-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O/FODEgbUqCks7Fln7sFkLqx1mYz5X3uH/MD2qu3DKqF2JGqgWeZAYxEPoGLqfaA YLPW/jSKdqlQwYnRn8x7Vw== 0000890566-96-000598.txt : 19960613 0000890566-96-000598.hdr.sgml : 19960613 ACCESSION NUMBER: 0000890566-96-000598 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19960610 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTMARK GROUP HOLDINGS INC CENTRAL INDEX KEY: 0000820771 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 841055077 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-05599 FILM NUMBER: 96578795 BUSINESS ADDRESS: STREET 1: 355 N E FIFTH AVE STREET 2: STE 4 CITY: DELRAY BEACH STATE: FL ZIP: 33483 BUSINESS PHONE: 4072438010 MAIL ADDRESS: STREET 1: 355 N E FIFTH AVE STREET 2: STE 4 CITY: DELRAY BEACH STATE: FL ZIP: 33483 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK FINANCIAL SERVICES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK REAL ESTATE OF CALIFORNIA INC DATE OF NAME CHANGE: 19920623 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE VENTURE ACQUISITIONS INC DATE OF NAME CHANGE: 19900620 SB-2 1 REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 As filed with the Securities and Exchange Commission on June 7, 1996 Registration No. 333-_______ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ WESTMARK GROUP HOLDINGS, INC. (Exact name of Registrant as specified in its charter) COLORADO* 6531 84-1055077 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification Number) organization) Code Number) 355 N.E. FIFTH AVENUE NORMAN J. BIRMINGHAM DELRAY BEACH, FLORIDA 33483 WESTMARK GROUP HOLDINGS,INC. (407) 243-8010 355 N.E. FIFTH AVENUE (Address, including zip code, and DELRAY BEACH, FLORIDA 33483 telephone number, including (407) 243-8010 area code, of registrant's (Name, address, including zip code, principal executive offices) and telephone number, including area code, of agent for service) COPIES TO: THOMAS C. PRITCHARD BREWER & PRITCHARD, P.C. 1111 BAGBY, 24TH FLOOR HOUSTON, TEXAS 77002 PHONE (713) 659-1744 FAX (713) 659-2430 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ----------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE ============================================================================================== Title of Each Class of Proposed Proposed Amount of Securities To Be Amount Maximum Maximum Registration Registered Being Offering Price Aggregate Fee Registered Per Share(1) Offering Price(1) - ---------------------------------------------------------------------------------------------- Common Stock to be Issued........ 495,334 1.75 866,835 $299 - ---------------------------------------------------------------------------------------------- Shares Underlying Preferred 1.75 1,240,208 $428 Stock (3)........................ 708,690 1.75 1,166,666 $402 Shares Underlying Warrants (3)... 666,666 1.75 580,835 $200 Shares Underlying Options (3).... 331,905 - ---------------------------------------------------------------------------------------------- Common Stock to be Resold........ 666,526 1.75 1,166,421 $402 - ---------------------------------------------------------------------------------------------- TOTAL 2,869,121 - - $1,734 ==============================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (2) Based on the average of the high and low price per share of Common Stock as reported by Nasdaq on May 30, 1996. (3) This registration statement also covers any additional securities which may become issuable pursuant to anti-dilution and adjustment provisions. ------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------ * As set forth on page 3 of the Registration Statement, all information in the Prospectus assumes the reincorporation in Delaware to be voted upon by the shareholders in the June 1996 annual shareholders meeting. ii WESTMARK GROUP HOLDINGS, INC. Cross-Reference Sheet showing location in the Prospectus of Information Required by Items of Form SB-2 FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS - --------------------------------- ---------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus............. Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus........................... Inside Front Cover Page; Outside Back Cover Page 3. Summary Information and Risk Factors.......... Prospectus Summary; Risk Factors; The Company 4. Use of Proceeds............................... Use of Proceeds 5. Determination of Offering Price............... Outside Front Cover Page; Risk Factors; Plan of Distribution and Selling Stockholders 6. Dilution...................................... * 7. Selling Security-Holders...................... Plan of Distribution and Selling Stockholders 8. Plan of Distribution.......................... Outside Front Cover Page; Risk Factors; Plan of Distribution and Selling Stockholders 9. Legal Proceedings............................. Business 10. Directors, Executive Officers, Promoters and Control Persons........................... The Company; Management -- Executive Officers and Directors 11. Security Ownership of Certain Beneficial Owners and Management......................... Principal Stockholders 12. Description of Securities..................... Description of Capital Stock 13. Interest of Named Experts and Counsel......... Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................... * 15. Organization Within Last Five Years........... The Company 16. Description of Business....................... Business ii 17. Management's Discussion and Analysis or Plan of Operation.......................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property....................... Business 19. Certain Relationships and Related Transactions.................................. Management -- Certain Transactions 20. Market for Common Equity and Related Stockholder Matters........................... Risk Factors; Description of Capital Stock; Shares Eligible for Future Sale; Price Range of Common Stock and Dividend Policy 21. Executive Compensation........................ Management -- Executive Compensation 22. Financial Statements.......................... Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... Experts - ------------ (*) None or Not Applicable iii ****************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR * * SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH * * OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR * * QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. * * * ****************************************************************************** SUBJECT TO COMPLETION, DATED JUNE 7, 1996 WESTMARK GROUP HOLDINGS, INC. ISSUANCE OF 495,334 SHARES OF COMMON STOCK RESALE OF 2,373,787 SHARES OF COMMON STOCK This Prospectus relates to the issuance by Westmark Group Holdings, Inc. ("Company" or "Westmark") of up to 495,334 shares of Company Common Stock, $.001 par value ("Common Stock"), to fund debt settlements, 245,334 shares to be issued upon the date of this Prospectus and up to 250,000 shares to be issued to (1) cover any short-fall in funding certain debt settlements and (ii) fund any outstanding debt obligations or settlements that may be negotiated in the future. See "Use of Proceeds" and "Plan of Distribution and Selling Stockholders". This Prospectus also relates to the resale of 2,373,787 shares of Common Stock which may be sold by the holders thereof ("Selling Stockholders") from time to time as market conditions permit in the market, or otherwise, at prices and terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The shares of Common Stock to be resold include 666,526 shares currently issued and outstanding and up to 1,707,261 shares to be issued upon (i) exercise of warrants outstanding to purchase an aggregate of 666,666 shares ("Warrants"), (ii) exercise of options outstanding to purchase an aggregate of 331,905 shares ("Options"), and (iii) conversion of 418,750 outstanding shares of the Company's Series A and Series B Preferred Stock (collectively, "Preferred Stock") presently convertible to purchase an aggregate of 708,690 shares, subject to adjustment. Shares offered by the Selling Stockholders may be sold by one or more of the following methods without limitation: (i) ordinary brokerage transactions in which a broker solicits purchases; and (ii) face to face transactions between the Selling Stockholders and purchasers without a broker-dealer. A current prospectus must be in effect at the time of the sale of the shares of Common Stock to which this Prospectus relates. Each Selling Stockholder or dealer effecting a transaction in the registered securities, whether or not participating in a distribution, is required to deliver a current prospectus upon such sale. See "Management-Stock Options," "-Certain Transactions," "Description of Capital Stock Preferred Stock" and "Plan of Distribution and Selling Stockholders." The shares to be issued by the Company to cover any short-fall in funding certain debt settlements or to fund debt obligations or additional debt settlements will be offered on a negotiated "best-efforts, no minimum" basis. The Company will retain all proceeds from the exercise of the Warrants and Options, regardless of the number exercised. Such proceeds (a maximum amount of approximately $2,248,865) will be used for working capital and general corporate purposes. The Company will not receive any proceeds from the resale of Common Stock by the Selling Stockholders or upon conversion of the Preferred Stock. The Company's Common Stock is traded on the Nasdaq SmallCap Market under the symbol "WGHI." On May 30, 1996, the last sales price of the Common Stock as reported by Nasdaq was $1.75. -------------------------------- THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. THE MARKET FOR THE COMMON STOCK IS LIMITED, SPORADIC AND HIGHLY VOLATILE. SEE "RISK FACTORS." ---------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------- The date of this Prospectus is ____________, 1996 TABLE OF CONTENTS PAGE Available Information........................................................ 2 Prospectus Summary........................................................... 3 The Company.................................................................. 5 Risk Factors................................................................. 6 Use of Proceeds............................................................. 12 Price Range of Common Stock and Dividend Policy............................. 12 Capitalization.............................................................. 13 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 14 Business.................................................................... 20 Management................................................................... 25 Principal Stockholders....................................................... 30 Description of Capital Stock................................................. 31 Plan of Distribution and Selling Stockholders................................ 32 Legal Matters................................................................ 41 Experts...................................................................... 41 Index to Financial Statements.............................................. F-1 NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS FURNISHED. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith, files periodic reports, proxy materials and other information with the Securities and Exchange Commission ("Commission"). Such reports, proxy materials and other information are available for inspection at, and copies of such materials may be obtained upon payment of the fees prescribed therefor by the Commission from, the Commission at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following regional offices: 7 World Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Company has filed a registration statement on Form SB-2 ("Registration Statement") under the Act with respect to the securities being registered. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Copies of the Registration Statement and its exhibits are on file at the offices of the Commission and may be obtained upon payment of the fees prescribed by the Commission or may be examined, without charge, at the public reference facilities of the Commission. The Company will provide without charge to each person who receives a copy of this Prospectus, upon written or oral request of such person, a copy of any of the information that is incorporated by reference in this Prospectus (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such request should be directed to the Company, attention Mr. Birmingham, at 355 N.E. Fifth Avenue, Delray Beach, Florida 33483. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL DATA (INCLUDING FINANCIAL STATEMENTS AND NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO (I) A 1-FOR-30 REVERSE STOCK SPLIT EFFECTED IN JULY 1995 AND (II) THE ANTICIPATED REINCORPORATION OF THE COMPANY IN DELAWARE IN JUNE 1996, WHICH WILL RESULT IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK INCREASING TO 50,000,000, $.001 PAR VALUE, AND THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK INCREASING TO 10,000,000, $.001 PAR VALUE. THE COMPANY The Company is a mortgage banking company that, through its wholly-owned subsidiary Westmark Mortgage Corporation ("Westmark Mortgage"), is engaged in the business of originating, purchasing and selling mortgage loans secured primarily by single family, multi-family and condominium residences. Westmark Mortgage is registered and/or licensed to originate, purchase closed loans, underwrite, fund or sell residential mortgage loans in the states of Alabama, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio, Oregon, Utah, Washington, and Wyoming. The Company pools and sells loans to third-party investors including the Federal National Mortgage Association ("FNMA" or "Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Department of Housing and Urban Development ("HUD"), its lending agency the Government National Mortgage Association ("Ginnie Mae"), and various non-conforming mortgage conduits. THE OFFERING Common Stock Outstanding Prior to Offering........... 2,971,882(1) Common Stock to be Issued..... 495,334(2) Common Stock to be Resold..... 2,373,787(3) Use of Proceeds............... Working capital. See "Use of Proceeds." Risk Factors.................. Prospective purchasers are urged to carefully review the factors set forth in "Risk Factors." Nasdaq Symbol................. WGHI - ------------- 3 (1) Does not include (i) 331,905 shares issuable upon exercise of outstanding Options, (ii) 666,666 shares underlying the Warrants, (iii) 708,690 shares underlying outstanding shares of Preferred Stock, and (iv) any additional shares that may be required to be issued to Heart Labs of America, Inc., an affiliate of the Company ("Heart Labs") pursuant to anti-dilution rights. See "Management -- Stock Options," "-Certain Transactions," "Description of Capital Stock - Warrants," and "-Preferred Stock." (2) Includes (i) 245,334 shares to be issued, and (ii) up to 250,000 shares to be issued pursuant to this Prospectus to fund any short-fall in debt settlements and to fund additional debt settlements or obligations. See "Plan of Distribution and Selling Stockholders." (3) Includes the (i) 331,905 shares issuable upon exercise of outstanding Options, (ii) 666,666 shares underlying the Warrants, and (iii) 708,690 shares underlying outstanding shares of Preferred Stock. See "Management -- Stock Options," "Description of Capital Stock - Warrants," and "Preferred Stock." SUMMARY FINANCIAL INFORMATION (In thousands, except per share data) THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, --------------- ----------------------- STATEMENTS OF INCOME DATA: 1996 1995 1995 1994 ---- ---- ---- ---- Total revenues..................... $991 672 3,082 2,938 Total expenses..................... 1,267 1,793 10,570 6,994 Loss from Continuing Operations.... (275) (1,121) (7,488) (4,056) Provision for income tax benefit... - - 180 376 Gain on extinguishment of debt (1). - - 270 561 Net loss........................... (275) (1,121) (7,038) (3,119) Net loss per share ................ (0.10) (1.80) (6.50) (6.28) Weighted average shares outstanding............... 2,638 622 1,082 497 March December BALANCE SHEET DATA: 31, 1996 31, 1995 -------- --------- Working capital deficit.................... (2,231) (2,044) Total assets (2)........................... 12,864 25,510 Long-term obligations (3).................. 1,698 1,698 Stockholders' equity....................... 1,326 1,591 - ------------ (1) Net of tax of $180,000 at December 31, 1995 and $376,000 at December 31, 1994. (2) Includes investment in loans in process of $19,480,029 at December 31, 1995 and $7,266,724 at March 31, 1996. (3) Includes short-term debt expected to be refinanced on a long-term basis of $698,323 at December 31, 1995 and March 31, 1996. 4 THE COMPANY The Company was incorporated in Colorado during 1986 under the name Eagle Venture Acquisitions, Inc. From inception until May 1990, the Company was engaged in business operations unrelated to its current business strategy. In May 1990, the Company changed its name to Network Real Estate of California, Inc. and commenced providing a variety of real estate services through its wholly-owned subsidiary, Network Real Estate, Inc. ("Network Real Estate"), including real estate brokerage, mortgage banking services and insurance services. In July 1992, the Company changed its name to Network Financial Services, Inc. From May 1990 through August 1993, the Company conducted substantially all of its business operations through its subsidiary, Network Real Estate. In August 1993, the Company acquired Westmark Mortgage from Primark Corporation, an unaffiliated third party ("Primark"), by issuing a promissory note in the principal amount of approximately $2.5 million, secured by the acquired mortgage servicing portfolio. Upon such acquisition, Westmark Mortgage was engaged in essentially the same business as it is today, except that the Company serviced certain originated mortgage loans. During the third quarter of fiscal 1994, the Company, Primark and Crown Bank engaged in various negotiations with respect to the sale to Crown Bank of the mortgage servicing portfolio acquired from Primark and the restructuring of the Primark purchase price. The Company reached an agreement with Primark to accept the issuance of 13,333 shares of Company Common Stock and the cash payment of $500,000 as payment in full of the $2.5 million promissory note, pending the sale of the mortgage servicing portfolio. The modification in the purchase price resulted in a $561,413 gain on the elimination of debt in 1994. In August 1994, Freddie Mac agreed to the sale by the Company of the mortgage servicing portfolio. In September 1994, the Company sold its entire mortgage servicing portfolio to Crown Bank, consisting of approximately 2,500 loans with an aggregate unpaid principal balance of approximately $287 million, for an aggregate sales price of approximately $1.77 million. Of the $1.77 million sales price, $500,000 was utilized to discharge its obligations in full to Primark, $300,000 was remitted to Freddie Mac for the repurchase of loans, and $840,000 was utilized to establish two reserve accounts, one with Freddie Mac in the amount of $480,000 as a repurchase reserve and the other with Crown Bank in the amount of $360,000 as a performance reserve. The balance of $130,000 was utilized for general operations and costs associated with the sale. In 1995, foreclosure losses were charged against the repurchase reverse account, resulting in repurchase losses of $480,000, and performance losses were charged against the performance reverse account, resulting in performance losses of $179,663. It is likely that the balance of the performance reserve will be written off in fiscal 1996. The Company has already established a reserve for this loss. In 1993, the Company ceased operating Network Capital Group, a wholly-owned mortgage banking subsidiary, in a transaction that had no significant impact on the Company's financial condition. In an April 1994 agreement, effective December 31, 1993, the Company sold Network Real Estate to a former president of the Company in consideration for releasing the Company from a $500,000 obligation with respect to the former president's employment agreement, which included salary, expenses, severances and buy-out provisions. There were no material revenues from Network Real Estate in fiscal 1994. In July 1994, the Company sold Network Home Services, Inc., an inoperative wholly-owned subsidiary that owned certain software, in a transaction that had no material impact in the Company's financial statements. In June 1994, the Company changed its name to Westmark Group Holdings, Inc. Currently, the Company conducts substantially all of its business through Westmark Mortgage, its operating subsidiary, and references to the Company or Westmark include Westmark Mortgage, unless otherwise indicated. The principal executive office of the Company is located at 355 N.E. Fifth Avenue, Delray Beach, Florida 33483 and its telephone number is (407) 243-8010. 5 RISK FACTORS AN INVESTMENT IN THE COMPANY COMMON STOCK INVOLVES CERTAIN RISKS. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING FACTORS TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION. CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT The Company had losses from continuing operations before provision for income tax and other extraordinary items of $7,488,060 and $4,056,366 for the years ended December 31, 1995 and 1994, respectively, and $275,306 for the three months ended March 31, 1996. At March 31, 1996, the Company had an accumulated deficit of $23,003,727. The Company's prospects, therefore, must be considered in light of the risks, expenses and difficulties frequently encountered in operating a business in a highly competitive industry. There can be no assurance that the Company will experience profitability in the future, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CAPITAL REQUIREMENT; LIMITED SOURCES OF LIQUIDITY; NEED FOR ADDITIONAL CAPITAL The Company requires substantial capital to pursue its operating strategy. To date, the Company has relied primarily upon net cash provided by financing activities to fund its capital requirements. Net cash provided by financing activities, exclusive of transactions on its line of credit, was $3,431,298 and $1,046,124 for the years ended December 31, 1995 and 1994, respectively. Net cash used by operating activities before working capital changes was $5,198,712 and $3,068,184 for the years ended December 31, 1995 and 1994, respectively. Net cash provided by financing activities, exclusive of transactions on its line of credit, was $463,722 and $371,666 for the three months ended March 31, 1996 and 1995, respectively. Net cash used by operating activities before working capital changes was $226,765 and $691,963 for three months ended March 31, 1996 and 1995, respectively. The Company expects that operations before working capital changes will not generate significant cash flow until the Company has net income. These results will continue to impact the Company's capital position and cause continued reliance upon external sources of liquidity for at least the near future. There can be no assurance the Company will generate sufficient cash in future periods to satisfy the Company's capital requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." At March 31, 1996, the Company had a working capital deficit of $2,230,725, and its debt-to-equity ratio was approximately 9 to 1. The Company maintains a $15 million warehouse line of credit with Princap Mortgage, Inc., secured by the mortgages purchased by the Company from this warehouse line of credit ("Warehouse Facility"). At March 31, 1996, the Company had $7,057,297 outstanding under the Warehouse Facility. At December 31, 1995, the Company had an outstanding balance of $3,333,763 on a separate warehouse line-of-credit with Pacific Southwest Bank F.S.B. ("PSB"), which amount was collateralized by loans sold during the first quarter of 1996 and the warehouse line with PSB was subsequently closed in the first quarter of 1996. At March 31, 1996, the Company had additional short-term indebtedness of $707,318 in the form of convertible debentures and other notes payable (of which $600,000 was repaid in the second quarter of 1996), and $1,698,323 of long-term liabilities comprised of a $1,000,000 note secured by Company real estate and $698,323 of indebtedness that the Company has reached settlements to be funded through cash payments and Common Stock issuance. The Company funds substantially all of the loans which it originates and purchases through borrowings under its Warehouse Facility. These borrowings are in turn repaid with the proceeds received by the Company from selling such loans either through whole loan sales or bulk sales. Any failure to renew or obtain adequate funding under this Warehouse Facility, or other borrowings, or any substantial reduction in the size of or pricing in the markets for the Company's loans, could have a material adverse effect on the Company's 6 operations. To the extent that the Company is not successful in maintaining or replacing its Warehouse Facility, it would have to curtail its loan production activities or sell loans earlier than is optimal, thereby having a material adverse effect on the Company's results of operations and financial conditions. The Company will need additional capital to satisfy future capital requirements, and to date management has no specific plans with respect to debt or equity financings. There can be no assurance that the Company will be able to raise needed capital on terms favorable to the Company, if at all. If the Company is unable to secure sufficient capital in the future, its ability to pursue its business strategy and result of operations for future periods may be impaired. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." RELATIONSHIP WITH HEART LABS In November 1995, Heart Labs purchased 1,298,388 shares of Common Stock in exchange for $1,210,000 cash and cash equivalents, and the issuance of 200,000 shares of Heart Labs series B convertible preferred stock with a stated value $10 per share. The stock purchase agreement provides that Heart Labs ownership position, equal to 49% of the shares of Company Common Stock actually outstanding, shall not be diluted below 49%, with additional shares to be issued to Heart Labs to maintain such ownership position. In May 1996, an additional 154,404 shares of Common Stock were issued to Heart Labs to maintain such percentage ownership. As additional shares of the Company Common Stock are issued and shares underlying currently exercisable Warrants and Options and convertible Preferred Stock are issued, additional adjustments will be required to be effected. Subsequent to such investment, Heart Labs has loaned the Company a total of $2,293,000 through June 4, 1996, which amounts bear interest at the rate 10% per annum and are evidenced by one-year notes. In March 1996, Heart Labs and the Company agreed to convert $700,000 of indebtedness into 200,000 shares of series C preferred stock with a stated value of $3.50 per share. The Company is dependant upon Heart Labs in order to satisfy certain debt obligations and working capital needs for the remainder of fiscal 1996. The failure of Heart Labs to assist the Company in satisfying its financial needs may have a material adverse impact upon the financial condition of the Company. See "Management - Certain Transactions." ECONOMIC CONDITIONS GENERAL The Company's business may be adversely affected by periods of economic slowdown or recession which may be accompanied by decreased demand for consumer credit and declining real estate values. Any material decline in real estate values reduces the ability of borrowers to use home equity to support borrowings and increases the loan-to-value ratios of loans previously made by the Company, thereby weakening collateral coverage and increasing the possibility of a loss in the event of default. Further, delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. Because of the Company's focus on borrowers who are unable or unwilling to obtain mortgage financing from conventional mortgage sources, the actual rates of delinquencies, foreclosures and losses on such loans could be higher under adverse economic conditions than those currently experienced in the mortgage lending industry in general. Any sustained period of such increased delinquencies, foreclosures or losses could adversely affect the pricing of the Company's loan sales. While the Company believes the underwriting criteria and collection methods it employs enable it to mitigate the higher risks inherent in loans made to these borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. The success of Company's business is predicated upon the use of its services in connection with the purchase or refinancing of residential real estate. In 1994, the mortgage industry experienced a sluggish market. In addition, the mortgage origination market and real estate market are often adversely effected, usually on a short-term basis, by unusual climatic events in any single geographic area such as 7 hurricanes, earthquakes and tornadoes. The happening of such events or recurrence of such events in a particular area may increase the rates for mortgage and homeowners insurance causing a decline in the number of home purchasers and mortgage borrowers. Since 1994, the Company has undertaken a geographic expansion to avoid concentration in any single geographic location. EFFECT OF FLUCTUATING INTEREST RATES Fluctuations in interest rates and increases and decreases of the prime rate may directly impact the mortgage market and the ability of the Company to attract "A" or "B/C" or other classes of mortgage loans. If interest rates should rise, the number of applications for new mortgages may fall. Management believes that the "B/C" mortgage market is not as particularly interest-rate sensitive as is the "A" mortgage market. The "A" mortgage market is primarily composed of borrowers who are interest-rate-driven with a use of the mortgage loan as part of an investment strategy; that is, "A" mortgage borrowers refinance current mortgages for ones with lower interest rates and terms. As interest rates increase, such refinancing diminishes and the number of loan applications in that "A" market decreases. The "B/C" market is primarily composed of borrowers who are payment-driven with a use of the mortgage loan as a source of equity. Often a common goal of the "B/C" borrower is to leverage available equity for immediate use, and a despite increases in interest rates, the "B/C" borrower focuses primarily on the monthly payment. Thus, the decrease in loan applications in the "B/C" market which may occur when interest rates increase, is typically not as significant as in the "A" mortgage market. However, there can be no assurances that interest rates will not rise and negatively impact the Company's financial position. B/C MORTGAGE MARKET The Company has diversified its mortgage banking strategy to include lending to additional categories of loans, such as the "B/C" mortgage market, a nationally growing segment of the mortgage industry. The "B/C" mortgage market serves borrowers whose credit history or amount of debt increases the risk associated with mortgage loans and puts such loans outside the guidelines established by Fannie Mae and Freddie Mac. Thus, the "B/C" mortgage loans cannot be resold to those institutions and the Company must locate buyers outside that established market. The Company's strategy in reducing its risk associated with funding "B/C" loans is to obtain commitments from outside investors for the resale to them of such "B/C" loan mortgages before the Company funds such mortgages. The "B/C" mortgage loan is particularly dependent on the accuracy of the appraisal of the underlying property because of the higher risk of lack of repayment and the consequent mortgage originator's increased reliance on such underlying mortgage assets. Because of such risk in funding, "B/C" mortgages require the borrower to place a larger down payment on the purchased property which permits a higher-debt-to-income ratio. In addition, because of the inherent risks, the "B/C" loan originator charges greater loan origination fees and mortgage rates generating a higher yield than those of the "A" mortgage market. Consequently, the profit margins that can be realized by the Company on the resale of such "B/C" loans is greater than those realizable from the "A" loan mortgage market. There is no assurance that the Company will be able to continue to achieve a higher profit margin from the resale of its loans or will be able to continue to locate buyers from such "B/C" loan packages. Occasionally, as part of such resale of the mortgages, the Company issues certain representations to repurchase defective loans, but only as to defective loans arising from an incidence of fraud. While there can be no assurance that the Company will not be required to repurchase a significant amount of such loans, this has not traditionally been a serious consideration for the Company. In fiscal 1994, the Company paid a total of $103,000 for repurchased defective loans or .0664% of its total loan originations. In fiscal 1995, the Company paid a total of $480,000 for repurchased defective loans, or .3038% of its total loan originations, which amount related to loans originated prior to the purchase of Westmark Mortgage by the Company. CONTINGENT RISKS 8 Although the Company sells substantially all loans which it originates and purchases on a nonrecourse basis, the Company retains some degree of risk on substantially all loans sold. During the period of time that loans are held pending sale, the Company is subject to the various business risks associated with the lending business including the risk of borrower default, the risk of foreclosure and the risk that a rapid increase in interest rates would result in a decline in the value of loans to potential purchasers. In the ordinary course of its business, the Company is subject to claims made against it by borrowers and private investors arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of employees, officers and agents of the Company (including its appraisers), incomplete documentation and failures by the Company to comply with various laws and regulations applicable to its business. The Company believes that liability with respect to any currently asserted claims or legal actions is not likely to be material to the Company's consolidated results of operation or financial condition; however, any claims asserted in the future may result in legal expenses or liabilities which could have a material adverse effect on the Company's results of operations and financial condition. DEPENDENCE UPON KEY PERSONNEL The Company's success depends, in part, upon a number of key managerial personnel and employees, including Norman Birmingham and Mark Schaftlein, the loss of whom could adversely affect the Company. The Company believes that its future success depends in part on its ability to continue to attract and retain highly skilled employees. The Company has entered into employment agreements with Messrs. Birmingham and Schaftlein, but does not maintain life insurance policies on these officers. See "Management - Executive Officers and Directors." REGULATORY COMPLIANCE Members of Congress and government officials have from time to time suggested the elimination of the mortgage interest deduction for federal income tax purposes, either entirely or in part, based on borrower income, type of loan or principal amount. Because many of the Company's loans are made to borrowers for the purpose of consolidating consumer debt or financing other consumer needs, the competitive advantages of tax deductible interest, when compared with alternative sources of financing, could be eliminated or seriously impaired by such government action. Accordingly, the reduction or elimination of these tax benefits could have a material adverse effect on the demand for loans of the kind offered by the Company. The Company's domestic business is subject to extensive regulation, supervision and licensing by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. The Company is subject to the rules and regulations of, and examinations by HUD and state regulatory authorities with respect to originating, processing, underwriting and selling loans. These rules and regulations, among other things, impose licensing obligations on the Company, establish eligibility criteria for mortgage loans, prohibit discrimination, provide for inspections and appraisals of properties, require credit reports on loan applicants, regulate assessment, collection, foreclosure and claims handling, investment and interest payments on escrow balances and payment features, mandate certain disclosures and notices to borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to comply with these requirements can lead to demands for indemnifications or mortgage loan repurchases, certain rights of rescission for mortgage loans, class action lawsuits and administrative enforcement actions. 9 Although the Company believes that it has systems and procedures to facilitate compliance with these requirements and believes that it is in compliance in all material respects with applicable local, state and federal laws, rules and regulations, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future that could make compliance more difficult or expensive. COMPETITION As a marketer of mortgage loans, the Company faces intense competition, primarily from mortgage banking companies, commercial banks, credit unions, thrift institutions, and finance companies. Many of these competitors are substantially larger and have more capital and other resources than the Company. Competition can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels and interest rates. Furthermore, the current level of gains realized by the Company and its competitors on the sale of the type of loans they originate and purchase is attracting additional competitors into this market with the possible effect of lowering gains that may be realized on the Company's future loan sales. Competition may be affected by fluctuations in interest rates and general economic conditions. During periods of rising rates, competitors which have "locked in" low borrowing costs may have a competitive advantage. During periods of declining rates, competitors may solicit the Company's customers to refinance their loans. During economic slowdowns or recessions, the Company's borrowers may have new financial difficulties and may be receptive to offers by the Company's competitors. The Company depends largely on independent mortgage brokers and financial institutions and other mortgage bankers for its originations and purchases of new loans. The Company's competitors also seek to establish relationships with the Company's independent mortgage brokers and financial institutions and other mortgage bankers, none of whom is obligated by contract or otherwise to continue to do business with the Company. In addition, the Company expects the volume of wholesale loans purchased by the Company to increase and the relative proportion of wholesale loans to total loans originated and purchased by the Company to expand. The Company's future results may become more exposed to fluctuations in the volume and cost of its wholesale loans resulting from competition from other purchasers of such loans, market conditions and other factors. NASDAQ LISTING AND PUBLIC MARKET The Company Common Stock is currently listed for quotation on the Nasdaq SmallCap Market. The trading market for the Common Stock is sporadic, limited and highly volatile. In order for the Common Stock to be eligible for continued listing on the Nasdaq SmallCap Market, the Company must (i) have total assets of at least $2 million, (ii) total capital and surplus of at least $1 million, and (iii) maintain a minimum bid price of $1.00 or, if the minimum bid price is less than $1.00, the Company must maintain capital and surplus of $2 million and a market value of the public float of its securities of not less than $1 million. If the Company becomes unable to satisfy the requirements for continued quotation on the Nasdaq SmallCap Market, trading, if any, in the securities listed thereon would be conducted in the over-the-counter market of the National Quotation Bureau, Inc., or on the OTC Electronic Bulletin Board. There can be no assurance that any trading market will continue to exist for the Common Stock. See "Price Range of Common Stock and Dividend Policy." POSSIBLE VOLATILITY OF STOCK PRICE; SHARES ELIGIBLE FOR SALE The market price of the Common Stock may experience fluctuations that are unrelated to the operating performance of the Company. In particular, the price of the Common Stock may be affected by general market price movements as well as developments specifically related to the consumer finance industry such as, among other things, interest rate movements. In addition, the Company's revenues on a quarterly basis is significantly dependent upon the successful completion of the Company's loan sales in the market, and the inability of the Company to complete significant loan sale transactions in a particular 10 quarter may have a material adverse impact on the Company's results of operations for that quarter and could, therefore, negatively impact the price of the Common Stock. Except for the 1,298,388 shares owned by Heart Labs, substantially all of the Company shares of Common Stock will be immediately freely tradeable in the public market pursuant to Rule 144, resales pursuant to this Prospectus or otherwise, and to the extent that these or other additional shares of Common Stock enter the public market, the trading price and value of the previously outstanding Common Stock may be reduced and holders of such Common Stock may find it increasingly difficult to sell the shares held by them at a price satisfactory to them, if at all. SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECT The Board of Directors has total discretion in the issuance and the determination of the rights and privileges of any shares of preferred stock which may be issued in the future, which rights and privileges may be detrimental to the holders of the Common Stock of the Company. The Board of Directors could issue shares of preferred stock with such rights and preferences that could discourage attempts by others to obtain control of the Company through merger, tender offer, proxy contest or otherwise by making such attempts more difficult to achieve or more costly. The Company is authorized to issue 10 million shares of its preferred stock, and only 418,750 shares of which are presently issued and outstanding. Additionally, the Board of Directors has been authorized to issue up to 50 million shares of Common Stock, of which only 2,659,478 shares are issued and outstanding as of the date of this Prospectus. See "Description of Capital Stock." In November 1995, Heart Labs purchased 49% of the Company Common Stock, which purchase agreement afforded Heart Labs anti-dilution protection that requires the Company to issue additional shares of Common Stock to Heart Labs to maintain such 49% ownership interest. This arrangement discourages attempts by others to obtain control of the Company. See "Management Certain Transactions." NECESSITY FOR CONTINUING REGISTRATION The resale of the registered shares hereby, as well as the resale of the shares issuable upon exercise of the Warrants, Options and Preferred Stock registered hereby, can be publicly sold only pursuant to an effective registration statement and a current Prospectus under the Act. There is no assurance that the Company will be able to keep the registration statement of which this Prospectus is a part current or pay the legal and related costs of doing so. In addition, it is a condition to the Company's ability to issue free-trading shares of Common Stock upon such resale that such securities remain qualified for resale under the securities laws of the states in which holders of such securities reside, and there is no assurance that such securities will remain so qualified. If a holder moves, or subsequent purchaser resides, in a jurisdiction in which the Company has not registered the transactions set forth in this Prospectus, the benefits of this Prospectus may not be available. If the Prospectus ceases to be current with respect to such securities, the Company may be precluded from issuing free-trading shares of Common Stock upon resale. 11 USE OF PROCEEDS Assuming exercise of all the Warrants and Options, the Company will receive aggregate proceeds of approximately $2,248,865 ($870,536 from the Options and $1,378,329 from the Warrants), prior to deducting estimated offering expenses of approximately $200,000. The Company will use these proceeds for working capital and will have broad discretion in the application of such proceeds. As there are no commitments from the holders of the Warrants and Options to exercise such securities, there can be no assurance that the Warrants and Options will be exercised. The Company will receive no proceeds from the resale of shares by the Selling Stockholders or upon conversion of the Preferred Stock. The Company will issue 245,334 shares of Common Stock to fund debt settlements and the Company has registered under the Act the issuance of up to 250,000 additional shares to (i) cover any short-fall in funding these debt settlements and (ii) fund any outstanding debt obligations or negotiated settlements. The Company will not receive any cash proceeds from the issuance of these shares. See "Plan of Distribution and Selling Stockholders." PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is listed on the Nasdaq SmallCap Market under the symbol "WGHI." The following table sets forth the high and low last sales prices of the Common Stock for the periods indicated: PRICE RANGE --------------------- FISCAL YEAR HIGH LOW ---- --- 1994 First Quarter........................... $36.60 $26.40 Second Quarter ......................... 30.00 12.30 Third Quarter........................... 18.90 12.30 Fourth Quarter.......................... 18.90 11.40 1995 First Quarter........................... $11.40 $3.60 Second Quarter.......................... 8.40 3.60 Third Quarter........................... 8.50 5.40 Fourth Quarter.......................... 6.50 1.62 1996 First Quarter.......................... $3.23 $2.13 On May 30, 1996, the last sales price for the Common Stock was $1.75, and the Company believes there were approximately 3,200 beneficial owners of its Common Stock. The Company has not paid, and the Company does not currently intend to pay, cash dividends on its Common Stock. The current policy of the Company's Board of Directors is to retain earnings, if any, to provide funds for operation and expansion of the Company's business. Such policy will be reviewed by the Board of Directors of the Company from time to time in light of, among other things, the Company's earnings and financial position. 12 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1996. This table should be read in conjunction with the Company's financial statements and notes thereto that are included elsewhere in this Prospectus. MARCH 31, 1996 -------------- Liabilities: Current Liabilities.................... $9,839,860 Long-Term Debt, Less Current Portions..................... 1,698,323 Stockholders' equity: Preferred stock (1)(2)................. 700,000 Common stock (3)(4).................... 22,475,937 Additional Paid-In Capital............. 1,153,688 Accumulated deficit.................... (23,003,727) Total stockholders' equity............. 1,325,898 ------------ Total capitalization........................ $ 12,864,081 ============ - ----------- (1) Consists of 200,000 shares of series C preferred stock issued to Heart Labs effective March 29, 1996. See "Description of Capital Stock - Preferred Stock." (2) Does not include the 418,750 shares of Preferred Stock issued in April 1996. See "Description of Capital Stock - Preferred Stock." (3) Does not include 311,706 shares of Common Stock issued subsequent to March 31, 1996. (4) Does not include (i) 331,905 shares issuable upon exercise of outstanding Options, (ii) 666,666 shares issuable upon exercise of the Warrants, and (iii) 708,690 shares issuable upon conversion of outstanding shares of Preferred Stock. See "Management -- Stock Options," "Description of Capital Stock - Warrants," and "-Preferred Stock." 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and accompanying Notes to the Consolidated Financial Statements. GENERAL The Company is a mortgage banking company engaged in the business of originating, purchasing and selling mortgage loans secured primarily by one-to-four family residences. The Company primarily generates income from (i) gains recognized from premiums on loans sold through whole loan sales to institutional purchasers, (ii) investment income earned on loans held for sale, and (iii) origination fees and related revenue received as part of loan closings. Gain on sale of loans, which represents the sales price in excess of loan acquisition and related costs from whole loan sales, constituted 50% and 19% of total revenues in 1995 and 1994, respectively, and 68% of the total revenues for the three months ended March 31, 1996. Investment income earned on loans held for sale constituted 30% and 19% of total revenues in 1995 and 1994, respectively, and 23% of the total revenues for the three months ended March 31, 1996. Loan origination fees and related revenue represented 18% and 30% of total revenues in 1995 and 1994, respectively, and 9% of the total revenues for the three months ended March 31, 1996. In 1994, loan service fees accounted for 28% of total revenues. The Company currently has purchase agreements with BancBoston Mortgage Corporation, Countrywide Funding Corporation, Household Financial Services, Imperial Credit Industries, Industry Mortgage Company, Life Savings Bank, The Money Store, Fannie Mae, Freddie Mac, HUD, Ginnie Mae and various non-conforming mortgage conduits, whereby the Company originates and sells loans to them. The Company sells virtually all of the loans it originates. These agreements are for specific terms or are open ended, and require the loans to satisfy the underwriting criteria described therein. During 1995 and 1994, the Company sold loans totaling $158 million and $155 million, respectively. During the three months ended March 31, 1996, the Company sold loans totalling approximately $28.4. The Company does not service any of the loans it originates and sells all loans primarily in whole loan sales. The gain on sale of loans was $1,544,559 and $556,436 in 1995 and 1994, respectively, and $667,620 during the three months ended March 31, 1996. Loans held for sale were comprised of 78% "A" (conforming) loans and 22% "B/C" (non-conforming) loans at December 31, 1995 and 55% "A" loans and 45% "B/C" loans at March 31, 1996. At December 31, 1994, loans held for sale consisted entirely of "A" loans. When the Company commits to fund loans, the parties agree upon an interest rate. Until the Company obtains a commitment to sell the loan to an investor, the Company is subject to interest-rate fluctuations. Typically, the Company obtains commitments for the sale of "A" loans to investors concurrently with making such loan commitment to the borrower. In connection with commitments on "B/C" loans, typically such commitment to sell the loan to an investor occurs at a later date. In order to mitigate interest-rate fluctuations, the Company's strategy in committing to make "B/C" loans is subject to satisfying guidelines generally established by the ultimate investor along with a forward commitment to purchase for 30 days. Investment income earned on loans held for sale is derived primarily from interest payments on loans in inventory. Certain fixed rate "B/C" loans generally carry a note rate in excess of the cost to borrow. This results in a positive revenue differential between cost to borrow (at the time the loan funds) and the loan sale. Management's strategy is to sell those loans in whole loan sales and in bulk sales as quickly as practicable in order to optimize cash flow from the sale of the loans. In addition, the Company realizes revenue from loan origination fees and certain loan discount fees. 14 In September of 1994, the Company sold its loan servicing portfolio to Crown Bank. Subsequent to the sale, the Company has not serviced any mortgages. In connection with the 1994 sale to Crown Bank, the Company recognized a $14,781 loss on the sale of such servicing rights. See "--Results of Operations" for a discussion of certain expense items in connection with the Crown Bank sale. SIGNIFICANT ACCOUNTING POLICIES Mortgage loans are originated to be sold to investors and are reported at the lower of cost or market. Loans covered by commitments are valued as specified in the commitment. Loans not covered by commitments are valued at market, as determined by reference to the Company's normal market outlets. Loan origination fees and certain direct costs are deferred and reflected in operations when the underlying loan is sold. Investment income on loans held for sale is recognized as earned. INVESTMENT IN REAL ESTATE AND PREFERRED STOCK In July 1995, the Company settled certain pending litigation arising out of a claim by Dolan Development Partners, Ltd. and related parties ("Dolan") that the Company defaulted on certain promissory notes. The settlement reduced the amount of principal and interest payable by the Company to Dolan pursuant to two promissory notes from $1.5 million to approximately $1 million. The Company owns a 50% interest in the property securing the payment of the notes and Dolan, the payee, owns the remaining 50% undivided interest in the property. The Company's interest in this real estate at December 31, 1995 is valued at $2,115,000. The balance on the note payable to Dolan, secured by such property, was $1 million as of December 31, 1995. This notes bears interest at the rate of 9.75% per annum and matures, with principal payable in one lump sum, on June 1, 1998. The modifications of the amount owed to Dolan resulted in a pre-tax gain of extinguishment of debt of $450,000 in 1995. In November 1995, Heart Labs purchased 1,298,388 shares of Company Common Stock in exchange for, among other considerations, the issuance of 200,000 shares of Heart Labs Series B Convertible Preferred Stock with a stated value of $10 per share, representing a $2 million investment at December 31, 1995. RESULTS OF OPERATIONS FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995 On a consolidated basis, total revenues increased to $991,392 in the quarter ended March 31, 1996 ("1996 First Quarter") from $671,719 in the quarter ended March 31, 1995 ("1995 First Quarter"), an increase of 48%. The increase is a result of greater profit margins on the bulk sale of B/C paper along with the flow sales on "A" paper. This increase in revenue is a combination of the increased marketing efforts in the B/C loan area along with investor commitments to buy bulk loan packages. Expenses for the 1996 First Quarter decreased 29% to $1,266,698 from $1,792,840 for the 1995 First Quarter, primarily due to a decrease in general and administrative costs. Loan origination costs decreased 2% to $373,224 for the 1996 First Quarter from $381,090 in the 1995 First Quarter. General and administrative expenses decreased 31% to $916,090 in the 1996 First Quarter from $1,324,547 for the 1995 First Quarter, the result of management's cost containment strategy. Marketing and advertisement expense decreased 64% to $22,656 in the 1996 First Quarter from $62,474 for the 1995 First Quarter, the result of the cost containment strategy. The Company incurred a net loss for the 1996 First Quarter of $275,306 or $0.10 per share as compared to a net loss of $1,121,121 or $1.80 per share for the 1995 First Quarter. This decreased loss 15 is due to significant cost cutting efforts by management in areas of general and administrative and increased operating margins on sale of loans. FISCAL 1995 COMPARED TO FISCAL 1994 Total revenues increased 5% to $3,081,900 in 1995 from $2,937,646 in 1994. This was primarily due to a combined increase in gain on sale of loans and investment income, both of which offset the lack of loan servicing fees in 1995 due to management's decision to sell its servicing portfolio in 1994. Gain on sale of loans, all of which was derived from premiums on whole loan sales, increased 277% to $1,544,559 from $556,439 in 1994. This increase was due as a result of management's decision to originate and sell "B/C" loans along with increased premiums on "A" whole loan sales. Management intends to continue to originate and sell "B/C" loans as part of its overall strategy. The volume of "B/C" loans sold during 1995 was approximately $25 million compared to $0 in 1994. Loan origination fees decreased 39% to $544,386 in 1995 from $883,399 in 1994. This decrease is primarily due to originating fewer government-backed loans, resulting in less loan origination fees. Traditionally, conforming "A" and non-conforming "B/C" loans, at the wholesale level, do not contain loan origination fees. Management has adjusted the loan origination pricing structure to provide for an increase in per loan origination fees on non-conforming "B/C" product. Initially, this change could reduce the cash requirements at the time of loan funding, thereby possibly reducing gain on sale of these loans; however, management's goal is to increase the volume of loans, creating larger pools of loans to sell to investors, which should allow the Company to maintain its current premium rate on ultimate gain on sale of loans. Investment income, comprised primarily of interest earned on loans held for sale, increased 62% to $938,657 in 1995 from $581,066 in 1994. This increase is due primarily to a larger principal amount of mortgage loans held for sale in 1995 compared with 1994. Total expenses increased 49% to $10,569,960 from $6,994,012 for the periods ended December 31, 1995 and 1994, respectively. This increase is primarily due to (i) an increase in interest expense, (ii) an increase in general and administrative expense, (iii) a $225,000 loss in an investment relating to the failed acquisition of Greentree, (iv) a $480,000 repurchase loss and $179,663 write down with respect to the sale of the Company's servicing portfolio to Crown Bank, and (v) a $1,099,000 non-cash, non-recurring expense consisting of equity-related incentives ("cheap stock expense") incurred in 1995 financial transactions. Direct loan fee expenses increased 48% to $187,309 in 1995 from $123,182 in 1994, due primarily to the Company's increased volume of whole loan sales in 1995. Interest expense increased 86% to $1,223,875 in 1995 from $657,025 in 1994, due primarily to the increased volume of whole loan sales and the borrowing cost associated with the Company's Warehouse Facility. General and administrative expense increased 27% to $6,775,395 in 1995 from $5,337,097 in 1994, due primarily to (i) the hiring of additional personnel necessary in order to initiate the origination and sale of "B/C" loans, (ii) cheap stock expenses associated with below market equity issuances to consultants and employees, and (iii) other increased operating expenses, including facilities and equipment. Management has adopted a cost containment strategy to reduce salary and related expenses in 1996. In March 1996, the Company consolidated its operations to Delray Beach, Florida. In connection with this consolidation, the Company sublet excess rental space in Costa Mesa, California and in Hawaii and negotiated the termination of its San Jose, California lease. This reduction of space also resulted in the reduction of employees. 16 In July 1995, the Company entered into a letter of intent to acquire certain assets of Greentree. The aggregate purchase price was $1,575,000 payable in installments with the remaining unpaid purchase price payable from the proceeds of the Company's proposed offering of convertible debentures. The Company paid $100,000 cash and issued 16,667 shares of its Common Stock valued at $125,000 in anticipation of the acquisition. In November 1995, the Company abandoned the proposed convertible debenture offering and terminated the Greentree acquisition. The Company's $225,000 investment in Greentree was charged to expense in 1995. The acquisition agreement provided for Greentree to retain all sums previously paid and required the Company to register the resale of the 16,667 shares of Company Common Stock. The Company failed to register the resale of such shares, providing Greentree with the option of retaining such shares or demanding an additional $125,000 payment. The parties agreed to settle the $125,000 obligation for $35,000, payable through the issuance of shares which, when sold by Greentree, will net $35,000, and a three-year warrant to purchase 150,000 shares of Company Common Stock at $2.62 a share. In connection with the Company's September 1994 sale of its entire mortgage servicing portfolio to Crown Bank, the Company established two reserve accounts, one with FHLMC in the amount of $480,000 as a repurchase reserve and the other with Crown Bank in the amount of $360,000 as a performance reserve. Due to delinquencies in the servicing portfolio sold to Crown Bank, the terms of the $480,000 repurchase reserve provided that such funds were to be paid to Freddie Mac in 1995, and that $179,663 of the performance reserve was paid to Crown Bank in 1995 which amount was reserved in 1994. It is likely that the balance of this performance reserve will be paid to Crown Bank in 1996, and such amount was reserved in 1995. Depreciation and amortization expenses decreased to $194,543 in 1995 from $486,739 in 1994, primarily due to 1994 one-time charges to operations from (i) expenses associated with purchased mortgage servicing rights of $186,000, and (ii) Florida office start up expenses of $130,000. Net loss increased to $7,038,060 in 1995 from $3,118,953 in 1994, resulting in a net loss per share of $6.50 in 1995 compared with $6.28 in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company uses its cash flow from whole loan sales, loan origination fees, net interest income and borrowings under its Warehouse Facility to meet its working capital needs. The Company's cash requirements include the funding of loan originations, purchases, payment of interest expenses, operating expenses, taxes and capital expenditures. On December 31, 1995, the Company had a working capital deficit of $2,044,258, total stockholders equity of $1,591,204, and its debt-to-equity ratio was 15 to 1. On March 31, 1996, the Company had a working capital deficit of $2,230,725, total stockholders equity of $1,325,898, and its debt-to-equity ratio was approximately 9 to 1. Net cash used by operating activities was $16,665,858 for 1995 and net cash provided by operating activities was $17,346,602 in 1994. The reason for the significant change is that the Company increased the amount of mortgage loans held for sale by approximately $14 million in 1995, versus a decrease in mortgage loans of approximately $20 million in 1994, which substantially equates to the difference in the amount of cash used in 1995 and provided in 1994 by operating activities. The use of operating cash is offset by funds provided by the Warehouse Facility. Net cash provided by financing activities was $16,971,281 in 1995 compared with net cash used in financing activities of $18,378,329 in 1994, which relates to the amount outstanding pursuant to the Warehouse Facility at the respective year ends. Net cash used in investing activities was $101,080 in 1995 compared with $1,062,690 of net cash provided by investing activities in 1994, primarily due to the proceeds received in 1994 from the sale of the mortgage servicing portfolio to Crown Bank, and liquidation of certain properties received in loan foreclosures. Net cash provided by operating activities was $11,056,878 for the 1996 First Quarter and 17 net cash used by operating activities was $6,335,986 for the 1995 First Quarter. The reason for this significant change is volume on the line of credit. Net cash used in operations before working capital changes in the 1996 First Quarter and 1995 First Quarter was $226,765 and $691,963, respectively, which decrease was primarily due to a decrease in losses from operations. Net cash used by financing activities was $11,104,847 in the 1996 First Quarter compared to net cash provided by financing activities of $6,264,784 in the 1995 First Quarter, which relates to the amount outstanding pursuant to the Warehouse Facility at the respective period ends. Net cash used in investing activities was $0 in the 1996 First Quarter compared to $14,704 of net cash used by investing activities in the 1995 First Quarter. Adequate credit facilities and other sources of funding, including the ability of the Company to sell loans, are essential to the continuation of the Company's ability to originate and purchase loans. The Company borrows funds on a short term basis to support the accumulation of loans prior to sale. These short-term borrowings are made under the Warehouse Facility with Princap Mortgage, Inc. Pursuant to the Warehouse Facility, the Company has available a secured revolving credit line of $15 million to finance the Company's origination or purchase of loans, pending sale to investors. The line of credit, pursuant to the Warehouse Facility, has collateral of the assignment and pledge of eligible mortgage loans, bears interest at an annual rate of 2% above prime, payable at the time of purchase by the permanent investor. This arrangement allows the Company to utilize interest received from the borrower during the period prior to the sale of the loan. The Warehouse Facility provides for a transaction charge of $140 per loan and requires the Company to possess a minimum net worth of $250,000 and a compensating cash balance on deposit in the amount of $5,000. At March 31, 1996, the balance outstanding, pursuant to this Warehouse Facility, totalled $7,057,297. The Company does not have any other external lines of credit for financing. From December 31, 1994 through November 22, 1995, the Company had a warehouse agreement with Lomas Mortgage USA, Inc. ("Lomas") in the amount of $15 million. In August 1995, Lomas gave notice of the termination of its commitment with the Company and subsequently declared bankruptcy under Chapter 11 of the United States Bankruptcy Code. Prior to filing for protection, Lomas notified the Company of its assignment of its repurchase agreement with the Company to PSB. Shortly thereafter, the Company obtained its current Warehouse Facility. At December 31, 1995, the outstanding balance on the line of credit with PSB was $3,333,763, which line was closed in the first quarter of 1996 when all remaining loans, that collateralized this line of credit, were sold. Historically, the Company has obtained financing through the issuance of its Common Stock and borrowings on a negotiated basis. During the 1996 First Quarter, the Company issued a total of 5,000 shares for services rendered and converted $700,000 of indebtedness owed to Heart Labs into 200,000 shares of series C preferred stock with a stated value of $3.50 per share. During 1995, the Company issued 1,958,167 shares of Common Stock for cash and for other consideration as follows: (i) 1,298,388 of Company Common Stock was issued for $1,210,000 of cash and Heart Labs preferred stock; (ii) an aggregate of 338,000 shares of Common Stock were issued in private placements grossing approximately $875,000; and (iii) 322,167 shares of Common Stock were issued for general corporate purposes and for services rendered. In May and June 1995, the Company raised $600,000 cash through the issuance of convertible promissory notes in the principal amount of $600,000 and warrants entitling holders to purchase the securities contemplated to have been issued in the failed 1995 convertible debenture offering ("Bridge Financing"). In April 1996, the Company and all these investors agreed to restructure the investment and the Company paid such investors an aggregate amount of $600,000 and issued such investors 300,000 shares of Series B Preferred Stock with a stated value of $600,000. See "Description of Capital Stock - Preferred Stock" for a description of the Series B Preferred Stock. In addition, Heart Labs advanced the Company an aggregate amount of $790,000 during the 1996 First Quarter (of which $700,000 was converted into 200,000 shares of series C preferred stock with a stated value of $3.50 per share) and $1,503,000 in the second quarter of 1996, primarily to fund 18 outstanding obligations and working capital needs. The Company is dependant on Heart Labs in order to satisfy certain debt obligations and working capital needs for the remainder of fiscal 1996. During 1996, the Company reached agreements to settle $848,095 of outstanding indebtedness through cash payments and the issuance of Common Stock. Approximately $625,571 of debt is to be discharged through the issuance of Common Stock, to be sold quarterly in the following amounts; (i) 14,750 shares in the second quarter of 1996, (ii) 142,850 shares in the third quarter of 1996, (iii) 104,900 shares in the fourth quarter 1996, (iv) 20,100 shares in the first quarter 1997, and (v) 6,000 shares in the second quarter 1997. In the event that the sale of shares is insufficient to reach $591,000, the Company is obligated to issue additional shares in order to net the required cash payments, and the Company has registered under the Act an additional 100,000 shares to be issued in order to net any remaining balance. The creditors are obligated to return any excess shares which are not required to be sold once they have received their full payment. In connection with the debt settlements, the Company is required to effect cash payments of $201,442 as follows: (i) $20,885 in the first quarter of 1996, (ii) $90,886 in the second quarter of 1996, (iii) $59,986 in the third quarter of 1996, and (iv) $47,685 in the fourth quarter of 1996. The Company is issuing an additional 5,334 shares of Common Stock to settle certain claims with a third party. The Company's goal is to reach an accommodation with Saxon Mortgage to settle a $419,348 liability in 1996. In addition, in April 1996, $165,000 indebtedness was converted into 138,656 shares of Common Stock. The Company's internally generated cash flows from operations has historically been and continues to be insufficient for its cash needs. It is expected that internal sources of liquidity will improve during 1996. However, until such time as the Company achieves positive cash flow before working capital changes, the Company will continue to rely on external sources for liquidity. The Company has not established any other lines of credit or other similar financial arrangements with any lenders, and it continues to rely on Heart Labs for assistance to meet immediate working capital needs. If it appears at any time in the future that the Company is again approaching a condition of cash deficiency, the Company will be required to seek additional debt or equity financing or bring cash flow in balance. Management does not anticipate the need for any such action and, therefore, has no specific plans or commitments with respect thereto for the Company. However, if such action was required, there is no assurance that the Company will be successful in any such effort. INFLATION Although the Company believes that inflation has not had any material effect on operating results, it cannot be assured that its business will not be affected by inflation in the future. 19 BUSINESS The Company is a mortgage banking company that, through its wholly-owned subsidiary Westmark Mortgage, is engaged in the business of originating, purchasing and selling mortgage loans secured primarily by single family, multi-family and condominium residences. Westmark Mortgage is registered and/or licensed to originate, purchase closed loans, underwrite, fund or sell residential mortgage loans in the states of Alabama, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio, Oregon, Utah, Washington, and Wyoming. The Company pools and sells loans to third-party investors including Fannie Mae, Freddie Mac, HUD, its lending agency Ginnie Mae, and various non-conforming mortgage conduits. BUSINESS STRATEGY The Company has historically been a wholesale mortgage lender providing a full range of mortgage lending services which include conventional, governmental, jumbo (large loan amounts) and non-conforming ("B/C") home mortgage loans. The majority of the Company's loans are made to owners of single family, multi-family and condominium residences who use the loan proceeds for purchasing new homes or refinancing existing home mortgages. Westmark provides funds to approved mortgage brokers and correspondent lenders who originate the mortgage for the consumer. Westmark closes and funds the loan through approved correspondent mortgage lenders. Westmark solicits these brokers for business, competing with other wholesale lenders. Westmark provides products to its approved mortgage broker customers related to home loans. In general, Westmark offers brokers products for their clients who have credit from "A" (perfect and good credit) to "C" (below average) and who desire conventional loans, government loans, conforming loans, and non-conforming loans. All mortgage products are secured by the property the borrower used as collateral for the mortgage. Mortgage brokers submit loan packages to a Westmark representative for review and approval. After the mortgage loan is closed, Westmark packages the loans into groups and sells the loans to mortgage lending conduits. These conduits include institutional investors as well as Fannie Mae, Freddie Mac and the HUD. Westmark determines to whom it will sell the loans based on the conduits price and service at the time the specific loans are sold. Westmark does not retain the rights to service the mortgage loans it closes or loans purchased from approved correspondent lenders. PRODUCTION Westmark's 1995 closed loan production was $158 million. Of this, approximately $133 million was conforming conventional mortgage home loans (otherwise referred to as "A" product) and approximately $25 million in non-conforming mortgage home loans (otherwise referred to as "B/C" product). Westmark's 1994 production was $155 million all in conforming conventional mortgage home loans. Total loan dollar amount originated in 1995 reflected a 2% increase over 1994. However, the total number of loans originated increased 30% from 1,095 to 1,432 loans. The increase resulted primarily from B/C production. Of the total production, approximately 91% was originated from Florida and California. The 1995 average loan amount for conforming "A" production was $114,272 compared to $141,701 for 1994. The 1995 average loan amount for non-conforming "B/C" production was $92,551. Westmark expects these average 1995 amounts to be similar in 1996. Management's strategy is to expand its geographical production to additional states, while intensifying sales efforts in its home state of Florida. Management's strategy is to expand both the "A" and "B/C" business in California, Florida, Georgia, Hawaii, Missouri, Oregon, Washington, and developing 20 new markets by utilizing Westmark's inside sales representatives. Recently, Westmark has hired an experienced regional manager for Southern California and five account executives in Florida, focusing on the "B/C" business. In addition, Westmark has hired a new Southeast regional sales manager, and two of Westmark's inside sales managers have been promoted to outside sales positions. Westmark's goal is to build upon its existing sales force every sixty to ninety days with growth into the states where it is currently licensed or approved to conduct business. "B/C" MORTGAGES In January 1995, the Company began marketing its non-conforming ("B/C") mortgage loan products. These mortgages are available for borrowers with credit histories that fall below the guidelines of conforming "A" mortgage loans. The Company believes that the "B/C" mortgage market is a growing segment of the mortgage industry for two reasons: (i) because of the weaker credit ratings, banks and savings and loans typically have not entered this arena; and (ii) the secondary market for securities and selling "B/C" mortgages has become more prevalent. As demand increases, Westmark believes it can take advantage of this opportunity. Typically, these loans generate a greater gain on sale compared to their conforming "A" loan counterparts. In 1995, "B/C" loans accounted for approximately 15% of the Company's production as compared to 1994 when the Company did not originate "B/C" loans. This percentage is expected to increase in 1996 and management expects the "B/C" loans to account for a higher percentage of the Company's 1996 revenue. PIPELINE The loan pipeline ("Pipeline") is the volume of loans ("A" and "B/C") in the Company's system that have met all of the Company's preliminary qualification criteria and are consequently eligible for funding. These loans have been preapproved and are awaiting final review. Generally, between 65% to 70% of the loans in the Pipeline successfully pass the final review and are funded. The majority of loans that fund will do so within 60 days from entrance into the Pipeline. The Company had interest rate commitments on loans totaling $1.6 million and $2.5 million at December 31, 1995 and 1994, respectively, and $1.3 million at March 31, 1996. The total loan Pipeline at those dates was $33,718,000, $24,482,000, and $32,947,560, respectively. It is impractical to estimate market value of the portfolio at December 31, 1995, since its value is dependent on interest rates, time of closing, turndown ratio, and other variables which cannot be determined with any reasonable certainty at this time. The loans generated by the Company can be sold on an individual loan basis (flow) or sold in package form (bulk). A bulk package contains as little as $500,000 in mortgage loans up to an unlimited amount. The Company can form one package or several packages in any given month, depending on the best execution (highest price). Loans sold on a flow (i.e., one at a time) can be sold rapidly and loans sold in bulk generally require more time to assemble, often 30 to 45 days from funding. OPERATIONS Westmark's operations are centralized in the Delray Beach office. In January 1995, Westmark had two operation centers, one in Florida and one in California. In 1996, Westmark centralized its operations to Florida, creating more efficiency and lowering overhead. With this centralization, management initiated a new program to create greater profits from the sale of loans. Historically, closed loans have been sold one by one to institutional investors. Westmark began to participate in the "bulk sale" loan process whereby loans are packaged into a group and sold in one transaction. This results in expanded revenue opportunities over typical loan by loan sales and has created greater economies of scale in the operations delivery of closed loans. MARKETING 21 Traditionally, Westmark has marketed its products and services through field sales representatives ("account executives") who are responsible for building relations with brokers in a geographical region. A typical account executive visits prospective clients in a particular territory and reviews specific loans. If the loan can be funded or purchased by Westmark, the account executive obtains the mortgage documentation and provides this to the underwriters. In addition to field representatives, Westmark has an inside sales group. These employees usually cover less densely populated states and territories, utilizing telemarketing to prospect for Westmark business. If an opportunity exists, the broker will send the loan application into the operations division directly. Management believes this process is more cost effective for sparsely populated areas. Westmark also markets its products at national and regional industry trade shows, utilizing a sales booth and sending representatives to meet new and existing clients. This effort provides continued market recognition for the Westmark account executives and inside sales representatives, as well as the Company. Westmark obtains this information and inputs the data in its computers for marketing use. These new contacts are distributed to the appropriate sales representatives who make sales calls while at the same time the central marketing department sends out marketing literature by mail or facsimile to enhance market recognition of the Company and its products. This process assists the sales representatives in developing new prospects. COMPETITION The Company competes against savings and loan associations, thrifts, commercial banks, consumer finance companies and other mortgage bankers in the origination of single-family, multi-family and condominium residential mortgage loans. Even though some of the competition is large and operates on a nationwide scope, management believes that no single firm controls more than 5% of this market. Furthermore, management believes that mortgage bankers, in general, control more than 55% of the national market. The Company competes on the basis of quality of services along with the relationships established by the sales and operations staff. REGULATION The Company's business is subject to extensive regulation, supervision and licensing by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. The Company is subject to the rules and regulations of, and examinations by, HUD and state regulatory authorities with respect to originating, processing, underwriting and selling loans. These rules and regulations, among other things, impose licensing obligations on the Company, establish eligibility criteria for mortgage loans, prohibit discrimination, provide for inspections and appraisals of properties, require credit reports on loan applicants, regulate assessment, collection, foreclosure and claims handling, investments and interest payments on escrow balances and payment features, mandate certain disclosures and notices to borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to comply with these requirements can lead to demands for indemnifications or mortgage loan repurchases, certain rights of rescission for mortgage loans, class action lawsuits and administrative enforcement actions. The Company believes that it is in compliance in all material respects with applicable federal and state laws and regulations. EMPLOYEES As of March 29, 1996, the Company employed 10 full time administrative employees and 35 full time production and operations employees. To date, the Company has been able to recruit and retain 22 sufficient qualified personnel. None of the Company's employees are represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. FACILITIES The Company maintains its executive offices and a production branch at 355 N.E. Fifth Avenue, Suite #4, Delray Beach, Florida 33483. Suite 4 is comprised of Units 2,3, and 4. This total space consists of 7,800 square feet and is leased through April 30, 1998 at an average monthly net rental of $2,300 per month over the term of the lease, which lease amount is considered consistent with the surrounding market rates. Suite 4 is in a building owned by a consultant and former officer and director of the Company. In 1994, the Company acquired from an unaffiliated third party ownership of Unit #7 (1,100 square feet) in the same complex which is occupied primarily by the loan production department. In 1995, Unit 5 was acquired by the Company from an unaffiliated third party for use by the operations staff, and the mortgage payment is $2,807 per month until maturity in 1998. The Company also operates a 1,500 square foot satellite office in California, leased for a term of 84 months at a monthly rate of $5,000. The Company has also entered into an agreement to acquire Unit #1, approximately 1,200 square feet, which is located in the same complex for $150,000, which amount is believed to be consistent with the surrounding market rates. To date, the Company has not closed on this building. LEGAL PROCEEDINGS The Company is a defendant in Robert J. Conover vs. Greentree Mortgage Co., L.P. and Greentree Management Corporation (collectively, "Greentree"), Westmark Group Holdings, Inc., Westmark Mortgage Corporation and Michael F. Morrell, Superior Court of New Jersey, Chancery Division, Burlington County, filed September 29, 1995. The plaintiff served as president and chief financial officer of Greentree pursuant to an employment agreement between the plaintiff and Greentree. Plaintiff was discharged from those positions in September 1995. Plaintiff brought this action for compensatory damages based upon an alleged breach of such employment agreement. Plaintiff seeks, among other things, damages against Westmark and Mr. Morrell based upon an allegation of intentional interference with contractual obligations and a third party beneficiary claim with respect to the Company. Mr. Morrell is indemnified by the Company. On October 27, 1995, the plaintiff sought a temporary restraining order and preliminary injunction enjoining the Company from acquiring Greentree. Such request was denied as the Court found that, among other things, the applicable test requiring plaintiff to show a likelihood of success on the merits was not met. The Company has terminated negotiations with Greentree. Greentree has agreed to maintain a minimum net worth of $1,000,000. Management believes that this obligation does not transfer in any way to the Company in connection with its attempted purchase of certain assets of Greentree. Greentree disputes the allegations of the complaint. The Company believes that there is no legal justification for the joinder of the Company and Mr. Morrell as defendants in the pending dispute between the plaintiff and Greentree, and intends to vigorously defend this allegation. In the matter of Saxon Mortgage v. Westmark, Saxon Mortgage obtained a judgment in the amount of $469,348, in connection with various repurchase obligations. An amount of $50,000 has been paid, and the remaining liability of $419,348 is accrued at December 31, 1995. Negotiations are continuing between the two parties to settle this matter. The Company is a defendant in Conway et al v. Danna, Network Financial Services, Inc., et al. The suit alleges Unfair Practices; Fraud (Negligent Misrepresentations; Intentional Misrepresentations; Concealment); Breach of Written Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; 23 Common Count; and Breach of California Securities Statutes against Network Financial Services, Inc. (aka Westmark Group Holdings, Inc.) and others. The Company considers the risk of loss in this matter to be remote and, consequently, no amount has been accrued as of December 31, 1995. The Company is plaintiff in Network Financial Services, Inc. v. McCurdy, Raiche, Ryals, Nash & Moss Land Company, filed March 1993 in Monterey County, California Superior Court. The plaintiff alleges fraud, negligent misrepresentation, breach of fiduciary duty, negligence, quiet title, RICO violations and conversion. Defendant McCurdy initiated a cross-complaint naming, among others, the Company as a cross-defendant. The cross-complaint seeks damages for breach of a stock option agreement, breach of contract and declaratory relief. The Company has finalized a settlement with defendants Raiche and Ryals. The balance of the pending litigation involving defendant and cross-complainant McCurdy and others is unaffected by the Raiche/Ryals settlement. Management intents to vigorously defend this cross-complaint. The Company is defendent in Knight v. Lomas Mortgage U.S.A. and Westmark Mortgage Corporation. The complaint is based upon a contention by the Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully impaired the credit rating of Plaintiff and breached the written agreement between the parties. A preliminary determination indicates that the basis for the dispute is between Lomas U.S.A. and the Plaintiff, but the Company has been named as a party defendant in view of the original contractual relationship between the Plaintiff and Westmark. The Company considers the risk of loss in this matter to be remote, and consequently, no amount has been accrued as of December 31, 1995. From time to time the Company is a defendant (actual or threatened) in certain lawsuits encountered in the ordinary course of its business, the resolution of which, in the opinion of management, should not have a material adverse affect on the Company's financial position. 24 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows: NAME AGE POSITION ---- --- -------- Norman J. Birmingham 41 President, Chief Executive Officer and Director Mark Schaftlein 38 President and Chief Executive Officer of Westmark Mortgage and Director of the Company Dawn Drella 28 Secretary and Chief Financial Officer Todd Walker 37 Director - --------------------- Mr. Birmingham has served as president since November 1995, chief executive officer since January 1996, and as a director since April 1996. Mr. Birmingham has been engaged in the accounting and tax practice since 1986. Since July 1995, Mr. Birmingham has served as chief operating officer, president, and as a director of Heart Labs, whose securities are registered under Section 12 of the Exchange Act. Mr. Birmingham spends one-half of his business time on Company affairs and one-half of his business time on Heart Labs affairs. Mr Schaftlein has served as president and chief executive officer of Westmark Mortgage since February 1995. Prior thereto, Mr. Schaftlein was a senior vice president with National Lending Center, Inc., from September 1993 until February 1995. From January 1993 until September 1993, Mr. Schaftlein served as vice president of Fleet Finance. From 1984 to January 1993, Mr. Schaftlein served as vice president at Citicorp. Mr. Walker has served as a director since January, 1996. In 1987, Mr. Walker founded, and presently serves as president of Southern Import Distributors, Inc. ("SIDI") On behalf of SIDI, Mr Walker co-founded Tampa Convention Hotel Associates, Inc., Divot Devlopment Corporation, Herr Damm, Inc., and Mad Dogs & Englishmen. Prior to forming SIDI, Mr. Walker was a tax consultant with Arthur Anderson & Company for two years. Mr Walker is a graduate of Tulane University (1981) and received his Masters of Business Administration degree (1985) and Juris Doctorate degree (1985) from the Tulane Graduate Business School and Tulane Law School, respectively. Ms. Drella has served as the secretary and chief financial officer of the Company since February 1996. Ms. Drella has served as an officer with Heart Labs since June 1993. From August 1992 to January 1993, Ms. Drella was a staff accountant with Jones & Hall. From June 1991 to August 1992, Ms. Drella served as the controller for RCC Associates. Ms. Drella is a certified public accountant. Ms. Drella spends one-fourth of her business time on Company affairs and three-fourths of her business time on Heart Labs affairs. Directors serve until the expiration of their term at the annual meeting of stockholders. All officers serve at the discretion of the Board of Directors, subject to employment agreements. Effective February 1996, each non-employee director is entitled to receive $500 per month, and all directors are entitled to reimbursement of out-of-pocket expenses to attend Board meetings. 25 BOARD COMMITTEES The Board of Directors has appointed a compensation committee and an audit committee. The members of the compensation committee are Messrs. Schaftlein and Walker. The compensation committee reviews and recommends to the Board of Directors all forms of remuneration for directors and management of the Company and has the authority to administer the Company's 1994 stock option plan. The members of the audit committee are Messrs. Birmingham and Walker. The audit committee reviews and reports to the Board on the financial results of the Company's operations and the results of the audit services provided by the Company's independent accountants, including the fees and costs for such services. EXECUTIVE COMPENSATION Michael Morrell served as the chief executive officer of the Company from January 1995 through November 1995. Rodger Stubbs served as chief executive officer of the Company from November 1995 through January 1996, and was replaced by Mr. Birmingham in January 1996. The following table sets forth the information with respect to the chief executive officers during fiscal 1995. No other executive officer of the Company received total annual salary and bonus for the 1995 fiscal year in excess of $100,000.
SUMMARY COMPENSATION TABLE LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------------- ----------------------------------------- NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK ALL OTHER POSITION YEAR SALARY COMPENSATION (1) ISSUANCES OPTIONS (2) COMPENSATION (3) - -------------- ----- ------ ---------------- --------- ----------- ---------------- Michael F. Morrell, ................. 1995 $55,518 $14,220 16,204(4) 69,000 $148,167 Chief Executive ................... 1994 $90,000 $14,220 -- 60,000 $ 80,833 Officer ........................... 1993 -- -- -- -- -- Rodger Stubbs, ...................... 1995 $90,000 $14,628 6,482(5) 21,333 -- Chief Executive ................... 1994 $66,664 $14,628 -- 8,333 -- Officer ........................... 1993 -- -- -- -- --
1. Car allowance payments. 2. Each option is fully vested and currently exercisable during its ten year term at an exercise price of $2 per share. The original exercise price was the fair market value upon the date of issuance, and the current price of $2 per share was the fair market value on December 11, 1995, the date of such repricing. 3. Accrued salary which was converted to a $229,000 convertible promissory note in November 1995. See "-Certain Transactions." 4. These shares were issued in lieu of $25,000 accrued salary in 1995. 5. These shares were issued in lieu of $17,500 accrued salary in 1995. In January 1996, Mr. Stubbs and the Company entered into a termination agreement in which the Company paid Mr. Stubbs $46,450 ($10,000 of which was utilized by Mr. Stubbs to exercise a currently exercisable option to purchase 5,000 shares, the resale of which is being registered under the Act hereby) and issued Mr. Stubbs a $35,000 non-interest bearing promissory note maturing in 1996. EMPLOYMENT AGREEMENTS 26 In April 1996, Messrs. Birmingham and Schaftlein entered into three-year employment agreements with the Company which provide for an annual base salary of $87,500 and $140,000, respectively. Additionally, Messrs. Birmingham and Schaftlein were issued warrants to purchase 90,000 shares, 45,000 of which are currently exercisable over a five year term at $2.25 per share, and 45,000 of which vest in full if the Company's net income in 1996, 1997 or 1998 is $480,000 (and vest on a pro-rata basis if a lesser amount of net income is earned in those periods), exercisable during a five year term from the date of vesting in full. In the event an employment agreement is terminated other than for "just cause," such terminated employee would be entitled to receive one-year's salary. In April 1996, the Company entered into a one-year employment agreement with Ms. Drella which provided for an annual base salary of $20,000, plus the issuance of 10,000 shares of Company Common Stock. STOCK OPTIONS The following table provides information on options granted under the Company's 1994 Stock Option Plan in fiscal 1995 to Messrs. Morrell and Stubbs: INDIVIDUAL GRANTS -------------------------------- PERCENT OF SHARES TOTAL UNDERLYING OPTIONS OPTIONS EXERCISE OR GRANTED GRANTED TO BASE PRICE ------------------ EMPLOYEES IN PER EXPIRATION NAME FISCAL YEAR SHARE DATE - --------------- ------------ ----------- ---------- Michael Morrell 69,000(1) 40% $2.00 3/05 Rodger Stubbs 21,333(2) 12.3% $2.00 3/05 - ----------- (1) These options were granted in March 1995 and were re-priced in December 1995 at the reduced then market price. Does not include a ten year option to purchase 60,000 shares granted in March 1994, repriced in December 1995 to the then market price of $2 per share. (2) These options were granted in March 1995 and were re-priced in December 1995 at the reduced then market price. Does not include a ten year option to purchase 8,333 shares granted in March 1994, repriced in December 1995 to the then market price of $2 per share. The following table provides information regarding option exercises in fiscal 1995 Messrs. Morrell and Stubbs and the value of such unexercised options at December 31, 1995:
Number of Securities Value of Unexercised Shares Underlying Unexercised In-The-Money Options Acquired on Value Options at at NAME EXERCISE REALIZED DECEMBER 31, 1995 DECEMBER 31, 1995 - ----------------- -------- -------- ------------------- ------------------ Michael Morrell ... -- -- 129,000 (1) Rodger Stubbs ..... -- -- 29,666 (1)
- ------------ 27 (1) Based on the last sales price on December 31, 1995 of 1 3/16, the options were not in-the-money at December 31, 1995. Additionally, as of March 31, 1996, non-executive officers held options to purchase an aggregate of 173,239 shares of Common Stock at exercise prices ranging from $2 to $45 per share. See "Employment Agreements" for a discussion of warrants issued to current executive officers in April 1996. The Company has not established, nor does it provide for, long-term incentive plans or defined benefit or actuarial plans. The Company does not grant any stock appreciation rights. CERTAIN TRANSACTIONS Effective November 1995, Heart Labs purchased 1,298,388 shares of Common Stock for a purchase price of $3,210,000, comprised of $1,210,000 cash and cash equivalents, and the issuance of 200,000 shares of Heart Labs series B convertible preferred stock with a stated value of $10 per share. The stock purchase agreement provides that Heart Labs ownership position, equal to 49% of the shares of Company Common Stock actually outstanding, shall not be diluted below 49%, with additional shares to be issued to Heart Labs to maintain such ownership position. In May 1996, the Company issued Heart Labs 154,404 shares of Common Stock in order to maintain such percentage ownership. As additional shares of Common Stock are issued by the Company, out of the new issuances or on exercise of outstanding warrants and options and conversion of outstanding Preferred Stock, additional adjustments will be made resulting in additional shares issued to Heart Lab in order to maintain such 49% ownership interest. Subsequent to the November 1995 purchase agreement, Heart Labs has loaned the Company an aggregate of $2,293,000 pursuant to one-year notes, bearing interest at the rate of 10% per annum. Effective March 1996, Heart Labs converted $700,000 of this indebtedness into 200,000 shares of series C preferred stock with a stated value of $3.50 per share. The then officers of the Company, Messrs. Morrell and Gardner and Linda Moore resigned as officers and Mr. Morrell resigned as a director. Mr. Morrell was issued a Heart Labs note in the principal amount of $415,000, bearing interest at a rate of 12% per annum, to repay a $415,000 advance previously made to the Company. Mr. Morrell has the right to convert all or a portion of this loan into shares of Common Stock at a rate equal to 50% of the closing bid price on the day preceding such conversion. The Company also agreed to pay Mr. Morrell accrued salary of $229,000 by issuance of a promissory note in such amount, bearing interest at the rate of 12% per annum, which amount can be converted into shares of Common Stock at the rate of 50% of the closing bid price on the day preceding such conversion. The conversion is being registered under the Act hereby. For a three year period, the Company agreed to pay Mr. Morrell a consulting fee of $7,500 per month, plus certain perquisites. The Company leases certain of its facilities from Mr. Morrell at rates it believes reflect fair market value. See "Business - Facilities." Mr. Gardner was issued 25,000 shares of Common Stock (the resale of which is being registered under the Act hereby) and severance compensation in the amount of $54,000. Ms. Moore was issued a Heart Labs note in the principal amount of $60,000, bearing interest at the rate of 12% per annum, to repay a $60,000 advance previously made to the Company. The Company agreed to pay Ms. Moore accrued salary of $80,000 by issuance of a promissory note in such amount, bearing interest at the rate of 12% per annum, which amount can be converted into shares of Common Stock at the rate of 50% of the closing bid price on the day preceding such conversion. This conversion is being registered under the Act hereby. For an 18 month period, the Company agreed to pay Ms. Moore a consulting fee of $4,000 per month. LIMITATION ON DIRECTORS' LIABILITY The Company's Certificate of Incorporation eliminates, subject to certain exceptions, the personal liability of directors of the Company or its stockholders for monetary damages for breaches of fiduciary duty of such directors. The Certificate of Incorporation does not provide for the elimination of or any 28 limitation on the personal liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful corporate distributions, or (iv) any transaction from which such director derives an improper personal benefit. This provision of the Certificate of Incorporation will limit the remedies available to the stockholder who is dissatisfied with a decision of the Board of Directors protected by this provision; such stockholder's only remedy may be to bring a suit to prevent the action of the Board. This remedy may not be effective in many situations, because stockholders are often unaware of a transaction or an event prior to Board action in respect of such transaction or event. In these cases, the stockholders and the Company could be injured by a Board's decision and have no effective remedy. DELAWARE ANTI-TAKEOVER LAW The Company is not subject to Section 203 of The Delaware General Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combinations with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless (i) before such date the Board of Directors of the Company approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the Company outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares that are owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have a right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (iii) on or after such date the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines "combination" to include (i) any merger or consolidation involving the corporation and the interested stockholder, (ii) any sale, lease, exchange, mortgage, transfer pledge or other disposition involving the interested stockholder of 10% or more of assets of the Company, (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the Company of any stock of the Company to the interested stockholder, (iv) any transaction involving the Company that has the effect of increasing the proportionate share of the stock of any class or series of the Company beneficially owned by the interested stockholder, or (v) the receipt by the interested stockholder of the benefit of any loans, advances guarantees, pledges or other financial benefits provided by or through the Company. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the Company and any entity or person affiliated with or controlling or controlled by such an entity or person. Accordingly, transactions with Heart Labs will not be subject to Section 203. 29 PRINCIPAL STOCKHOLDERS The following table presents certain information regarding the beneficial ownership of all shares of Common Stock at May 20, 1996 by (i) each person who owns beneficially more than five percent of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each named executive officer and (iv) all directors and officers as a group. PERCENT OF VOTING POWER ----------------------- SHARES OF BEFORE AFTER NAME AND ADDRESS(1) COMMON STOCK OFFERING OFFERING(2) ------------------- ------------ ---------- ----------- Heart Labs of America ................ 1,465,922 49% 49% Ocean Marketing Corp. ................ 300,0003 9% 4% Drew Hollenbeck ...................... 266,6674 8% 4% Michael Morrell ...................... 145,2045 5% 2% Mark Schaftlein ...................... 47,1676 2% * Norman Birmingham .................... 45,0007 2% * Rodger Stubbs ........................ 41,4878 1% * Todd Walker .......................... -- -- All officers and directors as a ...... 102,1679 3% 1% group (four persons) - ------------ * Less than one percent. 1 The address for the above referenced stockholders is 355 N.E. Fifth Avenue, Delray Beach, FL 334831, except for Heart Labs and Michael Morrell, which is 2650 N. Military Trail, Suite 230, Boca Raton, FL 33431, and Ocean Marketing Corp., which is 2901 Hill Street, New Smyrna, Florida 32169. 2 Assumes the issuance of (i) 495,433 shares of Common Stock and the issuance of 1,707,261 shares upon exercise of all Warrants and Options and conversion of all shares of Preferred Stock, and (ii) 1,465,922 shares to Heart Labs to maintain its 49% interest in the Company. 3 Consists of a five-year warrant to purchase 300,000 shares of Common Stock at $1.00 per share. 4 In March 1996, Mr. Hollenbeck agreed with the Company to provide for the redemption of his 290,000 shares of Common Stock based on the then market price in exchange for, among other considerations, a two-year consulting agreement providing for the payment of $75,000 in the first year and $90,000 in the second year, $400,000 cash, and the issuance of 100,000 shares of Series A Preferred Stock in April 1996. See "Description of Capital Stock - Preferred Stock." 5 Includes an option currently exercisable to purchase 129,000 shares of common stock. 6 Includes an option and warrant currently exercisable to purchase an aggregate of 46,500 shares of Common Stock. 7 Includes an option presently exercisable to purchase 45,000 shares of Common Stock. 8 Includes options currently exercisable to purchase 29,666 shares of Common Stock. 9 Includes options and warrants to purchase an aggregate of 91,500 shares of Common Stock. 30 DESCRIPTION OF CAPITAL STOCK Under the Company's Certificate of Incorporation, the authorized capital stock of the Company consists of 60 million shares, of which 50 million shares are Common Stock and 10 million shares are preferred stock. As of the date of this Prospectus, the Company had outstanding shares of Common Stock and 118,750 shares of Series A Preferred Stock, 300,000 shares of Series B Preferred Stock, and 200,000 shares of Series C Preferred Stock held of record by 14 persons. The Company has reserved 495,433 shares to be issued hereby, 331,905 shares for issuance upon exercise of outstanding Options, 666,666 shares for issuance upon exercise of Warrants, and 708,690 shares for issuance upon conversion of the Preferred Stock. The following summary description of the securities of the Company is qualified in its entirety by reference to the Certificate of Incorporation, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. COMMON STOCK The holders of Common Stock are entitled to one vote per share with respect to all matters required by law to be submitted to stockholders of the Company. The holders of Common Stock have the sole right to vote, except as otherwise provided by law or by the Company's Certificate, including provisions governing any preferred stock. The Common Stock does not have any cumulative voting, preemptive, subscription or conversion rights. Election of directors and other general shareholder action requires the affirmative vote of a majority of shares represented at a meeting in which a quorum is represented. The outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be, upon payment therefor as contemplated herein, validly issued, fully paid and non-assessable. Subject to the rights of any outstanding shares of preferred stock, the holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the affairs of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. PREFERRED STOCK The Board of Directors is authorized, without action by the holders of the Common Stock, to provide for the issuance of the preferred stock in one or more series, to establish the number of shares to be included in each series and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. This includes, among other things, voting rights, conversion privileges, dividend rates, redemption rights, sinking fund provisions and liquidation rights which shall be superior to the Common Stock. The issuance of one or more series of the preferred stock could adversely affect the voting power of the holders of the Common Stock and could have the effect of discouraging or making more difficult any attempt by a person or group to attain control of the Company. The Company has no present plans to issue any additional shares of preferred stock. SERIES A PREFERRED STOCK. In April 1996, the Board of Directors established a series of shares setting forth the preferences, rights and limitations and authorizing the issuance of up to 200,000 shares of series A cumulative preferred stock ("Series A Preferred Stock"). In April 1996, an aggregate of 100,000 shares of Series A Preferred Stock were issued with an aggregate stated value of $400,000 to Mr. Hollenbeck and an aggregate of 18,750 shares of Series A Preferred Stock were issued to an unaffiliated third party. The Series A Preferred Stock has a liquidation preference of $4 per share, plus any accrued unpaid dividends, 31 is redeemable by the Company at a redemption price of $4 per share, plus accrued unpaid dividends to the date of redemption, after October 1, 1996 the holder can force redemption by the Company upon the same redemption terms that the Company possesses, and does not have any voting rights. The shares of Series A Preferred Stock are convertible into shares of Common Stock at the lessor or (i) $1.50 or (ii) 84% of the closing bid price on the day prior to conversion (subject to adjustment). SERIES B PREFERRED STOCK. In April 1996, the Board of Directors established a series of shares setting forth the preferences, rights and limitations and authorizing the issuance of up to 300,000 shares of series B cumulative preferred stock ("Series B Preferred Stock"). In April 1996, an aggregate of 300,000 shares of Series B Preferred Stock were issued with an aggregate stated value of $600,000. The Series B Preferred Stock has a liquidation preference of $2 per share, plus any accrued unpaid dividends, is redeemable by the Company at a redemption price of $2 per share, plus accrued unpaid dividends to the date of redemption, and does not have any voting rights. The shares of Series B Preferred Stock are convertible by the holders in shares of Common Stock at the lesser of (i) $2.00 or (ii) 84% of the closing bid price on the day prior to conversion (subject to adjustment). The shares of Series B Preferred Stock automatically convert, at the above referenced conversion rate, into shares of Common Stock in April 1998. SERIES C PREFERRED STOCK. In March 1996, the Board of Directors established a series of shares setting forth the preferences, rights and limitations and authorizing the issuance of up to 500,000 shares of series C cumulative preferred stock ("Series C Preferred Stock"). Effective March 1996, an aggregate of 200,000 shares of Series C Preferred Stock were issued with an aggregate stated value of $700,000. The Series C Preferred Stock has a liquidation preference of $3.50 per share, plus any accrued unpaid dividends, is redeemable by the Company at a redemption price of $3.50 per share, plus accrued unpaid dividends to the date of redemption, and does not have any voting rights. After December 15, 1997, the shares of Series C Preferred Stock are convertible by the holders in shares of Common Stock at the rate of 84% of the closing bid price on the day prior to conversion (subject to adjustment). WARRANTS As discussed in "Management-Employment Agreements," warrants were issued to Messrs. Birmingham and Schaftlein providing for the issuance of up to 180,000 shares of Common Stock. Additionally, there are warrants outstanding authorizing the holders to purchase an aggregate of 666,666 shares of Common Stock, currently exercisable and expiring between one and eight years from the date of this Prospectus at exercise prices between $1.00 and $9.00. TRANSFER AGENT The Company's transfer agent for the Common Stock is Corporate Stock Transfer, Inc., Republic Plaza, 370 17th Street, Suite 2340, Denver, Colorado 80202. PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS This Prospectus relates to the issuance of up to 471,500 shares of Common Stock and the resale of 2,373,787 shares by the Selling Stockholders, of which 666,526 are currently issued and outstanding and 1,707,261 will be issued upon (i) exercise of Warrants to purchase 666,666 shares, (ii) exercise of Options to purchase 331,905 shares, and (iii) conversion of Preferred Stock to purchase 708,690 shares, subject to adjustment. The first table sets forth information with respect to the issuance by the Company of shares of Common Stock to be issued to fund debt settlements and to be issued to fund debt obligations and settlements to be negotiated. The second table sets forth information with respect to the resale of 32 Common Stock by the Selling Stockholders, including the resale of shares of Common Stock issued upon exercise of outstanding Warrants and Options, and upon conversion of the outstanding Preferred Stock. The Company will not receive any cash proceeds upon issuance of shares to fund debt settlements or obligations nor will it receive any proceeds from the resale of Common Stock by the Selling Stockholders for shares currently outstanding or upon conversion of Preferred Stock; however, the Company will receive the exercise price per share upon issuance of shares underlying the Warrants and Options. ISSUANCE OF COMMON STOCK BY THE COMPANY NUMBER OF SHARES NAME TO BE ISSUED ---- ------------ Jackson, Tufts, Cole & Black 75,000 (1) Cassidy & Associates 35,000 (2) Greentree Mortgage 17,500 (3) Brentwood Computers 16,000 (4) Cohen, Brame and Smith 12,000 (5) William Tetsworth 10,000 (6) Teletrend Communications 9,500 (7) Republic Indemnity 8,000 (8) Flood Data 7,500 (9) Hakman & Company 7,000 (10) Foster Ousley Conley 6,000 (11) Nationwide Computer 5,000 (12) Prentice Hall 3,000 (13) Howard Rice 10,000 (14) M.S. Farrell & Company, Inc. 2,667 (15) Richard L. Klass 1,333 (15) Alan H. Adelson 1,334 (15) James D. Tucker 1,000 (16) Lomas Mortgage USA, Inc. 12,000 (17) Kenny the Printer 2,000 (18) Steve Jizmagian 3,500 (19) Short-fall Shares 100,000 (20) Additional Shares 150,000 (21) ------- ---- TOTAL 495,334 - ------------ (1) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $170,000 in the aggregate, to be paid over a period of 10 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (2) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $70,308 in the aggregate, to be paid over a period of 12 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. 33 (3) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $35,000 in the aggregate, to be paid over a period of 7 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (4) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $33,996 in the aggregate, to be paid over a period of 6 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (5) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $24,720 in the aggregate, to be paid over a period of 6 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (6) These shares will be issued in lieu of a cash payment for services rendered. (7) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $22,584 in the aggregate, to be paid over a period of 6 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (8) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $17,500 in the aggregate, to be paid over a period of 7 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (9) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $132,000 in the aggregate, to be paid over a period of 7 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (10) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $18,652.84 in the aggregate, to be paid over a period of 3 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (11) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $11,520 in the aggregate, to be paid over a period of 6 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (12) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $7,866 in the aggregate, to be paid over a period of 3 months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (13) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $6,935 in the aggregate, to be paid over a period of three months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (14) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $20,000 in the aggregate, to be paid over a period of two months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (15) These shares of Common Stock will be issued pursuant to a settlement agreement. (16) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $1,838.49 no later than sixty days after the effective date of the Registration Statement. In the event the number of shares is insufficien to gross that amount the Company may be obligated to issue additional shares. 34 (17) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $22,232 in the aggregate, to be paid over a period of four months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (18) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $4,500 in the aggregate, to be paid over a period of four months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (19) These shares of Common Stock will be issued pursuant to a settlement agreement. The Company has agreed that the shares will be sold to gross to the creditor $6,000 plus accrued interest, to be paid over a period of three months. In the event the number of shares is insufficient to gross that amount, the Company may be obligated to issue additional shares. (20) These shares will be issued, if necessary, to cover short-falls in the settlement agreement obligations presented in this table. (21) These shares may be issued to fund debt settlements to be negotiated or current outstanding debt obligations. If these shares are utilized in this manner, they will be issued on a negotiated, "best efforts, no minimum" basis. 35 RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS FOR SHARES CURRENTLY OUTSTANDING ("S"), SHARES TO BE ISSUED UPON EXERCISE OF WARRANTS ("W") AND OPTIONS ("O") AND CONVERSION OF PREFERRED STOCK ("P")
SHARES AMOUNT SHARES BENEFICIALLY OFFERED BENEFICIALLY OWNED (ASSUMING ALL OWNED BEFORE SHARES IMMEDIATELY AFTER STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE ----------- ------------ ------------------ --------- ---------- D. Blair Adams .................... 371 371 S 0 0.0 Alan Adelson ...................... 945 945 S 0 0.0 1,223 1,223 S 0 0.0 Affiliated Services, Inc. ......... 104,000 104,000 S 0 0.0 Sharon Aitken ..................... 1,000 1,000 S 0 0.0 Amber Capital Corporation ......... 51,741 51,741 S 0 0.0 Anacapa Venture Partners .......... 45,745 45,745 P(1) 0 0.0 Richard Anderson .................. 1,191 1,191 S 0 0.0 596 596 S 0 0.0 596 596 S 0 0.0 Aqumulate, Ltd. ................... 327 327 S 0 0.0 340 340 S 0 0.0 2,500 2,500 S 0 0.0 Atlantic Bottled Gas .............. 2,075 2,075 S 0 0.0 Tom Baldwin ....................... 596 596 S 0 0.0 Robert Banner ..................... 833 833 O(2) 0 0.0 Vincent Barras .................... 1,334 1,334 S 0 0.0 Charlotte Barrett-White ........... 1,160 1,160 O(3) 0 0.0 Norman J. Birmingham(*) ........... 45,000 45,000 W(4) 0 0.0 45,000 45,000 W(5) 0 0.0 David Blackman .................... 334 334 S 0 0.0 John Blausey ...................... 1,667 1,667 S 0 0.0 6,667 6,667 S 0 0.0 1,334 1,334 S 0 0.0 Thomas Burd ....................... 667 667 S 0 0.0 R. Bushey ......................... 2,000 2,000 S 0 0.0 Virginia C. Butler ................ 2,000 2,000 S 0 0.0 1,000 1,000 S 0 0.0 Capitol Ventures International .... 33,334 33,334 S 0 0.0 Caribou Bridge Fund ............... 22,873 22,873 P(1) 0 0.0 Jeannie Caron ..................... 926 926 S 0 0.0 Darren Cassey ..................... 1,067 1,067 S 0 0.0 James Cassidy ..................... 3,333 3,333 O(6) 0 0.0 Valerie Cawley .................... 336 336 S 0 0.0 Harry Coolidge .................... 2,218 2,218 S 0 0.0 3,704 3,704 S 0 0.0 21,350 21,350 S 0 0.0 3,334 3,334 O(2) 0 0.0 6,666 6,666 O(2) 0 0.0 36 12,500 12,500 O(6) 0 0.0 John S. Copeland .................. 334 334 S 0 0.0 Corbin Trust ...................... 1,067 1,067 S 0 0.0 F. Barbara Covington .............. 374 374 S 0 0.0 Roy Cox ........................... 3,333 3,333 O(2) 0 0.0 834 834 O(7) 0 0.0 400 400 O(8) 0 0.0 9,100 9,100 O(6) 0 0.0 Griffin Dickerman ................. 1,700 1,700 S 0 0.0 Ilaine Dickerman .................. 1,000 1,000 S 0 0.0 John J. Dickerman ................. 1,834 1,834 S 0 0.0 2,000 2,000 S 0 0.0 Mario DiFilippo ................... 3,852 3,852 S 0 0.0 2,000 2,000 S 0 0.0 Louis DiFilippo ................... 1,852 1,852 S 0 0.0 Richard Dillion ................... 1,800 1,800 S 0 0.0 581 581 S 0 0.0 1,784 1,784 S 0 0.0 Joseph Divilio .................... 536 536 S 0 0.0 Dawn Drella (*) ................... 10,000 10,000 S 0 0.0 Chuck Everill ..................... 32,675 32,675 P(1) 0 0.0 Kathryn Fabian .................... 1,000 1,000 S 0 0.0 Bevan Farber ...................... 2,000 2,000 S 0 0.0 M.S. Farrell ...................... 1,630 1,630 S 0 0.0 1,261 1,261 S 0 0.0 33,333 33,333 W(9) 0 0.0 William Field ..................... 1,191 1,191 S 0 0.0 667 667 S 0 0.0 334 334 S 0 0.0 Charles G. Fink ................... 3,334 3,334 S 0 0.0 Thomas and Marisa Flint ........... 2,593 2,593 S 0 0.0 Ellen Friedman .................... 596 596 S 0 0.0 G4, Inc. .......................... 1,457 1,457 S 0 0.0 Albert Gardner .................... 3,025 3,025 S 0 0.0 6,000 6,000 O(10) 0 0.0 10,000 10,000 O(2) 0 0.0 22,000 22,000 O(6) 0 0.0 David Gardner ..................... 1,167 1,167 S 0 0.0 Generation Capital Associates ..... 101,293 101,293 P(1) 0 0.0 Tarek Ghalwash .................... 741 741 S 0 0.0 Joseph Giglio ..................... 1,191 1,191 S 0 0.0 Barry Goodin ...................... 871 871 S 0 0.0 Leslie Gough ...................... 3,333 3,333 O(11) 0 0.0 Greentree Mortgage ................ 150,000 150,000 W(12) 0 0.0 GS Seagrass ....................... 167 167 S 0 0.0 Gerard and Harriet Guitard ........ 1,000 1,000 S 0 0.0 Lonnie F. Hall .................... 167 167 S 0 0.0 James Hamlet ...................... 712 712 S 0 0.0 Charles Hanney .................... 667 667 S 0 0.0 Robert Hanney ..................... 3,333 3,333 O(6) 0 0.0 13,333 13,333 O(13) 0 0.0 Bradley Hanson .................... 1,334 1,334 S 0 0.0 37 1,134 1,134 S 0 0.0 Boyd Harden ....................... 84,034 84,034 S 0 0.0 Gail Harden ....................... 16,807 16,807 S 0 0.0 Graham Harden ..................... 12,605 12,605 S 0 0.0 Holmes Harden, Jr ................. 12,605 12,605 S 0 0.0 Katherine Harris .................. 10,000 10,000 O(14) Martin Heilbraun .................. 2,000 2,000 S 0 0.0 James Hill Trust Darol M. Hoffman .................. 7,223 7,223 S 0 0.0 Richard Hofmann ................... 667 667 S 0 0.0 Drew Hollenbeck ................... 266,667 266,667 P(15) 0 0.0 Sheldon Honig ..................... 1,000 1,000 S 0 0.0 1,852 1,852 S 0 0.0 Abe Huberman ...................... 584 584 S 0 0.0 Jackson, Tufts, Cole & Black ...... 3,333 3,333 W(16) 0 0.0 James S. Hull ..................... 49,988 49,988 P 0 0.0 James S. Hull, Trustee ............ 2,000 2,000 S 0 0.0 Nuge Johnson ...................... 1,191 1,191 S 0 0.0 Ajit Kahaduwe ..................... 596 596 S 0 0.0 Richard Klass ..................... 945 945 S 0 0.0 1,223 1,223 S 0 0.0 Jakob Krommenhock ................. 1,067 1,067 S 0 0.0 Kevin Lam ......................... 1,675 1,675 S 0 0.0 Lebanon Valley Auto Racing ........ 16,338 16,338 P(1) 0 0.0 Corporation Malcolm Lee ....................... 3,704 3,704 S 0 0.0 833 833 O(2) 0 0.0 J. Lamar Lessor ................... 1,068 1,068 S 0 0.0 Mary C. Lessor .................... 1,067 1,067 S 0 0.0 Anna Liselli ...................... 334 334 S 0 0.0 Sam Lockwood ...................... 596 596 S 0 0.0 Harold Lowell ..................... 834 834 S 0 0.0 Thomas E. Lynch ................... 1,387 1,387 S 0 0.0 Magnum Financial Corporation ...... 31,482 31,482 S 0 0.0 Shirley Mann ...................... 1,191 1,191 S 0 0.0 Lorrie McClintock ................. 3,334 3,334 S 0 0.0 Ron McTighe ....................... 741 741 S 0 0.0 David Mihlroth .................... 741 741 S 0 0.0 Christopher Miller ................ 2,000 2,000 S 0 0.0 4,000 4,000 O(10) 0 0.0 Danny Mills Profit Sharing ........ 1,067 1,067 S 0 0.0 James Mitchell .................... 186 186 S 0 0.0 1,500 1,500 O(13) 0 0.0 Richard Molinsky .................. 1,786 1,786 S 0 0.0 1,191 1,191 S 0 0.0 Linda Moore ....................... 4,815 4,815 S 0 0.0 6,000 6,000 O(10) 0 0.0 8,334 8,334 O(2) 0 0.0 21,583 21,583 O(6) 0 0.0 Ahmad Moradi ...................... 2,223 2,223 S 0 0.0 Harold and Dolores Morrell ........ 2,000 2,000 S 0 0.0 Michael Morrell ................... 16,204 16,204 S 0 0.0 38 60,000 60,000 O(10) 0 0.0 69,000 69,000 O(6) 0 0.0 Patrick Morton .................... 65,350 65,350 P(1) 0 0.0 John Murtha ....................... 2,000 2,000 S 0 0.0 John and Ann Murtha ............... 2,000 2,000 S 0 0.0 Edward and Terri Myers ............ 712 712 S 0 0.0 Sharon M. Myers ................... 186 186 S 0 0.0 Shea Harden Naproano .............. 12,605 12,605 S 0 0.0 James Noonan ...................... 6,535 6,535 P(1) 0 0.0 Gerald R. Novich .................. 32,675 32,675 P(1) 0 0.0 Ocean Marketing ................... 300,000 300,000 W(17) 0 0.0 Theodore J. Orlando ............... 2,667 2,667 S 0 0.0 George Paez ....................... 1,191 1,191 S 0 0.0 2,917 2,917 S 0 0.0 William Papola .................... 3,333 3,333 O(18) 0 0.0 William and Kathleen Papola ....... 1,067 1,067 S 0 0.0 Richard Paull ..................... 167 167 S 0 0.0 3,333 3,333 O(11) 0 0.0 Dan Pearl ......................... 5,000 5,000 O(11) 0 0.0 Petros Petrides ................... 838 838 S 0 0.0 Chris Phelan ...................... 2,500 2,500 S 0 0.0 Michael S. Pomerantz .............. 2,000 2,000 S 0 0.0 Piere Pype ........................ 2,977 2,977 S 0 0.0 Pyramid Holdings, Inc. ............ 37,037 37,037 S 0 0.0 Ted Ralston ....................... 7,408 7,408 S 0 0.0 Jackie Rankin ..................... 334 334 S 0 0.0 Bradley Ray ....................... 2,500 2,500 O(2) 0 0.0 David Rittmueller ................. 596 596 S 0 0.0 Donald and Joan Rose .............. 1,556 1,556 S 0 0.0 Edward and Martina Russell ........ 712 712 S 0 0.0 Thomas Sauthoff ................... 1,000 1,000 S 0 0.0 Mark Schaftlein (*) ............... 667 667 S 0 0.0 1,500 1,500 O(13) 0 0.0 45,000 45,000 W(4) 0 0.0 45,000 45,000 W(5) 0 0.0 William Schneider ................. 1,191 1,191 S 0 0.0 Christine and Richard Schreier .... 593 593 S 0 0.0 Marcelo Scigiliano ................ 149 149 S 0 0.0 James Scordo ...................... 4,167 4,167 S 0 0.0 Michael Sherry .................... 16,000 16,000 S 0 0.0 Frank and Barbara Sirico .......... 5,556 5,556 S 0 0.0 John M. Soldati ................... 596 596 S 0 0.0 Robert Stubbs ..................... 1,666 1,666 O(19) 0 0.0 Rodger Stubbs ..................... 11,482 11,482 S 0 0.0 8,333 8,333 O(2) 0 0.0 21,333 21,333 O(6) 0 0.0 Susan L. Suminski ................. 19 19 S 0 0.0 Tissera Overseas Fund, NV ......... 16,338 16,338 P(1) 0 0.0 Gaye Tosi ......................... 596 596 S 0 0.0 Perry Vitale ...................... 1,666 1,666 O(19) 0 0.0 Westport Capital Partners ......... 32,675 32,675 P 0 0.0 William Vitello ................... 596 596 S 0 0.0 39 Arthur Vorel ...................... 926 926 S 0 0.0 Kevin Walsh ....................... 596 596 S 0 0.0 Eleanoe and Hubert Watson ......... 34 34 S 0 0.0 Jack Webber ....................... 1,000 1,000 S 0 0.0 Larry Wells ....................... 19,605 19,605 P(1) 0 0.0 Norman Wieselberg ................. 1,191 1,191 S 0 0.0 Barbara D. Wilt ................... 167 167 S 0 0.0 Richard C. Wilt III ............... 667 667 S 0 0.0 833 833 O(20) 0 0.0 Shelia B. Williamson .............. 260 260 S 0 0.0 Kevin Wrenne ...................... 833 833 O(2) 0 0.0 833 833 O(19) 0 0.0 Kevin and Susan Wrenne ............ 5,186 5,186 S 0 0.0
- ------------------ (*) Is an officer or director of the Company. See "Management - Executive Officers and Directors." (1) The Preferred Stock is currently convertible at a conversion price equal to the lesser of (i) $1.50 or (ii) 84% of the closing bid price per share of Common Stock as quoted by Nasdaq. For purposes of this table, the closing price was $1.825 on May 7, 1996, resulting in a conversion price of $1.50. This Prospectus covers additional shares that may be issued based on adjustments to the conversion price. See "Description of Capital Stock - Preferred Stock." (2) Option expires July 6, 2004. (3) Option expires June 1, 1997. (4) Warrant expires April 1, 2004. (5) Warrant expires, depending upon any vesting, on the earlier of April 1, 2002 or April 1, 2004. (6) Option expires March 22, 2005. (7) Option expires May 27, 2003. (8) Option expires July 1, 2003. (9) Warrant expires November 30, 1997. (10) Option expires March 10, 2004. (11) Option expires July 7, 2005. (12) Warrant expires April 19, 1999. (13) Option expires January 5, 2006. (14) Option expires May 1, 2006. (15) The Preferred Stock is currently convertible at a conversion price equal to the lesser of (i) $2.00 or (ii) 84% of the closing bid price per share of Common Stock as quoted by Nasdaq. For purposes of this table, the closing price was $1.825 on May 7, 1996, resulting in a conversion price of $1.53. This Prospectus covers additional shares that may be issued based on adjustments to the conversion price. See "Description of Capital Stock - Preferred Stock." (16) Warrant expires December 31, 1996. (17) Warrant expires one year from the date of this Prospectus. (18) Option expires June 21, 1999. (19) Option expires December 1, 2004. (20) Option expires November 1, 2004 40 The 2,373,787 shares offered by the Selling Stockholders may be sold by one or more of the following methods, without limitation: (i) ordinary brokerage transactions and transactions in which the broker solicits purchases; and (ii) face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the Selling Stockholders may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from the Selling Stockholders in amounts to be negotiated. Such brokers and dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Act, in connection with such sales. The Selling Stockholder or dealer effecting a transaction in the registered securities, whether or not participating in a distribution, is required to deliver a Prospectus. LEGAL MATTERS Certain legal matters relating to the issuance and resale of shares hereby will be passed upon for the Company by Brewer & Pritchard, P.C., Houston, Texas. EXPERTS The financial statements of the Company as of December 31, 1994 and 1995 have been audited by Comiskey & Company, P.C., independent certified public accountants, for the periods and to the extent as set forth in the reports and have been included herein in reliance upon such reports of said firm given on their authority as experts in accounting and auditing. In May 1994, Ernst & Young LLP ("E & Y") resigned as auditors. There were no disagreements with E & Y on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedures, and reports issued by E & Y on the Company's financial statements did not contain an adverse opinion, or were modified as to uncertainty, audit scope or accounting principles. In October 1993, E & Y informed the Company that it needed to strengthen its internal controls, and management believed that it adequately addressed this matter in 1993. The Company's current auditors were engaged, based on the Board of Directors approval, in May 1994. 41 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 CONTENTS PAGE INDEPENDENT AUDITORS' REPORT F-1 CONSOLIDATED BALANCE SHEET F-2 TO F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT F-4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 TO F-25 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Westmark Group Holdings, Inc. Delray Beach, Florida We have audited the accompanying consolidated balance sheet of Westmark Group Holdings, Inc. as of December 31, 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended December 31, 1995 and 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westmark Group Holdings, Inc. as of December 31, 1995, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As more fully described in Notes 2 and 6, the Company has sold 49% of its outstanding common stock to Heart Labs of America, Inc., and in connection therewith, has obtained commitments for additional financing, has restructured certain of its debt and trade payables to equity, and obtained extended payment terms for amounts formerly in default. Aurora, Colorado March 20, 1996 Except for note 15 which is dated April 19, 1996. PROFESSIONAL CORPORATION WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 December 31, 1995 ASSETS ------------ CURRENT ASSETS Cash and cash equivalents ............................... $ 311,916 Note receivable - stock sale ............................ 374,222 Accounts receivable (net of allowance of $179,663) ...... 8,004 Mortgage loans held for sale ............................ 19,480,029 Other current assets .................................... 2,202 ------------ TOTAL CURRENT ASSETS ........................... 20,176,373 FIXED ASSETS Property and equipment .................................. 820,588 Equipment under capital leases .......................... 16,477 837,065 Less accumulated depreciation ........................... (434,411) 402,654 OTHER ASSETS Investment in real estate ............................... 2,115,000 Goodwill, net of amortization ........................... 785,833 Investment in preferred stock ........................... 2,000,000 Deposits and other assets ............................... 30,298 ------------ 4,931,131 TOTAL ASSETS ................................... $ 25,510,158 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-2 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 December 31, 1995 ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ........................................ $ 1,234,199 Warehouse line-of-credit ................................ 18,625,866 Interest payable ........................................ 227,619 Other notes payable and convertible debentures .......................................... 717,818 Payroll taxes payable ................................... 141,329 Settlement liability .................................... 419,348 Other current liabilities ............................... 854,452 ------------ TOTAL CURRENT LIABILITIES ...................... 22,220,631 LONG-TERM LIABILITIES Note payable ............................................ 1,000,000 Short-term debt expected to be refinanced on a long-term basis ................................ 698,323 TOTAL LONG-TERM LIABILITIES .................... 1,698,323 COMMITMENTS AND CONTINGENCIES ................................ -- STOCKHOLDERS' EQUITY Common stock, no par value, 3,333,333 shares authorized; 2,632,772 shares issued and outstanding at December 31, 1995, ................... 23,165,937 Additional paid-in capital from outstanding options and warrants ................................ 1,153,688 Accumulated deficit ..................................... (22,728,421) TOTAL STOCKHOLDERS' EQUITY ..................... 1,591,204 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 25,510,158 ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-3 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT DECEMBER 31, 1995
Year ended Year ended December 31, December 31, 1995 1994 ------------ ----------- REVENUES Loan origination fees .................................... $ 544,386 $ 883,399 Gain on sale of loans .................................... 1,544,559 556,436 Investment income - mortgages ............................ 938,657 581,066 Loan servicing fees, net ................................. -- 836,437 Gain (loss) on sale of servicing rights .................. -- (14,781) Other .................................................... 54,298 95,089 ------------ ----------- TOTAL REVENUES .................................. 3,081,900 2,937,646 EXPENSES Direct loan fees ......................................... 187,309 123,182 Interest expense ......................................... 1,223,875 657,025 General and administrative ............................... 6,775,395 5,337,097 Non-cash compensation .................................... 1,099,000 -- Litigation expense ....................................... -- 289,898 Loss on writedown of real estate owned ................... 124,654 100,071 Loss on writedown of servicing sale receivable ........... 179,663 -- Depreciation ............................................. 95,627 81,925 Amortization ............................................. 98,916 404,814 Bad debt ................................................. 80,521 -- Loss on investment in Greentree .......................... 225,000 -- Repurchase losses ........................................ 480,000 -- ------------ ----------- TOTAL EXPENSES .................................. 10,569,960 6,994,012 ------------ ----------- LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAX (7,488,060) (4,056,366) Provision for income tax benefit .............................. 180,000 376,000 ------------ ----------- Net loss before extraordinary item ............................ (7,308,060) (3,680,366) Gain on extinguishment of debt (net of tax of $180,000 in 1995 and $376,000 in 1994) ............................ 270,000 561,413 ------------ ----------- NET LOSS ........................................ $ (7,038,060) $(3,118,953) ============ =========== PER SHARE AMOUNTS Loss from continuing operations .......................... $ (6.75) $ (7.41) Gain on extinguishment of debt ........................... .25 1.13 ------------ ----------- Net loss per share ....................................... $ (6.50) $ (6.28) ============ =========== Weighted average number of shares outstanding ............ 1,082,371 496,867 ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-4 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY DECEMBER 31, 1995
Number of Common Paid-In Accumulated Stockholders' Shares Stock Capital Deficit Equity ----------- ----------- ---------- ------------ ----------- Balance at December 31, 1993 ............... 12,574,769 $14,529,129 $ 54,688 $(12,571,408) $ 2,012,409 Retroactive restatement for 1 for 30 stock split .................. (12,155,610) -- -- -- -- Issuance of common stock ................ 255,446 2,742,854 -- -- 2,742,854 Net loss .......................... -- -- -- (3,118,953) (3,118,953) ----------- ----------- ---------- ------------ ----------- Balance at December 31, 1994 ............... 674,605 17,271,983 54,688 (15,690,361) 1,636,310 Issuance of common stock ................ 1,958,167 5,893,954 -- -- 5,893,954 Paid-in capital from option arrangements .......................... -- -- 1,099,000 -- 1,099,000 Net loss .......................... -- -- -- (7,038,060) (7,038,060) ----------- ----------- ---------- ------------ ----------- Balance at December 31, 1995 ............... 2,632,772 $23,165,937 $1,153,688 $(22,728,421) $ 1,591,204 =========== =========== ========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-5 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 1995
Year Ended Year ended December 31, December 31, 1995 1994 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net loss ......................................................... $ (7,038,060) $ (3,118,953) Adjustments to reconcile consolidated net loss to net cash used by operating activities: Depreciation and amortization ........................................... 194,543 486,739 Non-cash compensation and stock for services ............................ 1,745,151 405,361 (Gain) loss on disposal of assets ....................................... 124,654 6,347 Loss on investment in Greentree ......................................... 225,000 -- Provision for bad debt and REO reserves ................................. -- 385,403 Repurchase of loans ..................................................... -- (295,938) Pre-tax gain on extinguishment of debt .................................. (450,000) (937,413) ------------- ------------- Net cash used by operations before working capital changes ................................................... (5,198,712) (3,068,184) Net (increase) decrease in accounts receivable .......................... 466,498 (55,638) (Increase) decrease in other current assets ............................. 368,693 74,686 (Increase) decrease in mortgage loans held for sale ..................... (14,208,495) 19,868,454 (Increase) decrease in other assets ..................................... 1,020,004 -- Increase (decrease) in accounts payable ................................. 860,895 473 Increase in current liabilities ......................................... 25,259 526,811 ------------- ------------- Net cash provided (used) by operating activities ..................... (16,665,858) 17,346,602 CASH FLOWS FROM INVESTING ACTIVITIES Cash invested in Greentree Mortgage ........................................... (100,000) -- Net cash received in servicing sale ........................................... -- 1,275,938 Repurchase deposit ............................................................ -- (480,000) Purchase of fixed assets and improvements ..................................... (50,133) (138,231) Startup costs - new offices ................................................... -- (136,487) Proceeds from sale of real estate ............................................. 49,053 541,470 ------------- ------------- Net cash provided (used) by investing activities ..................... (101,080) 1,062,690 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on warehouse lines-of-credit ....................................... $ 158,020,868 $ 151,404,256 Repayments of warehouse lines-of-credit ....................................... (144,480,885) (170,828,709) Sale of stock for cash ........................................................ 1,725,081 1,849,723 Issuance of notes payable ..................................................... 1,808,500 -- Payments on line-of-credit and other notes payable ............................ (94 182 (800,000) Net increase (decrease) on capital leases ..................................... (8,101) (3,599) ------------- ------------- Net cash provided (used) by financing activities ..................... 16,971,281 (18,378,329) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 204,343 30,963 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..................................... 107,573 76,610 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF YEAR ........................................... $ 311,916 $ 107,573 ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-6 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Westmark Group Holdings, Inc. ("the Company") was incorporated in 1986 in the state of Colorado. Through its wholly owned subsidiary, Westmark Mortgage Corporation, the Company is principally engaged as a full service mortgage banking business that originates, underwrites, funds, and, until 1994, serviced mortgage loans in the states of California, Florida, Hawaii, and in other parts of the country. Loans are originated through independent mortgage brokers for sale to third party investors. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Westmark Mortgage Corporation, and Network Capital Group (inactive since 1993). Intercompany transactions have been eliminated in consolidation. MORTGAGE LOANS HELD FOR SALE Mortgage loans are originated to be sold to investors and are reported at the lower of cost or market. Loans covered by commitments are valued as specified in the commitment. Loans not covered by commitments are valued at market, as determined by reference to the Company's normal market outlets. At December 31, 1995, loans held for sale were valued at market, which was lower than cost. Anticipated prepayments on principal amounts of loans are not considered significant, since all loans are held for resale and are sold with servicing released. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS REPURCHASED Real estate acquired in settlement of loans repurchased is recorded at the lower of cost or market. REVENUE RECOGNITION Loan origination fees are deferred and recognized as revenue when the underlying loan is sold. Loan servicing fees are recorded when the services are performed. Gain on sale of servicing is recorded when the related servicing right is sold. Service release fees are recognized when the related loan is sold. The Company sells all of its originated mortgage loans service released. RECEIVABLES AND RESERVES FOR COLLECTIBILITY A reserve for collectibility of accounts receivable is established by management evaluation to reflect those receivables which are currently uncollectible or likely to become uncollectible in the future. Collateralized loans, such as long-term notes receivable, portfolio loans, and REO's are carried at cost. A reserve is established to adjust the carrying amount of collateralized loans to their net realizable value determined in reference to outside appraisal on a note-by-note basis. WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENTLY ISSUED ACCOUNTING STANDARDS The Company has not elected early adoption of SFAS NO. 122 - ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, which requires that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, however those servicing rights are acquired. Adoption of this standard is required for fiscal years beginning after December 15, 1995. The Company anticipates adoption of this standard will have no material effect on the financial statements. FURNITURE AND EQUIPMENT Furniture and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives ranging from four to five years. INVESTMENT IN REAL ESTATE The Company's investment in real estate is carried at the lower of cost or appraised value. COMPENSATED ABSENCES Compensated absences are accrued as earned. EARNINGS PER SHARE Primary earnings per share were computed using the weighted average number of shares outstanding. Fully diluted earnings per share is not presented, as outstanding option exercises would have an antidilutive effect on loss per share. GOODWILL Goodwill is being amortized over 10 years using the straight-line method. Goodwill is evaluated periodically in accordance with the provisions of SFAS 121 - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. INCOME TAXES Income taxes are allocated among subsidiaries in the ratio that each subsidiary contributes to the consolidated liability. Deferred taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes and as a result of non-benefited net operating loss carryforwards. CASH EQUIVALENTS For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. RECLASSIFICATIONS Certain reclassifications have been made to the 1994 consolidated financial statements to conform to the 1995 presentation. F-8 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. 2. COMMITMENTS AND CONTINGENCIES CLASSIFICATION AS A GOING CONCERN The Company has incurred significant and recurring operating losses, including $7,000,000 in 1995, and has historically supplemented its operating cash flows with financing from outside sources. At December 31, 1995, the Company had negative working capital of ($2,044,258), and was in default of or facing payment demands for approximately $1.8 million in trade accounts payable and debt obligations. The Company's assets were pledged to secure at least $600,000 of these debt obligations, creating the potential for foreclosure of assets and the possible discontinuance of operations. In response to its increasing working capital deficiencies, the Company arranged a sale, effective November 1995, of 49% of its outstanding common shares to Heart Labs of America, Inc. for $1,210,000 in cash, and $2,000,000 in preferred stock. A commitment by HLOA for an additional $1,600,000 was obtained after year end, including $700,000 for post-year end obligations. (See Note 15). Concurrently with this sale, certain officers and directors of WGHI resigned and new management was put in place. Subsequent to year end, the Company has effected additional post-year end reductions, either through payment or conversion to equity, of approximately $675,000 in debt obligations and accounts payable, of which $165,000 has been included in short-term debt expected to be refinanced. Current management has also restructured payment terms for $700,000 in accounts payable, including planned conversions to equity for which written agreements are in place totaling $533,000, which amount is included in short-term debt expected to be refinanced. As part of the restructuring, WGHI is obligated to register a total of 600,000 equity shares issued or issuable in these refinancing arrangements. The extended payment terms will require monthly cash flows as follows: March ................................................. $14,605 April ................................................. $33,782 May ................................................... $29,782 June .................................................. $21,782 July .................................................. $17,582 August ................................................ $17,582 September ............................................. $17,582 October ............................................... $13,605 November .............................................. $10,000 Management anticipates sufficient cash flows from operations to satisfy these cash requirements due to cutbacks and revenue enhancements as discussed on the following page. F-9 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) CLASSIFICATION AS A GOING CONCERN (CONTINUED) Management considers 1995 operating losses to be due to a combination of operational inefficiencies and non-recurring items. MANAGEMENT'S PLANS WITH RESPECT TO OPERATIONAL INEFFICIENCIES Management is in the process of implementing a program of cost reduction and revenue enhancement beginning in the first quarter of 1996. Of 27 employees terminated in January and February 1996, 11 have been replaced for a projected net monthly savings of $80,000 in salaries and associated costs. Subleases have been established for the Company's Costa Mesa and Honolulu offices, and a buyout has been reached for the San Jose office, resulting in projected occupancy savings of $15,000 per month. Management plans certain administrative policy changes resulting in savings on communications, documents, equipment, and insurance. Interest savings is expected concurrently with the conversion of debt to equity, as well as with increased concentration on improved warehouse line turnover. Management has reworked loan pricing to increase up front cash flows and reduce costs, and has instituted a program for the bulk sale of loans at a higher margin. As described above, management has established payment schedules for delinquent accounts payable with several of the Company's vendors in order to preserve sources of supply. MANAGEMENT'S CONSIDERATION OF NON-RECURRING ITEMS Management considers a portion of the 1995 operating loss to be non-recurring. The writedown of REO's, and charge off's of the servicing receivable and related deposit, can be considered costs related to servicing portfolio activity. These amounts, coupled with the loss on investment in Greentree, total $1,000,000 in the aggregate. Likewise, non-cash compensation of $1,099,000 was specific to the failed offering of debentures and to the change in management and is, therefore, not likely to occur with the same magnitude in future periods. OFF-BALANCE-SHEET RISK The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments represent commitments to fund loans and involve, to varying degrees, elements of interest-rate risk and credit risk in excess of the amount recognized in the balance sheet. The interest-rate risk is mitigated by the Company's commitments to sell loans to investors. The credit risk is mitigated by the Company's evaluation of the creditworthiness of potential borrowers on a case-by-case basis. The Company had interest rate commitments on loans totaling $1.6 million and $2.5 million at December 31, 1995 and 1994, respectively. The total loan pipeline at those dates was $33,718,000 and $24,482,000 respectively. It is impractical to estimate market value of the portfolio at December 31, 1995, since its value is dependent on interest rates, time of closing, turndown ratio, and other variables which cannot be determined with any reasonable certainty at this time. F-10 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) OFF-BALANCE-SHEET RISK (CONTINUED) At December 31, 1995, the Company had cash deposits in excess of federally insured limits of $116,000. Loans held for sale was comprised of 78% "A" loans and 22% "B" loans at December 31, 1995. At December 31, 1994, loans held for sale consisted entirely of "A" loans. GREENTREE ACQUISITION On July 2, 1995, the Company entered into an agreement to acquire certain assets of Greentree Mortgage Corporation. The aggregate purchase price was $1,575,000 payable in installments with the remaining unpaid purchase price payable from the proceeds of the Company's proposed offering of convertible debentures. Pursuant to the agreement, The Company paid $100,000 cash and issued 16,667 shares of the Company's stock valued at $125,000. In November 1995, the Company abandoned the registration filing with respect to the proposed offering. In December 1995, Greentree exercised its option to exchange the shares of the Company's stock in the name of Greentree for $125,000 in certified funds. In April 1996, the Company and Greentree entered into a written settlement agreement terminating the prior agreement of purchase of assets in consideration for which Greentree is entitled to retain the total proceeds previously paid in the sum of $100,000 and additionally, the Company has agreed to provide Greentree with 150,000 warrants to purchase shares of the Company's common stock, exercisable over a period of three (3) years at a price of $2.62 per share. Pursuant to the settlement, Greentree will also receive registered shares of the Company's stock with a total value of $35,000. LITIGATION IN PROCESS The Company is a defendant in Conway et al. v. Danna, Network Financial Services, Inc. et al. The suit alleges damages for Racketeering (RICO); Unfair Practices; Fraud (Negligent Misrepresentations; Intentional Misrepresentations; Concealment); Breach of Written Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; Common Count; and Breach of California Securities Statutes, against Network Financial Services, Inc. (nka Westmark Group Holdings, Inc.) and others. The RICO count has been dismissed by Federal Court, and Plaintiffs have done little or nothing on the case for the past two years. On February 29, 1996, the Court ordered the Plaintiffs to file an amended complaint within 60 days, or the case would be dismissed. There is currently no operative complaint on file in this matter. The Company considers the risk of loss in this matter to be remote and, consequently, no amount has been accrued as of December 31, 1995. F-11 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) LITIGATION IN PROCESS (CONTINUED) The Company is a defendant in Conover v. Greentree Mortgage Company, Westmark Group Holdings, Inc. and Westmark Mortgage Corporation. The matter relates to an employment agreement between the Plaintiff and Greentree. Plaintiff was discharged from his position as President and CEO of Greentree Mortgage Company, L.P. on September 14, 1995. Plaintiff brought this action for compensatory damages based upon an alleged breach of such employment agreement. Plaintiff seeks damages against Westmark Group Holdings, Inc., Westmark Mortgage Corporation and Michael F. Morrell based upon an allegation of intentional interference with contractual obligations and a third party beneficiary claim with respect to the Company. Both the Company and counsel believe there is no legal justification for the joinder of the Company and Michael F. Morrell as defendants, and considers the risk of loss in this matter to be remote. Consequently, no amount has been accrued as of December 31, 1995. The Company is a defendant in Knight v. Lomas Mortgage U.S.A. and Westmark Mortgage Corporation. The complaint is based upon a contention by the Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully impaired the credit rating of Plaintiff and breached the written agreement between the parties. A preliminary determination indicates that the basis for the dispute is between Lomas U.S.A. and the Plaintiff, but the Company has been named as a party defendant in view of the original contractual relationship between the Plaintiff and Westmark. The Company considers the risk of loss in this matter to be remote, and consequently, no amount has been accrued as of December 31, 1995. The Company is a Plaintiff in Network Financial Services, Inc. v. McCurdy, Raiche, Ryals, Nash & Moss Land Company. The suit alleges fraud, negligent misrepresentation, breach of fiduciary duty, negligence, quiet title, violations of RICO and conversion. Defendant McCurdy initiated a cross complaint naming among others, Winchester Mortgage Company, the Company and Lee Danna (former Chairman of the Company) as cross defendants. The cross complaint seeks damages for breach of a Stock Option Agreement, breach of contract and declaratory relief. The Company has finalized a settlement with defendants Raiche and Ryals wherein defendants Raiche and Ryals transferred 7,166 shares of the Company's stock to the Company in addition to a one-half (1/2) interest in parcels B & D, Dolan property, Moss Landing, California. The balance of the pending litigation involving defendant and cross complainant McCurdy and others is unaffected by the Raiche/Ryals settlement. The Company considers risk of loss in this cross-complaint to be remote, and no amount has been accrued. MATERIAL LITIGATION - SETTLED The Company is a defendant in the matter of Hopkins & Patenaude v. Westmark Group Holdings, Inc. and Westmark Mortgage Corporation. The suit relates to an action by the Plaintiffs to collect attorneys fees incurred by the Plaintiffs in representing the Company. The matter was settled on March 5, 1996, with the Company agreeing to pay $3,000 per month for seven months. Accordingly, $21,000 is included in accounts payable. F-12 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) MATERIAL LITIGATION - SETTLED (CONTINUED) The Company is a defendant in Strock v. Westmark Group Holdings, Inc. The action filed December 22, 1995 seeks to foreclose a mortgage on Unit 5, 355 N.E. 5th Avenue, Delray Beach, Florida. The carrying value of this asset on the books of the Company at December 31, 1995 is $122,000. Settlement negotiations are in process and the Company expects the matter to be resolved without foreclosure. Consequently, no allowance has been accrued for loss in this matter. (This amount was settled after year end - See Note 15 - Subsequent Events.) The Company is a defendant in Hakman v. Westmark Group Holdings, Inc. The action relates to the collection of approximately $18,600 resulting from the Company's failure to comply with terms of the prior settlement agreement with the Plaintiff. A new settlement was executed in March 1996 which requires the Company to pay $1,000 per month for three months, and allows for conversion of the balance of the obligation to common stock of the Company. The full amount of the unpaid original settlement is included in accounts payable at December 31, 1995. In the case of B.A. Properties, Inc. v. Winchester Mortgage Corporation, on October 11, 1995, a settlement was negotiated wherein the Company agreed to pay a total of $5,000 to Plaintiff in full and final settlement of all claims. In the case of Schneider v. Westmark, a settlement was reached on July 28, 1995, providing for the payment by the Company of $60,000, including $20,000 which was paid on July 31, 1995. The remaining unpaid amount of $40,000 was included in accounts payable at December 31, 1995. In the matter of Saxon Mortgage v. Westmark, a Second Amendment to Settlement Agreement was reached on August 2, 1995, providing for the Company to pay $469,348 to Saxon for various repurchase obligations. The initial sum of $50,000 has been paid, and the remaining liability of $419,348 is accrued at December 31, 1995. A settlement was negotiated on July 14, 1995 resolving the pending litigation between Dolan Development Partners, Ltd. and Winchester Mortgage Company (nka Network Capital Group). The litigation originally arose out of a claim by Dolan Development partners that Winchester Mortgage Company, a wholly owned subsidiary of the Company, defaulted on two promissory notes with a principal and accrued interest balance of $1.5 million. The settlement provides for a note modification wherein the total obligation of the subsidiary to Dolan Development Partners was established at $1,000,000 as of July 1, 1994, and a reduced interest rate of 9.75% per year. The reduction of accrued interest is primarily due to the recognition of certain rental income credits accruing to the 1/2 interest in the property securing the note. Network Capital Group will be obligated for monthly interest only payments with the balance of principal due June 1, 1998 or the earlier sale of the property securing this note ("the Dolan property"). F-13 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) MATERIAL LITIGATION - SETTLED (CONTINUED) On November 14, 1995, the Company acquired title to the stock of Rairyl, Inc. on November 14, 1995. The sole asset of Rairyl, Inc. is a 1/2 interest in the Dolan property. In April 1995, the claim of Dickinson v. Corporate Stock Transfer, Inc. involving the disposition of all or a portion of 7,500 shares of Company stock was settled. Settlement provides for the sale of said shares at no less than $7.50 per share. From the proceeds of the sale, Dickinson will receive the first $55,000 and any proceeds in excess of $55,000 will be divided equally between Dickinson and the Company. 3. GAIN ON EXTINGUISHMENT OF DEBT In 1995, the Company settled its litigation with Dolan Development Partners, Inc., effectively reducing the amount of principal and interest payable on two promissory notes from $1,500,000 to $1,050,000. These notes, which were originally accounted for as an offset of $1,500,000 against collateral of $2,200,000 which served as security on a promissory note owed to the Company, were recorded on the books of the Company beginning July 1, 1995, the date at which the right of offset against the underlying property securing the note was released. These modifications have resulted in a reduction of the outstanding value of the note, and an extraordinary gain of $450,000 ($0.42 per share) before income tax provision of $180,000 in 1995. In 1994, the Company modified the terms of its notes payable to the former parent Company of Westmark Mortgage Corporation. The modifications included a reduction in the principal amount outstanding from $2,195,250 to $500,000 and the issuance of 13,333 shares of the Company's common stock valued at $163,500. In addition, the Company agreed to assume a $594,350 settlement liability with a loan investor for loss mitigation and loan repurchases. These modifications have resulted in a reduction of the outstanding value of the note, and an extraordinary gain of $937,400, ($1.89 per share) before income tax provision of $376,000 in 1995. 4. NOTES PAYABLE WAREHOUSE LINES As of December 31, 1995, Westmark Mortgage Corporation has a warehouse agreement with Princap Mortgage Warehouse, Inc. totaling $15,000,000 through November 16, 1996. The line is fully collateralized by the assignment and pledge of eligible mortgage loans. Interest on the line is payable at the time of purchase by the permanent investor at an annual rate of 2.0% above the prime rate of interest (10.5% at December 31, 1995). There is a transaction charge of $140 per loan. In addition, the warehouse agreement requires Westmark to possess minimum net worth of $250,000, and maintain a compensating cash balance on deposit with a designated financial institution totaling $5,000. At December 31, 1995, the balance outstanding on this line-of-credit totaled $15,292,103. Although this amount is in excess of the overall warehouse commitment, this condition was cured in January 1996. F-14 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 4. NOTES PAYABLE (CONTINUED) WAREHOUSE LINES (CONTINUED) As of December 31, 1994, Westmark Mortgage Corporation had a warehouse agreement totaling $15,000,000 through November 22, 1995. The line is fully collateralized by the assignment and pledge of eligible mortgage loans. Interest on the line was payable monthly at an annual rate of 0.75% above the prime rate of interest. In addition, the line called for an annual commitment fee of 0.125% of the commitment amount, as well as requiring Westmark to possess minimum tangible net worth of $2,500,000. On August 25, 1995, the warehouse lender, Lomas Mortgage USA, Inc. ("Lomas"), gave notice of the termination of its commitment to purchase loans effective September 29, 1995. Shortly thereafter, Lomas declared bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. On September 18, 1995, Lomas notified the Company of its intent to assign the repurchase agreement with Westmark to Pacific Southwest Bank F.S.B. ("PSB") and extended its commitment to purchase loans until October 31, 1995. In response, the Company obtained its current warehouse line with Princap Mortgage, Inc. and began funding its loans thereon effective October 31, 1995. On November 13, 1995, PSB notified the Company of its decision to stop purchasing loans from Westmark effective November 15, 1995. The outstanding balance on this line-of-credit totaled $3,333,763 at December 31, 1995. All remaining loans collateralizing this line-of-credit were sold in the first quarter of 1996, and the line was closed. OTHER NOTES PAYABLE Other debt of the Company consists of the following: 10% convertible promissory notes, face amount $250,000, secured by all assets of Westmark Group Holdings, Inc. and subsidiaries, due January 1, 1996 with provision for six (6) one-month extensions at the option of the lender. The notes were issued in units, each unit consisting of one $5,000 note and one warrant to receive underwritten securities totaling $2,500. The underwritten securities are defined as securities identical to the securities issuable in the Company's public offering of convertible debentures. This offering was terminated in November 1995. The subscription agreement for these notes specifies that, in the event that the offering of debentures is not effective or terminated, the units may be converted into equity securities of the Company at 50% of the average closing bid price for the two week period prior to the conversion. The Company may elect to redeem the unit warrants for $5,000 cash. In the event that the Company elects to redeem the unit warrants for cash, the notes themselves may be converted to equity at 100% of the average bid price for the previous two weeks. All equity securities issued have registration rights. (These notes are the subject of post-year end settlement negotiations. See Note 15, Subsequent Events). Balance at December 31, 1995: $250,000. 10% convertible promissory notes, face amount $350,000, secured by all assets of Westmark Group Holdings, Inc. and subsidiaries, due October 31, 1995 with provision for six (6) one-month extensions at the option of the lender. The notes were issued in units, each unit consisting of one $5,000 note and one warrant to receive underwritten securities totaling $5,000. The underwritten securities are defined as securities identical to the securities issuable in the F-15 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 4. NOTES PAYABLE (CONTINUED) OTHER NOTES PAYABLC (CONTINUED) Company's public offering of convertible debentures. This offering was terminated in November 1995. The subscription agreement for these notes specifies that, in the event that the offering of debentures is not effective or terminated, the units may be converted into equity securities of the Company at 50% of the average closing bid price for the two week period prior to the conversion. The Company may elect to redeem the unit warrants for $5,000 cash. In the event that the Company elects to redeem the unit warrants for cash, the notes themselves may be converted to equity at 100% of the average bid price for the previous two weeks. All equity securities issued have registration rights. (These notes are the subject of post-year end settlement negotiations. See Note 15, Subsequent Events). Balance at December 31, 1995: $350,000. 10% convertible unsecured promissory note, face amount $10,000, due December 21, 1995. This note is one of a series of similar notes with a total face value of $83,500, of which $73,500 were converted to equity prior to December 31, 1995. The unpaid principal amount is convertible to equity at $5.00 per share. All equity securities issued or issuable have registration rights. Balance at December 31, 1995: $10,000. 10% unsecured promissory notes, face value $165,000, due dates ranging from March 15, 1996 to April 15, 1996. The Company shall have the option to repay the notes in cash or in unregistered stock at a conversion ratio equal to the lesser of $2.50 per share or 50% of the bid on the due date of the loan. In the event that the Company elects to repay these loans early, it agrees to issue options to purchase stock equal to the lesser of $2.50 per share or 50% of the bid price on the date of issuance. All equity shares to be issued upon conversion of these loans are to be registered. In the event that the shares are not registered within 180 days from the due date of the note, then WGHI shall issue, as a penalty, 10% of the shares or options for each month for a maximum of six months. If the shares are still not registered, then the lenders may "put" the shares back to the Company at a value equal to the greater of the market value or the original investment plus interest totaling 12%. In April 1996, these loans were converted to equity at the option of the holders. Balance at December 31, 1995: $165,000 (classified as "expected to be refinanced on a long-term basis"). 10% mortgage note, secured by building, face amount $87,000, calling for installment payments of $2,807, due June 1, 1998. This note is in default and foreclosure actions were initiated by the lender on December 21, 1995. The carrying value of assets subject to foreclosure was $122,000 at December 31, 1995. The Company has negotiated an alternative to foreclosure - see Note 15 - Subsequent Events. While in default, the note carries an interest rate of 18%. Balance at December 31, 1995: $82,818 (classified as current). 12.5% unsecured demand note, face amount $25,000, payable in shares of the Company at $4.57 per share. Renegotiated after year end to require payments of $3,500 per month over 8 months. Balance at December 31, 1995: $25,000. F-16 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 4. NOTES PAYABLE (CONTINUED) OTHER NOTES PAYABLE (CONTINUED) 9.75% promissory note, secured by land, face amount $1,000,000, interest only payments until the earlier of June 1, 1998 or the sale of the underlying collateral. Balance at December 31, 1995: $1,000,000 (classified as long-term). In addition, a unsecured demand note issued in July 1995 in the amount of $250,000 was converted to equity in October, 1995. Total interest expense for all notes outstanding during the periods amounted to $1,223,875 and $511,545 for the years ended December 31, 1995 and 1994, respectively. Maturities on long-term debt for each of the next five years are as follows: December 31, 1996 ..................................... $ 717,818 December 31, 1997 ..................................... $ -- December 31, 1998 ..................................... $1,000,000 December 31, 1999 ..................................... $ -- December 31, 2000 ..................................... $ -- 5. SERVICING SALES AND ACTIVITY In September 1994, the Company sold its entire servicing portfolio, consisting of approximately 2,500 loans with unpaid principal balances of approximately $303,000,000. These loans were primarily serviced on behalf of FNMA and FHLMC. The Company recorded a net loss of $14,781 in 1994 from the sale of the portfolio, and recorded additional servicing sale related losses totaling $659,663 in 1995. The sales price totaled .6172% of the eligible balance of loans (determined to be $287,000,000), with a .0125% holdback payable .0625% in September 1995 and .0625% in September 1996 if the portfolio 60+ delinquency rating falls below 4%. In 1994, the Company reserved $179,663 for non-receipt of the September 1995 holdback payment, and in 1995, it reserved an additional $179,663 for the September 1996 payment. The sale proceeds were paid at closing as follows: $500,000 to Primark Corporation $295,938 to FHLMC for repurchase of loans $480,000 to FHLMC for repurchase reserve The repurchase reserve held by FHLMC until October 1996 is applicable to losses, if any, incurred by FHLMC as a result of loan repurchases or foreclosure losses resulting from misrepresentations on the part of the Company's brokers and/or correspondents for which the Company is liable to FLHMC on corresponding representations and warranties, or for any potential breach of other selling or servicing covenants and warranties made by the Company. In the months of April through July of 1995, foreclosure losses were charged against this deposit, reducing it to zero. The Company is seeking an accounting of these losses to evaluate their propriety within the terms of the agreement, and has established an allowance in 1995 for repurchase losses for the full amount of $480,000. Prior to the sale of its servicing portfolio, the Company recorded amortization of mortgage servicing rights of $185,897 for the year ended December 31, 1994. F-17 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 6. INVESTMENT BY HEART LABS OF AMERICA, INC. NOTES RECEIVABLE - HLOA Effective November 21, 1995, an agreement was entered into between the Company and Heart Labs of America, Inc., a Florida Corporation, ("HLOA"), whereby HLOA agreed to purchase 1,298,388 shares of unregistered common stock of WGHI, representing 49% of the then outstanding common shares of the Company for a total of $3,210,000 cash. The purchase price was paid as follows: Cash and debt repayments to creditors of WGHI .......... $ 675,778 Preferred Series B convertible stock of HLOA - 200,000 shares at $10 per share .............. 2,000,000 Assumption of notes payable to WGHI officers ........... 160,000 Promissory note payable to WGHI ........................ 374,222 ---------- Total purchase price ........................................... $3,210,000 ========== The promissory note was repaid in the first quarter of 1996 through direct cash transfers and payments to WGHI creditors. Imputed interest on this amount is not material to these financial statements. In addition, HLOA has since agreed to pay $600,000 in WGHI indebtedness and to advance $1,000,000 for working capital and post year end settlement obligations - See Note 15 - Subsequent Events. PREFERRED STOCK - HLOA As part of the consideration for the sale of its stock, WGHI received 200,000 shares of HLOA convertible, redeemable, non-voting preferred stock, series B. The stock carries a 7% cumulative dividend, a $10 per share liquidation preference, and is convertible, for a period of ten years from the date of issuance, into registered shares of HLOA common stock at the average of the bid and asked price of the HLOA stock for the thirty days prior to conversion. HLOA may redeem the stock at any time for $10 per share. This investment is classified as available for sale under the criteria established by SFAS NO. 115 ACCOUNTING FOR INVESTMENTS IN MARKETABLE SECURITIES. Its market value is deemed to be $2,000,000, which has been determined in reference to the common stock into which it is convertible. There were no unrealized holding gains or losses attributable to this investment in 1995. 7. OTHER CURRENT LIABILITIES The following are the components of other current liabilities: BALANCE Accrued salaries and compensation .......................... $487,540 Accrued rent ............................................... 92,717 Accrued loan fees and costs ................................ 56,910 Accrued compensated absences ............................... 63,252 Accrued accounts payable ................................... 198,706 -------- Total other current liabilities ............................ $899,125 ======== F-18 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 7. OTHER CURRENT LIABILITIES (CONTINUED) Accrued salaries and compensation relates to unpaid amounts contractually owed to four officers and a consultant at December 31, 1995. This entire amount has been recorded in general and administrative expense for the year ended December 31, 1995. Certain of these accrued salaries, totaling $309,000 are convertible to equity at 50% of the bid price of shares on the day prior to conversion. Consequently, an additional $309,000 in compensation cost, along with other equity incentives described more fully in footnote 10, is included in non-cash compensation for the year ended December 31, 1995. 8. LEASES OPERATING LEASES Beginning in March 1995, the Company is leasing its headquarters in Delray Beach, Florida from a consultant and the former president of WGHI for $2,300 average monthly rental. The lease extends through April 1998. Future minimum rental payments on operating leases, exclusive of abandoned leases are as follows: For the year ended DECEMBER 31, AMOUNT 1996....................................................... $ 336,271 1997....................................................... 282,864 1998....................................................... 225,885 1999....................................................... 210,505 2000....................................................... 205,296 2001 and thereafter ....................................... 256,620 ---------- Total future minimum rentals .............................. 1,517,441 Less amount to be received under non-cancellable subleases ............................... 920,199 Net future minimum cash flows ............................. $ 597,242 ========== Rent expense for the years ended December 31, 1995 and 1994 was $462,117 and $502,231, respectively, including payments made on cancellable and non-cancellable leases. Sublease rentals did not begin until 1996. CAPITAL LEASES The Company has leased and continues to lease equipment under capital leases. The Company's active capital lease expires in 1997. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Depreciation of assets under capital leases of $270 and $3,570 is included in depreciation expense for the years ended December 31, 1995 and 1994, respectively. Accumulated amortization of capital leases totaled $6,865 at December 31, 1995. F-19 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 8. LEASES (CONTINUED) CAPITAL LEASES (CONTINUED) Future minimum lease payments under capital leases at December 31, 1995 through maturity and in the aggregate are: For the year ended December 31, Amount 1996........................................................ $4,788 1997........................................................ 3,990 ------ subtotal .................................................. 8,778 Less amount representing interest ............................. 677 Present value of minimum lease payments ....................... $8,101 ====== Interest rate implicit in the lease was 8.5% at December 31, 1995. The aforementioned payments do not include leases in default on assets which the Company has abandoned. These leases are recorded on the books at their estimated settlement amounts. 9. INCOME TAXES The Company's net operating and capital loss carryforwards are estimated to be $18 million for federal income tax purposes at December 31, 1995. The carryforwards expire in various years from 2003 to 2010, with the majority expiring in 2007 and 2008. These carryforwards are on a consolidated return basis for the members of the consolidated group and, thus, the loss carryforwards may have certain separate return limitations. Use of the Company's net operating and capital loss carryforwards may be limited under Internal Revenue Code Section 382. Deferred taxes result from temporary differences in the recognition of income and expenses for the financial and income tax reporting purposes and as a result of non-benefited net operating and capital loss carryforwards. The approximate effect of temporary differences that gave rise to deferred tax balances at December 31, 1995 were as follows: Deferred tax assets: Accounts and notes receivable ........................... $ 61,200 Land investment ......................................... 496,400 Other reserves .......................................... 134,600 Non-benefited losses .................................... 6,071,400 ----------- Total deferred tax assets ............................ 6,763,600 Valuation allowance for deferred tax assets ................ (6,763,600) Net deferred tax assets .................................... -- Deferred tax liabilities: Other, net .............................................. -- Net deferred tax asset ..................................... $ -- =========== WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 9. INCOME TAXES (CONTINUED) The valuation allowance for deferred tax assets increased $2,108,600 during the year ended December 31, 1995. The effective tax rate on income before provision for the income taxes and extraordinary item varies from the current statutory federal income tax rate as follows: December 31, 1995 1994 ------ ----- Statutory rate......................... 34.00% 34.00% Non-benefited losses and temporary differences............... (34.00%) (34.00%) Gain on extinguishment of debt......... 2.40% 7.80% Other, net............................. -- -- ------ ----- Effective tax rate..................... 2.40% 7.80% ====== ====== 10. SHAREHOLDERS' EQUITY STOCK AND WARRANT ACTIVITY On July 7, 1995, the Company effected a 1 for 30 reverse stock split of its common stock. Concurrently, the number of authorized common shares was reduced to 3,333,333. Unless otherwise indicated, all share and per share amounts in these financial statements have been restated to reflect the stock split. STOCK OPTION PLANS 1994 STOCK OPTION PLAN In May 1994, the shareholders approved the Network Financial Services, Inc. 1994 Stock Option Plan. The plan is established as a compensatory plan to attract, retain, and provide equity incentives to selected persons to promote the financial success of the Company. A total of 333,333 common shares have been reserved for grants under the plan. The options may be granted as either incentive stock options (ISO's) or Non-Qualified Stock Options (NQSO's). 1993 OMNIBUS STOCK OPTION PLAN On May 26, 1993, the shareholders approved the 1993 Omnibus Stock Plan for the purpose of providing a long-term incentive vehicle to promote the Company's success under which a variety of stock-based incentives and other awards may be granted to employees, Directors of the Company and its subsidiaries, and to selected consultants. The maximum number of 83,333 common shares are available for grants under this plan. Of this total, 16,667 shares may be awarded as restricted stock. 1990 NONQUALIFIED STOCK OPTION PLAN In October 1990, the shareholders adopted a Nonqualified Stock Option Plan (1990 NSOP). The 1990 NSOP was adopted in order to permit the exchange of prior options held by option holders of the Company for the new options of the Company. The 1990 NSOP is administered by the Compensation Committee of the Board of Directors. The 1990 NSOP provides that options may be granted at exercise prices WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 F-22 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 10. SHAREHOLDERS' EQUITY (CONTINUED) STOCK OPTION PLANS (CONTINUED) 1990 NONQUALIFIED STOCK OPTION PLAN (CONTINUED) equal to or less than the fair market value of the common shares of the Company on the date of grant. OPTION PLAN ACTIVITY The following summarizes the stock option plan activity for the year ended December 31, 1995: 1990 NSOP 1993 OMNIBUS ---------------------- --------------------------- SHARES OPTION PRICE SHARES OPTION PRICE Beginning Balance ..... 5,387 $14.898 to $112.50 51,682 $45.00 to $70.50 Options granted ....... -- -- Options exercised ..... -- -- Options cancelled ..... -- -- ------------------ ------ ---------------- Ending Balance ........ 5,387 $14.898 to $112.50 51,682 $45.00 to $70.50 ================== ====== ================ 1995 STOCK OPTION PLAN SHARES OPTION PRICE Beginning Balance........................ 157,327 $2.00 to $45.00 Options granted.......................... 182,243 $2.00 to $3.75 Options exercised........................ -- Options cancelled........................ 15,664 $3.75 TO $12.00 -------- --------------- Ending Balance........................... 323,906 $2.00 to $45.00 ======== =============== For the years ended December 31, 1995 and 1994, the options under all applicable plans were granted at a price which equaled or exceeded fair market value for the stock on the date of the grant. Consequently, no compensation has been recorded in these years. Certain financing activities conducted by the Company in 1995 contained equity incentives which have been accounted for as flexible options. Options to convert loans with a face amount of $765,000 and accrued salaries totaling $309,000 into common shares of the Company at 50% of the average bid were outstanding at December 31, 1995. These incentives are exercisable immediately and for periods of two years and up. Non-cash compensation cost of $1,071,000 has been recognized with respect to the grant of these conversion privileges. In addition, options to purchase 8,571 shares at $7 per share were granted in July 1995, for which non-cash compensation was recognized in the amount of $25,000. All equity shares issuable upon exercise of these conversion privileges and options contain registration rights. F-22 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 10. SHAREHOLDERS' EQUITY (CONTINUED) OPTION PLAN ACTIVITY (CONTINUED) Also outstanding at December 31, 1995 are options to purchase 33,333 shares of the Company's common stock at $9.00 per share. The underlying stock is to be registered when the option is exercised. The option is freely transferable and divisible and valid until October 1997. The options were granted with an exercise price lower than fair market value of the stock on the date of the grant. Compensation cost of $158,750 was recorded in the year ended December 31, 1994. 11. RELATED PARTY TRANSACTIONS The Company is leasing its executive offices from a consultant and former officer of the Company on a month-to-month basis for an average net monthly rental of $2,300 per month. During the year ended December 31, 1995, the Company's former president and another officer provided short-term loans to the Company totaling $565,000, of which $90,000 was repaid in cash and $475,000 was assumed by HLOA in the transaction more fully described in Note 6. 12. INTANGIBLE ASSETS The Company recorded $989,160 in goodwill for the purchase of Westmark Mortgage Corporation in August 1993. The amount recorded represents the difference between the total purchase price of the business and the fair market values of identifiable assets purchased. The Company has adopted SFAS 121 - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF which is effective for fiscal years beginning after December 15, 1995. Management projects that future cash flows from the origination and sale of mortgage loans to be higher than the carrying value of the asset. Consequently, no impairment loss has been recognized in these financial statements. 13. NON-CASH INVESTING AND FINANCING AND OTHER CASH INFORMATION Material non-cash investing and financing activities for 1995: Issuance of common shares for preferred stock ................... $ 2,000,000 Issuance of common shares for debt retirement ................... 1,053,000 Finance building purchase ....................................... 87,000 Material non-cash investing and financing activities for 1994: Sale of servicing - total proceeds .............................. $ 1,700,780 Amount due in more than one year ................................ (359,326) Other offsets ................................................... (65,516) ----------- Amount received in cash ......................................... $ 1,275,938 =========== F-23 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 13. NON-CASH INVESTING AND FINANCING AND OTHER CASH INFORMATION (CONTINUED) 1995 1994 ------------ -------- Cash paid for interest .................... $ 1,044,360 $752,370 =========== ======== Cash paid for income taxes ................ $ -- $ -- =========== ======== 14 EFFECT OF YEAR END ADJUSTMENTS WHICH ARE MATERIAL TO FOURTH QUARTER RESULTS Significant year end adjustments which affect the fourth quarter's results of operations are summarized as follows: Unrecorded liabilities ...................................... $ 307,000 Non-cash compensation ....................................... 1,343,000 Income recognition on loans ................................. 238,000 Improperly deferred costs and receivables ................... 1,753,000 Total net reductions in fourth quarter results ........................................... $3,641,000 ========== 15. SUBSEQUENT EVENTS ADDITIONAL FINANCING COMMITMENTS BY HEART LABS OF AMERICA, INC. Heart Labs of America, Inc. has committed additional financing of $1.6 million to be used for WGHI operations and financing activities as follows: Settlement of Bridge Notes (see below) ...................... $ 600,000 Settlement of stock repurchase obligations .................. 700,000 Operating capital ........................................... 300,000 ---------- Total additional financing .................................. $1,600,000 ========== The financing is provided in the form of short-term advances which may be converted to equity. F-24 WESTMARK GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 15. SUBSEQUENT EVENTS (CONTINUED) RESTRUCTURING OF OUTSTANDING BRIDGE FINANCING On or about March 6, 1996, the Company deposited $600,000 in an escrow account to be applied to the satisfaction of certain bridge financing received by the Company in May and June 1995. As mentioned above, the funds were provided to the Company by HLOA. AGREEMENT TO REPURCHASE COMMON SHARES PREVIOUSLY ISSUED Effective March 15, 1996, the Company agreed to redeem a total of 365,000 shares of previously issued common stock for total consideration of $700,000 cash and the issuance of non-voting convertible preferred stock. The preferred stock is callable by the holder for $400,000 and is convertible into 266,667 shares of common stock based on the lesser of $1.50 per share of 84% of the closing bid price of the common stock on March 26, 1996. There were no outstanding put options associated with these redemptions or on any other securities at December 31, 1995. As mentioned above, Heart Labs of America, Inc. has committed a total of $700,000 to be applied to the repurchase of these shares, as necessary. SETTLEMENT OF FORECLOSURE ACTION In April 1996, the Company reached an agreement to modify its $87,000 mortgage note. The interest rate was increased to 12% per year, and the Company agreed to a one time payment of $24,000 with modified monthly installments of $2,807. SUBLEASE CONTRACTS AND MODIFICATION OF RENTAL AGREEMENT In March and April 1996, the Company entered into sublease agreements for its Costa Mesa and Hawaii offices, with minimum sublease rentals to be received under these agreements totaling $920,199. CONVERSION OF DEBT TO EQUITY In April 1996, holders of $165,000 in debt obligations converted these notes to 148,739 shares of the Company's common stock at an average price of $1.11 per share. GREENTREE SETTLEMENT In April 1996, the Company settled its negotiations with Greentree Mortgage Corporation, L.P., with an agreement to pay $35,000 in stock plus 3 year warrants to purchase 150,000 shares at $2.62. 16. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT HEART LABS FINANCING In addition to the $1,600,000 discussed in footnote 15 to the financial statements, Heart Labs has advanced an additional $543,000 for a total of $2,293,000. Of this amount, $700,000 was converted to 200,000 shares of series C preferred stock with a stated value of $3.50 per share. F-25 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31, 1996 1995 (UNAUDITED) (AUDITED) --------------------------- ASSETS Current Assets: Cash and cash equivalents $263,947 $311,916 Accounts receivable, net of reserve 8,664 8,004 Note receivable-stock sale 0 374,222 Mortgage loans held for sale 7,266,724 19,480,029 Other current assets 69,800 2,202 ---------- ---------- Total current assets 7,609,135 20,176,373 ---------- ---------- Fixed Assets: Property and equipment 820,588 820,588 Equipment under capital leases 16,477 16,477 ---------- ---------- 837,065 837,065 Less Accumulated Depreciation (458,223) (434,411) ---------- ---------- Total fixed assets 378,842 402,654 ---------- ---------- Other Assets: Investment in real estate 2,115,000 2,115,000 Investment in preferred stock 2,000,000 2,000,000 Goodwill, net of amortization 761,104 785,833 Deposits and other assets 0 30,298 ---------- ---------- Total other assets 4,876,104 4,931,131 TOTAL ASSETS 12,864,081 25,510,158 ========== ========== (SEE ACCOMPANYING NOTES.) F-26 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31, 1996 1995 (UNAUDITED) (AUDITED) --------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $773,226 $1,234,199 Warehouse line of credit 7,057,297 18,625,866 Interest payable 141,783 227,619 Settlement liability 419,348 419,348 Other notes payable and convertible debentures 707,318 717,818 Payroll taxes payable 90,000 141,329 Other current liabilities 650,888 854,452 ---------- ---------- Total current liabilities 9,839,860 22,220,631 ---------- ---------- Long-Term Liabilities: Notes payable 1,000,000 1,000,000 Short term debt expected to be refinanced on a long-term basis 698,323 698,323 ---------- ---------- Total long-term liabilities 1,698,323 1,698,323 ---------- ---------- TOTAL LIABILITIES 11,538,183 23,918,954 ---------- ---------- STOCKHOLDER'S EQUITY: Preferred stock, no par value, 1,000,000 shares authorized; 200,000 shares issued and outstanding at March 31, 1996 700,000 0 Common stock, no par value, 3,333,333 shares authorized; 2,637,772 shares issued and outstanding at March 31, 1996, 2,632,772 shares issued and outstanding as of December 31, 1995. 22,475,937 23,165,937 Additional Paid in capital from outstanding options and warrants 1,153,688 1,153,688 Accumulated deficit (23,003,727) (22,728,421) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 1,325,898 1,591,204 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,864,081 $25,510,158 ========== ========== (SEE ACCOMPANYING NOTES.) F-27 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended ---------------------------- March 31, March 31, 1996 1995 (Unaudited) (Unaudited) ---------------------------- REVENUES: Loan origination and gain from sale of servicing 987,222 662,894 Other 4,170 8,825 ---------------------------- TOTAL REVENUES 991,392 671,719 ---------------------------- EXPENSES: Loan origination costs 373,224 381,090 Servicing sale adjustments (70,000) 0 General and administration 892,277 1,324,547 Marketing and advertising 22,656 62,474 Goodwill amortization 24,729 24,729 Depreciation 23,812 0 ---------------------------- 1,266,698 1,792,840 TOTAL EXPENSES ---------------------------- Loss before income taxes (275,306) (1,121,121) Provision for income taxes ---------------------------- NET LOSS (275,306) (1,121,121) ============================ NET LOSS PER SHARE (0.10) (1.80) ============================ (See accompanying notes) F-28 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
THREE MONTHS ENDED --------------------------- MARCH 31, MARCH 31, 1996 1995 (UNAUDITED) (UNAUDITED) ------------ ----------- OPERATING ACTIVITIES Consolidated net loss ................................. $ (275,306) $(1,121,121) Adjustments to reconcile consolidated net (loss) to net cash used by operating activities: Depreciation and amortization ..................... 23,812 26,754 Stock issued for services ......................... 0 203,425 Stock issued for settlement of litigation ......... 0 174,250 Goodwill amortization ............................. 24,729 24,729 ------------ ----------- Cash used in operations before working capital changes (226,765) (691,963) ------------ ----------- (Increase)/Decrease in accounts receivable ........ (660) 426,085 (Increase)/Decrease in other current assets ....... (37,300) (200,740) (Increase)/Decrease in mortgage loans held for sale 12,213,305 (5,960,691) (Increase)/Decrease in REO loans .................. 0 62,050 (Increase)/Decrease in other long term assets ..... 0 200,792 (Increase)/Decrease in capital lease .............. (2,345) 0 Increase/(Decrease) in accounts payable ........... (460,973) (53,518) Increase/(Decrease) in interest payable ........... (85,836) 56,196 Increase/(Decrease) in other notes payable ........ 0 (105,000) Increase/(Decrease) in other current liabilities .. (342,548) (69,197) ------------ ----------- Net cash used after working capital changes ........... 11,283,643 (5,644,023) ------------ ----------- Cash (used) in operating activities ................... 11,056,878 (6,335,986) INVESTING ACTIVITIES Purchase of fixed assets and improvements ......... 0 (14,704) ------------ ----------- Cash used in investing activities ..................... 0 (14,704) FINANCING ACTIVITIES Net Increase/(Decrease) in warehouse line of credit (11,568,569) 5,893,118 Allowances from related party ..................... 790,000 0 Payment of note receivable-sale of stock .......... 374,222 0 Repayments of notes payable ....................... (10,500) 0 Repurchase of stock ............................... (700,000) 0 Sale of stock for cash ............................ 10,000 371,666 ------------ ----------- Cash provided/(used) by financing activities .......... (11,104,847) 6,264,784 ------------ ----------- Net decrease in cash .................................. (47,969) (85,906) Cash and cash equivalents, beginning of period ........ 311,916 107,573 Cash and cash equivalents, end of period .............. 263,947 21,667 ============ =========== Cash Paid for interest ................................ $ 309,770 $ 113,432 ============ =========== Cash paid for income taxes ............................ $ 0 $ 0 ============ ===========
(SEE ACCOMPANYING NOTES.) F-29 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310b of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's audited annual report on Form 10-KSB for the year ended December 31, 1995. NOTE 2: FIRST QUARTER FINANCING ACTIVITY The Company received $790,000 in advances from Heart Labs of America, Inc. ("HLOA") which were used to fund a stock repurchase commitment of $700,000, as well as for working capital purposes. A total of $700,000 of these advances were converted to 10% convertible preferred stock, with the remainder in the form of one-year 10% promissory notes totaling $90,000. NOTE 3: EARNINGS PER SHARE Earnings per share for the three months ended March 31, 1995 take into effect a reverse of 1 to 30 recorded in July 1995. F-30 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS A. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. B. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. C. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (A) and (B), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. D. Any indemnification under subsections (A) and (B) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (A) and (B). Such determination shall be made (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. E. Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by the Certificate of Incorporation. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. II-1 F. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. G. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the Certificate of Incorporation. H. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities being registered. The expenses shall be paid by the Registrant. SEC Registration Fee................................. $ 1,734 Printing and Engraving Expenses...................... 25,000 Legal Fees and Expenses.............................. 60,000 Accounting Fees and Expenses......................... 75,000 Blue Sky Fees and Expenses........................... 25,000 Transfer Agent Fees.................................. 2,000 Miscellaneous........................................ 11,266 ------ TOTAL........................................... $200,000 - -------------------- ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In August 1993, the Company issued 61,796 shares of Common Stock to eight investors for an aggregate purchase price of approximately $61,796. The Company believes that the transaction herein is exempt from registration pursuant to Regulation S of the Act as a transaction sold only to non-United States resident investors. Between January and December 1994, the Company issued a total of 84,821 shares of Common Stock to eight investors for an aggregate purchase price of approximately $700,000. The Company believes that the transaction herein is exempt from registration pursuant to Regulation S of the Act as a transaction sold only to non-United States resident investors. In March 1994, the Company issued options to purchase a total of 81,095 shares of Common Stock at an exercise price of $2.00 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. Between March and April 1994, the Company issued options to purchase a total of 13,333 shares of Common Stock at an exercise price of $3.75 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. II-2 Between April and August of 1994, the Company raised approximately $2,000,000 in a private placement of its securities through the sale of 77,477 units, each unit consisting of one share of the Company's Common Stock and one warrant which has expired. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. Between June and July 1994, the Company issued options to purchase a total of 46,560 shares of Common Stock at exercise prices of between $2.00 and $45.00 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In July 1994, the Company issued 13,334 shares of Common Stock to Primark Corporation in addition to a $500,000 cash payment for the acquisition of Westmark Mortgage. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In August 1994, the Company issued 8,067 shares of Common Stock to two individuals in consideration for converting $50,000 of indebtedness into equity. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In August through December 1994, the Company issued an aggregate of 71,747 shares of Common Stock to employees and consultants for services rendered valued at nominal consideration. The Company believes that the transactions herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In November 1994, the Company issued M.S. Farrell a warrant to purchase 33,333 shares of Common Stock at a purchase price of $9.00 per share in consideration for services rendered. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In December 1994, the Company issued options to purchase a total of 3,332 shares of Common Stock at an exercise price of $15 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. Between January and May 1995, the Company raised approximately $700,000 in a private placement of its securities through the sale of 220,032 shares of Common Stock. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In March 1995, the Company issued 42,968 shares of Common Stock to three individuals and/or entities for an aggregate consideration of approximately $100,000. The Company believes that the transaction herein is exempt from registration pursuant to Regulation S of the Act as a transaction by an issuer only to non-resident United States investors. In March 1995, the Company issued 47,190 shares of Common Stock to various employees and consultants for services rendered valued at a nominal amount. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. Between March and June 1995, the Company issued four former officers an aggregate of 9,891 shares of Common Stock for accrued salary of approximately $62,500. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. II-3 Between March and July 1995, the Company issued an option to purchase a total of 173,848 shares of Common Stock at an exercise price of between $2.00 and $3.75 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In May 1995, the Company issued 16,667 shares of Common Stock to Greentree Mortgage Company as a portion of the aggregate sales price for the acquisition of certain of the production assets of Greentree Mortgage. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In June 1995, the Company issued three individuals an aggregate of 11,000 shares of Common Stock for services rendered valued at a nominal amount. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In August 1995, the Company issued 75,000 shares of Common Stock to an entity for an aggregate consideration of $75,000. The Company believes that the transaction herein is exempt from registration pursuant to Regulation S of the Act as a transaction by an issuer only to non-resident United States investors. In September 1995, the Company issued 125,000 share of Common Stock to an individual in connection with converting a promissory note in the amount of $250,000 for such shares. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In November 1995, the Company issued an aggregate of 112,419 shares of Common Stock to five individuals in consideration for consultant services rendered. The Company believes that the transactions herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In November 1995, the Company issued 1,298,000 shares of Common Stock to Heart Labs of America, Inc., pursuant to a stock purchase agreement. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In November 1995, the Company issued a warrant to purchase 300,000 shares of Common Stock at $1.00 per share to Ocean Marketing Corp. in consideration for consulting services rendered. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. Between January and April 1996, the Company issued an option to purchase a total of 3,332 shares of Common Stock at an exercise price of $2.00 per share to employees in consideration for services rendered. The Company believes that the transactions herein are exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In March 1996, an individual exercised an option to purchase 5,000 shares of Common Stock in satisfaction of accrued debt of $10,000. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In April 1996, the Company issued warrants to purchase 90,000 of Common Stock at a price of $2.25 per share to Norman J. Birmingham in connection with his employment agreement. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. II-4 In April 1996, the Company issued warrants to purchase 90,000 of Common Stock at a price of $2.25 per share to Mark Schaftlein in connection with his employment agreement. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In April 1996, the Company issued a warrant to purchase 150,000 shares of Common Stock at a price of $2.375 per share to Greentree Mortgage in consideration of restructuring a $100,000 debt owed by the Company to Greentree Mortgage. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In April 1996, an aggregate of 151,350 shares of Common Stock were issued in consideration for services rendered valued at nominal consideration. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In April 1996, an aggregate of 138,656 shares of Common Stock were issued to five individuals in consideration for converting $165,000 of indebtedness into equity. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In April 1996, an aggregate of 21,700 shares of Common Stock were issued to ten individuals in consideration for converting $60,500 of indebtedness into equity. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In May 1996, an option to purchase 10,000 shares of Common Stock was issued to a third party, at a purchase price of $2.00 per share, for services rendered. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. In May 1996, 154,404 shares of Common Stock were issued to Heart Labs of America, Inc. pursuant to the November 1995 Stock Purchase Agreement. The Company believes that the transaction herein is exempt from registration pursuant to Section 4(2) of the Act as a transaction by an issuer not involving any public offering. II-5 ITEM 27. EXHIBITS The following exhibits are to be filed as part of the Registration Statement:
TO BE FILED BY PAPER IN ORIGINAL FORM PURSUANT TO 202(D) HARDSHIP EXEMPTION TO BE FILED AND ELECTRONICALLY ELECTRONICALLY IN FIRST AMENDMENT EXHIBIT NO. IDENTIFICATION OF EXHIBIT - -------------- ------------------ ----------- ------------------------- X 2.1(3) Form of Merger between Colorado and Delaware Companies 3.1(1) Articles of Incorporation of the Company and (2) Amendments thereto X 3.2(3) Certificate of Incorporation of the Company, filed in the office of the Secretary of State of Delaware on May 10, 1996, and incorporated herein by reference 3.3(1) By-Laws of the Company X 4.1(4) Form of specimen Common Stock X 4.2(3) Series A Preferred Stock Designation X 4.3(3) Series B Preferred Stock Designation X 4.4(3) Series C Preferred Stock Designation X 5.1(3) Opinion Regarding Legality X 10.1(4) Westmark Mortgage Acquisition Agreement X 10.2(3) Purchase and Sale Agreement between the Company and Crown Bank X 10.3(3) Mortgage Warehouse and Security Agreement between the Company and Princap Mortgage Warehouse, Inc. dated October 26, 1995 X 10.4(3) Purchase and Sale Agreement between the Company and Heart Labs of America, inc. dated November 1995, as amended. X 10.5(3) Lease Agreement for Corporate Offices in Delray Beach, Florida X 10.6((3) Rodger Stubbs Termination Agreement X 10.7((3) Michael Morrell Termination Agreement X 10.8(3) Linda Moore Termination Agreement X 10.9(3) Norman J. Birmingham Employment Agreement II-6 X 10.10(3) Mark Schaftlein Employment Agreement X 10.11(3) Dawn Drella Employment Agreement X 10.12(3) Norman J. Birmingham Warrant X 10.13(3) Mark Schaftlein Warrant X 10.14(3) 1990 Non-Qualified Stock Option Plan X 10.15(3) 1993 Non-Qualified Stock Option Plan X 10.16(3) 1994 Non-Qualified Stock Option Plan X 10.17(3) Settlement Agreement between the Company and Arthur Strock dated April 17, 1996 X 10.18(3) Settlement Agreement between the Company and Greentree Mortgage Company dated April 19, 1996 X 10.19(3) Settlement Agreement between the Company and First American Flood Data, Inc. dated March 29, 1996 X 10.20(3) Note Modification Agreement between the Company and Dolan Development Partners, Inc. dated July 12, 1995 X 10.21(3) Form of Settlement Agreement between the Company and Each Party to the Bridge Financing dated April 1, 1996 X 10.22(3) Settlement Agreement between the Company and James S. Hull dated April 25, 1996 X 10.23(3) Settlement Agreement between the Company and Svarna Offshore Fund dated March 21, 1996 X 10.24(3) Settlement Agreement between the Company and Drew Hollenbeck dated March 21, 1996 X 10.25(3) Settlement Agreement between the Company and Nationwide Computer Corporation dated March 26, 1996 X 10.26(3) Settlement Agreement between the Company and Teletrend Communications dated March 27, 1996 X 10.27(3) Settlement Agreement between the Company and Cohen, Brahme and Smith dated March 15, 1996 X 10.28(3) Settlement Agreement between the Company and Mortgage Quality Management, Inc. dated March 27, 1996 X 10.29(3) Settlement Agreement between the Company and Hakman & Company dated March 27, 1996 II-7 X 10.30(3) Settlement Agreement between the Company and Republic Indemnity dated February, 1996 X 10.31(3) Settlement Agreement between the Company and Brentwood Computers dated February 27, 1996 X 10.32(3) Settlement Agreement between the Company and Jackson, Tufts, Cole & Black dated February 22, 1196 X 10.33(3) Settlement Agreement between the Company and Cassidy & Associates X 10.34(3) Settlement Agreement between the Company and Howard Rice dated March 26, 1996 X 10.35(3) Settlement Agreement between the Company and Jehu Hand dated March 28, 1996 X 10.36(3) Settlement Agreement between the Company and Mucci Associates X 10.37(3) Settlement Agreement between the Company and Prentice Hall dated April 20, 1996 X 10.38(3) Settlement Agreement between the Company and American Pacific Printers College, Inc. d/b/a Kenny the Printer dated May 24, 1996 X 10.39(3) Settlement Agreement between the Company and Lomas Mortgage USA, Inc. dated May 24, 1996 X 10.40(4) Settlement Agreement between the Company and Deloitte & Touche, LLP dated May 1996 X 10.41(3) Settlement Agreement between the Company and Steve Jizmagian dated May 30, 1996 X 10.42(3) Settlement Agreement between the Company and James D. Tucker dated May 17, 1996 X 10.43(3) Settlement Agreement between the Company and M.S. Farrell & Company, Inc. dated May 29, 1996 X 21.1(3) List of Subsidiaries X 24.1(3) Consent of Comiskey & Company, P.C. X 24.2(3) Consent of Brewer & Pritchard, P.C. (Contained in Exhibit 5.1)
- --------------------- (1) The information required by this exhibit is incorporated by reference to the exhibits filed in connection with the Company's prior Registration Statement on Form S-18 (Commission File No. 33-16715-D) (2) The Articles of Amendment to the Articles of Incorporation dated July 11, 1994, were attached to the December 31, 1994 Form 10-K8B. II-8 (3) Filed herewith, either electronically or by paper pursuant to 202(d) hardship exemption. (4) To be filed by amendment. ITEM 28. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: i. To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and iii. To include any additional or changed material information with respect to the plan of distribution. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) i. That, for the purpose of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. ii. That, for the purpose of determining liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate II-9 jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Delray, State of Florida, on the 6 day of June, 1996. Westmark Group Holdings, Inc. By /s/ NORMAN J. BIRMINGHAM Norman J. Birmingham, President, Chief Executive Officer and Director ---------------------------- Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE - --------- ----- ---- /s/ NORMAN J. BIRMINGHAM President, Chief Executive Officer June 6, 1996 Norman J. Birmingham and Director /s/ DAWN DRELLA Chief Financial Officer (Principal June 6, 1996 Dawn Drella Financial and Accounting Officer) /s/ MARK SCHAFTLEIN Director June 6, 1996 Mark Schaftlein /s/ TODD WALKER Director June 6, 1996 Todd Walker II-11 EX-2.1 2 FORM OF MERGER BETWEEN COLORADO AND DELAWARE EXHIBIT 2.1 PLAN AND AGREEMENT OF MERGER THIS PLAN AND AGREEMENT OF MERGER ("Agreement"), dated as of the ________ day of _______, 1996, is made and entered into by and between Westmark Group Holdings, Inc., a Colorado corporation (the "Company"), and Westmark Group Holdings, Inc.-Delaware, a Delaware corporation ("Westmark-Delaware"). W I T N E S S E T H: WHEREAS, the Company is a corporation organized and existing under the laws of the State of Colorado, having been incorporated on first day of December, 1986; and WHEREAS, Westmark-Delaware is a wholly-owned subsidiary corporation of the Company, having been incorporated on the _____ day of ______, 1996; and WHEREAS, the respective Boards of Directors of the Company and WestmarkDelaware determined that it is desirable to merge the Company into Westmark-Delaware ("Merger"). NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Company shall be merged into Westmark-Delaware upon the terms and conditions hereinafter set forth. ARTICLE I MERGER On the effective date of the Merger ("Effective Date") as provided herein, the Company shall be merged into Westmark-Delaware, the separate existence of the Company shall cease, and Westmark-Delaware ("Surviving Corporation") shall continue to exist under the name of Westmark Group Holdings, Inc. by virtue of, and shall be governed by, the laws of the State of Delaware. The filing of this Agreement with the Delaware Secretary of State shall effect the name change of Westmark Group Holdings, Inc.-Delaware to Westmark Group Holdings, Inc., and this shall be in lieu of filing an amendment to the WestmarkDelaware Certificate of Incorporation. The address of The Prentice-Hall Corporation System, Inc., the registered office of the Surviving Corporation in the State of Delaware, is 32 Loockerman Square, Suite L100, Dover, Kent County, Delaware 19901. The Company appoints the Colorado Secretary of State to be the Company's registered agent in the State of Colorado. A-1 ARTICLE II ARTICLES OF INCORPORATION OF SURVIVING CORPORATION The Articles of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of Westmark-Delaware ("Delaware Charter") as in effect on the date hereof without change unless and until amended in accordance with applicable law. ARTICLE III BYLAWS OF THE SURVIVING CORPORATION The Bylaws of the Surviving Corporation shall be the Bylaws of Westmark-Delaware ("Delaware Bylaws") as in effect on the date hereof without change unless and until amended in accordance with applicable law. ARTICLE IV EFFECT OF MERGER ON STOCK OF CONSTITUENT CORPORATIONS 4.01. On the Effective Date, each outstanding share of common stock of the Company, no par value ("Common Stock"), shall be converted into one share of WestmarkDelaware common stock, par value .001 ("Delaware Common Stock"), except for those shares with respect to which the holders thereto duly exercise their dissenters' rights pursuant to Title 7, Article 113 of the Colorado Revised Statutes Annotated ("CRSA"), and each outstanding share of Delaware Common Stock held by the Company shall be retired and cancelled. 4.02. On the Effective Date, each outstanding share of preferred stock of the Company ("Preferred Stock") shall be converted into one share of Delaware preferred stock, par value .001 ("Delaware Preferred Stock"), except for those shares with respect to which the holders thereto duly exercise their dissenters' rights pursuant to Title 7, Article 113 of the CRSA, and each outstanding share of Delaware Preferred Stock held by the Company shall be retired and cancelled. 4.03. After the Effective Date, certificates representing shares of the Common Stock will represent shares of Delaware Common Stock. Each holder of a certificate or certificates representing one or more shares of Common Stock, upon surrender of the same to the transfer agent or the Company, shall be entitled to receive in exchange therefor a certificate or certificates representing one or more shares of Delaware Common Stock. 4.04. After the Effective Date, certificates representing shares of the Preferred Stock will represent shares of Delaware Preferred Stock. Each holder of a certificate or certificates representing one or more shares of Preferred Stock, upon surrender of the same to the transfer agent or the Company, shall be entitled to receive in exchange therefor a certificate or certificates representing one or more shares of Delaware Preferred Stock. A-2 ARTICLE V CORPORATE EXISTENCE, POWERS AND LIABILITIES OF SURVIVING CORPORATIONS 5.01. On the Effective Date, the separate existence of the Company shall cease. The Company shall be merged with and into Westmark-Delaware, the Surviving Corporation, in accordance with the provisions of this Agreement. Thereafter, WestmarkDelaware shall possess all the rights, privileges, powers, and franchises of a public as well as of a private nature, and shall be subject to all the restrictions, disabilities, and duties of each of the parties to this Agreement; and all and singular, the rights, privileges, powers, and franchises of the Company and Westmark-Delaware, and all property, real, personal, and mixed, and all debts due to each of them on whatever account, shall be vested in WestmarkDelaware; and all property, rights, privileges, powers, and franchises, and all and every other interest shall be thereafter as effectually the property of Westmark-Delaware, the Surviving Corporation, as they were of the respective constituent entities, and the title to any real estate, whether by deed or otherwise, vested in the Company and Westmark-Delaware or either of them, shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon the property of the parties hereto, shall be preserved unimpaired, and all debts, liabilities and duties of the Company, shall thenceforth attach to Westmark-Delaware, and may be enforced against it to the same extent as if said debts, liabilities, and duties had been incurred or contracted by it. 5.02. The Company agrees that it will execute and deliver, or cause to be executed and delivered, all such deeds and other instruments, and will take or cause to be taken such further or other action as the Surviving Corporation may deem necessary in order to vest in and confirm to the Surviving Corporation title to and possession of all the property, rights, privileges, immunities, powers, purposes and franchises, and all and every other interest, of the Company and otherwise to carry out the intent and purposes of this Agreement. ARTICLE VI OFFICERS AND DIRECTORS OF SURVIVING CORPORATION 6.01. Upon the Effective Date, the officers and/or directors of the Surviving Corporation shall be the officers and/or directors of Westmark-Delaware in office at such date, and such persons shall hold office in accordance with the Delaware Bylaws until their respective successors shall have been appointed or elected. 6.02. If, upon the Effective Date, a vacancy shall exist in the Board of Directors of the Surviving Corporation, such vacancy shall be filled in the manner provided by the Delaware Bylaws. A-3 ARTICLE VII APPROVAL BY SHAREHOLDERS; EFFECTIVE DATE; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE 7.01. Soon after the approval of this Agreement by the requisite number of shareholders of the Company, the respective Boards of Directors of the Company and Westmark-Delaware will cause their duly authorized officers to make and execute Articles of Merger effecting this Agreement and shall cause the same to be filed with the Secretaries of State of Colorado and Delaware, respectively, in accordance with the CRSA and Delaware General Corporation Law ("DGCL"). The Effective Date shall be the date on which the Merger becomes effective under the DGCL. 7.02. The Boards of Directors of the Company and Westmark-Delaware may amend this Agreement and the Delaware Charter at any time prior to the Effective Date, provided that an amendment made subsequent to the approval of the Merger by the shareholders of the Company may not (i) change the amount or type of shares to be received in exchange for or on conversion of the shares of the capital stock, (ii) change any term of the Delaware Charter, or (iii) change any of the terms and conditions of this Agreement if such change would adversely affect the holders on the capital stock. ARTICLE VIII TERMINATION OF MERGER This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Date, whether before or after shareholder approval of this Agreement, by the consent of the Board of Directors of the Company and Westmark-Delaware. ARTICLE IX MISCELLANEOUS In order to facilitate the filing and recording of this Agreement, this Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all such counterparts shall together constitute one and the same instrument. A-4 IN WITNESS WHEREOF, (i) Westmark-Delaware has caused this Agreement to be signed by the President of Westmark-Delaware and attested by the Secretary of WestmarkDelaware pursuant to authorization contained in a resolution adopted by the Board of Directors of Westmark-Delaware approving this Agreement and (ii) the Company has caused this Agreement to be signed by the President of the Company and attested by the Secretary of the Company pursuant to authorization contained in a resolution adopted by the Board of Directors of the Company approving this Agreement. WESTMARK GROUP HOLDINGS, INC.- DELAWARE, a Delaware corporation ATTEST: By__________________________________________ ________________, President - --------------------------------- _______________, Secretary WESTMARK GROUP HOLDINGS, INC., a Colorado corporation ATTEST: By__________________________________________ _________________, President - --------------------------------- _______________, Secretary The undersigned, Dawn Drella, as Secretary of Westmark Group Holdings, Inc.Delaware, a Delaware corporation, hereby certifies (i) that the foregoing Merger was duly approved by the affirmative vote of the sole holder of all outstanding shares of Delaware Common Stock (ii) that the Delaware Common Stock was the only classes of shares of said corporation outstanding at the time of such approval. WITNESS my hand this the _______ day of __________________________, 1996. -------------------------------------------- Secretary A-5 The undersigned, __________________, as Secretary of Westmark Group Holdings, Inc., a Colorado corporation, hereby certifies (i) that the foregoing Merger was duly adopted by _______% of the holders of all outstanding shares of Common Stock and (ii) that the Common Stock was the only class of voting shares of said corporation's capital stock outstanding at the time of such adoption. WITNESS my hand this the _________ day of __________________________, 1996. -------------------------------------------- Secretary A-6 EX-3.2 3 CERTIFICATE OF INCORPORATION DATED MAY 10, 1996 EXHIBIT 3.2 CERTIFICATE OF INCORPORATION OF WESTMARK GROUP HOLDINGS, INC.- DELAWARE The undersigned, a natural person for the purpose of organizing a for profit corporation under the provisions and subject to the requirements of the Delaware General Corporation Law, hereby certifies that: ARTICLE I The name of the Corporation is Westmark Group Holdings, Inc.-Delaware ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV The Corporation shall have authority to issue a total 50,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. Shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be determined by the Board of Directors of the Corporation ("Board of Directors") prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. Subject to all of the rights of the Preferred Stock or any series thereof described in appropriate certificates of designation, the holders of the Common Stock shall be entitled B-1 to receive, when, as, and if declared by the Board of Directors, out of funds legally available therefore, the dividends payable in cash, common stock, or otherwise. No stockholder of the Corporation shall have the right of cumulative voting at any election of Directors of the Corporation. ARTICLE V The name and mailing address of the incorporator is Norman J. Birmingham, 355 N.E. Fifth Avenue, Delray Beach, FL 33483. ARTICLE VI The name and mailing address of the person who is to serve as the initial directors until the first annual meeting of stockholders or until their successors are elected and qualified are: NAME ADDRESS ---- ------- Norman J. Birmingham 355 N.E. Fifth Avenue Delray Beach, Florida 33483 Todd Walker 355 N.E. Fifth Avenue Delray Beach, Florida 33483 Mark Schaftlein 355 N.E. Fifth Avenue Delray Beach, Florida 33483 ARTICLE VII The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors consisting of not less than three nor more than nine directors, the exact number of directors to be determined from time to time by resolution adopted by the Board of Directors. The number of directors may be increased or decreased, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until his successor is elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors howsoever resulting, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. B-2 ARTICLE VIII Elections of directors at an annual or special meeting of stockholders shall be by written ballot unless the Bylaws of the Corporation shall otherwise provide. ARTICLE IX Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors or a committee thereof, the Chairman of the Board, President, or by the holders of at least 30% of all the shares entitled to vote at the proposed special meeting. ARTICLE X No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article X shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE XI (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. B-3 (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this Article. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, B-4 both as to action in his official capacity and as to action in another capacity while holding such office. (g) The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Article. (h) For purposes of this Article, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (k) No amendment or repeal of this Article XI shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. B-5 ARTICLE XII The Corporation hereby expressly opts out of ss.203 of the Delaware General Corporation Law, regarding business combinations with interested shareholders. ARTICLE XIII Whenever the Corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at any meeting of stockholders. Whenever the Corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the Certificate of Incorporation, or a designation thereunder, shall entitle the holder thereof to the right to vote at any meeting of stockholders, except as the provisions of the law shall otherwise require. Notwithstanding the foregoing and except as otherwise provided by law or in the resolution or resolutions of the Board of Directors providing for the issuance of any particular class or series of Preferred Stock, the holders of Common Stock shall have the exclusive right to vote for the election of Directors and for all other purposes except that, with respect to any amendment of any provision of the Certificate of Incorporation which consists of a series designation, or portion thereof, for any series of Preferred Stock, the holders of Common Stock shall not be entitled to any vote. Except as otherwise provided by law or in the resolution or resolutions of the Board of Directors providing for the issuance of any particular class or series of Preferred Stock, the holders of Common Stock and any other capital stock of the Corporation at the time entitled thereto shall vote together as one class. ARTICLE XIV Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said B-6 reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class or creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. ARTICLE XV In furtherance of, and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the Corporation. ARTICLE XVI The Corporation reserves the right to repeal, alter, amend, or rescind any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Incorporation to be signed this the ______ day of ____________, 1996. INCORPORATOR: NORMAN J. BIRMINGHAM, President B-7 EX-4.2 4 SERIES A PREFERRED STOCK DESIGNATION EXHIBIT 4.2 CERTIFICATE OF THE DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES A CONVERTIBLE PREFERRED STOCK OF WESTMARK GROUP HOLDINGS, INC. Westmark Group Holdings, Inc., hereinafter called the "Corporation," a corporation organized and existing under the laws of the State of Colorado, DOES HEREBY CERTIFY: That, pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated, such Board of Directors by the unanimous written consent of its members dated effective April 1, 1996 adopted a resolution providing for the issuance of a series of 200,000 shares of Series A Convertible Preferred Stock, $4.00 stated value per share, which resolution is as follows: RESOLVED, that pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation, the Series A Convertible Preferred Stock, $4.00 stated value per share ("Series A Preferred Stock"), is hereby authorized and created, said series to consist of up to 200,000 shares. The voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof shall be as follows: 1. CASH DIVIDENDS ON SERIES A PREFERRED STOCK. (a) The holders of the Series A Preferred Stock shall be entitled to receive, out of the funds of the Corporation legally available therefor, cumulative cash dividends at the annual rate of 8% per share, payable quarterly, in arrears, commencing on the 30th day of June 1996. Dividends on each share of Series A Preferred Stock shall begin to accrue and shall cumulate from the date of original issue of such share ("Issue Date"), whether or not declared, and shall be payable to the holder of such share on the record date (as defined in Section 1(b) below). Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on a record date fixed for such payment by the Board of Directors of the Corporation or by a committee of such Board duly authorized to fix such date by resolution designating such committee. (b) Dividends on the Series A Preferred Stock shall be payable to holders of record as they appear on the books of the Corporation as of the close of business on any record date for the payment of dividends. The record dates for payment of dividends shall be the 15th day of December, March, June and September. (c) Dividends payable on the Conversion Date (as defined in Section 2(b) below) of the Series A Preferred Stock shall be calculated on the basis of the actual number of days elapsed (including the Conversion Date) over a 365-day year. 2. CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK. (a) At any time on or after the Issue Date, each holder of shares of Series A Preferred Stock may, at his option, convert any or all such shares, plus all dividends accrued and unpaid on such Series A Preferred Stock up to the Conversion Date, on the terms and conditions set forth in this Section 2, into fully paid and non-assessable shares of the Corporation's common stock, no par value ("Common Stock"). The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted shall be determined by dividing $4.00 by the Conversion Price (as defined herein) in effect at the time of conversion. The "Conversion Price" per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series A Preferred Stock shall be the lesser of (i) $1.50 or (ii) 84% of the closing bid price per share of Common Stock as quoted by the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System, or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System, in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for that purpose, on the trading day immediately preceding the Conversion Date. (b) To exercise his conversion privilege, the holder of any shares of Series A Preferred Stock shall surrender to the Corporation during regular business hours at the principal executive offices of the Corporation or the offices of the transfer agent for the Series A Preferred Stock or at such other place as may be designated by the Corporation, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the Corporation (if required by it), accompanied by written notice stating that the holder irrevocably elects to convert such shares. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the "Conversion Date." Within three (3) business days after the date on which such delivery is made, the Corporation shall issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which the holder is entitled as a result of such conversion, and cash with respect to any fractional interest of a share of Common Stock as provided in paragraph (c) of this Section 2. The holder shall be deemed to have become a stockholder of record of the number of shares of Common Stock into which the shares of Series A Preferred Stock have been converted on the 2 applicable Conversion Date unless the transfer books of the Corporation are closed on that date, in which event he shall be deemed to have become a stockholder of record of such shares on the next succeeding date on which the transfer books are open, but the Conversion Price shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares of Series A Preferred Stock represented by a certificate or certificates surrendered for conversion, the Corporation shall within three (3) business days after the date on which such delivery is made, issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a new certificate covering the number of shares of Series A Preferred Stock representing the unconverted portion of the certificate or certificates so surrendered. (c) No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Series A Preferred Stock. If more than one share of Series A Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the Corporation shall make an adjustment in respect of such fractional interest equal to the fair market value of such fractional interest, to the nearest 1/100th of a share of Common Stock, in cash at the Current Market Price (as defined below) on the business day preceding the effective date of the conversion. The "Current Market Price" of publicly traded shares of Common Stock or any other class of Common Stock or other security of the Corporation or any other issuer for any day shall be deemed to be the daily "Closing Price" for the trading day immediately preceding the Conversion Date. The "Current Market Price" of the Common Stock or other class of capital stock or securities of the Corporation or any other issuer which is not publicly traded shall mean the fair value thereof as determined by an independent investment banking firm or appraisal firm experienced in the valuation of such securities or properties selected in good faith by the Board of directors of the Corporation or a committee thereof or, if no such investment banking or appraisal firm is, in the good faith judgment of the Board of directors of the Corporation or such committee, available to make such determination, as determined in good faith judgment of the Board of Directors or such committee. The "Closing Price" shall mean the last reported sales price on the principal securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System, or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System, in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for that purpose. 3 (d) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Series A Preferred Stock so converted were registered, and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) The Corporation shall at all times reserve for issuance and maintain available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series A Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder action), in accordance with the laws of the State of its incorporation, increase the authorized number of shares of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series A Preferred Stock at the time outstanding. (f) If any shares of Common Stock to be reserved for the purpose of conversion of shares of Series A Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise, including registration under the Securities Act of 1933, as amended, and appropriate state securities laws, before such shares may be validly issued or delivered upon conversion, the Corporation will in good faith and as expeditiously as possible meet such registration, listing or approval, as the case may be. (g) All shares of Common Stock which may be issued upon conversion of the shares of Series A Preferred Stock will upon issuance by the Corporation be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (h) The Conversion Price in effect shall be subject to adjustment from time to time as follows: (i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that the Corporation shall at any time subdivide the outstanding shares of Common Stock, or shall pay or make a dividend or distribution on any class of capital stock of the Corporation in Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Corporation shall at any time 4 combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL REORGANIZATIONS AND DISSOLUTIONS. In the event: (A) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend, or any other distribution, payable otherwise than in cash; or (B) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or other securities, or to receive any other rights; or (C) of any capital reorganization of the Corporation, reclassification of the capital stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), consolidation or merger of the Corporation with or into another corporation, share exchange for all outstanding shares of Common Stock under a plan of exchange to which the Corporation is a party, or conveyance of all or substantially all of the assets of the Corporation to another corporation; or (D) of the voluntary of involuntary dissolution, liquidation or winding up of the Corporation; then, and in such case, the Corporation shall cause to be mailed to the holders of record of the outstanding Series A Preferred stock, at least ten days prior to the date hereinafter specified, a notice stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up is to take place and the date, if any is to be fixed, as of which holders of Corporation securities of record shall be entitled to exchange their shares of Corporation securities for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up. (i) The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid 5 or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all time in good faith assist in the carrying out of all the provisions of paragraph 2(h) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. (j) Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to paragraph 2(h), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof, and prepare and furnish to each holder of Series A Preferred Stock a certificate signed by the chief financial officer of the Corporation setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of his shares. (k) In case any shares of Series A Preferred Stock shall be converted pursuant to Section 2(a) hereof, the shares so converted shall be restored to the status of authorized but unissued shares of preferred stock, without designation as to class or series, and may thereafter be reissued, but not as shares of Series A Preferred Stock. 3. REDEMPTION OF SERIES A PREFERRED STOCK. (a) Subject to the provisions of this Section 3, the Series A Preferred Stock shall be redeemable in whole, or in part, at the option of the Corporation by resolution of the Board of Directors at any time after the Issue Date, at the stated value per share, plus all dividends accrued and unpaid on such Series A Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided. (b) Not less than thirty nor more than sixty days prior to the date fixed for redemption of the Series A Preferred Stock, a notice in writing shall be given by mail to the holders of record of the Series A Preferred Stock at their respective addresses as the same shall appear on the stock books of the Corporation. Such notice shall state: (i) the redemption date; (ii) the redemption price, and the amount of dividends on the Series A Preferred Stock that will be accrued and unpaid to the date fixed for redemption; (iii) the place or places where certificates for shares are to be surrendered for payment of the redemption price; (iv) that the dividends on shares to be redeemed will cease to accrue on such redemption dates; (v) the conversion rights of the shares to be redeemed; (vi) the period within which the conversion rights may be exercised; and (vii) the Conversion Price, and the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock at the time. 6 (c) After giving notice and prior to the close of business on the business day prior to the redemption date, the holders of the Series A Preferred Stock so called for redemption may convert such stock into Common Stock in accordance with the conversion privileges set forth in Section 2 hereof. Unless (i) the holder of shares of Series A Preferred Stock to whom notice has been duly given shall have exercised its rights to convert in accordance with Section 2 hereof; or (ii) the Corporation shall default in the payment of the redemption price as set forth in such notice, upon such redemption date such holder shall no longer have any voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation without interest thereon, upon surrender (and endorsement, if required by the Corporation) of the certificates, and the shares represented thereby shall no longer be deemed to outstanding as of the redemption date. In the event a holder of Series A Preferred Stock provides the Corporation with notice of conversion of all or a portion of such Series A Preferred Stock into shares of Common Stock on or after any notice of redemption is provided, the holder shall have been deemed to convert as of the redemption date provided, however, that in the event the Corporation shall default in the payment of the redemption price as set forth in such redemption notice, the conversion shall not be effective unless the holder of the Series A Preferred Stock electing to convert provides written notice to the Corporation within 20 days of the purported redemption date of his desire to effect such conversion. (d) After October 1, 1996, the holder of the Series A Preferred Stock shall have the right to cause the Company to redeem, in whole or in part, the shares of Series A Preferred Stock at the stated value per share, plus all dividends accrued and unpaid on such Series A Preferred Stock, upon providing written notice to the Corporation at its record office. Upon receipt of such written notice, the Corporation shall have twenty business days within which to effectuate the redemption. (e) The Series A Preferred Stock may not be redeemed and the Corporation may not purchase or otherwise acquire any shares of Series A Preferred Stock unless full dividends of on all outstanding shares of Series A Preferred Stock shall have been paid in full for all past dividend periods. (f) All shares of Series A Preferred Stock so redeemed shall have the status of authorized but unissued preferred stock, but such shares so redeemed shall not be reissued as shares of Series A Preferred Stock. (g) No holder of shares of Series A Preferred Stock shall have the right to require the Corporation to redeem all or any portion of such shares. 7 4. VOTING. (a) Except as otherwise required by law, the shares of Series A Preferred Stock shall not be entitled to vote on any matters presented at any annual or special meeting of stockholders of the Corporation or to be taken by written consent of the stockholders of the Corporation. 5. LIQUIDATION RIGHTS. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled or receive out of assets of the Corporation available for distribution to stockholders, after payment in full of the liquidation distribution to which holders of the preferred stock with a liquidation preference are entitled, but before any distribution of assets is made to holders of Common Stock or of any other class of capital stock of the Corporation ranking junior to the Series A Preferred Stock as to liquidation, an amount equal to $4.00 per share, plus accumulated and unpaid dividends thereon to the date fixed for distribution. It is understood that the Series A Preferred Stock shall be junior in rank to the Series B Preferred Stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series A Preferred Stock and any other shares of stock of the Corporation ranking as to any such distribution on a parity with the Series A Preferred Stock are not paid in full, the holders of the Series A Preferred Stock and of such other shares shall share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series A Preferred Stock shall not be entitled to any further participation in any distribution of assets by the Corporation. (b) Neither the consolidation of nor merging of the Corporation with or into any other corporation or corporations, nor the sale or lease of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution or a winding up of the Corporation within the meaning of any of the provisions of this Section 4. (c) In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the Corporation shall, within 10 days after the date the Board of Directors approves such action, or within 20 days prior to any stockholders' meeting called to approve such action, or within 20 days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of shares of Series A Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of such 8 proposed action, including a description of the stock, cash, and property to be received by the holders of shares of Series A Preferred Stock upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of shares of Series A Preferred Stock of such material change. The Corporation shall not consummate any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation before the expiration of 30 days after the mailing of the initial notice or 10 days after the mailing of any subsequent written notice, whichever is later; provided that any such 30-day or 10-day period may be shortened upon the written consent of the holders of all of the outstanding shares of Series A Preferred Stock. (d) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation which will involves the distribution of assets other than cash, the Corporation shall promptly engage competent independent appraisers to determine the value of the assets to be distributed to the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock. The Corporation shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of Series A Preferred Stock of the appraiser's valuation. 6. LIMITATIONS. (a) So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written consent of the holders of at least 66-2/3% of the outstanding shares of Series A Preferred Stock, voting separately as a class: (i) Amend, alter or repeal any provision of the Certification of Incorporation or Bylaws of the Corporation so as to affect adversely the relative rights, preferences, qualifications, limitations or restrictions of the Series A Preferred Stock. (b) The provisions of this paragraph 6 shall not in any way limit the right and power of the Corporation to: (i) Increase the total number of authorized shares of Common Stock; or (ii) Issue bonds, notes, mortgages, debentures, and preferred stock ranking senior to the terms of the Series A Preferred Stock and other obligations, and to incur indebtedness to banks and to other lenders. 9 IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by NORMAN J. BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its secretary, this ____ day of ________________, 1996. WESTMARK GROUP HOLDINGS, INC. By NORMAN J. BIRMINGHAM Chief Executive Officer ATTEST: By DAWN DRELLA, Secretary STATE OF __________ | | COUNTY OF _________ | BE IT REMEMBERED that on this _______ day of ___________, 1996, personally came before me, a Notary Public in and for the County and State aforesaid, NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc., a Colorado corporation, and he duly executed said certificate before me and acknowledged the said certificate to be his act and deed and the act and deed of said Corporation and the facts stated therein are true; and that the seal affixed to said certificate and attested by the Secretary of said corporation is the corporate seal of said Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. NOTARY PUBLIC, IN AND FOR THE STATE OF _____________ 10 EX-4.3 5 SERIES B PREFERRED STOCK DESIGNATION EXHIBIT 4.3 CERTIFICATE OF THE DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK OF WESTMARK GROUP HOLDINGS, INC. Westmark Group Holdings, Inc., hereinafter called the "Corporation," a corporation organized and existing under the laws of the State of Colorado, DOES HEREBY CERTIFY: That, pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated, such Board of Directors by the unanimous written consent of its members dated and effective as of April 1, 1996 adopted a resolution providing for the issuance of a series of 300,000 shares of Series B Convertible Preferred Stock, $2.00 stated value per share, which resolution is as follows: RESOLVED, that pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation, the Series B Convertible Preferred Stock, $2.00 stated value per share ("Series B Preferred Stock"), is hereby authorized and created, said series to consist of up to 300,000 shares. The voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof shall be as follows: 1. CASH DIVIDENDS ON SERIES B PREFERRED STOCK. (a) The holders of the Series B Preferred Stock shall be entitled to receive, out of the funds of the Corporation legally available therefor, cumulative cash dividends at the annual rate of 10% per share, payable monthly, in arrears on the last day of each month, commencing on the 30th day of April, 1996. Dividends on each share of Series B Preferred Stock shall begin to accrue and shall cumulate from April 1, 1996 (the "Issue Date"), whether or not declared, and shall be payable to the holder of such share on the record date (as defined in Section 1(b) below). Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on a record date fixed for such payment by the Board of Directors of the Corporation or by a committee of such Board duly authorized to fix such date by resolution designating such committee. (b) Dividends on the Series B Preferred Stock shall be payable to holders of record as they appear on the books of the Corporation as of the close of business on any record date for the payment of dividends. The record dates for payment of dividends shall be the 20th day of each month. (c) Dividends payable on the Conversion Date (as defined in Section 2(b) below) of the Series B Preferred Stock shall be calculated on the basis of the actual number of days elapsed (including the Conversion Date) over a 365-day year. 2. CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK. (a) At any time on or after the Issue Date, each holder of shares of Series B Preferred Stock may, at his or her option, at any time or from time to time, convert any or all such shares, plus all dividends accrued and unpaid on such Series B Preferred Stock up to the Conversion Date, on the terms and conditions set forth in this Section 2, into fully paid and non-assessable shares of the Corporation's common stock, no par value ("Common Stock"). Each share of Series B Preferred Stock plus all dividends accrued and unpaid on such Series B Preferred Stock, shall be automatically converted into fully paid and nonassessable shares of Common Stock of the Corporation, unless previously converted, thirty-seven months after the Issue Date thereof. The number of shares of Common Stock into which each share of Series B Preferred Stock may be converted shall be determined by dividing $2.00 by the Conversion Price (as defined herein) in effect at the time of conversion. The "Conversion Price" per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series B Preferred Stock shall be 84% of the closing bid price per share of Common Stock as quoted by the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System (including the OTC electronic bulletin board), or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System (including the OTC electronic bulletin board), in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for that purpose, on the trading day immediately preceding the Conversion Date. (b) To exercise his or her conversion privilege, the holder of any shares of Series B Preferred Stock shall deliver via facsimile or overnight mail, notice of intent to convert and shall within five business days surrender to the Corporation during regular business hours at the principal executive offices of the Corporation located at 355 N. E. Fifth Avenue, Suite 4, Delray Beach, Florida 33483, or the offices of the transfer agent for the Series B Preferred Stock, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the Corporation (if required by it). Conversion shall be deemed to have been effected on the date when delivery of the notice of conversion is made, and such date is referred to herein as the "Conversion Date." Within three (3) business days after the date on which such delivery is made, the Corporation shall issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a certificate or certificates for the number of full shares 2 of Common Stock to which the holder is entitled as a result of such conversion, and cash with respect to any fractional interest of a share of Common Stock as provided in paragraph (c) of this Section 2. The holder shall be deemed to have become a stockholder of record of the number of shares of Common Stock into which the shares of Series B Preferred Stock have been converted on the applicable Conversion Date. Upon conversion of only a portion of the number of shares of Series B Preferred Stock represented by a certificate or certificates surrendered for conversion, the Corporation shall within three (3) business days after the date on which such delivery is made, issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a new certificate covering the number of shares of Series B Preferred Stock representing the unconverted portion of the certificate or certificates so surrendered. (c) No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Series B Preferred Stock. If more than one share of Series B Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series B Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the Corporation shall make an adjustment in respect of such fractional interest equal to the fair market value of such fractional interest, to the nearest 1/100th of a share of Common Stock, in cash at the Current Market Price (as defined below) on the business day preceding the effective date of the conversion. The "Current Market Price" of publicly traded shares of Common Stock or any other class of Common Stock or other security of the Corporation or any other issuer for any day shall be deemed to be the daily "Closing Price" for the trading day immediately preceding the Conversion Date. The "Current Market Price" of the Common Stock or other class of capital stock or securities of the Corporation or any other issuer which is not publicly traded shall mean the fair value thereof as determined by an independent investment banking firm or appraisal firm experienced in the valuation of such securities or properties selected in good faith by the Board of Directors of the Corporation or a committee thereof or, if no such investment banking or appraisal firm is, in the good faith judgment of the Board of Directors of the Corporation or such committee, available to make such determination, as determined in good faith judgment of the Board of Directors or such committee. The "Closing Price" shall mean the last reported sales price on the principal securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System, or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System, in the over-the-counter market as furnished by any New York Stock 3 Exchange member firm selected from time to time by the Corporation for that purpose. (d) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series B Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Series B Preferred Stock so converted were registered, and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) The Corporation shall at all times reserve for issuance and maintain available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series B Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder action), in accordance with the laws of the State of its incorporation, increase the authorized number of shares of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series B Preferred Stock at the time outstanding. (f) If any shares of Common Stock to be reserved for the purpose of conversion of shares of Series B Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise, including registration under the Securities Act of 1933, as amended, and appropriate state securities laws, before such shares may be validly issued or delivered upon conversion, the Corporation will at all times subsequent to the date of this Designation use its best efforts to meet such registration, listing or approval, as the case may be. (g) All shares of Common Stock which may be issued upon conversion of the shares of Series B Preferred Stock will upon issuance by the Corporation be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (h) The Conversion Price in effect shall be subject to adjustment from time to time as follows: (i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that the Corporation shall at any time subdivide the outstanding shares of Common Stock, or shall pay or make a dividend or distribution on any class of capital 4 stock of the Corporation in Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Corporation shall at any time combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL REORGANIZATIONS AND DISSOLUTIONS. In the event: (A) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend, or any other distribution, payable otherwise than in cash; or (B) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or other securities, or to receive any other rights; or (C) of any capital reorganization of the Corporation, reclassification of the capital stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), consolidation or merger of the Corporation with or into another corporation, share exchange for all outstanding shares of Common Stock under a plan of exchange to which the Corporation is a party, or conveyance of all or substantially all of the assets of the Corporation to another corporation; or (D) of the voluntary of involuntary dissolution, liquidation or winding up of the Corporation; then, and in such case, the Corporation shall cause to be mailed to the holders of record of the outstanding Series B Preferred stock, at least ten days prior to the date hereinafter specified, a notice stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up is to take place and the date, if any is to be fixed, as of which holders of Corporation securities of record shall be entitled to exchange their shares of Corporation securities for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up. In the event of a reorganization, consolidation, merger, or share exchange, the Corporation shall 5 require that the transactional documents provide for the rights listed in this paragraph 2(h)(ii). (iii) FAILURE TO OBTAIN EFFECTIVENESS OF A REGISTRATION STATEMENT. The Corporation will immediately file a registration statement on Form SB-2 or other appropriate form with the Securities and Exchange Commission to register, among other issuances, the issuance of the Common Stock to be issued upon the conversion of the Series B Preferred Stock. The Corporation will use its best efforts to obtain effectiveness of such registration statement, although there is no assurance that this registration statement will be deemed effective, nor is there any assurance as to the length of time such registration statement will remain effective if such event occurs. If the Corporation's registration statement is not rendered effective on or before June 30, 1996, the Conversion Price shall be decreased by 2% during each month (or portion thereof) that such registration statement fails to become effective (i.e., reduced from 84% to 82%, 82% to 80%, etc.); provided, however, that the Conversion Price shall never be less than 42% of the closing bid price per share of Common Stock. (i) The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all time in good faith assist in the carrying out of all the provisions of paragraph 2(h) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. (j) Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to paragraph 2(h), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof, and prepare and furnish to each holder of Series B Preferred Stock a certificate signed by the chief financial officer of the Corporation setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of his shares. (k) In case any shares of Series B Preferred Stock shall be converted pursuant to Section 2(a) hereof, the shares so converted shall be restored to the status of authorized but unissued shares of preferred stock, without designation as to class or series, and may thereafter be reissued, but not as shares of Series B Preferred Stock. 6 3. REDEMPTION OF SERIES B PREFERRED STOCK AT OPTION OF CORPORATION. (a) Subject to the provisions of this Section 3, the Series B Preferred Stock shall be redeemable in whole, or in part, at the option of the Corporation by resolution of the Board of Directors at any time after the Issue Date, at the stated value per share, plus all dividends accrued and unpaid on such Series B Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided. (b) In the event the Corporation exercises its redemption right at a time when the Corporation has not obtained, or has failed to maintain, the effectiveness of a registration statement filed under the Act registering the issuance of the shares of Common Stock upon conversion of the Series B Preferred Stock (or the resale of the Common Stock if such Common Stock has been issued upon conversion of the Series B Preferred Stock) ("Effectiveness of a Registration Statement"), the redemption price shall be the sum of (i) the stated value of the Series B Preferred Stock divided by the Conversion Price as adjusted pursuant to Section 2(h) and (ii) the dividends accrued and unpaid on such Series B Preferred Stock. The holders of Series B Preferred Stock acknowledge that there is no guarantee that the Corporation will be able to obtain effectiveness of such a registration statement as set forth in this Section 3(b), or if such registration statement is deemed effective, that the Corporation will be able to maintain the effectiveness of such registration statement for any period of time. (c) Not less than thirty nor more than sixty days prior to the date fixed for redemption of the Series B Preferred Stock, a notice in writing shall be given by mail or by facsimile to the holders of record of the Series B Preferred Stock at their respective addresses as the same shall appear on the stock books of the Corporation. Such notice shall state: (i) the redemption date; (ii) the redemption price, and the amount of dividends on the Series B Preferred Stock that will be accrued and unpaid to the date fixed for redemption; (iii) the place or places where certificates for shares are to be surrendered for payment of the redemption price; (iv) that the dividends on shares to be redeemed will cease to accrue on such redemption dates; (v) the conversion rights of the shares to be redeemed; (vi) the period within which the conversion rights may be exercised; and (vii) the Conversion Price, and the number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock at the time. (d) After giving notice and prior to the close of business on the business day prior to the redemption date, the holders of the Series B Preferred Stock so called for redemption may convert such stock into Common Stock in accordance with the conversion privileges set forth in Section 2 hereof. Unless (i) the holder of shares of Series B Preferred Stock to whom notice has been duly given shall have exercised its rights to convert in accordance with Section 2 hereof; or (ii) the Corporation shall 7 default in the payment of the redemption price as set forth in such notice, upon such redemption date such holder shall no longer have any voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation without interest thereon, upon surrender (and endorsement, if required by the Corporation) of the certificates, and the shares represented thereby shall no longer be deemed to be outstanding as of the redemption date. In the event a holder of Series B Preferred Stock provides the Corporation with notice of conversion of all or a portion of such Series B Preferred Stock into shares of Common Stock on or after any notice of redemption is provided, the holder shall have been deemed to convert as of the redemption date provided, however, that in the event the Corporation shall default in the payment of the redemption price as set forth in such redemption notice, the conversion shall not be effective unless the holder of the Series B Preferred Stock electing to convert provides written notice to the Corporation within 20 days of the purported redemption date of his desire to effect such conversion. (e) The Series B Preferred Stock may not be redeemed and the Corporation may not purchase or otherwise acquire any shares of Series B Preferred Stock unless full dividends of on all outstanding shares of Series B Preferred Stock shall have been paid in full for all past dividend periods. (f) All shares of Series B Preferred Stock so redeemed shall have the status of authorized but unissued preferred stock, but such shares so redeemed shall not be reissued as shares of Series B Preferred Stock. (g) No holder of shares of Series B Preferred Stock shall have the right to require the Corporation to redeem all or any portion of such shares. 4. VOTING. (a) Except as otherwise required by law, the shares of Series B Preferred Stock shall not be entitled to vote on any matters presented at any annual or special meeting of stockholders of the Corporation or to be taken by written consent of the stockholders of the Corporation. (b) Notwithstanding the foregoing, if the Corporation has not obtained or has failed to maintain the Effectiveness of a Registration Statement as described in Section 3(b) on or before December 31, 1996 and the closing bid price of the Common Stock of the Corporation is at or below $1.00 for any five consecutive trading days subsequent to December 31, 1996, then the holders of the Series B Preferred Stock, voting separately as a class, shall be entitled to elect a majority of the Board of Directors at any meeting of the stockholders of the Corporation at which directors are to be elected, or held, as the case may be. The right of the holders of the Series B Preferred Stock to elect such directors shall cease when 8 Effectiveness of a Registration Statement as described in Section 3(b) occurs. At any time after such voting power shall have so vested in the holders of the Series B Preferred Stock, upon the written request of a holder of record of Series B Preferred Stock, addressed to the Secretary of the Corporation at the principal office of the Corporation, and to the other holders of the Series B Preferred Stock, the Secretary shall, at the election of such requesting holder: (i) call a special meeting of the holders of the Series B Preferred Stock for the election of the directors to be elected by them as hereinafter provided, such meeting to be held within 45 days after delivery of such request at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 45 days before the date fixed for the next ensuing annual meeting of the stockholders; or (ii) obtain written consents from holders of the Series B Preferred Stock for the election of the directors to be elected by them in an amount sufficient to satisfy applicable state law requirements and comply with applicable federal securities law requirements with respect to this consent provision. (c) The holders of the Series B Preferred Stock voting as a class will have the right to remove without cause at any time and replace any director such holders have elected pursuant to this Section 4. 5. LIQUIDATION RIGHTS. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series B Preferred Stock then outstanding shall be entitled or receive out of assets of the Corporation available for distribution to stockholders, after payment in full of the liquidation distribution to which holders of the preferred stock with a liquidation preference are entitled, but before any distribution of assets is made to holders of Common Stock or of any other class of capital stock of the Corporation ranking junior to the Series B Preferred Stock as to liquidation, an amount equal to $2.00 per share, plus accumulated and unpaid dividends thereon to the date fixed for distribution. It is understood that the Series A Preferred Stock ranks junior to the Series B Preferred Stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series B Preferred Stock and any other shares of stock of the Corporation ranking as to any such distribution on a parity with the Series B Preferred Stock are not paid in full, the holders of the Series B Preferred Stock and of such other shares shall share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series B Preferred Stock shall not be entitled to any further participation in any distribution of assets by the Corporation. 9 (b) Neither the consolidation of nor merging of the Corporation with or into any other corporation or corporations, nor the sale or lease of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution or a winding up of the Corporation within the meaning of any of the provisions of this Section 4. (c) In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the Corporation shall, within 10 days after the date the Board of Directors approves such action, or within 20 days prior to any stockholders' meeting called to approve such action, or within 20 days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of shares of Series B Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash, and property to be received by the holders of shares of Series B Preferred Stock upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of shares of Series B Preferred Stock of such material change. The Corporation shall not consummate any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation before the expiration of 30 days after the mailing of the initial notice or 10 days after the mailing of any subsequent written notice, whichever is later; provided that any such 30-day or 10-day period may be shortened upon the written consent of the holders of all of the outstanding shares of Series B Preferred Stock. (d) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation which will involves the distribution of assets other than cash, the Corporation shall promptly engage competent independent appraisers to determine the value of the assets to be distributed to the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock. If a majority of the holders of the Series B Preferred Stock objects to the appraiser or to the valuation of shares, the Corporation shall engage such appraiser as shall be approved by the holders of a majority of shares of the Corporation's Series B Preferred Stock. The Corporation shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of Series B Preferred Stock of the appraiser's valuation. 6. CORPORATION LIMITATIONS. (a) So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the unanimous affirmative vote or the written consent of the holders of the outstanding shares of Series B Preferred Stock, voting separately as a class: 10 (i) Amend, alter or repeal any provision of the Certification of Incorporation or Bylaws of the Corporation so as to affect adversely the relative rights, preferences, qualifications, limitations or restrictions of the Series B Preferred Stock. (b) Unless otherwise contractually restricted, the provisions of this paragraph 6 shall not in any way limit the right and power of the Corporation to: (i) Increase the total number of authorized shares of Common Stock; or (ii) Issue bonds, notes, mortgages, debentures, preferred stock ranking junior to the terms of the Series B Preferred Stock and other obligations, and to incur indebtedness to banks and to other lenders. 7. HOLDERS OF SERIES B PREFERRED STOCK LIMITATIONS. (a) For a period of thirty-seven months from the Issue Date, no holders of Series B Preferred Stock shall be required or permitted, through conversion, exercise or receipt upon foreclosure, to obtain more than 5% at any one time of the outstanding voting equity of the Corporation as computed in accordance with Section 13 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. (b) Notwithstanding the foregoing, if the Corporation fails to obtain or has failed to maintain the Effectiveness of a Registration Statement as described in Section 3(b) prior to December 31, 1996 and the closing bid price per share of the Common Stock of the Corporation for any five consecutive trading days subsequent to December 31, 1996 is at or below $1.00, the limitations set forth in Section 7(a) above shall be rendered inapplicable ninety (90) days after written notice has been given by a holder of the Series B Preferred Stock to the Corporation with respect to such holder giving notice. 8. TRANSFERABILITY. The Series B Preferred Stock shall be transferable by the holders, provided such transfer is in compliance with applicable federal and state securities laws. 11 IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by NORMAN J. BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its secretary, this ____ day of ________________, 1996. WESTMARK GROUP HOLDINGS, INC. By NORMAN J. BIRMINGHAM Chief Executive Officer ATTEST: By DAWN DRELLA, Secretary STATE OF __________ | | COUNTY OF _________ | BE IT REMEMBERED that on this _______ day of ___________, 1996, personally came before me, a Notary Public in and for the County and State aforesaid, NORMAN J. BIRMINGHAM, Chief Executive Officer of Westmark group holdings, Inc., a Colorado corporation, and he duly executed said certificate before me and acknowledged the said certificate to be his act and deed and the act and deed of said Corporation and the facts stated therein are true; and that the seal affixed to said certificate and attested by the Secretary of said corporation is the corporate seal of said Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. NOTARY PUBLIC, IN AND FOR THE STATE OF _____________ 12 EX-4.4 6 SERIES C PREFERRED STOCK DESIGNATION EXHIBIT 4.4 CERTIFICATE OF THE DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C CONVERTIBLE PREFERRED STOCK OF WESTMARK GROUP HOLDINGS, INC. Westmark Group Holdings, Inc., hereinafter called the "Corporation," a corporation organized and existing under the laws of the State of Colorado, DOES HEREBY CERTIFY: That, pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Title 7, Article 106, Section 201 of the Colorado Revised Statutes Annotated, such Board of Directors by the unanimous written consent of its members dated effective March 29, 1996 adopted a resolution providing for the issuance of a series of 500,000 shares of Series C Convertible Preferred Stock, $3.50 stated value per share, which resolution is as follows: RESOLVED, that pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation, the Series C Convertible Preferred Stock, $3.50 stated value per share ("Series C Preferred Stock"), is hereby authorized and created, said series to consist of up to 500,000 shares. The voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof shall be as follows: 1. CASH DIVIDENDS ON SERIES C PREFERRED STOCK. (a) The holders of the Series C Preferred Stock shall be entitled to receive, out of the funds of the Corporation legally available therefor, cumulative cash dividends at the annual rate of 10% per share, payable quarterly, in arrears, commencing on the 30th day of June 1996. Dividends on each share of Series C Preferred Stock shall begin to accrue and shall cumulate from the date of original issue of such share ("Issue Date"), whether or not declared, and shall be payable to the holder of such share on the record date (as defined in Section 1(b) below). Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on a record date fixed for such payment by the Board of Directors of the Corporation or by a committee of such Board duly authorized to fix such date by resolution designating such committee. (b) Dividends on the Series C Preferred Stock shall be payable to holders of record as they appear on the books of the Corporation as of the close of business on any record date for the payment of dividends. The record dates for payment of dividends shall be the 15th day of December, March, June and September. (c) Dividends payable on the Conversion Date (as defined in Section 2(b) below) of the Series C Preferred Stock shall be calculated on the basis of the actual number of days elapsed (including the Conversion Date) over a 365-day year. 2. CONVERSION OF SERIES C PREFERRED STOCK INTO COMMON STOCK. (a) At any time on or after December 15, 1997, each holder of shares of Series C Preferred Stock may, at his option, convert any or all such shares, plus all dividends accrued and unpaid on such Series C Preferred Stock up to the Conversion Date, on the terms and conditions set forth in this Section 2, into fully paid and non-assessable shares of the Corporation's common stock, no par value ("Common Stock"). The number of shares of Common Stock into which each share of Series C Preferred Stock may be converted shall be determined by dividing $3.50 by the Conversion Price (as defined herein) in effect at the time of conversion. The "Conversion Price" per share at which shares of Common Stock shall be initially issuable upon conversion of any shares of Series C Preferred Stock shall be the lesser of (i) $1.50 or (ii) 84% of the closing bid price per share of Common Stock as quoted by the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System, or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System, in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for that purpose, on the trading day immediately preceding the Conversion Date. (b) To exercise his conversion privilege, the holder of any shares of Series C Preferred Stock shall surrender to the Corporation during regular business hours at the principal executive offices of the Corporation or the offices of the transfer agent for the Series C Preferred Stock or at such other place as may be designated by the Corporation, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the Corporation (if required by it), accompanied by written notice stating that the holder irrevocably elects to convert such shares. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the "Conversion Date." Within three (3) business days after the date on which such delivery is made, the Corporation shall issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which the holder is entitled as a result of such conversion, and cash with respect to any fractional interest of a share of Common Stock as provided in paragraph (c) of this Section 2. The holder shall be deemed to have become a stockholder of record of the number of shares of Common Stock into which the shares of Series C Preferred Stock have been converted on the 2 applicable Conversion Date unless the transfer books of the Corporation are closed on that date, in which event he shall be deemed to have become a stockholder of record of such shares on the next succeeding date on which the transfer books are open, but the Conversion Price shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares of Series C Preferred Stock represented by a certificate or certificates surrendered for conversion, the Corporation shall within three (3) business days after the date on which such delivery is made, issue and send (with receipt to be acknowledged) to the holder thereof or the holder's designee, at the address designated by such holder, a new certificate covering the number of shares of Series C Preferred Stock representing the unconverted portion of the certificate or certificates so surrendered. (c) No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Series C Preferred Stock. If more than one share of Series C Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series C Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series C Preferred Stock, the Corporation shall make an adjustment in respect of such fractional interest equal to the fair market value of such fractional interest, to the nearest 1/100th of a share of Common Stock, in cash at the Current Market Price (as defined below) on the business day preceding the effective date of the conversion. The "Current Market Price" of publicly traded shares of Common Stock or any other class of Common Stock or other security of the Corporation or any other issuer for any day shall be deemed to be the daily "Closing Price" for the trading day immediately preceding the Conversion Date. The "Current Market Price" of the Common Stock or other class of capital stock or securities of the Corporation or any other issuer which is not publicly traded shall mean the fair value thereof as determined by an independent investment banking firm or appraisal firm experienced in the valuation of such securities or properties selected in good faith by the Board of Directors of the Corporation or a committee thereof or, if no such investment banking or appraisal firm is, in the good faith judgment of the Board of directors of the Corporation or such committee, available to make such determination, as determined in good faith judgment of the Board of Directors or such committee. The "Closing Price" shall mean the last reported sales price on the principal securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automatic Quotations System, or, if the Common stock is not listed or admitted to trading on any national securities exchange or quoted on the National Association of Securities Dealers Automated Quotations System, in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Corporation for that purpose. 3 (d) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Series C Preferred Stock so converted were registered, and no such issue and delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) The Corporation shall at all times reserve for issuance and maintain available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series C Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series C Preferred Stock from time to time outstanding. The Corporation shall from time to time (subject to obtaining necessary director and stockholder action), in accordance with the laws of the State of its incorporation, increase the authorized number of shares of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series C Preferred Stock at the time outstanding. (f) If any shares of Common Stock to be reserved for the purpose of conversion of shares of Series C Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise, including registration under the Securities Act of 1933, as amended, and appropriate state securities laws, before such shares may be validly issued or delivered upon conversion, the Corporation will in good faith and as expeditiously as possible meet such registration, listing or approval, as the case may be. (g) All shares of Common Stock which may be issued upon conversion of the shares of Series C Preferred Stock will upon issuance by the Corporation be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (h) The Conversion Price in effect shall be subject to adjustment from time to time as follows: (i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that the Corporation shall at any time subdivide the outstanding shares of Common Stock, or shall pay or make a dividend or distribution on any class of capital stock of the Corporation in Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Corporation shall at any time 4 combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (ii) NON-CASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL REORGANIZATIONS AND DISSOLUTIONS. In the event: (A) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend, or any other distribution, payable otherwise than in cash; or (B) that the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or other securities, or to receive any other rights; or (C) of any capital reorganization of the Corporation, reclassification of the capital stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), consolidation or merger of the Corporation with or into another corporation, share exchange for all outstanding shares of Common Stock under a plan of exchange to which the Corporation is a party, or conveyance of all or substantially all of the assets of the Corporation to another corporation; or (D) of the voluntary of involuntary dissolution, liquidation or winding up of the Corporation; then, and in such case, the Corporation shall cause to be mailed to the holders of record of the outstanding Series C Preferred stock, at least ten days prior to the date hereinafter specified, a notice stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up is to take place and the date, if any is to be fixed, as of which holders of Corporation securities of record shall be entitled to exchange their shares of Corporation securities for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, share exchange, conveyance, dissolution, liquidation, or winding up. (i) The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid 5 or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all time in good faith assist in the carrying out of all the provisions of paragraph 2(h) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series C Preferred Stock against impairment. (j) Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to paragraph 2(h), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof, and prepare and furnish to each holder of Series C Preferred Stock a certificate signed by the chief financial officer of the Corporation setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of his shares. (k) In case any shares of Series C Preferred Stock shall be converted pursuant to Section 2(a) hereof, the shares so converted shall be restored to the status of authorized but unissued shares of preferred stock, without designation as to class or series, and may thereafter be reissued, but not as shares of Series C Preferred Stock. 3. REDEMPTION OF SERIES C PREFERRED STOCK. (a) Subject to the provisions of this Section 3, the Series C Preferred Stock shall be redeemable in whole, or in part, at the option of the Corporation by resolution of the Board of Directors at any time after the Issue Date, at the stated value per share, plus all dividends accrued and unpaid on such Series C Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided. (b) Not less than thirty nor more than sixty days prior to the date fixed for redemption of the Series C Preferred Stock, a notice in writing shall be given by mail to the holders of record of the Series C Preferred Stock at their respective addresses as the same shall appear on the stock books of the Corporation. Such notice shall state: (i) the redemption date; (ii) the redemption price, and the amount of dividends on the Series C Preferred Stock that will be accrued and unpaid to the date fixed for redemption; (iii) the place or places where certificates for shares are to be surrendered for payment of the redemption price; (iv) that the dividends on shares to be redeemed will cease to accrue on such redemption dates; (v) the conversion rights of the shares to be redeemed; (vi) the period within which the conversion rights may be exercised; and (vii) the Conversion Price, and the number of shares of Common Stock issuable upon conversion of a share of Series C Preferred Stock at the time. 6 (c) After giving notice and prior to the close of business on the business day prior to the redemption date, the holders of the Series C Preferred Stock so called for redemption may convert such stock into Common Stock in accordance with the conversion privileges set forth in Section 2 hereof. Unless (i) the holder of shares of Series C Preferred Stock to whom notice has been duly given shall have exercised its rights to convert in accordance with Section 2 hereof; or (ii) the Corporation shall default in the payment of the redemption price as set forth in such notice, upon such redemption date such holder shall no longer have any voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation without interest thereon, upon surrender (and endorsement, if required by the Corporation) of the certificates, and the shares represented thereby shall no longer be deemed to outstanding as of the redemption date. In the event a holder of Series C Preferred Stock provides the Corporation with notice of conversion of all or a portion of such Series C Preferred Stock into shares of Common Stock on or after any notice of redemption is provided, the holder shall have been deemed to convert as of the redemption date provided, however, that in the event the Corporation shall default in the payment of the redemption price as set forth in such redemption notice, the conversion shall not be effective unless the holder of the Series C Preferred Stock electing to convert provides written notice to the Corporation within 20 days of the purported redemption date of his desire to effect such conversion. (d) The Series C Preferred Stock may not be redeemed and the Corporation may not purchase or otherwise acquire any shares of Series C Preferred Stock unless full dividends of on all outstanding shares of Series C Preferred Stock shall have been paid in full for all past dividend periods. 7 (e) All shares of Series C Preferred Stock so redeemed shall have the status of authorized but unissued preferred stock, but such shares so redeemed shall not be reissued as shares of Series C Preferred Stock. (f) No holder of shares of Series C Preferred Stock shall have the right to require the Corporation to redeem all or any portion of such shares. 4. VOTING. (a) Except as otherwise required by law, the shares of Series C Preferred Stock shall not be entitled to vote on any matters presented at any annual or special meeting of stockholders of the Corporation or to be taken by written consent of the stockholders of the Corporation. 5. LIQUIDATION RIGHTS. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series C Preferred Stock then outstanding shall be entitled or receive out of assets of the Corporation available for distribution to stockholders, after payment in full of the liquidation distribution to which holders of the preferred stock with a liquidation preference are entitled, but before any distribution of assets is made to holders of Common Stock or of any other class of capital stock of the Corporation ranking junior to the Series C Preferred Stock as to liquidation, an amount equal to $3.50 per share, plus accumulated and unpaid dividends thereon to the date fixed for distribution. It is understood that the Series C Preferred Stock shall be junior in rank to the Series B Preferred Stock and shall rank senior to the Series A Preferred Stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series C Preferred Stock and any other shares of stock of the Corporation ranking as to any such distribution on a parity with the Series C Preferred Stock are not paid in full, the holders of the Series C Preferred Stock and of such other shares shall share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series C Preferred Stock shall not be entitled to any further participation in any distribution of assets by the Corporation. (b) Neither the consolidation of nor merging of the Corporation with or into any other corporation or corporations, nor the sale or lease of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution or a winding up of the Corporation within the meaning of any of the provisions of this Section 4. (c) In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the Corporation shall, within 10 days after the date the Board of Directors approves such action, or within 20 days prior to any stockholders' meeting called to approve such action, or within 20 days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of shares of Series C Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash, and property to be received by the holders of shares of Series C Preferred Stock upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of shares of Series C Preferred Stock of such material change. The Corporation shall not consummate any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation before the expiration of 30 days after the mailing of the initial notice or 10 days after the mailing of any subsequent 8 written notice, whichever is later; provided that any such 30-day or 10-day period may be shortened upon the written consent of the holders of all of the outstanding shares of Series C Preferred Stock. (d) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation which will involves the distribution of assets other than cash, the Corporation shall promptly engage competent independent appraisers to determine the value of the assets to be distributed to the holders of shares of Series C Preferred Stock and the holders of shares of Common Stock. The Corporation shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of Series C Preferred Stock of the appraiser's valuation. 6. LIMITATIONS. (a) So long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written consent of the holders of at least 66-2/3% of the outstanding shares of Series C Preferred Stock, voting separately as a class: (i) Amend, alter or repeal any provision of the Certification of Incorporation or Bylaws of the Corporation so as to affect adversely the relative rights, preferences, qualifications, limitations or restrictions of the Series C Preferred Stock. (b) The provisions of this paragraph 6 shall not in any way limit the right and power of the Corporation to: (i) Increase the total number of authorized shares of Common Stock; or (ii) Issue bonds, notes, mortgages, debentures, and preferred stock ranking senior to the terms of the Series C Preferred Stock and other obligations, and to incur indebtedness to banks and to other lenders. 9 IN WITNESS WHEREOF, Westmark Group Holdings, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by NORMAN J. BIRMINGHAM, its chief executive officer, and attested by DAWN DRELLA, its secretary, this 23 day of May, 1996. WESTMARK GROUP HOLDINGS, INC. By /s/ NORMAN J. BIRMINGHAM NORMAN J. BIRMINGHAM Chief Executive Officer ATTEST: By /s/ DAWN DRELLA DAWN DRELLA, Secretary 10 EX-5.1 7 OPINION REGARDING LEGALITY EXHIBIT 5.1 June 6, 1996 Mr. Norman J. Birmingham Westmark Group Holdings, Inc. 355 N.E. Fifth Avenue Delray, Florida 33483 Dear Mr. Birmingham: As counsel for Westmark Group Holdings, Inc., a Colorado corporation ("Company"), you have requested our firm to render this opinion in connection with the Registration Statement of the Company on Form SB-2 filed under the Securities Act of 1933, as amended ("Act"), with the Securities and Exchange Commission relating to the registration of the issuance of (i) up to 495,334 shares of common stock ("Common Stock"), (ii) 666,666 shares of Common Stock underlying currently exercisable warrants ("Warrants"), (iii) 331,905 shares of Common Stock underlying currently exercisable options granted under the Company's stock option plan ("Options"), and (iv) 708,690 shares of Common Stock issuable upon conversion of preferred stock ("Preferred Stock"). The Registration Statement also relates to the resale of 666,526 shares of Common Stock. We are familiar with the registration statement and the registration contemplated thereby. In giving this opinion, we have reviewed the registration statement and such other documents and certificates of public officials and of officers of the Company with respect to the accuracy of the factual matters contained therein as we have felt necessary or appropriate in order to render the opinions expressed herein. In making our examination, we have assumed the genuineness of all signatures, the authenticity of all documents presented to us as originals, the conformity to original documents of all documents presented to us as copies thereof, and the authenticity of the original documents from which any such copies were made, which assumptions we have not independently verified. Based upon all the foregoing, we are of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. 2. The shares of Common Stock to be issued will be validly issued, fully paid and non-assessable. Mr. Norman J. Birmingham May 17, 1996 Page 2 3. The shares of Common Stock underlying the Warrants to be issued upon exercise of such Warrants are validly authorized and, upon exercise of the Warrants in accordance with their terms, will be validly issued, fully paid and nonassessable. 4. The shares of Common Stock underlying the Options to be issued upon exercise of such Options are validly authorized and, upon exercise of the Options in accordance with their terms, will be validly issued, fully paid and nonassessable. 5. The shares of Common Stock underlying the Preferred Stock to be issued upon conversion of such Preferred Stock are validly authorized and, upon conversion of the Preferred Stock in accordance with their terms, will be validly issued, fully paid and nonassessable. We consent to the use in the registration statement of the reference to Brewer & Pritchard, P.C. under the heading "Legal Matters." This opinion is conditioned upon the registration statement being declared effective and upon compliance by the Company with all applicable provisions of the Act and such state securities rules, regulations and laws as may be applicable. Very truly yours, BREWER & PRITCHARD, P.C. EX-10.9 8 NORMAN J. BIRMINGHAM EMPLOYMENT AGREEMENT EXHIBIT 10.9 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), entered into as of the 31st day of March, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a Colorado corporation, and WESTMARK MORTGAGE CORPORATION, a California corporation (collectively referred to as "Employer"), and NORMAN J. BIRMINGHAM ("Employee"). W I T N E S S E T H: WHEREAS, Employer desires to employ Employee as provided herein; and WHEREAS, Employee desires to accept such employment. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts employment with Employer upon the terms and conditions hereinafter set forth. 2. DUTIES. Subject to the power of the Board of Directors of Employer to elect and remove officers, Employee will serve Westmark Group Holdings, Inc. as its President and Chief Executive Officer and will faithfully and diligently perform the services and functions relating to such offices or otherwise reasonably incident to such offices, provided that all such services and functions will be reasonable and within Employee's area of expertise. Employee will, during the term of this Agreement (or any extension thereof), devote one-half of his full business time, attention and skills and best efforts to the promotion of the business of Employer. The foregoing will not be construed as preventing Employee from making investments in other businesses or enterprises provided that (a) Employee agrees not to become engaged in any other business activity that interferes with his ability to discharge his duties and responsibilities to Employer and (b) Employee does not violate any other provision of this Agreement. The parties acknowledge that Employee shall spend the other half of his business time and efforts as an officer of Heart Labs of America, Inc. 3. TERM. The term of this Agreement will commence as of the date hereof and will end on that date in the year, 1999, unless earlier terminated by either party pursuant to the terms hereof. The term of this Agreement is referred to herein as the "Term." Assuming all conditions of this Agreement have been satisfied and there has been no breach of the Agreement during its initial term, Employee may extend the term for additional one (1) year terms at his election ("Extended Term"), written notice of which must be given at least sixty (60) days prior to the end of such preceding term. 4. COMPENSATION. As compensation for the services rendered under this Agreement, Employee will be entitled to receive the following: (a) SALARY. Commencing upon the date of this Agreement, Employee will be paid a minimum annual salary of $87,500.00, payable in accordance with the then current payroll policies of Employer or as otherwise agreed to by the parties (the "Salary"). At any time and from time to time the Salary may be increased for the remaining portion of the term if so determined by the Board of Directors of Employer after a review of Employee's performance of his duties hereunder. (b) OPTIONS. Commencing on the date of this Agreement, Employee shall be issued a five year option to purchase 45,000 shares of common stock of the Company, all of which shares shall vest immediately and will be exercisable throughout the term at a price of $2.25 per share. Employee shall be issued an option to purchase an additional 45,000 shares at a price of $2.25 per share which shall vest in the following manner: if the Company reaches or exceeds $480,000.00 of net income, after tax, for fiscal year 1996, all of the options vest, and become exercisable on April 15, 1997. If the Company fails to meet the earnings threshold, the options will vest on a pro rata basis (for example, if the Company earns $240,000.00 only 22,500 options shall vest). Any unvested options will carry over to the succeeding year. The options shall expire on the earlier of April 1, 2004 or five years from the date they become fully vested. (c) EXPENSES. Upon submission of a detailed statement and reasonable documentation, Employer will reimburse Employee in the same manner as other executive officers for all reasonable and necessary or appropriate out-of-pocket travel and other expenses incurred by Employee in rendering services required under this Agreement. (d) BENEFITS; INSURANCE. (i) MEDICAL, DENTAL AND VISION BENEFITS. During this Agreement, Employee and his dependents will be entitled to receive such group medical, dental and vision benefits as Employer may provide to its other employees, provided such coverage is reasonably available, or be reimbursed if Employee is carrying his own similar insurance. (ii) BENEFIT PLANS. The Employee will be entitled to participate in any benefit plan or program of the Employer which may currently be in place or implemented in the future. (iii) OTHER BENEFITS. During the Term, Employee will be entitled to receive, in addition to and not in lieu of base salary, bonus or other compensation, such other benefits and normal perquisites as Employer currently provides or such additional benefits as Employer may provide for its executive officers in the future. -2- (e) VACATION. Employee will be entitled to ________ weeks of paid vacation per year. 5. CONFIDENTIALITY. In the course of the performance of Employee's duties hereunder, Employee recognizes and acknowledges that Employee may have access to certain confidential and proprietary information of Employer or any of its affiliates. Without the prior written consent of Employer, Employee shall not disclose any such confidential or proprietary information to any person or firm, corporation, association, or other entity for any reason or purpose whatsoever, and shall not use such information, directly or indirectly, for Employee's own behalf or on behalf of any other party. Employee agrees and affirms that all such information is the sole property of Employer and that at the termination and/or expiration of this Agreement, at Employer's written request, Employee shall promptly return to Employer any and all such information so requested by Employer. The provisions of this Section 5 shall not, however, prohibit Employee from disclosing to others or using in any manner information that: (a) has been published or has become part of the public domain other than by acts, omissions or fault of Employee; (b) has been furnished or made known to Employee by third parties (other than those acting directly or indirectly for or on behalf of Employee) as a matter of legal right without restriction on its use or disclosure; (c) was in the possession of Employee prior to obtaining such information from Employer in connection with the performance of this Agreement; or (d) is required to be disclosed by law. 6. INDEMNIFICATION. The Corporation shall to the full extent permitted by law indemnify, defend and hold harmless Employee from and against any and all claims, demands, liabilities, damages, loses and expenses (including reasonable attorney's fees, court costs and disbursements) arising out of the performance by him of his duties hereunder except in the case of his willful misconduct. 7. TERMINATION. This Agreement and the employment relationship created hereby will terminate upon the occurrence of any of the following events: A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate the Employee's employment pursuant to the terms of this Agreement without cause by written notice to the Employee. Such termination will become effective upon the date specified in such notice, provided that such date is at least 60 days from the date of such notice. In the -3- event of such termination, the Company shall pay the Employee an amount equal to twelve months salary and all stock options shall vest immediately. B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the Employee's employment pursuant to the terms of this Agreement at any time for cause by giving written notice of termination, and termination will become effective upon the giving of such notice. However, Employee will not be deemed to have been terminated "for cause" unless at least two-thirds of the members of the Board of Directors of Westmark Group Holdings, Inc. so determine. Upon any such termination for cause for any period subsequent to the effective date of termination, the Employee shall have no right to compensation or stock options under Section 4 or participate in any employee benefit programs which may then be in effect. For purposes of Section 7(B), "Just Cause" means (i) Employee has willfully, intentionally and continuously failed to substantially perform his duties as specified under this Agreement, after a demand for substantial performance is delivered to the Employee by the Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed has duties; (ii) Employee has willfully engaged in gross misconduct materially and demonstrably injurious to the Employer; (iii) the Employee commits acts of dishonesty or disloyalty to Employer or misappropriates Company funds or otherwise defrauds the Company: (iv) the Employee materially breaches any provision of Section 5 of this Agreement; (v) material failure by Employee to comply with applicable laws or government regulations; or (vi) Employee's criminal conviction by any state or federal court of a felony. In the case of termination for items (i), (ii) or (iii) of the preceding paragraph, Employee shall be given at least one (1) written notice describing in reasonable detail the perceived deficiencies in Employee's performance, and Employee shall be given at least thirty (30) days' opportunity to correct such perceived deficiencies prior to any termination. C. DEATH OR DISABILITY. This Agreement and the obligations hereunder will terminate upon the death or disability of the Employee. For purposes of this Section 7C, "Disability" shall mean for a period of three months in any twelve month period the Employee is incapable of substantially fulfilling the duties set forth in Section 2 of this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease. Upon any such termination upon death or disability, the Company will pay the Employee or his legal representative, as the case may be, his annual salary at such time pursuant to Section 4 through the date of such termination of employment. D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's employment as provided in this Section 7, the provisions of Section 5 shall remain in full force and effect. -4- E. CONSIDERATION. The payments (if any) required to be paid by the Company to Employee pursuant to Section 7 shall be in full and complete satisfaction of any and all obligations owing to Employee under this Agreement. 8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach by any party. 9. COSTS. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which he or it may be entitled. 10. NOTICES. Any notices, consents, demands, requests, approvals and other communications to be given under this Agreement by either party to the other will be deemed to have been duly given if given in writing and personally delivered or within two days if sent by mail, registered or certified, postage prepaid with return receipt requested, as follows: If to Employer: Westmark Group Holdings, Inc. 355 N. E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Attention: Board of Directors If to Employee: Norman J. Birmingham 355 N.E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Notices delivered personally will be deemed communicated as of actual receipt. 11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understanding, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 12. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during this Agreement, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, -5- in lieu of such illegal, invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 13. GOVERNING LAW. This Agreement and the rights and obligations of the parties will be governed by and construed and enforced in accordance with the substantive laws (but not the rules governing conflicts of laws) of the state of Florida. 14. CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. 15. GENDER AND NUMBER. When the context requires, the gender of all words used herein will include the masculine, feminine and neuter and the number of all words will include the singular and plural. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which will constitute one and the same instrument, but only one of which need be produced. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. EMPLOYER: WESTMARK GROUP HOLDINGS, INC. By__________________________________________ Name: Title: EMPLOYEE: NORMAN J. BIRMINGHAM -6- EX-10.10 9 MARK SCHAFTLEIN EMPLOYMENT AGREEMENT EXHIBIT 10.10 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), entered into as of the 31st day of March, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a Colorado corporation, and WESTMARK MORTGAGE CORPORATION, a California corporation (collectively referred to as "Employer"), and MARK SCHAFTLEIN ("Employee"). W I T N E S S E T H: WHEREAS, Employer desires to employ Employee as provided herein; and WHEREAS, Employee desires to accept such employment. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts employment with Employer upon the terms and conditions hereinafter set forth. 2. DUTIES. Subject to the power of the Board of Directors of Employer to elect and remove officers, Employee will serve Westmark Mortgage Corporation as its President and Chief Executive Officer and will faithfully and diligently perform the services and functions relating to such offices or otherwise reasonably incident to such offices, provided that all such services and functions will be reasonable and within Employee's area of expertise. Employee will, during the term of this Agreement (or any extension thereof), devote one-half of his full business time, attention and skills and best efforts to the promotion of the business of Employer. The foregoing will not be construed as preventing Employee from making investments in other businesses or enterprises provided that (a) Employee agrees not to become engaged in any other business activity that interferes with his ability to discharge his duties and responsibilities to Employer and (b) Employee does not violate any other provision of this Agreement. The parties acknowledge that Employee shall spend the other half of his business time and efforts as an officer of Heart Labs of America, Inc. 3. TERM. The term of this Agreement will commence as of the date hereof and will end on that date in the year, 1999, unless earlier terminated by either party pursuant to the terms hereof. The term of this Agreement is referred to herein as the "Term." Assuming all conditions of this Agreement have been satisfied and there has been no breach of the Agreement during its initial term, Employee may extend the term for additional one (1) year terms at his election ("Extended Term"), written notice of which must be given at least sixty (60) days prior to the end of such preceding term. 4. COMPENSATION. As compensation for the services rendered under this Agreement, Employee will be entitled to receive the following: (a) SALARY. Commencing upon the date of this Agreement, Employee will be paid a minimum annual salary of $140,000.00, payable in accordance with the then current payroll policies of Employer or as otherwise agreed to by the parties (the "Salary"). At any time and from time to time the Salary may be increased for the remaining portion of the term if so determined by the Board of Directors of Employer after a review of Employee's performance of his duties hereunder. Employee is not entitled to receive sales commisssions. (b) OPTIONS. Commencing on the date of this Agreement, Employee shall be issued a five year option to purchase 45,000 shares of common stock of the Company, all of which shares shall vest immediately and will be exercisable throughout the term at a price of $2.25 per share. Employee shall be issued an option to purchase an additional 45,000 shares at a price of $2.25 per share which shall vest in the following manner: if the Company reaches or exceeds $480,000.00 of net income, after tax, for fiscal year 1996, all of the options vest, and become exercisable on April 15, 1997. If the Company fails to meet the earnings threshold, the options will vest on a pro rata basis (for example, if the Company earns $240,000.00 only 22,500 options shall vest). Any unvested options will carry over to the succeeding year. The options shall expire on the earlier of April 1, 2004 or five years from the date they become fully vested. (c) EXPENSES. Upon submission of a detailed statement and reasonable documentation, Employer will reimburse Employee in the same manner as other executive officers for all reasonable and necessary or appropriate out-of-pocket travel and other expenses incurred by Employee in rendering services required under this Agreement. (d) BENEFITS; INSURANCE. (i) MEDICAL, DENTAL AND VISION BENEFITS. During this Agreement, Employee and his dependents will be entitled to receive such group medical, dental and vision benefits as Employer may provide to its other employees, provided such coverage is reasonably available, or be reimbursed if Employee is carrying his own similar insurance. (ii) BENEFIT PLANS. The Employee will be entitled to participate in any benefit plan or program of the Employer which may currently be in place or implemented in the future. (iii) OTHER BENEFITS. During the Term, Employee will be entitled to receive, in addition to and not in lieu of base salary, bonus or other compensation, such other benefits and normal perquisites as Employer currently provides or such additional benefits as Employer may provide for its executive officers in the future. -2- (e) VACATION. Employee will be entitled to ________ weeks of paid vacation per year. 5. CONFIDENTIALITY. In the course of the performance of Employee's duties hereunder, Employee recognizes and acknowledges that Employee may have access to certain confidential and proprietary information of Employer or any of its affiliates. Without the prior written consent of Employer, Employee shall not disclose any such confidential or proprietary information to any person or firm, corporation, association, or other entity for any reason or purpose whatsoever, and shall not use such information, directly or indirectly, for Employee's own behalf or on behalf of any other party. Employee agrees and affirms that all such information is the sole property of Employer and that at the termination and/or expiration of this Agreement, at Employer's written request, Employee shall promptly return to Employer any and all such information so requested by Employer. The provisions of this Section 5 shall not, however, prohibit Employee from disclosing to others or using in any manner information that: (a) has been published or has become part of the public domain other than by acts, omissions or fault of Employee; (b) has been furnished or made known to Employee by third parties (other than those acting directly or indirectly for or on behalf of Employee) as a matter of legal right without restriction on its use or disclosure; (c) was in the possession of Employee prior to obtaining such information from Employer in connection with the performance of this Agreement; or (d) is required to be disclosed by law. 6. INDEMNIFICATION. The Corporation shall to the full extent permitted by law indemnify, defend and hold harmless Employee from and against any and all claims, demands, liabilities, damages, loses and expenses (including reasonable attorney's fees, court costs and disbursements) arising out of the performance by him of his duties hereunder except in the case of his willful misconduct. 7. TERMINATION. This Agreement and the employment relationship created hereby will terminate upon the occurrence of any of the following events: A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate the Employee's employment pursuant to the terms of this Agreement without cause by written notice to the Employee. Such termination will become effective upon the date specified in such notice, provided that such date is at least 60 days from the date of such notice. In the -3- event of such termination, the Company shall pay the Employee an amount equal to twelve months salary and all stock options shall vest immediately. B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the Employee's employment pursuant to the terms of this Agreement at any time for cause by giving written notice of termination, and termination will become effective upon the giving of such notice. However, Employee will not be deemed to have been terminated "for cause" unless at least two-thirds of the members of the Board of Directors of Westmark Group Holdings, Inc. so determine. Upon any such termination for cause for any period subsequent to the effective date of termination, the Employee shall have no right to compensation or stock options under Section 4 or participate in any employee benefit programs which may then be in effect. For purposes of Section 7(B), "Just Cause" means (i) Employee has willfully, intentionally and continuously failed to substantially perform his duties as specified under this Agreement, after a demand for substantial performance is delivered to the Employee by the Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed has duties; (ii) Employee has willfully engaged in gross misconduct materially and demonstrably injurious to the Employer; (iii) the Employee commits acts of dishonesty or disloyalty to Employer or misappropriates Company funds or otherwise defrauds the Company: (iv) the Employee materially breaches any provision of Section 5 of this Agreement; (v) material failure by Employee to comply with applicable laws or government regulations; or (vi) Employee's criminal conviction by any state or federal court of a felony. In the case of termination for items (i), (ii) or (iii) of the preceding paragraph, Employee shall be given at least one (1) written notice describing in reasonable detail the perceived deficiencies in Employee's performance, and Employee shall be given at least thirty (30) days' opportunity to correct such perceived deficiencies prior to any termination. C. DEATH OR DISABILITY. This Agreement and the obligations hereunder will terminate upon the death or disability of the Employee. For purposes of this Section 7C, "Disability" shall mean for a period of three months in any twelve month period the Employee is incapable of substantially fulfilling the duties set forth in Section 2 of this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease. Upon any such termination upon death or disability, the Company will pay the Employee or his legal representative, as the case may be, his annual salary at such time pursuant to Section 4 through the date of such termination of employment. D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's employment as provided in this Section 7, the provisions of Section 5 shall remain in full force and effect. -4- E. CONSIDERATION. The payments (if any) required to be paid by the Company to Employee pursuant to Section 7 shall be in full and complete satisfaction of any and all obligations owing to Employee under this Agreement. 8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach by any party. 9. COSTS. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which he or it may be entitled. 10. NOTICES. Any notices, consents, demands, requests, approvals and other communications to be given under this Agreement by either party to the other will be deemed to have been duly given if given in writing and personally delivered or within two days if sent by mail, registered or certified, postage prepaid with return receipt requested, as follows: If to Employer: Westmark Group Holdings, Inc. 355 N. E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Attention: Board of Directors If to Employee: Mark Schaftlein 355 N.E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Notices delivered personally will be deemed communicated as of actual receipt. 11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understanding, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 12. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during this Agreement, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, -5- in lieu of such illegal, invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 13. GOVERNING LAW. This Agreement and the rights and obligations of the parties will be governed by and construed and enforced in accordance with the substantive laws (but not the rules governing conflicts of laws) of the state of Florida. 14. CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. 15. GENDER AND NUMBER. When the context requires, the gender of all words used herein will include the masculine, feminine and neuter and the number of all words will include the singular and plural. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which will constitute one and the same instrument, but only one of which need be produced. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. EMPLOYER: WESTMARK GROUP HOLDINGS, INC. By__________________________________________ Name: Title: EMPLOYEE: MARK SCHAFTLEIN -6- EX-10.11 10 DAWN DRELLA EMPLOYMENT AGREEMENT EXHIBIT 10.11 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), entered into as of the ______ day of ________, 1996, by and between WESTMARK GROUP HOLDINGS, INC., a Colorado corporation ("Employer"), and DAWN DRELLA ("Employee"). W I T N E S S E T H: WHEREAS, Employer desires to employ Employee as provided herein; and WHEREAS, Employee desires to accept such employment. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts employment with Employer upon the terms and conditions hereinafter set forth. 2. DUTIES. Subject to the power of the Board of Directors of Employer to elect and remove officers, Employee will serve Employer as its Chief Financial Officer and will faithfully and diligently perform the services and functions relating to such office(s) or otherwise reasonably incident to such office, provided that all such services and functions will be reasonable and within Employee's area of expertise. Employee will, during the term of this Agreement (or any extension thereof), devote one-fourth of her full time, attention and skills and best efforts to the promotion of the business of Employer; such parties acknowledging that Employee is an officer of Heart Labs, where she devotes the balance of her efforts. The foregoing will not be construed as preventing Employee from making investments in other businesses or enterprises provided that (a) Employee agrees not to become engaged in any other business activity that interferes with her ability to discharge her duties and responsibilities to Employer, and (b) Employee does not violate any other provision of this Agreement. 3. TERM. The term of this Agreement will commence as of the date hereof and will end on that date in the year 1997, unless earlier terminated by either party pursuant to the terms hereof. The term of this Agreement is referred to herein as the "Term." 4. COMPENSATION. As compensation for the services rendered under this Agreement, Employee will be entitled to receive the following: (a) SALARY. Commencing upon the date of this Agreement, Employee will be paid a minimum annual salary of Twenty Thousand and no/100 Dollars ($20,000.00), payable in accordance with the then current payroll policies of Employer or as otherwise agreed to by the parties (the "Salary"). At any time and from time to time the Salary may be increased for the remaining portion of the term if so determined by the Board of Directors of Employer after a review of Employee's performance of her duties hereunder. (b) STOCK. Commencing on the date of this Agreement, Employee shall be issued 10,000 shares of common stock of the Company. (c) EXPENSES. Upon submission of a detailed statement and reasonable documentation, Employer will reimburse Employee in the same manner as other executive officers for all reasonable and necessary or appropriate out-of-pocket travel and other expenses incurred by Employee in rendering services required under this Agreement. (d) BENEFITS; INSURANCE. (i) MEDICAL, DENTAL AND VISION BENEFITS. During this Agreement, Employee and her dependents will be entitled to receive such group medical, dental and vision benefits as Employer may provide to its other employees, provided such coverage is reasonably available, or be reimbursed if Employee is carrying her own similar insurance. (ii) BENEFIT PLANS. The Employee will be entitled to participate in any benefit plan or program of the Employer which may currently be in place or implemented in the future. (iii) OTHER BENEFITS. During the Term, Employee will be entitled to receive, in addition to and not in lieu of base salary, bonus or other compensation, such other benefits and normal perquisites as Employer currently provides or such additional benefits as Employer may provide for its executive officers in the future. (e) VACATION. Employee will be entitled to ____ weeks of vacation per year. 5. CONFIDENTIALITY. In the course of the performance of Employee's duties hereunder, Employee recognizes and acknowledges that Employee may have access to certain confidential and proprietary information of Employer or any of its affiliates. Without the prior written consent of Employer, Employee shall not disclose any such confidential or proprietary information to any person or firm, corporation, association, or other entity for any reason or purpose whatsoever, and shall not use such information, directly or indirectly, for Employee's own behalf or on behalf of any other party. Employee agrees and affirms that all such information is the sole property of Employer and that at the termination and/or expiration of this Agreement, at Employer's written request, Employee shall promptly return to Employer any and all such information so requested by Employer. -2- The provisions of this Section 5 shall not, however, prohibit Employee from disclosing to others or using in any manner information that: (a) has been published or has become part of the public domain other than by acts, omissions or fault of Employee; (b) has been furnished or made known to Employee by third parties (other than those acting directly or indirectly for or on behalf of Employee) as a matter of legal right without restriction on its use or disclosure; (c) was in the possession of Employee prior to obtaining such information from Employer in connection with the performance of this Agreement; or (d) is required to be disclosed by law. 6. INDEMNIFICATION. The Corporation shall to the full extent permitted by law indemnify, defend and hold harmless Employee from and against any and all claims, demands, liabilities, damages, loses and expenses (including reasonable attorney's fees, court costs and disbursements) arising out of the performance by her of her duties hereunder except in the case of her willful misconduct. 7. TERMINATION. This Agreement and the employment relationship created hereby will terminate upon the occurrence of any of the following events: A. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the Employee's employment pursuant to the terms of this Agreement at any time for cause by giving written notice of termination, and termination will become effective upon the giving of such notice. For purposes of Section 7(A), "Just Cause" means (i) Employee has willfully, intentionally and continuously failed to substantially perform her duties as specified under this Agreement, after a demand for substantial performance is delivered to the Employee by the Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed has duties; (ii) Employee has willfully engaged in gross misconduct materially and demonstrably injurious to the Employer; (iii) the Employee commits acts of dishonesty or disloyalty to Employer or misappropriates Company funds or otherwise defrauds the Company: (iv) the Employee materially breaches any provision of Section 5 of this Agreement; (v) material failure by Employee to comply with applicable laws or government regulations; or (vi) Employee's criminal conviction by any state or federal court of a felony. B. DEATH OR DISABILITY. This Agreement and the obligations hereunder will terminate upon the death or disability of the Employee. For purposes of this Section 6C, "Disability" shall mean for a period of three months in any twelve month period the Employee is -3- incapable of substantially fulfilling the duties set forth in Section 2 of this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease. Upon any such termination upon death or disability, the Company will pay the Employee or her legal representative, as the case may be, her annual salary at such time pursuant to Section 4 through the date of such termination of employment. C. CONTINUING EFFECT. Notwithstanding any termination of the Employee's employment as provided in this Section 7, the provisions of Section 5 shall remain in full force and effect. D. CONSIDERATION. The payments (if any) required to be paid by the Company to Employee pursuant to Section 7 shall be in full and complete satisfaction of any and all obligations owing to Employee under this Agreement. 8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach by any party. 9. COSTS. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which he or it may be entitled. 10. NOTICES. Any notices, consents, demands, requests, approvals and other communications to be given under this Agreement by either party to the other will be deemed to have been duly given if given in writing and personally delivered or within two days if sent by mail, registered or certified, postage prepaid with return receipt requested, as follows: If to Employer: Westmark Group Holdings, Inc. 355 N. E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Attention: Norman Birmingham If to Employee: Dawn Drella 355 N. E. Fifth Avenue, Suite 4 Delray Beach, Florida 33483 Notices delivered personally will be deemed communicated as of actual receipt. 11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and -4- supersede all prior agreements and understanding, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 12. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during this Agreement, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 13. GOVERNING LAW. This Agreement and the rights and obligations of the parties will be governed by and construed and enforced in accordance with the substantive laws (but not the rules governing conflicts of laws) of the state of Florida. 14. CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. 15. GENDER AND NUMBER. When the context requires, the gender of all words used herein will include the masculine, feminine and neuter and the number of all words will include the singular and plural. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which will constitute one and the same instrument, but only one of which need be produced. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. EMPLOYER: WESTMARK GROUP HOLDINGS, INC. By Name: Title: EMPLOYEE: DAWN DRELLA -5- EX-10.12 11 NORMAN J. BIRMINGHAM WARRANT EXHIBIT 10.12 WESTMARK GROUP HOLDINGS, INC. WARRANT AGREEMENT April 1, 1996 To the Person Named on the Signature Page Hereof Gentlemen: Westmark Group Holdings, Inc., a Colorado corporation (the "Company"), for value received, hereby agrees to issue stock purchase warrants entitling the person whose name appears on the signature page of this Agreement to purchase an aggregate of 45,000 shares of the Company's common stock (the "Common Stock"). Such warrants are evidenced by warrant certificates in the form attached hereto as EXHIBIT A (each such instrument being hereinafter referred to as a "Warrant," and each Warrant and all instruments hereafter issued in replacement, substitution, combination or subdivision thereof being hereinafter collectively referred to as the "Warrants"). The Warrants will be issued in consideration of service to the Company by the person whose name appears on the signature page of this Agreement. The number of shares of Common Stock purchasable upon exercise of the Warrants is subject to adjustment as provided in Section 5 below. The Warrants will be exercisable by each you or any other Warrant holder (as defined below) as to all or any lesser number of shares of Common Stock covered thereby, at an initial Purchase Price of $2.25 per share, subject to adjustment as provided in Section 5 below, for the exercise period defined in Section 3(a) below. The term "Warrant holder" refers to each person whose name appears on the signature page of this agreement and any transferee or transferees of any of them permitted by Section 2(a) below. Such term, when used in this Warrant Agreement in reference to or in the context of a person who holds or owns shares of Common Stock issued upon exercise of a Warrant, refers where appropriate to such person who holds or owns such shares of Common Stock. 1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to you as follows: (a) CORPORATE AND OTHER ACTION. The Company has all requisite power and authority (corporate and other), and has taken all necessary corporate action, to authorize, execute, deliver and perform this Warrant Agreement, to execute, issue, sell and deliver the Warrants and a certificate or certificates evidencing the Warrants, to authorize and reserve for issue and, upon payment from time to time of the Purchase Price, to issue, sell and deliver, the shares of the Common Stock issuable upon exercise of the Warrants (the "Shares"), and to perform all of its obligations under this Warrant Agreement and the Warrants. The Shares, when issued in accordance with this Agreement, will be duly authorized and validly issued and outstanding, fully paid and nonassessable and free of all liens, claims, encumbrances and preemptive rights. This Warrant Agreement and, when issued, each Warrant issued pursuant hereto, has been or will be duly executed and delivered by the Company and is or will be a legal, valid and binding agreement of the Company, enforceable in accordance with its terms. No authorization, approval, consent or other order of any governmental entity, regulatory authority or other third party is required for such authorization, execution, delivery, performance, issue or sale. (b) NO VIOLATION. The execution and delivery of this Warrant Agreement, the consummation of the transactions herein contemplated and the compliance with the terms and provisions of this Warrant Agreement and of the Warrants will not conflict with, or result in a breach of, or constitute a default or an event permitting acceleration under, any statute, the Articles of Incorporation or Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank loan, credit agreement, franchise, license, lease, permit, or any other agreement, understanding, instrument, judgment, decree, order, statute, rule or regulation to which the Company is a party or by which it is or may be bound. 2. TRANSFER. (a) TRANSFERABILITY OF WARRANTS. You agree that the Warrants are being acquired as an investment and not with a view to distribution thereof and that the Warrants may not be transferred, sold, assigned or hypothecated except as provided herein and in compliance with all applicable securities and other laws. (b) REGISTRATION OF SHARES. You agree not to make any sale or other disposition of the Shares except pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended (the "Act"), setting forth the terms of such offering, the underwriting discount and commissions and any other pertinent data with respect thereto, unless you have provided the Company with an opinion of counsel reasonably acceptable to the Company that such registration is not required. Certificates representing the Shares, which are not registered as provided in Section 2, shall bear an appropriate legend and be subject to a "stop-transfer" order. 3. EXERCISE OF WARRANTS, PARTIAL EXERCISE. (a) EXERCISE PERIOD. Subject to the terms of this Section 3(a), each Warrant is exercisable at any time after April 17, 1997 provided that the Company reaches or exceeds $480,000.00 of net income, after tax for fiscal year 1996, 1997 or 1998. If the Company fails to meet the earnings threshold, the warrants will vest on a pro rata basis (for example, if the Company earns $240,000.00 only 22,500 of the warrants shall vest). Any unvested warrants shall carry over to the succeeding year, however the unvested options shall be subject to the succeeding year's earning threshold which shall remain $480,000.00 for the exercise period. The warrants shall expire on the earlier of April 1, 2004 or five years from the date they become fully vested. WARRANT AGREEMENT PAGE 2 (b) EXERCISE IN FULL. Subject to Section 3(a), Warrants may be exercised in full by the Warrant holder by surrender of the Warrants, with the form of subscription at the end thereof duly executed by such Warrant holder, to the Company at its principal office at 355 N.E. Fifth Avenue, Delray Beach, Florida 33483, Attention: Chief Executive Officer, accompanied by payment, in cash or by certified or bank cashier's check payable to the order of the Company, in the amount obtained by multiplying the number of shares of the Common Stock represented by the respective Warrant or Warrants by the Purchase Price per share (after giving effect to any adjustments as provided in Section 5 below). (c) PARTIAL EXERCISE. Subject to Section 3(a), each Warrant may be exercised in part by the Warrant holder by surrender of the Warrant, with the form of subscription at the end thereof duly executed by such Warrant holder, in the manner and at the place provided in Section 3(b) above, accompanied by payment, in cash or by certified or bank cashier's check payable to the order of the Company, in amount obtained by multiplying the number of shares of the Common Stock designated by the Warrant holder in the form of subscription attached to the Warrant by the Purchase Price per share (after giving effect to any adjustments as provided in Section 5 below). Upon any such partial exercise, the Company at its expense will forthwith issue and deliver to or upon the order of the Warrant holder a new Warrant of like tenor, in the name of the Warrant holder thereof or as the Warrant holder (upon payment by such Warrant holder of any applicable transfer taxes) may request, subject to Section 2(a), calling in the aggregate for the purchase of the number of shares of the Common Stock equal to the number of such shares called for on the face of the respective Warrant (after giving effect to any adjustment herein as provided in Section 5 below) minus the number of such shares designated by the Warrant holder in the aforementioned form of subscription. (d) COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of any exercise of any Warrant, upon the request of the Warrant holder, acknowledge in writing its continuing obligation to afford to such Warrant holder any rights to which such Warrant holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant Agreement; PROVIDED, HOWEVER, that if the Warrant holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Warrant holder any such right. 4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. Any exercise of the Warrants pursuant to Section 3 shall be deemed to have been effected immediately prior to the close of business on the date on which the Warrants together with the subscription form and the payment for the aggregate Purchase Price shall have been received by the Company. At such time, the person or persons in whose name or names any certificate or certificates representing the Shares or Other Securities (as defined below) shall be issuable upon such exercise shall be deemed to have become the holder or holders of record of the Shares or Other Securities so purchased. As soon as practicable after the exercise of any Warrant in full or in part, and in any event within 10 WARRANT AGREEMENT PAGE 3 days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of, and delivered to the purchasing Warrant holder, a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock or Other Securities to which such Warrant holder shall be entitled upon such exercise, plus in lieu of any fractional share to which such Warrant holder would otherwise be entitled, cash in an amount determined pursuant to Section 6(h), together with any other stock or other securities and property (including cash, where applicable). The term "Other Securities" refers to any stock (other than Common Stock), other securities or assets (including cash) of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 5 below or otherwise. 5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE. The Purchase Price and the number of Shares are subject to adjustment from time to time as set forth in this Section 5. (a) In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the Common Stock in shares of its capital stock, (ii) subdivide the outstanding Shares, (iii) combine the outstanding Common Stock into a smaller number of Common Stock, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each case the Purchase Price, and the number and kind of Shares receivable upon exercise, in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of Shares which, if such Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination, or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (b) No adjustment in the Purchase Price shall be required if such adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by reason of this subsection (h) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. (c) Upon each adjustment of the Purchase Price as a result of the calculations made in any of subsection (a) of this Section 5, each Warrant outstanding prior to the making of the adjustment in the Purchase Price shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Shares (calculated to the nearest WARRANT AGREEMENT PAGE 4 thousandth) obtained by (i) multiplying the number of Shares purchasable upon exercise of a Warrant immediately prior to adjustment of the number of Shares by the Purchase Price in effect prior to adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (d) In case of any capital reorganization of the Company, or of any reclassification of the Common Stock (other than a reclassification of the Common Stock referred to in subsection (a) of this Section 5), or in the case of the consolidation of the Company with or the merger of the Company into any other corporation or of the sale, transfer, or lease of the properties and assets of the Company as, or substantially as, an entirety to any other corporation, each Warrant shall after such capital reorganization, reclassification of the Common Stock, consolidation, merger, sale, transfer, or lease be exercisable, upon the terms and conditions specified in this Agreement, for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares of Common Stock purchasable (at the time of such capital reorganization, reclassification of shares, consolidation, merger, sale, transfer, or lease) upon exercise of such Warrant would have been entitled upon such capital reorganization, reclassification of the Common Stock, consolidation, merger, sale, transfer, or lease; and in any such case, if necessary, the provisions set forth in this Section 5 with respect to the rights and interests thereafter of the holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities, assets, or cash thereafter deliverable upon the exercise of the Warrants. The subdivision or combination of the Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this paragraph. The Company shall not effect any such consolidation, merger, transfer, or lease, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Warrant holder, the obligation to deliver to the Warrant holder such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase, and to perform the other obligations of the Company under this Warrant Agreement. 6. FURTHER COVENANTS OF THE COMPANY. (a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or of this Warrant Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrant holders against dilution or other impairment. Without limiting the generality of the foregoing, the Company: WARRANT AGREEMENT PAGE 5 (i) shall at all times reserve and keep available, solely for issuance and delivery upon the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable upon the exercise of the Warrants and shall take all necessary actions to ensure that the par value per share, if any, of the Common Stock (or Other Securities) is at all times equal to or less than the then effective Purchase Price per share; (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or Other Securities upon the exercise of the Warrants from time to time outstanding; (iii) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets; and (iv) will not transfer all or substantially all of its properties and assets to any person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving corporation), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant Agreement and the Warrants. (b) TITLE TO STOCK. All shares of Common Stock delivered upon the exercise of the Warrants shall be validly issued, fully paid and nonassessable; each Warrant holder shall, upon such delivery, receive good and marketable title to the Shares, free and clear of all voting and other trust arrangements, liens, encumbrances, equities and claims whatsoever; and the Company shall have paid all taxes, if any, in respect of the issuance thereof. (c) REMEDIES. The Company stipulates that the remedies at law of the Warrant holder or any holder of Shares in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant Agreement or the Warrants are not and will not be adequate and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or in the Warrants or by an injunction against a violation of any of the terms hereof or thereof or otherwise. (d) EXCHANGE OF WARRANTS. Subject to Section 2(a) hereof, upon surrender for exchange of any Warrant to the Company, the Company at its expense will promptly issue and deliver to or upon the order of the holder thereof a new Warrant or like tenor, in the name of such holder or as such holder (upon payment by such Warrant holder of any applicable transfer taxes) may direct, calling in the aggregate for the purchase of the number WARRANT AGREEMENT PAGE 6 of shares of the Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. The Warrants and all rights thereunder are transferable in whole or in part upon the books of the Company by the registered holder thereof, subject to the provisions of Section 2(a), in person or by duly authorized attorney, upon surrender of the Warrant, duly endorsed, at the principal office of the Company. (e) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company, at the expense of the Warrant holder, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (f) REPORTING BY THE COMPANY. The Company agrees that during the term of the Warrants it will use its best efforts to keep current in the filing of all forms and other materials, if any, which it may be required to file with the appropriate regulatory authority pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and all other forms and reports required to be filed with any regulatory authority having jurisdiction over the Company. (g) FRACTIONAL SHARES. No fractional Shares are to be issued upon the exercise of any Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to such fraction multiplied by the closing price which shall be the last reported sales price regular way or, in case no such reported sales takes place on such day, the average of the closing bid and asked prices regular way, on the principal national securities exchange in the United States on which the Common Stock is listed or admitted to trading, or if the Common Stock is not listed or admitted to trading on any such national securities exchange, the average of the highest reported bid and lowest reported asked price as furnished by the National Association of Securities Dealers, Inc. through its automated quotation system ("Nasdaq") or a similar organization if Nasdaq is no longer reporting such information. 7. OTHER WARRANT HOLDERS: HOLDERS OF SHARES. The Warrants are issued upon the following terms, to all of which each Warrant holder by the taking thereof consents and agrees: (a) any person who shall become a transferee, within the limitations on transfer imposed by Section 2(a) hereof, of a Warrant properly endorsed shall take such Warrant subject to the provisions of Section 2(a) hereof and thereupon shall be authorized to represent himself as absolute owner thereof and, subject to the restrictions contained in this Warrant Agreement, shall be empowered to transfer absolute title by endorsement and delivery thereof to a permitted BONA FIDE purchaser for value; (b) any person who shall become a holder or owner of Shares shall take such shares subject to the provisions of Section 2(b) hereof; (c) each prior taker or owner waives and renounces all of his equities or rights in such Warrant in favor of each such WARRANT AGREEMENT PAGE 7 permitted BONA FIDE purchaser, and each such permitted BONA FIDE purchaser shall acquire absolute title thereto and to all rights presented thereby; and (d) until such time as the respective Warrant is transferred on the books of the Company, the Company may treat the registered holder thereof as the absolute owner thereof for all purposes, notwithstanding any notice to the contrary. 8. MISCELLANEOUS. All notices, certificates and other communications from or at the request of the Company to any Warrant holder shall be mailed by first class, registered or certified mail, postage prepaid, to such address as may have been furnished to the Company in writing by such Warrant holder, or, until an address is so furnished, to the address of the last holder of such Warrant who has so furnished an address to the Company, except as otherwise provided herein. This Warrant Agreement and any of the terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Florida. The headings in this Warrant Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. This Warrant Agreement, together with the forms of instruments annexed hereto as exhibits, constitutes the full and complete agreement of the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be executed on this the 1st day of April, 1996, in Delray Beach, Florida, by its proper corporate officers, thereunto duly authorized. WESTMARK GROUP HOLDINGS, INC. By NORMAN J. BIRMINGHAM, Chief Executive Officer The above Warrant Agreement is confirmed as of this 1st day of April, 1996 MARK SCHAFTLEIN WARRANT AGREEMENT PAGE 8 EXHIBIT A WARRANT THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF SUCH ACT AND REGULATION D PROMULGATED THEREUNDER; OR (B) ANY STATE SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE WARRANTS MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR, AND NEITHER THE WARRANTS NOR THE UNDERLYING STOCK MAY BE TRANSFERRED OR EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES AND OTHER LAWS. Warrant No. ___ To Purchase 45,000 Shares of Common Stock WESTMARK GROUP HOLDINGS, INC. Incorporated Under the Laws of Colorado This certifies that, for value received, the hereafter named registered owner is entitled, subject to the terms and conditions of this Warrant, until the expiration date, to purchase the number of shares set forth above of the common stock (the "Common Stock"), of Westmark Group Holdings, Inc. (the "Corporation") from the Corporation at the purchase price per share hereafter set forth, on delivery of this Warrant to the Corporation with the exercise form duly executed and payment of the purchase price (in cash or by certified or bank cashier's check payable to the order of the Corporation) for each share purchased. This Warrant is subject to the terms of the Warrant Agreement between the parties thereto dated as of April 1, 1996, the terms of which are hereby incorporated herein. Reference is hereby made to such Warrant Agreement for a further statement of the rights of the holder of this Warrant. Registered Owner: Mark Schaftlein Date: April 1, 1996 Purchase Price Per Share: $2.25 Expiration Date: Subject to Section 3(a) of the Warrant Agreement, 5:00 p.m. Delray Beach, Florida time on April 31, 1999. WITNESS the signature of the Corporation's authorized officer: WESTMARK GROUP HOLDINGS, INC. By NORMAN J. BIRMINGHAM, Chief Executive Officer A-1 FORM OF SUBSCRIPTION (TO BE SIGNED ONLY UPON EXERCISE OF WARRANT) To Westmark Group Holdings, Inc.: The undersigned, the holder of the enclosed Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _________* shares of Common Stock of Westmark Group Holdings, Inc. and herewith makes payment of $_______________ therefor, and requests that the certificate or certificates for such shares be issued in the name of and delivered to the undersigned. Dated:______________ -------------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the enclosed Warrant) -------------------------------------------- (Address) - --------------------------- (*) Insert here the number of shares called for on the face of the Warrant or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised, in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant Agreement pursuant to which the Warrant was granted, may be delivered upon exercise. A-2 FORM OF ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto __________________________________ the right represented by the enclosed Warrant to purchase _________________ shares of Common Stock of Westmark Group Holdings, Inc. to which the enclosed Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of Westmark Group Holdings, Inc. with full power of substitution in the premises. The undersigned represents and warrants that the transfer of the enclosed Warrant is permitted by the terms of the Warrant Agreement pursuant to which the enclosed Warrant has been issued, and the transferee hereof, by his acceptance of this Agreement, represents and warrants that he is familiar with the terms of said Warrant Agreement and agrees to be bound by the terms thereof with the same force and effect as if a signatory thereto. Dated:_________________________ -------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the enclosed Warrant) -------------------------------------- (Address) Signed in the presence of: - ------------------------------------ A-3 EX-10.13 12 MARK SCHAFTLEIN WARRANT EXHIBIT 10.13 WESTMARK GROUP HOLDINGS, INC. WARRANT AGREEMENT April 1, 1996 To the Person Named on the Signature Page Hereof Gentlemen: Westmark Group Holdings, Inc., a Colorado corporation (the "Company"), for value received, hereby agrees to issue stock purchase warrants entitling the person whose name appears on the signature page of this Agreement to purchase an aggregate of 45,000 shares of the Company's common stock (the "Common Stock"). Such warrants are evidenced by warrant certificates in the form attached hereto as EXHIBIT A (each such instrument being hereinafter referred to as a "Warrant," and each Warrant and all instruments hereafter issued in replacement, substitution, combination or subdivision thereof being hereinafter collectively referred to as the "Warrants"). The Warrants will be issued in consideration of service to the Company by the person whose name appears on the signature page of this Agreement. The number of shares of Common Stock purchasable upon exercise of the Warrants is subject to adjustment as provided in Section 5 below. The Warrants will be exercisable by each you or any other Warrant holder (as defined below) as to all or any lesser number of shares of Common Stock covered thereby, at an initial Purchase Price of $2.25 per share, subject to adjustment as provided in Section 5 below, for the exercise period defined in Section 3(a) below. The term "Warrant holder" refers to each person whose name appears on the signature page of this agreement and any transferee or transferees of any of them permitted by Section 2(a) below. Such term, when used in this Warrant Agreement in reference to or in the context of a person who holds or owns shares of Common Stock issued upon exercise of a Warrant, refers where appropriate to such person who holds or owns such shares of Common Stock. 1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to you as follows: (a) CORPORATE AND OTHER ACTION. The Company has all requisite power and authority (corporate and other), and has taken all necessary corporate action, to authorize, execute, deliver and perform this Warrant Agreement, to execute, issue, sell and deliver the Warrants and a certificate or certificates evidencing the Warrants, to authorize and reserve for issue and, upon payment from time to time of the Purchase Price, to issue, sell and deliver, the shares of the Common Stock issuable upon exercise of the Warrants (the "Shares"), and to perform all of its obligations under this Warrant Agreement and the Warrants. The Shares, when issued in accordance with this Agreement, will be duly authorized and validly issued and outstanding, fully paid and nonassessable and free of all liens, claims, encumbrances and preemptive rights. This Warrant Agreement and, when issued, each Warrant issued pursuant hereto, has been or will be duly executed and delivered by the Company and is or will be a legal, valid and binding agreement of the Company, enforceable in accordance with its terms. No authorization, approval, consent or other order of any governmental entity, regulatory authority or other third party is required for such authorization, execution, delivery, performance, issue or sale. (b) NO VIOLATION. The execution and delivery of this Warrant Agreement, the consummation of the transactions herein contemplated and the compliance with the terms and provisions of this Warrant Agreement and of the Warrants will not conflict with, or result in a breach of, or constitute a default or an event permitting acceleration under, any statute, the Articles of Incorporation or Bylaws of the Company or any indenture, mortgage, deed of trust, note, bank loan, credit agreement, franchise, license, lease, permit, or any other agreement, understanding, instrument, judgment, decree, order, statute, rule or regulation to which the Company is a party or by which it is or may be bound. 2. TRANSFER. (a) TRANSFERABILITY OF WARRANTS. You agree that the Warrants are being acquired as an investment and not with a view to distribution thereof and that the Warrants may not be transferred, sold, assigned or hypothecated except as provided herein and in compliance with all applicable securities and other laws. (b) REGISTRATION OF SHARES. You agree not to make any sale or other disposition of the Shares except pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended (the "Act"), setting forth the terms of such offering, the underwriting discount and commissions and any other pertinent data with respect thereto, unless you have provided the Company with an opinion of counsel reasonably acceptable to the Company that such registration is not required. Certificates representing the Shares, which are not registered as provided in Section 2, shall bear an appropriate legend and be subject to a "stop-transfer" order. 3. EXERCISE OF WARRANTS, PARTIAL EXERCISE. (a) EXERCISE PERIOD. Subject to the terms of this Section 3(a), each Warrant is exercisable at any time after April 17, 1997 provided that the Company reaches or exceeds $480,000.00 of net income, after tax for fiscal year 1996, 1997 or 1998. If the Company fails to meet the earnings threshold, the warrants will vest on a pro rata basis (for example, if the Company earns $240,000.00 only 22,500 of the warrants shall vest). Any unvested warrants shall carry over to the succeeding year, however the unvested options shall be subject to the succeeding year's earning threshold which shall remain $480,000.00 for the exercise period. The warrants shall expire on the earlier of April 1, 2004 or five years from the date they become fully vested. WARRANT AGREEMENT PAGE 2 (b) EXERCISE IN FULL. Subject to Section 3(a), Warrants may be exercised in full by the Warrant holder by surrender of the Warrants, with the form of subscription at the end thereof duly executed by such Warrant holder, to the Company at its principal office at 355 N.E. Fifth Avenue, Delray Beach, Florida 33483, Attention: Chief Executive Officer, accompanied by payment, in cash or by certified or bank cashier's check payable to the order of the Company, in the amount obtained by multiplying the number of shares of the Common Stock represented by the respective Warrant or Warrants by the Purchase Price per share (after giving effect to any adjustments as provided in Section 5 below). (c) PARTIAL EXERCISE. Subject to Section 3(a), each Warrant may be exercised in part by the Warrant holder by surrender of the Warrant, with the form of subscription at the end thereof duly executed by such Warrant holder, in the manner and at the place provided in Section 3(b) above, accompanied by payment, in cash or by certified or bank cashier's check payable to the order of the Company, in amount obtained by multiplying the number of shares of the Common Stock designated by the Warrant holder in the form of subscription attached to the Warrant by the Purchase Price per share (after giving effect to any adjustments as provided in Section 5 below). Upon any such partial exercise, the Company at its expense will forthwith issue and deliver to or upon the order of the Warrant holder a new Warrant of like tenor, in the name of the Warrant holder thereof or as the Warrant holder (upon payment by such Warrant holder of any applicable transfer taxes) may request, subject to Section 2(a), calling in the aggregate for the purchase of the number of shares of the Common Stock equal to the number of such shares called for on the face of the respective Warrant (after giving effect to any adjustment herein as provided in Section 5 below) minus the number of such shares designated by the Warrant holder in the aforementioned form of subscription. (d) COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of any exercise of any Warrant, upon the request of the Warrant holder, acknowledge in writing its continuing obligation to afford to such Warrant holder any rights to which such Warrant holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant Agreement; PROVIDED, HOWEVER, that if the Warrant holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Warrant holder any such right. 4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. Any exercise of the Warrants pursuant to Section 3 shall be deemed to have been effected immediately prior to the close of business on the date on which the Warrants together with the subscription form and the payment for the aggregate Purchase Price shall have been received by the Company. At such time, the person or persons in whose name or names any certificate or certificates representing the Shares or Other Securities (as defined below) shall be issuable upon such exercise shall be deemed to have become the holder or holders of record of the Shares or Other Securities so purchased. As soon as practicable after the exercise of any Warrant in full or in part, and in any event within 10 WARRANT AGREEMENT PAGE 3 days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of, and delivered to the purchasing Warrant holder, a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock or Other Securities to which such Warrant holder shall be entitled upon such exercise, plus in lieu of any fractional share to which such Warrant holder would otherwise be entitled, cash in an amount determined pursuant to Section 6(h), together with any other stock or other securities and property (including cash, where applicable). The term "Other Securities" refers to any stock (other than Common Stock), other securities or assets (including cash) of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 5 below or otherwise. 5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE. The Purchase Price and the number of Shares are subject to adjustment from time to time as set forth in this Section 5. (a) In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the Common Stock in shares of its capital stock, (ii) subdivide the outstanding Shares, (iii) combine the outstanding Common Stock into a smaller number of Common Stock, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each case the Purchase Price, and the number and kind of Shares receivable upon exercise, in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of Shares which, if such Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination, or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (b) No adjustment in the Purchase Price shall be required if such adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by reason of this subsection (h) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. (c) Upon each adjustment of the Purchase Price as a result of the calculations made in any of subsection (a) of this Section 5, each Warrant outstanding prior to the making of the adjustment in the Purchase Price shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Shares (calculated to the nearest WARRANT AGREEMENT PAGE 4 thousandth) obtained by (i) multiplying the number of Shares purchasable upon exercise of a Warrant immediately prior to adjustment of the number of Shares by the Purchase Price in effect prior to adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (d) In case of any capital reorganization of the Company, or of any reclassification of the Common Stock (other than a reclassification of the Common Stock referred to in subsection (a) of this Section 5), or in the case of the consolidation of the Company with or the merger of the Company into any other corporation or of the sale, transfer, or lease of the properties and assets of the Company as, or substantially as, an entirety to any other corporation, each Warrant shall after such capital reorganization, reclassification of the Common Stock, consolidation, merger, sale, transfer, or lease be exercisable, upon the terms and conditions specified in this Agreement, for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares of Common Stock purchasable (at the time of such capital reorganization, reclassification of shares, consolidation, merger, sale, transfer, or lease) upon exercise of such Warrant would have been entitled upon such capital reorganization, reclassification of the Common Stock, consolidation, merger, sale, transfer, or lease; and in any such case, if necessary, the provisions set forth in this Section 5 with respect to the rights and interests thereafter of the holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities, assets, or cash thereafter deliverable upon the exercise of the Warrants. The subdivision or combination of the Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this paragraph. The Company shall not effect any such consolidation, merger, transfer, or lease, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Warrant holder, the obligation to deliver to the Warrant holder such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase, and to perform the other obligations of the Company under this Warrant Agreement. 6. FURTHER COVENANTS OF THE COMPANY. (a) DILUTION OR IMPAIRMENTS. The Company will not, by amendment of its certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or of this Warrant Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrant holders against dilution or other impairment. Without limiting the generality of the foregoing, the Company: WARRANT AGREEMENT PAGE 5 (i) shall at all times reserve and keep available, solely for issuance and delivery upon the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable upon the exercise of the Warrants and shall take all necessary actions to ensure that the par value per share, if any, of the Common Stock (or Other Securities) is at all times equal to or less than the then effective Purchase Price per share; (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or Other Securities upon the exercise of the Warrants from time to time outstanding; (iii) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets; and (iv) will not transfer all or substantially all of its properties and assets to any person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving corporation), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant Agreement and the Warrants. (b) TITLE TO STOCK. All shares of Common Stock delivered upon the exercise of the Warrants shall be validly issued, fully paid and nonassessable; each Warrant holder shall, upon such delivery, receive good and marketable title to the Shares, free and clear of all voting and other trust arrangements, liens, encumbrances, equities and claims whatsoever; and the Company shall have paid all taxes, if any, in respect of the issuance thereof. (c) REMEDIES. The Company stipulates that the remedies at law of the Warrant holder or any holder of Shares in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant Agreement or the Warrants are not and will not be adequate and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or in the Warrants or by an injunction against a violation of any of the terms hereof or thereof or otherwise. (d) EXCHANGE OF WARRANTS. Subject to Section 2(a) hereof, upon surrender for exchange of any Warrant to the Company, the Company at its expense will promptly issue and deliver to or upon the order of the holder thereof a new Warrant or like tenor, in the name of such holder or as such holder (upon payment by such Warrant holder of any applicable transfer taxes) may direct, calling in the aggregate for the purchase of the number WARRANT AGREEMENT PAGE 6 of shares of the Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. The Warrants and all rights thereunder are transferable in whole or in part upon the books of the Company by the registered holder thereof, subject to the provisions of Section 2(a), in person or by duly authorized attorney, upon surrender of the Warrant, duly endorsed, at the principal office of the Company. (e) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company, at the expense of the Warrant holder, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (f) REPORTING BY THE COMPANY. The Company agrees that during the term of the Warrants it will use its best efforts to keep current in the filing of all forms and other materials, if any, which it may be required to file with the appropriate regulatory authority pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and all other forms and reports required to be filed with any regulatory authority having jurisdiction over the Company. (g) FRACTIONAL SHARES. No fractional Shares are to be issued upon the exercise of any Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to such fraction multiplied by the closing price which shall be the last reported sales price regular way or, in case no such reported sales takes place on such day, the average of the closing bid and asked prices regular way, on the principal national securities exchange in the United States on which the Common Stock is listed or admitted to trading, or if the Common Stock is not listed or admitted to trading on any such national securities exchange, the average of the highest reported bid and lowest reported asked price as furnished by the National Association of Securities Dealers, Inc. through its automated quotation system ("Nasdaq") or a similar organization if Nasdaq is no longer reporting such information. 7. OTHER WARRANT HOLDERS: HOLDERS OF SHARES. The Warrants are issued upon the following terms, to all of which each Warrant holder by the taking thereof consents and agrees: (a) any person who shall become a transferee, within the limitations on transfer imposed by Section 2(a) hereof, of a Warrant properly endorsed shall take such Warrant subject to the provisions of Section 2(a) hereof and thereupon shall be authorized to represent himself as absolute owner thereof and, subject to the restrictions contained in this Warrant Agreement, shall be empowered to transfer absolute title by endorsement and delivery thereof to a permitted BONA FIDE purchaser for value; (b) any person who shall become a holder or owner of Shares shall take such shares subject to the provisions of Section 2(b) hereof; (c) each prior taker or owner waives and renounces all of his equities or rights in such Warrant in favor of each such WARRANT AGREEMENT PAGE 7 permitted BONA FIDE purchaser, and each such permitted BONA FIDE purchaser shall acquire absolute title thereto and to all rights presented thereby; and (d) until such time as the respective Warrant is transferred on the books of the Company, the Company may treat the registered holder thereof as the absolute owner thereof for all purposes, notwithstanding any notice to the contrary. 8. MISCELLANEOUS. All notices, certificates and other communications from or at the request of the Company to any Warrant holder shall be mailed by first class, registered or certified mail, postage prepaid, to such address as may have been furnished to the Company in writing by such Warrant holder, or, until an address is so furnished, to the address of the last holder of such Warrant who has so furnished an address to the Company, except as otherwise provided herein. This Warrant Agreement and any of the terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Florida. The headings in this Warrant Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. This Warrant Agreement, together with the forms of instruments annexed hereto as exhibits, constitutes the full and complete agreement of the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be executed on this the 1st day of April, 1996, in Delray Beach, Florida, by its proper corporate officers, thereunto duly authorized. WESTMARK GROUP HOLDINGS, INC. By DAWN DRELLA, Chief Financial Officer The above Warrant Agreement is confirmed as of this 1st day of April, 1996 NORMAN J. BIRMINGHAM WARRANT AGREEMENT PAGE 8 EXHIBIT A WARRANT THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF SUCH ACT AND REGULATION D PROMULGATED THEREUNDER; OR (B) ANY STATE SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE WARRANTS MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR, AND NEITHER THE WARRANTS NOR THE UNDERLYING STOCK MAY BE TRANSFERRED OR EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE SECURITIES AND OTHER LAWS. Warrant No. ___ To Purchase 45,000 Shares of Common Stock WESTMARK GROUP HOLDINGS, INC. Incorporated Under the Laws of Colorado This certifies that, for value received, the hereafter named registered owner is entitled, subject to the terms and conditions of this Warrant, until the expiration date, to purchase the number of shares set forth above of the common stock (the "Common Stock"), of Westmark Group Holdings, Inc. (the "Corporation") from the Corporation at the purchase price per share hereafter set forth, on delivery of this Warrant to the Corporation with the exercise form duly executed and payment of the purchase price (in cash or by certified or bank cashier's check payable to the order of the Corporation) for each share purchased. This Warrant is subject to the terms of the Warrant Agreement between the parties thereto dated as of April 1, 1996, the terms of which are hereby incorporated herein. Reference is hereby made to such Warrant Agreement for a further statement of the rights of the holder of this Warrant. Registered Owner: Norman J. Birmingham Date: April 1, 1996 Purchase Price Per Share: $2.25 Expiration Date: Subject to Section 3(a) of the Warrant Agreement, 5:00 p.m. Delray Beach, Florida time on April 31, 1999. WITNESS the signature of the Corporation's authorized officer: WESTMARK GROUP HOLDINGS, INC. By NORMAN J. BIRMINGHAM, Chief Executive Officer A-1 FORM OF SUBSCRIPTION (TO BE SIGNED ONLY UPON EXERCISE OF WARRANT) To Westmark Group Holdings, Inc.: The undersigned, the holder of the enclosed Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _________* shares of Common Stock of Westmark Group Holdings, Inc. and herewith makes payment of $_______________ therefor, and requests that the certificate or certificates for such shares be issued in the name of and delivered to the undersigned. Dated:______________ -------------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the enclosed Warrant) -------------------------------------------- (Address) - --------------------------- (*) Insert here the number of shares called for on the face of the Warrant or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised, in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant Agreement pursuant to which the Warrant was granted, may be delivered upon exercise. A-2 FORM OF ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto __________________________________ the right represented by the enclosed Warrant to purchase _________________ shares of Common Stock of Westmark Group Holdings, Inc. to which the enclosed Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of Westmark Group Holdings, Inc. with full power of substitution in the premises. The undersigned represents and warrants that the transfer of the enclosed Warrant is permitted by the terms of the Warrant Agreement pursuant to which the enclosed Warrant has been issued, and the transferee hereof, by his acceptance of this Agreement, represents and warrants that he is familiar with the terms of said Warrant Agreement and agrees to be bound by the terms thereof with the same force and effect as if a signatory thereto. Dated:_________________________ -------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the enclosed Warrant) -------------------------------------- (Address) Signed in the presence of: - ------------------------------------ A-3 EX-10.18 13 SETTLEMENT AGREEMENT BETWEEN COMPANY AND GREENTREE EXHIBIT 10.18 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated , 1996, is executed by and between Westmark Group Holdings, Inc., a Colorado corporation and Westmark Mortgage Corporation, a California corporation, hereinafter collectively referred to as "WGHI," and Greentree Mortgage Company, L.P., a Delaware limited partnership, hereinafter referred to as "Greentree," and is made with reference to the following: RECITALS WHEREAS, WGHI and Greentree entered into an Agreement of Purchase and Sale of Assets on July 2, 1995 and a subsequent Restated Amendment to Agreement of Purchase and Sale of Assets on September 1, 1995, hereinafter collectively referred to as "the Agreement" and; WHEREAS, WGHI and Greentree have agreed to terminate the Agreement subject to the terms and conditions herein contained and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising out of or pertaining to the aforementioned Agreement. NOW, THEREFOR, in consideration of the terms set forth below, and other covenants and conditions herein contained, WGHI and Greentree mutually agree as follows: 1. Within ten (10) days from the date of execution of this agreement, WGHI shall deliver to Greentree 150,000 warrants to purchase shares of WGHI's unregistered common stock on the basis of one (1) share for each warrant. Each warrant shall be exercisable for a period of three (3) years from the date of issue and the exercise price for each share shall be _____________. All of such shares shall be included in the next Registration Statement to be filed by WGHI with the U.S. Securities and Exchange Commission no later than May 31, 1996. 2. On or before May 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Greentree of such number of shares of WGHI common stock as calculated pursuant to the terms of this agreement. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Greentree 17,500 shares. All such WGHI shares shall be 1 fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. WGHI agrees that it will cause the sale of the Greentree shares in an orderly manner through the brokerage firm designated by WGHI, or such other brokerage firm as agreed to by the parties. Westmark shall cause the registration, issuance and sale of sufficient shares to enable Greentree to receive no less than $5,000 per month commencing August 15, 1996 and continuing on the 15th day of each thereafter until the sum of $35,000 has been paid in full. WGHI agrees to register, qualify and issue to Greentree additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $5,000 per month commencing August 15, 1996. Once Greentree has netted $35,000, any remaining WGHI shares will be returned to WGHI and shall be retired. 4. If at any time WGHI fails to perform its obligations as set forth hereinabove, WGHI shall be in default of this agreement and Greentree shall be entitled to proceed with any and all remedies provided at law or in equity. In the event of default, Greentree shall be entitled to file the Confession of Judgment executed by WGHI, a copy which is attached hereto marked Exhibit "A" or shall be promptly provided by Greentree, and by this reference made a part hereof. 5. Greentree hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, officers, shareholders, directors, employees, agents, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of the aforementioned Agreement; provided however, that the release set forth herein does not pertain to WGHI's obligations to Greentree created by this agreement or any claims or assertions raised by Greentree in the Conover litigation hereinafter described in paragraph 6. In addition, a separate form of release with regard to the foregoing shall be executed by Greentree contemporaneously with the execution of this agreement. 6. WGHI hereby releases and forever discharges Greentree, and all of its past, present and future attorneys, partners, officers, directors, employees, agents, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of the aforementioned Agreement and Restated Amendment thereto; provided however, that the release set forth herein does not pertain to any of the claims or assertions raised by WGHI in the civil action in the Superior Court of New Jersey, docket number C155-95, entitled "Robert J. Conover, plaintiff v. Greentree Mortgage Company, L.P.; Greentree Management Corporation; Westmark Group Holdings, Inc.; Westmark Mortgage Corporation; and Michael F. Morrell, defendants." In addition, a separate form of release with regard to the foregoing shall be executed by WGHI contemporaneously with the execution of this agreement. 7. Subject to satisfaction of the terms set forth herein all parties hereto 2 acknowledge that they execute and agree to this agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this agreement creates new obligations and rights between them. Except as otherwise provided for in this agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Greentree or to WGHI, would materially affect their decision to enter into this agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. 9. Each party warrants and represents to the other that it has not assigned, conveyed or transferred any of the claims or possible claims against any of the parties hereto (or any interest therein) which are released or referred to herein and that the releases herein are what they purport to be. In the event of an adjudication that either party is in breach of this section, the party in breach agrees to indemnify and hold harmless the other party from any resulting liability, claim, demand, damage, cost, expense and/or attorney's fees incurred by the other party as a result of the breach. 10. Greentree agrees and acknowledges that it will accept the warrants and the registration, issuance and sale of the WGHI shares specified hereinabove as a full and complete compromise of matters involving disputed issues as to the Agreement hereinabove set forth. Each of Greentree and WGHI agrees and acknowledges that neither this agreement, nor delivery of the WGHI shares by WGHI herein, or any event occurring during the negotiations for this agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 11. Each party represents and warrants that it has full authority to enter into this agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 12. This agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, employees, investors, agents, representatives, partners, predecessors, successors and assigns. 13. This agreement contains the entire agreement between the parties and 3 supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this agreement. 14. This agreement has been negotiated, and is entered into, in the State of New Jersey. The validity, interpretation, construction and enforcement of this agreement shall be construed, interpreted and governed pursuant to New Jersey law. 15. In entering into this agreement, each party represents that: (a) It has read the agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this agreement. (b) It fully understands and is aware of the terms of this agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this agreement. 16. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this agreement. Each party further warrants and represents that the individuals executing this agreement are duly authorized by the respective parties to bind the parties to the terms of this agreement. 17. Failure by either party at any time to require performance of any provision of this agreement shall not limit the right of that party to enforce such performance or provision at any time, nor shall either party's waiver of any breach by the other party of any provision of this agreement by a waiver of any succeeding breach by that other party of that same provision, or of any other provision of this agreement. 18. The parties agree that any notices to be provided pursuant to this agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Greentree Mortgage Company, L.P. 4 355 N.E. Fifth Ave., Suite 4 10005 Atriums at Greentree Delray Beach, Florida 33483 P.O. Box 830 Marlton, New Jersey 08053 and and Harry C. Coolidge, Esq. 1260 41st Ave., Suite N Andrew D. Stone, Esq. Capitola, California 59010 McMahan Financial Center 591 West Putnam Avenue Greenich, Connecticut 06830 Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this agreement to that address and designated person. 19. This agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this agreement, to produce or account for more than one counterpart. 20. The aforementioned Agreement of Purchase of Sale of Assets and Restated Amendment to Agreement of Purchase of Sale of Assets is hereby terminated and each party waives any and all rights, claims or entitlements pursuant to said Agreement and Restated Amendment except as hereinabove set forth. IN WITNESS WHEREOF, the parties have duly executed this agreement on the dates set forth below. DATED: DATED: GREENTREE MORTGAGE CO., L.P. WESTMARK GROUP HOLDINGS, INC. By: By: Its: Its: WESTMARK MORTGAGE CORP. 5 By: Its: 6 GREENTREE MORTGAGE COMPANY, ) Case No.: L.P., a Delaware corporation ) ) CONFESSION OF JUDGMENT Plaintiff, ) STATEMENT ) [CCP 1133] vs. ) ) WESTMARK GROUP HOLDINGS, ) INC., WESTMARK MORTGAGE ) CORPORATION, ) ) Defendant. ) ) ______________________________) WESTMARK GROUP HOLDINGS, INC., a Colorado corporation and WESTMARK MORTGAGE CORPORATION, a California corporation hereinafter collectively "WGHI" hereby confesses judgment in the above-entitled action in favor of GREENTREE MORTGAGE COMPANY, L.P., a Delaware Limited Partnership, ("GREENTREE"), in the principal amount of $35,000, plus costs, and interest on said principal amount at ten percent (10%) per annum from the date of this Confession of Judgment Statement to the date of entry of judgment herein, less any amounts received by GREENTREE pursuant to that certain Settlement Agreement and Mutual Release of all Claims dated _________, 1996, and authorizes entry of judgment against it in that total amount. This confession of judgment is for a debt justly due that arises out of a contractual relationship between Plaintiff and Defendant and subsequent Settlement Agreement with respect to said contractual relationship. WGHI owes GREENTREE the sum of $35,000 as 1 a result of said settlement. By the terms of a settlement agreement between WGHI and GREENTREE dated the_____ day of April, 1996, WGHI agreed that, if it defaulted on its obligations thereunder, GREENTREE could obtain judgment against it pursuant to this Confession of Judgment Statement. DATED: WGHI GROUP HOLDINGS, INC. By: Norman Birmingham, President VERIFICATION I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS, INC., ("WGHI") Defendant in the above-entitled action, and I make this Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of my own knowledge. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Dated: Norman Birmingham 2 EX-10.19 14 SETTLEMENT AGREEMENT BETWEEN COMPANY AND 1ST AMER EXHIBIT 10.19 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated March , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation and First American Flood Data Services, Inc., ("Flood Data"), a Texas corporation, and is made with reference to the following: RECITALS WHEREAS, WGHI retained Flood Data to represent it in various matters and to provide certain services to WGHI and; WHEREAS, Flood Data performed certain services on behalf of WGHI and billed it for such services and; WHEREAS, WGHI has informed Flood Data that it is unable to pay in cash the amounts owed to Flood Data for such services and has requested that Flood Data accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from the relationship between WGHI and Flood Data and claims for payments owed by WGHI to Flood Data. NOW, THEREFOR, in consideration of the terms set forth below and other covenants and conditions contained herein, WGHI and Flood Data mutually agree as follows: 1. WGHI agrees to pay to Flood Data $2,200 on April 5, 1996 and a like amount on May 5, 1996 and June 5, 1996. 2. On or before April 10, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Flood Data of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 3 hereof. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Flood Data, 7,500 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. 1 WGHI will cause the sale of the Flood Data shares in an orderly manner through a brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI shares registered in the name of Flood Data shall be sold each month to net $2,200 per month payable to Flood Data no later than the 10th day of each month commencing July 5, 1996 through and including January 5, 1997. WGHI further agrees to register, qualify and issue to Flood Data additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $2,200 per month commencing July 5, 1996. Once Flood Data has received a total of $22,210 as a result of monthly payments commencing April 5, 1996, any remaining WGHI shares will be returned to WGHI and shall be retired. 4. If at any time WGHI fails to pay or cause the payment of the sum of $2,200 per month commencing April 5, 1996, WGHI shall be in default of this agreement. In the event of default, Flood Data shall be entitled to proceed with any and all remedies available at law or in equity. 5. Flood Data hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, agents, officers, directors, employees, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services rendered on its behalf by Flood Data. Provided, however, that this release does not in any way pertain to WGHI's obligations to Flood Data set forth herein. 6. WGHI hereby releases and forever discharges Flood Data, and all of its past, present and future employees, partners, agents, officers, directors, employees, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Flood Data's performance of services on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Flood Data, whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth herein, all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Flood Data or to WGHI, would materially affect their decision to enter into this Agreement. Each party further 2 assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Flood Data agrees and acknowledges that it will accept the payments set forth above together with delivery of the WGHI shares and proceeds of sale thereof, as a full and complete compromise of matters involving disputed issues as to WGHI. Flood Data and WGHI agree and acknowledge that neither this Agreement nor delivery of the WGHI shares herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 13. This Agreement has been negotiated, and is entered into, in the State of California, County of Santa Cruz. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 14. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. 3 (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 15. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 16. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: FIRST AMERICAN FLOOD DATA WESTMARK GROUP HOLDINGS, INC. SERVICES, INC. By: By: Its: Its: 4 EX-10.20 15 NOTE MODIFICATION AGMT BETWEEN COMPANY AND DOLAN EXHIBIT 10.20 NOTE MODIFICATION AGREEMENT This agreement is entered into by and between Network Capital Group Inc., a California Corporation ("Network"), formerly known as Winchester Mortgage Company and Dolan Development Partners Limited, a California Limited Partnership, ("Dolan Partners"). The parties mutually agree as follows: 1. On or about January 23, 1991, Network executed a promissory note in the sum of $750,000 as a co-maker payable to Nathan Land Company, a Nevada Corporation. Pursuant to the terms and conditions of the note, Network was obligated to pay $375,000 of the total principal. Said note was secured by Deed of Trust recorded February 6, 1991 in reel 2604 page 574, official records in Monterey County, California. A copy of said promissory note is attached hereto, marked Exhibit "A" and by this reference made a part hereof. 2. On or about January 24, 1991 Network executed a promissory note in the sum of $800,000 as a co-maker payable to Nathan Land Company, a Nevada Corporation. Said note was secured by Deed of Trust recorded February 6, 1991 in reel 2604 page 582, official records in Monterey County, California. Pursuant to the terms and conditions of the note, Network was obligated to pay $600,000 of the total principal. A copy of said promissory note is attached hereto, marked Exhibit "B" and by this reference made a part hereof. 3. Dolan Partners represent that they are the owners of most of the legal and equitable interests owed by Network in the aforementioned promissory notes. 4. Dolan Partners covenant and agree that to the extent that any other person, firm or entity claims any right, title or interest in and to any obligation by Network in either or both of the aforementioned promissory notes, Dolan Partners will make a reasonable effort to obtain the written consents to this Note Modification Agreement. Dolan Partners will hold Network harmless from any and all claims by third parties against Network with respect to the aforementioned promissory notes provided Network is not in default with respect to the terms and conditions of this note modification agreement. 5. The parties mutually agree that a dispute exists between the parties regarding the amount of indebtedness due by Network with respect to the aforementioned promissory notes. Dolan Partners have instituted foreclosure proceedings against Network. The parties have agreed to settle and compromise said dispute based upon the following terms and conditions: a) The total principal obligation due and owing by Network with respect to the aforementioned promissory notes through July 1, 1995 is $1,000,000 together with interest from July 1, 1994 as set forth below. b) Network's total obligation in the sum of $1,000,000 will be allocated by Dolan Partners between the two aforementioned promissory notes subject to the hold harmless provisions as hereinabove set forth. c) Commencing July 1, 1994, interest will accrue on the unpaid balance of $1,000,000 at the rate of 9.75% per year and Network covenants and agrees 1 to make monthly interest only payments to Dolan Partners commencing July 1, 1995 and continuing on the 1st day of each month thereafter. Network shall be entitled to a credit each month of one-half of the monthly rental actually received from the tenants on Parcel D for rents paid from the previous month. Dolan Partners will provide a written accounting to Network with respect to all rental income received from and after July 1, 1994 with respect to Parcels B & D, Dolan Property, Moss Landing, California. Each party shall be responsible for the payment of one-half of any reasonable and necessary expenses incurred for the maintenance and development of subject property. Each party will make a reasonable effort to notify the other party of the necessity for incurring expenses for maintenance and development until such time as a Tenants In Common Agreement shall have been executed by the parties. d) Network agrees to reimburse Dolan Partners for one-half of the expenses paid by Dolan Partners for maintenance of Dolan Property and processing of a use permit application including but not limited to engineering, surveying and the like through the County of Monterey since July 1, 1994 to June 30, 1995. Dolan Partners represents that the total expenses incurred for such period are $26,780. Network agrees to be responsible for the sum of $13,390. The parties mutually agree that the interest arrearage for the period July 1, 1994 to June 1, 1995 is $89,375. Network's total obligation for accrued interest through June 1, 1995 and monthly expenses through June 30, 1995 is $102,765. Dolan Partners covenant and agree that Network shall be entitled to a credit in the sum of $52,051 which represents one-half of the rental income received by Dolan Partners with respect to Parcel "D" and $7,500 on Parcel "B." Network covenants and agrees that the net balance due Dolan Partners in sum of $50,714 shall be paid in four (4) equal installments in the sum of $12,678.50 with the first payment due no later than five (5) days after the date of execution of this agreement by the parties and the subsequent payments due on August 1st, September 1st and October 1st, 1995. In the event of a dispute between Network and Dolan Partners regarding either the rental income received or the maintenance expenses incurred for the period July 1, 1994 through June 30, 1995, the parties agree that payment of the October 1, 1995 arrearage obligation shall be suspended up to the amount in controversy, not to exceed the total arrearage payment until such time as the parties have resolved the dispute by arbitration. e) Dolan Partners shall cooperate with Network with regard to the registration and sale of shares of common stock of Westmark Group Holdings, Inc. provided, however, that the registration and sale of shares shall not extend the payment dates set forth above. f) Network covenants and agrees that the balance of principal and any unpaid accrued interest shall be payable in full no later than June 1, 1998 or upon the sale of Parcel D of the Dolan Property, whichever event shall first occur. Network reserves the right to prepay all or any portion of said principal, without penalty. 2 6. The parties mutually agree to enter into a new Tenants In Common Agreement prior to August 14, 1995, providing for the ownership, management, development and marketing of Parcel D, Dolan Property located in Moss Landing, California. The terms and conditions of the Tenants In Common Agreement shall include an agreement by Dolan Partners to subordinate the Deeds of Trust hereinabove referred to, with respect to a refinance of the subject property by Dolan Partners and Network for the purposes of satisfying the existing first mortgage or developing, maintaining or subdividing the subject Dolan Property. Dolan Partners make no representations or warranties whatsoever that any other lienholder will agree to subordinate its deed of trust. Dolan Partners and Network shall be equally responsible for the ownership, management, development and marketing of Parcel D, Dolan Property. For management services rendered by William Wright between July 1, 1994 and June 1, 1995, Network covenant and agree to pay to William Wright the sum of $15,000 no later than July 31, 1995. 7. Upon execution of this agreement, Dolan Partners shall immediately continue the existing foreclosure proceedings and trustee sale with First Nationwide Reconveyance Company to October 1, 1995. Provided Network has complied with the terms and conditions of this Note Modification Agreement, Dolan Partners shall terminate, cancel and rescind the pending foreclosure proceedings and trustee sale on October 1, 1995. Furthermore, upon execution of this Note Modification Agreement and receipt of the first installment payment as hereinabove set forth in the sum of $12,678.50, Dolan Partners shall dismiss without prejudice defendants Rairyl Inc. and Winchester Mortgage Company as defendants in the existing litigation pending in the County of Monterey, State of California, case #M26895. 8. Network shall be responsible for any increase in real property taxes resulting from any prior conveyance by Network to Rairyl, Inc. 9. In the event of any dispute arising out of or pertaining to this agreement, the prevailing party shall be entitled to reasonable attorneys fees in addition to any other relief provided by law. 10. Each of the parties has entered into this note modification agreement voluntarily, of its own free will, without coercion or duress, and with benefit of counsel. 11. This agreement shall inure to the benefit of and be binding upon the heirs, executors, personal representatives and assigns of the parties hereto. Date Date Network Capital Group, Inc., Dolan Development Partners, Ltd., a California Corporation a California Limited Partnership By: By: 3 EX-10.21 16 SETTLEMENT AGREEEMENT DATED APRIL 1, 1996 EXHIBIT 10.21 SETTLEMENT AGREEMENT AND MUTUAL RELEASE 1. PARTIES. This settlement agreement and mutual release (" Settlement Agreement and Mutual Release") is effective as of April 1, 1996, by and between Westmark Group Holdings, Inc. ("Westmark" or the "Company") and the Investors set forth on the signature page hereto (the "Investors"), collectively referred to as the parties ("Parties"). 2. FACTS. 2.1 In June and December 1995, the Investors entered into Subscription Agreements with Westmark pursuant to which loans were made in the aggregate sum of six hundred thousand dollars ($600,000.00) (the "Subscription Agreements"). The terms of the Subscription Agreements provided for the issuance of notes (the "Notes") and warrants (the "Warrants") corresponding with the amount lent to the Company. The Subscription Agreement, Notes and Warrants entered into by each Investor and the Company are hereinafter referred to as the "Financing Documents." Each investor and the corresponding loan amount is set forth in Exhibit A hereto. 2.2 In March 1996, Westmark placed into escrow Six hundred thousand dollars ($600,000) (the "Escrowed Funds") at the law firm of Orrick, Herrington & Sufcliffe. A copy of the Escrow Agreement is attached hereto as Exhibit B. Westmark desires to pay the Investors the amount set forth in Exhibit A, from the Escrow Funds, in satisfaction of the principal amount of the Notes, plus accrued interest. 2.3 In April 1996, Westmark agreed to issue an aggregate of 300,000 shares of Series B Convertible Preferred Stock ("Preferred Stock") pursuant to a Certificate of Designation, Preferences, Rights and Limitations of Series B Convertible Preferred Stock of Westmark Group Holdings, Inc., a copy of which is attached hereto as Exhibit C (the "Designation"). Westmark desires to issue shares of Preferred Stock to each Investor, in the denomination set forth in Exhibit D, in exchange for cancelling the Warrants issued pursuant to the Subscription Agreements. 2.4 The Company acknowledges that the full purchase price for the Preferred Stock was received by the Company on April 1, 1996 and the Company hereby agrees to cause its counsel to rely upon this fact for purposes of rendering a Rule 144 opinion, if applicable. 2.5 The Parties have agreed to compromise and settle all obligations arising from the Financing Documents, including any disputes or claims arising therefrom, on the basis and in consideration of the recitals set forth herein and as further set forth in the Designation. 3. MUTUAL RELEASE 3.1 In consideration of the release of the Escrowed Funds to the Investors to be distributed to each Investor in the amount set forth in Exhibit A, and the issuance of 300,000 shares of Preferred Stock to the Investors in the denominations set forth in Exhibit D, and the agreements and covenants set forth hereinbelow, the sufficiency of which the Investors hereby acknowledge and confess, the Investors, for themselves, their officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, TO THE EXTENT LEGALLY ALLOWED, hereby covenant and agree as follows: 3.1.1 That they hereby release, acquit, and forever discharge Westmark, its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, from any and all rights, obligations, claims, demands and causes of action, whether in contract or in tort, arising from or relating to the Financing Documents, including all obligations arising therefrom, and omissions and/or conduct of Westmark and/or its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, relating to the Investors. 3.2 In consideration of the release of the Escrowed Funds to be distributed to each Investor in the amount set forth in Exhibit A, and the issuance of 300,000 shares of Preferred Stock to the Investors in the denominations set forth in Exhibit D, and the agreements and covenants set forth hereinabove, the sufficiency of which is hereby acknowledged and confessed, Westmark, for itself and its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, TO THE EXTENT LEGALLY ALLOWED, hereby covenants and agrees as follows: 3.2.1 That it hereby releases, acquits and forever discharges the Investors, their officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, from any and all rights, obligations, claims, demands and causes of action, whether in contract or in tort, arising from or relating to the Financing Documents, including obligations arising therefrom, and omissions, and/or conduct of the Investors relating to Westmark. Page 2 of 7 4. AUTHORIZATION. As long as the Preferred Stock of Westmark remains outstanding, Westmark may not issue additional securities or incur additional indebtedness without the prior written consent of Generation Capital Associates ("GCA"). In the event that Westmark intends to issue securities or incur indebtedness, it shall give GCA written notice via facsimile number (404) 255-2218 of such intent. If GCA does not respond within five business days of the facsimile transmission, such securities or debt issuance shall be deemed approved. Notwithstanding the foregoing, Westmark may issue securities or incur indebtedness, upon written notice to GCA not less than five days prior to the consummation of such transaction, as follows; (i) issuance of securities upon the exercise or conversion of existing warrants, options, convertible securities, or pursuant to presently existing employee stock option plans, and (ii) indebtedness may be incurred in the ordinary course of the mortgage-lending business (provided, however, that "the mortgage-lending business" for purposes hereof shall mean the origination of mortgage loans and the incurrence of indebtedness in connection therewith pursuant to the existing lines of credit of the Company and shall not include additional indebtedness incurred in the form of new lines of credit or other indebtedness to be used to originate mortgage loans or other mortgage business or the expansion of existing lines of credit of the Company beyond presently stated limitations in the existing loan documentation). A list of total shares granted under the various stock option plans is attached hereto as Exhibit "E." 5. CAPACITY. Westmark and the Investors represent that they are lawfully authorized to execute this Mutual Release. The Parties to this Mutual Release further represent that they have read it in full before its execution, and that they fully understand the meaning, operation and effect of its terms. 6. PRIOR ASSIGNMENTS. The Investors represent that they have not assigned, in whole or in part, any claims, demands and/or causes of action relating to Westmark to any person or entity prior to their execution of this Mutual Release. Westmark represents that is has not assigned, in whole or in part, any claim, demand and/or causes of action relating to the Investors to any person or entity prior to its execution of this Mutual Release. 7. RELEASE OF FUNDS. Once Investors representing 51% of the Preferred Stock to be issued hereunder have executed this Agreement, the Company shall issue such Preferred Stock as set forth in Exhibit D to such Investors and pay such Investors the amounts set forth in Exhibit A. As additional Investors execute this Agreement, such additional shares of Preferred Stock shall be issued and such additional escrowed monies shall be paid within three business days of each such execution. 8. LEGAL FEES. Upon the first release of Preferred Stock and escrowed funds, as described in Section 7 above, Westmark shall pay to Horwitz, Cutler & Beam legal fees in the amount of fifteen hundred dollars, provided an invoice has been delivered to the Company. Any additional sums up to fifteen hundred dollars shall be payable thirty days later, provided an invoice has been delivered to the Company. Page 3 of 7 9. BINDING EFFECT. This Mutual Release shall be binding on and inure to the benefit of the Parties and their respective heirs, successors, assigns, agents, employees, and personal representatives. 10. MODIFICATION. No modification or amendment of this Mutual Release shall be effective unless such modification or amendment shall be in writing and signed by all Parties hereto. 11. ENTIRE AGREEMENT. This Mutual Release constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of the Parties in connection with the subject matter hereof. 12. INTERPRETATION. The interpretation, construction, and performance of this Mutual Release shall be governed by the laws of the State of New York. Whenever used herein, the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall be applicable to all genders. All legal action or proceeding with respect to this Agreement shall be brought in the federal courts located in the Borough of Manhattan or in the New York State Courts located in the Borough of Manhattan, State of New York. 13. EXECUTION. This Mutual Release may be executed in several counterparts, each of which shall be deemed an original, and such counterparts, taken together, shall constitute but one and the same Mutual Release. This Mutual Release shall be effective on the day and year first above written. 14. GENERAL. Upon execution of this Mutual Release, each Investor and the Company hereof agrees and acknowledges that the Subscription Agreement, Notes and Warrants are hereby null and void and of no further force and effect, and except as set forth herein and in the Designation, all representations, warranties and other obligations set forth in the Financing Documents are waived, released and discharged in full. 15. COMPANY COVENANTS. The Company hereby covenants, at its own expense, and without any expense to the Investors, as follows: 15.1 To provide and continue to provide for the period the Series B Preferred Stock is outstanding, copies of all quarterly and annual financial statements and reports by or on behalf of the Company or its subsidiaries for public disclosure. 15.2 To provide to the Investors for the period the Series B Preferred Stock is outstanding, by facsimile transmission, the full text of any written release of information to the public regarding the Company, or a written summary of any such information released to the public other than in writing. Such information shall be provided to the Investors concurrently with its release to the public. Page 4 of 7 16. LIMITATIONS. 16.1 For a period of thirty-seven months from the Issue Date, no Investor shall be required or permitted, through conversion, exercise or receipt upon foreclosure, to obtain more than 5% at any one time of the outstanding voting equity of the Company as computed in accordance with Section 13 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. 16.2 Without limiting the foregoing, if the Company fails to obtain or has failed to maintain the effectiveness with the Securities Act of 1933, as amended ("Act"), of a registration statement filed under the Securities and Exchange Commission registering the issuance of the shares of Common Stock underlying the Series B Preferred Stock (or registering the resale of the shares of Common Stock issued upon conversion of the Series B Preferred Stock) prior to December 31, 1996 and the closing bid price per share of the Common Stock of the Company for any five consecutive trading days subsequent to December 31, 1996 is at or below $1.00, the limitations set forth in 16.1 above shall be rendered inapplicable ninety (90) days after written notice has been given by a holder of the Series B Preferred Stock to the Company with respect to the holder giving such notice. The Investors hereby acknowledge that the Company makes no representation that it will be able to obtain effectiveness under the Act of a registration statement referred to in this Section 16.2 or if such registration statement is deemed effective under the Act, that the Company will be able to maintain effectiveness of such registration statement for any period of time. 17. EFFECT OF CIVIL CODE 1542. Each of the parties hereto certifies that it has read Section 1542 of the California Civil Code, set out below: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each party hereby waives the benefits of Section 1542 and/or any similar provision under any applicable federal or state statute. Page 5 of 7 IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have executed this Settlement Agreement and Mutual Release as of the first day of April, 1996. WESTMARK GROUP HOLDINGS, INC. By: Its: Norman J. Birmingham, President INVESTORS: Generation Capital Associates By: Its: Frank Hart, General Partner Tissera Overseas Fund, NV By: Its: Lebanon Valley Auto Racing Corp. By: Its: Caribou Bridge Fund By: Its: Anacapa Venture Partners By: Its: Westport Capital Partners By: Its: James Noonan Page 6 of 7 Patrick Morton Larry Wells Chuck Everill Gerald R. Novich, DDS Page 7 of 7 Exhibit A INVESTORS NAME AMOUNT Generation Capital Associates $155,000 Tissera Overseas Fund, NV $25,000 Lebanon Valley Auto Racing Corp. $25,000 Caribou Bridge Fund $35,000 Anacapa Venture Partners $70,000 Westport Capital Partners $50,000 James Noonan $10,000 Patrick Morton $100,000 Larry Wells $30,000 Chuck Everill $50,000 Gerald R. Novich, DDS $50,000 Exhibit D INVESTORS NAME NUMBER OF SHARES Generation Capital Associates 77,500 Tissera Overseas Fund, NV 12,500 Lebanon Valley Auto Racing Corp. 12,500 Caribou Bridge Fund 17,500 Anacapa Venture Partners 35,000 Westport Capital Partners 25,000 James Noonan 5,000 Patrick Morton 50,000 Larry Wells 15,000 Chuck Everill 25,000 Gerald R. Novich, DDS 25,000 EX-10.22 17 SETTELMENT AGREEMENT BETWEEN COMPANY AND HULL EXHIBIT 10.22 SETTLEMENT AGREEMENT AND MUTUAL RELEASE 1. PARTIES. This settlement agreement and mutual release ("Agreement" or "Mutual Release") is effective as of April 25, 1996, by and between Westmark Group Holdings, Inc. ("Westmark" or the "Company") and James S. Hull, including any trusts or entities affiliated with him (collectively, "Hull"), collectively referred to as the parties ("Parties"). 2. FACTS. 2.1 In 1995, Hull loaned the Company One Hundred Fifty Thousand Dollars ($150,000.00) (the "Loan"), which has matured and is owed by the Company. 2.2 In April 1996, The Company agreed to repay Seventy Five Thousand Dollars ($75,000.00) of the Loan in the following installments: a. $27,000.00 payable on April 25, 1996. b. $19,000.00 payable on June 5, 1996. c. $19,000.00 payable on June 24, 1996. d. $10,000.00 payable on July 9, 1996. 2.3 In April 1996, the Company filed with the Colorado Secretary of State a Certificate of Designation, Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Westmark, a copy of which is attached hereto as Exhibit A (the "Designation") and incorporated herein by reference. Westmark desires to issue 18,750 shares of Preferred Stock ("Preferred Stock") to Hull, with a stated value of $75,000, in consideration for the payment of the outstanding balance (including principal and interest) of the Loan. Hull, may at his sole election, by written notice to Westmark, and the surrender of the convertible preferred stock, convert the convertible preferred stock into that number of shares of common stock by the lessor of $1.50 or 84% of the closing bid price of Westmark common stock for the trading day immediately proceeding the date on which Westmark receives the surrendered convertible preferred stock. 2.4 The Parties have agreed to compromise and settle all obligations arising from the Loan, including any disputes or claims arising therefrom, on the basis and in consideration of the recitals set forth herein and as further set forth in the Designation. 3. MUTUAL RELEASE 3.1 In consideration of the payments set forth in Section 2.2 hereof, and the issuance of 18,750 shares of Preferred Stock to Hull, and the agreements and covenants set forth hereinbelow, the sufficiency of which Hull hereby acknowledges and confesses, Hull, for himself, his affiliates, attorneys, agents, servants, representatives, successors, and assigns, TO THE EXTENT LEGALLY ALLOWED, hereby covenants and agrees as follows: 3.1.1 That he hereby releases, acquits, and forever discharges Westmark, its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, from any and all rights, obligations, claims, demands and causes of action, whether in contract or in tort, arising from or relating to the Loan, including all obligations arising therefrom, and omissions and/or conduct of Westmark and/or its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, relating to Hull. This Section 3.1.1 becomes effective upon completion of 2.2 a, b, c, and d, along with the receipt of stock and completion of the shelf registration. 3.2 In consideration of the payments set forth in Section 2.2 hereof, and the issuance of 18,750 shares of Preferred Stock to Hull, and the agreements and covenants set forth hereinabove, the sufficiency of which is hereby acknowledged and confessed, Westmark, for itself and its officers, directors, shareholders, partners, attorneys, agents, servants, representatives, successors, employees and assigns, TO THE EXTENT LEGALLY ALLOWED, hereby covenants and agrees as follows: 3.2.1 That it hereby releases, acquits and forever discharges Hull, his affiliates, attorneys, agents, servants, representatives, successors, and assigns, from any and all rights, obligations, claims, demands and causes of action, whether in contract or in tort, arising from or relating to the Loan, including obligations arising therefrom, and omissions, and/or conduct of Hull relating to Westmark. 4. CAPACITY. Westmark and Hull represent that they are lawfully authorized to execute this Mutual Release. The Parties to this Mutual Release further represent that they have read it in full before its execution, and that they fully understand the meaning, operation and effect of its terms. 5. PRIOR ASSIGNMENTS. Hull represents that he has not assigned, in whole or in part, any claims, demands and/or causes of action relating to Westmark to any person or Page 2 of 3 entity prior to his execution of this Mutual Release. Westmark represents that it has not assigned, in whole or in part, any claim, demand and/or causes of action relating to the Hull to any person or entity prior to its execution of this Mutual Release. 6. BINDING EFFECT. This Mutual Release shall be binding on and inure to the benefit of the Parties and their respective heirs, successors, assigns, agents, employees, and personal representatives. 7. MODIFICATION. No modification or amendment of this Mutual Release shall be effective unless such modification or amendment shall be in writing and signed by all Parties hereto. 8. ENTIRE AGREEMENT. This Mutual Release constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of the Parties in connection with the subject matter hereof. 9. INTERPRETATION. The interpretation, construction, and performance of this Mutual Release shall be governed by the laws of the State of Florida. Whenever used herein, the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall be applicable to all genders. 10. EXECUTION. This Mutual Release may be executed in several counterparts, each of which shall be deemed an original, and such counterparts, taken together, shall constitute but one and the same Mutual Release. This Mutual Release shall be effective on the day and year first above written. 11. GENERAL. Upon execution of this Mutual Release, Hull and the Company hereby agree and acknowledge that the Loan is hereby null and void and of no further force and effect, and all representations, warranties and other obligations set forth in the Loan documents are waived, released and discharged in full. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have executed this Settlement Agreement and Mutual Release as of the 25th day of April, 1996. WESTMARK GROUP HOLDINGS, INC. By: Norman J. Birmingham, President James B. Hull, Individually and as Trustee Page 3 of 4 EX-10.25 18 SETTLEMENT BETWEEN COMPANY AND NATIONWIDE COMPUTER EXHIBIT 10.25 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated February , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation and Nationwide Computer Corporation, ("Nationwide"), a corporation, and is made with reference to the following: RECITALS WHEREAS, WGHI retained Nationwide to represent it in various matters and to provide certain services and products to WGHI and; WHEREAS, Nationwide provided certain services and products on behalf of WGHI and billed it for such services and products and; WHEREAS, WGHI has informed Nationwide that it is unable to pay in cash the amounts owed to Nationwide for such services and products and has requested that Nationwide accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from the relationship between WGHI and Nationwide and claims for payments owed by WGHI to Nationwide. NOW, THEREFOR, in consideration of the terms set forth below and other covenants and conditions contained herein, WGHI and Nationwide mutually agree as follows: 1. WGHI agrees to pay to Nationwide the sum of $1,000 on April 1, 1996, $2,000 on May 1, 1996 and $2,000 on June 1, 1996. 2. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Nationwide of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 3 hereof. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Nationwide, 5,000 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. 1 WGHI will cause the sale of the Nationwide shares in an orderly manner through a brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI shares registered in the name of Nationwide shall be sold each month commencing June 25, 1996 to net Nationwide $2,622 per month through and including August 30, 1996. WGHI further agrees to register, qualify and issue to Nationwide additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $2,622 per month commencing June 30, 1996. Once Nationwide has received a total of $12,866 as a result of monthly payments commencing April 1, 1996, any remaining WGHI shares will be returned to WGHI and shall be retired. 4. If at any time WGHI fails to pay or cause the payments to be made to Nationwide as set forth above commencing April 1, 1996, WGHI shall be in default of this Agreement. In the event of default, Nationwide shall be entitled to proceed with any and all remedies available at law or in equity. 5. Nationwide hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, agents, officers, directors, employees, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services and products provided on its behalf by Nationwide. Provided, however, that this release does not in any way pertain to WGHI's obligations to Nationwide set forth herein. 6. WGHI hereby releases and forever discharges Nationwide, and all of its past, present and future employees, partners, agents, officers, directors, employees, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Nationwide's performance of services and products provided to WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Nationwide, whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth herein, all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Nationwide or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate 2 nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Nationwide agrees and acknowledges that it will accept the payments set forth above together with delivery of the WGHI shares and proceeds of sale thereof, as a full and complete compromise of matters involving disputed issues as to WGHI. Nationwide and WGHI agree and acknowledge that neither this Agreement nor delivery of the WGHI shares herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 13. This Agreement has been negotiated, and is entered into, in the State of Florida, County of Palm Beach. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to Florida law. 14. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of 3 this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 15. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 16. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. 17. In the event of any litigation arising out of or pertaining to this Agreement, the prevailing party shall be entitled to reasonable attorney's fees in addition to any other relief provided by law. 18. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Nationwide Computer Corp. 355 N.E. Fifth Ave., Suite 4 2011 N.W. 33rd Street Delray Beach, Florida 33483 Pompano Beach, Florida 33064 and Harry C. Coolidge, Esq. 1260 41st Ave., Suite N Capitola, California 59010 In the event of default by WGHI, Nationwide agrees to provide ten (10) days written notice of default to WGHI on no more than two (2) separate occasions during the term of this Agreement. After the expiration of either ten (10) day written notice, Nationwide shall be entitled to proceed as hereinabove set forth. Each party shall notify the other party by certified mail of any change of address or 4 change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this Agreement to that address and designated person. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: NATIONWIDE COMPUTER WESTMARK GROUP HOLDINGS, INC. CORPORATION By: By: Its: Its: 5 EX-10.26 19 SETTLEMENT BETWEEN COMPANY AND TELETREND COMM. EXHIBIT 10.26 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated February , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation and Tele-Trend Communications, ("Tele-Trend"), a Colorado Limited Liability Company, and is made with reference to the following: RECITALS WHEREAS, WGHI retained Tele-Trend to represent it in various matters and to provide certain services to WGHI and; WHEREAS, Tele-Trend has provided certain services to WGHI and billed WGHI for such services and; WHEREAS, WGHI has informed Tele-Trend that it is unable to pay in cash the amounts owed to Tele-Trend for such services and has requested that Tele-Trend accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from the relationship between WGHI and Tele-Trend and claims for payments owed by WGHI to Tele-Trend. NOW, THEREFOR, in consideration of the terms set forth below and other covenants and conditions contained herein, WGHI and Tele-Trend mutually agree as follows: 1. WGHI agrees to pay to Tele-Trend the sum of $1,000 on March 30, 1996, $1,000 on April 30, 1996 and $1,000 on May 30, 1996. 2. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Tele-Trend of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 3 hereof. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Tele-Trend, 9,500 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. 1 WGHI will cause the sale of the Tele-Trend shares in an orderly manner through a brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI shares registered in the name of Tele-Trend shall be sold each month commencing June, 1996 to net $3,764 per month payable to Tele-Trend no later than the 30th day of each month commencing June 30, 1996 through and including November 30, 1996. WGHI further agrees to register, qualify and issue to Tele-Trend additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $3,764 per month commencing June 30, 1996. Once Tele-Trend has received a total of $25,580 as a result of monthly payments commencing March 30, 1996, any remaining Tele-Trend shares will be returned to WGHI and shall be retired. 4. In the event WGHI fails to pay Tele-Trend in accordance with the schedule set forth above or in the further event WGHI fails to cause the sale of sufficient shares to enable Tele-Trend to receive $3,764 per month commencing June 30, 1996, WGHI shall be in default of this agreement. In the event of default, Tele-Trend shall be entitled to proceed with all remedies available at law or in equity. In the event of default, Tele-Trend shall be entitled to file the Confession of Judgment executed by WGHI, a copy which is attached hereto marked Exhibit "A" and by this reference made a part hereof. 5. Tele-Trend hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, agents, officers, directors, employees, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services provided by Tele-Trend. Provided, however, that this release does not in any way pertain to WGHI's obligations to Tele-Trend set forth herein. 6. WGHI hereby releases and forever discharges Tele-Trend, and all of its past, present and future employees, partners, agents, officers, directors, employees, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Tele-Trend's providing of services to WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Tele-Trend, whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth herein, all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, 2 oversight, error, negligence or otherwise, and which, if known to Tele-Trend or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Tele-Trend agrees and acknowledges that it will accept the payments set forth above together with delivery of the WGHI shares and proceeds of sale thereof, as a full and complete compromise of matters involving disputed issues as to WGHI. Tele-Trend and WGHI agree and acknowledge that neither this Agreement nor delivery of the WGHI shares herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 13. This Agreement has been negotiated, and is entered into, in the State of California, County of Santa Cruz. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 14. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the 3 negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 15. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 16. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. 17. In the event of any litigation arising out of or pertaining to this Agreement, the prevailing party shall be entitled to reasonable attorney's fees in addition to any other relief provided by law. 18. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Tele-Trend Communications 355 N.E. Fifth Ave., Suite 4 c/o Freeborn & Peters Delray Beach, Florida 33483 Attn: Mark T. Barnes, Esq. 950 17th Street, Suite 2600 and Denver, Colorado 80202-2826 Harry C. Coolidge, Esq. 1260 41st Ave., Suite N Capitola, California 59010 In the event of default by WGHI, Tele-Trend agrees to provide ten (10) days written notice of default to WGHI. After the expiration of said ten (10) day written notice, Tele- 4 Trend shall be entitled to proceed as hereinabove set forth. Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this Agreement to that address and designated person. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: TELE-TREND COMMUNICATIONS WESTMARK GROUP HOLDINGS, INC. By: By: Its: Its: 5 EXHIBIT "A" IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SANTA CRUZ TELETREND COMMUNICATIONS, ) Case No.: ) Plaintiff, ) CONFESSION OF JUDGMENT ) STATEMENT vs. ) [CCP 1133] ) WESTMARK GROUP HOLDINGS, ) INC., ) ) Defendant. ) ) ____________________________) WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby confesses judgment in the above-entitled action in favor of Tele-Trend Communications, ("Tele- Trend"), a Colorado Limited Liability Company, in the principal amount of $25,580, plus costs, and interest on said principal amount at ten percent (10%) per annum from the date of this Confession of Judgment Statement to the date of entry of judgment herein, less any payments received by Tele-Trend from the date of the execution of the Settlement Agreement set forth below, and authorizes entry of judgment against it in that total amount. This confession of judgment is for a debt justly due that arises out of a contractual relationship wherein Tele-Trend provided services to WGHI. By the terms of a settlement agreement between WGHI and Tele-Trend dated the_____day of March, 1996, WGHI agreed 1 that, if it defaulted on its obligations thereunder, Tele-Trend could obtain judgment against it pursuant to this Confession of Judgment Statement and the procedures of California Code of Civil Procedures Section 1132 ET SEQ. DATED: WGHI GROUP HOLDINGS, INC. By: Norman Birmingham, President VERIFICATION I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS, INC., ("WGHI") Defendant in the above-entitled action, and I make this Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of my own knowledge. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Dated: _____________________ Norman Birmingham 2 EX-10.28 20 SETTLEMENT BETWEEN COMPANY AND MORTGAGE QUALITY EXHIBIT 10.28 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated February , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation and Mortgage Quality Management, Inc., dba Foster Ousley Conley, ("F.O.C."), a California corporation and is made with reference to the following: RECITALS WHEREAS, WGHI retained F.O.C. to represent it in various matters and to provide certain services to WGHI and; WHEREAS, F.O.C. has provided certain services to WGHI and billed WGHI for such services and; WHEREAS, WGHI has informed F.O.C. that it is unable to pay in cash the amounts owed to F.O.C. for such services and has requested that F.O.C. accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from the relationship between WGHI and F.O.C. and claims for payments owed by WGHI to F.O.C.. NOW, THEREFOR, in consideration of the terms set forth below and other covenants and conditions contained herein, WGHI and F.O.C. mutually agree as follows: 1. WGHI agrees to pay to F.O.C. the sum of $2,000 on March 15, 1996, $2,000 on April 15, 1996 and $2,000 on May 15, 1996. 2. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to F.O.C. of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 3 hereof. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to F.O.C., 6,000 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. WGHI will cause the sale of the F.O.C. shares in an orderly manner through a brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI shares 1 registered in the name of F.O.C. shall be sold each month commencing June, 1996 to net $2,304 per month payable to F.O.C. no later than the 15th day of each month commencing June 15, 1996 through and including November 15, 1996. WGHI further agrees to register, qualify and issue to F.O.C. additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $2,304 per month commencing June 15, 1996. Once F.O.C. has received a total of $19,821 as a result of monthly payments commencing March 15, 1996, any remaining F.O.C. shares will be returned to WGHI and shall be retired. 4. In the event WGHI fails to pay F.O.C. in accordance with the schedule set forth above or in the further event WGHI fails to cause the sale of sufficient shares to enable F.O.C. to receive $2,304 per month commencing June 15, 1996, WGHI shall be in default of this agreement. In the event of default, F.O.C. shall be entitled to file the Confession of Judgment which is attached hereto marked Exhibit "A" and by this reference made a part hereof and proceed with any and all remedies available at law or in equity. In the event of default, F.O.C. shall have no obligation to liquidate the WGHI shares and in the absence of liquidation, said shares shall be returned to WGHI. In the absence of default, said Confession of Judgment Statement shall be held by F.O.C., unfiled. 5. F.O.C. hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, agents, officers, directors, employees, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services provided by F.O.C.. Provided, however, that this release does not in any way pertain to WGHI's obligations to F.O.C. set forth herein and in the event of default by WGHI, this release shall be null and void. 6. WGHI hereby releases and forever discharges F.O.C., and all of its past, present and future employees, partners, agents, officers, directors, employees, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of F.O.C.'s services rendered on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against F.O.C., whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth herein, all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for 2 damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to F.O.C. or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. F.O.C. agrees and acknowledges that it will accept the payments set forth above together with delivery of the WGHI shares and proceeds of sale thereof, as a full and complete compromise of matters involving disputed issues as to WGHI. F.O.C. and WGHI agree and acknowledge that neither this Agreement nor delivery of the WGHI shares herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 13. This Agreement has been negotiated, and is entered into, in the State of California, County of Contra Costa. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 14. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the 3 opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 15. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 16. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. 17. In the event of any litigation arising out of or pertaining to this Agreement, the prevailing party shall be entitled to reasonable attorney's fees in addition to any other relief provided by law. 18. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Mortgage Quality Management, Inc., 355 N.E. Fifth Ave., Suite 4 dba Foster Ousley Conley Delray Beach, Florida 33483 c/o Ed Vegliante Commercial Lawyers' Network, Inc. and 45 Polk Street San Francisco, California 94102 Harry C. Coolidge, Esq. 1260 41st Ave., Suite N and Capitola, California 59010 Peter Hass, Esq. 4 WATSON, HOFFE & HASS P.O. Box 5001 Richmond, California 94805 In the event of default by WGHI, F.O.C. agrees to provide ten (10) days written notice of default to WGHI on no more than two (2) separate occasions during the term of this Agreement. After the expiration of either ten (10) day written notice, F.O.C. shall be entitled to proceed as hereinabove set forth. Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this Agreement to that address and designated person. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: MORTGAGE QUALITY MANAGEMENT, WESTMARK GROUP HOLDINGS, INC. INC., dba FOSTER OUSLEY CONLEY By: By: Its: Its: 5 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF CONTRA COSTA MORTGAGE QUALITY ) Case No.: MANAGEMENT, INC., dba ) FOSTER OUSLEY CONLEY, ) ATTORNEY'S DECLARATION IN ) SUPPORT OF CONFESSION OF Plaintiff, ) JUDGMENT STATEMENT ) vs. ) [CCP 1132(b)] ) WESTMARK GROUP HOLDINGS, ) INC., ) ) Defendant. ) ) __________________________) I, Harry C. Coolidge, declare as follows: 1. I am an attorney at law, licensed to practice in the courts of the State of California. I am outside counsel for WESTMARK GROUP HOLDINGS, INC. ("WGHI"), the party confessing judgment in the above-entitled action. I have personal knowledge of the facts set forth in this Declaration, and I could and would testify competently to these facts if called as a witness. 2. I have examined the Judgment attached hereto as Exhibit "A," and I have advised WGHI with respect to the waiver of rights and defenses under the confession of judgment procedure, California Code of Civil Procedure Section 1132 ET SEQ. I have advised WGHI to utilize the confession of judgment procedure in this matter. 1 I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. DATED:__________ _______________________ Harry C. Coolidge 2 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF CONTRA COSTA MORTGAGE QUALITY ) Case No.: MANAGEMENT, INC., dba ) FOSTER OUSLEY CONLEY, ) CONFESSION OF JUDGMENT ) STATEMENT Plaintiff, ) [CCP 1133] ) vs. ) ) WESTMARK GROUP HOLDINGS, ) INC., ) ) Defendant. ) ) _______________________________) WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby confesses judgment in the above-entitled action in favor of MORTGAGE QUALITY MANAGEMENT, INC., dba FOSTER OUSLEY CONLEY, ("F.O.C."), a California corporation in the principal amount of $19,821, plus costs, and interest on said principal amount at ten percent (10%) per annum from the date of this Confession of Judgment Statement to the date of entry of judgment herein, less any amounts received by F.O.C. pursuant to that certain Settlement Agreement and Mutual Release of all Claims dated ,______ 1996, and authorizes entry of judgment against it in that total amount. This confession of judgment is for a debt justly due that arises out of a contractual relationship between Plaintiff and Defendant wherein and whereby Plaintiff provided the services to Defendant. WGHI owes F.O.C. the sum of $19,821 for such services. By the 1 terms of a settlement agreement between WGHI and F.O.C. dated the day_____ of March, 1996, WGHI agreed that, if it defaulted on its obligations thereunder, F.O.C. could obtain judgment against it pursuant to this Confession of Judgment Statement and the procedures of California Code of Civil Procedures Section 1132 ET SEQ. DATED: WGHI GROUP HOLDINGS, INC. By: Norman Birmingham, President VERIFICATION I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS, INC., ("WGHI") Defendant in the above-entitled action, and I make this Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of my own knowledge. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Dated: Norman Birmingham 2 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF CONTRA COSTA MORTGAGE QUALITY ) Case No.: MANAGEMENT, INC., dba ) FOSTER OUSLEY CONLEY, ) JUDGMENT ) [CCP 1134] Plaintiff, ) ) vs. ) ) WESTMARK GROUP HOLDINGS, ) INC., ) ) Defendant. ) ) ___________________________) Pursuant to the Confession of Judgment Statement on file herein, the above-entitled court ordered the following judgment to be entered in the above-entitled action: IT IS ADJUDGED that Plaintiff MORTGAGE QUALITY MANAGEMENT, INC., dba FOSTER OUSLEY CONLEY recover from Defendant WESTMARK GROUP HOLDINGS, INC., the following: 1. Principal in the amount of $19,821 less any amounts recovered by WGHI pursuant to that certain Settlement Agreement and Mutual Release of All Claims dated ________________ , 1996. 2. Interest from __________, 199_, to date at ten percent (10%) per annum in the amount of ____________ ; and 3. Costs in the amount of __________. 4. Reasonable attorney's fees in the sum of __________. Dated: Judge of the Superior Court 1 EX-10.29 21 SETTLEMENT BETWEEN COMPANY AND HAKMAN & CO. EXHIBIT 10.29 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation, and Hakman & Company, Inc. ("Hakman"), a California corporation, and is made with reference to the following: RECITALS WHEREAS, WGHI and Hakman previously entered into a contractual agreement wherein Hakman represented WGHI with respect to the prospective acquisition of Westmark Mortgage Corporation by WGHI and; WHEREAS, WGHI is obligated to Hakman in the sum of $18,652.84 and is unable to pay in cash the amount owed to Hakman and has requested that Hakman accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims of demands whatsoever between them. NOW, THEREFOR, in consideration of the terms set forth below and the other covenants and conditions contained herein, WGHI and Hakman mutually agree as follows: 1. WGHI agrees to pay to Hakman the sum of $1,000 on March 15, 1996, $1,000 on April 15, 1996 and $1,000 May 15, 1996. 2. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Hakman of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 2 hereof. WGHI will use its best efforts to cause the SEC to declare the Registration Statement effective under Section 5 of the Securities Act of 1993 on or before June 1, 1996. The issuance of such WGHI shares shall also be qualified under the California Corporation Securities Laws of 1968 or exempt from such qualification. 3. Immediately upon the effectiveness and qualification of the 1 Registration Statement, WGHI will issue to Hakman 7,000 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. WGHI agrees that it will sell the Hakman shares in an orderly manner through the brokerage firm designated by WGHI, or such other brokerage firm as agree to by the parties. The sale of the WGHI shares by WGHI shall conclude on or before September 15, 1996, provided that sufficient WGHI shares are registered and qualified under the terms of Section 1 hereof and issued by WGHI to Hakman in sufficient time to allow Hakman to net $3,913.21 per month commencing June 15, 1996 through the sale of such shares as contemplated hereunder. WGHI agrees that the number of WGHI shares registered and issued to Hakman shall equal the number necessary to net $3,913.21 per month commencing June 15, 1996 upon the sale thereof (after payment of all brokerage fees). WGHI agrees to register, qualify and issue to Hakman additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $3,913.21 per month. Once Hakman has received a total of $18,652.84 from WGHI or from the sale of shares as set forth above, any remaining WGHI shares will be returned to WGHI and shall be retired. 4. If at any time WGHI fails to perform its obligations as set forth hereinabove, WGHI shall be in default of this Agreement. In the event of default, Hakman shall be entitled to file the Stipulation for Entry of Judgment which is attached hereto marked Exhibit "A" and by this reference made a part hereof. Said stipulation shall be held by Hakman, unfiled, pending the compliance by WGHI with the terms and conditions of this Settlement Agreement. Upon filing of the Stipulation for Entry of Judgment, Hakman shall be entitled of all remedies available at law or in equity. 5. Hakman hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, officers, directors, employees, agents, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services rendered on its behalf by Hakman, and any past, present or future partners or employees; provided, however, that the release, set forth herein does not in any way pertain to WGHI's obligations to Hakman set forth herein, including without limitation, the obligations set forth in Sections 1 or 2 hereof. 6. WGHI hereby releases and forever discharges Hakman, and all of its past, present and future partners, attorneys, officers, directors, 2 employees, agents, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Hakman's performance of services on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Hakman, whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth in Sections 1 and 2 all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Hakman or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Each party warrants and represents to the other that it has not assigned, conveyed or transferred any of the claims or possible claims against any of the parties hereto (or any interest therein) which are released or referred to herein and that the releases herein are what they purport to be. In the event of an adjudication that either party is in breach of this Section, the party in breach agrees to indemnify and hold harmless the other party from any resulting liability, claim, demand, damage, cost, expense and/or attorney's fees incurred by the other party as a result of the breach. 10. Hakman agrees and acknowledges that it will accept delivery of the WGHI shares and receipt of the payments specified in Sections 1 and 2 of this Agreement as a full and complete compromise of matters involving disputed issues as to Hakman. Each of Hakman and WGHI agrees and 3 acknowledges that neither this Agreement, nor delivery of the WGHI shares by WGHI herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 11. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 12. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 13. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 14. This Agreement has been negotiated, and is entered into, in the State of California, County of San Francisco. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 15. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and 4 (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 16. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 17. Failure by either party at any time to require performance of any provision of this Agreement shall not limit the right of that party to enforce such performance or provision at any time, nor shall either party's waiver of any breach by the other party of any provision of this Agreement by a waiver of any succeeding breach by that other party of that same provision, or of any other provision of this Agreement. 18. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Hakman & Company 355 N.E. Fifth Avenue, Suite 4 c/o Leonard Steinberg, Esq. Delray Beach, Florida 33483 HOSIE, WES, MCLAUGHLIN One Sansome Street, 14th Floor and San Francisco, California 94104 Harry C. Coolidge, Esq. 1260 41st Avenue, Suite N Capitola, California 95010 Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided to this Agreement to that address and designated person. 5 19. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: HAKMAN & COMPANY, INC. WESTMARK GROUP HOLDINGS, INC. By: By: Its: Its: 6 EX-10.30 22 SETTLEMENT BETWEEN COMPANY AND REPUBLIC INDEM. EXHIBIT 10.30 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated February , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation and Republic Indemnity Company of America, ("Republic Indemnity"), a California corporation, and is made with reference to the following: RECITALS WHEREAS, WGHI retained Republic Indemnity to represent it in various matters and to provide certain services to WGHI and; WHEREAS, Republic Indemnity has provided certain worker's compensation insurance coverage on behalf of WGHI and billed WGHI for such insurance and; WHEREAS, WGHI has informed Republic Indemnity that it is unable to pay in cash the amounts owed to Republic Indemnity for such insurance and has requested that Republic Indemnity accept the form of payment as set forth herein and; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from the relationship between WGHI and Republic Indemnity and claims for payments owed by WGHI to Republic Indemnity. NOW, THEREFOR, in consideration of the terms set forth below and other covenants and conditions contained herein, WGHI and Republic Indemnity mutually agree as follows: 1. WGHI agrees to pay to Republic Indemnity the sum of $1,000 on March 15, 1996, $ on April 15, 1996 and $ on May 15, 1996. 2. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Republic Indemnity of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 3 hereof. 3. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Republic Indemnity, 8,000 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and 1 clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. WGHI will cause the sale of the Republic Indemnity shares in an orderly manner through a brokerage firm designated by WGHI. WGHI agrees that a sufficient number of WGHI shares registered in the name of Republic Indemnity shall be sold each month commencing June, 1996 to net $2,556 per month payable to Republic Indemnity no later than the 15th day of each month commencing June 15, 1996 through and including December 15, 1996. WGHI further agrees to register, qualify and issue to Republic Indemnity additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $2,556 per month commencing June 15, 1996. Once Republic Indemnity has received a total of $20,890 as a result of monthly payments commencing March 15, 1996, any remaining Republic Indemnity shares will be returned to WGHI and shall be retired. 4. In the event WGHI fails to pay Republic Indemnity in accordance with the schedule set forth above or in the further event WGHI fails to cause the sale of sufficient shares to enable Republic Indemnity to receive $2,556 per month commencing June 15, 1996, WGHI shall be in default of this agreement. In the event of default, Republic Indemnity shall be entitled to file the Confession of Judgment which is attached hereto marked Exhibit "A" and by this reference made a part hereof and proceed with any and all remedies available at law or in equity. In the absence of default, said Confession of Judgment Statement shall be held by F.O.C., unfiled. 5. Republic Indemnity hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, agents, officers, directors, employees, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for insurance provided by Republic Indemnity. Provided, however, that this release does not in any way pertain to WGHI's obligations to Republic Indemnity set forth herein. 6. WGHI hereby releases and forever discharges Republic Indemnity, and all of its past, present and future employees, partners, agents, officers, directors, employees, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Republic Indemnity's acquisition of worker's compensation insurance on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Republic Indemnity, whether real or imaginary or known or unknown at this time. 7. Subject to satisfaction of the terms set forth herein, all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 2 8. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Republic Indemnity or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Republic Indemnity agrees and acknowledges that it will accept the payments set forth above together with delivery of the WGHI shares and proceeds of sale thereof, as a full and complete compromise of matters involving disputed issues as to WGHI. Republic Indemnity and WGHI agree and acknowledge that neither this Agreement nor delivery of the WGHI shares herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 13. This Agreement has been negotiated, and is entered into, in the State of California, County of Santa Cruz. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 14. In entering into this Agreement, each party represents that: 3 (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 15. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 16. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: REPUBLIC INDEMNITY COMPANY WESTMARK GROUP HOLDINGS, INC. OF AMERICA By: By: Its: Its: 4 EXHIBIT "A" IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SANTA CRUZ REPUBLIC INDEMNITY COMPANY ) Case No.: OF AMERICA, ) ) CONFESSION OF JUDGMENT Plaintiff, ) STATEMENT ) [CCP 1133] v. ) ) WESTMARK GROUP HOLDINGS, ) INC., ) ) Defendant. ) ) ______________________________) WESTMARK GROUP HOLDINGS, INC. ("WGHI"), a Colorado corporation, hereby confesses judgment in the above-entitled action in favor of REPUBLIC INDEMNITY COMPANY OF AMERICA, ("REPUBLIC INDEMNITY"), Plaintiff, in the principal amount of $20,890, plus costs, and interest on said principal amount at ten percent (10%) per annum from the date of this Confession of Judgment Statement to the date of entry of judgment herein, less any amounts paid by WGHI to REPUBLIC INDEMNITY up to and including the date of filing of this Confession of Judgment Statement, and authorizes entry of judgment against it in that total amount. This Confession of Judgment Statement shall be held by Plaintiff, unfiled, pending Defendant's compliance with that certain Settlement Agreement and Mutual Release of all Claims executed by the parties. This Confession of Judgment Statement is for a debt justly due that arises out of the following circumstances: REPUBLIC INDEMNITY provided worker's compensation 1 insurance to WGHI and WGHI owes $20,890 for said insurance policies. By the terms of a Settlement Agreement between WGHI and REPUBLIC INDEMNITY dated the day of________ , 1996, WGHI agreed that if it defaulted on its obligations thereunder, REPUBLIC INDEMNITY could obtain judgment against and pursuant to this Confession of Judgment Statement and the procedures of California Code of Civil Procedures Section 1132 ET SEQ. DATED: WGHI GROUP HOLDINGS, INC. By: Norman Birmingham, President VERIFICATION I, Norman Birmingham, am the President of WESTMARK GROUP HOLDINGS, INC., ("WGHI") Defendant in the above-entitled action, and I make this Verification on WGHI's behalf. I have read the foregoing CONFESSION OF JUDGMENT STATEMENT and know its contents. The CONFESSION OF JUDGMENT STATEMENT is true of my own knowledge. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Dated: ___________________ Norman Birmingham 2 EX-10.33 23 SETTLEMENT BETWEEN COMPANY AND CASSIDY & ASSOC. EXHIBIT 10.33 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), _______________ dated , 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation, and James Cassidy ("Cassidy"), and is made with reference to the following: RECITALS WHEREAS, WGHI retained Cassidy beginning in 1994 and continuing into 1995, and agreed to pay Cassidy for services provided; and WHEREAS, Cassidy performed services on behalf of WGHI and billed it for such services on an hourly basis; WHEREAS, WGHI has informed Cassidy that it is unable to pay in cash the amounts owed to Cassidy for such services and has requested that Cassidy accept the form of payment as set forth herein; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from Cassidy's representation of WGHI and Cassidy's claims for payments owed by WGHI to Cassidy for legal representation of WGHI. NOW, THEREFOR, in consideration of the terms set forth below in Sections 1 and 2 of this Agreement, and the other covenants and conditions contained herein, WGHI and Cassidy mutually agree as follows: 1. On or before March 31, 1996, WGHI at its own cost and expense will file with the U.S. Securities and Exchange Commission ("SEC") a Registration Statement on Form S-1 or SB-1 ("Registration Statement") covering the issuance to Cassidy of such number of shares of WGHI common stock as calculated pursuant to the terms of Section 2 hereof. WGHI will use its best efforts to cause the SEC to declare the Registration Statement effective under Section 5 of the Securities Act of 1993 on or before June 1, 1996. 2. Immediately upon the effectiveness and qualification of the Registration Statement, WGHI will issue to Cassidy 35,000 shares. All such WGHI shares shall be fully paid, nonassessable, duly authorized and validly issued and will be free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and encumbrances. WGHI agrees that it will sell the Cassidy shares in an orderly manner through the brokerage firm designated by WGHI, or such other brokerage firm as agreed to by the parties. 1 Westmark shall cause the registration issuance and sale of sufficient shares to enable Cassidy to receive no less than $5,859 per month commencing June 15, 1996 and continuing on the 15th day of each thereafter until the entire balance shall have been paid in full. WGHI agrees to register, qualify and issue to Cassidy additional WGHI shares to the extent the number of WGHI shares originally registered, qualified and issued are insufficient to net $5,859 per month commencing June 15, 1996. Once Cassidy has netted $70,300, any remaining WGHI shares will be returned to WGHI and shall be retired. 3. If at any time WGHI fails to perform its obligations as set forth hereinabove, WGHI shall be in default of this Agreement and Cassidy shall be entitled to proceed with any and all remedies provided at law or in equity. 4. Cassidy hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, officers, directors, employees, agents, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services rendered on its behalf by Cassidy, and any past, present or future partners or employees; provided, however, that the release, set forth herein does not in any way pertain to WGHI's obligations to Cassidy set forth herein, including without limitation, the obligations set forth in Sections 1 or 2 hereof. 5. WGHI hereby releases and forever discharges Cassidy, and all of its past, present and future partners, attorneys, officers, directors, employees, agents, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Cassidy performance of services on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Cassidy, whether real or imaginary or known or unknown at this time. 6. Subject to satisfaction of the terms set forth in Sections 1 and 2 all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 7. The parties hereto acknowledge and understand that this Agreement creates new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Cassidy or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as 2 follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 8. Each party warrants and represents to the other that it has not assigned, conveyed or transferred any of the claims or possible claims against any of the parties hereto (or any interest therein) which are released or referred to herein and that the releases herein are what they purport to be. In the event of an adjudication that either party is in breach of this Section, the party in breach agrees to indemnify and hold harmless the other party from any resulting liability, claim, demand, damage, cost, expense and/or attorney's fees incurred by the other party as a result of the breach. 9. Cassidy agrees and acknowledges that it will accept the payments and the registration, issuance and sale of the WGHI shares specified hereinabove as a full and complete compromise of matters involving disputed issues as to Cassidy. Each of Cassidy and WGHI agrees and acknowledges that neither this Agreement, nor delivery of the WGHI shares by WGHI herein, or any event occurring during the negotiations for this Agreement (nor any statement or communication made in connection therewith) by either party, or their attorneys or representatives, shall be considered an admission by any party of any act or omission to act, or of any responsibility or liability for any claims, suits, actions or any facts, representations or misrepresentations regarding any of the parties, and that no past nor present wrongdoing on the part of either party shall be implied therefrom. 10. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 11. This Agreement is binding upon, and shall inure to the benefit of, each of the parties and their respective officers, directors, investors, agents, representatives, partners, predecessors, successors and assigns. 12. WGHI hereby represents and warrants that as of the date of its execution of this Agreement it has sufficient shares of common stock duly authorized and available in order to comply with the terms of Sections 1 and 2 hereof. WGHI agrees that it will reserve and keep available for issuance sufficient shares of its common stock so that it can comply with its obligations set forth in Sections 1 and 2 hereof. 13. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This 3 Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 14. This Agreement has been negotiated, and is entered into, in the State of Florida, County of Palm Beach. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to Florida law. 15. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 16. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 17. Failure by either party at any time to require performance of any provision of this Agreement shall not limit the right of that party to enforce such performance or provision at any time, nor shall either party's waiver of any breach by the other party of any provision of this Agreement by a waiver of any succeeding breach by that other party of that same provision, or of any other provision of this Agreement. 18. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Cassidy & Associates 355 N.E. Fifth Ave., Suite 4 1504 "R" Street N.W. Delray Beach, Florida 33483 Washington, D.C. 20009 4 and Harry C. Coolidge, Esq. 1260 41st Ave., Suite N Capitola, California 59010 Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this Agreement to that address and designated person. 19. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. 20. The exercise date for any stock options previously granted to Cassidy shall be extended up to and including the date of final payment of the obligation hereinabove set forth. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: CASSIDY & ASSOCIATES WESTMARK GROUP HOLDINGS, INC. By: By: Its: Its: 5 EX-10.35 24 SETTLEMENT BETWEEN COMPANY AND JEHU HAND EXHIBIT 10.35 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS This settlement Agreement and Mutual Release of All Claims ("Agreement"), dated March 28, 1996, is executed by and between Westmark Group Holdings, Inc. ("WGHI"), a Colorado corporation, and Jehu Hand ("Hand"), and is made with reference to the following: RECITALS WHEREAS, WGHI retained Hand to provide certain services to WGHI; and WHEREAS, Hand performed services on behalf of WGHI and billed it for such services on an hourly basis; WHEREAS, WGHI has informed Hand that it is unable to pay in cash the amounts owed to Hand for such services and has requested that Hand accept the form of payment as set forth herein; WHEREAS, the parties hereby wish to settle and to resolve any and all disputes, debts, damages, accounts, claims and demands whatsoever between them arising from Hand representation of WGHI and Hand claims for payments owed by WGHI to Hand for services rendered by Hand to WGHI. NOW, THEREFOR, in consideration of the terms set forth below, and the other covenants and conditions contained herein, WGHI and Hand mutually agree as follows: 1. WGHI covenants and agrees to pay to Hand the sum of $5,000 and Hand agrees to accept said sum in full and final settlement of any and all claims by Hand against WGHI. Payment shall be made by WGHI, in full, no later than April 15, 1996. 2. If at any time WGHI fails to perform its obligations as set forth hereinabove, WGHI shall be in default of this Agreement and Hand shall be entitled to proceed with any and all remedies available at law or in equity. 3. Hand hereby releases and forever discharges WGHI, and all of its past, present and future attorneys, officers, directors, employees, agents, insurers, successors and assigns from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have arisen or may arise out of WGHI alleged failure to pay for services rendered on its behalf by Hand provided, however, that the release set forth herein is subject to the payment by WGHI as set forth in paragraph 1. 1 4. WGHI hereby releases and forever discharges Hand, and all of its past, present and future partners, attorneys, officers, directors, employees, agents, insurers, successors and assigns, from any and all claims, demands, obligations or causes of action of any nature whatsoever, whether in law or in equity, or whether for contractual, compensatory or punitive damages, which have or may arise out of Hand performance of services on behalf of WGHI, or failure thereof, and any and all other claims or causes of action WGHI may have against Hand whether real or imaginary or known or unknown at this time. 5. Subject to satisfaction of the terms set forth herein all parties hereto acknowledge that they execute and agree to this Agreement, and accept the terms set forth herein, as a complete compromise of all matters involving disputed issues of law and fact and fully assume, thereby, the risk that the facts or law may be other than they believe. 6. Each party warrants and represents to the other that it has not assigned, conveyed or transferred any of the claims or possible claims against any of the parties hereto (or any interest therein) which are released or referred to herein and that the releases herein are what they purport to be. In the event of an adjudication that either party is in breach of this Section, the party in breach agrees to indemnify and hold harmless the other party from any resulting liability, claim, demand, damage, cost, expense and/or attorney's fees incurred by the other party as a result of the breach. 7. Each party represents and warrants that it has full authority to enter into this Agreement and to release all of the claims, known or unknown, which are the subject matter of the releases herein. 8. This Agreement contains the entire agreement between the parties and supersedes and replaces any and all prior or contemporaneous agreements or understandings, whether written or oral, with regard to the matters set forth herein. This Agreement may be amended or modified in whole or in part at any time, but only by a written agreement executed by both parties in the same manner as this Agreement. 9. This Agreement has been negotiated, and is entered into, in the State of California, County of Orange. The validity, interpretation, construction and enforcement of this Agreement shall be construed, interpreted and governed pursuant to California law. 10. In entering into this Agreement, each party represents that: (a) It has read the Agreement and has had the opportunity to consult with its attorneys, who are the attorneys of its own choice, during the negotiation and preparation of this Agreement. 2 (b) It fully understands and is aware of the terms of this Agreement, and the legal consequences thereof, and voluntarily accepts them; and (c) Its counsel has reviewed and revised, or has had the opportunity to review and revise this Agreement, and accordingly the normal rule of construction, which states to the effect that any ambiguities are to resolved against the drafting party, shall not be employed in the interpretation of this Agreement. 11. Each party represents and warrants that no other person or entity has or has had any interest in the claims, demands, obligations or causes of action referred to in this Agreement. Each party further warrants and represents that the individuals executing this Agreement are duly authorized by the respective parties to bind the parties to the terms of this Agreement. 12. Failure by either party at any time to require performance of any provision of this Agreement shall not limit the right of that party to enforce such performance or provision at any time, nor shall either party's waiver of any breach by the other party of any provision of this Agreement by a waiver of any succeeding breach by that other party of that same provision, or of any other provision of this Agreement. 13. The parties agree that any notices to be provided pursuant to this Agreement shall be addressed to the respective parties as follows: Westmark Group Holdings, Inc. Jehu Hand 355 N.E. Fifth Ave., Suite 4 HAND & HAND Delray Beach, Florida 33483 24901 Dana Point Harbor Drive Suite 200 and Dana Point, California 92629 Harry C. Coolidge, Esq. 1260 41st Ave., Suite N Capitola, California 59010 Each party shall notify the other party by certified mail of any change of address or change of the person designated herein to receive notices to be provided pursuant to this Agreement. Once a party has received notice of a change of address or designated person, that party shall send all future notices to be provided in this Agreement to that address and designated person. 14. The parties hereto acknowledge and understand that this Agreement creates 3 new obligations and rights between them. Except as otherwise provided for in this Agreement, each party expressly waives and assumes the risk of any and all claims for damages which exist as of this date, but of which it is unaware, whether through ignorance, oversight, error, negligence or otherwise, and which, if known to Hand or to WGHI, would materially affect their decision to enter into this Agreement. Each party further assumes the risk that it may suffer damages in the future which it does not now anticipate nor suspect. Each party waives all rights under California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 15. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document. It shall not be necessary, in making proof of this Agreement, to produce or account for more than one counterpart. 16. Upon receipt of the consideration hereinabove set forth in Paragraph 1, Hand covenants and agrees to dismiss, with prejudice, any actions now pending including, but not limited to, the action entitled Hand & Hand, a law corporation v. Westmark Group Holdings, Inc. filed in the Superior Court of the State of California, County of Orange, action number 752444. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates set forth below. DATED: DATED: WESTMARK GROUP HOLDINGS, INC. By: By: JEHU HAND Its: 4 EX-21.1 25 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES 1. Westmark Group Holdings, Inc. 1.1 Westmark Mortgage Corporation EX-24.1 26 CONSENT OF COMISKEY & COMPANY P.C. EXHIBIT 24.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the use in this registration statement of our report dual dated March 20, 1996 and April 19, 1996 on the financial statements of Westmark Group Holdings, Inc., and to reference to our firm under the caption "experts" in the prospectus. Aurora, Colorado June 5, 1996 EX-27 27 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 DEC-31-1996 311,916 0 19,667,696 179,663 0 20,176,373 837,065 434,411 25,510,158 22,220,631 10,000,000 0 0 23,165,937 1,153,688 25,510,158 0 3,081,900 0 10,569,960 0 0 0 (7,488,060) (180,000) (7,308,060) 0 270,000 0 (7,038,060) (6.50) (6.50)
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