-----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, VPl3ao1yE1yt+rPI3NBeRqavAm1yHcqdVzzhHc4If7jm94feOI+Czn2f56uGSEM3 3LR6wkT6h0JmHZdpnfK4JQ== 0001042910-98-000380.txt : 19980515 0001042910-98-000380.hdr.sgml : 19980515 ACCESSION NUMBER: 0001042910-98-000380 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18945 FILM NUMBER: 98619236 BUSINESS ADDRESS: STREET 1: 355 N E FIFTH AVE STREET 2: STE 4 CITY: DELRAY BEACH STATE: FL ZIP: 33483 BUSINESS PHONE: 5612438010 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 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB ------------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _______________________ Commission file number 0-18945 WESTMARK GROUP HOLDINGS, INC. (name of small business issuer in its charter) DELAWARE 84-1055077 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 355 N.E. FIFTH AVENUE, SUITE 4 DELRAY BEACH, FLORIDA 33483 (Address of principal executive offices)(Zip Code) (561) 243-8010 (Issuer's telephone number, including area code) --------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [XX] No [ ] The number of shares outstanding of each of the registrant's classes of common stock, as of April 30, 1998: 2,866,186 (one class). Transitional Small Business Disclosure Format: Yes [ ] No [XX] 1 WESTMARK GROUP HOLDINGS, INC. FORM 10-QSB REPORT INDEX 10-QSB Part and Item No. - -----------------------
Part I-Financial Information Item 1. Financial Statements (Unaudited) Consolidated balance sheet as of March 31, 1998 and December 31, 1997 ................3 Consolidated statement of operations for the three months ended March 31, 1998 and 1997 ................4 Consolidated statement of cash flows for the three months ended March 31, 1998 and 1997 ................5 Condensed notes to consolidated financial statements ..6 and 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................8 - 10 Part II-Other Information Item 1. Legal Proceedings......................................11 Item 2. Changes in Securities....... ..........................12 Item 3. Defaults Upon Senior Securities. ......................12 Item 4. Submission of Matters to a Vote of Security Holders....12 Item 5. Other Information......................................12 Item 6. Exhibits and Reports on Form 8-K.......................13 Signatures...............................................................14
2 ITEM 1. FINANCIAL STATEMENTS -------------------- Westmark Group Holdings, Inc. and Subsidiary Consolidated Balance Sheet March 31, 1998 with comparative figures for December 31, 1997 --------------------------------------------------------------- UNAUDITED
ASSETS 1998 1997 --------------------------------- Current assets: Cash and cash equivalents $ 99,824 $ 100,010 Mortgage loans held for sale 8,717,601 7,788,374 --------------------------------- Total current assets 8,817,425 7,888,384 --------------------------------- Property and equipment: Office buildings 533,866 535,991 Furniture, fixtures and equipment 505,279 463,226 --------------------------------- 1,039,145 999,217 Accumulated depreciation 371,986 354,654 --------------------------------- Net property and equipment 667,159 644,563 --------------------------------- Other assets: Investment in preferred stock 2,876,528 2,876,528 Investment in real estate 500,000 500,000 Cost in excess of assets purchased, net 606,403 631,132 Dividends receivable 315,000 280,000 Deposits and other assets 5,920 - --------------------------------- Total other assets 4,303,851 4,287,660 --------------------------------- TOTAL ASSETS $13,788,435 $12,820,607 ================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 515,913 $ 485,621 Accrued expenses 139,375 359,287 Warehouse line payable 8,630,860 7,733,492 Current portion of long term debt 1,498,988 1,539,379 Settlements payable 531,957 733,979 Dividends payable 150,000 132,500 --------------------------------- Total current liabilities 11,467,092 10,984,258 --------------------------------- Long term debt 1,431,916 1,774,044 Stockholders' equity: Preferred stock, $0.001 par value, 10,000,000 shares authorized, 319,577 (250,005 at 1997) shares issued and outstanding 1,147,870 800,010 Common stock, $0.005 par value, 15,000,000 shares authorized, 2,852,584 (2,389,655 at 1997) shares issued and outstanding 14,263 11,948 Capital in excess of par value 28,387,359 27,496,031 Accumulated deficit (27,810,065) (28,245,684) --------------------------------- Total stockholders' equity 1,739,427 62,305 --------------------------------- Stock subscription receivable (850,000) - --------------------------------- Net stockholders' equity 889,427 62,305 --------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,788,435 $12,820,607 =================================
See accompanying condensed notes to consolidated financial statements. 3
Westmark Group Holdings, Inc. and Subsidiary Consolidated Statement of Operations For the three months ended March 31, 1998 with comparative figures for 1997 ------------------------------------------------------- UNAUDITED REVENUES: 1998 1997 ------------------------------- Loan origination and gain on sale of loans $2,802,605 $1,030,782 Interest income 237,787 230,739 Other income 15,750 18,031 ------------------------------- Total Revenue 3,056,142 1,279,552 ------------------------------- COST AND EXPENSES: Loan origination costs 303,037 45,395 General and administrative 1,916,330 1,059,029 Professional fees 56,538 118,103 Interest 304,571 201,174 Marketing and advertising 32,988 5,866 Depreciation and amortization 42,059 39,910 ------------------------------- Total Cost and Expenses 2,655,523 1,469,477 ------------------------------- OTHER INCOME (EXPENSES): Dividend income 35,000 35,000 ------------------------------- Total Other Income (Expenses) 35,000 35,000 ------------------------------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS ------------------------------- BEFORE INCOME TAXES 435,619 (154,925) ------------------------------- Income tax 152,467 - ------------------------------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS AFTER TAX 283,152 (154,925) ------------------------------- Tax benefit of net operating loss carryforward 152,467 - ------------------------------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS 435,619 (154,925) ------------------------------- Loss of discontinued operation - (112,057) =============================== NET INCOME (LOSS) $ 435,619 $ (266,982) =============================== EARNINGS PER SHARE: Basic: Income (loss) from continuing operations 0.17 (0.16) Income (loss) from discontinued operations - (0.11) =============================== Basic Net Income (Loss) per share $ 0.17 $ (0.27) =============================== Fully diluted:. Income (loss) from continuing operations 0.10 - Income (loss) from discontinued operations - - =============================== Fully Diluted Net Income (Loss) per share $ 0.10 $ - =============================== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 2,573,768 997,779 Fully diluted 4,505,608 -
See accompanying condensed notes to consolidated financial statements. 4 Westmark Group Holdings, Inc. and Subsidiary Consolidated Statement of Cash Flows For the three months ended March 31, 1998 with comparative figures for 1997 --------------------------------------------------------------------------- UNAUDITED
1998 1997 ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income (loss) $435,619 $ (266,982) Adjustments to reconcile consolidated net income (loss) to net cash provided (used) by operating activities: Depreciation 17,331 17,846 Stock issued for bonus and services 237,500 324,238 Amortization of excess purchase cost 24,729 51,681 Changes in operating assets and liabilities: (Increase) decrease in: Mortgage loans held for sale (929,227) 3,782,590 Other assets (40,920) (7,077) Accounts receivable - (34,781) Increase (decrease) in: Accounts payable 30,292 430,794 Accrued expenses (219,912) (141,066) Warehouse lines of credit 897,368 (3,831,032) Settlements payable (202,022) - ----------- ----------- Cash provided for (used) in operating activities 250,758 326,211 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITES: ----------- ----------- (Purchase) sale of fixed assets and improvements (39,928) 5,489 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of preferred stock 154,003 - Dividends 17,500 - Proceeds from issuance of note payable - 262,586 Payments on notes payable (382,519) (562,982) ----------- ----------- Cash provided for (used) in financing activities (211,016) (300,396) ----------- ----------- ----------- ----------- Net increase/(decrease) in cash $ (186) $ 31,304 =========== ===========
See accompanying condensed notes to consolidated financial statements. 5 Westmark Group Holdings, Inc. and subsidiaries Condensed Consolidated Notes to Financial Statements NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310b of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's audited annual report on Form 10-KSB for the year ended December 31, 1997. NOTE 2: FINANCING ACTIVITY During the first quarter of 1998, Westmark Group Holdings, Inc. ("WGHI" or the "Company"), in exchange for $154,004 and 38,771 shares of common stock, provided for the issuance of 69,572 shares of Series G preferred stock to MCA Financial Corporation (MCA") pursuant to a Stock Purchase Agreement entered into in September 1997 in connection with the sale of mortgage loan packages to MCA . All monies received were used for funding operating activities. In February 1998, certain executives of the Company agreed with the Company to purchase 400,000 shares of common stock at $2.125 per share (the closing bid price of the Company's common stock on the date prior to the date of such agreement). The terms of the purchase provides for a payment of approximately 46% of the purchase price with the remainder being evidenced by promissory notes to the Company with full recourse to the makers. The promissory notes, in the aggregate principal amount of $460,000, bear interest at the rate of 10% per annum and are to be paid in quarterly installments over a three-year period. In the quarter ending March 31, 1998, the Company also issued 111,553 shares of restricted common stock in satisfaction of $287,500 of management bonuses and consulting fees. The Company secured lines of credit, on favorable terms from First Union National Bank for $20 million, Household Financial Services, Inc. for $7 million, The Money Store for $7 million and MCA for $2 million. The current line with Princap Mortgage Warehouse, Inc. is $10 million. The funding warehouse lines total $46 million. The Company believes this increase and improvement of terms positions the Company to meet its budgetary targets for loan growth. 6 Westmark Group Holdings, Inc. and subsidiaries Condensed Consolidated Notes to Financial Statements NOTE 3: REVERSE STOCK SPLIT On August 28, 1997, the stockholders of the Company approved a reverse stock split in the range of 1 for 3 to 1 for 5 to be determined by the Board of Directors. The Board of Directors approved a 1 for 5 reverse stock split on August 29, 1997 with an effective date of September 3, 1997. The stockholders also approved a change in the authorized common stock from 50,000,000 shares to 15,000,000 shares. NOTE 4: EARNINGS PER SHARE Basic earning (loss) per common share has been computed using the net income (loss) adjusted for preferred dividends over the weighted average shares outstanding. Diluted loss per common share for the quarter ended March 31, 1997 has not been presented since the effect of common stock equivalents would be anti-dilutive. Diluted earnings per common share for the quarter ended March 31, 1998 has been computed using the net income adjusted for preferred dividends over the weighted average shares outstanding including as outstanding all common shares underlying all warrants, options, convertible debt and convertible preferred stock. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Forward Looking Statement This Quarterly Report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, the Company's ability to generate mortgage loans and/or acquire them on favorable terms, interest rate fluctuations and those set forth in the Company's 1997 Annual Report on Form 10-KSB under the caption "Certain Factors That May Affect Future Results." The following discussion of the Company's results of operations and financial condition should be read in conjunction with the Company's condensed consolidated unaudited Financial Statements listed in Part I, Item 1 and the Notes thereto appearing elsewhere in this Form 10-QSB, and the Company's audited Financial Statements listed in Item 7 and the Notes thereto appearing in the Company's 1997 Annual Report on Form 10-KSB. FINANCIAL RESULTS OF OPERATIONS - ------------------------------- On a consolidated basis, total revenues increased to $3,056,142 in the quarter ended March 31, 1998 from $1,279,552 in the quarter ended March 31, 1997, an increase of 139%. This continues to reflect the implementation of Westmark's strategic plan to concentrate its efforts on its non-conforming (subprime) mortgage lending business. Expenses for the quarter ended March 31, 1998 increased to $2,655,524 from $1,469,477 for the period ended March 31, 1997, an 81% increase. The primary reason for the increase was expected expenses associated with the planned growth of the non-conforming (subprime) business. This increase is the primary reason for the increase in general and administrative expenses from $1,059,029 in the period ended March 31, 1997 to $1,916,330 in the period ended March 31, 1998 (an 81% increase). The increase in loan origination costs from $45,395 in the period ended March 31, 1997 to $303,037 in the period ended March 31, 1998 (a 568% increase), as well as marketing and advertising and interest expense is primarily the result of the addition of new staff to support the growing loan volume and new account executives to further increase loan production and an increase in expenditures on advanced technology. The reduction in professional fees from $116,000 in the quarter ended March 31, 1997 to $56,532 in the quarter ended March 31, 1998 is primarily due to reduction in legal fees. Net income for the current quarter was $435,619 or $0.17 per share as compared to a net loss of $266,982 or ($0.27) per share for the quarter ended March 31, 1997, primarily based on increased loan production and more favorable margins on the sale of loans. 8 BUSINESS OPERATIONS - ------------------- During the first quarter of 1998, the Company continued to focus its business on funding non-conforming (subprime) paper, with approximately 99% of all closed loan volume being non-conforming (subprime) loan fundings. Total non-conforming (subprime) loan fundings by the Company increased from $19.8 million in the three months ending March 31, 1997 to $46.2 million for the three months ended March 31, 1998, an increase of 133%. In the first quarter of 1998, the Company continued to expand its non-conforming (subprime) lending program through bulk sales, and as a result, experienced record revenue in the first three months of 1998 from this expansion. The Company is focusing its marketing efforts in the non-conforming (subprime) loan market due to the enhanced returns. The increase in the non-conforming (subprime) loans has come primarily from an increased market share in Florida, Illinois, California and Georgia. Management intends to continue its marketing strategy in additional states throughout the Southeast, Midwest and West Coast, where licensing and/or sales activities began or expanded this period. The Company continues to sell loan originations on a "servicing-released" basis to investors in the normal course of business. The Company's bulk sales program for non-conforming (subprime) paper in which loans are pooled and sold in packages generally ranging from $1-8 million remains an integral key to future growth. During the first quarter, total loan sales to third party investors in the secondary market equaled $45.5 million, an increase of 135% from $19.4 million in the first quarter ended March 31, 1997. Bulk sales - ---------- During the quarter ended March 31, 1998, bulk sales deliveries were completed successfully with institutional investors, such as Household Financial Services, Inc., The Money Store, and MCA Financial Corporation. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company uses its cash flow from whole loan sales, loan origination fees, net interest income and borrowings under its warehouse lines of credit to meet its working capital needs. The Company's cash requirements include the funding of loan originations, purchases, payment of interest expenses, operations expenses, taxes and capital expenditures, along with settlement agreements negotiated though March 31, 1998. On March 31, 1998, total stockholders equity was $889,427. Adequate credit facilities and other sources of funding, including the ability of the Company to sell loans, are essential to the continuation of the Company's ability to originate and purchase loans. The Company borrows funds on a short term basis to support the accumulation of loans prior to sale. These short-term borrowings are made under a warehouse line of credit with various lenders including Household Financial Services, Inc., The Money Store, Princap Mortgage Warehouse, Inc., MCA Financial Corporation and most recently, First Union National Bank. (collectively the "Warehouse Facilities"). Pursuant to the Warehouse Facilities, the Company has available total secured revolving credit lines of $46 million, an increase of $20 million since December 31, 1997, to finance the Company's origination or purchase of loans, pending sale to investors. The lines of credit pursuant to the Warehouse Facilities are collateralized by the assignment and pledge of eligible mortgage loans. The various 9 lines making up the Warehouse Facilities bear interest at annual rates ranging from Libor plus 1 1/8 to 1 1/2 - 2% above prime, payable at the time of purchase by the permanent investor. The Warehouse Facilities provide for a transaction charge from $100 per loan to as low as $25 per loan and require the Company to possess a minimum net worth of $3.6 million, a current ratio of 1.1 and a compensating cash balance on deposit in the amount of $5,000 under the more restrictive covenants. The Company was not in compliance with these covenants at March 31, 1998 or December 31, 1997 and received a waiver from the warehouse lender. On March 31, 1998, the balance outstanding, pursuant to this Warehouse Facilities, totaled $8,630,860. The company does not currently have any other external lines of credit for financing. Historically, the Company has obtained financing through the issuance of its common stock and borrowings on a negotiated basis. However, as the Company has become cash-flow positive, the necessity to utilize this type of financing has been reduced, allowing the Company to decrease both the size and the frequency of its share issuances. The Company's internally generated cash flows from operations have historically been insufficient for its cash needs. As noted earlier, the Company reached a level of cash flow to support its monthly expenses and to negotiate and pay restructured past debts and continued to operate on a cash-flow positive basis in the first quarter of this year. Although no assurance can be given, it is expected that internal sources of liquidity will improve as net cash is provided by operating activities. 10 PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- The Company is a defendant in BLACK V. MCCORKINDALE, ET AL. filed on February 18, 1998 in Baldwin County, Alabama, Circuit Court Case #98-147. The Plaintiff alleges fraud and breach of contract and seeks unspecified compensatory and punitive damages. The Complaint is based on alleged misrepresentations by an individual the Company believes to be an independent mortgage broker regarding the interest rate on the Plaintiff's $200,000 mortgage. The Company does not anticipate any liability with regard to this matter. 11 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- During the first quarter of 1998, the Company issued 511,553 shares of unregistered Common Stock to certain executives, directors and consultants of the Company, pursuant to Section 4(2) of the Securities Act of 1933, for cash, promissory notes, and in satisfaction of $237,500 of performance bonuses. The Company also provided for the issuance of 69,572 shares of Series G Preferred Stock to MCA Financial Corp., pursuant to Section 4(2) of the Securities Act of 1933, in exchange for cash and Company Common Stock. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS ------------------------------------------------ None. ITEM 5. OTHER INFORMATION ----------------- In April 1998, the Company's wholly owned subsidiary, Westmark Mortgage Corporation ("Westmark Mortgage"), entered into an agreement with First Union National Bank ("First Union") for a secured $20,000,000 revolving warehouse line of credit with First Union the ("warehouse line"). The term is one year, renewable annually for two years subject to the Company's Common Stock price attaining a certain minimum, or the Company obtaining minimum net income. The Company is a guarantor of Westmark Mortgage's obligations to First Union arising from the warehouse line. As additional consideration for the warehouse line, the Company issued 146,979 warrants to First Union to purchase Company Common Stock at $2.50 per share. The Company has agreed to issue additional warrants to First Union to purchase approximately 93,021 shares of Company Common Stock, subject to resolution of certain regulatory matters relating to First Union's ownership of the Company's voting stock. First Union earns a $50.00 fee for each mortgage loan submitted pursuant to the warehouse line. The interest rate charged by First Union pursuant to the warehouse line is, at the Company's option, either the Corporate Base Rate, defined as a function of the "weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System or the Applicable Eurodollar Rate, defined as a function of the relationship between the rates on U.S. dollar deposits in the the London interbank market and the reserve requirement imposed by the Federal Reserve Board of Governors on eurocurrency liabilities. The Company and First Union are also negotiating the terms of a separate agreement pursuant to which First Union will provide Westmark Mortgage with an additional $10,000,000 credit facility for bulk loan acquisition. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --------------------------------- (a) EXHIBITS Exhibit Description - ------- ----------- 10.1 Mortgage Loan Warehousing Agreement between the Company's wholly owned subsidiary, Westmark Mortgage Corporation, and First Union National Bank entered into in April 1998. 10.2 Security Agreement between the Company's wholly owned subsidiary, Westmark Mortgage Corporation, and First Union National Bank entered into in April 1998. 10.3 Promissory Note between the Company's wholly owned subsidiary, Westmark Mortgage Corporation, and First Union National Bank entered into in April 1998. 10.4 Guaranty between the Company and First Union National Bank entered into in April 1998. (b) REPORTS ON FORM 8-K Form 8-K filed on January 6, 1998 reported a change in the Company's independent certified public accountants. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WESTMARK GROUP HOLDINGS, INC. By: /c/ Irving H. Bowen -------------------------------------------------------------- Irving H. Bowen, Executive Vice President, Treasurer & Chief Financial Officer, Director (Principal Accounting Officer & Duly Authorized Director & Officer of the Registrant) By: /c/ Mark D. Schaftlein -------------------------------------------------------------- Mark D. Schaftlein, President & Chief Executive Officer, Director (Duly Authorized Director & Officer of the Registrant) Dated: May 14, 1998 14 EX-10.1 2 MORTGAGE LOAN WAREHOUSING AGREEMENT ----------------------------------- THIS MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Agreement") is made as of the _____ day of ___________, 1998, by and between WESTMARK MORTGAGE CORPORATION, a California corporation (the "Company") and FIRST UNION NATIONAL BANK, a national banking corporation (the "Lender"). STATEMENT OF PURPOSE -------------------- The Company has requested the Lender to extend to the Company a mortgage warehousing line of credit, and the Lender has agreed to do so on the terms and subject to the conditions set forth herein. All capitalized terms not otherwise defined herein are defined in Paragraph 10 hereof. Now, therefore, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT --------- 1. Credit Facility. 1(a) Lending Limit. Subject to the conditions set forth herein, the Lender agrees that it shall from time to time up to and including the Business Day immediately preceding the Maturity Date, advance loans (the "Loans" or a "Loan") to the Company in amounts not to exceed, in the aggregate at any one time outstanding (determined after giving effect to the other transactions contemplated by the Loan Request pursuant to which said Loan was requested), the lesser of: (1) The Credit Limit; and (2) The Collateral Value of the Borrowing Base. 1(b) Interest Rate. All Loans shall bear interest at the Applicable Interest Rate. 1(c) Payment of Interest. The Company shall pay to the Lender interest on Loans outstanding hereunder from the date disbursed to but not including the date of payment. Interest on Loans shall be payable monthly, in arrears, as provided in Paragraph 2(d) below. 1(d) Inability to Determine Rate. If the Lender determines (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the London interbank eurodollar market adequate and reasonable means do not exist for ascertaining the Eurodollar Rate at any time, the Lender shall forthwith give facsimile notice of such determination, confirmed in writing, to the Company. If such notice is given: (1) no Loan may be funded as a Eurodollar Loan and (2) any outstanding Eurodollar Loan shall be converted at such time to a Corporate Base Rate Loan. Until such notice has been withdrawn by the Lender, the Company shall not have the right to fund any Loan as a Eurodollar Loan or to continue a Eurodollar Loan as such. The Lender shall withdraw such notice in the event that the circumstances giving rise thereto no longer obtain and that adequate and reasonable means exist for ascertaining the Eurodollar Rate, and following withdrawal of such notice by the Lender, the Company shall have the right to fund any Loan as a Eurodollar Loan or to continue a Eurodollar Loan in accordance with the terms and conditions of this Agreement. 1(e) Illegality. Notwithstanding any other provisions herein, if any law, regulation, treaty or directive or any change therein or in the interpretation or application thereof, shall make it unlawful for the Lender to make or maintain Eurodollar Loans as contemplated by this Agreement: (1) the commitment of the Lender hereunder to continue Eurodollar Loans shall forthwith be canceled and (2) all Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Corporate Base Rate Loans at such time. 1(f) Requirements of Law; Increased Costs. In the event that any change subsequent to the date hereof in any applicable law, order, regulation, treaty or directive issued by any central bank or other Governmental Authority, or in the governmental or judicial interpretation or application thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) by any central bank or other Governmental Authority: (1) subjects the Lender to any tax of any kind whatsoever with respect to this Agreement or any Loans made hereunder, or changes the basis of taxation of payments to the Lender of principal, fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Lender); (2) imposes, modifies or holds applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirements against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Lender which are not otherwise included in the determination of the Applicable Interest Rate or any component thereof; or (3) imposes on the Lender any other condition; and the result of any of the foregoing is to increase the cost to the Lender of making, renewing or maintaining any Loan or to reduce any amount receivable in respect thereof or to reduce the rate of return on the capital of the Lender or any Person controlling the Lender, then, in any such case, the Company shall promptly pay to the Lender, upon its written demand, any additional amounts necessary to compensate the Lender for such additional cost or reduced amounts receivable or rate of return as determined by the Lender with respect to this Agreement or Loans made hereunder. If the Lender becomes entitled to claim any additional amounts pursuant to this Paragraph 1(f), it shall promptly notify the Company of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence containing the calculation thereof in reasonable detail submitted by the Lender to the Company shall be conclusive in the absence of manifest error. The provisions hereof shall 2 survive the termination of this Agreement and payment of the outstanding Loans and all other amounts payable hereunder. 1(g) Funding. The Lender shall be entitled to fund all or any portion of the Loans in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Lender actually funds all Eurodollar Loans through the purchase in London of offshore dollar deposits in the amount of the relevant Eurodollar Loan in maturities of one month. 2. Miscellaneous Lending Provisions. 2(a) Use of Proceeds. The proceeds of all Loans shall be used by the Company solely for the purpose of originating and acquiring Mortgage Loans. 2(b) Request For Loans; Making of Loans. If the Company desires to borrow a Loan hereunder, the Company shall make a Loan Request to the Lender no later than 2:00 p.m. (Charlotte, North Carolina time) on the proposed funding date and shall specify that rate per annum (i.e. the Corporate Base Rate or the Eurodollar Rate) on which the Company elects to base the Applicable Interest Rate. The Lender shall make available the proposed Loan by crediting the amount thereof in immediately available same day funds to the Funding Account no later than 3:30 p.m. (Charlotte, North Carolina time) on such date. 2(c) Notes. The obligation of the Company to repay the Loans shall be evidenced by a note payable to the order of the Lender in the form attached hereto as Exhibit A (the "Note"). 2(d) Interest and Fee Billing and Payment. The Lender shall, on or before the fifth Business Day of each month, deliver to the Company an interest and fee billing for the immediately preceding month, which billing shall set forth interest accrued and payable on Loans and fees payable hereunder for such month and which billing shall be payable no later than the second Business Day following receipt thereof by the Company. 2(e) Repayment of Principal. Subject to the prepayment requirements of Paragraph 2(j) below and the required application of proceeds from the sale or other disposition of Mortgage Loans as provided in the Security Agreement, the Company shall pay the principal amount of all Loans on the Maturity Date. 2(f) Borrowing Base Conformity. (1) The Company shall cause to be maintained with the Lender a Borrowing Base such that the Collateral Value of the Borrowing Base is not less than, at any date, the sum of the aggregate dollar amount of outstanding Loans. (2) The Company shall prepay Loans to the Lender, upon telephonic or facsimile demand by the Lender, on any day in the amount by which the aggregate principal amount of outstanding Loans exceeds the Collateral Value of the Borrowing 3 Base, said prepayment to be made on the date on which demand is made by the Lender if made prior to 4:00 p.m. (Charlotte, North Carolina time) or, if made later than 4:00 p.m. (Charlotte, North Carolina time), before 9:00 a.m. (Charlotte, North Carolina time) on the next Business Day. (3) If at such time as the Company shall be required to prepay Loans under this Paragraph 2(f) there shall not have occurred and be continuing an Event of Default or Potential Default hereunder, in lieu of prepaying the Loans as required, the Company may deliver to the Lender additional Eligible Mortgage Loans such that the Collateral Value of the Borrowing Base, after giving effect to the inclusion of such Eligible Mortgage Loans in the Borrowing Base, shall be in compliance with the requirements of subparagraphs (1) and (2) above. 2(g) Nature and Place of Payments. All payments made on account of the Obligations shall be made to the Lender and the Lender is hereby irrevocably authorized to debit the Settlement Account on account thereof. All payments made on account of the Obligations shall be made without setoff or counterclaim in lawful money of the United States of America in immediately available same day funds, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority and if received by the Lender by 4:00 p.m. (Charlotte, North Carolina time) such payment will be credited on the Business Day received. If a payment is received after 4:00 p.m. (Charlotte, North Carolina time) by the Lender, such payment will be credited on the next succeeding Business Day and interest thereon shall be payable at the then applicable rate until credited. If any payment required to be made by the Company hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. 2(h) Post-Maturity Interest. Any Obligations not paid when due (whether at stated maturity, upon acceleration or otherwise) shall bear interest from the date due until paid in full at a per annum rate equal to four percent (4%) above the interest rate otherwise applicable thereto, or, if such Obligations do not otherwise bear interest, four percent (4%) above the Prime Rate. 2(i) Computations. All computations of interest and fees payable hereunder shall be based upon a year of 360 days for the actual number of days elapsed. 2(j) Prepayments. (1) The Company may voluntarily prepay Loans hereunder in whole or in part at any time. (2) Loans hereunder are subject to mandatory prepayment pursuant to Paragraph 2(f) above and, in addition, by application of proceeds of the sale or other disposition of Collateral as provided in the Security Agreement. 4 (3) The Company shall pay in connection with any prepayment hereunder all interest accrued but unpaid on Loans to which such prepayment is applied concurrently with payment to the Lender of any principal amounts. 2(k) Allocation of Payments Received. (1) Prior to the occurrence of an Event of Default and acceleration of all Loans outstanding hereunder or termination of the commitment of the Lender to advance Loans hereunder, all amounts received by the Lender shall be applied against the outstanding Obligations. (2) Following the occurrence of an Event of Default and acceleration of all Loans outstanding hereunder or termination of the commitments of the Lender to advance Loans hereunder, all amounts received by the Lender on account of the Obligations shall be applied by the Lender as follows: (i) First, to the payment of reasonable costs and expenses incurred by the Lender in the enforcement of its rights under the Credit Documents, including, without limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses; (ii) Second, to the Lender to be applied against the Obligations until the Obligations shall have been paid in full; and (iii) Third, to such Persons as may be legally entitled thereto. 2(l) Fees. The Company shall pay the following fees to the Lender: (1) A collateral handling fee of $50.00 with respect to each Mortgage Loan (and related Required Documents) submitted to the Lender for inclusion in the Borrowing Base, such fee to be payable monthly in arrears on the applicable date specified in Paragraph 2(d) hereof. 3. Security Agreement; Guaranty; Additional Documents. 3(a) Security Agreement and Financing Statements. On or before the date hereof, the Company shall execute and deliver to the Lender: (1) a security agreement in the form of that attached hereto as Exhibit B (the "Security Agreement"), pursuant to which the Company shall pledge, assign and grant to the Lender a perfected, first priority security interest in and lien upon the Collateral, and (2) such UCC financing statements as the Lender may request. 3(b) Guaranty. On or before the date hereof, the Company shall cause to be executed and delivered to the Lender by the Guarantor a continuing guaranty substantially in the form of that attached hereto as Exhibit C (the "Guaranty"). 5 3(c) Further Documents. The Company agrees to execute and deliver and to cause to be executed and delivered to the Lender from time to time such confirmatory and supplementary security agreements, financing statements and other documents, instruments and agreements as the Lender may reasonably request, which are in the Lender's judgment necessary or desirable to obtain for the Lender the benefit of the Credit Documents and the Collateral. 4. Conditions to Making of Loans. 4(a) First Loan. As conditions precedent to the Lender's obligation to make the first Loan hereunder: (1) The Company shall have delivered to the Lender, in form and substance satisfactory to the Lender and its counsel, each of the following: (i) A duly executed copy of this Agreement; (ii) A duly executed copy of each of the Security Agreement and the Guaranty; (iii) A duly executed copy of the Note; (iv) Duly executed copies of all financing statements and other documents, instruments and agreements, properly executed, deemed necessary or appropriate by the Lender, in its reasonable discretion, to obtain for the Lender a perfected, first priority security interest in and lien upon the Collateral; (v) Such credit applications, financial statements, authorizations and such information concerning the Company and the Guarantor and their respective businesses, operations and conditions (financial and otherwise) as the Lender may reasonably request; (vi) Certified copies of resolutions of the Board of Directors of each of the Company and the Guarantor approving the execution and delivery of the Credit Documents to which the Company or the Guarantor, respectively, is a party, the performance of the Obligations thereunder and the consummation of the transactions contemplated thereby; (vii) A certificate of the Secretary or an Assistant Secretary of each of the Company and the Guarantor certifying the names and true signatures of the officers of the Company or the Guarantor authorized to execute and deliver the Credit Documents to which the Company or the Guarantor, respectively, is a party; (viii) A copy of the Articles of Incorporation of each of the Company and the Guarantor, certified by the respective Secretary or an Assistant Secretary 6 of the Company or the Guarantor, respectively, as of the date of this Agreement as being accurate and complete; (ix) A copy of the Bylaws of each of the Company and the Guarantor, certified by the respective Secretary or an Assistant Secretary of the Company or the Guarantor, respectively, as of the date of this Agreement as being accurate and complete; (x) (A) A certificate of the Secretary of State of the State of California, certifying as of a recent date that the Company is in good standing, (B) a certificate of the Secretary of State of the State of Florida, certifying as of a recent date that the Company is qualified as a foreign corporation in the State of Florida; (C) a certificate of the Secretary of State of the State of Delaware, certifying as of a recent date that the Guarantor is in good standing, and (D) a certificate of the Secretary of State of the State of Florida, certifying as of a recent date that the Company is qualified as a foreign corporation in the State of Florida; (xi) An opinion of counsel for the Company and the Guarantor substantially in the form of Exhibit D attached hereto and covering such other matters as the Lender may reasonably request; (xii) Evidence satisfactory to the Lender that each of the Funding Account and the Settlement Account has been opened; (xiii) A schedule of the initial Approved Investors duly approved by the Lender; (xiv) A Covenant Compliance Certificate demonstrating in detail satisfactory to the Lender compliance with the covenants set forth in Paragraphs 7(i), 7(j) and 7(k) below; (xv) A copy of each Buy/Sell Agreement in effect as of the date hereof; (xvi) Such financial information as the Lender may reasonably request with respect to any Approved Investor; and (xvii) A duly completed Borrowing Base Schedule certified by the Company. (2) All acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or registrations) required to be done and performed and to have happened precedent to the execution, delivery and performance of the Credit Documents and to constitute the same legal, valid and binding obligations, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in material compliance with all applicable laws. 7 (3) All documentation, including, without limitation, documentation for corporate and legal proceedings in connection with the transactions contemplated by the Credit Documents shall be satisfactory in form and substance to the Lender and its counsel. (4) All fees required to be paid on or before the date hereof pursuant to Paragraph 2(l) above shall have been paid prior to (or will be paid concurrently with) the making of the first Loan hereunder. 4(b) Ongoing Loans. As conditions precedent to the Lender's obligation to make any Loan hereunder, including the first Loan, at and as of the date of advance thereof; (1) There shall have been delivered to the Lender a Loan Request therefor; (2) The representations and warranties of the Company contained in the Credit Documents shall be accurate and complete in all material respects as if made on and as of the date of such advance, conversion or continuance (unless such representation specifically relates to an earlier date, in which case such representation shall have been true and correct as of such earlier date); (3) There shall not have occurred an Event of Default or Potential Default; (4) Following the funding of the requested Loan, the aggregate principal amount of Loans outstanding will not exceed the lesser of: (i) the Credit Limit and (ii) the Collateral Value of the Borrowing Base; (5) There shall not have occurred any material adverse change in the financial condition, assets, nature of assets, operations or prospects of the Company from that represented in this Agreement, the other Credit Documents, or the documents or information furnished to the Lender in connection herewith or therewith; and (6) The Required Documents for the Mortgage Loan(s) contained in the Borrowing Base shall have been received by the Lender (except as otherwise provided in subparagraph (o) of the definition of "Eligible Mortgage Loan"). By making a Loan Request to the Lender hereunder, the Company shall be deemed to have represented and warranted the accuracy and completeness of the statements set forth in subparagraphs (b)(2) through (b)(6) above. 5. Representations and Warranties of the Company. The Company represents and warrants to the Lender that: 8 5(a) Financial Condition. The financial statements dated the Statement Date, copies of which have been furnished to the Lender, are complete and correct to the best knowledge of the Company and have, to the best knowledge of the Company, been prepared to present fairly and consistently, in accordance with GAAP, the financial condition of the Guarantor and its consolidated Subsidiaries (including without limitation the Company) at such date and the results of its operations and cash flows for the fiscal period then ended. 5(b) No Change. As of the date hereof, to the best knowledge of the Company, there has been no material adverse change in the business, operations, assets or financial or other condition of the Company or the Guarantor from that shown on the financial statements dated as of the Statement Date referred to in Paragraph 5(a) above. 5(c) Corporate Existence; Compliance with Law. The Company: (1) is duly organized, validly existing and in good standing as a corporation under the laws of the State of California and is qualified to do business in Florida and in each other jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to qualify could have a material adverse effect on the Company or its property or business or on the ability of the Company to pay or perform the Obligations, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it does and proposes so to do, and (3) is in compliance with all Requirements of Law and Contractual Obligation, the failure to comply with which could have a material adverse effect on the business, operations, assets or financial or other condition of the Company or on the Collateral or the Collateral Value of the Borrowing Base. 5(d) Corporate Power; Authorization; Enforceable Obligations. The Company has the corporate power and authority and the legal right to execute, deliver and perform the Credit Documents and has taken all necessary corporate action to authorize the execution, delivery and performance of the Credit Documents. The Credit Documents have been duly executed and delivered on behalf of the Company and constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. 5(e) No Legal Bar. The execution, delivery and performance of the Credit Documents, the borrowing hereunder and the use of the proceeds thereof, will not violate any Requirements of Law or any Contractual Obligations of the Company the violation of which could have a material adverse effect on the business, operations, assets or financial or other condition of the Company or on the Collateral or the Collateral Value of the Borrowing Base or create or result in the creation of any Lien (except the Lien created by the Security Agreement) on any assets of the Company. 5(f) No Material Litigation. Except as disclosed on Exhibit E hereto, no litigation, investigation or proceeding of or before any court, arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or against any of its properties or revenues which is likely to be adversely determined 9 and which, if adversely determined, is likely to have a material adverse effect on the business, operations, property or financial or other condition of the Company or on the Collateral or the Collateral Value of the Borrowing Base. 5(g) Taxes. All tax returns that are required to be filed by or on behalf of the Company have been filed and all taxes shown to be due and payable on said returns or on any assessments made against the Company or any of its property have been paid (other than taxes which are being contested in good faith by appropriate proceedings and as to which the Company has established adequate reserves in conformity with GAAP). 5(h) Investment Company Act. The Company is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5(i) Federal Reserve Board Regulations. The Company is not engaged and will not engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of such terms under Regulation U. No part of the proceeds of any Loan issued hereunder will be used, directly or indirectly, for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System. 5(j) ERISA. The Company and each of its ERISA Affiliates are in compliance in all material respects with the requirements of ERISA and no Reportable Event has occurred under any Plan maintained by the Company or any of its ERISA Affiliates which is likely to result in the termination of such Plan for purposes of Title IV of ERISA. 5(k) Assets. The Company has good and marketable title to all property and assets reflected in the financial statements referred to in Paragraph 5(a) above (as such financial statements may be supplanted by those financial statements delivered from time to time pursuant to Paragraph 6(a)), except property and assets sold or otherwise disposed of in the ordinary course of business subsequent to the respective dates thereof. The Company has no outstanding Liens on any of its properties or assets and there are no security agreements to which the Company is a party, nor any title retention agreements, whether in the form of leases or otherwise, of any personal property except as permitted under Paragraph 7(a) below. 5(l) Securities Acts. The Company has not issued any unregistered securities in violation of the registration requirements of Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and is not violating any rule, regulation or requirement under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. The Company is not required to qualify an indenture under the Trust Indenture Act of 1939, as amended, in connection with its execution and delivery of the Note. 5(m) Consents, etc. No consent, approval, authorization of, or registration, declaration or filing with, any Governmental Authority is required on the part of the Company in connection with the execution and delivery of the Credit Documents (other than filings to create, 10 perfect or continue the perfection of the security interests granted by it and routine corporate filings to maintain good standing) or the performance of or compliance with the terms, provisions and conditions hereof or thereof. 5(n) Ownership and Subsidiaries. Schedule II attached hereto and incorporated herein by reference lists all of the shareholders of the Company as of the effective date of this Agreement. As of the effective date of this Agreement, the Company has no Subsidiaries. 6. Affirmative Covenants. The Company hereby covenants and agrees with the Lender that, as long as any Obligations remain unpaid or the Lender has any obligation to make Loans hereunder, the Company shall: 6(a) Financial Statements. Furnish or cause to be furnished to the Lender: (1) Within one hundred twenty (120) days after the last day of each fiscal year of the Guarantor, consolidated and consolidating statements of income and cash flows for such year and consolidated and consolidating balance sheets as of the end of such year of the Guarantor and its consolidated Subsidiaries (including, without limitation, the Company), presented fairly in accordance with GAAP and accompanied by an unqualified report of a firm of independent certified public accountants acceptable to the Lender and including therewith a copy of any management letter from such certified public accountants; (2) Within forty-five (45) days after the last day of each calendar month, consolidated and consolidating statements of income for such month and consolidated and consolidating balance sheets as of the end of such month of the Guarantor and its consolidated Subsidiaries (including, without limitation, the Company), accompanied in each case by a Covenant Compliance Certificate executed by the Chief Executive Officer of the Guarantor, stating that such financial statements are prepared fairly and consistently in accordance with GAAP and demonstrating in detail satisfactory to the Lender compliance with the financial covenants set forth in Paragraphs 7(i), 7(j) and 7(k) below as of and at the end of such month. 6(b) Certificates; Reports; Other Information. Furnish or cause to be furnished to the Lender: (1) Promptly, such additional financial and other information, including, without limitation, financial statements of the Company or the Guarantor or any Approved Investor, and information regarding the Collateral, as the Lender may from time to time reasonably request; (2) Promptly, copies of any and all forms, reports, supplements or other documents of any kind, if any, filed by the Company or the Guarantor with the Securities and Exchange Commission or with any state securities commission. 11 (3) Upon request by Lender, the Additional Required Documents with respect to any Mortgage Loan. (4) Upon request by Lender, copies of any Buy/Sell Agreements to which the Company is a party. (5) Within seven (7) Business Days following any proposed material change, a copy of any proposed material change to any of the High LTV Investor Guidelines (which change shall be subject to Lender's approval in its sole discretion). 6(c) Payment of Indebtedness. Pay or otherwise satisfy at or before maturity or before it becomes delinquent or accelerated, as the case may be, all its Indebtedness (including taxes), except Indebtedness being contested in good faith by appropriate proceedings and for which provision is made to the satisfaction of the Lender for the payment thereof in the event the Company is found to be obligated to pay such Indebtedness and which Indebtedness is thereupon promptly paid by the Company. 6(d) Maintenance of Existence and Properties. Maintain its corporate existence and obtain and maintain all rights, privileges, licenses, approvals, franchises, properties and assets necessary or desirable in the normal conduct of its business, and comply with all Contractual Obligations and Requirements of Law (including, without limitation, any Requirements of Law under or in connection with ERISA), except where the failure to so comply is not likely to have a material adverse effect on the business, operations, assets or financial or other condition of the Company or on the Collateral or the Collateral Value of the Borrowing Base. 6(e) Inspection of Property; Books and Records; Audits. (1) Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and (2) Permit: (i) representatives of the Lender to (A) visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by the Lender (but, prior to the occurrence of an Event of Default, only upon not less than two Business Days' prior notice), and (B) discuss the business, operations, properties and financial and other condition of the Company with officers and employees of the Company, and with its independent certified public accountants, and (ii) representatives of the Lender to conduct periodic operational audits of the Company's business and operations. 6(f) Notices. Promptly give written notice to the Lender of: (1) The occurrence of any Potential Default or Event of Default known to responsible management personnel of the Company and the proposed method of cure thereof; 12 (2) Any litigation or proceeding affecting the Company, the Guarantor or the Collateral which could have a material adverse effect on the Collateral, the Collateral Value of the Borrowing Base or the business, operations, property, or financial or other condition of the Company or the Guarantor; (3) A material adverse change known to responsible management personnel of the Company in the business, operations, property or financial or other condition of the Company or the Guarantor; (4) Any changes in the following senior management positions of the Company: President, Chief Financial Officer or Operations Manager; (5) Any acquisition, purchase, redemption, retirement, transfer or issuance of any shares of the Company's capital stock (including without limitation any options or warrants relating thereto); and (6) Any prepayment of any Mortgage Loan included in the Collateral value of the Borrowing Base in an amount greater than ten percent (10%) of the original principal balance of said Mortgage Loan (either by itself or in aggregate with other previous prepayments of said Mortgage Loan). 6(g) Expenses. Pay all reasonable out-of-pocket costs and expenses (including fees and disbursements of legal counsel) of the Lender: (1) incident to the preparation, negotiation and administration of the Credit Documents, including with respect to or in connection with any waiver or amendment thereof or thereto (provided that the Company's responsibility to pay fees and disbursements of the Lender's counsel in connection with the initial preparation, negotiation, and execution of the Credit Documents shall be limited to $5000 in fees, plus reasonable expenses), (2) associated with any periodic audits conducted pursuant to Paragraph 6(e)(2)(ii) above, and (3) incident to the enforcement of payment of the Obligations, whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidations, reorganization, moratorium or other similar proceedings involving the Company or a "workout" of the Obligations. The obligations of the Company under this Paragraph 6(g) shall be effective and enforceable whether or not any Loan is advanced by the Lender hereunder and shall survive payment of all other Obligations. 6(h) Credit Documents. Comply with and observe all terms and conditions of the Credit Documents. 6(i) Insurance. Obtain and maintain insurance with responsible companies in such amounts and against such risks as are usually carried by corporations engaged in similar businesses similarly situated, including, without limitation, surety bonds, and furnish the Lender on request full information as to all such insurance. 6(j) Wet Funding Mortgage Loan Transmittal Form. Furnish or cause to be furnished to the Lender, with each Eligible Mortgage Loan shipped or delivered which is of the 13 type described in the proviso contained in subsection (o) of the definition of Eligible Mortgage Loan, a Wet Funding Mortgage Loan Transmittal Form substantially in the form attached as Exhibit J hereto. 7. Negative Covenants. The Company hereby agrees that, as long as any Obligations remain unpaid or the Lender has any obligation to make Loans hereunder, the Company shall not at any time, directly or indirectly: 7(a) Liens. Create, incur, assume or suffer to exist, any Lien upon the Collateral except as contemplated by the Security Agreement, or create, incur, assume or suffer to exist any Lien upon any of its other property and assets (including servicing rights) except: (1) Liens for current taxes, assessments or other governmental charges which are not delinquent or which remain payable without penalty, or the validity of which are contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof, provided the Company shall have set aside on its books and shall maintain adequate reserves for the payment of same in conformity with GAAP; (2) Liens, deposits or pledges made to secure statutory obligations, surety or appeal bonds, or bonds for the release of attachments or for stay of execution, or to secure the performance of bids, tenders, contracts (other than for the payment of borrowed money), leases or for purposes of like general nature in the ordinary course of the Company's business; (3) Purchase money security interests for property (except Mortgage Loans) hereafter acquired, conditional sale agreements, or other title retention agreements, with respect to property hereafter acquired; provided, however, that no such security interest or agreement shall affect any servicing rights or extend to any property other than the property acquired; and (4) Liens securing Permitted Secured Debt. 7(b) Indebtedness. Create, incur, assume or suffer to exist, or otherwise become or be liable in respect of any Indebtedness except: (1) The Obligations; (2) Indebtedness reflected in the financial statements referred to in Paragraph 5(a) above; (3) Trade debt incurred in the ordinary course of business, paid as the same may become due and payable according to the terms thereof or which is being contested in good faith, provided provision is made to the satisfaction of the Lender for the eventual payment thereof in the event it is found that such contested trade debt is payable by the Company; 14 (4) Indebtedness secured by Liens permitted under Paragraph 7(a) above; and (5) Permitted Unsecured Debt. 7(c) Consolidation and Merger; Change of Business. (i) Liquidate or dissolve, or (ii) enter into any consolidation, merger, partnership, joint venture, syndicate or other combination, or (iii) make any change in the nature of its business as a mortgage banker as presently conducted (except, in the case of activities covered under (ii) or (iii) above, with the prior consent of the Lender, which consent shall not be unreasonably withheld). 7(d) Acquisitions. Without the prior consent of the Lender (which consent shall not be unreasonably withheld), purchase or acquire or incur liability for the purchase or acquisition of any or all of the assets or business of any Person, other than in the normal course of business as currently conducted (it being expressly agreed and understood that the acquisition of non-recourse servicing is a normal course of business activity and that the acquisition of recourse servicing is not a normal course of business activity). 7(e) Transfer of Stock. Permit the acquisition, purchase, redemption, retirement, transfer or issuance of any shares of its capital stock now or hereafter outstanding (or any warrants or options relating thereto) if as a result thereof the Guarantor would be the owner of less than one hundred percent (100%) of the shares of the capital stock outstanding at such time (including without limitation any options or warrants relating thereto). 7(f) Subsidiaries. Organize any Subsidiary without prior written notice to the Lender. 7(g) Investments; Advances; Guaranties. Without the prior consent of the Lender (which consent shall not be unreasonably withheld), make or commit to make any advance, loan or extension of credit (other than (i) advances of salary or earned commissions to officers or employees of the Company, (ii) Mortgage Loans made or purchased in the ordinary course of the Company's business, and (iii) advances, loans or extensions of credit to officers, directors, shareholders or employees) to, or make or commit to make any capital contribution to, or purchase any stocks, bonds, notes, debentures or other securities (other than Cash and Cash Equivalents) of, or make any other investment (other than the maintenance of operating bank accounts in the ordinary course of the Company's business) in, or guaranty the indebtedness or other obligations of, any Person, which such advances, loans, extensions of credit, capital contributions, purchases, investments, or guaranties exceed $100,000 in the aggregate. 7(h) Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its assets (other than obsolete or worn out property), whether now owned or hereafter acquired, other than in the ordinary course of business as currently conducted and at fair market value (it being expressly agreed and understood that the sale or other disposition of Mortgage-Backed Securities and Mortgage Loans with or without servicing released and of mortgage servicing rights is in the ordinary course of business). 15 7(i) Leverage Ratio. Permit the ratio at any date of Total Liabilities to Adjusted Tangible Net Worth to be more than (i) during the period from March 31, 1998 through and including September 29, 1998, 40.0:1.0, and (ii) at all times thereafter, 15.0:1.0. 7(j) Minimum Book Net Worth. Permit Book Net Worth to be less than (i) during the period from March 31, 1998 through and including September 29, 1998, $500,000, and (ii) at all times thereafter, $1,000,000. 7(k) Current Ratio. Permit the ratio at any date of total current assets of the Guarantor and its consolidated Subsidiaries (including without limitation the Company) to total current liabilities of the Guarantor and its consolidated Subsidiaries (including without limitation the Company), each as determined in accordance with GAAP, to be less than (i) during the period from March 31, 1998 through and including September 29, 1998, 0.70:1.0, and (ii) at all times thereafter, 0.85:1.0. 7(l) Dividends. During any fiscal year, declare and pay any dividends, or return any capital, to its shareholders or authorize or make any other distribution, payment or delivery of property or cash to its shareholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock now or hereafter outstanding (or any option or warrants issued by it for or with respect to its capital stock), or set aside any funds for any of the foregoing purposes, in an aggregate amount in excess of fifty percent (50%) of the income of the Company available to shareholders for such fiscal year as determined in accordance with GAAP. 7(m) Change of Control. Permit to occur a material change in the composition of the directors or the officers of the Company as constituted on the date hereof unless such director or officer is replaced by a person or persons reasonably acceptable to the Lender. 8. Events of Default. Upon the occurrence of any of the following events (an "Event of Default"): 8(a)The Company shall fail to pay principal or interest on any Loan or any fee payable pursuant to Paragraph 2(l) above, or any amount payable pursuant to Paragraph 2(f) or 2(j) above, when due; or 8(b) Any representation or warranty made or deemed made by the Company or the Guarantor in any Credit Document or in connection with any Credit Document shall be inaccurate or incomplete in any respect on or as of the date made or deemed made; or 8(c) The Company shall fail to maintain its corporate existence or shall default in the observance or performance of any covenant or agreement contained in Paragraph 7 above or in the Security Agreement; or 8(d) The Company shall fail to observe or perform any other term or provision contained in the Credit Documents and such failure shall continue for thirty (30) days; or 16 8(e) The Company shall default in any payment of principal of or interest on any Indebtedness in the aggregate principal amount of $100,000 or more (and without regard for the dollar amount of the defaulted payment), or any other event shall occur, the effect of which is to permit such Indebtedness to be declared or otherwise to become due prior to its stated maturity; or 8(f) (1) The Company or the Guarantor shall commence any case, proceeding or other action (i) relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to the Company or the Guarantor, or seeking to adjudicate the Company or the Guarantor a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or the Guarantor or the debts of either of them, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for the Company or for all or any substantial part of the Company's assets, or the Company or the Guarantor shall make a general assignment for the benefit of its, his or their creditors; or (2) there shall be commenced against the Company or the Guarantor any case, proceeding or other action of a nature referred to in clause (1) above which (i) results in the entry of an order for relief or any such adjudication or appointment, or (ii) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (3) there shall be commenced against the Company or the Guarantor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of the assets of any of them which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or (4) the Company or the Guarantor shall take any action in furtherance of, or indicating its, his or their consent to, approval of, or acquiescence in (other than in connection with a final settlement), any of the acts set forth in clauses (1), (2) or (3) above; or (5) the Company or the Guarantor shall generally not, or shall be unable to, or shall admit in writing its, his or their inability to pay its, his or their debts as they become due; or 8(g) (1) The Company or any of its ERISA Affiliates shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (2) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (3) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings is, in the reasonable opinion of the Lender, likely to result in the termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, the continuance of such Reportable Event unremedied for ten days after notice of such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or the continuance of such proceedings for ten days after commencement thereof, as the case may be, (4) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be incurred by the Company or any of its ERISA Affiliates or (6) any other event or condition shall occur or exist; and in each case in clauses (1) through (6) above, such event or condition, together with all other such events or conditions, if any, is likely to subject the Company or any of its respective ERISA Affiliates to any tax, penalty or other 17 liabilities, which in the aggregate are material in relation to the business, operations, property or financial or other condition of the Company or any of its ERISA Affiliates; or 8(h) One or more judgments or decrees in an aggregate amount in excess of $100,000 shall be entered against the Company after the date hereof and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or 8(i) The Guarantor shall fail to observe or perform any term or provision of the Guaranty or shall attempt to rescind or revoke the Guaranty, with respect to future transactions or otherwise; THEN: (1) Automatically upon the occurrence of an Event of Default under Paragraph 8(f) above; and (2) In all other cases, at the option of the Lender, the Lender's obligation to make Loans hereunder shall terminate and the principal balance of outstanding Loans and interest accrued but unpaid thereon shall become immediately due and payable, without demand upon or presentment to the Company, which are expressly waived by the Company. Notwithstanding anything to the contrary contained in this Paragraph 8, the parties hereto acknowledge that it is their intention that the violation or breach of any covenants made in respect of any Mortgage Loan regarding the qualification of such Mortgage Loan as an "Eligible Mortgage Loan" under this Agreement shall not constitute an Event of Default provided that the Company is in compliance with the provisions of Paragraph 2(f) hereof. 9. Miscellaneous Provisions. 9(a) Assignment. The Company may not assign its rights or obligations under this Agreement without the prior written consent of the Lender. The Lender shall not assign its rights and obligations under this Agreement to any other party not a party to this Agreement as of the date hereof; provided, however, that the Lender may at any time pledge or assign all or any portion of the Lender's rights under this Agreement and the other Credit Documents to a Federal Reserve Bank. Subject to the foregoing, all provisions contained in this Agreement or any document or agreement referred to herein or relating hereto shall inure to the benefit of the Lender, its successors and assigns, and shall be binding upon the Company, its successors and assigns. 9(b) Amendment. Neither this Agreement nor any of the other Credit Documents may be amended or terms or provisions hereof or thereof waived unless such amendment or waiver is in writing and signed by the Lender and the Company. It is expressly agreed and understood that the failure by the Lender to elect to accelerate amounts outstanding 18 hereunder or to terminate the obligation of the Lender to make Loans hereunder shall not constitute an amendment or waiver of any term or provision of this Agreement. 9(c) Cumulative Rights; No Waiver. The rights, powers and remedies of the Lender under the Credit Documents are cumulative and in addition to all rights, powers and remedies provided under any and all agreements among the Company and the Lender relating hereto, at law, in equity or otherwise. Any delay or failure by the Lender to exercise any right, power or remedy shall not constitute a waiver thereof by the Lender, and no single or partial exercise by the Lender of any right, power or remedy shall preclude other or further exercise thereof or any exercise of any other rights, powers or remedies. 9(d) Entire Agreement. This Agreement and the documents and agreements referred to herein embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof and thereof. 9(e) Survival. All representations, warranties, covenants and agreements on the part of the Company and the Guarantor contained in the Credit Documents shall survive the termination of this Agreement and shall be effective until the Obligations are paid and performed in full or longer as expressly provided herein. 9(f) Notices. All notices given by any party to the others under the Credit Documents shall be in writing unless otherwise provided for herein, delivered personally or by depositing the same in the United States mail, registered, with postage prepaid, addressed to the party at the address set forth on Schedule I attached hereto. Any party may change the address to which notices are to be sent by notice of such change to each other party given as provided herein. Such notices shall be effective on the date received or, if mailed, on the third Business Day following the date mailed. 9(g) Governing Law/Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE CREDIT DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE CREDIT DOCUMENTS. 9(h) Sub-Participation by Lender. The Lender may at any time sell to one or more financial institutions (each of such financial institutions being herein called a "Participant") participating interests in any of the Obligations held by the Lender and its commitments hereunder; provided, however, that: (1) no participation contemplated by this Paragraph 9(h) shall relieve the Lender from its obligations hereunder or under any other Credit Document; (2) the Lender shall remain solely responsible for the performance of such obligations; and (3) the Company shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under the Credit Documents. 19 9(i) Counterparts. This Agreement and the other Credit Documents may be executed in any number of counterparts, all of which together shall constitute one agreement. 9(j) Exculpatory Provisions. Neither the Lender nor any of its officers, directors, employees, agents, counsel, attorneys-in-fact or Affiliates shall be liable to the Company for any action taken or omitted to be taken by it or such Person under or in connection with the Credit Documents or with respect to the Collateral (except for its or such Person's own gross negligence or willful misconduct). 9(k) Indemnification. The Company agrees to indemnify, defend and hold harmless the Lender from and against any and all claims, obligations, penalties, actions, suits, judgments, costs, disbursements, losses, liabilities and damages (including, without limitation, attorneys' fees) of any kind whatsoever which may at any time be imposed on, assessed against or incurred by the Lender in any way (1) relating to or arising out of the Credit Documents or any documents contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by the Lender in connection with the foregoing; provided, the Company shall not be liable for any portion of any such claims, obligations, etc., arising out of or resulting from the gross negligence or willful misconduct of the Lender. The indemnification obligations of the Company under this Paragraph 9(k) shall survive termination of this Agreement and payment in full of the Obligations. 9(l) Binding Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to the Note or any other Credit Document ("Disputes"), between or among parties to the Note or any other Credit Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaim, claims brought as class actions, claims arising from Credit Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out of or connected with the Credit Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. Notwithstanding the foregoing, this paragraph shall not apply to any hedging arrangement that is a Credit Document. 9(m) Confidentiality. The Lender and its directors, officers, employees and affiliates shall use good faith efforts not to make public disclosure of any information related to the Company and designated by the Company or its affiliates in writing as confidential, including financial terms and financial and organizational information contained in the Credit 20 Documents or in any other documents, statements, certificates, materials or information furnished by the Company or its affiliates in connection with the Credit Documents; provided, that the foregoing shall not be construed to, now or in the future, apply to any information reflected in any recorded document, information obtained from sources other than the Company or its affiliates or otherwise in the public domain nor shall it be construed to prevent the Lender from (i) making any disclosure of any information (A) if required to do so by any applicable law or regulation or accepted banking practice, (B) to any governmental agency or regulatory body having or claiming authority to regulate or oversee any aspect of the Lender's business or any of its subsidiaries or affiliates in connection with the exercise of such authority or claimed authority, (C) pursuant to subpoena, (D) to the extent the Lender or its counsel deems necessary or appropriate to do so to effect or preserve its security for the transaction contemplated by the Credit Documents or to enforce any remedy provided for in the Credit Documents otherwise available by law, (ii) making such disclosures as the Lender reasonably deems necessary or appropriate to any bank or financial institution, and/or counsel thereto, which bank or financial institution has been approved by the Company as a prospective lender under the transaction contemplated by the Credit Documents or to which the Lender in good faith desires to sell an interest in the extensions of credit made thereunder, or (iii) making, on a confidential basis, such disclosures as the Lender deems necessary or appropriate to the Lender's legal counsel (in-house or outside) or accountants (including outside auditors). 10. Definitions. For purposes of this Agreement, the terms set forth below shall have the following meanings: "Additional Required Documents" shall mean for any Mortgage Loan those items described on Exhibit F attached hereto. "Adjusted Tangible Net Worth" shall mean, as to the Guarantor and its consolidated Subsidiaries, at any date: (a) Book Net Worth, minus (b) The sum of (1) all assets which would be classified as intangible assets under GAAP, including, without limitation, purchased and capitalized value of servicing rights, goodwill (whether representing the excess cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs and research and product development costs) plus (2) all receivables from directors, officers and shareholders of the Guarantor or any of its consolidated Subsidiaries (including, without limitation, receivables arising from or related to loans made by the Guarantor or any of its consolidated Subsidiaries to such directors, officers or shareholders). "Affiliate" shall mean, as to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with, such Person. "Control" as used herein means the power to direct the management and policies of such Person. 21 "Agreement" shall mean this Agreement, as the same may be amended, extended or replaced from time to time. "Applicable Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the rate per annum (rounded upward, if necessary, to the next higher 1/32 of one percent (.03125%)) calculated in accordance with the following formula: ER + 1.125 ----- Applicable Eurodollar Rate = 1-ERP where ER = Eurodollar Rate ERP = Eurodollar Reserve Percentage "Applicable Interest Rate" shall mean, at any time, at the Company's sole option, either (i) the Corporate Base Rate at such time plus one and one-quarter percent (1.25%) per annum, or (ii) the Applicable Eurodollar Rate at such time. "Approved Investor" shall mean any Person pre-approved in writing (which pre-approval may be limited in dollar amounts by type and otherwise) by the Lender (including those shown on Schedule III) and which approval has not been revoked by the Lender in its sole discretion (such revocation to be effective on the tenth Business Day following notice thereof given to the Company in writing). "Book Net Worth" shall mean the excess of total assets of the Guarantor and its consolidated Subsidiaries over Total Liabilities of the Guarantor and its consolidated Subsidiaries, each determined in accordance with GAAP. "Borrowing Base" shall mean at any date all Eligible Mortgage Loans delivered to and held by the Lender or otherwise identified as Collateral under the Security Agreement as collateral security for the Obligations. "Borrowing Base Schedule" shall mean a schedule prepared by the Lender and certified to by the Company in the form of that attached hereto as Exhibit L. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in Florida or Charlotte, North Carolina are authorized or obligated to close their regular banking business. "Buy/Sell Agreement" shall mean a bona fide current and unexpired agreement between the Company and an Approved Investor under which said Approved Investor agrees, prior to the expiration thereof, to purchase certain types of Mortgage Loans or related Mortgage-Backed Securities at a Take-Out Price, which Buy/Sell Agreement shall be in form and content reasonably satisfactory to the Lender. 22 "Capitalized Lease Obligations" of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Cash and Cash Equivalents" as to any Person shall mean those liquid assets, including without limitation securities and other investments, which are classified as "cash and cash equivalents" on a balance sheet of such Person under GAAP. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Collateral" shall have the meaning given such term in the Security Agreement. "Collateral Value of the Borrowing Base" shall mean at any date the sum of the Unit Collateral Values of all Eligible Mortgage Loans included in the Borrowing Base at such date (including Eligible Mortgage Loans shipped into pools supporting Warehouse Related MBSs pending sale of such Warehouse Related MBSs and delivery of the sale proceeds thereof to the Settlement Account). "Commonly Controlled Entity" of a Person shall mean a Person, whether or not incorporated, which is under common control with such Person within the meaning of Section 414(c) of the Internal Revenue Code. "Company" shall have the meaning given such term in the introductory paragraph hereof. "Contact Office" shall mean the office of the Lender at One First Union Center, 301 South College Street, Charlotte, North Carolina 28288. "Contractual Obligation" as to any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Corporate Base Rate" shall mean for any day a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System averaged by Federal funds brokers for such day as reported by the Federal Reserve Bank of New York, or if no longer so reported then as published in Statistical Release H.15 of the Federal Reserve System, or if such rate is not so published for any day, the average of the quotations for such day of such transactions received by the Lender from three (3) Federal funds brokers of recognized standing selected by the Lender. "Corporate Base Rate Loans" shall mean Loans at such time as they are bearing interest at an interest rate based on the Corporate Base Rate. 23 "Covenant Compliance Certificate" shall mean a certificate in the form of Exhibit G attached hereto. "Credit Documents" shall mean this Agreement, the Security Agreement, the Guaranty, the Note and each other document, instrument and agreement executed by the Company or the Guarantor in connection herewith, as any of the same may be amended, extended or replaced from time to time. "Credit Limit" shall mean $20,000,000.00. "Eligible High-LTV Mortgage Loan" shall have the meaning set forth in subparagraph (m) of the definition of "Eligible Mortgage Loan." "Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to which each of the following statements shall be accurate and complete (and the Company by confirming the inclusion of such Mortgage Loan in any computation of the Collateral Value of the Borrowing Base shall be deemed to so represent and warrant to the Lender at and as of the date of such computation): (a) Said Mortgage Loan is a binding and valid obligation of the Obligor thereon, in full force and effect and enforceable in accordance with its terms. (b) Said Mortgage Loan is genuine in all respects as appearing on its face and as represented in the books and records of the Company and all information set forth therein is true and correct. (c) Said Mortgage Loan is free of any default of any party thereto (including the Company), other than as expressly permitted pursuant to subparagraph (d) below, counterclaims, offsets and defenses and from any rescission, cancellation or avoidance, whether by operation of law or otherwise. (d) No payment under said Mortgage Loan is more than thirty (30) days past due the payment due date set forth in the underlying promissory note and deed of trust (or mortgage). (e) Said Mortgage Loan contains the entire agreement of the parties thereto with respect to the subject matter thereof, has not been modified or amended in any respect and is free of concessions or understandings with the Obligor thereon of any kind not expressed in writing therein. (f) Said Mortgage Loan is in all respects as required by and in accordance with all applicable laws and regulations governing the same, including, without limitation, the federal Consumer Credit Protection Act, the federal Truth-in-Lending Act, and the federal Equal Credit Opportunity Act, and the regulations promulgated thereunder and all applicable usury laws and restrictions, and all notices, disclosures and other statements or information required by 24 law or regulation to be given, and any other act required by law or regulation to be performed, in connection with said Mortgage Loan have been given and performed as required. (g) All advance payments and other deposits on said Mortgage Loan have been paid in cash, and no part of said sums has been loaned, directly or indirectly, by the Company to the Obligor. (h) At all times said Mortgage Loan will be free and clear of all Liens, except in favor of the Lender. (i) The Property covered by said Mortgage Loan is insured against loss or damage by fire and all other hazards normally included within standard extended coverage in accordance with the provisions of said Mortgage Loan with the Company named as a loss payee thereon. (j) The Property covered by said Mortgage Loan is free and clear of all Liens except of the Company subject only to (1) the Lien of current real property taxes and assessments not yet due and payable; (2) covenants, conditions and restrictions, rights of way, easements and other matters of the public record, as of the date of recording, as are acceptable to mortgage lending institutions generally and specifically referred to in a lender's title insurance policy delivered to the originator of the Mortgage Loan and (i) referred to or otherwise considered in the appraisal made for the originator of the Mortgage Loan or (ii) which do not materially adversely affect the appraised value of the Property as set forth in such appraisal; (3) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage Loan or the use, enjoyment, value or marketability of the related Property; (4) Liens subordinate in priority to the Lien in favor of the Company; and (5) in the case of a second mortgage loan, Liens of other mortgage lenders which may be prior to the Lien in favor of the Company and shall be reflected on the lender's title insurance policy delivered to the originator of the Mortgage Loan. (k) If said Mortgage Loan has been withdrawn from the possession of the Lender and: (1) If said Mortgage Loan was withdrawn by the Company for purposes of correcting clerical or other nonsubstantive documentation problems pursuant to a trust receipt, as permitted under Paragraph 6 of the Security Agreement, the Unit Collateral Value of said Mortgage Loan when added to the Unit Collateral Values of other Mortgage Loans included in the calculation of the Collateral Value of the Borrowing Base, the promissory notes for which have been similarly withdrawn by the Company does not exceed $250,000, and the promissory note and other documents relating to said Mortgage Loan are returned to the Lender within ten (10) calendar days from the date of withdrawal; (2) If said Mortgage Loan was shipped by the Lender directly to a permanent investor for purchase, the full purchase price therefor has been received by the Lender (or said Mortgage Loan has been returned to the Lender) within thirty (30) days from the date of shipment by the Lender; and 25 (3) If said Mortgage Loan was shipped by the Lender directly to a custodian for purposes of formation of a pool supporting a Mortgage-Backed Security, the Mortgage-Backed Security is issued, sold and the purchase price therefor has been received by the Lender (or said Mortgage Loan has been returned to the Lender) within thirty (30) days from the date of shipment by the Lender. (l) The original principal balance of said Mortgage Loan did not exceed $350,000; provided, however, that the original principal balance or original maximum principal amount, as applicable, of said Mortgage Loan may exceed $350,000 so long as (i) such Mortgage Loan is covered by a loan-specific Take-Out Commitment from an Approved Investor, (ii) the original principal balance or original maximum principal amount, as applicable, of said Mortgage Loan did not exceed $600,000, and (iii) the Unit Collateral Value of said Mortgage Loan when added to the Unit Collateral Values of all other Mortgage Loans included in the Borrowing Base with an original principal balance in excess of $350,000 does not exceed ten percent (10%) of the Credit Limit. (m) Said Mortgage Loan has an aggregate loan-to-value ratio of equal to or less than one hundred percent (100%); provided, however, that a Mortgage Loan which has an aggregate loan-to-value ratio of greater than one hundred percent (100%) may be included in the Borrowing Base so long as (i) said Mortgage Loan has an aggregate loan-to-value ratio of equal to or less than one hundred twenty-five percent (125%); (ii) said Mortgage Loan strictly complies to the High-LTV Investor Guidelines; (iii) said Mortgage Loan possesses, in the sole judgment of the Lender, the standard underwriting characteristics of the standard secondary market for "high-LTV" Mortgage Loans; and (iv) the Unit Collateral Value of said Mortgage Loan when added to the Unit Collateral Values of all other Mortgage Loans included in the Borrowing Base of the type described in this proviso does not exceed $1,000,000 (Eligible Mortgage Loans meeting all of the requirements of this proviso shall be referred to in this Agreement as "Eligible High-LTV Mortgage Loans"). (n) The improvements on the Property consist of a completed one-to-four unit single family residence, including but not limited to a condominium, planned unit development or townhouse but excluding in any event a co-op. (o) There has been delivered to the Lender the Required Documents for said Mortgage Loan; provided, however, that the Required Documents for said Mortgage Loan may be delivered to the Lender within seven (7) Business Days of the inclusion of said Mortgage Loan in the Borrowing Base so long as the Unit Collateral Value of said Mortgage Loan for which the Required Documents are delivered within seven (7) Business Days after its inclusion in the Borrowing Base, when added to the Unit Collateral Value of all other such Mortgage Loans for which the Required Documents are delivered within seven (7) Business Days after such Mortgage Loans are included in the Borrowing Base, does not exceed twenty-five percent (25%) of the Credit Limit. (p) Said Mortgage Loan is not subject to any servicing arrangement with any Person other than the Company nor are any servicing rights relating to said Mortgage Loan 26 subject to any Lien, claim, interest or negative pledge in favor of any Person other than as permitted hereunder. (q) More than one hundred twenty (120) days have not elapsed since said Mortgage Loan was included in the Borrowing Base (provided, however, that with respect to an Eligible High-LTV Mortgage Loan, more than forty-five (45) days shall not have elapsed since said Mortgage Loan was included in the Borrowing Base). (r) INTENTIONALLY OMITTED. (s) The Company obtained an appraisal in connection with the origination of said Mortgage Loan that would satisfy all appraisal requirements for said Mortgage Loan if such appraisal had been originated by a federally insured depositary institution. (t) INTENTIONALLY OMITTED. (u) INTENTIONALLY OMITTED. (v) Said Mortgage Loan is secured by a first or second priority mortgage or deed of trust on the Property covered thereby. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may from time to time be supplemented or amended. "ERISA Affiliate" shall mean, with respect to any Person, any trade or business (whether or not incorporated) that is a member of the group of which such Person is a member and which is treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder in effect from time to time. "Eurodollar Business Day" shall mean a Business Day upon which commercial banks in London, England are open for domestic and international business. "Eurodollar Loans" shall mean Loans hereunder at such time as they are bearing interest at the Applicable Eurodollar Rate. "Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the arithmetic average of the rates at which deposits in immediately available U.S. dollars in an amount equal to the aggregate amount of Eurodollar Loans proposed to be subject to such rates having a maturity approximately equal to one month are offered to or by reference banks in the London interbank market, as determined by the Lender in accordance with its standard practices and calculated by Lender on each Eurodollar Business Day during the term of this Agreement, it being understood that the Eurodollar Rate may change from week to week based on the Lender's weekly determination of the Eurodollar Rate as provided above, said changes to be effective as of the date of determination of the Eurodollar Rate by Lender. 27 "Eurodollar Reserve Percentage" shall mean for any day, that percentage expressed as a decimal, which is in effect on such day, as specified by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum aggregate reserve requirement (including all basis, supplemental, marginal and other reserves) which is imposed on eurocurrency liabilities. "Event of Default" shall have the meaning set forth in Paragraph 8 above. "Fair Market Value" shall mean, with respect to any Mortgage Loan, the market bid price obtainable for such Mortgage Loan, as determined on a reasonable basis by the Lender (based upon whole loan prices currently available to the Company) at such time as it shall elect, including without limitation after receipt of a notice from the Company pursuant to Paragraph 6(f)(6) above. "Funding Account" shall mean Account No. ________________ maintained in the Company's name alone with the Lender at the Contact Office. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall mean any nation or governments any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" shall have the meaning given such term in Paragraph 3(b) above, as such instrument may be amended, extended or replaced from time to time. "Guarantor" shall mean Westmark Group Holdings, Inc., a Delaware corporation. "High-LTV Investor Guidelines" shall mean, collectively, those guidelines promulgated by Approved Investors with respect to "high-LTV" Mortgage Loans attached as Exhibit K hereto, as any of such guidelines may be amended from time to time with the prior written consent of the Lender, which consent shall not be unreasonably withheld. "Indebtedness" of any Person shall mean all items of indebtedness which, in accordance with GAAP, would be included in determining liabilities as shown on the liability side of a statement of condition of such Person as of the date as of which indebtedness is to be determined, including; without limitation, all obligations for money borrowed and Capitalized Lease Obligations, all amounts for which such Person may be obligated under gestation or other repurchase facilities, and shall also include all indebtedness and liabilities of others assumed or guaranteed by such Person or in respect of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection) whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise. "Lender" shall have the meaning given such term in the introductory paragraph hereof. 28 "Lien" shall mean any security interest, mortgage, pledge, lien, claim on property, charge or encumbrance (including any conditional sale or other title retention agreement), any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction (other than a true lease notice filing). "Loan" shall have the meaning given such term in Paragraph 1(a)(1) above. "Loan Request" shall mean a request for a Loan conveyed to the Lender from a duly authorized officer of the Company, with such request to be confirmed in writing upon the request of the Lender. "Maturity Date" shall mean the earlier of: (a) ____________, 1999 [364 DAYS FROM CLOSING] as such date may be extended annually until __________ 2001 from time to time in writing by the Lender, in its sole discretion (provided, however, that such date shall not be extended for another one-year term in __________ 1999 unless either (i) the price per share of the Company's common stock as of December 31, 1998 is equal to or greater than $2.75, or (ii) the Company's pre-tax net income (as determined in accordance with GAAP) as of December 31, 1998 is equal to or greater than $2,000,000), and (b) the date the Lender terminates its obligation to make further Loans hereunder pursuant to Paragraph 8 above. "Mortgage-Backed Security" shall mean (a) any security (including, without limitation, a participation certificate) that represents an interest in a pool of mortgages, deeds of trusts or other instruments creating a Lien on Property which is improved by a completed one-to-four unit single family residence, including but not limited to a condominium, planned unit development or townhouse. "Mortgage Loan" shall mean a residential real estate secured loan, including, without limitation: (a) a promissory note, any reformation thereof and related deed of trust (or mortgage) and security agreement; (b) all guaranties and insurance policies, including, without limitation, all mortgage and title insurance policies and all fire and extended coverage insurance policies and rights of the Company to return premiums or payments with respect thereto; and (c) all right, title and interest of the Company in the Property covered by said deed of trust (or mortgage). "Multiemployer Plan" shall mean, as to the Company or any of its ERISA Affiliates, a Plan of such Person which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Note" shall mean have the meaning given such term in Paragraph 2(c) hereof. "Obligations" shall mean any and all debts, obligations and liabilities of the Company to the Lender (whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred), arising out of or related to the Credit Documents. "Obligor" shall mean the Person or Persons obligated to pay the Indebtedness which is the subject of a Mortgage Loan. 29 "Participant" shall have the meaning given such term in Paragraph 9(h) above. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereto. "Permitted Secured Debt" shall mean that Indebtedness which is the subject of a Lien and described as "Permitted Secured Debt" on Exhibit H attached hereto. "Permitted Unsecured Debt" shall mean that Indebtedness described as "Permitted Unsecured Debt" on Exhibit H attached hereto. "Person" shall mean any corporation, natural person, firm, joint venture, partnership, limited liability company, trust, unincorporated organization or Governmental Authority. "Plan" shall mean, with respect to the Company or any of its ERISA Affiliates, any pension plan that is covered by Title IV of ERISA and in respect of which such Person or a Commonly Controlled Entity of such Person is an "employer" as defined in Section 3(5) of ERISA. "Potential Default" shall mean an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Prime Rate" shall mean a rate per annum equal to the rate announced from time to time by the Lender to be its "Prime Rate" as such "Prime Rate" may change from time to time, said changes to occur on the first date the "Prime Rate" changes; it being understood that the "Prime Rate" is the rate announced by the Lender from time to time as its "Prime Rate" and is not necessarily the lowest interest rate charged by the Lender to its customers. "Proceeds" shall mean whatever is receivable or received when Collateral or proceeds are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. "Property" shall mean the real property, including the improvements thereon, and the personal property (tangible and intangible) which are encumbered pursuant to a Mortgage Loan. "Reportable Event" shall mean a reportable event as defined in Title IV of ERISA, except actions of general applicability by the Secretary of Labor under Section 110 of ERISA. "Required Documents" shall mean for any Mortgage Loan those items described on Exhibit I attached hereto. "Requirements of Law" shall mean, as to any Person, the Articles or Certificate of Incorporation and Bylaws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or a final and binding determination of an arbitrator or a 30 determination of a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Security Agreement" shall have the meaning given such term in Paragraph 3(a) above, as the same may be amended, extended or replaced from time to time. "Settlement Account" shall mean Account No. _________________ maintained in the name of the Lender at the Contact Office. "Single Employer Plan" shall mean, as to the Company or any of its ERISA Affiliates, any Plan of such Person which is not a Multiemployer Plan. "Statement Date" shall mean ____________________, 19__ [DATE OF LAST AUDITED FINANCIALS OF GUARANTOR]. "Subsidiary" shall mean any corporation, partnership or joint venture more than fifty percent (50%) of the stock or other ownership interest of which having by the terms thereof ordinary voting power to elect the board of directors, managers or trustees of such corporation, partnership or joint venture (irrespective of whether or not at the time stock of any other class or classes of such corporation, partnership or joint venture shall have or might have voting power by reason of the happening of any contingency) shall, at the time as of which any determination is being made, be owned, either directly or through Subsidiaries. "Take-Out Commitment" with respect to any Mortgage Loan shall mean a bona fide current, unused and unexpired whole loan commitment or forward sale Mortgage-Backed Security commitment issued in favor of and held by the Company made by an Approved Investor, under which said Approved Investor agrees, prior to the expiration thereof, upon the satisfaction of certain terms and conditions therein, to purchase such Mortgage Loan or related Mortgage-Backed Security at a Take-Out Price, which commitment is not subject to any term or condition which is not customary in commitments of like nature or which, in the reasonably anticipated course of events, cannot be fully complied with prior to the expiration thereof. "Take-Out Price" with respect to any Mortgage Loan shall mean the specified price to be paid for such Mortgage Loan under the applicable Take-Out Commitment or Buy/Sell Agreement covering said Mortgage Loan, as such price may be set forth in such Take-Out Commitment or calculated according to the formula set forth in such Buy/Sell Agreement. "Total Liabilities" shall mean total liabilities of the Guarantor and its consolidated Subsidiaries reflected on its balance sheet in accordance with GAAP. "Unit Collateral Value" shall mean: (i) with respect to each Eligible Mortgage Loan (other than an Eligible High-LTV Mortgage Loan) included in the Borrowing Base, one hundred percent (100%) of the lesser of: (A) the original principal balance thereof, and (B) the Fair Market Value thereof. 31 (ii) with respect to each Eligible High-LTV Mortgage Loan included in the Borrowing Base, ninety-eight percent (98%) of the original principal balance thereof. "Warehouse Related MBS" shall have the meaning given such term in the Security Agreement. 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. WESTMARK MORTGAGE CORPORATION, [CORPORATE SEAL] a California corporation ATTEST: By________________________ By_________________________________ Name______________________ Name_______________________________ Title_____________________ Title______________________________ FIRST UNION NATIONAL BANK, a national banking association By_________________________________ Name_______________________________ Title______________________________ WESTMARK GROUP HOLDINGS, INC., a [CORPORATE SEAL] Delaware corporation, as Guarantor ATTEST: By________________________ By_________________________________ Name______________________ Name_______________________________ Title_____________________ Title______________________________ 33 LIST OF SCHEDULES AND EXHIBITS ------------------------------
Schedule I Schedule of Addresses Schedule II Shareholders of Company Schedule III Approved Investors Exhibit A Form of Promissory Note Exhibit B Form of Security Agreement Exhibit C Form of Guaranty Exhibit D Form of Legal Opinion of Counsel for the Company and the Guarantor Exhibit E Litigation Schedule Exhibit F Schedule of Additional Required Documents Exhibit G Form of Covenant Compliance Certificate Exhibit H Schedule of Permitted Other Debt (Including Permitted Secured Debt) Exhibit I Schedule of Required Documents Exhibit J Form of Wet Funding Mortgage Loan Transmittal Form Exhibit K High-LTV Investor Guidelines Exhibit L Borrowing Base Schedule
SCHEDULE I TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _________________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Schedule of Addresses --------------------- BORROWER: Westmark Mortgage Corporation 355 N.E. 5th Avenue, Suite 4 Delray Beach, Florida 33483 Attention: Mr. Payton Story, President Facsimile: (561) 279-1821 BANK: First Union National Bank One First Union Center, TW-06 301 South College Street Charlotte, North Carolina 28288 Attention: Mr. Evan Peverley Facsimile: (704) 383-8121 GUARANTOR: Westmark Group Holdings, Inc. 355 N.E. 5th Avenue, Suite Delray Beach, Florida 33483 Attention: Mr. Mark Schaftlein, CEO Facsimile: (561) 279-1801 SCHEDULE II TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF ________________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Shareholders of Company ----------------------- COMMON VOTING STOCK Shareholder Number of Shares - ----------- ---------------- Westmark Group Holdings, Inc. 727 TOTAL NUMBER OF SHARES 727 PREFERRED STOCK Shareholder Number of Shares - ----------- ---------------- N/A None TOTAL NUMBER OF SHARES None SCHEDULE III TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Approved Investors ------------------ GE Capital Mortgage Services GreenTree Mortgage Services Household Bank, F.S.B. Master Financial, Inc. MCA Mortgage Corporation The Money Store EXHIBIT A TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Promissory Note ----------------------- EXHIBIT B TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Security Agreement -------------------------- EXHIBIT C TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF ________________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Guaranty ---------------- EXHIBIT D TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF ______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Legal Opinion of Counsel for Company and Guarantor ------------------------- EXHIBIT E TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Litigation Schedule ------------------- [Company to provide] EXHIBIT F TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Schedule of Additional Required Documents ----------------------------------------- 1. The original executed mortgage or deed of trust relating to the Mortgage Loan; 2. A casualty insurance policy on the property subject to the Mortgage Loan covering fire, hazard and extended coverage, and if applicable, flood and earthquake insurance, all in amounts not less than the principal amount of the promissory note relating to the Mortgage Loan (or the maximum amount issuable for flood insurance) which insurance has been endorsed to provide for payment thereof to the Company, as mortgagee, together with written notice to the mortgagor of the fact, if true, that mortgagor's property lies within a flood zone; 3. Disclosure statements complying with Regulation Z ("Truth in Lending") of the Board of Governors of the Federal Reserve System; 4. Equal Credit Opportunity Act notice and additional disclosure; 5. An appraisal of the Property covered by the Mortgage Loan by an appraiser acceptable to the Lender in its sole and absolute discretion, which appraisal shall be in form and content satisfactory to the Lender; 6. Written statement signed by the attorney, title company or closing agent responsible for supervising the closing of the Mortgage Loan that such person or entity closed the Mortgage Loan in accordance with any closing instructions received by such person or entity; 7. Evidence of hazard insurance in the form of a copy of the hazard insurance policy or hazard insurance certificate indicating coverage greater than or equal to the face amount of the Mortgage Loan; 8. An original mortgagee title insurance policy (or "marked-up" interim title insurance binder with policy to follow not later than ninety (90) days after the date of the Mortgage Loan) issued by a nationally recognized title insurance company acceptable to the Lender, together with any attachments and customary endorsements thereto, which insures that the mortgage or deed of trust securing the promissory note relating to the Mortgage Loan is a valid and enforceable first or second lien on the Property covered by the mortgage Loan with no prior liens or encumbrances other than as permitted hereunder; 9. If a Take-Out Commitment does not exist, a true copy of the applicable original Buy/Sell Agreement between the Company and an Approved Investor pursuant to which such Mortgage Loan will be purchased, which is executed by the Company and the Approved Investor and which is in full force and effect; and 10. Such other documents as the Lender may reasonably request from time to time, including without limitation credit information relating to the Obligor on such Mortgage Loan. EXHIBIT G TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Covenant Compliance Certificate --------------------------------------- TO: First Union National Bank This is the Covenant Compliance Certificate referred to in Section 6(a)(2) of the Mortgage Loan Warehousing Agreement dated as of ____________, 1998, by and between the Company and the Lender (the "Agreement," with capitalized terms not otherwise defined herein having the same meanings assigned such terms in the Agreement). Attached hereto are the consolidated and consolidating financial statements of the undersigned as of ______________ __, 19__ prepared by the undersigned. This Covenant Compliance Certificate and the attached consolidated and consolidating financial statements are furnished for the purpose of procuring credit, and shall be substituted for the Covenant Compliance Certificate and attached financial statements last submitted to the Lender by the Company pursuant to Section 6(a)(2) of the Agreement. I hereby certify that (i) I have carefully read the attached financial statements, (ii) the attached financial statements are complete, true and correct statements to the best of my knowledge and belief, (iii) the attached financial statements were prepared in conformity with GAAP, as applied on a basis consistent with that of the preceding statements submitted to Lender as of the end of the previous reporting period, and (iv) the attached financial statements fairly present the financial position of the undersigned and its consolidated Subsidiaries (including, without limitation, the Company) and the results of its operations as of _________________, 19___ and for the period then ended. I also hereby certify that, as of the date hereof, (i) each and every covenant of the Company contained in the Agreement has been performed and observed (except for covenants made in connection with Mortgage Loans, it being the intention of the parties to the Agreement that the violation or breach of any such covenant in respect of any Mortgage Loan regarding the qualification of such Mortgage Loan as an "Eligible Mortgage Loan" under the Agreement shall not constitute an Event of Default, provided that the Company is and continues to be in compliance with the provisions of Section 2(f) of the Agreement), and (ii) no Event of Default or Potential Default has occurred under the Agreement. Attached are calculations of the financial ratios set forth in Sections 7(i), 7(j) and 7(k) of the Agreement all as of the date hereof, which calculations are hereby certified to be complete, true and correct calculations of the financial ratios contained in such sections. Certified on behalf of the undersigned this ____ day of ______________, 19__. WESTMARK GROUP HOLDINGS, INC. By:_________________________________ Name:_______________________________ Title: Chief Executive Officer WESTMARK GROUP HOLDINGS, INC. Covenant Compliance Calculations Made as of ____________________, 19___ Section Covenant Required Actual 7.1(i) Maximum Leverage Ratio (i) 3/31/98 through 9/29/98: 40.0:1.0 (ii) thereafter: 15.0:1.0 ____: 1.0 7.1(j) Minimum Book Net Worth (i) 3/31/98 through 9/29/98: $500,000 (ii) thereafter: $1,000,000 $_______ 7.1(k) Minimum Current Ratio (i) 3/31/98 through 9/29/98: 0.70:1.0 (ii) thereafter: 0.85:1.0 ____: 1.0 Calculations: Leverage Ratio: Total Liabilities/Divided/Adjusted Tangible Net Worth Adjusted Tangible Net Worth: Total assets - Total Liabilities - (intangible assets + receivables from officers, directors and shareholders) Book Net Worth: Total assets - Total Liabilities Current Ratio: Total current assets/Divided/total current liabilities EXHIBIT H TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF ____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Schedule of Permitted Secured Debt and Permitted Unsecured Debt --------------------------------------------------------------- Permitted Secured Debt: Capitalized Lease Obligations. Mortgage warehousing credit facilities extended to the Company from time to time; provided, however, that the aggregate amount outstanding under such facilities shall at no time exceed $2,000,000. Permitted Unsecured Debt: Those liabilities of the Company arising from settlements and judgments shown in the columns "WMC Stl Bal" and "WMC Note Bal" on the schedule attached to this Exhibit H and in existence on the date of this Agreement. EXHIBIT I TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Schedule of Required Documents ------------------------------ 1. An original written Loan Request, signed by an officer of the Company who is authorized to make such request; 2. An original fully completed Delivery Certificate (as defined in the Security Agreement); 3. The original executed promissory note relating to the Mortgage Loan (properly endorsed or assigned to the Company if purchased by the Company), which promissory note shall be duly endorsed in blank and assigned in blank without recourse by the Company; 4. A copy of the original executed mortgage or deed of trust relating to the Mortgage Loan, certified by the Company, or the title company or closing attorney which closed the Mortgage Loan, to be a true copy of such original mortgage or deed of trust; 5. An original executed and recordable but unrecorded assignment of the mortgage or deed of trust relating to the Mortgage Loan (unless the Lender determines that under applicable State law the assignment should be recorded in order to adequately protect its interest, in which case the assignment shall be recorded by the Company and a certified true copy thereof shall be provided to the Lender), together with the original or a duly certified copy of a proper assignment or assignments of the mortgage or deed of trust from the original holder through any subsequent transferees to the Company, duly recorded if local requirements in the jurisdiction in which the Property is located required the recordation of such assignment or assignments; 6. If a Take-Out Commitment exists: a. A true copy of the original Take-Out Commitment, certified by the Company, which is in full force and effect, from an Approved Investor or, if a copy of the Take-Out Commitment is not available, a certificate of the Company that a verbal Take-Out Commitment exists, such certificate to include all relevant details thereof; and b. An original assignment of the Take-Out Commitment, substantially in the form supplied by the Lender, executed by an authorized officer of the Company; 7. A certified copy of the closing settlement statement (HUD-1); and 8. Satisfactory evidence of compliance with the requirements of such other laws as may, from time to time, become applicable to the Mortgage Loan. EXHIBIT J TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _______________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Wet Funding Mortgage Loan Transmittal Form -------------------------------------------------- MORTGAGE LOAN TRANSMITTAL FORM WESTMARK MORTGAGE CORPORATION Date Loan Requested under Credit Agreement:_____________________________________ Mortgage Loan Number:___________________________________________________________ Mortgagor's Name:_______________________________________________________________ Date of Mortgage Note:__________________________________________________________ Note Amount:___________ Note Interest Rate:_________________ Check number:__________ Mortgage Type:______________________ (if applicable) Net Loan Value:________ Payment Type: FRM, ARM, OTHER Advance %: Mortgage Term: 30, 15, 5, 10 _____________ Check Applicable Box: This is the post-closing transmittal, therefore, the following documents checked are enclosed pursuant to the Credit Agreement: 1. Original Mortgage Note Endorsed in Blank ________ 2. Original Assignment of Mortgage in Recordable Form ________ 3. Certified Copy of HUD-1 Settlement Statement ________ 4. Certified Copy of Original Mortgage ________ Loan Request: $______________ Wire Advance proceeds to:_______________________________________________________ _____________________________________________________ Account No._______________ Bank Routing No._____________________________________ Contact Person:___________ Telephone No.____________________________ Investor Name:__________________________________________________________________ Investor Commitment Price:______________________________________________________ Commitment Number:______________________________________________________________ Commitment Amount:______________________________________________________________ Expiration Date:________________________________________________________________ Borrower hereby pledges and affirms to the Bank pursuant to the terms of the Agreement a first lien security interest in the loan(s) listed above, and in all related documents and writings pertaining thereto, and all proceeds thereof which security interest shall secure all past, present and future obligations of Borrower to Bank under the Agreement. Borrower holds all documents relating to such loan(s) in trust for the benefit of and subject to the security interest of Bank. _________________________________ (Authorized Signature) Name:____________________________ Print Title:___________________________ ________________________________________________________________________________ BANK USE ONLY __________ ___________ CH AA __________ ___________ I PD EXHIBIT K TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK High-LTV Investor Guidelines ---------------------------- EXHIBIT L TO MORTGAGE LOAN WAREHOUSING AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN WESTMARK MORTGAGE CORPORATION AND FIRST UNION NATIONAL BANK Form of Borrowing Base Schedule ------------------------------- This Borrowing Base Schedule is furnished pursuant to the Mortgage Loan Warehousing Agreement dated as of _____________, 1998, as amended from time to time, among the Company and the Lender (the "Agreement"). Unless otherwise defined herein, the terms used in this Borrowing Base Schedule have the meanings ascribed thereto in the Agreement.
A. Aggregate Unit Collateral Values of Eligible Mortgage Loans in Borrowing Base as of previous Borrowing Base Schedule delivered by the Company $_____________ B. Aggregate Unit Collateral Values of Eligible Mortgage Loans submitted for inclusion in Borrowing Base since previous Borrowing Base Schedule delivered by the Company $____________ C. Sum of (A plus B) $____________ D. Aggregate Unit Collateral Values of Eligible Mortgage Loans previously released by the Lender for which the full purchase price has been received by the Lender since previous Borrowing Base Schedule delivered by the Company $____________ E. Amount by which Aggregate Unit Collateral Values of Eligible Mortgage Loans withdrawn from the possession of the Lender under a trust receipt and not returned to the Lender exceeds $250,000 $____________ F. Aggregate Unit Collateral Values of Eligible Mortgage Loans withdrawn from the possession of the Lender under a trust receipt more than 10 days prior to the date of this schedule and not returned to the Lender $____________ G. Aggregate Unit Collateral Values of Eligible Mortgage Loans withdrawn from the possession of the Lender and shipped to an investor for purchase or to a custodian for pool formation more than 30 days prior to the date of this schedule and not returned to the Lender or for which the full purchase price has not been received by the Lender $____________ H. Aggregate Unit Collateral Values of Eligible Mortgage Loans submitted for inclusion in the Borrowing Base more than 120 days in the case of Eligible Mortgage Loans which are not Eligible High-LTV Mortgage Loans (or more than 45 days in the case of Eligible High-LTV Mortgage Loans) prior to the date of this schedule $____________ I. Aggregate Unit Collateral Values of Eligible Mortgage Loans which are more than 30 days past due the payment due date set forth therein $____________ J. Aggregate Unit Collateral Values of Eligible Mortgage Loans the Required Documents for which have not been delivered to the Lender within seven (7) Business Days after the submission of such Eligible Mortgage Loans for inclusion in the Borrowing Base $____________ K. Amount by which Aggregate Unit Collateral Values of Eligible Mortgage Loans for which the Required Documents are not delivered upon, but within seven (7) Business Days following, the submission of such Eligible Mortgage Loans for inclusion in the Borrowing Base exceeds twenty-five percent (25%) of the Credit Limit $___________ L. Amount by which Aggregate Unit Collateral Values of Eligible High-LTV Mortgage Loans exceeds $1,000,000 $___________ M. Amount by which Aggregate Unit Collateral Values of Eligible Mortgage Loans with original principal balances over $350,000 exceeds ten percent (10%) of the Credit Limit $___________ N. Sum of (D plus E plus F plus G plus H plus I plus J plus K plus L plus M) $___________ O. Adjusted Collateral Value of the Borrowing Base (C minus N) $___________ P. Aggregate principal amount of Loans outstanding $___________ Q. Borrowing Base availability (O minus P; must equal or exceed zero) $___________
The undersigned hereby certifies that, as of the date hereof: (1) I am the duly elected _______________ of the Company; (2) The above schedule accurately states the Collateral Value of the Borrowing Base and the aggregate principal amount of Loans outstanding; (3) All Mortgage Loans included in the Borrowing Base as Eligible Mortgage Loans comply in all respects with the requirements of the definition of such term; and (4) I have no knowledge of the existence of any condition or event which constitutes an Event of Default under the Agreement. Certified on behalf of the undersigned this _____ day of _________, 19___. WESTMARK MORTGAGE CORPORATION By:_________________________________ Name:____________________________ Title:___________________________ EX-10.2 3 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated as of the ____ day of ____________, 1998, by WESTMARK MORTGAGE CORPORATION, a California corporation (the "Company"), in favor of FIRST UNION NATIONAL BANK, a national banking association (the "Lender"). RECITALS -------- A. Pursuant to that certain Mortgage Loan Warehousing Agreement of even date herewith by and between the Company and the Lender (as same may be amended, extended or replaced from time to time, the "Warehousing Agreement," and with capitalized terms not otherwise defined herein used with the same meanings as in the Warehousing Agreement), the Lender has extended credit to the Company. B. As a condition precedent to the effectiveness of the Warehousing Agreement, the Company is required to execute and deliver to the Lender this Security Agreement. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT --------- 1. Delivery of Collateral. The Company shall deliver the Collateral or cause the Collateral to be delivered to the Lender. Delivery of Collateral consisting of Mortgage Loans and Mortgage-Backed Securities shall be effected by delivery of the Required Documents therefor. The Lender's responsibility to review such Collateral is limited to the review steps described on Exhibit 1 hereto, said review of Collateral delivered on any Business Day to be completed before the opening of business of the Lender on the next succeeding Business Day. All Mortgage Loans and Mortgage-Backed Securities at any time delivered to the Lender hereunder shall be held by the Lender in a fire resistant vault, drawer or other suitable depositary maintained and controlled solely by the Lender, conspicuously marked to show the interests of the Lender therein and not commingled with any other assets or property of, or held by, the Lender. The Lender is not, and shall not at any time in the future be, subject, with respect to the Collateral, in any manner or to any extent, to the direction or control of the Company except as expressly permitted hereunder or under the other Credit Documents. Under no circumstances will the Lender deliver possession of the Collateral to the Company except in accordance with the express terms of this Security Agreement. 2. Grant of Security Interest. The Company hereby pledges, assigns and grants to the Lender, a first perfected security interest in the property described in Paragraph 3 below (collectively and severally, the "Collateral"), to secure payment and performance of the Obligations. 3. Collateral. The Collateral shall consist of all now existing and hereafter arising right, title and interest of the Company in, under and to each of the following: (a) All Mortgage Loans now owned or hereafter acquired or originated by the Company and submitted to or held by or on behalf of the Lender, including, without limitation, the promissory notes or other instruments or agreements evidencing the indebtedness of Obligors thereon, all mortgages, deeds to secure debt, trust deeds and security agreements related thereto, all rights to payment thereunder, all rights in the Properties securing payment of the indebtedness of the Obligors thereon, all rights under documents related thereto, such as guaranties and insurance policies (issued by governmental agencies or otherwise), including, without limitation, mortgage and title insurance policies, fire and extended coverage insurance policies (including the right to any return premiums), and all rights in cash deposits consisting of impounds, insurance premiums or other funds held on account thereof; (b) All Mortgage-Backed Securities, including, without limitation, all Warehouse-Related MBSs, now owned or hereafter acquired by the Company and submitted to or held by or on behalf of the Lender, all right to the payment of monies and non-cash distributions on account thereof and all new, substituted and additional securities at any time issued with respect thereto; (c) All rights of the Company (but not its obligations) under all Take-Out Commitments and Buy/Sell Agreements, now existing or hereafter arising, covering any part of the foregoing Collateral, all rights to deliver Mortgage Loans and Mortgage-Backed Securities to permanent investors and other purchasers pursuant thereto and all proceeds resulting from the disposition of such Collateral pursuant thereto; (d) All now existing and hereafter arising rights to service, administer and collect Mortgage Loans and Mortgage-Backed Securities submitted to and held by or on behalf of the Lender (it being acknowledged and agreed that prior to the occurrence of an Event of Default and acceleration of the Obligations, the security interest in such servicing rights granted hereunder shall be automatically terminated without need for further action upon the sale, transfer or other disposition of the related Mortgage Loan or Mortgage-Backed Security in accordance with the provisions of the Credit Documents), and all rights to the payment of money on account of such servicing, administration and collection activities; (e) All now existing and hereafter arising accounts, contract rights and general intangibles constituting or relating to any of the foregoing Collateral; (f) All now existing and hereafter acquired files, documents, instruments, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other books, records, information and data of the Company relating to the foregoing Collateral (including all information, records, data, programs, tapes, discs, and cards necessary or helpful in the administration or servicing of the foregoing Collateral); 2 (g) The Funding Account, the Settlement Account and each Custodian Settlement Account (as defined below) and any and all funds at any time held in any such accounts; and (h) All products and Proceeds of the foregoing Collateral. 4. Lender's Review of Collateral. Each delivery of Mortgage Loans and Mortgage-Backed Securities to the Lender shall be accompanied by a certificate in form acceptable to the Lender (the "Delivery Certificate"). Upon any receipt of Required Documents for any Mortgage Loan, the Lender shall review the same and verify that: (a) All Required Documents relating to such item of Collateral appear regular on their face and are in the Lender's possession; and (b) The statements set forth on Exhibit 1 hereto are accurate and complete in all respects. If the Lender notes any exception in the review described in subparagraph (a) or (b) above or questions, in its reasonable discretion, the genuineness, regularity, propriety, or accuracy of any item of Collateral, the Lender shall notify the Company of such exception or noncompliance, and the Lender may exclude the Mortgage Loan from the Borrowing Base. In the event that the Company had been requested to deliver the Additional Required Documents with respect to any Mortgage Loan, the Lender shall review and verify such Additional Required Documents consistent with the obligations of the Lender above. 4A. Collateral Value Determination. (a) No later than 2:00 p.m. (Charlotte, North Carolina time) on each Business Day, the Lender shall compute the Collateral Value of the Borrowing Base (a "Collateral Value Determination") as of 2:00 p.m. on such Business Day and make a notation thereof. (b) No later than 2:00 p.m. (Charlotte, North Carolina time) on each Business Day, the Lender shall prepare and deliver to the Company via facsimile a schedule showing the composition of the Borrowing Base on a per-Mortgage Loan basis, as of such time. The Company shall certify as to the accuracy of such schedule and shall return such schedule, with such certification attached, to the Lender via facsimile no later than 3:00 p.m. (Charlotte, North Carolina time) on each such Business Day. 5. Handling of Collateral; Settlement Account. (a) So long as an Event of Default shall not have occurred and be continuing, from time to time, the Lender may release documentation relating to Mortgage Loans to the Company against a trust receipt executed by the Company in the form of Exhibit 2 hereto. The Company and the Lender will comply with the trust receipt procedures specified on Exhibit 3 hereto. The Company hereby represents and warrants that any request by the Company for release of Collateral under this subparagraph 5(a) shall be solely for the purposes of correcting 3 clerical or other non-substantial documentation problems in preparation of returning such Collateral to the Lender for ultimate sale or exchange and that the Company has requested such release in compliance with all terms and conditions of such release set forth herein and in the Warehousing Agreement, including, without limitation, subparagraph (k)(1) of the definition of Eligible Mortgage Loan. (b) So long as an Event of Default shall not have occurred and be continuing, upon delivery by the Company to the Lender of a shipping request in the form of that attached hereto as Exhibit 4, the Lender will transmit Mortgage Loans held by it as directed by the Company as follows: (1) If the transmittal is of documentation for Mortgage Loans in the possession of the Lender in connection with the sale thereof to a permanent investor or sale under a repurchase facility, such transmittal will be under cover of a transmittal letter in the form of that attached hereto as Exhibit 5A (or such other form as may be required under any government program pursuant to which the relevant Mortgage Loans are being shipped). (2) If the transmittal is of documentation for Mortgage Loans in connection with the shipment to a custodian or trustee in connection with the formation of a mortgage pool supporting a Mortgage-Backed Security (any such Mortgage- Backed Security secured or otherwise supported by any such Mortgage Loan being referred to herein as a "Warehouse-Related MBS") such transmittal will be under cover of a transmittal letter in the form of that attached hereto as Exhibit 5B (or such other form as may be required under any government program pursuant to which such Warehouse-Related MBS is being issued), and, in addition, will be conditioned upon the facts that: (i) If the Warehouse-Related MBS is being issued under a government program, there has been delivered to the transfer agent for the Warehouse-Related MBS such form as may be required under the government program pursuant to which such Warehouse-Related MBS is being issued (which form shall name the Lender or an Approved MBS Custodian (as defined below) as the subscriber and the Person to whom the Warehouse-Related MBS is to be delivered); (ii) If the Warehouse-Related MBS is being issued pursuant to a program other than a government program, there has been delivered to and acknowledged by the trustee and collateral agent or custodian for the underlying mortgage pool a letter in form acceptable to the Lender; (iii) The Person to whom such Warehouse-Related MBS is to be delivered by the transfer agent or trustee is a. a Person which has agreed to hold such Warehouse-Related MBS and the proceeds of any sale or other disposition thereof as custodian, agent and bailee for the benefit of Lender pursuant to a custodial agreement substantially in the form of that attached hereto as Exhibit 6 4 (a "Custodial Agreement"), and b. a Person which has been approved by the Lender (any Person acting in such capacity being referred to herein as an "Approved MBS Custodian"); and (iv) There has been delivered to the Approved MBS Custodian a letter in the form of that attached to the Custodial Agreement as Exhibit A. In no event shall the Lender have any obligation to obtain written acknowledgement of receipt from the addressee of any transmittal letter or other communication sent by the Lender hereunder. (c) All amounts payable on account of the sale of Collateral (including, but not limited to a sale pursuant to a repurchase agreement) will be instructed to be paid directly by the purchaser to the Settlement Account, or in the case of Mortgage-Backed Securities delivered to an Approved MBS Custodian, to a demand deposit account maintained with such Approved MBS Custodian (a "Custodian Settlement Account") and, thereafter, to the Settlement Account as provided in the applicable Custodial Agreement. Pursuant to Paragraph 2 above the Company has granted a security interest in and lien upon the Settlement Account and in all Custodian Settlement Accounts and in any and all amounts at any time held therein to the Lender as collateral security for the Obligations. This Paragraph 5(c) shall constitute notice to any Approved MBS Custodian of such security interest pursuant to the Uniform Commercial Code of all relevant jurisdictions and any other law or regulation requiring such notice. This Paragraph 5(c) shall further constitute irrevocable notice to any Approved MBS Custodian that the accounts referred to in Paragraph 3(g) above are "no access" accounts to the Company except to the extent expressly permitted hereunder. The Lender shall hold such security interest in and lien upon the accounts referred to in Paragraph 3(g) above and all funds at any time held therein for its benefit with all rights of a secured party under the Uniform Commercial Code of all relevant jurisdictions. (d) So long as an Event of Default shall not have occurred and be continuing, the Lender and any Approved MBS Custodian shall take such steps as they may be reasonably directed from time to time by the Company in writing which are not inconsistent with the provisions of this Security Agreement and the other Credit Documents and which the Company deems necessary to enable the Company to perform and comply with Take-Out Commitments and Buy/Sell Agreements and with other agreements for the sale or other disposition in whole or in part of Mortgage Loans and Mortgage-Backed Securities. (e) Prior to the occurrence of an Event of Default and acceleration of the Obligations and if, but only if, such action is not inconsistent with the express provisions of this Security Agreement and the other Credit Documents and would not create an Event of Default or Potential Default, the Company may, in connection with its residential mortgage banking business: originate, acquire and service Mortgage Loans; receive payments on Mortgage Loans from the Obligors thereon and impounds and fees in connection therewith; retain, use and apply fees and payments made on account of the Mortgage Loans by the Obligors thereunder; disburse from impound accounts; in the ordinary course of the Company's business, create, use, destroy 5 and transfer records, files and other items described in Paragraph 3(f) above; sell or otherwise dispose of Mortgage Loans not constituting Collateral, with or without servicing rights; pledge Mortgage Loans to the extent permitted under the Credit Documents; sell servicing rights; and enter into, exercise rights under, perform, modify, waive and cancel any Take-Out Commitments or Buy/Sell Agreements. (f) Following the occurrence and during the continuance of an Event of Default, the Lender shall not, and shall incur no liability to the Company or any other Person for refusing, in its sole discretion, to, deliver any item of Collateral to the Company or any other Person (other than under existing Take-Out Commitments). 6. Costs and Expenses. The Lender shall notify the Company of all extraordinary costs and expenses (including, without limitation, expenses of legal counsel to the Lender) of the Lender directly relating to the Lender's performance of this Security Agreement, and such extraordinary costs and expenses shall be paid promptly by the Company or, if already paid by the Lender, the Company promptly shall reimburse the Lender therefor. 7. Representations and Warranties. The Company hereby represents and warrants that: (a) the Company is the sole owner of the Collateral (or, in the case of after-acquired Collateral, at the time the Company acquires rights in the Collateral, will be the sole owner thereof); (b) except for security interests in favor of the Lender, no Person has (or, in the case of after-acquired Collateral, at the time the Company acquires rights therein, will have) any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral and, in any event, the Lender has a perfected, first priority security interest thereon; (c) to the best knowledge of the Company, all information heretofore, herein or hereafter supplied to the Lender by or on behalf of the Company with respect to the Collateral is or will be accurate and complete; and (d) each Mortgage Loan is, at the time when it is submitted by the Company to the Lender for inclusion in the computation of the Collateral Value of the Borrowing Base, an Eligible Mortgage Loan. 8. Covenants of the Company. The Company hereby agrees: (a) to procure, execute and deliver from time to time any endorsements, assignments, financing statements and other writings deemed necessary or appropriate by the Lender to perfect, maintain and protect its security interest hereunder and the priority thereof and to deliver promptly to the Lender all originals of Collateral or Proceeds consisting of chattel paper or instruments; (b) not to surrender or lose possession of (other than to the Lender), sell, encumber, or otherwise dispose of or transfer, any Collateral or right or interest therein other than shipment of Mortgage Loans and Mortgage-Backed Securities under Take-Out Commitments or Buy/Sell Agreements and as otherwise permitted under Paragraph 5 above; (c) at all times to account fully for and promptly to deliver to the Lender, in the form received, all Collateral or Proceeds received, endorsed to the Lender as appropriate and accompanied by such assignments and powers, duly executed, as the Lender shall request, and until so delivered all Collateral and Proceeds shall be held in trust for the Lender, separate from all other property of the Company and identified as the property of the Lender; (d) at any reasonable time, upon demand by the Lender, to exhibit to and allow inspection by the Lender (or Persons designated by the Lender) of the Collateral and the records 6 concerning the Collateral; (e) to keep the records concerning the Collateral at the location(s) set forth in Paragraph 15 below and not to remove the records from such location(s) without the prior written consent of the Lender; (f) at the request of the Lender, to place on each of its records pertaining to the Collateral a legend, in form and content satisfactory to the Lender, indicating that such Collateral has been assigned to the Lender; (g) not to modify, compromise, extend, rescind or cancel any deed of trust, mortgage, note or other document, instrument or agreement connected with any Mortgage Loan pledged under this Security Agreement or any document relating thereto or connected therewith or consent to a postponement of strict compliance on the part of any party thereto with any term or provision thereof; (h) to keep the Collateral insured against loss, damage, theft, and such other risks as the Lender may request; (i) to do all acts that a prudent investor would deem necessary or desirable to maintain, preserve and protect the Collateral; (j) not knowingly to use or permit any Collateral to be used unlawfully or in violation of any provision of this Security Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (k) to pay (or require to be paid) prior to their becoming delinquent all taxes, assessments, insurance premiums, charges, encumbrances, and liens now or hereafter imposed upon or affecting any Collateral; (l) to notify the Lender before any such change shall occur of any change in the Company's name, identity or structure through merger, consolidation or otherwise; (m) to appear in and defend, at the Company's cost and expense, any action or proceeding which may affect its title to or the Lender's interest in the Collateral; (n) to keep accurate and complete records of the Collateral and to provide the Lender with such records and such reports and information relating to the Collateral as the Lender may request from time to time; and (o) to comply with all laws, regulations and ordinances relating to the possession, operation, maintenance and control of the Collateral. 9. Collection of Collateral Payments. (a) The Company shall, at its sole cost and expense, endeavor to obtain payment, when due and payable, of all sums due or to become due with respect to any Collateral (each such payment being referred to as a "Collateral Payment"), including, without limitation, the taking of such action with respect thereto as the Lender may request, or, in the absence of such request, as the Company may reasonably deem advisable; provided, however, that the Company shall not, without the prior written consent of the Lender, grant or agree to any rebate, refund, compromise or extension with respect to any Collateral Payment. Upon the request of the Lender following the occurrence and during the continuance of an Event of Default (and subject to the requirements of applicable law), the Company will notify and direct any party who is or might become obligated to make any Collateral Payment, to make payment thereof to the Lender (or to the Company in care of the Lender) at such address as the Lender may designate. The Company will reimburse the Lender promptly upon demand for all out-of-pocket costs and expenses, including reasonable attorneys' fees and litigation expenses, incurred by the Lender in seeking to collect any Collateral Payment. (b) Following the occurrence and during the continuance of an Event of Default, upon the request of the Lender the Company will transmit and deliver to the Lender, forthwith upon receipt and in the form received, all cash, checks, drafts and other instruments for 7 the payment of money (properly endorsed where required so that such items may be collected by the Lender) which may be received by the Company at any time as payment on account of any Collateral Payment and if such request shall be made, until delivery to the Lender, such items will be held in trust for the Lender and will not be commingled by the Company with any of its other funds or property. Thereafter, the Lender is hereby authorized and empowered to endorse the name of the Company on any check, draft or other instrument for the payment of money received by the Lender on account of any Collateral Payment if the Lender believes such endorsement is necessary or desirable for purposes of collection. (c) The Company hereby agrees to indemnify, defend and save harmless the Lender and its agents, officers, employees and representatives from and against all reasonable liabilities and expenses on account of any adverse claim asserted against the Lender relating to any moneys received by the Lender on account of any Collateral Payment (other than as a direct result of the gross negligence or willful misconduct of the Lender) and such obligation of the Company shall continue in effect after and notwithstanding the discharge of the Obligations and the release of the security interest granted in Paragraph 2 above. 10. Authorized Action by Lender. The Company hereby irrevocably appoints the Lender as its attorney-in-fact to do (but the Lender shall not be obligated to and shall incur no liability to the Company or any third party for failure so to do) at any time and from time to time following the occurrence and during the continuance of an Event of Default, any act which the Company is obligated by this Security Agreement to do, and to exercise such rights and powers as the Company might exercise with respect to the Collateral, including, without limitation, the right to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) insure, process and preserve the Collateral; (d) transfer the Collateral to the Lender's own or its nominee's name; and (e) make any compromise or settlement, and take any other action it deems advisable with respect to the Collateral. Notwithstanding anything contained herein, in no event shall the Lender be required to make any presentment, demand or protest, or give any notice and the Lender need not take any action to preserve any rights against any prior party or any other person in connection with the Obligations or with respect to the Collateral. 11. Default and Remedies. Upon the occurrence of an Event of Default and following the acceleration of the Obligations, the Lender shall have the right to, without notice to or demand upon the Company: (a) foreclose or otherwise enforce the Lender's security interest in the Collateral in any manner permitted by law or provided for hereunder; (b) sell or otherwise dispose of the Collateral or any part thereof at one or more public or private sales, whether or not such Collateral is present at the place of sale, for cash or credit or future delivery and without assumption of any credit risk, on such terms and in such manner as the Lender may determine; (c) require the Company to assemble the Collateral or books and records relating thereto and make such available to the Lender at a place to be designated by the Lender; (d) enter onto property where any Collateral or books and records relating thereto are located and take 8 possession thereof with or without judicial process; and (e) prior to the disposition of the Collateral, prepare it for disposition in any manner and to the extent the Lender deems appropriate. Upon any sale or other disposition pursuant to this Security Agreement, the Lender shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of and all proceeds thereof shall be applied to the Obligations. Each purchaser at any such sale or other disposition shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of the Company, and the Company specifically waives (to the extent permitted by law) all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted. 12. Binding Upon Successors. All rights of the Lender under this Security Agreement shall inure to the benefit of its successors and assigns, and all obligations of the Company shall bind its successors and assigns. 13. Entire Agreement; Severability. This Security Agreement contains the entire security agreement with respect to the Collateral between the Lender and the Company. All waivers by the Company provided for in this Security Agreement have been specifically negotiated by the parties with full cognizance and understanding of their rights. If any of the provisions of this Security Agreement shall be held invalid or unenforceable, this Security Agreement shall be construed as if not containing such provisions, and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 14. Choice of Law. This Security Agreement shall be construed in accordance with and governed by the laws of the State of North Carolina and, where applicable and except as otherwise defined herein, terms used herein shall have the meanings given them in the Uniform Commercial Code as in effect from time to time in the State of North Carolina. 15. Place of Business; Records. The Company represents and warrants that its chief place of business is at 355 N.E. 5th Avenue, Suite 4, DelRay Beach, Florida 33483, and that its books and records concerning the Collateral are kept at its chief place of business. 16. Notice. Any written notice, consent or other communication provided for in this Security Agreement shall be delivered or sent as provided in the Warehousing Agreement. 9 EXECUTED and sealed the day and year first above written. WESTMARK MORTGAGE CORPORATION, a California corporation [CORPORATE SEAL] ATTEST: By:____________________________ By:____________________________ Name: ______________________ Name: ______________________ Title: _____________________ Title: _____________________ FIRST UNION NATIONAL BANK, a national banking association By:____________________________ Name:_______________________ Title:______________________ 10 SCHEDULE OF EXHIBITS TO SECURITY AGREEMENT EXHIBIT DOCUMENT - ------- -------- 1 Required Review Steps 2 Form of Trust Receipt 3 Trust Receipt Procedures 4 Form of Shipping Request 5A Form of Whole Loan Sale Transmittal Letter 5B Form of Warehouse-Related MBS Transmittal 6 Form of Custodial Agreement 11 EXHIBIT 1 --------- TO SECURITY ----------- AGREEMENT --------- REQUIRED REVIEW STEPS --------------------- 1. All submitted documents, including the report attached to the Delivery Certificate, are consistent as to borrower name, loan face amount, loan type (A+, A, B, C or D; FRM or ARM) and the Company's loan number. 2. The note and mortgage/deed of trust each bears an original signature or signatures which appear to be those of the person or persons named as the maker and mortgagor/trustor, or, in the case of a certified copy of the mortgage/deed of trust, such copy bears what appears to be a reproduction of such signature or signatures. 3. Except for (a) the endorsement to the Company of the note in the event such loan was purchased by the Company and (b) the endorsement in blank of the note by the Company, neither the note, the mortgage/deed of trust, nor the assignment(s) of the mortgage/deed of trust contain any irregular writings which appear on their face to affect the validity of any such endorsement or to restrict the enforceability of the document on which they appear. 4. The note is endorsed in blank and such endorsement bears an original signature of an authorized officer of the Company, based on the current list of such officers supplied by the Company. 5. The assignment of the mortgage/deed of trust bears an original signature of an authorized officer of the Company, based on the current list of such officers supplied by the Company. 12 EXHIBIT 2 --------- TO SECURITY AGREEMENT --------------------- FORM OF TRUST RECEIPT --------------------- Date: ___________, 19__ The undersigned, WESTMARK MORTGAGE CORPORATION, a California corporation (the "Company"), acknowledges receipt from FIRST UNION NATIONAL BANK (the "Lender") pursuant to the Security Agreement (as those terms and capitalized terms not otherwise defined herein are defined in that certain Mortgage Loan Warehousing Agreement dated as of ____________, 1998, between the Lender and the Company), or from its duly appointed agent, of the following described documentation for the identified Mortgage Loans (the "Collateral Documents"), possession of which is herewith entrusted to the Company solely for the purpose of correcting documentary defects relating thereto: Loan Document Borrower Name Loan Number Note Amount Delivered - ------------- ----------- ----------- ------------- It is hereby acknowledged that a security interest pursuant to the Uniform Commercial Code as in effect in the State of North Carolina in the Collateral hereinabove described and in the Proceeds of said Collateral has been granted to the Lender pursuant to the Security Agreement. The Company hereby represents and warrants that the Unit Collateral Value of the Mortgage Loans for which the Collateral Documents are requested to be released hereunder when added to the Unit Collateral Value of all other Mortgage Loans included in the computation of the Collateral Value of the Borrowing Base the Collateral Documents for which have been similarly released does not exceed $250,000. In consideration of the aforesaid delivery by the Lender (or by its duly appointed agent), the Company hereby agrees to hold said Collateral Documents in trust for the Lender as provided under and in accordance with all provisions of the Security Agreement and to return said Collateral Documents to the Lender no later than the close of business on the tenth calendar day following the date hereof or, if such day is not a Business Day, on the immediately succeeding Business Day. WESTMARK MORTGAGE CORPORATION, a California corporation By:___________________________ Name:______________________ Title:_____________________ 13 EXHIBIT 3 --------- TO SECURITY AGREEMENT --------------------- TRUST RECEIPT PROCEDURES ------------------------ The Company and Lender will adhere to the following procedures with respect to trust receipts: The Lender will maintain all original trust receipts in a vault, drawer or other suitable depositary with a one hour fire rating maintained and controlled solely by the Lender. 14 EXHIBIT 4 --------- TO SECURITY AGREEMENT --------------------- FORM OF SHIPPING REQUEST ------------------------ (For Whole Loan Deliveries) Date: ________________ FIRST UNION NATIONAL BANK One First Union Center 301 South College Street Charlotte, North Carolina 28288 Attention: ____________________ ____________________ This letter is to serve as authorization for you to endorse and ship the following loans: Loan Number Borrower Name Note Amount to the following address under Commitment #____________ (the "Commitment") from, or under a Buy/Sell Agreement between the undersigned and, an Approved Investor as follows: NAME: ADDRESS: ATTENTION: Please endorse the notes as follows: Please ship the loan documents either by ___________________ or by such other courier service as we have designated to you as "approved." The courier shall act as an independent contractor bailee acting solely on your behalf as Lender, as defined in that certain Mortgage Loan Warehousing Agreement dated as of ____________, 1998, as the same may be amended, extended or replaced from time to time, but we acknowledge and agree that you are not responsible for any delays in shipment or any other actions or inactions of the courier; however, because the Commitment or the Buy/Sell Agreement expires on ______________, 199_, we ask that you deliver the loan documents to the courier no later than _________________, 199_. 15 Please have the courier bill us by using our acct #____________. If you should have any questions, or should feel the need for additional documentation, please do not hesitate to call _________________ WESTMARK MORTGAGE CORPORATION, a California corporation By:____________________________ Name:_______________________ Title:______________________ 16 EXHIBIT 5A TO SECURITY AGREEMENT (Direct Investor) FORM OF WHOLE LOAN SALE TRANSMITTAL LETTER [LETTERHEAD OF LENDER] __________ __, 199__ Dear [Approved Investor]: ----------------- Re: Westmark Mortgage Corporation: ----------------------------- Sale of Mortgage Loans ---------------------- Attached please find original promissory note(s) in the original principal amount of $____________ evidencing those Mortgage Loans listed separately on the attached schedule, along with other related documents (collectively, the "Mortgage Loan Collateral") which Mortgage Loans are owned by Westmark Mortgage Corporation, a California corporation (the "Company") and are being delivered to you for purchase. The Mortgage Loans comprise a portion of the Collateral under (and as the term "Collateral" and capitalized terms not otherwise defined herein are defined in) that certain Mortgage Loan Warehousing Agreement dated as of ___________, 1998 by and between the Company as borrower and the undersigned as lender ("Lender"), as amended or modified from time to time. Each of the Mortgage Loans is subject to a security interest in favor of Lender, as set forth in that certain Security Agreement dated as of ____________, 1998 by and between the Company and Lender, as amended or modified from time to time. Said security interest shall be automatically released upon your remittance of an amount equal to the greater of (i) the full amount of the purchase price of such Mortgage Loan(s) (as set forth on the schedule attached hereto), or (ii) $________, which is the collateral value assigned by Lender to such Mortgage Loan(s), by wire transfer to the following account of the Company: WIRE INSTRUCTIONS TO SETTLEMENT ACCOUNT: _______________________________________ _______________________________________ _______________________________________ Pending your purchase of each Mortgage Loan and until payment therefor is received, the aforesaid security interest therein will remain in full force and effect, and you shall hold possession of such Mortgage Loan Collateral as custodian, agent and bailee for and on behalf of Lender and subject to the direction and control of Lender. In the event any Mortgage Loan is 17 unacceptable for purchase, return the rejected Mortgage Loan and all related Mortgage Loan Collateral directly to Lender at the address set forth below. In no event shall any Mortgage Loan or related Mortgage Loan Collateral be returned, or sales proceeds remitted, to the Company or to any of its affiliates. The Mortgage Loan and related Mortgage Loan Collateral must be so returned or sales proceeds remitted in full no later than thirty (30) days from the date hereof. If you are unable to comply with the above instructions, please so advise the undersigned immediately. NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE TERMS DESCRIBED IN THIS LETTER. THE UNDERSIGNED LENDER REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED; HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT. Sincerely, FIRST UNION NATIONAL BANK By:_________________________________________ Title:______________________________________ Address: One First Union Center 301 South College Street Charlotte, North Carolina 28288 Attn: ______________________________ ______________________________ ACKNOWLEDGEMENT OF RECEIPT [Approved Investor] ----------------- By:________________________________ Name:___________________________ Title:__________________________ Date:______________________________ 18 EXHIBIT 5B TO SECURITY AGREEMENT (Pool Formation) FORM OF WAREHOUSE-RELATED MBS TRANSMITTAL LETTER [LETTERHEAD OF LENDER] __________ __, 199__ Dear [Certificating Custodian]: ----------------------- Re: Westmark Mortgage Corporation: ----------------------------- Securitization of Mortgage Loans -------------------------------- Attached please find original promissory note(s) in the original principal amount of $____________ evidencing those Mortgage Loans listed separately on the attached schedule, along with other related documents (collectively, the "Mortgage Loan Collateral") which Mortgage Loans are owned by Westmark Mortgage Corporation, a California corporation (the "Company") and are being delivered to you as Custodian/Trustee for certification in connection with the formation of a mortgage pool supporting the issuance of a Mortgage-Backed Security (the "Warehouse-Related MBS") described as follows: __________________________________________________________ __________________________________________________________ The Mortgage Loans comprise a portion of the Collateral under (and as the term "Collateral" and capitalized terms not otherwise defined herein are defined in) that certain Mortgage Loan Warehousing Agreement dated as of ___________, 1998 by and between the Company as borrower and the undersigned as lender ("Lender"), as amended or modified from time to time. Each of the Mortgage Loans is subject to a security interest in favor of Lender, as set forth in the certain Security Agreement dated as of _____________, 1998 by and between the Company and Lender, as amended or modified from time to time. Said security interest shall be automatically released upon the issuance of the Warehouse-Related MBS in accordance with the terms of the prescribed GNMA, FNMA or FHLMC (or other) form enclosed herewith. Pending issuance of the Warehouse-Related MBS, the aforesaid security interest therein will remain in full force and effect, and you shall hold possession of such Mortgage Loan Collateral as custodian, agent and bailee for and on behalf of Lender and subject to the direction and control of Lender. In the event any Mortgage Loan is unacceptable for pool formation, return the rejected Mortgage Loan and all related Mortgage Loan Collateral directly to Lender at the address set forth below. In no event shall any Mortgage Loan or related Mortgage Loan Collateral be returned, or proceeds remitted, to the Company or to any of its affiliates. The Mortgage Loan and related Mortgage Loan Collateral must be so returned or the Warehouse- Based MBS issued no later than thirty (30) days from the date hereof. If you are unable to comply with the above instructions, please so advise the undersigned immediately. NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR LENDER ON THE TERMS DESCRIBED IN THIS LETTER. THE UNDERSIGNED LENDER REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED; HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT. Sincerely, FIRST UNION NATIONAL BANK By:_________________________________________ Title:______________________________________ Address: One First Union Center 301 South College Street Charlotte, North Carolina 28288 Attn: _______________________ _______________________ ACKNOWLEDGEMENT OF RECEIPT [Certificating Custodian] ----------------------- By:_____________________________ Name:___________________________ Title:__________________________ Date: __________________________ 2 EXHIBIT 6 --------- TO SECURITY AGREEMENT --------------------- FORM OF CUSTODIAL AGREEMENT --------------------------- (With Operating Instructions Attached) _________________, 19__ ______________________ ______________________ ______________________ Re: Westmark Mortgage Corporation: ----------------------------- Ladies and Gentlemen: The undersigned, FIRST UNION NATIONAL BANK (the "Lender") has entered into (i) that certain Mortgage Loan Warehousing Agreement dated as of ____________, 1998 with Westmark Mortgage Corporation (the "Company") as the same may be amended, extended or replaced from time to time (the "Warehousing Agreement," capitalized terms not otherwise defined herein being used with the same meaning as in the Warehousing Agreement) and (2) that certain Security Agreement (the "Security Agreement") with the Company dated concurrently therewith. The Lender represents and confirms that it has the power and authority under the Warehousing Agreement and the Security Agreement to execute this Custodial Agreement. The Lender may execute any of its duties hereunder by or through agents or attorneys-in-fact notified to you in writing. The Lender hereby appoints you and you hereby accept appointment to act as agent, custodian and bailee for the benefit of the Lender (in such capacity, the "Approved MBS Custodian"). In such capacity, you agree to accept delivery only on a free basis of certain mortgage-backed securities delivered to you from time to time identified in a letter in the form of that attached hereto as Exhibit A (all such mortgage-backed securities delivered to you and so identified being referred to herein as "Subject Securities"). This Custodial Agreement governs your rights and responsibilities as Approved MBS Custodian with respect to all Subject Securities. The Lender hereby directs you, as Approved MBS Custodian, to hold or dispose of Subject Securities deposited with you only in accordance with the instructions of a person described as an "Authorized Lender Representative" on a schedule from time to time delivered to you by the Lender (the initial list of such persons being attached hereto as Schedule I) or otherwise as expressly permitted hereunder. You are authorized, directed and instructed to act upon all instructions from persons reasonably believed by you to be genuine and authorized. Any instruction given hereunder may, in your discretion, be written, oral, by telephone, telegraph, cable, radio or electronic communication which is received by you. Written confirmations, if any, of oral instructions provided hereunder shall in no way affect any action taken by you in reliance upon the oral instructions, absent your gross negligence or willful misconduct. All Subject Securities are to be held by you in a custodial account (Account No. _____________) maintained with you (the "MBS Custodial Account"). Unless and until you have received written notice from an Authorized Lender Representative (which notice may be by facsimile transmission) that there has occurred an "Event of Default" or a "Potential Default" under the Warehousing Agreement, you may from time to time deliver Subject Securities at the direction of the Company, to, but only to, Approved Investors (as listed on a schedule of "Approved Investors" delivered to you from time to time by an Authorized Lender Representative) against, in the case of delivery to an Approved Investor, payment of the purchase price therefor. The proceeds of the sale or other disposition of all Subject Securities are to be held by you in an account (Account No. _____________) maintained with you (the "Custodian Settlement Account") and transferred by the end of each Business Day to Account No. __________________ maintained in the Lender's name at First Union National Bank (the "Settlement Account") as follows: ____________________________ ____________________________ ____________________________ By executing this Custodial Agreement the Company confirms and the Lender and the Company notify you that the Company has assigned and granted to the Lender a security interest in and lien upon all now existing and hereafter arising right, title and interest of the Company in the MBS Custodial Account, the Custodian Settlement Account and the Settlement Account and in any and all investments and proceeds at any time held therein. You shall be under no duty to take or omit to take any action with respect to Subject Securities, except in accordance with this Agreement and the Operating Instructions attached hereto as Exhibit B, unless specifically otherwise directed by the Lender and agreed to by you in writing. In the event that you shall be uncertain as to your duties or rights hereunder, you shall be entitled to refrain from taking any action until you shall be directed otherwise by an order of a court of competent jurisdiction. In case you should agree to our request and on our behalf to appear in, prosecute or defend any legal or equitable proceeding either in your own name or in the name of your nominee, you shall first be indemnified to your satisfaction (other than against your gross negligence and willful misconduct). By accepting delivery of any Subject Security, you shall be deemed to have agreed to hold the Subject Security as Approved MBS Custodian hereunder, free and clear of all liens, 2 claims, interests and rights of offset in your favor or in favor of persons claiming through you, subject only to due bills and checks described in the second immediately following paragraph. Until you have been notified in writing (including by telecopier) by an Authorized Lender Representative of the occurrence of an Event of Default, you are hereby authorized to return Subject Securities to the issuer/transfer agent therefor at the Company's written request in connection with the reissuance thereof in smaller denominations; provided, however, that any delivery of Subject Securities for reissuance shall be covered by a transmittal letter or other written agreement instructing that the reissued securities be returned directly to you. In this connection, we acknowledge familiarity with the current securities industry practice of delivering physical securities against later payment on the delivery date. Notwithstanding our instructions to deliver Subject Securities against payment, you are authorized to make delivery of such physical securities against a temporary receipt (sometimes called a "window ticket") in lieu of payment. You agree to use your best efforts to obtain payment therefor during the same business day, but we confirm our assumption of all risks of payment for such deliveries. You may accept certified checks in payment for Subject Securities delivered on the Company's instruction and we assume sole responsibility for the risks of collectability of such checks. YOU ARE HEREBY IRREVOCABLY INSTRUCTED BY THE COMPANY AND THE LENDER THAT ALL PROCEEDS RECEIVED FROM THE SALE OR OTHER DISPOSITION OF SUBJECT SECURITIES, UNTIL OTHERWISE NOTIFIED IN WRITING BY THE LENDER SHALL BE WIRED TO THE SETTLEMENT ACCOUNT AS PROVIDED ABOVE. You will provide to the Lender on a daily basis a report of activity with respect to the MBS Custodian Account and the Custodial Settlement Account. From time to time Subject Securities delivered for purchase may be delivered by you following the scheduled settlement date for the sale thereof (a "late delivery") and, as a result of such late delivery, the Company may be obligated to pay to the purchaser accrued interest or principal amounts on account thereof. Prior to your receipt from the Lender of notice of the occurrence of an "Event of Default" or a "Potential Default," you are hereby authorized to issue a due bill or check against the Custodian Settlement Account for such amounts concurrently with such delivery. In the event amounts held in the Custodian Settlement Account shall be insufficient to cover such due bill or check, the Company shall immediately upon demand pay to you the full amount thereof. It is expressly agreed and understood that the issuance of a required due bill or bank check which will or may create an overdraft in the Custodian Settlement Account shall be at your sole discretion and that any overdraft shall be subject to the payment of interest on the amount thereof at your customary rate. Notwithstanding anything to the contrary otherwise set forth herein, you shall have a first lien against the Custodian Settlement Account for the amount of such overdraft plus any accrued interest but such lien shall not secure any other Indebtedness of the Company to you, whether arising hereunder or otherwise. You shall not be liable or accountable for any act or omission of brokers, dealers or agents in connection with this Custodial Agreement. In carrying out your duties hereunder, you may use such methods or agencies as you determine in your sole discretion, including your own facilities. 3 You shall maintain regular business records documenting all instructions transmitted to you through any authorized means and any response by you. You are authorized to electronically record any telephone communications with the Company or the Lender arising out of this Custodial Agreement. Your records shall be determinative of the form, content and time of all the Company's and Lender's instructions and any response from you. The record of each instruction and any response thereto shall be retained by you for at least ninety (90) days following the date of the instruction. Any claim against you for failure to properly follow an instruction transmitted by the Company or the Lender must be made in writing and received by you within ten (10) days after the date the instruction was received by you. You shall give the Subject Securities that come into your possession under this Custodial Agreement the same physical care and safeguards as are afforded similar property owned by you; provided, however, your responsibility hereunder is limited to losses occasioned directly by the gross negligence or willful misconduct of your employees, or by robbery, burglary or theft (while the securities are in your physical possession), to the extent of the market value of the Subject Securities at the date of the discovery of such loss. With respect to any Subject Securities which you deliver for us to a third party, and with respect to such delivery, you shall be deemed no more than an "intermediary" as referenced in Section 8-306(3) of the Uniform Commercial Code as in effect from time to time in the State of North Carolina, and the only warranty given by you shall be the warranty provided in said Section 8-306(3). In no event shall you be liable for any indirect, special or consequential loss. You may, at your option, make arrangements for insuring yourselves against loss from any cause, but you shall not be under any obligation to insure for our benefit. Except as expressly set forth above with respect to advances made by you in connection with "late deliveries," none of the Subject Securities held in the MBS Custodial Account, the funds held at any time in the Custodian Settlement Account, the Subject Securities or any proceeds of the sale or other disposition thereof will be subject to any right, charge, security interest, lien, encumbrance or claim of any kind in your or your creditors' favor. Any claims for the payment of fees with respect to the safe custody or administration of Subject Securities or for compensation, expenses, commitments made by you upon instructions of the Lender, reimbursement of taxes incurred by you for the account of the Lender, any penalties incurred by or levied or assessed against you resulting from the Lender's improper or incorrect instructions, or other liabilities of the Lender to you, and for indemnity against any claim or liability to which you are subjected by reason of any registration of Subject Securities shall be enforceable solely against the Company and the Lender shall not have any responsibility therefor. The Lender and the Company agree to make no claim against you except for any such claims or liabilities arising, or claimed to have arisen, as a result of your gross negligence or willful misconduct. The Operating Instructions attached hereto are hereby made part hereof and any and all capitalized terms defined herein shall have the same meaning when used therein. 4 This Custodial Agreement contains the whole of the understanding between you and the Lender concerning the subject matter hereof and no provision hereof shall be modified or altered except in writing signed by both you and the Lender. This Custodial Agreement shall be governed by the laws of the State of North Carolina and shall be binding upon the Lender and upon its successors and assigns and shall inure to your benefit and your successors and assigns and shall be deemed continuing until terminated by either the Lender or you upon at least sixty (60) days prior written notice to the other. This letter is made in triplicate and will become an agreement between you and the Lender upon your acceptance hereof in the space provided below. FIRST UNION NATIONAL BANK By:________________________________ Title:_____________________________ AGREED TO AND ACCEPTED: __________________________ as Approved MBS Custodian By:_____________________________ Title:__________________________ Date:___________________________ 5 ACKNOWLEDGEMENT AND AUTHORIZATION --------------------------------- The Company approves the foregoing Custodial Agreement and authorizes the Approved MBS Custodian to act in accordance with the terms thereof. The Company agrees to be bound by the terms of the Custodial Agreement (including all Exhibits thereto) to the same extent as if a party thereto. The Company agrees to indemnify the Approved MBS Custodian for, and hold the Approved MBS Custodian harmless against, any loss, liability or expense in connection with, arising out of or in any way related to the transactions contemplated and relationship established by the Custodial Agreement, or any action or omission by the Approved MBS Custodian in connection with the Custodial Agreement, or any agent, broker or dealer employed by the Approved MBS Custodian hereunder, including the reasonable costs and expenses incurred in defending any such claim of liability, except that the Company shall not be liable for (i) any loss, liability or expense that is determined by a judgment of a court of competent jurisdiction that is binding on the Approved MBS Custodian, final and not subject to review on appeal, to be the direct result of acts or omissions on the Approved MBS Custodian's part constituting gross negligence or willful misconduct, or (ii) any claim that is based on the Approved MBS Custodian's warranty as provided in Section 8-306(3) of the Uniform Commercial Code as in effect from time to time in the State of North Carolina. WESTMARK MORTGAGE CORPORATION, a California corporation By:________________________________ Name:______________________________ Title:_____________________________ EXHIBIT A --------- TO CUSTODIAL ------------ AGREEMENT --------- FORM OF LETTER TO APPROVED MBS CUSTODIAN ---------------------------------------- To: __________________________, as Approved MBS Custodian Re: Westmark Mortgage Corporation: Custodial and Collateral Agency Instructions -------------------------------------------- Ladies and Gentlemen: Reference is made to the attached letter/certification to the transfer agent/trustee for the issuance of the Security described more particularly therein, which Security is supported by a pool of residential mortgage loans, mortgage-backed securities or both including mortgage loans and mortgage-backed securities in which the undersigned (the "Lender") acting under that certain Security Agreement dated as of _______________, 1998, as amended, extended or replaced from time to time, holds a first perfected security interest. Pursuant to such letter/certification, the transfer agent/trustee has been instructed to deliver such Security to you. You are hereby notified that the Lender has a first perfected security interest in the Security and in all proceeds of the sale or other disposition thereof and in all accounts into which said proceeds may be deposited. This letter will confirm your agreement to hold such Security as a "Subject Security" under and on terms and conditions set forth more particularly in that certain Custodial Agreement, dated as of ______________, 199___ between you and the Lender. Very truly yours, FIRST UNION NATIONAL BANK By:________________________________ The undersigned Company agrees to and acknowledges the terms of this letter and, notwithstanding any contrary understanding with or instructions to you, the addressee of this letter, the Company instructs you to act according to the instructions set forth in this letter. These instructions cannot be altered except by written instructions executed by the Lender. WESTMARK MORTGAGE CORPORATION By: _______________________________ Name: _________________________ Title: ________________________ 2 EXHIBIT B --------- TO CUSTODIAL AGREEMENT ---------------------- OPERATING INSTRUCTIONS These Operating Instructions are attached to and made a part of the Custodial Agreement between First Union National Bank and ____________________________________, dated as of _________, 199__ (the "Custodial Agreement"). Terms defined therein shall have their same meanings when used herein. 1. From time to time GNMA, FNMA and FHLMC Subject Securities will be issued at the request of the Company and credited to your account with [Federal Reserve Bank of ________________] (in the case of FNMA and FHLMC Subject Securities) or your account with the Participants Trust Company ("PTC") (in the case of GNMA Subject Securities) (in each case, to be held by you for the account of the Lender) in accordance with the Code of Federal Regulations (in the case of FNMA and FHLMC Subject Securities) or the rules of PTC (in the case of GNMA Subject Securities). Upon your receipt of confirmation that such Subject Securities have been deposited into your account with the [Federal Reserve Bank of ____________________] (in the case of FNMA and FHLMC Subject Securities) or your account with PTC (in the case of GNMA Subject Securities), you shall promptly issue to the Lender and the Company your confirmation that (1) you have received such confirmation on the Fedwire (in the case of FNMA and FHLMC Subject Securities, which confirmation will include the number of Subject Securities deposited into your account with [Federal Reserve Bank of __________________]) or from PTC (in the case of GNMA Subject Securities), (2) you have made appropriate entries on your books reflecting the interests of the Company as beneficial owner and the Lender as secured party with respect to such Subject Securities, and (3) there are no security interests or any rights or claims of any third party in such Subject Securities in your favor or known to you which have priority over the security interest of the Lender in such Subject Securities. 2. With respect to the delivery or transfer of Subject Securities which you hold for the account of the Lender, you are hereby authorized to act only upon instructions from the Lender or, to the extent permitted by the Custodial Agreement, by the Company. Upon notification to you by the Lender of an "Event of Default" or a "Potential Default" under the Warehousing Agreement, no third party, including without limitation the Company, may direct you to make any delivery or transfer of such Subject Securities. 3. The proceeds of redemptions, collections and other receipts, including dividend and interest income, shall be credited to the Custodian Settlement Account upon collection or payment. 4. You are to notify the Lender and the Company upon receipt of notice by you of any call for conversion, redemption, subscription rights or similar proceeding affecting the Subject Securities held in the relevant account (any of the foregoing being referred to herein as "Account Proceedings"), and shall take such action in respect thereof as you may be directed in writing by the Lender; provided, however, that you shall have no duty or responsibility to notify the Company or the Lender of any Account Proceedings which do not appear in The Wall Street Journal (New York Edition), The Standard & Poor's Called Bond Record for Preferred Stocks, Financial Daily Called Bond Service, The Kenney Services or official notifications from the Depository Trust Company or such other publications of which you may from time to time notify the Lender in writing. All solicitation fees payable to you as agent in connection with such event will be retained by you unless specifically agreed to the contrary by you. 5. If applicable, you are authorized to exchange temporary for definitive certificates, and old certificates for new or overstamped certificates evidencing a change therein. 6. You are authorized and empowered in the name and on behalf of the Lender and the Company to execute any certificates of ownership or other reports which you are or may hereafter be required to execute and furnish under any regulation of the Internal Revenue Service, or other authority of the United States, insofar as the same are required in connection with any property which is now or may hereafter be in your possession by virtue of the Custodial Agreement and these Operating Instructions, claiming no exemptions on behalf of the Lender or the Company. In the preparation of such reports, the status of the Lender is to be described as a bank, trust company or financial institution, as the case may be, domiciled in the United States. The Lender agrees to notify you immediately in writing of any change in such status. 7. All mail communications which are to be furnished or forwarded hereunder to the Lender or the Company shall be addressed to such party at the last address on your records, provided that in case you in your sole discretion shall determine that an emergency exists, you may use such other means of communication as you shall deem advisable. 8. You are under no duty to supervise, recommend or advise the Lender relative to the investment, purchase, sale, retention or other disposition of any property held hereunder unless provided for by the Custodial Agreement. 9. With respect to any direction to receive securities in transactions not placed through you, you shall have no duty or responsibility to advise the Company of non-receipt, or to take any steps to obtain delivery of securities from any brokers or dealers. All dealer concessions made to you will be retained by you unless specifically agreed to the contrary by you. 10. Notwithstanding anything herein to the contrary, unless instructions are received from the Lender, specifying a different destination than the address listed on your records for the Lender, within ten (10) days of the receipt of any termination notice, you shall have the right to transfer all securities and other property held by you or any depositary in connection with this Custodial Agreement or registered in your name to the Lender at the address listed on your records. 2 EX-10.3 4 PROMISSORY NOTE --------------- _____________, 1998 FOR VALUE RECEIVED, WESTMARK MORTGAGE CORPORATION, a California corporation (the "Company"), hereby unconditionally promises to pay to the order of FIRST UNION NATIONAL BANK, a national banking association (the "Lender"), at its office located at One First Union Center, TW-06, 301 South College Street, Charlotte, North Carolina 28288, in lawful money of the United States and in immediately available funds, on the dates required under that certain Mortgage Loan Warehousing Agreement dated as of _____________, 1998 by and between the Company and the Lender (as the same may be amended, extended or replaced from time to time, the "Agreement" and with the capitalized terms not otherwise defined herein used with the meanings given such terms in the Agreement), the principal amount of each Loan made under the Agreement. The Company further agrees to pay interest in like money and funds at the office of the Lender referred to above, on the unpaid principal balance hereof from the date advanced until paid in full on the dates and at the applicable rates set forth in the Agreement. The holder of this Note is hereby authorized to record the date and amount of each Loan, the date and amount of each payment of principal and interest, and applicable interest rates and other information with respect thereto, on the schedules annexed to and constituting a part of this Note (or by any analogous method the holder hereof may elect consistent with its customary practices) and any such recordation shall, absent manifest error, constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make a notation or the inaccuracy of any notation shall not limit or otherwise affect the obligations of the Company under the Credit Documents. This Note is the Note referred to in, and is entitled to all the benefits of, the Agreement. Reference is hereby made to the Agreement and to the Security Agreement for rights and obligations of payment and prepayment, collateral security, Events of Default and the rights of acceleration of the maturity hereof upon the occurrence of an Event of Default. The Company hereby waives presentment for payment, demand, protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence or forebearance granted by any holder of this Note to any party now or hereafter liable hereon. Any transferees of this Note, or endorser, guarantor or surety paying this Note in full, shall succeed to all rights of Lender, and Lender shall be under no further responsibility for the exercise thereof or the Loan evidenced hereby. Nothing herein shall limit any right granted to Lender by other instrument or by law. This Note shall be governed by, and construed in accordance with, the laws of the State of North Carolina, and is being executed and sealed by the duly authorized officers of the Company as of the day and year first above written. WESTMARK MORTGAGE CORPORATION, a California corporation By:__________________________________ Name:_____________________________ Title:____________________________ 2 EX-10.4 5 GUARANTY -------- THIS GUARANTY (this "Guaranty") is made and dated as of the ______ day of ________, 1998 by WESTMARK GROUP HOLDINGS, INC., a Delaware corporation (the "Guarantor"). RECITALS -------- A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated as of ______________, 1998, between the Company (as hereinafter defined) and First Union National Bank (the "Lender") (as amended, extended and replaced from time to time, the "Warehousing Agreement," and with capitalized terms not otherwise defined herein used with the same meanings as in the Warehousing Agreement) the Lender has agreed to extend credit to WESTMARK MORTGAGE CORPORATION, a California corporation (the "Company"), on the terms and subject to the conditions set forth therein. B. As a condition precedent to the effectiveness of the Credit Documents, the Guarantor is required to execute and deliver to the Lender this Guaranty. C. One hundred percent (100%) of the outstanding common stock of the Company is owned by Guarantor, and thus the Guarantor will derive material benefit from the extension of credit by the Lender to the Company pursuant to the Warehousing Agreement. NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantor hereby agrees as follows: AGREEMENT --------- 1. The Guarantor hereby irrevocably and unconditionally guarantees, jointly and severally, the payment when due, upon maturity, acceleration or otherwise, of the Obligations whether heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such Obligations are from time to time reduced, or extinguished and thereafter increased or incurred, whether or not the Company may be liable individually or jointly with others, whether or not recovery upon such Obligations may be or hereafter become barred by any statute of limitations, and whether or not such Obligations may be or hereafter become otherwise invalid or unenforceable. This Guaranty is a guaranty of payment and not of collection. 2. The Guarantor irrevocably and unconditionally guarantees, jointly and severally, the payment of the Obligations whether or not due or payable by the Company upon: (a) the dissolution, insolvency or business failure of, or any assignment for benefit of creditors by, or commencement of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceedings by or against, the Company or the Guarantor, or (b) the appointment of a receiver for, or the attachment, restraint of or making or levying of any order of court or legal process affecting, the property of the Company or the Guarantor, and unconditionally promises to pay such Obligations to the Lender, or order, on demand, in lawful money of the United States. 3. The liability of the Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Obligations, whether executed by the Guarantor or by any other party, and the liability of the Guarantor hereunder is not affected or impaired by (a) any direction of application of payment by the Company or by any other party, or (b) any other guaranty, undertaking or maximum liability of the Guarantor or of any other party as to the Obligations, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any revocation or release of any obligations of any other guarantor of the Obligations, or (e) any dissolution of, termination of or increase, decrease or change in the personnel of, the Guarantor, or (f) any payment made to the Lender on the Obligations which the Lender repays to the Company pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and the Guarantor waives any right to the deferral or modification of the Guarantor's obligations hereunder by reason of any such proceeding. 4. The obligations of the Guarantor hereunder are independent of the Obligations of the Company, and a separate action or actions may be brought and prosecuted against the Guarantor whether or not action is brought against the Company and whether or not the Company be joined in any such action or actions. Any payment by the Company or other circumstance which operates to toll any statute of limitations as to the Company shall operate to toll the statute of limitations as to the Guarantor. 5. The Guarantor authorizes the Lender (whether or not after termination of this Guaranty), without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Obligations or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as the Lender in its discretion may determine; and (d) release or substitute any one or more endorsers, guarantors, the Company or other obligors. The Lender may without notice to or the further consent of the Company or the Guarantor assign this Guaranty in whole or in part to any person acquiring an interest in the Obligations. 6. It is not necessary for the Lender to inquire into the capacity or power of the Company or the officers acting or purporting to act on its behalf, and the Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 7. The Guarantor waives any right to require the Lender to (a) proceed against the Company or any other party; (b) proceed against or exhaust any security held from the Company; or (c) pursue any other remedy in the Lender's power whatsoever. To this end, and without limiting the generality of the foregoing, the Guarantor expressly waives any rights the 2 Guarantor might otherwise have had under the provisions of North Carolina General Statutes Section 26-7 et seq.. The Lender may, at its election, foreclose on any security held for the Obligations by one or more judicial or nonjudicial sales, or exercise any other right or remedy the Lender may have against the Company, or any security, without affecting or impairing in any way the liability of the Guarantor hereunder except to the extent the Obligations have been paid. The Guarantor waives any defense arising out of any such election, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Company or any security. The Guarantor hereby waives any claim or other rights which the Guarantor may now have or may hereafter acquire against the Company or any other guarantor of all or any of the Obligations that arise from the existence or performance of the Guarantor's obligations under this Guaranty or any other of the Credit Documents (as such claims and rights being referred to as the "the Guarantor's Conditional Rights"), including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, or any right to participate in any claim or remedy which the Lender has against the Company or any collateral which the Lender now has or hereafter acquires for the Obligations, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or setoff or in any other manner, payment or security on account of such claim or other rights. If, notwithstanding the foregoing provisions, any amount shall be paid to the Guarantor on account of the Guarantor's Conditional Rights and either (a) such amount is paid to the Guarantor at any time when the Obligations shall not have been paid or performed in full, or (b) regardless of when such amount is paid to the Guarantor any payment made by the Company to the Lender is at any time determined to be a preferential payment, then such amount paid to the Guarantor shall be deemed to be held in trust for the benefit of the Lender and shall forthwith be paid to the Lender to be credited and applied upon the Obligations, whether matured or unmatured, in such order and manner as the Lender shall determine. To the extent that any of the provisions of this Paragraph shall not be enforceable, the Guarantor agrees that until such time as the Obligations have been paid and performed in full and the period of time has expired during which any payment made by the Company or the Guarantor to the Lender may be determined to be a preferential payment, the Guarantor's Conditional Rights to the extent not validly waived shall be subordinate to the Lender's right to full payment and performance of the Obligations and the Guarantor shall not seek to enforce the Guarantor's Conditional Rights during such period. The Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Obligations. The Guarantor assumes all responsibility for being and keeping itself informed of the Company's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks which the Guarantor assumes and incurs hereunder, and agrees that the Lender shall have no duty to advise the Guarantor of information known to it regarding such circumstances or risks. 8. In addition to the Obligations, the Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses incurred by the Lender in enforcing this Guaranty in any action or proceeding arising out of, or relating to, this Guaranty. This Guaranty and the liability and obligations of the Guarantor hereunder are binding upon the Guarantor and its successors 3 and assigns, and this Guaranty inures to the benefit of and is enforceable by the Lender and its successors, transferees, and assigns. 9. No right or power of the Lender hereunder shall be deemed to have been waived by any act or conduct on the part of such Person, or by any neglect to exercise such right or power, or by any delay in so doing; and every right or power shall continue in full force and effect until specifically waived or released by an instrument in writing executed by the Lender. 10. The Guarantor agrees to execute any and all further documents, instruments and agreements as Lender from time to time reasonably requests to evidence the Guarantor's obligations hereunder. 11. The Guarantor hereby represents and warrants and agrees that: (a) The financial statements dated the Statement Date, copies of which have been furnished to the Lender, are complete and correct and have been prepared to present fairly and consistently, in accordance with GAAP, the financial condition to the Guarantor and its consolidated Subsidiaries (including without limitation the Company) at such date and the results of its operations and cash flows for the fiscal period then ended. (b) As of the date hereof, there has been no material adverse change in the business, operations, assets or financial or other condition of the Guarantor from that shown on the financial statements dated as of the Statement Date referred to in Paragraph (a) above. (c) The Guarantor: (1) is duly organized, validly existing and in good standing as a corporation under the laws of the State of Delaware and is in good standing as a foreign corporation in Florida and in each other jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to so be in good standing could have a material adverse effect on the property or business of the Guarantor or on the Guarantor's ability to pay or perform the Obligations or its obligations hereunder, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it does and proposes to do so, (3) is in compliance with all Requirements of Law and Contractual Obligations to the extent that failure to so comply could have a material adverse effect on the Guarantor or the Company or either of their property or business or on the ability of the Company to pay or perform the Obligations or the ability of the Guarantor to pay or perform the Guarantor's obligations hereunder, and (4) has reviewed and approved the Credit Documents. (d) The Guarantor has the corporate power and authority and the legal right to execute, deliver and perform the Credit Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Guaranty. The Credit Documents to which the Guarantor 4 is a party have been duly executed and delivered on behalf of the Guarantor and constitute legal, valid and binding obligations of the Guarantor enforceable against the Guarantor in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. (e) The execution, delivery and performance by the Guarantor of any Credit Documents to which the Guarantor is a party will not violate any Requirement of Law or any Contractual Obligation of the Guarantor to the extent that failure to comply could have a material adverse effect on the Guarantor or its property or business or on the ability to pay or perform the Obligations or its obligations hereunder. (f) Except as disclosed on Exhibit 1 hereto, no litigation, investigation or proceeding of or before any court, arbitrator or Governmental Authority is pending or, to the knowledge of the Guarantor, threatened by or against the Guarantor or any of its consolidated Subsidiaries or against any of such Person's properties or revenues which is likely to be adversely determined and which, if adversely determined, is likely to have a material adverse effect on the business, operations, property or financial or other condition of the Guarantor or the Company, or the Guarantor and its consolidated Subsidiaries taken as a whole, or on the Collateral, or the Collateral Value of the Borrowing Base. (g) Each of the Guarantor and the Company and each of the Guarantor's consolidated Subsidiaries has filed or caused to be filed all tax returns that are required to be filed and have paid all taxes shown to be due and payable on said returns or on any assessments made against any of them or any of the property of any of them other than taxes which are being contested in good faith by appropriate proceedings and as to which the Guarantor, the Company or such Subsidiary has established adequate reserves in conformity with GAAP. (h) The Guarantor is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (i) Neither the Guarantor nor the Company, nor any of the Subsidiaries of either the Guarantor or the Company, is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of such terms under Regulation U. No part of the proceeds of any Loan made under the Warehousing Agreement will be used, directly or indirectly, for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the applicable provisions of the Regulations of the Board of Governors of the Federal Reserve System. 5 (j) The Guarantor and each of its ERISA Affiliates, if any, are in compliance in all respects with the requirements of ERISA and no Reportable Event has occurred under any Plan maintained by the Company or any of its ERISA Affiliates which is likely to result in the termination of such Plan for purposes of Title IV of ERISA. (k) The Guarantor has not issued any unregistered securities in violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other existing applicable law, and is in compliance, in all material respects, with all existing applicable rules, regulations and requirements under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. (l) No consent, approval, authorization of, or registration, declaration or filing with, any Governmental Authority is required on the part of the Guarantor in connection with the execution and delivery of the Credit Documents to which the Guarantor is a party or the performance of or compliance with the terms, provisions and conditions hereof or thereof. (m) The Guarantor shall not sell, lease, assign, transfer or otherwise dispose of any of its assets (other than obsolete or worn out property), whether now owned or hereafter acquired, other than in the ordinary course of business as currently conducted and at fair market value. (n) The Guarantor shall furnish or cause to be furnished to the Lender; (1) Within one hundred twenty (120) days after the last day of its fiscal year, consolidated and consolidating statements of income and cash flows for such year, and consolidated and consolidating balance sheets as of the end of such year, of the Guarantor and its consolidated Subsidiaries (including, without limitation, the Company), presented fairly in accordance with GAAP and accompanied by an unqualified report of a firm of independent certified public accountants acceptable to the Lender and including therewith a copy of any management letter from such certified public accountants; (2) Within forty-five (45) days of the last day of each calendar month, consolidated and consolidating statements of income for such month, and consolidated and consolidating balance sheets as of the end of such month, of the Guarantor and its consolidated Subsidiaries (including, without limitation, the Company) accompanied in each case by a duly-executed Covenant Compliance Certificate. (3) Promptly, such additional financial and other information as the Lender may from time to time reasonably request; and 6 (4) Promptly, copies of any and all forms, reports, supplements or other documents of any kind filed by the Guarantor with the Securities and Exchange Commission. (o) The Guarantor shall continue to own one hundred percent (100%) of the outstanding capital voting stock of the Company. (p) The Guarantor shall not: (1) permit the ratio at any date of Total Liabilities to Adjusted Tangible Net Worth to be more than (i) during the period from March 31, 1998 through and including September 29, 1998, 40.0:1.0, and (ii) at all times thereafter, 15.0:1.0. (2) permit Book Net Worth to be less than (i) during the period from March 31, 1998 through and including September 29, 1998, $500,000, and (ii) at all times thereafter, $1,000,000; or (3) permit the ratio at any date of total current assets of the Guarantor and its consolidated Subsidiaries to total current liabilities of the Guarantor and its consolidated Subsidiaries, each as determined in accordance with GAAP, to be less than (i) during the period from March 31, 1998 through and including September 29, 1998, 0.70:1.0, and (ii) at all times thereafter, 0.85:1.0. (q) The Guarantor shall not, during any fiscal year, declare and pay any dividends, or return any capital, to its shareholders or authorize or make any other distribution, payment or delivery of property or cash to its shareholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock now or hereafter outstanding (or any options or warrants issued by it for or with respect to its capital stock), or set aside any funds for any of the foregoing purposes, in an aggregate amount in excess of fifty percent (50%) of the income of the Guarantor available to shareholders for such fiscal year as determined in accordance with GAAP. 12. This Guaranty shall be deemed to be made under and shall be governed by the laws of the State of North Carolina. 13. If any of the provisions of this Guaranty shall contravene or be held invalid under the laws of any jurisdiction, this Guaranty shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be construed and enforced accordingly. 7 Executed and sealed as of the day and year first above written. WESTMARK GROUP HOLDINGS, INC., a Delaware corporation [CORPORATE SEAL] By:________________________ Attest: Name:___________________ Title:__________________ By:____________________________ Name:_______________________ Title:______________________ 8 EX-27 6 FDS --
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM [Identidy specific financial statements] AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 99,824 2,876,528 0 0 8,717,601 8,817,425 1,039,145 (371,986) 13,788,435 11,622,092 1,276,916 0 1,147,870 14,263 577,294 13,788,435 2,802,605 3,056,142 303,037 2,655,524 0 0 304,571 435,619 0 435,619 0 0 0 435,619 0.17 0.10
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