of such Loan, no
refund shall be due. In the event the Note carries a prepayment penalty, the
Buyer agrees first to recapture the premium rebate from the proceeds of the
prepayment penalty and then from the Seller, if there is any deficient balance
according to the refund calculation specified above.
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 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 incorporation, and is
duly qualified as a foreign corporation in all jurisdictions wherein the
character of the property owned or leased or the nature of the business
transacted by it makes qualification as a foreign corporation necessary.
2 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 authorized by all necessary corporate of 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 incorporation 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 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
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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 may
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 may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium, or similar law.
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 Loans 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 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 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 become
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.
(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 a holder-in-due-course 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 Purchase Schedule is true
and correct in all respects, ant 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 nonjudicial 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
changes 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, 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 on 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 (including but
not limited to Section 32), the Federal Equal Credit Opportunity Act and
Regulation B, the Federal Real Estate Settlement Procedures Act and Regulations,
the Federal Debt Collection Practices Act, the Home Mortgage Disclosure 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 a 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 till, 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;
(ii) disclose whether all taxes and other assessments
due as of the date of the policy have been paid in full; 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 thirty (30) days to deliver to the Buyer
the title insurance policy.
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.
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.
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. 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. The Subject Property is free of material damage and waste
and is in good 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 performer 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. 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 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.
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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 mortgagee thereunder.
21. All real estate appraisals made in connection with each
Loan shall have been performer in accordance with industry standards in the
appraising industry in the area where the appraised property is located. Any
variances ascertained pursuant to Article VI(G) of this Agreement greater than
ten (10%) percent shall constitute conclusive evidence of a breach of this
warranty.
22. To the best of Seller's knowledge no hazardous or toxic
materials or wastes or product regulated by any law or ordinance or asbestos or
asbestos products or materials or 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.
23. To the best of Seller's knowledge there has not occurred
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, taken any action which might result in a claim against the Buyer or an
obligation by the Buyer to refund unearned finance charges, credit life
insurance premiums or any other fees 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 Borrower, insurer or
other party who claims to be due a refund of finance charges or insurance
premiums or any other fees in connection with transactions contemplated by this
Agreement.
25. 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.
26. Seller agrees that for the time period of 36 months
beginning from the applicable settlement date, 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.
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 Seller shall upon
demand of the Buyer and at the sole option and absolute discretion of Buyer: (1)
repurchase the Loan affected for the Buy-Back Price within ten (10) days of
notification; or (2) if the Loan(s) has been sold by Buyer or the Subject
Property has been liquidated or sold by Buyer, the Seller shall, within ten (10)
days of notification, pay the Buyer the amount of loss, (as defined in Article
VI(D) below).
(B) Reassignment. 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 to the Seller free and
clear of all liens, encumbrances, claims, or interest of any person or entity
claiming by, through, or under the Buyer without recourse and shall execute and
deliver to the Seller in recordable form an assignment of the Buyer's beneficial
interest in the affected Mortgage, as well as other documents necessary to
reflect the reassignment of any title protection and insurance policies.
(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
through the date the Loan is sold or date the collateral is liquidated; (ii) all
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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) day 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.
(F) Remedy For First Payment Default. However, anything to the
contrary notwithstanding, in the event the Borrower fails to make the first
payment due to the Buyer within thirty (30) days of the payment due date, the
Buyer will notify the Seller and the Seller will assist Buyer in the Collection
of the first payment. In the event that the first payment is not received within
ninety (90) days of the payment due date, then the Seller will refund the
premium to the Buyer.
In the event the failure to make the first payment is due to
misrepresentation of the Borrower and/or Seller of circumstances with regard to
the particular Loan, the Buyer, at its sole and absolute discretion, shall have
the right to have Seller repurchase said Loan at the Buy-Back-Price.
(G) 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 She
reappraisal, Seller shall repurchase the Loan at the Buy-Back Price (as defined
in Article VI(C), above) 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 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 appraised value as of the original appraisal date using
comparable sales that were available as of the date of the original appraisal.
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. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as
follows:
(A) The Buyer is an organization as set forth in the
introductory paragraphs and is duly organized validly existing and in good
standing under laws applicable to its organization's existence.
(B) The execution and delivery of this Agreement by the Buyer
and the performance by the Buyer of the obligations by it to be performed
hereunder have been duly authorized by all necessary corporate resolutions.
(C) The execution and delivery of this Agreement by the Buyer
and the performance by the Buyer of the obligations by it to be performed
hereunder do not, and will not, violate any provision of any law, rule,
regulations, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Buyer or to the charter or
bylaws of the Buyer.
(D) The execution and delivery of this Agreement by the Buyer
and the performance by the Buyer of the obligations by it to be performed
hereunder do not and will not result in a breach of or constitute a default
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<PAGE>
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Buyer is a party or by which it or its properties may be
bound or affected.
(E) This Agreement constitutes, when duly executed and
delivered by the Buyer, a legal, valid ant binding obligation of the Buyer
enforceable against the Buyer according to its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, receivership,
moratorium or similar laws affecting creditors' rights in general, including
equitable remedies.
(F) There are no actions, suits or proceedings pending or, to
the knowledge of the Buyer, threatened against or affecting the Buyer or the
properties of the Buyer before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Buyer, would have a material adverse effect on the
financial condition, properties or operation of the Buyer.
(G) Buyer has the authority and legal right to make, deliver
and perform this Agreement and all transactions contemplated hereunder. No
consent of any other party and no consent, license, approval or authorization
of, or registration, or declaration with, any governmental authority, bureau or
agency is required in connection with the execution, delivery, validity or
enforceability of this Agreement or purchase of any Loan, which consent,
license, approval, authorization, registration or declaration has not been
obtained. Buyer shall make available to Seller copies of any required license
upon Seller's request.
VIII. INDEMNIFICATION
(A) Seller agrees to protect, indemnify, and hold Buyer and
its employees, officers, and directors, harmless against, and in respect of, any
and all losses, liabilities, costs and expenses (including reasonable attorney's
fees), judgments, damages, claims, counterclaims, demands, actions or
proceedings, by whomsoever asserted, including but not limited to, the
Borrowers, against any person or persons who prosecute or defend any actions or
proceedings as representatives of or on behalf of a class or interested group,
or any governmental instrumentality, body, agency, department or commission, or
any administrative body or agency having jurisdiction pursuant to any applicable
statute, rule, regulation, order or decree, or the settlement or compromise of
any of the foregoing, providing, however, any of the foregoing arises out of, is
connected with or results from any breach of representations, covenants or
warranties made by Seller in relation to the Loans sold to Buyer hereunder.
(B) The waiver of any breach, term, provision or condition of
this Agreement shall not be construed to be a waiver of any other or subsequent
breach, terror provision or condition. All remedies afforded by this Agreement
for a breach hereof shall be cumulative; that is, in addition to all other
remedies provided for herein or at law or in equity.
(C) Provided further, in the event of any legal action,
including counterclaims, wherein the claim is based upon alleged facts that
would constitute a breach of any one or more of the warranties, covenants, and
representations made or assumed by Seller under the terms hereof, Seller shall
thereupon, at Buyer's option, repurchase without recourse such Loan at the
Buy-Back Price.
(D) The indemnification contained in (A) and (B) above is
applicable to any servicing of the Loan purchased hereunder which is performed
by the Seller.
IX. RELATIONSHIP OF THE PARTIES
It is agreed that the Seller and the Buyer are not partners or
joint venturers and that the Seller is no to act as an agent for 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.
X. 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 "G" 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.
XI. CLOSING DOCUMENTS
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
ant deliver this Agreement; endorse Note(s), Mortgage(s), and Assignment(s); and
authorize the bank accounts for Buyer to utilize for funding Loans (Exhibit
"H"). Seller shall deliver to Buyer a good standing certificate for its State of
Incorporation. It is within Buyer's discretion to periodically request good
standing certificates for all states in which Seller is registered to do
business. In addition, Seller shall provide Buyer copies of all applicable
lending licenses.
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XII. 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 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, 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 on 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. (Said Power of Attorney is set forth as Exhibit "I.")
(B) Survival or 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 panties) and shall
survive the 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 of 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: CONTIMORTGAGE CORPORATION
500 Enterprise Road
Horsham, PA 19044
ATTENTION: Robert A. Major, President & Chief Executive Officer
SELLER: WESTMARK MORTGAGE CORPORATION
355 N.E. Fifth Avenue, Suite 4
Delray Beach, FL 33483
ATTENTION: Mr. Mark Schaftlein, President
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<PAGE>
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 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
Buyer 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 purpose 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
constitute the entire agreement between the parties hereto with 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 Commonwealth of Pennsylvania. 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 any
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. This Agreement is terminable by either the Buyer
or Seller upon ninety (90) days' written notice of termination to the
non-terminating party. Upon such termination, Buyer must honor any outstanding
commitments or Approval Advices issued to Seller and purchase all Loans subject
to such commitment or Approval Advice in accordance with the terms of this
Agreement and the terms of the commitment or Approval Advice. Notwithstanding
the foregoing, 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, and Buyer shall have no
obligation to honor any commitment or Approval Advice after such termination.
Seller may terminate this Agreement immediately upon written notice to the Buyer
upon the breach of any of Buyer's representations and warranties contained in
Article VII of this Agreement.
(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 Court of Common Pleas of Montgomery County, Pennsylvania or
the Federal District Court for the Eastern District of Pennsylvania 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 Philadelphia, Pennsylvania
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 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 part 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
Commonwealth of Pennsylvania (as modified by Paragraph XII(K) above) to the
facts of the dispute as determined in writing by the original arbitration panel.
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(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.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written:
BUYER: CONTIMORTGAGE CORPORATION
BY:________________________________________
ROBERT A. MAJOR
TITLE: President & Chief Executive Officer
SELLER:
BY: /s/ Payton Story III
---------------------------------------
Payton Story III
TITLE: President
-------------------------------------
-11-
Amendment to the Master Agreement
For Sale and Purchase of Mortgages
By and Between ContiMortgage Corporation ("Buyer")
and Westmark Mortgage Corporation ("Seller")
dated June 3rd, 1997 (the "Agreement")
THIS AMENDMENT (the "Amendment") to the Agreement is entered into this
3rd day of June, 1997 between Buyer and Seller.
WHEREAS Buyer and Seller have entered into the Agreement, whereby Buyer
agreed from time to time to purchase and Seller agreed from time to time to sell
certain Loans evidenced by notes and secured by mortgage liens; and
WHEREAS Buyer and Seller are desirous of modifying certain of their
rights and obligations under the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties, pursuant to Section II(A) of the Agreement,
hereby agree as follows:
Section IV(E) shall be amended as follows:
(E) Premium Rebate
(i) In the event that a premium is paid by the Buyer to Seller on
a Loan and such Loan is a fixed rate Loan secured by
residential real property located in any state or an
adjustable rate Loan secured by residential real property
located in any state, except in IL, IN, MI, NJ and PA, and
said Loan is prepaid in full by the Borrower, other than by a
refinancing by the Buyer or any of its subsidiaries or
affiliates, within twelve (12) months of Settlement Date, the
Seller shall, upon demand by the Buyer, refund to the Buyer
the premium paid by the Buyer to the Seller as follows: if
prepayment in full is within one (1) month of the Settlement
Date, 12/12ths of the premium shall be refunded; if prepayment
in full is within two (2) months of the Settlement Date,
11/12ths of the premium shall be refunded; if prepayment in
full is within three (3) months of the Settlement Date,
10/12ths of the premium shall be refunded; if prepayment in
full is within four (4) months of the Settlement Date, 9/12ths
of the premium shall be refunded; if prepayment in full is
within five (5) months of the Settlement Date, 8/12ths of the
premium shall be refunded; if prepayment in full is within six
(6) months of the Settlement Date, 7/12ths of the premium
shall be refunded; if prepayment in full is within seven (7)
months of the Settlement Date, 6/12ths of the premium shall be
refunded; if prepayment in full is within eight (8) months of
the Settlement Date, 5/12ths of the premium shall be refunded;
if prepayment in full is within nine (9) months of the
Settlement Date, 4/12ths of the premium shall be refunded; if
prepayment in full is within ten (10) months of the Settlement
Date, 3/12ths of the premium shall be refunded; if prepayment
in full is within eleven (11) months of the Settlement Date,
2/12ths of the premium shall be refunded; if prepayment in
full is within one (1) month of the Settlement Date, 1/12ths
of the premium shall be refunded. In the event any fixed rate
Loan is prepaid in full later than twelve (12) months from the
Settlement Date of such Loan, no refund shall be due. In the
event the Note carries a prepayment penalty, the Buyer agrees
first to recapture the premium rebate from the proceeds of the
prepayment penalty and then from the Seller, if there is any
deficient balance according to the refund calculation
specified above.
(ii)In the event that a premium is paid by the Buyer to the
Seller on a Loan and such Loan is an adjustable rate Loan
secured by real property located in the States of Illinois,
Indiana, Michigan, New Jersey or Pennsylvania and is prepaid
in full by the Borrower, other than by a refinancing by the
Buyer or any of its subsidiaries or affiliates, within twelve
(12) months of Settlement Date, the Seller shall, upon demand
by the Buyer, refund to the Buyer the premium paid by the
Buyer to the Seller as follows: if prepayment in full is
within one (1) month of the Settlement Date, 18/18ths of the
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premium shall be refunded; if prepayment in full is within two
(2) months of the Settlement Date, 17/18ths of the premium
shall be refunded; if prepayment in full is within three (3)
months of the Settlement Date, 16/18ths of the premium shall
be refunded; if prepayment in full is within four (4) months
of the Settlement Date, 15/18ths of the premium shall be
refunded; if prepayment in full is within five (5) months of
the Settlement Date, 14/18ths of the premium shall be
refunded; if prepayment in full is within six (6) months of
the Settlement Date, 13/18ths of the premium shall he
refunded; if prepayment in full is within seven (7) months of
the Settlement Date, 12/18ths of the premium shall be
refunded; if prepayment in full is within eight (8) months of
the Settlement Date, 11/18ths of the premium shall be
refunded; if prepayment in full is within nine (9) months of
the Settlement Date, 10/18ths of the premium shall be
refunded; if prepayment in full is within ten (10) months of
the Settlement Date, 9/18ths of the premium shall be refunded;
if prepayment in full is within eleven (11) months of the
Settlement Date , 8/18ths of the premium shall be refunded; if
prepayment in within twelve (12) months of the Settlement
Date, 7/18ths of the premium shall be refunded, if prepayment
in full is within thirteen (13) months of the Settlement Date,
6/18ths of the premium shall be refunded; if prepayment in
full is within fourteen (14) months of the Settlement Date,
6/18ths of the premium shall he refunded; if prepayment in
full is within fifteen (15) months of the Settlement Date,
4/18ths of the premium shall be refunded; if prepayment in
full is within sixteen (16) months of the Settlement Date,
3/18ths of the premium shall be refunded; if prepayment in
full is within seventeen (17) months of the Settlement Date,
2/18ths of the premium shall be refunded; if payment in full
is within twelve (12) months of the Settlement Date, 1/18th of
the premium shall be refunded. In the event any adjustable
rate Loan is paid in full later than twelve (12) months from
the Settlement Date of such Loan, no refund shall be due. In
the event the Note carries a prepayment penalty, the Buyer
agrees first to recapture the Premium Rebate from the proceeds
of the prepayment penalty and then from the Seller, if there
is any deficient balance according to the refund calculation
specified above.
Except as amended hereby, the terms of the Agreement and the parties'
rights and obligations thereunder remain the same.
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IN WITNESS WHEREOF, the parties, through their duly authorized
officers, execute this Amendment the date first written above.
CONTIMORTGAGE CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
WESTMARK MORTGAGE CORPORATION
By:/s/ Payton Story, III
-----------------------------------------
Name: Payton Story, III
-----------------------------------------
Title: President
-----------------------------------------
3
- --------------------------------------------------------------------------------
REPUBLIC BANK
MORTGAGE WAREHOUSING LINE OF CREDIT TO
WESTMARK MORTGAGE CORPORATION
CREDIT AND SECURITY AGREEMENT
$7,500,000
Dated as of______________, 1998
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION................................................................................................1
ARTICLE I. DEFINITIONS......................................................................................1
ARTICLE II. THE CREDIT......................................................................................5
2.1 Agreement to Lend....................................................................................5
2.2 Term.................................................................................................5
2.3 Disbursement of the Credit - Dry Funding.............................................................5
2.4 Disbursement of the Credit - Wet Funding.............................................................6
2.5 Sublimits............................................................................................7
2.6 Qualifying Mortgages.................................................................................7
2.7 Repayments of the Credit.............................................................................7
ARTICLE III. CONDITIONS TO ADVANCES........................................................................10
3.1 Initial Advance.....................................................................................10
3.2 Conditions to Subsequent Advance....................................................................10
ARTICLE IV. SECURITY AGREEMENT............................................................................11
4.1 Grant of Security Interest..........................................................................11
ARTICLE V. REPRESENTATIONS AND WARRANTIES..................................................................12
5.1 Good Standing and Authority.........................................................................12
5.2 Valid and Binding Obligation........................................................................13
5.4 No Consent or Filing................................................................................13
5.5 No Violations.......................................................................................13
5.6 Federal Regulations.................................................................................14
5.7 ERISA Matters.......................................................................................14
5.8 Collateral..........................................................................................15
5.9 Subsidiaries........................................................................................15
5.10 Financial Condition................................................................................15
5.11 Liens..............................................................................................15
5.12 Investment Company Act.............................................................................15
5.13 Corporate Takeovers................................................................................15
5.14 Insider............................................................................................16
ARTICLE VI. COVENANTS.....................................................................................17
6.1 Payments............................................................................................17
6.2 Notice..............................................................................................17
6.3 Taxes...............................................................................................17
6.4 Insurance...........................................................................................17
6.5 Litigation..........................................................................................18
6.6 Existence and Eligibility...........................................................................18
6.7 Books and Records...................................................................................18
6.8 Compliance with Law.................................................................................18
6.9 Access to Records...................................................................................18
6.10 Maintain Qualifications............................................................................18
6.11 Financial Reports.................................................................................19
6.12 Pension Reports....................................................................................19
6.13 Collateral; Margin Call............................................................................19
6.14 Liens..............................................................................................20
6.15 ERISA Contributions................................................................................20
6.16 VA Guaranties and FHA Insurance....................................................................20
6.17 Book Net Worth.....................................................................................21
6.18 Total Liabilities to Book Net Worth Ratio..........................................................21
6.19 File Fee...........................................................................................21
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6.20 Intercompany Transactions..........................................................................21
ARTICLE VII. EVENTS OF DEFAULT.............................................................................21
7.1 Nonpayment of Indebtedness..........................................................................21
7.2 Assignment or Encumbrance...........................................................................21
7.3 Insolvency Proceedings..............................................................................21
7.4 Misrepresentation...................................................................................22
7.5 Materially Adverse Changes..........................................................................22
7.6 Failure to Perform Obligations......................................................................23
7.7 Pension Default.....................................................................................23
7.8 Change in Ownership.................................................................................23
ARTICLE VIII. REMEDIES UPON DEFAULT........................................................................24
8.1 Default Other Than Insolvency.......................................................................24
8.2 Default - Insolvency................................................................................24
8.3 Enforcement Of Agreements...........................................................................24
8.4 Realization on Collateral...........................................................................24
ARTICLE IX. INDEMNIFICATION AND EXPENSES...................................................................25
ARTICLE X. MISCELLANEOUS...................................................................................26
10.1 Amendments and Waivers.............................................................................26
10.2 Delays and Omissions...............................................................................26
10.3 Attorney-in-fact...................................................................................26
10.4 Collection.........................................................................................26
10.6 Return of Collateral Under Trust Receipt...........................................................27
10.7 Loss of Loan Documents.............................................................................27
10.8 Successors and Assigns.............................................................................27
10.9 Notices............................................................................................28
10.10 Governing Law and Consent to Jurisdiction.........................................................28
10.11 Waiver of Jury Trial..............................................................................28
10.12 Counterparts......................................................................................28
10.13 Titles............................................................................................28
10.14 Inconsistent Provisions...........................................................................29
10.15 Participation.....................................................................................29
10.16 Entire Agreement..................................................................................29
</TABLE>
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CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of the Agreement Date between
Westmark Mortgage Corporation, a Florida corporation with offices at 8000 North
Federal Highway, Boca Raton, Florida 33487(the "Company"), and REPUBLIC BANK, a
banking corporation organized under the laws of the State of Florida, with
offices at 111 Second Avenue NE, St. Petersburg, Florida 337O1 ("Republic"),
evidences:
INTRODUCTION
This Agreement provides for a credit facility to enable the
Company to obtain interim financing with which to fund certain mortgage loans
originated by it. This Agreement sets forth the terms and conditions under which
the facility will be advanced, the interest and other charges payable to
Republic repayment terms, and warranties, representations and covenants in
connection with the facility.
ARTICLE I. DEFINITIONS
Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings set forth below:
Aged Loans: Loans outstanding on the warehouse line greater than 90
days but less than 180 days.
Aged Loan Fee: One Hundred Dollars ($100.00) per Aged Loan outstanding
90 days or less, $200 for each loan outstanding from 91 to 120 days, $300 for
each loan outstanding from 121 to 150 days and $400 for each loan outstanding
from 151 to 180 days.
Advance: A disbursement of a portion of the Credit; see Section 2.1
Agreement Date: _____________________,1998.
Bailee Agreement: Letter agreement whereby an Investor agrees to hold
one or more Loan Documents as bailee for Republic subject to the Security
Interest.
Book Net Worth: An amount equal to the Company's common stock, paid-in
capital and retained earnings.
Business Day: A day upon which Republic is open for the transaction of
business.
Collateral: As defined in Section 4.1.
Commitment: The agreement by an Investor to purchase Qualifying
Mortgages.
Credit: SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100 U.S. DOLLARS
($7,500,000).
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Credit Note: The Company's promissory note to Republic dated the
Agreement Date, and all replacements, modifications, extensions and renewals
thereof.
Deliver Period: Five (5) Business Days after an Advance.
Event of Default: As defined in Article VII.
FHA: Federal Housing Administration.
FHLMC: Federal Home Loan Mortgage Corporation.
File Fee: $50.00 per loan warehoused by Republic. Fee will be netted
against repayments.
FNMA: Federal National Mortgage Association.
GAAP: Those generally accepted accounting principles and practices
which are from time to time recognized as such by the Financial Accounting
Standards Board (or any generally recognized successor).
GNMA: Government National Mortgage Association.
Guarantors: Mark Schaftlein, Payton Story, III and Westmark Group
Holdings, Inc.
Guaranty: Agreement by the Guarantor(s) to pay to Republic the amount
evidenced by the Credit Note in accordance with its terms and to perform the
obligations of the Company hereunder.
Investor or Investors: A secondary market purchaser or purchasers of
Qualifying Mortgages, which purchaser or purchasers are approved by Republic,
said approval not to be unreasonably withheld.
Jumbo Loans: Loans over $214,600 or the current published FNMA/FHLMC
jumbo amount.
Loan Documents: The documents relating to a specific Qualifying
Mortgage, namely: (a) original note duly endorsed in blank, (b) a copy of said
note, (c) a certified copy of the mortgage, (d) an unrecorded but recordable
assignment in blank of the mortgage, (e) Investor Commitment in form acceptable
to Republic, and (f) such other normal and customary documents as Republic may
require following reasonable notice to the Company. If the Qualifying Mortgage
is a loan on a cooperative apartment, stock powers and a pledge of the
borrower's interest in the proprietary lease will be required.
Maximum Loan Amount: As defined in Section 2.3.
Non-conforming Mortgage: A Qualifying Mortgage the principal balance of
which exceeds the then-current maximum loan limits for purchase by FHLMC or
FNMA, whichever is greater, or Subprime loans commonly known as "A" through "D"
loans.
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Notice Address:
a) With respect to the Company:
Westmark Mortgage Corporation
8000 North Federal Highway
Boca Raton, Florida 33487
Attention: Payton Story, III
President
b) With respect to Republic:
Republic Bank
Mortgage Warehouse Lending Division
1400 66th Street North, 4th Floor
St. Petersburg, Florida 33710
Attention: David Christel
Vice President
Pension Plan: Any pension plan as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974 as amended ("ERISA") which is a
multi-employer plan or single employer plan as defined in Section 4001 of ERISA
and subject to Title IV of ERISA and which is (a) a plan maintained by the
Company or any Subsidiary for employees or forms employees of the Company or of
any Subsidiary, (b) a plan to which the Company or any Subsidiary contributes or
is required to contribute, (c) a plan to which the Company or any Subsidiary was
required to make contributions at any time during the five calendar years
preceding the Agreement Date, or (d) any other plan with respect to which the
Company or any Subsidiary has incurred or may incur liability, including
contingent liability, under Title IV of ERISA, to such plan or to the Pension
Benefit Guaranty Corporation. For purposes of this definition and for purposes
of Sections 5.7, 6.14 and 7.7 hereof, "Company" shall include any trade or
business (whether or not incorporated) which, together with the Company or a
Subsidiary, is deemed to be a "Single Employer" within the meaning of Section
400I (b)(1) of ERISA.
Qualifying Mortgages: As defined in Section 2.6.
Reportable Event: Any event with regard to a Pension Plan described in
Section 4043(b) of ERISA, or in regulations issued thereunder.
Sale Date: The date on which an Investor is required to make payment
pursuant to a Commitment.
Security Interest: The security interest granted by the Company to
Republic in the Collateral.
Subsidiary: Any corporation of which at least 50% of the voting stock
is owned by the Company directly, or indirectly through one or more
Subsidiaries. If the Company has no Subsidiaries, the provisions of this
Agreement relating to Subsidiaries shall be inapplicable, without affecting the
applicability of such provisions to the Company alone.
VA: Veterans Administration
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ARTICLE II. THE CREDIT
2.1 Agreement to Lend. Republic agrees on the terms and conditions and
relying on the representations and warranties set forth herein to lend to the
Company, and the Company agrees to borrow from Republic, up to the amount of the
Credit. Individual Advances of the Credit shall be made as requested by the
Company from time to time. The aggregate amount of all Advances shall not exceed
the Credit. Following repayments of Advances, Republic will make readvances
under the same terms and conditions, provided that Advances outstanding at any
time shall not exceed the lesser of the amount of the Credit or the Maximum Loan
Amount. The Credit will be evidenced by the Credit Note.
2.2 Term. This Agreement will be in effect until one (1) year from the
Agreement Date, when all amounts outstanding hereunder and under the Credit Note
shall be due and payable; provided, however, the at any time subsequent to
ninety (90) days from the Agreement Date, the Company may terminate this
Agreement following at least ninety (90) days prior written notice to Republic.
No such termination shall affect the rights of the parties hereto as to any
Advances previously made, which shall continue to be governed hereby. Republic
agrees to provide at least 90 days notice to the Company if Republic elects not
to renew this Agreement at the expiration of its Term.
2.3 Disbursement of the Credit - Dry Funding.
A. Before 12:00 noon Republic's local time, one Business Day
before a proposed Advance, the Company will request such Advance in writing by
providing to Republic by telefax the information on Republic's "Request For
Advance", the form of which is attached as Exhibit A hereto, which includes: the
mortgagors' last names, the property address, the loan amount, loan number, loan
type (FHA, VA or conventional, as applicable), loan subtype, interest rate,
commitment number, Investor settlement date and warehousing amount requested.
B. Also before 12:00 noon Republic's local time, one Business
Day before a proposed Advance, the Company shall deliver or cause to be
delivered to Republic or its designee, the Loan Documents for Republic's review
and approval.
C. On the date of the Advance (but not earlier than the loan
closing date) Republic will make an Advance of the requested amount (or so much
thereof as has been approved by Republic) to the Company up to the Maximum Loan
Amount. Advances shall be made by deposit by Republic into a Republic account in
the name of the Company for further disposition as the Company may direct. Each
Advance shall be used only for funding the loans identified on the Request For
Advance. If a loan for which an Advance has been made does not close, the
Company will notify Republic immediately, and Republic will charge the account
for that portion of the Advance attributable to the unclosed loan. Maximum Loan
Amount shall be 98% of (i) the original principal amount of the Qualifying
Mortgage or (ii) the weighted average investor purchase price of said Qualifying
Mortgage.
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2.4 Disbursement of the Credit - Wet Funding.
A. Before 12:00 noon Republic's local time, one Business Day
before a proposed Advance, the Company will request such Advance in writing by
providing to Republic by telefax (i) the information on Republic's "Request For
Advance", the form of which is attached as Exhibit A hereto, which includes: the
mortgagors' last names, the property address, the loan amount, loan number, loan
type (FHA, VA or conventional, as applicable), loan subtype, interest rate,
commitment number, Investor settlement date and warehousing amount requested,
and (ii) copies of all Commitments referred to on such Request For Advance, or
the Commitment registration information, if applicable.
B. On the date of the Advance (but not earlier than the loan
closing date) Republic will make an Advance of the requested amount (or so much
thereof as has been approved by Republic) to the Company up to the Maximum Loan
Amount. Advances shall be made by deposit by Republic into a Republic account in
the name of the Company for further disposition as the Company may direct. Each
Advance shall be used only for funding the loans identified on the Request For
Advance. If a loan for which an Advance has been made does not close, the
Company will notify Republic immediately, and Republic will charge the account
for that portion of the Advance attributable to the unclosed loan. Maximum Loan
Amount shall be 98% of (i) the original principal amount of the Qualifying
Mortgage or (ii) the Company's cost of origination or purchase of said
Qualifying Mortgage.
C. On or prior to the fifth (5th) Business Day following the
advance, the Company shall deliver or cause to be delivered to Republic or its
designee the Loan Documents for Republic's review and approval.
2.5 Sublimits.
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A. Notwithstanding anything to the contrary herein, no more
than 25% of the Credit secured by Loan Documents which Republic has not received
shall be outstanding during the first and last five (5) days of each calendar
month; at all other times, no more than 20% of the Credit secured by Loan
Documents which Republic has not received shall be outstanding.
B. No more than 10% of the Credit may be used for Aged Loans
at any point in time.
2.6 Qualifying Mortgages. A "Qualifying Mortgage" is a fixed or
adjustable rate, conforming or Non-conforming, conventional, FHA or VA mortgage
loan secured by a first or second mortgage or Title I home improvement loan on a
one-to-four-family residence which loan is also:
A. Covered by and closed in accordance with a Commitment by an
Investor;
B. In conformance with FHLMC, FNMA, FHA or VA underwriting
standards, as applicable, and/or the special standards of the respective
Investors;
C. Evidenced, secured and assigned by the Loan Documents
delivered to Republic within the-Delivery Period.
2.7 Repayments of the Credit.
A. On the earliest of (i) the Sale Date specified in each
Commitment,(ii) thirty (30) days after delivery of the Qualifying Mortgage to
the Investor, (iii) with the exception of Aged Loans, ninety (90) days after
Republic has made an Advance for the Qualifying Mortgages listed in said
Commitment, (iv) the diction which this Agreement expires or becomes ineffective
because of termination, or (v) fourteen (14) days after any original note
evidencing a Qualifying Mortgage has been returned to the Company under a trust
receipt for any of the purposes specified in Section 10.6 hereof, the portion of
the principal of the Credit equal to the Advance made with regard to the related
Qualifying Mortgage shall be repaid. In connection with each repayment the
Company shall provide to Republic a completed "Repayment Schedule" on Republic's
form listing the Qualifying Mortgages to which the repayment pertains. Such
Repayment Schedule will be in the form of Exhibit B attached hereto. on or prior
to the Sale Date for each Commitment, and upon receipt from the Company of a
written request on Republic's "Request For Delivery", the form of which is
attached as Exhibit C hereto, Republic shall forward the original notes
evidencing the Qualifying Mortgages to the applicable Investor or its designee
pursuant to a Bailee Agreement with said Investor; provided, however that
Republic shall not be required to forward any such documents unless the Request
For Delivery is received by Republic prior to 12:00 noon, Republic's local time
one Business Day prior to the requested delivery and Republic has had the
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documents in its possession for at least one Business Day. The Company shall
provide express mail packaging including airbills addressed to Investors or
their designees; payment for such packaging shall be paid directly by the
Company. The Company will also provide the original and any required copies of
all necessary or appropriate forms to effect delivery and payment for such
notes. Prior to the release of Republic's Security Interest in the Collateral,
the Company shall cause the Investor to remit the proceeds from the sale of
mortgage loans via wire transfer directly into a Republic account set up for the
administration of the Credit. Provided there is no Event of Default then
existing, Republic shall adjust in favor of the Company any excess proceeds
received from Investors. If the amount remitted is less than the principal
payment due on the Sale Date, the Company shall pay the remaining amount due
against the respective Advance directly to Republic by wire transfer on such
Sale Date.
B. If for any reason an Investor fails to purchase the subject
mortgage loan covered by its Commitment on the Sale Date or becomes insolvent or
the subject of a proceeding under the Bankruptcy Code, or ceases to carry on
its-business, the Company shall, at Republic's option, either (i) immediately
repay to Republic by wire transfer all amounts advanced for the non-purchased
loan or loans in question or (in the case of the Investor's insolvency,
bankruptcy proceeding, or cessation of business) all mortgage loans covered by
that Investor's Commitments, or (ii) replace such mortgage loan or loans with a
Qualifying Mortgage of market value equal to or greater than the Maximum Loan
Amount related to the replaced mortgage loan or loans, whereupon Republic shall
return to the Company the Loan Documents held by Republic relating to the
replaced mortgage loan or loans.
C. Interest on the outstanding principal balance of the Credit
at the rate required in the Credit Note shall be payable by the Company to
Republic on the first day of each calendar month during the Term hereof, and on
the date the Credit is paid in full. A late charge of 6% of payments received
more than ten days past due will also be payable in accordance with the terms of
the Credit Note.
D. The Company shall immediately notify Republic of all
delinquencies on any mortgage loans constituting security for the Credit Note
within ten (10) business days of becoming aware of said delinquencies, and will,
at Republic's option, either (i) replace such mortgage loans by mortgage loans
acceptable to Republic, whereupon Republic shall return to the Company the Loan
Documents held by Republic relating to the replaced mortgage loans, or (ii)
reduce the amount of-principal outstanding under the Credit Note by the amount
of the Advance related to such mortgage loan plus accrued interest.
E. In the event Loan Documents related to any Advance (i) are
not delivered within the Delivery Period, or (ii) are delivered and determined
by Republic to be incomplete or improper, or (iii) are Loan Documents for loans
which are secured by mortgages which are no longer Qualifying Mortgages
("Defective Loan Documents"), then the Company shall immediately repay by wire
transfer so much of the Advance as was attributable to the Defective Loan
Documents whereupon Republic shall return to the Company the Loan Documents held
by Republic relating to the Loans for which repayment has been made.
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ARTICLE III. CONDITIONS TO ADVANCES
3.1 Initial Advance. Republic's obligation to make the initial Advance,
and the effectiveness of this Agreement, are conditioned upon compliance with
the requirements of Section 2.3A hereof and upon the fulfillment of the
following conditions.
A. The Company shall have duly executed and delivered to
Republic:
(i) This Agreement;
(ii) The Credit Note;
(iii) UCC Financing Statements, as required by
Republic;
(iv) A copy, certified by the Secretary or an
Assistant Secretary of the Company, of the resolution of the Company's Board of
Directors authorizing the execution, delivery and performance of this Agreement,
the Credit Note and all related documents; . B. Republic shall have received:
(i) The Guaranty;
(ii) A copy, certified by the Secretary of State of
the state of the Company's incorporation, of the Company's filed certificate of
incorporation;
(iii) A certificate of the Secretary of State of the
state of the Company's incorporation as to the existence and good standing of
the Company;
(iv) Evidence of the insurance coverages required by
Section 6.4 hereof
3.2 Conditions to Subsequent Advance. All future Advances shall be
subject to compliance with the requirements of Article II hereof and to such
updating of the certificates and opinions referred to in Section 3.1 as
Republic may reasonably require from time to time.
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ARTICLE IV. SECURITY AGREEMENT
4.1 Grant of Security Interest. This Agreement constitutes a security
agreement. As collateral security for the repayment of all sums which may become
due under the Credit Note or this Agreement, the Company hereby assigns,
pledges, and transfers all its right, title and interest in, and grants to
Republic a security interest in the following property (the "Collateral"):
A. All Qualifying Mortgages and all other mortgages which have
been represented to Republic to be Qualifying Mortgages, including all notes,
mortgages, guaranties, and any other documents evidencing or securing the same;
B. All surveys and title insurance policies, commitments, or
reports relating to the same;
C. All hazard insurance policies relating to the same;
D. All private mortgage insurance policies relating to the
same;
E. All accounts relating to the same (including, without
limitation, escrow accounts, subject to the rights of mortgagors under
applicable law);
F. All files, records, data, correspondence, computer tapes,
programs and discs, appraisals, accounting records relating to the same or the
servicing thereof;
G. All servicing rights relating to the same;
H. All Commitments to purchase said Qualifying Mortgages and
all other mortgages which have been represented to Republic to be Qualifying
Mortgages:
I. All property of any kind given by the Company to Republic
or its designee in furtherance of this Agreement; and
J. All collections on and proceeds of any of the foregoing.
4.2 Rights of Republic.
A. With respect to the Collateral, Republic shall have the
rights of a secured party under the Uniform Commercial Code as enacted in the
State of Florida.
B. The Company shall not have the right to modify, delete, or
waive any material term of any of the Collateral without Republic's prior
consent.
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4.3 Income from and Interest on Collateral.
A. Until the occurrence of an Event of Default, the Company
reserves the right to receive al income from or interest on the Collateral and
if Republic receives any such income or interest prior to such Event of Default,
Republic shall pay the same promptly to the Company.
B. Upon the occurrence of an Event of Default, the Company
will not demand or receive any income from or interest on such Collateral, and
if the Company receives any such income or interest without any demand by it,
same shall be held by the Company in trust for Republic in the same medium in
which received, shall not be commingled with any assets of the Company and shall
be delivered to Republic in the form received, properly endorsed to permit
collection, not later than the next Business Day following the day of its
receipt. Republic may apply the net cash receipts from such income or interest
to payment of any amounts due under the Credit Note or this Agreement, provided
that Republic shall account for and pay over to the Company any such income or
interest remaining after payment in full of all such amounts.
4.4 Possession of Collateral. The Company agrees that possession of any
of the Collateral by closing attorneys, title companies, or any other bailee
acting on the Company's behalf shall be deemed possession by Republic for
purposes of perfecting the Security Interest granted hereby.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Company makes the following representations and warranties which
shall and warranties so long as any portion of the Credit remaining available or
any indebtedness of the Company to Republic arising pursuant to this Agreement
remains unpaid:
5.1 Good Standing and Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation; has powers to transact the business in which it is engaged;
is duly licensed or qualified and in good standing in each jurisdiction in which
the conduct of such business requires such licensing or such qualification; and
has all necessary power and Authority to enter into this Agreement and to
execute, deliver and perform this Agreement, the Credit Note and any other
document executed in connection with this Agreement, all of which have been duly
authorized by all proper and necessary corporate action.
5.2 Valid and Binding Obligation.This Agreement and any other document
executed in connection herewith, and the Credit Note when executed and
delivered, will constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy and insolvency laws and
laws effecting creditors' rights generally.
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5.3 No Pending Litigation. Except as have been or shall be disclosed to
Republic in writing, there are no actions, be deemed to be continuing
representations, suits, proceedings (whether or not purportedly on behalf of the
Company) or investigations pending or, to the knowledge of the Company,
threatened against the Company or the Guarantor, if any, or any basis therefor,
which, if adversely determined, would, in any case or in the aggregate,
materially and adversely affect the property, assets, financial condition or
business of the Company or the Guarantor, if any, or materially impair the right
or ability of the Company to carry on its operations substantially as now
conducted or anticipated to be conducted in the future, or which question the
validity of this Agreement, the Credit Note, the Guaranty, if any, or other
documents required by this Agreement, or any action to be taken pursuant to any
of the foregoing.
5.4 No Consent or Filing. No consent, license, approval or
authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other person or entity is required in
connection with the valid execution, delivery or performance of this Agreement,
the Credit Note, or other documents required by this Agreement or in connection
with any of the transactions contemplated thereby.
5.5 No Violations. The Company is not in violation of any material term
of its certificate of incorporation or by-laws, or of any mortgage, borrowing
agreement or other instrument or agreement pertaining to indebtedness for
borrowed money. The Company is not in violation of any term of any other
indenture, instrument or agreement to which it is a party or by which it may be
bound, resulting, or which might reasonably be expected to result, in a material
and adverse effect upon, its business or assets. The Company is not in violation
of any order, writ, judgment, injunction or decree of any court of competent
jurisdiction or of any statute, rule or regulation of any competent governmental
authority. The execution and delivery o this Agreement, the Credit Note and
other documents required by this Agreement and the performance of all of the
same is and will be in compliance with the foregoing and will not result in any
violation or result in the creation of any mortgage, lien, security-interest,
charge or encumbrance upon any properties or assets except in favor of Republic.
There exists no fact or circumstance not disclosed in-this Agreement or in the
documents furnished in connection herewith which materially adversely affects,
or in the future (so far as the Company can now foresee), may materially
adversely affect the condition, business or operations of the Company.
5.6 Federal Regulations. The Company is not engaged principally, or as
one of its important activities, in the business of extending or arranging for
the extension of credit for the purpose of purchasing or carrying "margin
security" or "margin stock" (as defined in Regulations G and U issued by the
Board of Governors of the Federal Reserve System). Likewise, the Company does
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not own or intend to carry or purchase any such "margin security" or "margin
stock", and the Company will not use the proceeds of any Advance to purchase or
carry (or refinance any borrowing, the proceeds of which were used to purchase
or carry) any such "margin security" or "margin stock".
5.7 ERISA Matters. No Pension Plan has been partially terminated or is
insolvent or in reorganization, nor have any proceedings been instituted to
terminate or reorganize any Pension Plan; neither the Company nor any Subsidiary
has withdrawn from any Pension Plan in a complete or partial withdrawal, nor has
a condition occurred which if continued would result in a complete or partial
withdrawal. neither the Company nor any Subsidiary has incurred any withdrawal
liability, including contingent withdrawal liability to any Pension Plan
pursuant to Title IV of ERISA; neither the Company nor any Subsidiary has
incurred any liability to the Pension Benefit Guaranty Corporation other than
for required insurance premiums which have been paid when due; no Reportable
Event has occurred; and no Pension Plan or other "employee pension benefit plan"
as defined in Section 3(2) of ERISA to which the Company or any Subsidiary is a
party has an "accumulated funding deficiency (whether or not waived) as defined
in Section 302 of ERISA or in Section 412 of the Internal Revenue Code. Each
Pension Plan and each other "employee benefit plan" as defined in Section 3(3)
of ERISA to which the Company or any Subsidiary is a party is in substantial
compliance with ERISA, and no such plan, or any administrator, trustee or
fiduciary thereof has engaged in a prohibited transaction described in Section
406 of ERISA or in Section 4975 of the Internal Revenue Code.
5.8 Collateral. Company represents, and so long as this Agreement is in
effect, shall be deemed continuously to represent and warrant that the Company
is the owner of the Collateral free of all security interests or other
encumbrances except the Security Interest granted herein.
5.9 Subsidiaries. The Company has no Subsidiary or other interest in
any other association, corporation, partnership, joint venture, or other
business entity not disclosed to Republic on a Schedule hereto.
5.10 Financial Condition. The financial statements which the Company
has furnished Republic have been prepared in conformity with GAAP applied on a
basis consistent with that of the preceding fiscal year and present fairly the
financial condition of the Company as of such date and the result of its
operations for the period then ended and there has been no material adverse
change in said financial condition. The Company has no contingent obligations,
liabilities for taxes or other outstanding financial obligations which are
material in the aggregate, which are not otherwise disclosed in the financial
statements referred to above.
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5.11 Liens. The Company has good and marketable title to all of its
properties and assets, which properties and assets are not subject to any
mortgage, pledge, title retention lien, or other lien, encumbrance or security
interest, except (i) for current taxes not delinquent or for taxes being
contested in good faith and by appropriate proceedings, (ii) liens arising in
the ordinary course of business for sums not due or sums being contested in good
faith and by appropriate proceedings and not involving any deposits or advances
or borrowed money or the deferred purchase price of property or services, and
(iii) liens in favor of Republic.
5.12 Investment Company Act. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
5.13 Corporate Takeovers. No portion of the Credit will be used to
acquire any security in an, transaction which is subject to Section 13 or 14 of
the Securities and Exchange Act of 3934, including without limitation Sections
13(d) and 14(d) thereof.
5.14 Insider. The Company is not, and no person having "control" (as
the term is defined in 32 U.S.C. Section 375(b)(5) or in regulations promulgated
pursuant thereto) of the Company is an "executive officer", "director", or
"person who directly or indirectly or in concert with one or more persons owns,
controls, or has the power to vote more than 10 of any class of voting
securities" (as those terms are defined in 12 U.S.C. Section 375(b) or in
regulations promulgated pursuant thereto) of any bank, or of Republic, or any
subsidiary thereof, or of any bank at which Republic maintains a correspondent
account with Republic.
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ARTICLE VI. COVENANTS
During the Term of this Agreement, and so long as any portion of the
Credit shall remain available or any indebtedness of the Company to Republic
shall remain unpaid, the Company will:
6.1 Payments. Duly and punctually pay the principal of and interest on
all indebtedness incurred by it pursuant to this Agreement and the Credit Note
in the manner set forth herein and therein.
6.2 Notice. Promptly notify Republic in writing of (a) any pending or
future audits of the Company" federal income tax returns by the Internal Revenue
Service as soon as the Company has knowledge thereof, and the results of each
such audit after its completion; (b) any default by the Company in the
performance of or any modifications of, any of the terms or conditions contained
in any agreement, mortgage, indenture or instrument to which the Company is a
party or which is binding upon the Company and of any default by the Company in
the payment of any of its indebtedness; provided, however, the Company shall not
be required to so notify Republic of modifications of any or all terms or
provisions of any document or agreement pertaining to its transaction in the
ordinary course of business, but which do not pertain to its indebtedness for
borrowed money, which do not materially and adversely affect the business or
assets of the Company; and (c) receipt by the Company of notices from FHA, VA,
FNMA, FHLMC, GNMA, HUD, any Investor, or any state in which the Company
transacts business, which notice pertains to the status or qualification of the
Company to conduct its business.
6.3 Taxes. Promptly pay and discharge all of its taxes, assessments and
other governmental charges (including any charged or assessed on the issuance of
the Credit Note or any of the Qualifying Mortgage notes) prior to the date on
which penalties attach thereto, establish adequate reserves for the payment of
taxes and assessments and make all required withholding and other tax deposits;
provided' however, that nothing herein contained shall-be interpreted to require
the payment of any tax, assessment or charge so long as its validity is being
contested in good faith and by appropriate proceedings diligently conducted, if
the Company, upon Republic's request, deposits with Republic, to be held in
escrow, such amount being contested.
6.4 Insurance. (a) Keep all its property so insurable insured at all
times with responsible insurance carriers against fire, then and other risks in
coverage; and (b) keep adequately insured at all time in reasonable amounts with
responsible insurance carriers against liability on account of errors and
omissions, damage to persons or property and under all applicable workers'
compensation laws.
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6.5 Litigation. Promptly notify Republic in writing as soon as the
Company has knowledge thereof, of the institution or filing of any litigation,
action, suit, claim, counterclaim or administrative proceeding against, or
investigation of, the Company (a) to which the Company is a party by or before
any regulatory body or governmental agency; (b)the outcome of which may
materially and adversely affect the finances or operations of the Company or the
Company's ability to fulfill its obligations hereunder unless adequately covered
by insurance; or (c) which questions the validity of this Agreement, the Credit
Note or any action taken or to be taken pursuant to the foregoing; and furnish
or cause to be furnished to Republic such information regarding the same as
Republic may request.
6.6 Existence and Eligibility. Maintain its existence in good standing
and remain or become duly licensed or qualified and in good standing in each
jurisdiction in which the conduct of its business requires such qualification or
licensing.
6.7 Books and Records. Keep proper books and records in accordance with
generally accepted accounting principles consistently applied and notify
Republic promptly in writing of any proposed change in the location at which
such books and records are maintained.
6.8 Compliance with Law. Comply with all laws and governmental rules
and regulations respecting the transactions which are the subject of this
Agreement.
6.9 Access to Records. Permit Republic's authorized representatives,
during normal business hours and as often as Republic may reasonably request, to
have access to the Company's premises and its financial records pertaining to
the transactions contemplated hereby; inspect and copy such records, and discuss
the affairs and finances of the Company with appropriate officers of the
Company.
6.10 Maintain Qualifications. Maintain its status, as applicable, as an
FHA approved direct endorsement mortgagee and as an approved lender under the VA
guaranty program.
6.11 Financial Reports. Furnish to Republic the following financial
information.
A. Financial statements of the Company as of the end of each
of the Company's fiscal quarters, to be furnished not later than thins the end
of such quarter. Such statements shall contain such information as Republic may
reasonably request.
B. Annual financial statements of the Company audited by
independent certified public accountants acceptable to Republic, to be furnished
not later than ninety days after the end of each fiscal year of the Company.
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C. A completed "Certificate of Compliance", the form of which
is attached as Exhibit D hereto, as of the end of each of the Company's fiscal
quarters, to be furnished not later than thirty days after the end of such
quarter, which will contain the Company's calculation of the net worth and ratio
of liabilities to net worth required hereby to be maintained and a statement of
compliance with this Agreement.
6.12 Pension Reports. With respect to each Pension Plan, the Company
will furnish the following to Republic:
A. As soon as possible and in any event within thirty days
after the Company knows or has reason to know that any Reportable Event with
respect to such Pension Plan has occurred, the statement of the President or
chief financial of ricer of the Company setting forth the details of such
Reportable Event and the action which the Company proposes to take with respect
thereto;
B. Promptly after the filing thereof with the Secretary of
Labor. the Pension Benefit Guaranty Corporation or the Internal Revenue Service,
copies of reports (including, without limitation, notices of Reportable Events
and annual reports in the Form 5500 Series) filed with respect to each Pension
Plan.
6.13 Collateral; Margin Call.
A. Defend the Collateral against the claims and demands of all other
parties; keep the Collateral free from all security interests or other
encumbrances except those granted herein; not sell, transfer, assign, deliver or
otherwise dispose of any Collateral except pursuant to the terms hereof or with
the consent of Republic.
B. Execute and deliver to Republic such financing statements,
assignments and other documents and do such other things relating to the
Collateral as Republic may request.
C. Maintain with Republic as security for the Credit, Qualifying
Mortgages of an aggregate open market value (as determined by Republic from time
to time in Republic's sole discretion) sufficient to cause the outstanding
balance of the Credit to be no more than 98% of such value, and to repay the
amount necessary to reduce the outstanding balance of the Credit to or below the
percentage or percentages set forth above within three Business Days of the
Company's receipt of a demand by Republic for such repayment.
6.14 Liens. Not create or permit to exist any mortgage, pledge, title
retention lien, lease, purchase or other encumbrance or security interest with
respect to any of the Collateral, except:
A. the Security Interest,
B. materialmen's, mechanics', suppliers', tax, and
warehousemen's liens, statutory liens of landlords and other like liens arising
in the ordinary course of business securing obligations which are not yet due or
which are being contested in good faith by appropriate proceedings,
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C. liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security or-to secure the performance of statutory
obligations, surety or appeal bonds, bids, leases, performance and return of
money bonds and similar obligations (exclusive of obligations for the payment of
borrowed money),
D. encumbrances consisting of zoning regulations, easements,
rights of way, survey exceptions and other similar restrictions on the use of
real property and minor irregularities in titles thereto which do not materially
impair such use,
E. liens on GNMA mortgaged-backed securities owned by the
Company and liens on such securities which secure the Company's repurchase
obligations to brokers with respect to such securities, and
F. existing liens and security interests described on a
Schedule hereto.
6.15 ERISA Contributions. At all times, make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to any employee benefit plan.
6.16 VA Guaranties and FHA Insurance. Not commit or suffer to be
committed any act which would invalidate the guarantee of the VA or insurance by
the FHA or cause any impairment to the validity of or priority of the lien on
the Collateral created hereby in favor of Republic.
6.17 Book Net Worth. Maintain a Book Net Worth of at least TWO MILLION,
FIVE HUNDRED THOUSAND AND No/100 DOLLARS ($2,500,000.00).
6.18 Total Liabilities to Book Net Worth Ratio. Maintain a ratio of
total liabilities to Book Net Worth of not more than 15 to 1.
6.19 File Fee. Company will instruct Republic on Exhibit B Repayment
Schedule of the File Fee. The File Fee will be netted against each repayment.
6.20 Intercompany Transactions.Company will engage in no transactions
nor make any distributions to its parent, Westmark Group Holdings, Inc. which
would cause Company to be in violation of this Agreement.
ARTICLE VII. EVENTS OF DEFAULT
The occurrence of any of the events listed in this Article shall
constitute an event of default under this Agreement ("Event of Default").
7.1 Nonpayment of Indebtedness. Failure of the Company to make any
payment of interest or principal or any other sum, which has become due whether
by acceleration or otherwise, under the terms of the Credit Note, -this
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Agreement or any other document evidencing or securing indebtedness of the
Company to Republic.
7.2 Assignment or Encumbrance. Assignment or attempted assignment by
the Company of this Agreement, any rights hereunder, or any Advance to be made
hereunder, without first obtaining the specific written consent of Republic, or
the granting by the Company of any security interest, lien or other encumbrance
other than to Republic on any Collateral.
7.3 Insolvency Proceedings. The filing by or against the Company or the
Guarantor of a petition for liquidation, reorganization, arrangement or
adjudication as a bankrupt or similar relief under the bankruptcy, insolvency or
similar laws of the United States or any state or territory thereof or of any
foreign jurisdiction; the failure of the Company or the Guarantor to secure
dismissal of any such petition filed against it within thirty days of such
filing; the making of any general assignment by the Company or the Guarantor for
the benefit of creditors; the appointment of a receiver or trustee Car the
Company or the Guarantor or for any part of the assets of the Company or the
Guarantor; the institution by the Company or the Guarantor of any other type of
insolvency proceeding (under the Bankruptcy Code or otherwise) or of any formal
or informal proceeding, including, without limitation, proceedings by the
Federal Deposit Insurance Corporation or other governmental authority, for the
dissolution or liquidation of, settlement of claims against, or winding up of
the affairs of, the Company; the institution of any such proceeding against the
Company if the Company shall fail to secure dismissal thereof within-thirty days
thereafter; the consent by the Company or the Guarantor to any type of
insolvency proceeding against the Company or the Guarantor (under the Bankruptcy
Code or otherwise); or the occurrence of any event or existence of any condition
which could be the ground' basis or cause for any proceeding or petition
described in this Section.
7.4 Misrepresentation. If any certificate, statement, representation,
warranty or audit heretofore or hereafter furnished by or on behalf of the
Company pursuant to or in connection with this Agreement or otherwise
(including, without limitation, representations and warranties contained herein)
or as an inducement to Republic to extend any credit to or to enter into this or
any other agreement with the Company proves to have been false in any material
respect at the time as of which the facts therein set forth were states or
certified or to have omitted any substantial contingent or unliquidated
liability or claim against the Company, or if on the Agreement Date there shall
have been any materially adverse changes in any of the facts previously
disclosed by any such certificate' statement, representation, warranty or audit.
which change shall not have been disclosed to Republic at or prior to the time
of such execution.
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7.5 Materially Adverse Changes. Any materially adverse change in the
financial condition of the Company or the existence of any other condition
which, in Republic's sole determination, constitutes an impairment of the
Company's ability to perform its obligations under this Agreement-or any other
document evidencing or securing the Credit, and which condition is not remedied
within ten days after written notice to the Company thereof or, if the condition
cannot be fully remedied within said ten days, substantial progress has not been
made within said ten days toward remedy of the condition.
Such materially adverse change may include, but shall not be limited to
(a) the sale, assignment, transfer or delivery of all or substantially all of
the assets of the Company; (b) the cessation by the Company as a going business
concern; (c) the entry of judgment against the Company other than a judgment for
which the Company is fully insured, if ten days thereafter such judgment is not
satisfied, vacated, bonded or staved pending appeal; (d) if the Company is
generally not paying its debts as such debts become due; or (e) nonpayment by
the Company when due of any indebtedness for borrowed money owing to any third
party, of the occurrence of any event which could result in acceleration of
payment of any such indebtedness.
7.6 Failure to Perform Obligations. Default by the Company in the
performance of any of the terms, conditions or covenants contained in this
Agreement or any agreement or document made in connection with this Agreement
which is not remedied within ten days after notice thereof by Republic to the
Company.
7.7 Pension Default. Any Reportable Event which Republic determines in
good faith constitutes grounds for the termination of any Pension Plan by the
Pension Benefit Guaranty Corporation or for the appointment by an appropriate
United States district court of a trustee to administer any Pension Plan shall
have occurred and continued thirty days after written notice thereof to the
Company by Republic; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Pension Plan or to appoint a trustee to
administer any Pension Plan; or a trustee shall be appointed by an appropriate
United States district court to administer any Pension Plan; or any Pension Plan
shall be terminated; or the Company withdraws from a Pension Plan in a complete
withdrawal or a partial withdrawal; or the Company, shall fail to pay to any
Pension Plan any contribution which it is obligated to pay under the terms of
such plan or any agreement, or which is required to meet statutory minimum
funding standards.
7.8 Change in Ownership. A change in the ownership of the Company to
which Republic has not given its written consent.
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ARTICLE VIII. REMEDIES UPON DEFAULT
8.1 Default Other Than Insolvency. Upon the happening of one or more
Events of Default (except default under Section 7.3 hereof), Republic may (a)
immediately cancel or suspend its agreement to advance the Credit and (b)
declare the principal of the Credit Note then outstanding to be immediately due
and payable, together with all interest thereon and fees and expenses accruing
under this Agreement. Upon such declaration, the balance then outstanding on the
Credit Note shall become immediately due and payable without presentation,
demand or further notice of any kind to the Company.
8.2 Default - Insolvency. Upon the happening of one or more Events of
Default under Section 7.3 hereof, Republic's obligations to advance the Credit
shall be cancelled immediately, automatically and without notice, and the Credit
Note shall become immediately due and payable without presentation, demand or
notice of any kind.
8.3 Enforcement Of Agreements.Upon the happening of one or more Events
of Default, Republic shall have the right to obtain physical possession of all
files of the Company relating to the Collateral and all documents relating to
the Collateral which are then or may thereafter come into the possession of the
Company or any third party acting for the Company. Republic shall be entitled to
specific performance of all agreements of the Company contained in this
Agreement or other documents relating to the Credit.
8.4 Realization on Collateral. Upon the happening of one or more Events
of Default, Republic shall have the right to collect all further payments made
on the Collateral, and if any such payments are received by the Company, the
Company shall not commingle the amounts received with other funds of the Company
and shall promptly pay them over to Republic. in addition, Republic shall have
the right to dispose-of the Collateral as provided herein or as provided in the
other documents executed in connection herewith or as provided by law.
ARTICLE IX. INDEMNIFICATION AND EXPENSES
The Company agrees to hold Republic harmless from and indemnifies
Republic against all liabilities, losses, damages, judgments, costs, and
expenses of any kind which may be imposed on, incurred by, or asserted against
Republic relating to or arising out of this Agreement, the Credit Note, or any
transaction contemplated hereby. The Company also agrees to reimburse Republic
for all reasonable expenses in connection with this Agreement and the Credit
Note, including without limitation the reasonable fees and disbursements of
counsel, all delivery and insurance charges incurred in connection with delivery
of Loan Documents, wire transfer fees and including expenses of enforcement. The
Company's agreements in this Section shall Survive the payment in full of the
Credit Note and the expiration or termination of this Agreement.
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ARTICLE X.
MISCELLANEOUS
10.1 Amendments and Waivers. No modification, rescission, waiver,
release or amendment of any provision of this Agreement shall be made except by
a written agreement subscribed by duly authorized officers of the Company and
Republic.
10.2 Delays and Omissions. No course of dealing and no delay or
omission by Republic in exercising any right or remedy hereunder or with respect
to any indebtedness of the Company to Republic shall operate as a waiver thereof
or of any other right or remedy, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. Republic ma, remedy any default by the Company hereunder or
with respect to any other person, firm or corporation in any reasonable manner
without waiving the default remedied and without waiving any other prior or
subsequent default by the Company and shall be reimbursed for its expenses in so
remedying such default. All rights and remedies of Republic hereunder are
cumulative.
10.3 Attorney-in-fact. The Company hereby authorizes Republic, at the
Company's expense, to file such financing statement or statements relating to
the Collateral without the Company's signature thereon as Republic at its option
may deem appropriate, and appoints Republic as the Company's attorney-infect
(without requiring Republic) to execute any such financing statement or
statements in the Company's name and to perform all other acts which Republic
deems appropriate to perfect and continue the Security Interest and to protect,
preserve and realize upon the Collateral, including, but not limited to, the
right to endorse notes, complete blanks in documents and sign assignments on
behalf of the Company as its attorney-in-fact. This Power of Attorney is coupled
with an interest and is irrevocable without Republic's consent.
10.4 Collection. In the event of default, hereunder, Republic may
demand, collect and sue on any of the Collateral (in either the Company's or
Republic's name at the latter's option); may enforce, compromise, settle or
discharge such Collateral without discharging the indebtedness or any part
thereof; and may endorse the Company's name on any and all checks, commercial
paper, and any other instruments pertaining to or constituting Collateral. In
the event Republic intends to exercise any rights set forth in this Section,
Republic shall use its best efforts to notify the Company thereof Prior to
taking any such action.
10.5 Further Security. As further security for payment of the
indebtedness, the Company hereby grants to Republic a Security Interest in and
lien on any and all property of the Company which is or may hereafter be in the
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possession or control of Republic in any capacity or of any third party acting
on its behalf including, without limitation, all deposit and other accounts and
all moneys owed or to be owed by Republic to the Company; and with respect to
all of such property, Republic shall have the same rights hereunder as it has
with respect to the Collateral. Without limiting any other right of Republic,
whenever Republic has the right to declare any indebtedness to be immediately
due and payable (whether or not it has so declared), Republic at its sole
election may set off against the indebtedness any and all moneys then or
thereafter owed to the Company by Republic in any capacity, whether or not the
indebtedness or the obligation to pay such moneys owed by Republic is then due,
and Republic shall be deemed to have exercised such right of setoff immediately
at the time of such election even though any charge therefor is made or entered
on Republic's records subsequent it, thereto.
10.6 Return of Collateral Under Trust Receipt. Possession of any of the
Collateral (including original notes evidencing Qualifying Mortgages) may be
temporarily relinquished by Republic to the Company under a trust receipt for
the sole purpose of sale, exchange, collection, or presentation, renewal or
registration of transfer. At all times the Collateral is in the Company's
possession, the Company will hold the Collateral in trust so as to continue the
perfection of Republic's Security Interest.
10.7 Loss of Loan Documents. Once Loan Documents have been delivered to
a postal or delivery service designated by the Company, Republic shall incur no
liability of any kind in connection with loss or delay in connection with the
transmittal of Loan Documents to or from the Company, any Investor, or any other
party pursuant to this Agreement. The Company will from time to time designate
an acceptable delivery service.
10.8 Successors and Assigns. The Company and Republic as used herein
shall include the legal representatives or assigns of those parties in cases
where the assignment by the Company was made with the consent required
hereunder.
10.9 Notices. Any notice or demand to be given hereunder shall be duly
given if delivered by recognized national delivery service or mailed by U.S.
Postal Service to the respective parties at their Notice Address- and shall be
deemed effective upon receipt.
10.10 Governing Law and Consent to Jurisdiction. This Agreement and the
Credit Note-shall be governed by and are to be construed under the laws of the
State of Florida. The Company agrees that any action or proceeding brought to
enforce or arising out of this Agreement may be commenced in the Circuit Court
for Pinellas County, or in the District Court of the United States for the
Middle District of Florida, and the Company waives personal service of process
22
<PAGE>
and agrees that a summons and complaint commencing an action or proceeding in
any such court shall be properly served and shall confer personal jurisdiction
if served by registered mail to the Company, or as otherwise provided by the
laws of the State of Florida or the United States.
10.11 Waiver of Jury Trial. The Company and Republic hereby knowingly
voluntarily, unconditionally and irrevocably waive the right to a trial by jury
in every jurisdiction in any action, proceeding or counterclaim brought by or
against the Company or Republic and their respective successors or assigns, in
respect of any matter arising out of this Agreement or any document given in
connection with or to secure this Agreement, including without limitation any
exercise of rights under this Agreement or any such document, any attempt to
cancel, void, or rescind this Agreement or any such document, and any course of
conduct or course of dealing in connection therewith.
10.12 Counterparts. This Agreement may be executed in any number of
counterparts and by Republic and the Company on separate counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same Agreement.
10.13 Titles. Titles to the sections of this Agreement are solely for
the convenience of Republic ant the Company, and are not an aid in the
interpretation of this Agreement or any part thereof.
10.14 Inconsistent Provisions. In the event any provision of this
Agreement is inconsistent with an, provision of any other document required or
executed pursuant to this Agreement, the provisions of this Agreement shall be
controlling.
10.15 Participation. Republic reserves the right to transfer
participating interests in this Agreement and in the Credit Note to one or more
other institutions or entities.
10.16 Entire Agreement. This Agreement and the related documents
identified and referred to herein are intended to set forth the entire agreement
of the parties concerning the subject matter hereof
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their corporate seals to be
hereunto affixed, all as of the Agreement Date.
(SEAL)
Westmark Mortgage Corporation
By:________________________________
Name: Payton Story, III
------------------------------
Title: President
------------------------------
(SEAL)
REPUBLIC BANK
By:________________________________
Name: David J. Christel
------------------------------
Title: Vice-President/Manager
------------------------------
24
<PAGE>
STATE OF FLORIDA
COUNTY OF
On this ______ day of ___________________, 1998, before me personally
came Payton Story, III, to me known, who, being by me duly sworn, did depose and
say that he resides at 961 Jasmine Drive, Delray Beach, FL 33483, that he is the
President of Westmark Mortgage Corporation, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
Notary Public
State of Florida
__________________________________
Print Name:_______________________
Commission Expires:
STATE OF FLORIDA )
COUNTY OF PINELLAS)
On this day of ________________, 1998, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he resides at _____________________________________, that he is the
________________________ of REPUBLIC BANK, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
Notary Public
State of Florida
__________________________________
Print Name:_______________________
Commission Expires:
25
WESTMARK MORTGAGE CORPORATION
SECOND AMENDMENT TO CREDIT AGREEMENT,
SECOND AMENDMENT TO REVOLVING CREDIT NOTE
AND FIRST AMENDMENT TO SECURITY AGREEMENT
Household Financial Services, Inc.
Prospect Heights, Illinois 60070
Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
April 7, 1997 as amended pursuant to that certain First Amendment to Credit
Agreement and First Amendment to Revolving Credit Note dated as of September 20,
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 $7,000,000 to
$10,000,000 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, the Revolving Credit Note and the Security
Agreement 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 "$7,000,000. appearing
therein and by substituting therefor the amount "$10,000,000".
2. Exhibit A to the Credit Agreement and the Revolving Credit Note
shall each be amended by deleting the phrase "Seven Million Dollars ($
7,000,000)" appearing therein and by substituting therefor the phrase "Ten
Million Dollars ($10,000,000) therefor.
3. Any references in the Credit Agreement and the Security Agreement to
the Borrower's chief executive office, principal place of business or mailing
address shall be amended to be "8000 North Federal Highway, Boca Raton, Florida
33487".
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
1
<PAGE>
(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 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 interest created and provided for thereunder remain in full force and
effect and shall not be affected, impaired or discharged hereby, except to the
extent specifically amended 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,
Revolving Credit Note and Security Agreement 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 Revolving Credit Note,
the Security Agreement, 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, the Revolving Credit
Note or the Security Agreement, any reference in any of such items to the Credit
Agreement, the Revolving Credit Note or the Security Agreement being sufficient
to refer to the Credit Agreement, the Revolving Credit Note or the Security
Agreement as amended hereby. The Borrower hereby affirms its promise to pay all
principal of and interest on the Revolving Credit Note as amended hereby.
2
<PAGE>
(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 counterpart for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
Dated as of October 7, 1998.
WESTMARK MORTGAGE CORPORATION
By: /s/ Payton Story, III
-----------------------------------
Its: President
-----------------------------------
Accepted and agreed to in Mt. Prospect, Illinois as of the date and
year last above written.
HOUSEHOLD FINANCIAL SERVICES, INC.
By:____________________________________
Its:___________________________________
3
WESTMARK MORTGAGE CORPORATION
THIRD AMENDMENT TO CREDIT AGREEMENT
AND SECOND AMENDMENT TO SECURITY AGREEMENT
Household Financial Services, Inc.
Prospect Heights. Illinois 60070
Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
April 7, 1997 as amended pursuant to that certain First Amendment to Credit
Agreement and First Amendment to Revolving Credit Note dated as of September 20,
1997 and as further amended pursuant to that certain Second Amendment to Credit
Agreement, Second Amendment to Revolving Credit Note and First Amendment to
Security Agreement dated as of October 7, 1998 (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 $10,000,000 to
$20,000,000, decrease the interest rate applicable to Loans made under the
Credit Agreement, extend the Termination Date and make certain other amendments
to the Loan Documents 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 Security Agreement shall be and hereby are
amended as follows.
1.1. Section 1.1 of the Credit Agreement shall be amended by deleting
the amount "$10,000,000" appearing therein and by substituting therefor the
amount "$20,000,000."
1.2. Exhibit A to the Credit Agreement shall be amended in its
entirety and as so amended shall read as set forth on Exhibit A attached hereto.
1.3. Section 2. l(a) of the Credit Agreement shall be amended by
deleting the phrase "two percent (2 %)" appearing therein and by substituting
therefore "one and one-fourth percent (1-1/4%)."
1.4. Section 3(c) of the Credit Agreement shall be amended by
deleting the amount "$75.00" appearing therein and by substituting therefor the
amount "$50.00".
1.5. The definition of "Termination Date" in Section 1 of the Credit
Agreement is hereby amended by deleting "March 31, 1999" and replacing the same
with "March 31, 2000."
<PAGE>
1.6. Any reference in the Credit Agreement or Security Agreement to
"Collateral Agent" shall be amended to be "render," the parties acknowledging
that the arrangements between First Union Bank of North Carolina as Collateral
Agent and Lender have been terminated and the duties of the Collateral Agent
have been assumed by the Lender.
1.7. Any reference in the Credit Agreement or any other Loan Document
to "Note" or "Revolving Credit Note" shall be references to the replacement
Revolving Credit Note delivered pursuant to 2(a) of this Amendment
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 and the Borrower shall have executed and
delivered to Lender a replacement Revolving Credit Note in the form of
Exhibit A to the Credit Agreement as amended hereby.
(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, at may be appropriate) of all legal documents or proceedings
taken in connection with the execution and delivery of this Amendment
to the extent the Lender of 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 se 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 as amended (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, except to the extent specifically amended 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.
2
<PAGE>
(b) Except as specifically amended herein, the Credit
Agreement and Security Agreement 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
Security Agreement, 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 Security Agreement, any reference in any of such items to the
Credit Agreement or the Security Agreement being sufficient to refer to
the Credit Agreement or the Security Agreement 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 thin 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.
Dated as of February 4, 1999.
WESTMARK MORTGAGE CORPORATION
By:/s/ Payton Story, III
-------------------------------
Its: President
-------------------------------
Accepted and agreed to in Mt. Prospect, Illinois as of the date and
year last above written.
HOUSEHOLD FINANCIAL SERVICES, INC.
By:_______________________________
Its:______________________________
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is entered into on the 31 day of March, 1998 by and
between Westmark Group Holdings, Inc., a Delaware corporation, and Westmark
Mortgage Corporation, a California corporation (hereinafter collectively
referred to as "Westmark") and Mark Schaftlein ("Executive").
WHEREAS, Westmark and Executive entered into an Employment Agreement on
or about April 25, 1997, and
WHEREAS, Westmark and Executive amended said Employment Agreement on or
about August 27, 1997, and
WHEREAS, Westmark and Executive desire to further 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, as amended, is hereby modified in the following respects:
1. Executive's annual salary shall be increased to $225,000 commencing
April 1, 1998 payable as follows: $13,500 per month in cash and $5,250 per month
shall be accrued and payable at the end of each quarter commencing June 30, 1998
either in cash to the extent that the corporation has sufficient cash proceeds
available, or the issuance of restricted shares of common stock of Westmark
Group Holdings, Inc. based upon the closing bid price of the common stock of
Westmark Group Holdings, Inc. on the last day of each quarter. If sufficient
cash proceeds are unavailable, said accrue shall be paid through the issuance of
shares of common stock. If sufficient cash proceeds are available for payment of
the accrual, executive shall have the option of being paid in cash or restricted
common stock or a combination thereof. The amount of monthly compensation
payable in cash may be adjusted from time to time based upon the written
agreement of the parties.
2. Executive shall participate in an annual bonus plan commencing with
the calendar year 1998, whereby Executive shall receive an annual bonus based
upon a percentage of He pre-tax net income of the corporation on a consolidated
basis. The amount of the annual bonus shall be determined by the Compensation
Committee and the Board of Directors on an annual basis.
1
<PAGE>
Except as hereinabove modified or amended said Employment Agreement and
any prior amendment hereto shall continue in full force and effect.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ I. H. Bowen
--------------------------
Its: C.F.O.
--------------------------
WESTMARK MORTGAGE CORPORATION
By: /s/ Payton Story, III
--------------------------
Its: President
--------------------------
/s/ Mark Schaftlein
- ------------------------------
MARK SCHAFTLEIN
2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is entered into on the 31 day of March, 1998 by and
between Westmark Mortgage Corporation, a California corporation (hereinafter
referred to as "Westmark") and Payton Story, III ("Executive").
WHEREAS, Westmark and Executive entered into an Employment Agreement on
or about April 25, 1997, and
WHEREAS, Westmark and Executive amended said Employment Agreement on or
about August 27, 1997, and
WHEREAS, Westmark and Executive desire to further 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, as amended, is hereby modified in the following respects:
1. Executive's annual salary shall be increased to $225,000 commencing
April 1, 1998 payable as follows: $12,500 per month in cash and $6,250 per month
shall be accrued and payable at the end of each quarter commencing June 30, 1998
either in cash to the extent that the corporation has sufficient cash proceeds
available, or the issuance of restricted shares of common stock of Westmark
Group Holdings, Inc. based upon the closing bid price of the common stock of
Westmark Group Holdings, Inc. on the last day of each quarter. If sufficient
cash proceeds are unavailable, said accrue shall be paid through the issuance of
shares of common stock. If sufficient cash proceeds are available for payment of
the accrual, executive shall have the option of being paid in cash or restricted
common stock or a combination thereof. The amount of monthly compensation
payable in cash may be adjusted from time to time based upon the written
agreement of the parties.
2. Executive shall participate in an annual bonus plan commencing with
the calendar year 1998, whereby Executive shall receive an annual bonus based
upon a percentage of He pre-tax net income of the corporation on a consolidated
basis. The amount of the annual bonus shall be determined by the Compensation
Committee and the Board of Directors on an annual basis.
1
<PAGE>
Except as hereinabove modified or amended said Employment Agreement and
any prior amendment hereto shall continue in full force and effect.
WESTMARK MORTGAGE CORPORATION
By: /s/ I. H. Bowen
-----------------------
Its: C.F.O.
-----------------------
/s/ Payton Story, III
- ---------------------------
PAYTON STORY, III
2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is entered into on the 31 day of March, 1998 by and
between Westmark Group Holdings, Inc., a Delaware corporation (hereinafter
referred to as "Westmark") and Louis Resweber ("Executive").
WHEREAS, Westmark and Executive entered into an Employment Agreement on
or about July 1, 1997, and
WHEREAS, Westmark and Executive desire to further 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, as amended, is hereby modified in the following respects:
1. Executive's annual salary shall be increased to $180,000 commencing
April 1, 1998 payable as follows: $10,000 per month in cash and $5,000 per month
shall be accrued and payable at the end of each quarter commencing June 30, 1998
either in cash to the extent that the corporation has sufficient cash proceeds
available, or the issuance of restricted shares of common stock of Westmark
Group Holdings, Inc. based upon the closing bid price of the common stock of
Westmark Group Holdings, Inc. on the last day of each quarter. If sufficient
cash proceeds are unavailable, said accrue shall be paid through the issuance of
shares of common stock. If sufficient cash proceeds are available for payment of
the accrual, executive shall have the option of being paid in cash or restricted
common stock or a combination thereof. The amount of monthly compensation
payable in cash may be adjusted from time to time based upon the written
agreement of the parties.
2. Executive shall participate in an annual bonus plan commencing with
the calendar year 1998, whereby Executive shall receive an annual bonus based
upon a percentage of He pre-tax net income of the corporation on a consolidated
basis. The amount of the annual bonus shall be determined by the Compensation
Committee and the Board of Directors on an annual basis.
1
<PAGE>
Except as hereinabove modified or amended said Employment Agreement and
any prior amendment hereto shall continue in full force and effect.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein
----------------------
Its: C.E.O.
----------------------
/s/ Louis Resweber
- ---------------------------
LOUIS RESWEBER
2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is entered into on the 31 day of March, 1998 by and
between Westmark Group Holdings, Inc., a Delaware corporation, and Westmark
Mortgage Corporation, a California corporation (hereinafter collectively
referred to as "Westmark") and Irving H. Bowen ("Executive").
WHEREAS, Westmark and Executive entered into an Employment Agreement on
or about July 1, 1997, and
WHEREAS, Westmark and Executive desire to further 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, as amended, is hereby modified in the following respects:
1. Executive's annual salary shall be increased to $200,000 commencing
April 1, 1998 payable as follows: $10,000 per month in cash and $6,667 per month
shall be accrued and payable at the end of each quarter commencing June 30, 1998
either in cash to the extent that the corporation has sufficient cash proceeds
available, or the issuance of restricted shares of common stock of Westmark
Group Holdings, Inc. based upon the closing bid price of the common stock of
Westmark Group Holdings, Inc. on the last day of each quarter. If sufficient
cash proceeds are unavailable, said accrue shall be paid through the issuance of
shares of common stock. If sufficient cash proceeds are available for payment of
the accrual, executive shall have the option of being paid in cash or restricted
common stock or a combination thereof. The amount of monthly compensation
payable in cash may be adjusted from time to time based upon the written
agreement of the parties.
2. Executive shall participate in an annual bonus plan commencing with
the calendar year 1998, whereby Executive shall receive an annual bonus based
upon a percentage of He pre-tax net income of the corporation on a consolidated
basis. The amount of the annual bonus shall be determined by the Compensation
Committee and the Board of Directors on an annual basis.
3. Westmark Group Holdings, Inc. hereby ratifies, adopts and confirms
said Employment Agreement and any amendments thereto.
1
<PAGE>
Except as hereinabove modified or amended said Employment Agreement and
any prior amendment hereto shall continue in full force and effect.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein
-----------------------
Its: C.E.O.
-----------------------
WESTMARK MORTGAGE CORPORATION
By: /s/ Payton Story, III
-----------------------
Its: President
-----------------------
/s/ I. H. Bowen
- ---------------------------
IRVING H. BOWEN
2
AMENDMENT TO CONSULTING AGREEMENT
This Amendment is entered into on the 31 day of March, 1998 by and
between Westmark Group Holdings, Inc., a Delaware corporation, and Westmark
Mortgage Corporation, a California corporation (hereinafter collectively
referred to as "Westmark") and Harry C. Coolidge ("Consultant").
WHEREAS, Westmark and Consultant entered into a Consulting Agreement on
or about January 24, 1996, and
WHEREAS, Westmark and Consultant amended said Consulting Agreement on
or about February 4, 1997, and further amended said Consulting Agreement on or
about August 27, 1997, and
WHEREAS, Westmark and Consultant desire to further modify said
Consulting Agreement,
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, said
Consulting Agreement, as amended, is hereby modified in the following respects:
1. Consultant's annual salary shall be increased to $180,000 commencing
April 1, 1998 payable as follows: $10,000 per month in cash and $5,000 per month
shall be accrued and payable at the end of each quarter commencing June 30, 1998
either in cash to the extent that the corporation has sufficient cash proceeds
available, or the issuance of restricted shares of common stock of Westmark
Group Holdings, Inc. based upon the closing bid price of the common stock of
Westmark Group Holdings, Inc. on the last day of each quarter. If sufficient
cash proceeds are unavailable, said accrue shall be paid through the issuance of
shares of common stock. If sufficient cash proceeds are available for payment of
the accrual, Consultant shall have the option of being paid in cash or
restricted common stock or a combination thereof. The amount of monthly
compensation payable in cash may be adjusted from time to time based upon the
written agreement of the parties.
2. Consultant shall participate in an annual bonus plan commencing with
the calendar year 1998, whereby Consultant shall receive an annual bonus based
upon a percentage of He pre-tax net income of the corporation on a consolidated
basis. The amount of the annual bonus shall be determined by the Compensation
Committee and the Board of Directors on an annual basis.
1
<PAGE>
Except as hereinabove modified or amended said Employment Agreement and
any prior amendment hereto shall continue in full force and effect.
WESTMARK GROUP HOLDINGS, INC.
By: /s/ Mark Schaftlein
-----------------------
Its: C.E.O.
-----------------------
WESTMARK MORTGAGE CORPORATION
By: /s/ I. H. Bowen
-----------------------
Its: C.F.O
-----------------------
/s/ Harry C. Coolidge
- --------------------------
HARRY C. COOLIDGE
2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), is entered into on the
17th day of April, 1998, by and between Westmark Group Holdings, Inc., a
Delaware corporation, hereinafter referred to as "Seller," and Mark Schaftlein,
hereinafter referred to as "Buyer."
WITNESSETH
WHEREAS, the Buyer wishes to purchase shares of common stock of the
Seller upon the terms and subject to the conditions of this Agreement, subject
to acceptance of this Agreement by the Seller.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT To PURCHASE AND PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to purchase 103,333
shares of restricted common stock of Seller for the sum of $219,583. The
purchase price shall be payable in United States dollars.
b. Terms of Payment. Buyer shall pay to seller the sum of
$170,000 within thirty (30) days from the date of this agreement (the "initial
payment"). The balance in the sum of $49,583 shall be paid in accordance with
the terms and conditions of a promissory note, a copy of which is attached
hereto, marked Exhibit "A" and by this reference made part hereof.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION. The Buyer represents and warrants to, and covenants
and agrees with, the Seller as follows:
a. The Buyer is purchasing the shares for its own account for
investment only and not with a view toward the public sale or distribution
thereof;
b. All subsequent offers and sales of the shares by the Buyer
shall be made pursuant to registration of the shares under the Securities Act of
1933 or pursuant to an exemption from registration;
c. The Buyer understands that no federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the shares;
d. This Agreement is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
1
<PAGE>
3. SELLER'S REPRESENTATIONS. The Seller represents and warrants to
the Buyer that:
a. Concerning the Shares. The shares, when delivered and paid
for in accordance with this Agreement, will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder;
b. Purchase Agreement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Seller and is a
valid and binding agreement of the Seller enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
c. Non-Contravention. The execution and delivery of this
Agreement by the Seller and the consummation by the Seller of the sale of the
shares and the other transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by the Seller of any of the terms and
provisions of, or constitute a default under the certificate of incorporation or
by-laws of the Seller or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Seller is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Seller or any of its properties
or assets; and
d. Approvals. The Seller is not aware of any authorization,
approval or consent of any governmental body which is required to be obtained by
the Seller for the issuance and sale of the sharks as contemplated by this
Agreement.
4. CERTAIN COVENANTS AND ACKNOWLEDGEMENTS
a. Transfer Restrictions. The Buyer acknowledges that (1) the
shares to be sold to it hereunder have not been and are not being registered
under the provisions of the Securities Act of 1933 and may not be transferred
unless (A) the shares are subsequently registered thereunder or (B) the Buyer
shall have delivered to Westmark Group Holdings, Inc. an opinion of counsel,
reasonably satisfactory in form, scope and substance to Westmark Group Holdings,
Inc., to the effect that the shares may be sold or transferred pursuant to an
exemption from such registration, (2) any sale of the shares made in reliance on
Rule 144 promulgated under the Securities Act of 1933 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale such shares under circumstances in which the Seller, or
the person through whom the sale is made, may be deemed to be an underwriter, as
that term is used in the Securities Act of 1933, may require compliance with
some other exemption under the Securities Act of 1933 or the rules and
regulations of the SEC thereunder, and (3) neither Westmark Group Holdings, Inc.
nor any other person is under any obligation to register the shares under the
Securities Act of 1933 or to comply with the terms and conditions of any
exemption thereunder.
2
<PAGE>
b. Restrictive Legend. The Buyer acknowledges and agrees that
the certificates for the shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
the certificates for the shares):
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of the Seller's counsel that
registration is not required under said Act."
5. STOCK DELIVERY INSTRUCTIONS. The certificate or certificates for
the shares shall be delivered by the Seller to Buyer upon receipt of the initial
payment and an executed promissory note as hereinabove set forth.
6. CONDITIONS TO THE SELLER'S OBLIGATION TO SELL. The Buyer
understands that the Seller's obligation to sell the shares to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Seller of an executed
duplicate original of this Agreement;
b. Receipt by Seller of the initial payment from Buyer as
hereinabove set forth, and an executed promissory note in accordance with the
terms and conditions set forth in Exhibit "A."
7. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Florida. A facsimile
transmission of this signed agreement shall be legal and binding on all parties
hereto. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally or by courier
and shall be effective five (5) days after being placed in the mail, if mailed,
or upon receipt, if delivered personally or by courier, in each case addressed
to a party at such party's address shown on the signature page of this Agreement
or such other address as a party shall have provided by notice to the other
party in accordance with this provision.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
as of the date set forth below.
SELLER: BUYER:
WESTMARK GROUP HOLDINGS, INC. MARK SCHAFTLEIN
8000 North Federal Highway 8000 North Federal Highway
Boca Raton, FL 33487 Boca Raton, FL 33487
Dated: 4/17/98 Dated: 4/17/98
---------------------- -------------------------
By: /s/ I.H. Bowen /s/ Mark Schaftlein
---------------------- -------------------------
MARK SCHAFTLEIN
Its: C.F.O.
----------------------
4
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), is entered into on the
17th day of April, 1998, by and between Westmark Group Holdings, Inc., a
Delaware corporation, hereinafter referred to as "Seller," and Payton Story,
hereinafter referred to as "Buyer."
WITNESSETH
WHEREAS, the Buyer wishes to purchase shares of common stock of the
Seller upon the terms and subject to the conditions of this Agreement, subject
to acceptance of this Agreement by the Seller.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT To PURCHASE AND PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to purchase 103,333
shares of restricted common stock of Seller for the sum of $219,583. The
purchase price shall be payable in United States dollars.
b. Terms of Payment. Buyer shall pay to seller the sum of
$170,000 within thirty (30) days from the date of this agreement (the "initial
payment"). The balance in the sum of $49,583 shall be paid in accordance with
the terms and conditions of a promissory note, a copy of which is attached
hereto, marked Exhibit "A" and by this reference made part hereof.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION. The Buyer represents and warrants to, and covenants
and agrees with, the Seller as follows:
a. The Buyer is purchasing the shares for its own account for
investment only and not with a view toward the public sale or distribution
thereof;
b. All subsequent offers and sales of the shares by the Buyer
shall be made pursuant to registration of the shares under the Securities Act of
1933 or pursuant to an exemption from registration;
c. The Buyer understands that no federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the shares;
d. This Agreement is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
1
<PAGE>
3. SELLER'S REPRESENTATIONS. The Seller represents and warrants to
the Buyer that:
a. Concerning the Shares. The shares, when delivered and paid
for in accordance with this Agreement, will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder;
b. Purchase Agreement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Seller and is a
valid and binding agreement of the Seller enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
c. Non-Contravention. The execution and delivery of this
Agreement by the Seller and the consummation by the Seller of the sale of the
shares and the other transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by the Seller of any of the terms and
provisions of, or constitute a default under the certificate of incorporation or
by-laws of the Seller or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Seller is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Seller or any of its properties
or assets; and
d. Approvals. The Seller is not aware of any authorization,
approval or consent of any governmental body which is required to be obtained by
the Seller for the issuance and sale of the sharks as contemplated by this
Agreement.
4. CERTAIN COVENANTS AND ACKNOWLEDGEMENTS
a. Transfer Restrictions. The Buyer acknowledges that (1) the
shares to be sold to it hereunder have not been and are not being registered
under the provisions of the Securities Act of 1933 and may not be transferred
unless (A) the shares are subsequently registered thereunder or (B) the Buyer
shall have delivered to Westmark Group Holdings, Inc. an opinion of counsel,
reasonably satisfactory in form, scope and substance to Westmark Group Holdings,
Inc., to the effect that the shares may be sold or transferred pursuant to an
exemption from such registration, (2) any sale of the shares made in reliance on
Rule 144 promulgated under the Securities Act of 1933 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale such shares under circumstances in which the Seller, or
the person through whom the sale is made, may be deemed to be an underwriter, as
that term is used in the Securities Act of 1933, may require compliance with
some other exemption under the Securities Act of 1933 or the rules and
regulations of the SEC thereunder, and (3) neither Westmark Group Holdings, Inc.
nor any other person is under any obligation to register the shares under the
Securities Act of 1933 or to comply with the terms and conditions of any
exemption thereunder.
2
<PAGE>
b. Restrictive Legend. The Buyer acknowledges and agrees that
the certificates for the shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
the certificates for the shares):
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of the Seller's counsel that
registration is not required under said Act."
5. STOCK DELIVERY INSTRUCTIONS. The certificate or certificates for
the shares shall be delivered by the Seller to Buyer upon receipt of the initial
payment and an executed promissory note as hereinabove set forth.
6. CONDITIONS TO THE SELLER'S OBLIGATION TO SELL. The Buyer
understands that the Seller's obligation to sell the shares to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Seller of an executed
duplicate original of this Agreement;
b. Receipt by Seller of the initial payment from Buyer as
hereinabove set forth, and an executed promissory note in accordance with the
terms and conditions set forth in Exhibit "A."
7. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Florida. A facsimile
transmission of this signed agreement shall be legal and binding on all parties
hereto. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally or by courier
and shall be effective five (5) days after being placed in the mail, if mailed,
or upon receipt, if delivered personally or by courier, in each case addressed
to a party at such party's address shown on the signature page of this Agreement
or such other address as a party shall have provided by notice to the other
party in accordance with this provision.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
as of the date set forth below.
SELLER: BUYER:
WESTMARK GROUP HOLDINGS, INC. PAYTON STORY
8000 North Federal Highway 8000 North Federal Highway
Boca Raton, FL 33487 Boca Raton, FL 33487
Dated: 4/17/98 Dated: 4/17/98
----------------------------- ---------------------------
By: /s/ I.H. Bowen /s/ Payton Story, III
----------------------------- ---------------------------
PAYTON STORY
Its: C.F.O.
-----------------------------
4
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), is entered into on the
17th day of April, 1998, by and between Westmark Group Holdings, Inc., a
Delaware corporation, hereinafter referred to as "Seller," and Irving Bowen,
hereinafter referred to as "Buyer."
WITNESSETH
WHEREAS, the Buyer wishes to purchase shares of common stock of the
Seller upon the terms and subject to the conditions of this Agreement, subject
to acceptance of this Agreement by the Seller.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE AND PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to purchase
93,334 shares of restricted common stock of Seller for the sum of $198,335. The
purchase price shall be payable in United States dollars.
b. Terms of Payment. Buyer shall pay to seller the sum of
$160,000 within thirty (30) days from the date of this agreement (the "initial
payment"). The balance in the sum of $38,335 shall be paid in accordance with
the terms and conditions of a promissory note, a copy of which is attached
hereto, marked Exhibit "A" and by this reference made part hereof.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION. The Buyer represents and warrants to, and covenants
and agrees with, the Seller as follows:
a. The Buyer is purchasing the shares for its own account for
investment only and not with a view toward the public sale or distribution
thereof;
b. All subsequent offers and sales of the shares by the Buyer
shall be made pursuant to registration of the shares under the Securities Act of
1933 or pursuant to an exemption from registration;
c. The Buyer understands that no federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the shares;
d. This Agreement is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
1
<PAGE>
3. SELLER'S REPRESENTATIONS. The Seller represents and warrants to
the Buyer that:
a. Concerning the Shares. The shares, when delivered and paid
for in accordance with this Agreement, will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder;
b. Purchase Agreement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Seller and is a
valid and binding agreement of the Seller enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
c. Non-Contravention. The execution and delivery of this
Agreement by the Seller and the consummation by the Seller of the sale of the
shares and the other transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by the Seller of any of the terms and
provisions of, or constitute a default under the certificate of incorporation or
by-laws of the Seller or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Seller is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Seller or any of its properties
or assets; and
d. Approvals. The Seller is not aware of any authorization,
approval or consent of any governmental body which is required to be obtained by
the Seller for the issuance and sale of the sharks as contemplated by this
Agreement.
4. CERTAIN COVENANTS AND ACKNOWLEDGEMENTS
a. Transfer Restrictions. The Buyer acknowledges that (1) the
shares to be sold to it hereunder have not been and are not being registered
under the provisions of the Securities Act of 1933 and may not be transferred
unless (A) the shares are subsequently registered thereunder or (B) the Buyer
shall have delivered to Westmark Group Holdings, Inc. an opinion of counsel,
reasonably satisfactory in form, scope and substance to Westmark Group Holdings,
Inc., to the effect that the shares may be sold or transferred pursuant to an
exemption from such registration, (2) any sale of the shares made in reliance on
Rule 144 promulgated under the Securities Act of 1933 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale such shares under circumstances in which the Seller, or
the person through whom the sale is made, may be deemed to be an underwriter, as
that term is used in the Securities Act of 1933, may require compliance with
some other exemption under the Securities Act of 1933 or the rules and
regulations of the SEC thereunder, and (3) neither Westmark Group Holdings, Inc.
nor any other person is under any obligation to register the shares under the
Securities Act of 1933 or to comply with the terms and conditions of any
exemption thereunder.
2
<PAGE>
b. Restrictive Legend. The Buyer acknowledges and agrees that
the certificates for the shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
the certificates for the shares):
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of the Seller's counsel that
registration is not required under said Act."
5. STOCK DELIVERY INSTRUCTIONS. The certificate or certificates for
the shares shall be delivered by the Seller to Buyer upon receipt of the initial
payment and an executed promissory note as hereinabove set forth.
6. CONDITIONS TO THE SELLER'S OBLIGATION TO SELL. The Buyer
understands that the Seller's obligation to sell the shares to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Seller of an executed
duplicate original of this Agreement;
b. Receipt by Seller of the initial payment from Buyer as
hereinabove set forth, and an executed promissory note in accordance with the
terms and conditions set forth in Exhibit "A."
7. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Florida. A facsimile
transmission of this signed agreement shall be legal and binding on all parties
hereto. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally or by courier
and shall be effective five (5) days after being placed in the mail, if mailed,
or upon receipt, if delivered personally or by courier, in each case addressed
to a party at such party's address shown on the signature page of this Agreement
or such other address as a party shall have provided by notice to the other
party in accordance with this provision.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
as of the date set forth below.
SELLER: BUYER:
WESTMARK GROUP HOLDINGS, INC. IRVING BOWEN
8000 North Federal Highway 8000 North Federal Highway
Boca Raton, FL 33487 Boca Raton, FL 33487
Dated: 4/17/98 Dated: 4/17/98
----------------- -------------------
By: /s/ I.H. Bowen /s/ I. H. Bowen
----------------- -------------------------
IRVING BOWEN
Its: C.F.O.
-----------------
4
GREEN TREE
MORTGAGE
SERVICES
CORRESPONDENT
AGREEMENT
[LOGO]
<PAGE>
GREEN TREE MORTGAGE SERVICES CORRESPONDENT AGREEMENT
THIS AGREEMENT, made this 21st day of May, 1997, by and between Green Tree
Financial Corporation, a corporation organized and existing under the laws of
the State of Delaware (hereinafter referred to as "Green Tree") and Westmark
Mortgage Corporation, a corporation existing under California law, (hereinafter
referred to as "Correspondent").
WHEREAS, Correspondent is engaged in the activity of selling loans made
by the Correspondent to third party consumers ("Borrowers") which were funded by
the Correspondent in the Correspondent's name, which loans are evidenced by
notes ("Notes") and secured by mortgages or deeds of trust ("Mortgages") on real
property hereinafter the Mortgages and Notes are collectively referred to as
"Loans"); and
WHEREAS, Green Tree is engaged in the activity of purchasing Loans
funded by correspondents which Loans are evidenced by Notes and secured by
Mortgages and is desirous of having Correspondent submit to it Loan Applications
defined below generated by the Correspondent from Borrowers; and
WHEREAS, Green Tree and Correspondent desire to enter into this
agreement to govern the selling of Loans by Correspondent to Green Tree.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth and with the foregoing recitals incorporated herein by reference, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. LOAN APPLICATIONS.
-----------------
Correspondent shall submit to Green Tree from time to time loan
application packages including but not limited to, a loan application, credit
report, appraisal, title report, income and mortgage verification and proof of
insurance (collectively referred to as "Loan Applications"), the types of which
are within the guidelines as to dollar minimums and maximums, terms, rates,
collateral and other requirements as will be from time to time mutually agreed
upon by and between Correspondent and Green Tree, provided, however, that
nothing herein shall be construed as creating any obligation on the part of
Green Tree to purchase Loans funded in the Correspondent's name.
2. INFORMATION REQUIRED FOR LOANS.
------------------------------
At the time of the submission of such Loan Applications by
Correspondent to Green Tree, Green Tree may undertake to obtain at Green Tree's
expense, such additional credit data, real estate appraisals, employment and
mortgage documentation and any other additional information as Green Tree from
time to time may require before making a decision on approval of said Loans.
Further, if a decision is made by Green Tree to make a Loan, Green Tree, at
Green Tree's expense, will perform such other functions as may be required to
facilitate the closing of the Loan.
3. REJECTION OF LOAN APPLICATIONS.
------------------------------
Green Tree hereby retains the absolute right in its sole and absolute
discretion to reject any and all Loan Applications submitted to it by
Correspondent and shall not be bound to purchase any Loan until it has informed
Correspondent and Borrower of its intention to do so in writing.
4. REPRESENTATIONS AND WARRANTIES OF CORRESPONDENT.
-----------------------------------------------
It is understood and agreed by Correspondent and Green Tree that as a
material inducement to Green Tree to enter into this Agreement, Correspondent
hereby represents, warrants and covenants to Green Tree with respect to each
Loan Application submitted to Green Tree, each Loan purchased by Green Tree from
the Correspondent as follows:
A. This Agreement, constitutes, when duly executed and delivered by
Correspondent, a legal, valid and binding obligation of Correspondent
enforceable against Correspondent according to its terms. Upon execution and
delivery of this Agreement by Correspondent to Green Tree, the, Correspondent
shall deliver certified copies of relevant corporate or similar resolutions.
1
<PAGE>
B. Correspondent is duly organized, validly existing and in good
standing under laws applicable to its organization and existence and is duly
qualified as a foreign business in all jurisdictions wherein the character of
the property owned or leased or the nature of the business transacted by
Correspondent makes qualification as a foreign business necessary.
C. Correspondent is a licensed first and/or secondary mortgage lender
in good standing in all states in which it is selling Loans to Green Tree.
D. Correspondent has in effect and in good standing all necessary and
appropriate federal, state and local licenses or permits required to originate
the Loans. Correspondent shall make available to Green Tree copies of any
licenses required to be maintained by Correspondent upon Green Tree's request.
Upon execution and delivery of this Agreement by Correspondent to Green Tree,
the Correspondent shall deliver to Green Tree a good standing certificate for
the state of its incorporation and, if requested by Green Tree, for each state
in which Correspondent is or should be registered to do business.
E. The execution and delivery of this Agreement by Correspondent and
the performance by Correspondent of the obligations by it to be performed
hereunder do not, and will not, violate any provision of any law, rule or
regulation (federal, state or local), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Correspondent or to the charter or bylaws of the Correspondent, if applicable.
F. Correspondent has the authority to make, deliver and perform this
Agreement and all transactions contemplated hereunder. No consent of any other
Person including Correspondent's shareholders, if applicable, or its
governmental regulators, and no consent, license, approval or authorization of
or registration with, or declaration by or with, any governmental authority,
bureau or agency is required in connection with the execution, delivery,
validity, enforceability or performance of this Agreement or the selling of any
Loan to Green Tree, which consent, license, approval, authorization,
registration or declaration has not been obtained.
G. The execution and delivery of this Agreement by Correspondent and
the performance by Correspondent of the obligations by it to be performed
hereunder do not and will not result in a breach of or constitute a default
under any agreement or instrument to which the Correspondent is a party or by
which it may be bound or affected.
H. There are no actions, suits or proceedings pending or, to the
knowledge of Correspondent, threatened against or affecting Correspondent or the
properties of Correspondent before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to Correspondent, would have a material adverse
effect on the financial condition, properties or operation of Correspondent or
its ability to originate the Loans.
I. Correspondent has not, in connection with the Loan Applications
submitted to Green Tree or Loans purchased by Green Tree, violated any
applicable federal, state or local law or regulation, including without
limitation, the Fair Credit Reporting Act and Regulations, the Federal Truth
Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and
Regulation B, the Federal Real Estate Settlement Procedures Act and Regulations
or usury laws and regulations.
J. Correspondent will originate all Loans in a prudent manner
consistent with the normal and customary practices generally followed by
businesses engaged in the origination of their own and others' Loans.
K. Correspondent has not, in connection with the transaction
contemplated by this Agreement, entered into any agreement, incurred any
obligations, made any commitment or taken any action which might result in a
claim for or an obligation to pay a brokerage commission, finder's fee or
similar fee in respect to the Loans, other than as disclosed prior to the
submission of the Loan Application to Green Tree.
L. From and after the Settlement Date, Correspondent shall not solicit,
directly or indirectly, any of the Borrowers for the purpose of refinancing the
Loan brokered to Green Tree.
2
<PAGE>
Addendum Premium Rebate
In the event of the prepayment of a loan (other than by a refinancing by the
Buyer or 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 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 paid by Buyer x number of months remaining in
Premium Refund = Prepayment Period
----------------------------------------------------------
6 month total prepayment period
Any loan that has a prepayment penalty will not be subject to a premium rebate
in the event of early prepayment.
3
<PAGE>
9. MISCELLANEOUS.
-------------
A. Additional Documents.
--------------------
Each party shall from time to time, execute and deliver or
cause to be executed and delivered, such additional instruments, papers and
documents as the other party may at any time reasonably request for the purpose
of carrying out this Agreement and the transactions provided for herein.
B. Survival of Covenants, Agreements, Representations
--------------------------------------------------
and Warranties: Successors and Assigns.
--------------------------------------
All warranties, representations and covenants made by
Correspondent in this Agreement or in any other instrument delivered by the
Correspondent, or on Correspondent's behalf under this Agreement shall be
considered to have been relied upon by Green Tree' and shall survive the
delivery to Green Tree of any Loan Application and the termination of this
Agreement, regardless of any investigation made by Green Tree or on its behalf.
Green Tree reserves the right to proceed against third parties to enforce any
representations, warranties and covenants made by them for the benefit of
Correspondent.
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. Waivers.
-------
No waivers of any term, provision or condition of this
Agreement, whether by conduct in 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 fulfill
condition of this Agreement.
E. Governing Law.
-------------
This Agreement and all rights and obligations hereunder shall
be governed by and construed in accordance with the substantive laws of
Minnesota.
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 party
shall be as follows:
Green Tree Financial Corporation
1300 Landmark Towers
St. Paul, MN 55102
Attn: Mark Shepherd
Correspondent:
Attn:
The above addresses may be changed from time to time by written notice from one
party to the other.
G. Captions.
--------
Paragraphs or other headings set forth in this Agreement are
for reference purposes only and shall not affect in any way the meaning
or interpretations of this Agreement.
4
<PAGE>
H. Entire Agreement.
----------------
This Agreement and the documents referred to herein and
executed concurrently herewith constitute the entire Agreement between the
parties hereto with regard to the subject matter hereof, and there are no prior
agreements, understandings, restrictions, warranties or representations between
the parties with respect thereto.
I Modification.
------------
No changes or modification of this Agreement shall be valid
unless the same be in writing and signed by all parties hereto.
J. Benefit and Assignment.
----------------------
Except as otherwise provided, this Agreement and all the terms
and provisions hereof shall be binding upon, and shall inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and assigns. However, anything to the contrary notwithstanding, this
Agreement shall not be assignable by Correspondent without Green Tree's express
written consent in its sole and absolute discretion.
K. Termination.
-----------
This Agreement may be terminated by either Correspondent or
Green Tree upon thirty (30) days written notice of termination to the
non-terminating party. Except as otherwise provided for herein, upon such
termination, Green Tree will settle any outstanding Loans in which commitments
were issued in accordance with the terms of this Agreement. Notwithstanding the
foregoing, Green Tree has the option of terminating this Agreement immediately
upon notice to Correspondent of the Correspondent's breach of any of the
representations, warranties and covenants set forth in this Agreement and Green
Tree shall have no obligation to honor any Loan Applications after such
termination.
L. Sole Agreement.
--------------
It is understood and agreed that this Agreement supersedes all
prior agreements between the parties hereto pertaining to the transactions
contemplated by this Agreement and constitutes the sole mutual understanding
regarding the subject matter hereof.
M. Dispute Resolution.
------------------
All disputes under this Agreement shall be resolved by
arbitration pursuant to the provisions of this section.
The parties agree to communicate with each other to achieve
informal resolution of all disputes that may arise under this Agreement.
However, if communication does not resolve such dispute, the matter in dispute
will be subject to the Dispute Resolution provisions set forth in this section.
The party that desires to initiate the Dispute Resolution
provisions set forth herein shall notify the other party in writing of the
nature and details of the matter in dispute (the "Notice"). Within thirty (30)
days of the date of said Notice, a face to face meeting of one or more principal
officers of each of the parties shall be held at a mutually convenient time and
location to negotiate a resolution of the matter in dispute.
If negotiation does not resolve the matter in dispute
following the conclusion of the face to face meeting, the parties agree to
submit the matter in dispute to mediation within ten (10) days after the
conclusion of said meeting. Such mediation shall be administered by the American
Arbitration Association in accordance with its Commercial Mediation Rules. The
mediator will not have power to decide the matter in dispute, but will use
mediation techniques to assist the parties in reaching a resolution.
5
<PAGE>
If the matter in dispute is not resolved by negotiation or
mediation, the parties agree to submit the matter in dispute to binding
arbitration within ten (10) days after the conclusion of the mediation. Such
arbitration shall be conducted by the American Arbitration Association in
accordance with its Commercial Arbitration Rules in effect at the time of the
commencement of the arbitration. Any arbitration hearing shall be held in St.
Paul, Minnesota at a location to be determined by the American Arbitration
Association, If the parties cannot agree on a single arbiter, then each party
shall choose one arbiter and the third arbiter shall be chosen by the other two.
Any award made by the arbitrator(s) shall be binding on the parties and judgment
thereon may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing provisions, either party at any
time may require that a matter in dispute be submitted directly to arbitration,
irrespective of whether negotiation or mediation has been attempted or
completed.
If a party is required to initiate litigation to enforce any
of the provision of this section, the court shall award such party its court
costs, disbursements, and reasonable attorneys' fees incurred as a result
thereof.
N. Assignment and Delegation of Duties and Rights.
----------------------------------------------
Without the express written consent of the other party,
neither Correspondent nor Green Tree may assign this Agreement or delegate any
of its duties or rights hereunder except that (a) Green Tree may delegate such
duties and rights to any party which is then a wholly owned subsidiary or a
corporation under common control of Green Tree; and (b) Green Tree may assign
this Agreement to a wholly owned subsidiary.
IN WITNESS WHEREOF, the parties hereto executed this Agreement
on the date first above written.
GREEN TREE FINANCIAL CORPORATION
_________________________________________
BY:
_________________________________________
ITS:
_________________________________________
CORRESPONDENT
_________________________________________
BY:
_________________________________________
ITS:
6
WESTMARK GROUP HOLDINGS, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Basic:
Net income (loss) $ 1,186,718 $(1,468,070)
Cumulative preferred stock dividends (114,651) (122,198)
------------ -----------
Basic earnings (loss) 1,072,067 $(1,590,268)
============ ===========
Diluted:
Cumulative preferred stock dividend 114,651
Interest on convertible debt 13,448
------------
Diluted earnings available to common stockholders $ 1,200,166
============
Total Weighted Average Number of Common Shares and Equivalents:
Basic 2,891,820 1,506,204
Convertible Securities:
Warrants 19,225 -
Options 27,989 -
Convertible debt 92,986 -
Convertible preferred stock 197,294 -
------------ -----------
Diluted 3,229,314 1,506,204
============ ===========
Net Income (Loss) Per Share:
Basic $ .37 $ (1.06)
============ ===========
Diluted $ .37 $ (1.06)
============ ===========
</TABLE>
[LOGO]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated March
19, 1999, relating to the consolidated financial statements of Westmark Group
Holdings, Inc. and Subsidiary appearing in such company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
/s/ RACHLIN COHEN & HOLTZ LLP
-----------------------------
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
March 30, 1999
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7111
<SECURITIES> 21742
<RECEIVABLES> 1259
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31387
<PP&E> 1051
<DEPRECIATION> 472
<TOTAL-ASSETS> 33142
<CURRENT-LIABILITIES> 30616
<BONDS> 40
<COMMON> 17
0
600
<OTHER-SE> 2119
<TOTAL-LIABILITY-AND-EQUITY> 33142
<SALES> 0
<TOTAL-REVENUES> 17300
<CGS> 0
<TOTAL-COSTS> 13772
<OTHER-EXPENSES> 1241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1812
<INCOME-PRETAX> 476
<INCOME-TAX> (711)
<INCOME-CONTINUING> 1187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1187
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
