Document:

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                                                                    EXHIBIT 10.1

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                               FIRST AMENDMENT TO

                       MASTER RECAPITALIZATION AGREEMENT

                                  by and among

                        IMPERIAL CREDIT INDUSTRIES, INC.

                                      and

                    EACH OF THE INVESTORS REFERRED TO HEREIN

                           Dated as of June 27, 2001

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              FIRST AMENDMENT TO MASTER RECAPITALIZATION AGREEMENT

     This First Amendment to Master Recapitalization Agreement, dated as of June
27, 2001 (this "Amendment"), is entered into by and among Imperial Credit
Industries, Inc., a California corporation (the "Company"), and the respective
Senior Secured Debt Purchasers and Signatory Debtholders named on the signature
pages hereof on the basis of the following facts:

      A.  The Company, the Senior Secured Debt Purchasers and the Signatory
Debtholders (collectively, the "Investors") are parties to that certain Master
Recapitalization Agreement, dated as of March 29, 2001 (the "Recapitalization
Agreement").  All initially-capitalized terms not otherwise defined herein shall
have the meanings set forth in the Recapitalization Agreement unless the context
clearly indicates otherwise.

      B.  The Company and the Investors desire to amend certain terms and
conditions of the Recapitalization Agreement and related exhibits thereto as
provided in this Amendment.

      C.  In accordance with Section 6.3 of the Recapitalization Agreement, with
respect to the Senior Secured Debt Purchasers, this Amendment shall be
enforceable against all Senior Secured Debt Purchasers upon the approval of
holders of a majority in aggregate principal amount of the Senior Secured Debt.

      NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree to amend the
Recapitalization Agreement as follows:

                                   AGREEMENT
                                   ---------

      1.  The following definitions are hereby added to Section 1.1 of the
                                                        -----------
Recapitalization Agreement:

      "Convertible Subordinated Indenture" means the indenture relating to the
Secured Convertible Subordinated Debt, which shall be substantially in the form
attached as Exhibit D hereto, as amended, supplemented or otherwise modified
from time to time with the consent of the Senior Secured Debt Purchasers.

      "Reverse Stock Split" means the proposed reverse stock split of the
Company's Common Stock that is to be presented for approval by the Company's
shareholders at the Company's 2001 Annual Meeting of Shareholders.

      "Reverse Stock Split Ratio" means a factor of four, three or two, relating
to the number of shares of outstanding Common Stock, as determined by the Board
of Directors, that will be combined into one share of the Company's Common Stock
in the Reverse Stock Split.

      "Secured Convertible Subordinated Debt" means the Secured Convertible
Subordinated Notes that are to be purchased by the Secured Convertible
Subordinated Debt Purchasers pursuant to Section 2.3, which shall be in the form
specified in and issued pursuant to the Convertible Subordinated Indenture.

                                       2
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      "Secured Convertible Subordinated Debt Placement Closing" has the meaning
set forth in Section 2.3(c).

      "Secured Convertible Subordinated Debt Placement Closing Date" has the
meaning set forth in Section 2.3(c).

      "Secured Convertible Subordinated Debt Placement" means the private
placement of Secured Convertible Subordinated Debt provided for in Section 2.3.

      "Secured Convertible Subordinated Debt Purchasers" means the Investors who
will become parties to this Agreement after the initial effective date hereof,
will be identified as such in Exhibit A hereto and will agree to purchase
Secured Convertible Subordinated Debt in the Secured Convertible Subordinated
Debt Placement, all as provided in Section 2.3.

      2.  The following definitions in Section 1.1 of the Recapitalization
                                       -----------
Agreement are hereby deleted in their entirety and replaced with the
corresponding definitions above as follows:

      "Convertible Subordinated Debt" is deleted and all references to
Convertible Subordinated Debt in the Recapitalization Agreement and related
exhibits thereto shall be replaced with the term "Secured Convertible
Subordinated Debt."

      "Convertible Subordinated Debt Placement Closing" is deleted and all
references to Convertible Subordinated Debt Placement Closing in the
Recapitalization Agreement and related exhibits thereto shall be replaced with
the term "Secured Convertible Subordinated Debt Placement Closing."

      "Convertible Subordinated Debt Placement Closing Date" is deleted and all
references to Convertible Subordinated Debt Placement Closing Date in the
Recapitalization Agreement and related exhibits thereto shall be replaced with
the term "Secured Convertible Subordinated Debt Placement Closing Date."

      "Convertible Subordinated Debt Placement" is deleted and all references to
Convertible Subordinated Debt Placement in the Recapitalization Agreement and
related exhibits thereto shall be replaced with the term "Secured Convertible
Subordinated Debt Placement."

      "Convertible Subordinated Debt Purchasers" is deleted and all references
to Convertible Subordinated Debt Purchasers in the Recapitalization Agreement
and related exhibits thereto shall be replaced with the term "Secured
Convertible Subordinated Debt Purchasers."

      3.  Section 2.2(b)(ii) of the Recapitalization Agreement is hereby amended
          ------------------
by adding the following sentence immediately prior to the end thereof:

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      "The amounts of Common Stock reflected in this Section 2.2(b) do not take
into account the effect of the Reverse Stock Split.  Notwithstanding anything
herein to the contrary, if the Reverse Stock Split is approved by the Company's
shareholders in accordance with applicable law and effected by the Company's
Board of Directors prior to the consummation of the Debt Exchange, the numbers
of shares of Common Stock issuable to exchanging holders of Old Notes and
underlying the Debt Exchange Warrants issued pursuant to this Section 2.2(b)
shall be reduced correspondingly by the Reverse Stock Split Ratio."

      4.  The first sentence of Section 2.2(g) of the Recapitalization Agreement
                                --------------
is hereby amended to insert "(i)" before the first sentence thereof and to amend
the two existing sentences thereof to read in their entirety as follows:

      "(i) Upon completion of the Debt Exchange, but in no event later than July
1, 2001, the Company shall issue an aggregate of 5.04 million shares of Common
Stock to the Signatory Debtholders. If no additional Exchange Notes are required
to be issued by the Company to any holders of Unexchanged Notes as provided in
Section 2.4(c), the Company shall issue an aggregate of 2 million additional
shares of Common Stock to the Signatory Debtholders on the earlier of (A) the
date all Exchange Notes issued to holders of Senior Secured Debt in exchange for
such notes are exchanged for Secured Convertible Subordinated Debt pursuant to
Section 2.4(b) or (B) April 15, 2002."

      5.  Section 2.2(g) of the Recapitalization Agreement is hereby further
          --------------
amended by adding a new paragraph (ii) thereto, which new paragraph shall read
in its entirety as follows:

      "(ii)  The amounts of Common Stock reflected in this Section 2.2(g) do not
take into account the effect of the Reverse Stock Split.  Notwithstanding
anything herein to the contrary, if the Reverse Stock Split is approved by the
Company's shareholders in accordance with applicable law and effected by the
Company's Board of Directors, the numbers of shares of Common Stock issuable to
the Signatory Debtholders pursuant to this Section 2.2(g), if issued prior to
the Reverse Stock Split being effected, will be reduced correspondingly by the
Reverse Stock Split Ratio.  If the nonconvertible promissory notes referred to
in Section 2.2(g)(i) are required to be issued prior to the Reverse Stock Split
being effected, the notes shall be issued in an aggregate principal amount equal
to the product of (A) the number of shares not so issuable and (B) $3.00,
increased correspondingly by the Reverse Stock Split Ratio, but subject to a
maximum aggregate principal amount of such notes of $1.872 million."

      6.  Section 2.4(a) of the Recapitalization Agreement is hereby amended by
          --------------
adding the following immediately prior to the end thereof:

      "The amounts of Common Stock reflected in this Section 2.4(a) do not take
into account the effect of the Reverse Stock Split.  Notwithstanding anything
herein to the contrary, if the Reverse Stock Split is approved by the Company's
shareholders in accordance with applicable law and effected by the Company's
Board of Directors prior to the exchange of Senior Secured Debt contemplated in
this Section 2.4(a), the numbers of shares of Common Stock issuable to the
Senior Secured Debt Purchasers and underlying the Debt Exchange Warrants issued
pursuant to this Section 2.4(a) will be reduced correspondingly by the Reverse
Stock Split Ratio."

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      7.  The third sentence of Section 3.1(a) of the Recapitalization Agreement
                                --------------
is hereby amended to read in its entirety as follows:

      "Immediately prior to each of the Senior Secured Debt Closing, the Debt
Exchange Closing and the Convertible Subordinated Debt Placement Closing, the
Company's outstanding Capital Stock will be as set forth in the preceding
sentence, except for (i) any increases in outstanding Common Stock as a result
of the transactions provided for herein or of the exercise of options or
warrants referred to in the penultimate sentence of this Section 3.1 and (ii)
any decreases in outstanding Common Stock as a result of the Reverse Stock
Split."

      8.  Section 5.9 of the Recapitalization Agreement is hereby amended by
          -----------
adding the following immediately prior to the end thereof:

      "The amounts of Common Stock reflected in this Section 5.9 do not take
into account the effect of the Reverse Stock Split. Notwithstanding anything
herein to the contrary, if the Reverse Stock Split is approved by the Company's
shareholders in accordance with applicable law and effected by the Company's
Board of Directors, the numbers of shares of Common Stock issuable upon exercise
of the stock options granted pursuant to this Section 5.9 will be reduced
correspondingly by the Reverse Stock Split Ratio."

      9. The Collateral Agency and Security Agreement attached as Exhibit B-2
                                                                  -----------
to the Recapitalization Agreement is amended in its entirety and replaced by the
"Amended and Restated Collateral Agency and Security Agreement" attached as
Exhibit B-2 hereto. All references to the Collateral Agency and Security
Agreement in the Recapitalization Agreement and related exhibits thereto shall
be replaced with the term "Amended and Restated Collateral Agency and Security
Agreement. "

      10.  In accordance with Section 7(a) of the Form of Debt Exchange Warrant
Agreement attached as Exhibit C-2 to the Recapitalization Agreement, if the Debt
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Exchange Warrants shall be issued after the Reverse Stock Split, the Exercise
Price referred to therein shall be adjusted to the price (calculated to the
nearest 1,000th of one cent) determined by multiplying the amount of such
Exercise Price immediately prior to the Reverse Stock Split by a fraction, the
numerator of which shall be the number of shares of Common Stock purchasable
upon exercise of the Debt Exchange Warrant immediately prior to the Reverse
Stock Split and the denominator of which shall be the number of shares of Common
Stock purchasable upon exercise of the Debt Exchange Warrant after the
adjustment.

       11.  With respect to the Registration Rights Agreement attached to the
Recapitalization Agreement as Exhibit E-1, the amounts of Common Stock
                              -----------
registrable pursuant thereto and reflected therein shall be reduced
correspondingly by the Reverse Stock Split Ratio.

       12.  This Amendment shall be deemed to be an amendment to the
Recapitalization Agreement, and the Recapitalization Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Recapitalization Agreement in

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any other document, instrument, agreement or writing shall hereafter be deemed
to refer to the Recapitalization Agreement as amended hereby.

      13. Except as expressly amended herein, the Recapitalization Agreement and
related exhibits thereto, and all documents, instruments and agreements relating
thereto or executed in connection therewith shall remain in full force and
effect as currently written.

      14.  This Amendment may be executed in any number of counterparts, all of
which together shall constitute one agreement.

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<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.

                                    IMPERIAL CREDIT INDUSTRIES, INC.

                                    By:  /s/ H. Wayne Snavely
                                       -----------------------------
                                    Name: H. Wayne Snavely
                                    Title: Chief Executive Officer
<PAGE>

                              SENIOR SECURED DEBT PURCHASERS (HOLDERS OF
                              MAJORITY IN AGGREGATE PRINCIPAL AMOUNT):

                              AFFINITY BANK HOLDINGS, INC.

                              By: /s/ Paul Schedler
                                 ------------------------

                                  Name:  Paul Schedler
                                         ----------------
                                  Title: Vice President
                                         ----------------

                                 /s/ Andris A. Baltins
                              ---------------------------
                              Andris A. Baltins
<PAGE>

                              SIGNATORY DEBTHOLDERS:

                              IMPERIAL HOLDINGS GROUP, LLC

                              By: /s/ Michael Riley
                                 -----------------------

                                 Name:  Michael Riley
                                        ----------------
                                 Title:
                                        ----------------<PAGE>

                                                                    EXHIBIT 10.2

                              AMENDED AND RESTATED

                    COLLATERAL AGENCY AND SECURITY AGREEMENT

     This AMENDED AND RESTATED COLLATERAL AGENCY AND SECURITY AGREEMENT (as it
may be amended, supplemented or otherwise modified from time to time, this

"Agreement") is dated as of June 28, 2001 and is made by and between Imperial
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Credit Industries, Inc. (the "Grantor") in favor of and for the benefit of
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Wilmington Trust Company ("WTC"), acting hereunder not individually but solely
                           ---
as collateral agent (in such capacity, the "Collateral Agent") for the benefit
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of (i) the Senior Secured Debt Purchasers, (ii) from and after the Debt Exchange
Closing Date, Chase Manhattan Bank and Trust Company, N.A. ("Senior Debt
                                                             -----------
Trustee"), not individually but solely as trustee for the holders of the
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Exchange Notes and (iii) from and after the Convertible Subordinated Debt
Placement Closing Date, Chase Manhattan Bank and Trust Company, N.A.

("Subordinated Debt Trustee"), not individually but solely as trustee for the
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Convertible Subordinated Debt Purchasers (the Senior Secured Debt Purchasers,
the Senior Debt Trustee and the Subordinated Debt Trustee, together with any
successors and assigns, are individually referred to herein as a "Secured Party"
                                                                  -------------
and collectively referred to herein as the "Secured Parties").
                                            ---------------

                             PRELIMINARY STATEMENTS

     Pursuant to that certain Master Recapitalization Agreement dated as of
March 29, 2001 (said agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "Recapitalization Agreement"), the Senior
                                       --------------------------
Secured Debt Purchasers agreed to loan $16,200,000 to the Grantor and the
Signatory Debtholders agreed to tender their Old Notes to the Grantor in
exchange for Exchange Notes and certain other consideration pursuant to the Debt
Exchange.  Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to such terms in the Recapitalization Agreement.

     It was a condition precedent to the closing of the transactions
contemplated by the Recapitalization Agreement that the Grantor and WTC in its
capacity as Collateral Agent shall have entered into that certain Collateral
Agency and Security Agreement dated as of March 29, 2001 (the "Original Security
                                                               -----------------
Agreement") and that the Grantor shall have granted the assignments and security
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interests and made the pledges and assignments contemplated thereunder.

     The obligations of the Grantor under the Senior Secured Debt and, from and
after the Debt Exchange Closing Date, the Exchange Notes were to be secured
pursuant to the Original Security Agreement.

     The parties to the Recapitalization Agreement have agreed that from and
after the Convertible Subordinated Debt Placement Closing Date the Convertible
Subordinated Debt should be secured by the collateral described in the Original
Security Agreement and that the Original Security Agreement should be amended
and restated to so provide.

     NOW, THEREFORE, in consideration of the premises and in order to induce the
Convertible Subordinated Debt Purchasers to purchase the Convertible
Subordinated Debt, the
<PAGE>

parties hereto hereby agree that the Original Security Agreement shall be
amended and restated in its entirety as follows:

      SECTION 1.  Grant of Security.  The Grantor hereby assigns and pledges
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to the Collateral Agent (i) for the benefit of the Senior Secured Debt
Purchasers and (ii) from and after the Debt Exchange Closing Date, for the
benefit of (x) the Senior Secured Debt Purchasers, the Subordinated Debt Trustee
as trustee for the Convertible Subordinated Debt Purchasers (to the extent the
Convertible Subordinated Debt is then outstanding) and the Senior Debt Trustee
as trustee for the holders of the Exchange Notes for so long as the Senior
Secured Debt is issued and outstanding and (y) from and after the payment in
full or exchange of the Senior Secured Debt, the Subordinated Debt Trustee as
trustee for the Convertible Subordinated Debt Purchasers (to the extent the
Convertible Subordinated Debt is then outstanding) and the Senior Debt Trustee
as trustee for the holders of the Exchange Notes, and hereby grants to the
Collateral Agent for the benefit of such Secured Parties a security interest in,
all of the Grantor's right, title and interest, whether now owned or hereafter
acquired, in and to the following (collectively, the "Collateral"):
                                                      ----------

          (a)  all of the following:

               (i)    the indebtedness (the "Pledged Debt") described on
                                             ------------
          Schedule I and owing to the Grantor by the issuers named therein and
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          the instruments evidencing the Pledged Debt, and all interest, cash,
          instruments and other property from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all
          of the Pledged Debt;

               (ii)   all additional indebtedness from time to time owed to the
          Grantor by any obligor of the Pledged Debt or any other Person and the
          instruments evidencing such indebtedness, and all interest, cash,
          instruments and other property from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all
          of such indebtedness; and

               (iii)  the shares of capital stock described on Schedule II
                                                               -----------
          (the "Pledged Securities"), together with any other shares, stock
                ------------------
          certificates, options or warrants of any issuer listed in Schedule II
                                                                    -----------
          that may be issued or granted to, or held by, the Grantor while this
          Agreement is in effect; and

          (b)  all proceeds of any and all of the foregoing Collateral.

The parties hereto have agreed, and by their execution hereof acknowledge, that
the Grantor may request that any or all of the instruments evidencing any
Pledged Debt be released from the lien of this Agreement upon the exchange
thereof for (i) another instrument evidencing indebtedness from Southern Pacific
Bank (which instrument shall, without any further action by any party hereto,
become Pledged Debt for all purposes hereof) or (ii) any shares of capital stock
of Southern Pacific Bank (which instrument shall, without any further action by
any party hereto, become Pledged Securities for all purposes hereof).
Similarly, the Grantor may request that any or all of the stock certificates
evidencing the Pledged Securities be released from the lien of this Agreement
upon the exchange thereof for (i) any shares of another class of capital stock
of

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Southern Pacific Bank (which shares shall, without further action by any party
hereto, become Pledged Securities for all purposes hereof) or (ii) any
instrument evidencing indebtedness of Southern Pacific Bank (which shall,
without any further action by any party hereto, become Pledged Debt for all
purposes hereof). By their acceptance hereof, the Senior Secured Debt
Purchasers, the Senior Debt Trustee (acting solely pursuant to the authority
granted in Section 11.01 of the Exchange Notes Indenture), and the Subordinated
Debt Trustee (acting solely pursuant to the authority granted in Section 11.01
of the Subordinated Debt Indenture) authorize the Collateral Agent to release
from the security interest hereof any Pledged Debt or Pledged Securities held by
it hereunder upon the exchange of such Pledged Debt or Pledged Securities for
other indebtedness or capital stock of Southern Pacific Bank so long as such
indebtedness or stock is pledged to the Collateral Agent and is subject to the
security interests granted hereby for all purposes.

     SECTION 2.  Security for Obligations.  This Agreement secures, and the
                 ------------------------
Collateral is collateral security for, the prompt payment and performance in
full when due, whether on a specified payment date, at stated maturity, by
acceleration or otherwise (including, without limitation, the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code or any similar law) of all obligations of the
Grantor under (i) the Senior Secured Debt, and (ii) from and after the
Subordinated Debt Exchange Closing Date, (x) the Senior Secured Debt, the
Convertible Subordinated Debt (to the extent outstanding) and the Exchange Notes
for so long as the Senior Secured Debt is issued and outstanding and (y) from
and after the payment in full or exchange of the Senior Secured Debt, the
Exchange Notes and the Convertible Subordinated Debt (to the extent
outstanding), including interest (including, without limitation, interest that,
but for the filing of a petition in bankruptcy would accrue on such obligations)
or any fees or other expenses related thereto (any and all such obligations
being the "Secured Obligations").
           --------------------

     SECTION 3.  Delivery of Collateral.  All certificates or instruments
                 ----------------------
representing or evidencing Collateral shall be delivered to and held by or on
behalf of the Collateral Agent on behalf of the Secured Parties entitled to the
benefit thereof pursuant to the terms hereof and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Parties entitled to the benefit thereof pursuant to the terms hereof.
The Collateral Agent shall have the right after the occurrence and during the
continuance of an Event of Default (as defined in Section 6(a)(v)) beyond any
                                                  ---------------
grace period applicable thereto to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Collateral.  In
addition, the Collateral Agent shall have the right after the occurrence and
during the continuance of an Event of Default beyond any grace period applicable
thereto to exchange instruments representing or evidencing the Collateral, for
instruments of smaller or larger denominations.

     SECTION 4.  Representations and Warranties.  The Grantor hereby
                 ------------------------------
represents and warrants as follows:

          (a)  The chief place of business and chief executive office of the
     Grantor is located at the address specified for the Grantor on Schedule
                                                                    --------
     III. The Grantor's federal tax identification number is as set forth on
     ---
     Schedule III.
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          (b)  The Grantor is the legal and beneficial owner of the Collateral
     free and clear of any lien. No effective financing statement or other
     instrument similar in effect covering all or any part the Collateral is on
     file in any recording office, except such as may have been filed relating
     to this Agreement.

          (c)  Assuming continuous possession by the Collateral Agent on behalf
     of the Secured Parties entitled to the benefit thereof pursuant to the
     terms hereof, the pledge of each of the Pledged Debt and Pledged Securities
     pursuant to this Agreement creates a valid and first priority perfected
     security interest in the Pledged Debt and Pledged Securities, respectively.

          (d)  All shares of capital stock described on Schedule II are duly
                                                        -----------
     authorized, validly issued, fully paid and non-assessable.

          (e)  The Pledged Debt described on Schedule I constitutes 100% of the
                                             ----------
     outstanding indebtedness of the Bank to the Grantor and its Affiliates
     (excluding any indebtedness arising from deposit accounts or bank accounts
     maintained by the Grantor and its Affiliates with the Bank) and the Pledged
     Securities described on Schedule II represent 100% of the total issued and
                             -----------
     outstanding shares of capital stock of the Bank.

          (f)  The execution and delivery of this Agreement and the performance
     by the Grantor of its obligations hereunder are within the Grantor's
     corporate power, have been duly authorized by all necessary corporate
     action and do not and will not contravene or conflict with any provision of
     law or of the organizational documents of the Grantor or of any agreement,
     indenture, instrument or other document, or any judgment, order or decree,
     which is binding upon the Grantor.

          (g)  This Agreement is a legal, valid and binding obligation of the
     Grantor, enforceable in accordance with its terms, except that the
     enforceability of this Agreement may be limited by bankruptcy, insolvency,
     fraudulent conveyance, fraudulent transfer, reorganization, moratorium or
     other similar laws now or hereafter in effect relating to creditors' rights
     generally and by general principles of equity (regardless of whether
     enforcement is sought in a proceeding in equity or at law) and creates a
     valid and, after all appropriate financing statements are filed, first
     priority security interest in the Collateral and such security interest is
     entitled to all rights, priorities and benefits afforded by the Uniform
     Commercial Code in effect in the State of California (the "Uniform
                                                                -------
     Commercial Code").
     ---------------

     SECTION 5.  Further Assurances.
                 ------------------

          (a)  The Grantor agrees from time to time that, at the expense of the
     Grantor, the Grantor will promptly execute and deliver all further
     instruments and documents, and take all further action required, or that
     the Collateral Agent may reasonably request, in order to perfect, protect
     and maintain the priority of any pledge, assignment or security interest
     granted or purported to be granted hereunder or to enable the Collateral
     Agent to exercise and enforce its rights and remedies hereunder with
     respect to any Collateral.

                                       4
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          (b)  The Grantor hereby authorizes the Collateral Agent on behalf of
     the Secured Parties entitled to the benefit thereof pursuant to the terms
     hereof to file one or more financing or continuation statements, and
     amendments thereto, relating to all or any part of the Collateral without
     the signature of the Grantor where permitted by law. A photocopy or other
     reproduction of this Agreement or any financing statement covering the
     Collateral or any part thereof shall be sufficient as a financing statement
     where permitted by law.

     SECTION 6.   Voting Rights; Dividends; Payments; etc.
                  ---------------------------------------

          (a)  Until the occurrence of an Event of Default and the continuance
     thereof beyond any grace period applicable thereto:

               (i)    The Grantor shall be entitled to exercise any and all
          voting or consensual rights and powers and stock purchase or
          subscription rights relating or pertaining to the Pledged Securities
          for any purpose;

               (ii)   The Grantor shall be entitled to receive and retain any
          and all lawful dividends payable in respect of the Pledged Securities
          which are paid in cash by any issuer, but all dividends and
          distributions in respect of such Collateral or any part thereof made
          in shares of stock or other property or representing any return of
          capital, whether resulting from a subdivision, combination or
          reclassification of such Collateral or any part thereof or received in
          exchange for such Pledged Securities or any part thereof or as a
          result of any merger, consolidation, acquisition or other exchange of
          assets to which any issuer of Pledged Securities may be a party or
          otherwise or as a result of any exercise of any stock purchase or
          subscription right, shall be and become part of the Collateral
          hereunder and, if received by the Grantor, shall be forthwith
          delivered to the Collateral Agent on behalf of the Secured Parties in
          due form for transfer (i.e., endorsed in blank or accompanied by stock
          or bond powers executed in blank) to be held for the purposes of this
          Agreement.

               (iii)  The Collateral Agent shall execute and deliver, or cause
          to be executed and delivered, to the Grantor, all such proxies, powers
          of attorney, dividend orders and other instruments as the Grantor may
          request in writing (upon which the Collateral Agent may fully rely)
          for the purpose of enabling the Grantor to exercise the rights and
          powers which it is entitled to exercise pursuant to subclause (i)
                                                              -------------
          above and to receive the dividends which it is authorized to retain
          pursuant to subclause (ii) above.
                      --------------

               (iv)   The Grantor shall be entitled to (A) collect all regular
          payments made or proceeds received with respect to the Pledged Debt
          and (B) enforce and prosecute all rights and remedies available under
          any of the Pledged Debt.

               (v)    For all purposes under this Agreement, "Event of Default"
          means (A) prior to the Debt Exchange Closing Date, an Event of Default
          as defined in the Senior Secured Debt, (B) from and after the Debt
          Exchange Closing Date and

                                       5
<PAGE>

          so long as any Senior Secured Debt shall remain outstanding, an Event
          of Default as defined in the Exchange Notes Indenture or in the Senior
          Secured Debt, (C) after the Senior Secured Debt has been paid in full,
          an Event of Default as defined in the Exchange Notes Indenture and (D)
          after the Senior Secured Debt and the Exchange Notes have been paid in
          full, an Event of Default as defined in the Secured Convertible
          Subordinated Debt.

          (b)  After the occurrence of an Event of Default and the continuance
     thereof beyond any grace period applicable thereto, all rights and powers
     which the Grantor is entitled to exercise pursuant to Section 6(a)(i)
                                                           ---------------
     hereof, and all rights of the Grantor to receive and retain dividends
     pursuant to Section 6(a)(ii) hereof, and all rights of the Grantor to
                 ----------------
     receive payments pursuant to Section 6(a)(iv) hereof, shall forthwith
                                  ----------------
     cease, and all such rights and powers shall thereupon become vested in the
     Collateral Agent which shall have, during the continuance of such Event of
     Default, the sole and exclusive authority to exercise such rights and
     powers and to receive such dividends and payments. Any and all money and
     other property paid over to or received by the Collateral Agent pursuant to
     this clause (b) shall be retained by the Collateral Agent as additional
          ----------
     Collateral hereunder and applied in accordance with the provisions hereof.

     SECTION 7.  Place of Perfection; Records.  The Grantor shall keep its
                 ----------------------------
chief place of business and chief executive office and the office where it keeps
its records concerning the Collateral, at the location therefor specified on
Schedule III or, upon prior written notice to the Collateral Agent, at such
------------
other locations in a jurisdiction where all actions required by Section 5 shall
                                                                ---------
have been taken with respect to the Collateral.

     SECTION 8.  Transfers and Other Liens; Additional Shares.  Except as
                 --------------------------------------------
otherwise permitted under the Recapitalization Agreement, the Grantor shall not
(a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (b) create or suffer
to exist any Lien upon or with respect to any of the Collateral.

     SECTION 9.

          (a)  Appointment and Authorization of Collateral Agent.  By
               -------------------------------------------------
     acceptance of the Senior Secured Debt or execution and delivery of the
     Exchange Notes Indenture or the Subordinated Debt Indenture, as the case
     may be, each Secured Party hereby irrevocably designates and appoints WTC
     as the Collateral Agent of such Secured Party under this Agreement and each
     Secured Party hereby irrevocably authorizes the Collateral Agent to execute
     this Agreement and (i) to take action on its behalf and exercise such
     powers and use such discretion as are expressly permitted hereunder and all
     instruments relating hereto and thereto and (ii) to exercise such powers
     and perform such duties as are, in each case, expressly delegated to the
     Collateral Agent by terms hereof and thereof together with such other
     powers and discretion as are reasonably incidental hereto and thereto.
     Notwithstanding any provision to the contrary elsewhere in this Agreement,
     the Collateral Agent shall not have any duties or responsibilities except
     those expressly set forth herein or therein or any fiduciary relationship
     with any Secured Party and no

                                       6
<PAGE>

     implied covenants, functions, responsibilities, duties, obligations or
     liabilities shall be read into this Agreement or otherwise exist against
     the Collateral Agent.

          (b)  Delegation of Duties.  The Collateral Agent may exercise its
               --------------------
     powers and execute any of its duties under this Agreement by or through
     employees, agents or attorneys-in-fact and shall be entitled to take and to
     rely on advice of counsel concerning all matters pertaining to such powers
     and duties. The Collateral Agent may use the services of such persons as
     the Collateral Agent in its sole discretion may determine and all
     reasonable fees and expenses of such persons shall be borne by the Grantor.

          (c)  Exculpatory Provisions.  Neither the Collateral Agent nor any
               ----------------------
     of its officers, partners, directors, employees, agents, attorneys-in-fact
     or Affiliates shall be (i) liable for any action taken or omitted to be
     taken by it or such Person under or in connection with this Agreement or
     any Collateral (except for its or such person's own gross negligence or
     willful misconduct), or (ii) responsible in any manner to any of the
     Secured Parties for any recitals, statements, representations or warranties
     made by the Grantor or any officer thereof contained in, or made or deemed
     to be made in connection with, any Senior Secured Debt, Convertible
     Subordinated Debt, Exchange Notes, or this Agreement or in any certificate,
     report, statement or other document referred to or provided for in, or
     received by the Collateral Agent under or in connection with, this
     Agreement or any Senior Secured Debt, Convertible Subordinated Debt or
     Exchange Notes, or for the due execution, legality, validity,
     effectiveness, genuineness, enforceability or sufficiency of the Senior
     Secured Debt, Convertible Subordinated Debt, Exchange Notes or this
     Agreement or any other document or instrument furnished pursuant thereto or
     for any failure of the Grantor to perform its obligations thereunder. The
     Collateral Agent shall be under no obligation to the Secured Parties to
     ascertain or to inquire as to the observance or performance of any of the
     agreements contained in, statements made in, or conditions of the Senior
     Secured Debt, Convertible Subordinated Debt, Exchange Notes or this
     Agreement or to inspect the property, including the books and records, of
     the Grantor.

          (d)  Reliance by the Collateral Agent.  The Collateral Agent shall
               --------------------------------
     be entitled to rely, and shall be fully protected and shall incur no
     liability in acting and relying, upon any writing, resolution, notice,
     consent, certificate, affidavit, telegram, telecopy, telex or teletype
     message, statement, order or other document or telephone conversation
     reasonably believed by it to be genuine and correct and to have been
     signed, sent or made by the proper person or persons and upon advice and
     statements of legal counsel, including without limitation counsel to the
     Grantor, independent accountants and other experts selected by the
     Collateral Agent. Without limiting the generality of the foregoing, the
     Collateral Agent may treat the payee of any Senior Secured Debt,
     Convertible Subordinated Debt or Exchange Note as the registered holder
     thereof until it receives notice or otherwise has actual knowledge that
     such payee is no longer the registered holder of such Senior Secured Debt
     or Exchange Note. Notwithstanding anything to the contrary contained
     herein, the Collateral Agent shall be fully justified in failing or
     refusing to take action under this Agreement, including without limitation
     the exercise of any rights or remedies under, or the entering into of any
     agreement amending, modifying, supplementing, waiving any provision of, or
     the giving of consent pursuant

                                       7
<PAGE>

     to, any provision of this Agreement, unless it shall first receive
     instructions of the Required Noteholders (as defined below) as contemplated
     by Section 10 hereof and it shall first be indemnified to its reasonable
        ----------
     satisfaction by the Senior Secured Debt Purchasers, the holders of the
     Exchange Notes and/or the Convertible Subordinated Debt Purchasers against
     any and all liability and expense that may be incurred by it by reason of
     taking, continuing to take or refraining from taking any such action. For
     the purpose hereof, the "Required Noteholders" shall mean, at any time,
                              --------------------
     the holders of at least 51% of the outstanding principal amount of all
     Senior Secured Debt, until such time as no Senior Secured Debt shall be
     outstanding, at which time "Required Noteholders" shall mean the Senior
     Debt Trustee acting at the direction of the holders of a majority in
     principal amount of the then outstanding Exchange Notes as provided in
     Section 6.05 of the Exchange Notes Indenture, until such time as no
     Exchange Notes shall be outstanding, at which time "Required Noteholders"
     shall mean the Subordinated Debt Trustee acting at the direction of the
     holders of a majority in principal amount of the then outstanding
     Convertible Subordinated Notes as provided in Section 6.05 of the
     Subordinated Debt Indenture. The Collateral Agent shall in all such cases
     be fully protected in acting or in refraining from acting under this
     Agreement in accordance with the provisions of Section 10(e) hereof and in
                                                    -------------
     accordance with written instructions and any action taken or any failure to
     act pursuant thereto shall be binding upon all the Secured Parties and all
     other holders from time to time of the Senior Secured Debt and Exchange
     Notes.

          (e)  Knowledge or Notice of Default and Event of Default.  The
               ---------------------------------------------------
     Collateral Agent shall not be deemed to have actual, constructive, direct
     or indirect knowledge or notice of the occurrence of any Default or Event
     of Default unless and until the Collateral Agent has received written
     notice from a Secured Party or the Grantor describing such Default (as
     defined below) or Event of Default, setting forth in reasonable detail the
     facts and circumstances thereof and stating that the Collateral Agent may
     rely on such notice without further inquiry. The Collateral Agent shall
     have no obligation or duty prior to or after receiving any such notice to
     inquire whether a Default or Event of Default has in fact occurred and
     shall be entitled to rely, and shall be fully protected in so relying, on
     any such notice furnished to it. For the purpose hereof, "Default" means
     (A) prior to the Debt Exchange Closing Date, a Default as defined in the
     Senior Secured Debt, (B) from and after the Debt Exchange Closing Date and
     so long as any Senior Secured Debt shall remain outstanding, a Default as
     defined in the Exchange Notes Indenture or the Senior Secured Notes, (C)
     after the Senior Secured Debt has been paid in full, a Default as defined
     in the Exchange Notes Indenture and (D) after the Exchange Notes have been
     paid in full, a Default as defined in the Subordinated Debt Indenture.

          (f)  Non-Reliance on Collateral Agent and Other Secured Parties.  By
               ----------------------------------------------------------
     acceptance of the Senior Secured Debt or execution and delivery of the
     Exchange Notes Indenture or the Subordinated Debt Indenture, as the case
     may be, each Secured Party expressly acknowledges that, except as expressly
     set forth in this Agreement, neither the Collateral Agent nor any of the
     Collateral Agent's partners, officers, directors, employees, agents,
     attorneys-in-fact or Affiliates has made any representations or warranties
     to it and that no act by the Collateral Agent hereinafter taken, including
     any review of the affairs of the Grantor, shall be deemed to constitute any
     representation or warranty by the Collateral Agent to any Secured Party.
     Except for notices, reports and

                                       8
<PAGE>

     other documents expressly required to be furnished by the Collateral Agent
     hereunder, the Collateral Agent shall not have any duty or responsibility
     to provide the Secured Parties with any credit or other information
     concerning the business, operations, property, financial and other
     condition and credit-worthiness of the Grantor that may come into the
     possession of the Collateral Agent or any of its partners, officers,
     directors, employees, agents, attorneys-in-fact or Affiliates.

          (g)  Indemnification.  The Grantor agrees to indemnify WTC from and
               ---------------
     against any and all liabilities, obligations, losses, damages, penalties,
     actions, judgments, suits, costs, expenses or disbursements of any kind
     whatsoever that may at any time, including, without limitation, at any time
     following the payment of the Secured Obligations, be imposed on, incurred
     by or asserted against the Collateral Agent in any way relating to or
     arising out of its capacity as Collateral Agent or the Recapitalization
     Agreement or the Related Agreements or actions or omissions of the
     Collateral Agent specifically required or permitted by this Agreement or by
     written instructions of the Required Noteholders pursuant to Section 10(c)
                                                                  -------------
     hereof, including without limitation, costs incurred in performance of its
     duties under Section 9(a), provided that the Grantor shall not be liable
                  ------------
     for the payment of any portion of such liabilities, obligations, losses,
     damages, penalties, actions, judgments, suits, costs, expenses or
     disbursements resulting solely from the Collateral Agent's gross negligence
     of willful misconduct. The agreements in this Section 9(g) shall survive
                                                    -----------
     the payment of the Secured Obligations and the termination of this
     Agreement.

          (h)  Collateral Agent in its Individual Capacity.  The Collateral
               -------------------------------------------
     Agent and its Affiliates may generally engage in any kind of business with
     the Grantor as though such person was not the Collateral Agent hereunder
     and without any duty to account therefore to the Secured Parties.

          (i)  Successor Collateral Agent.
               --------------------------

               (i)    The Collateral Agent may resign at any time upon 60 days
          notice to the Secured Parties and Grantor and may be removed at any
          time, with or without cause, by the Required Noteholders by written
          notice delivered to the Grantor, the Collateral Agent and the Secured
          Parties. After any resignation or removal hereunder of the Collateral
          Agent, the provisions of this Section 9(i) shall continue to inure to
                                        ------------
          its benefit as to any actions taken or omitted to be taken by it in
          connection with its agency hereunder while it was the Collateral Agent
          under this Agreement and it shall be entitled to be paid promptly when
          due any amounts owing to it pursuant to Section 9.6.
                                                  -----------

               (ii)   Upon receiving notice of any such resignation or removal,
          a successor Collateral Agent shall be appointed by the Required
          Noteholders, provided, however, that such successor Collateral Agent
          shall be (A) a Person having a combined capital and surplus of at
          least $50 million and (B) authorized under bylaw to assume the
          functions of the Collateral Agent. If the appointment of such
          successor shall not have become effective, as provided below, within
          such 60-day period after the Collateral Agent's resignation or upon
          removal of the

                                       9
<PAGE>

          Collateral Agent, then the Collateral Agent may petition a court of
          competent jurisdiction for the appointment of a Collateral Agent. Such
          court shall, after such notice as it may deem proper, appoint a
          successor Collateral Agent meeting the qualifications specified in
          this Section 9(i)(ii).
               ----------------

               (iii)  The resignation or removal of a Collateral Agent shall
          become effective upon the execution and delivery of such documents or
          instruments as are necessary to transfer the rights and obligations of
          the Collateral Agent under this Agreement, including without
          limitation, the delivery and recordation of all amendments,
          instruments, financing statements, continuation statements and other
          documents necessary to maintain the perfection of the security
          interests held by the Collateral Agent under this Agreement. Copies of
          each such document or instrument shall be delivered to all Secured
          Parties. The appointment of a successor Collateral Agent pursuant to
          this Section 9(i) shall become effective upon the acceptance of the
               ------------
          appointment as Collateral Agent hereunder by a successor Collateral
          Agent. Upon such effective appointment, the successor Collateral Agent
          shall succeed to and become vested with all the rights, powers,
          privileges and duties of the retiring Collateral Agent and the
          retiring Collateral Agent shall be discharged from its rights, powers,
          privileges and duties under this Agreement, but shall remain liable
          for its actions prior to and including such date of discharge.

     SECTION 10.  Actions by the Collateral Agent.
                  -------------------------------

          (a)  Duties and Obligations.  The duties and obligations of the
               ----------------------
     Collateral Agent are only those set forth in this Agreement.

          (b)  Notification of Default.  If the Collateral Agent has been
               -----------------------
     notified in a writing conforming to the requirements of Sections 9 (d) and
                                                             --------------
     (e) by any Secured Party or Grantor that a Default or an Event of Default
     ---
     has occurred, the Collateral Agent shall promptly furnish, and in any event
     no later than three Business Days after receipt of such notice, to the
     Secured Parties a copy of such written notice (a "Default Notice"). The
                                                       --------------
     failure of any Secured Party having knowledge of the occurrence of a
     Default or an Event of Default to notify the Collateral Agent or any
     Secured Party of such occurrence, however, does not constitute a waiver of
     such Default or Event of Default by the Secured Parties. If the Required
     Noteholders have not given prior instructions to the Collateral Agent, the
     Default Notice may contain a recommendation of actions to be taken by the
     Secured Parties and/or request instructions from the Secured Parties and
     shall specify the date on which responses are due in order to be timely
     within Section 10(d) hereof.  If the Required Noteholders have given
            -------------
     prior instructions to the Collateral Agent, the Collateral Agent shall take
     the actions requested by the Required Noteholders and the Default Notice
     shall inform the other Secured Parties of such actions.

          (c)  Exercise of Remedies.  Except as otherwise provided in Section
               --------------------
     10(e) and Section 21, the Collateral Agent shall take only such actions
     -----     ----------
     and exercise only such remedies under this Agreement as are approved in
     written instructions delivered to the Collateral Agent and signed by the
     Required Noteholders. If the Collateral Agent shall

                                       10
<PAGE>

     determine in good faith that taking the actions specified in such
     instructions is contrary to law, it may refrain, and shall be fully
     protected in so refraining, from taking such action and shall immediately
     give notice of such fact to each of the Secured Parties. If instructions
     received by the Collateral Agent are in its good faith judgment ambiguous
     or conflict with other instructions received by the Collateral Agent, the
     Collateral Agent (a) shall promptly notify the Secured Parties of such
     ambiguity or conflict and request clarifying instructions, and (b) may
     either (1) delay in taking any such action or exercising any such remedy
     pending receipt of such clarifying instructions, and shall be fully
     protected in so delaying, or (2) take such actions as it is entitled under
     Section 10(e).
     -------------

          (d)  Instructions from Senior Secured Debt Purchasers.  If any
               ------------------------------------------------
     Senior Secured Debt Purchaser does not respond in a timely manner to any
     notice, including without limitation a Default Notice, from the Collateral
     Agent or request for instructions within the time period specified by the
     Collateral Agent in such notice or request for instructions, which shall be
     a minimum of five Business Days, the Senior Secured Debt held by such
     Senior Secured Debt Purchaser that would otherwise be included in a
     determination of Required Noteholders shall not be included in the
     determination of Required Noteholders for purposes of such notice or
     request for instructions. Any action taken or not taken without the vote of
     a Senior Secured Debt Purchaser under this Section 10(d) shall nevertheless
                                                -------------
     be binding on such Senior Secured Debt Purchaser.

          (e)  Emergency Actions.  If the Collateral Agent has asked the
               -----------------
     Secured Parties for instructions and if the Required Noteholders have not
     yet responded to such request, the Collateral Agent shall be authorized to
     take, but shall not be required to take and shall in no event have any
     liability for the taking or the failure to take, such actions, other than
     any action described or permitted under Section 21 hereof, with regard to a
                                             ----------
     Default or Event of Default that the Collateral Agent, in good faith,
     believes to be reasonably required to promote and protect the interests of
     the Secured Parties and to maximize both the value of the Collateral and
     the present value of the recovery by the Secured Parties on the Secured
     Obligations and shall give the Secured Parties appropriate notice of such
     action, provided that once instructions with respect to such request have
     been received by the Collateral Agent from the Required Noteholders, the
     actions of the Collateral Agent shall be governed thereby and the
     Collateral Agent shall not take any further action that would be contrary
     thereto.

          (f)  Other Actions.  The Collateral Agent shall have the right to
               -------------
     take such actions, or omit to take such actions, hereunder and not
     inconsistent with the written instructions of the Required Noteholders
     delivered pursuant to Section 10(c) hereof, including actions the
                           -------------
     Collateral Agent deems necessary or appropriate to perfect or continue the
     perfection of the liens on the Collateral for the benefit of the Secured
     Parties. Except as otherwise provided by the applicable law, the Collateral
     Agent shall have no duty as to any Collateral, the perfection, protection
     or maintenance of any pledge, assignment or security interest in the
     Collateral, the collection or protection of the Collateral or any income
     thereon, including any duty to ascertain or take action with respect to
     calls, conversions, exchanges, maturities, tenders or other matters
     relative to any Collateral, whether or not the Collateral Agent has or is
     deemed to have knowledge of such matters, nor as to the

                                       11
<PAGE>

     preservation of rights against prior parties, nor as to the preservation of
     rights pertaining to the Collateral beyond the safe custody of any
     Collateral in the Collateral Agent's actual possession.

          (g)  Cooperation.  To the extent that the exercise of the rights,
               -----------
     powers and remedies of the Collateral Agent in accordance with this
     Agreement requires that any action be taken by any Secured Party, by
     acceptance of the Senior Secured Debt or the Exchange Notes, as the case
     may be, such Secured Party agrees to take such action and cooperate with
     the Collateral Agent to ensure that the rights, powers and remedies of all
     Noteholders are exercised in full.

          (h)  Distribution of Proceeds.  All amounts owing with respect to
               ------------------------
     the Secured Obligations shall be secured by the Collateral without
     distinction as to whether some Secured Obligations are then due and payable
     and other Secured Obligations are not then due and payable. Upon any
     realization upon the Collateral, by acceptance of the Senior Secured Debt
     or execution and delivery of the Exchange Notes Indenture or the
     Subordinated Debt Indenture, as the case may be, the Secured Parties agree
     that the proceeds thereof shall be applied, (i) first, to the amounts owing
     by the Grantor to the Collateral Agent solely in its capacity as Collateral
     Agent hereunder pursuant to this Agreement, (ii) second, ratably to the
     payment of all amounts of interest outstanding on the Senior Secured Debt
     according to the aggregate amounts of such interest then owing to each
     Senior Secured Debt Purchaser, (iii) third, ratably to all amounts of
     principal outstanding under the Senior Secured Debt according to the
     aggregate amounts of such principal then owing to each Senior Secured Debt
     Purchaser, (iv) fourth, ratably to all other amounts then due to the Senior
     Secured Debt Purchasers, including fees and expenses, (v) fifth, to all
     fees and out-of-pocket expenses owed to the Senior Debt Trustee and
     Subordinated Debt Trustee under the Exchange Note Indenture and the
     Subordinated Debt Indenture, as the case may be, (vi) sixth, ratably to the
     payment of all amounts of interest outstanding on the Exchange Notes
     according to the aggregate amounts of such interest then owing to each
     holder thereof, (vii) seventh, ratably to all amounts of principal
     outstanding under the Exchange Notes according to the aggregate amounts of
     principal then owing to each holder thereof, (viii) eighth, ratably to all
     other amounts then due to the holders of the Exchange Notes, including fees
     and expenses, (ix) ninth, ratably to the payment of all amounts of interest
     outstanding on the Convertible Subordinated Debt according to the aggregate
     amounts of interest then owing to each Convertible Subordinated Debt
     Purchaser, (x) tenth, ratably to all amounts of principal outstanding under
     the Convertible Subordinated Debt according to the aggregate amounts of
     principal then owing to each Convertible Subordinated Debt Purchaser, (xi)
     eleventh, ratably to all other amounts then due to the Convertible
     Subordinated Debt Purchasers, including fees and expenses and (xii)
     twelfth, the balance, if any, shall be returned to the Grantor or such
     other Persons as are entitled thereto. Upon the request of the Collateral
     Agent prior to any distribution under this Section 10(h), each Secured
                                                -------------
     Party shall provide to the Collateral Agent certificates, in form and
     substance reasonably satisfactory to the Collateral Agent, setting forth
     the respective amounts referred to in clauses (ii) through (xi) above that
     each such Secured Party believes it is entitled to receive, together with
     such wire transfer information or other payment instructions as the
     Collateral Agent may reasonably request.

                                       12
<PAGE>

          (i)  Authorized Investments.  Prior to any realization upon the
               ----------------------
     Collateral, any and all funds held by the Collateral Agent in its capacity
     as Collateral Agent, whether pursuant to any provision of this Agreement
     shall, to the extent feasible, within a reasonable time, be invested by the
     Collateral Agent in Permitted Investments (as defined on Schedule IV).
     Prior to making such investment or to the extent it is not feasible to
     invest such funds in Permitted Investments, the Collateral Agent shall hold
     any such funds in an interest bearing account. By acceptance of the Senior
     Secured Debt or the Exchange Notes, as the case may be, each Secured Party
     authorizes the Collateral Agent to open such an account. Any interest
     earned on such funds shall be retained in such account until there shall be
     a realization on the Collateral, at which time such funds shall be
     disbursed to the Secured Parties in accordance with Section 10(h). The
                                                         -------------
     Collateral Agent shall have no duty to place funds held and invested
     pursuant to this Section 10(i) in investments that provide for a maximum
                      -------------
     return.  The Collateral Agent shall not be responsible for any loss of any
     funds invested in accordance with this Section 10(i).
                                            -------------

     SECTION 11.  Priority of Notes.
                  -----------------

          (a)  From and after the Debt Exchange Closing Date until all Senior
     Secured Debt shall have been paid in full, exchanged for Exchange Notes or
     otherwise retired, in the event of:

               (i)    the occurrence of an Event of Default (as such term is
          defined in the Senior Secured Debt) and continuance thereof beyond any
          grace period provided in the Senior Secured Debt;

               (ii)   any acceleration of the maturity of any other indebtedness
          of the Grantor, or

               (iii)  the institution of any liquidation, dissolution,
          bankruptcy, insolvency or similar proceeding relating to the Grantor,
          its property, or its creditors as such,

the holders of the Exchange Notes and the Convertible Subordinated Debt
Purchasers shall not be entitled to receive and, by execution and delivery of
the Exchange Notes Indenture or the Subordinated Debt Indenture, as the case may
be, the Senior Debt Trustee and the Subordinated Debt Trustee, on behalf of the
holders of the Exchange Notes and the Convertible Subordinated Debt Purchasers,
agree not to accept, any payment of principal or interest until all amounts
owing in respect of the Senior Secured Debt shall have been paid in full; and
from and after the happening of any event described in clause (iii) of this
subsection (a) of Section 11, all payments and distributions of any kind or
                  ----------
character (whether in cash, securities or property) which, except for the
provisions hereof, would have been payable or distributable to or for the
benefit of the holders of the Exchange Notes or the Convertible Subordinated
Debt Purchasers, shall be made to and for the benefit of the Senior Secured Debt
Purchasers (who shall be entitled to make all necessary claims therefore) in
accordance with the priorities of payment set forth herein until all Senior
Secured Debt shall have been paid in full. In the event that any payment or
distribution is made with respect to the Exchange

                                       13
<PAGE>

Notes or the Convertible Subordinated Debt in violation of the terms hereof, any
Secured Party receiving such payment or distribution shall (and, by acceptance
of the Exchange Notes or the Convertible Subordinated Debt, agrees to) hold it
in trust for the benefit of, and shall remit it to, the Senior Secured Debt
Purchasers in accordance with the priorities of payment set forth herein.

          (b)  From and after all Senior Secured Debt shall have been paid in
     full, exchanged for Exchange Notes or otherwise retired, and until the
     Exchange Notes shall have been paid in full or otherwise retired, in the
     event of:

               (i)    the occurrence of an Event of Default (as such term is
          defined in the Exchange Notes Indenture) and continuance thereof
          beyond any grace period provided in the Exchange Notes Indenture;

               (ii)   any acceleration of the maturity of any other indebtedness
          of the Grantor, or

               (iii)  the institution of any liquidation, dissolution,
          bankruptcy, insolvency or similar proceeding relating to the Grantor,
          its property, or its creditors as such,

the Convertible Subordinated Debt Purchasers shall not be entitled to receive
and, by execution and delivery of the Subordinated Debt Indenture, the
Subordinated Debt Trustee, on behalf of the holders of the Convertible
Subordinated Debt agree not to accept, any payment of principal or interest
until all amounts owing in respect of the Exchange Notes shall have been paid in
full; and from and after the happening of any event described in clause (iii) of
this subsection (b) of Section 11, all payments and distributions of any kind
                       ----------
or character (whether in cash, securities or property) which, except for the
provisions hereof, would have been payable or distributable to or for the
benefit of the Convertible Subordinated Debt Purchasers, shall be made to and
for the benefit of the holders of the Exchange Notes (who shall be entitled to
make all necessary claims therefore) in accordance with the priorities of
payment set forth herein until all Exchange Notes shall have been paid in full.
In the event that any payment or distribution is made with respect to the
Convertible Subordinated Debt in violation of the terms hereof, any Secured
Party hereof receiving such payment or distribution shall (and, by acceptance of
the Convertible Subordinated Debt, agrees to) hold it in trust for the benefit
of, and shall remit it to, the holders of the Exchange Notes in accordance with
the priorities of payment set forth herein.

     SECTION 12.  Status of Security Interests.
                  ----------------------------

          (a)  From and after the Debt Exchange Closing Date until all Senior
     Secured Debt shall have been paid in full, exchanged for Exchange Notes or
     otherwise retired, the Collateral Agent, the Senior Debt Trustee, the
     Subordinated Debt Trustee, and, by acceptance of the Senior Secured Debt,
     the Exchange Notes or the Convertible Subordinated Debt, as the case may
     be, the Senior Secured Debt Purchasers, the holders of Exchange Notes and
     the Convertible Subordinated Debt Purchasers hereby agree that

                                       14
<PAGE>

     (i) all of the Senior Secured Debt Purchasers' security interests, liens,
     and other collateral interests in the Collateral and all of the Senior
     Secured Debt Purchasers' rights and remedies, under law, agreement, or
     otherwise, exercisable pursuant thereto (all of which interests and rights
     are herein called the "Senior Rights") shall be senior and superior to (ii)
                            --------------
     all of the holders of the Exchange Notes', the Senior Debt Trustee's, the
     Convertible Subordinated Debt Purchasers' and the Subordinated Debt
     Trustee's security interests, liens and other collateral interests in the
     Collateral and all of the holders of Exchange Notes', the Senior Debt
     Trustee's, the Convertible Subordinated Debt Purchasers' and the
     Subordinated Debt Trustee's rights and remedies, under law, agreement or
     otherwise, exercisable pursuant thereto (all of which interests and rights
     are herein called the "Junior Rights").
                            -------------

          (b)  From and after all Senior Secured Debt shall have been paid in
     full, exchanged for Exchange Notes or otherwise retired and until the
     Exchange Notes have been paid in full or otherwise retired, the Collateral
     Agent, the Senior Debt Trustee, the Subordinated Debt Trustee and, by
     acceptance of the Convertible Subordinated Debt or the Exchange Notes, as
     the case may be, the Convertible Subordinated Debt Purchasers and the
     holders of Exchange Notes hereby agree that (i) all of the Senior Debt
     Trustee's and the holders of Exchange Notes' security interests, liens, and
     other collateral interests in the Collateral and all of the Senior Debt
     Trustee's and the holders of Exchange Notes' rights and remedies, under
     law, agreement, or otherwise, exercisable pursuant thereto (all of which
     interests and rights are herein called the "Senior Rights") shall be senior
                                                 -------------
     and superior to (ii) all of the Convertible Subordinated Debt Purchasers'
     and the Subordinated Debt Trustee's security interests, liens and other
     collateral interests in the Collateral and all of the Convertible
     Subordinated Debt Purchasers' and the Subordinated Debt Trustee's rights
     and remedies, under law, agreement or otherwise, exercisable pursuant
     thereto (all of which interests and rights are herein called the "Junior
                                                                       ------
     Rights").
     ------

          (c)  For purposes hereof, a party whose security interests are "senior
     and superior" (as described in Sections 12(a) and 12(b)) shall possess the
                                    --------------     -----
     right, in its absolute discretion, (i) to make all decisions on the
     disposition of any Collateral in which such party's security interests are
     "senior and superior" (including, without limitation, foreclosing on such
     collateral or refraining from foreclosing), notwithstanding that any or all
     of the Grantor's obligations to the holders of the Junior Rights (as
     defined for purposes of Sections 12(a) and 12(b), as applicable) may be due
                             --------------     -----
     and owing or the Grantor may be in default in any other manner with regard
     to its obligations to the holders of the Junior Rights, (ii) to exercise or
     not exercise all rights granted to such secured party with regard to all or
     any of such Collateral, (iii) to act on behalf of the holders of the Junior
     Rights as their agent, not, however, at the direction of the holders of the
     Junior Rights, but with full right and authority to make the judgments and
     to take the actions such agent would be permitted to accomplish in its own
     right with regard to its own Collateral pursuant to clauses (i) and (ii) of
     this sentence and (iv) to apply all proceeds obtained from Collateral on
     account of the Senior Rights (as defined for purposes of Sections 12(a) and
                                                              --------------
     12(b), as applicable), in such order as the holder of the Senior Rights
     -----
     shall determine.

     SECTION 13.  Agreement Available Only to Parties and Collateral Agent.
                  --------------------------------------------------------
Notwithstanding anything to the contrary herein, the parties hereto have entered
into this

                                       15
<PAGE>

Agreement solely for their own benefit and in order to establish solely with
respect to each other and not with respect to the Grantor their respective
rights to payment of the Secured Obligations, their respective rights to the
proceeds of the Collateral and their respective rights and priorities with
respect to certain other matters, all as more fully set forth herein. No person
or entity other than the parties hereto shall have any rights, whether as third
party beneficiary or otherwise, under this Agreement, and no agreement,
statement or provision of this Agreement shall be deemed to be an admission by
or against any of the parties hereto or be used by any person or entity, except
the parties hereto, for any purpose whatsoever.

     SECTION 14.  Rights Unaffected.  The relative rights of the parties
                  -----------------
herein in and to the Collateral set out in this Agreement shall be unaffected by
any consent or waiver with respect to, or renewal or extension of, the Secured
Obligations.

     SECTION 15.  Collateral Agent's Fees, Costs and Expenses.  Grantor agrees
                  -------------------------------------------
to pay such fees to the Collateral Agent as mutually agreed from time to time
and to pay all reasonable out-of-pocket costs and expenses of the Collateral
Agent.

     SECTION 16.  Remedies.  If any Event of Default shall have occurred and be
                  --------
continuing beyond any grace period applicable thereto:

          (a)  The Collateral Agent may exercise in respect of the Collateral,
     in addition to all other rights and remedies provided for herein or
     otherwise available to it under applicable law, all the rights and remedies
     of a secured party upon default under the Uniform Commercial Code (whether
     or not the Uniform Commercial Code applies to the affected Collateral) and
     also may (i) require the Grantor to, and the Grantor hereby agrees that it
     shall at its expense and upon request of the Collateral Agent forthwith,
     assemble all or part of the Collateral as directed by the Collateral Agent
     and make it available to the Collateral Agent at a place to be designated
     by the Collateral Agent that is reasonably convenient to both parties, and
     (ii) without notice, except as specified below, advertisement, hearing or
     process of law of any kind, sell the Collateral or any part thereof in one
     or more parcels free and clear of all rights and claims of the Grantor at
     public or private sale, for cash, on credit or for future delivery, and
     upon such other terms as the Collateral Agent may deem commercially
     reasonable. The Grantor agrees that, to the extent notice of sale shall be
     required by law, at least 10 Business Days' notice to the Grantor of the
     time and place of any public sale or the time after which any private sale
     is to be made shall constitute reasonable notification.

          (b)  All cash proceeds received in respect of any sale of, collection
     from, or other realization upon all or any part of the Collateral may be
     held by the Collateral Agent as collateral for, and/or then or at any time
     thereafter applied (after payment of any fees and expenses of the
     Collateral Agent) in whole or in part against, all or any part of the
     Secured Obligations. Any surplus of such cash or cash proceeds remaining
     after payment in full of all the Secured Obligations shall be promptly paid
     over to the Grantor or to whomsoever may be lawfully entitled to receive
     such surplus.

          (c)  The Collateral Agent is hereby authorized to comply with any
     limitation or restriction in connection with any sale of Collateral as it
     may be advised by counsel is

                                       16
<PAGE>

     necessary in order to (i) avoid any violation of applicable law (including,
     without limitation, compliance with such procedures as may restrict the
     number of prospective bidders and purchasers and/or further restrict such
     prospective bidders or purchasers to persons or entities who will represent
     and agree that they are purchasing for their own account for investment and
     not with a view to the distribution or resale of such Collateral) or (ii)
     obtain any required approval of the sale or of the purchase by any
     governmental regulatory authority or official.

     SECTION 17.  Establishing Required Noteholders.  In order to establish what
                  ---------------------------------
constitutes the Required Noteholders, the Collateral Agent may request from time
to time, and, by acceptance of the Senior Secured Debt, the Senior Secured Debt
Purchasers agree to provide, certificates setting forth the amount of the Senior
Secured Debt held or represented by each Senior Secured Debt Purchaser, which
certificates the Collateral Agent shall be entitled to rely on.

     SECTION 18.  Amendments: Waivers; Etc.  No amendment or waiver of any
                  ------------------------
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Collateral Agent and the Grantor, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

     SECTION 19.  Addresses for Notices.  All notices and other communications
                  ---------------------
provided to the parties hereto shall be in writing or by facsimile and
addressed, delivered or transmitted to such party at its address or facsimile
number set forth below its signature hereto or at such other address or
facsimile number as may be designated by such party in a notice to the other
parties.  Any notice, if mailed and properly addressed with postage prepaid or
if properly addressed and sent by pre-paid courier service, shall be deemed
given when received; any notice, if transmitted by facsimile, shall be deemed
given when transmitted.

     SECTION 20.  Continuing Security Interest; Assignments under the
                  ---------------------------------------------------
Recapitalization Agreement.  This Agreement shall create a continuing security
--------------------------
interest in the Collateral and shall: (a) remain in full force and effect until
all Secured Obligations have been paid in full, (b) be binding upon the Grantor,
its successors and assigns and (c) inure, together with the rights and remedies
of the Secured Parties hereunder, to the benefit of the Secured Parties and
their respective permitted successors, transferees and assigns.

     SECTION 21.  Termination.  When all Secured Obligations have been paid in
                  -----------
full, the security interest granted hereby shall terminate and all rights to the
Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof shall revert to the Grantor.  Upon the termination of any such
security interest, the Collateral Agent shall promptly return to the Grantor,
upon the Grantor's request and at the Grantor's expense, such of the Collateral
(and, in the case of a release, such of the released Collateral) held by the
Collateral Agent as shall not have been sold or otherwise applied pursuant to
the terms hereof.  The Collateral Agent will, at the Grantor's expense, execute
and deliver to the Grantor such other documents as the Grantor shall reasonably
request to evidence such termination or release, as the case may be.

                                       17
<PAGE>

     SECTION 22.  Governing Law; Terms.  THIS AGREEMENT SHALL BE GOVERNED BY AND
                  --------------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO CONFLICTS OF LAW PRINCIPLES, except to the extent that the validity or
perfection of the security interest hereunder, or remedies hereunder, in respect
of any particular Collateral are governed by the laws of a jurisdiction other
than the State of New York and except that the rights and duties of WTC shall be
governed by and construed in accordance with the laws of the State of Delaware.
Unless otherwise defined herein or in the Recapitalization Agreement, terms used
in Article 9 of the Uniform Commercial Code are used herein as therein defined.

     SECTION 23.  Severability of Provisions.  Any provision of this Agreement
                  --------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

     SECTION 24.  Counterparts.  This Agreement may be executed in any number of
                  ------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.  Delivery of an executed
counterpart of a signature page to this Agreement by facsimile shall be as
effective as delivery of a manually executed counterpart of this Agreement.

                                       18
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.

                              IMPERIAL CREDIT INDUSTRIES, INC.

                              By:
                                 -------------------------------------
                              Name:  H. Wayne Snavely
                              Title: Chief Executive Officer

                              Address:   23550 Hawthorne Boulevard
                                         Building 1, Suite 110
                                         Torrance, California 90505

                              Facsimile: (310) 791-373-9955

                              WILMINGTON TRUST COMPANY, in its capacity as
                              Collateral Agent on behalf of the Secured Parties

                              By:  /s/ Joesph B. Feil
                                 -------------------------------------
                              Name:  Joesph B. Feil
                              Title: Senior Financial Services Officer

                              Address:    1100 N. Market St.
                                          Wilmington, DE 19890

                              Facsimile:  302-651-8882
<PAGE>

EFFECTIVE ON THE DEBT EXCHANGE CLOSING DATE:

                                  CHASE MANHATTAN BANK AND TRUST COMPANY, N.A.,
                                  as Senior Debt Trustee for the holders of
                                  Exchange Notes

                                  By:  /s/ Hans H. Helley
                                     ----------------------
                                  Name:  Hans H Helley
                                  Title: Vice President

                                  Address:
                                              ----------------------

                                              ----------------------

                                  Facsimile:
                                              ----------------------
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.

                              IMPERIAL CREDIT INDUSTRIES, INC.

                              By: /s/ H. Wayne Snavely
                                 -------------------------------------
                              Name:  H. Wayne Snavely
                              Title: Chief Executive Officer

                              Address:   23550 Hawthorne Boulevard
                                         Building 1, Suite 110
                                         Torrance, California 90505

                              Facsimile: (310) 791-373-9955

                              WILMINGTON TRUST COMPANY, in its capacity as
                              Collateral Agent on behalf of the Secured Parties

                              By:
                                 -------------------------------------
                              Name:  Dan Reser
                              Title: Vice President

                              Address:
                                          ----------------------

                                          ----------------------
                              Facsimile:
                                          ----------------------
<PAGE>

EFFECTIVE ON THE SUBORDINATED DEBT PLACEMENT CLOSING DATE

                              CHASE MANHATTAN BANK AND TRUST COMPANY, N.A., as
                              Subordinated Debt Trustee for the Convertible
                              Subordinated Debt Purchasers

                              By:  /s/ Hans H. Helley
                                 -------------------------------
                              Name:  Hans H Helley
                              Title: Vice President

                              Address:    101 California St. #3800
                                          San Francisco, CA 94111

                              Facsimile:  hanhhelley@chase.com
<PAGE>

                                   Schedule I

                                  Pledged Debt
                                  ------------

1.  Subordinated Note, dated March 31, 1997, issued to Imperial Credit
Industries, Inc. in the current principal amount of Twenty Million Dollars
($20,000,000), due and payable in full on March 31, 2007.
<PAGE>

                                  Schedule II

                               Pledged Securities
                               ------------------

<TABLE>
<CAPTION>
                                            Class of                Certificate            Number
   Issuer                                Capital Stock                Number             of Shares
   ------                               --------------              -----------          ---------

<S>                                  <C>                            <C>                <C>
Southern Pacific Bank               Series B Preferred Stock         PB-1                  36,000
Southern Pacific Bank               Series A Preferred Stock         PA-1                  50,000
Southern Pacific Bank                     Common Stock                 6                   75,000
Southern Pacific Bank                     Common Stock                 5                  125,000
Southern Pacific Bank                     Common Stock                 4                    8,334
</TABLE>
<PAGE>

                                  Schedule III

              Chief Place of Business and Chief Executive Office:

                           23550 Hawthorne Boulevard

                             Building 1, Suite 110

                           Torrance, California 90505

                       Federal Tax Identification Number:

                                  95-4054791
<PAGE>

                                  Schedule IV

                             Permitted Investments

(a)  Securities issued or guaranteed by the United States of America or any
     subdivision, agency or instrumentality thereof, or money market mutual
     funds that invest solely in such obligations.

(b)  Securities issued by any state or municipality within the United States of
     America rated Aa or higher by Moody's Investors Service, Inc. or AA or
     higher by Standard & Poor's Rating's Services, a division of The McGraw-
     Hill Companies, Inc. ("S&P").

(c)  Deposits in or certificates of deposit issued by a commercial bank which
     has combined capital and surplus in excess of $1 billion and which has, or
     the holding company of which has, a bond rating of at least A from Moody's
     Investors Service, Inc. or A1 by S&P.

(d)  Open market commercial paper rated P1 by Moody's Investors Service, Inc. or
     A1 by S&P.

(e)  Bankers' acceptances from banks referred to in paragraph (c) above.

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