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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-27314
CITYSCAPE FINANCIAL CORP.
Delaware 11-2994671
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
565 Taxter Road, Elmsford, New York 10523-5200
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(Address of principal executive offices, including zip code)
(914) 592-6677
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
42,062,462 shares $.01 par value, of
Common Stock, as of November 7, 1997
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CITYSCAPE FINANCIAL CORP.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Consolidated Statements of Financial Condition at September 30, 1997
and December 31, 1996 2
Consolidated Statements of Operations for the nine months
and three months ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION 25
</TABLE>
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CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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ASSETS
Cash and cash equivalents .......................................... $ 50,930,032 $ 2,107,285
Cash held in escrow ................................................ 17,345,345 15,038,729
Securities purchased under agreements to resell .................... 51,791,400 154,176,608
Available-for-sale securities ...................................... 13,273,976 14,618,194
Mortgage servicing receivables ..................................... 253,957,790 242,895,313
Trading securities ................................................. 178,641,413 103,199,936
Prepaid commitment fees ............................................ 32,399,000 35,917,000
Mortgage loans held for sale, net .................................. 104,098,592 102,222,184
Mortgage loans held for investment, net ............................ 20,812,861 8,270,618
Credit enhancement deposits ........................................ 44,952,000 35,082,000
Equipment and leasehold improvements, net .......................... 18,516,869 13,947,037
Goodwill ........................................................... 52,744,453 47,466,835
Other Assets ....................................................... 38,818,618 35,260,620
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Total assets ..................................................... $878,282,349 $810,202,359
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LIABILITIES
Warehouse financing facilities ..................................... $ 73,266,618 $ 89,434,291
Securities sold but not yet purchased .............................. 51,828,125 152,862,526
Accounts payable and other liabilities ............................. 77,850,097 50,244,387
Allowance for losses ............................................... 31,995,373 33,715,614
Income taxes payable ............................................... 14,933,728 56,896,337
Standby financing facility ......................................... -- 7,966,292
Notes and loans payable ............................................ 300,000,000 136,520,719
Convertible subordinated debentures ................................ 129,620,000 143,730,000
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Total liabilities ................................................ 679,493,941 671,370,166
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized;
7,575 issued and outstanding at September 30, 1997 ............... 76 --
Common stock, $.01 par value, 100,000,000 shares authorized;
32,941,177 and 29,649,133 issued and outstanding at September 30,
1997 and December 31, 1996, respectively ......................... 329,412 296,491
Additional paid-in capital ......................................... 177,699,675 57,782,609
Foreign currency translation adjustment, net of taxes .............. 1,479,830 9,765,137
Unrealized gain on available-for-sale securities, net of taxes ..... 7,559,032 8,328,950
Retained earnings .................................................. 11,720,383 62,659,006
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Total stockholders' equity ....................................... 198,788,408 138,832,193
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COMMITMENTS AND CONTINGENCIES
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Total liabilities and stockholders' equity ....................... $878,282,349 $810,202,359
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</TABLE>
See accompanying notes to consolidated financial statements.
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CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES
Gain on sale of loans ........................................ $ 36,721,841 $ 45,327,543 $ 163,031,010 $ 98,637,249
Net unrealized loss on valuation of residuals................. (95,149,611) -- (110,149,611) --
Interest ..................................................... 21,911,044 7,502,251 57,644,765 16,980,622
Mortgage origination income................................... 1,390,507 467,357 3,604,777 2,659,006
Other ........................................................ 8,628,146 4,972,780 19,076,472 7,224,823
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Total revenues.............................................. (26,498,073) 58,269,931 133,207,413 125,501,700
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EXPENSES
Salaries and employee benefits ............................... 19,813,996 10,735,791 51,759,753 25,288,379
Interest expense ............................................. 18,572,084 5,530,319 55,278,160 11,912,046
Selling expenses ............................................. 13,962,014 9,342,521 39,415,476 13,717,427
Other operating expenses...................................... 18,702,424 6,479,263 43,557,900 12,503,838
Provision for loan losses..................................... 16,011,233 -- 17,178,919 --
Amortization of goodwill ..................................... 1,551,794 1,271,944 4,110,382 2,474,224
------------ ------------ ------------- -------------
Total expenses ............................................. 88,613,545 33,359,838 211,300,590 65,895,914
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(Loss) earnings before income taxes and extraordinary item... (115,111,618) 24,910,093 (78,093,177) 59,605,786
Tax (benefit) provision ...................................... (45,468,916) 10,495,256 (28,831,743) 24,791,809
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(Loss) earnings before extraordinary item .................... (69,642,702) 14,414,837 (49,261,434) 34,813,977
Gain from extinguishment of debt, net of taxes................ -- -- 425,000 --
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Net (loss) earnings............................................. (69,642,702) 14,414,837 (48,836,434) 34,813,977
Preferred stock dividends ...................................... 1,035,315 -- 2,102,189 --
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NET (LOSS) EARNINGS APPLICABLE TO COMMON STOCK.................. $ (70,678,017) $ 14,414,837 $ (50,938,623) $ 34,813,977
============= ============ ============= =============
Net earnings (loss) per share:
Primary ...................................................... $ (2.18)(1)$ 0.47 $ (1.64)(1)$ 1.14
============= ============ ============= =============
Fully diluted................................................. (2.18)(1)$ 0.43 $ (1.64)(1)$ 1.11
============= ============ ============= =============
Weighted average number of shares outstanding and common
stock equivalents:
Primary........................................................ 32,347,137(1) 30,914,069 31,006,202(1) 30,430,599
============= ============ ============= =============
Fully diluted.................................................. 32,347,137(1) 36,390,259 31,006,202(1) 33,423,898
============= ============ ============= =============
</TABLE>
(1) Common stock equivalents are excluded from these computations because their
effect would be anti-dilutive since an increase in the number of shares
outstanding would reduce the amount of loss per share. Thus, only the
weighted average number of shares outstanding for the respective period are
used in the calculation.
See accompanying notes to consolidated financial statements.
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CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
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Cash flows from operating activities:
Net earnings (loss) $ (48,836,434) $ 34,813,977
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 9,944,894 4,927,965
Income taxes payable (44,342,208) 42,577,278
Increase in mortgage servicing receivables (11,062,477) (106,974,312)
Increase in trading securities (75,441,477) (63,915,545)
Net purchases of securities under agreements to resell 102,385,208 --
Proceeds from securities sold but not yet purchased (101,034,401) --
Proceeds from sale of mortgages 1,623,489,221 1,241,900,000
Mortgage origination funds disbursed (1,637,907,872) (1,267,687,857)
Increase in credit enhancement deposits (9,870,000) --
Other, net 31,453,503 2,135,161
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Net cash used in operating activities (161,222,043) (112,223,333)
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Cash flows from investing activities:
Acquisitions (15,496,961) (89,102,097)
Purchases of equipment (6,982,133) (8,690,675)
Proceeds from equipment sale and lease-back financing 1,776,283 --
Proceeds from sale of available-for-sale securities 2,254,232 --
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Net cash used in investing activities (18,448,579) (97,792,772)
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Cash floiws from financing activities:
Increase (decrease) in warehouse financings (16,167,673) 65,933,830
Increase (decrease) in standby financing facility (7,966,292) 5,770,739
Proceeds from notes and loans payable 49,000,000 --
Repayment of notes and loans payable (185,702,843) --
Net proceeds from issuance of subordinated debentures -- 139,134,125
Net proceeds from issuance of common stock 321,319 244,106
Net proceeds from issuance of preferred stock 98,249,950 --
Net proceeds from issuance of senior notes 290,758,908 --
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Net cash provided by financing activities 228,493,369 211,082,800
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Net increase in cash and cash equivalents 48,822,747 1,066,695
Cash and cash equivalents at beginning of period 2,107,285 3,598,549
--------------- ---------------
Cash and cash equivalents at end of period $ 50,930,032 $ 4,665,244
=============== ===============
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 4,856,056 $ 8,481,979
=============== ===============
Interest paid during the period $ 27,710,967 $ 3,975,483
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CITYSCAPE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. Organization
Cityscape Financial Corp. ("Cityscape" or the "Company") is a consumer
finance company that, through its wholly-owned subsidiary, Cityscape Corp.
("CSC"), engages in the business of originating, purchasing, selling and
servicing mortgage loans secured primarily by one- to four-family residences.
The majority of the Company's loans are made to owners of single family
residences who use the loan proceeds for such purposes as debt consolidation,
financing of home improvements and educational expenditures, among others. In
the US, the Company is licensed or registered to do business in 46 states and
the District of Columbia. The Company commenced operations in the United Kingdom
in May 1995 with the formation of City Mortgage Corporation Limited ("CSC-UK"),
an English corporation that originates, sells and services loans in England,
Scotland and Wales in which the Company initially held a 50% interest and
subsequently purchased the remaining 50% (see Note 3). CSC-UK had no operations
and no predecessor operations prior to May 1995.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals considered necessary for a
fair presentation of the results for the interim period have been included.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. The accompanying consolidated financial statements and the
information included under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" should be read in conjunction
with the consolidated financial statements and related notes of the Company for
the year ended December 31, 1996.
The consolidated financial statements of the Company include the
accounts of CSC and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The CSC
Acquisition, the UK Acquisition, the J&J Acquisition, the Greyfriars Acquisition
and the M&G Acquisition (as such terms are defined below) have been accounted
for under the purchase method of accounting and with respect to the CSC
Acquisition as a "reverse acquisition" as described in Note 3 below.
Certain amounts in the financial statements have been reclassified to
conform with the 1997 classifications.
3. Acquisitions
In April 1994, the Company acquired all of the capital stock of CSC in
an acquisition (the "CSC Acquisition") in which the shareholders of CSC acquired
beneficial ownership of 16,560,000 shares or 92% of the Company's Common Stock
(the "Common Stock"). In connection with the CSC Acquisition, the Company
changed its name to Cityscape Financial Corp. From the date of its formation
through the date of the CSC Acquisition, the Company's activities were limited
to (i) the sale of initial shares in connection with its organization, (ii) a
registered public offering of securities and (iii) the pursuit of a combination,
by merger or acquisition. The CSC Acquisition was effective as of January 1,
1994, for financial reporting purposes.
The CSC Acquisition and the issuance of Common Stock to the former CSC
shareholders resulted in the former shareholders of CSC obtaining a majority
voting interest in the Company. Generally accepted accounting principles require
that the company whose shareholders retain the majority interest in a combined
business be treated as the acquirer for accounting purposes. As a consequence,
the CSC
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Acquisition was accounted for as a "reverse acquisition" for financial reporting
purposes, and CSC was deemed to have acquired a 100% interest in the Company.
In January 1994, CSC acquired Astrum Funding Corp. ("Astrum") in
exchange for 6.3% of the outstanding shares of the Company. This transaction was
accounted for using the purchase method of accounting. The Astrum acquisition
resulted in the Company acquiring net assets of $1,185 and obtaining licenses to
act as a mortgage banker in 11 states in which it had not previously been
licensed. No additional fair market value was assigned to the net assets
received. Although the Company acquired the new licenses earlier than if it had
applied for licensing on its own, the Company assigned no value to such licenses
because they could have been obtained independently. Further, the Company
determined that due to the illiquidity of the Company's stock as well as the
relatively minimal interest granted to the Astrum shareholders, the Company's
stock had no fair value in excess of the net assets received in the acquisition.
In May 1995, the Company and three principals of a privately held
UK-based mortgage lender formed CSC-UK. CSC-UK operates in the United Kingdom
(excluding Northern Ireland, the "UK"), and lends to individuals who are unable
to obtain mortgage financing from conventional mortgage sources such as banks
and building societies ("Conventional UK Lenders") because of impaired or
unsubstantiated credit histories and/or unverifiable income. In September 1995,
the Company entered into an agreement with the three other shareholders of
CSC-UK and acquired the 50% interest in CSC-UK not then owned by the Company
through the issuance of 3,600,000 shares of the Common Stock valued at $21.6
million (the "UK Acquisition"). The UK Acquisition resulted in the recognition
of $19.7 million of goodwill which is being amortized using the straight-line
method over a life of ten years. In addition to the goodwill, the Company
acquired assets of $9.0 million, consisting primarily of mortgage servicing
receivables and assumed $4.1 million of liabilities. The UK Acquisition was
accounted for as a purchase transaction. No additional fair market value was
assigned to the net assets received in the UK Acquisition.
In April 1996, CSC-UK acquired all of the outstanding capital stock of
J&J Securities Limited, a London-based mortgage lender ("J&J"), in exchange for
(pounds)15.3 million ($23.3 million based on the Noon Buying Rate on the date of
such acquisition) in cash and 548,000 shares of the Common Stock valued at $9.8
million based upon the closing price of the Common Stock on the date of such
acquisition less a discount for restrictions on the resale of such stock and
incurred closing costs of $788,000 (the "J&J Acquisition"). J&J provides
primarily second lien mortgage loans to UK borrowers who, similar to the
Company's UK borrowers, are unable or unwilling to obtain mortgage financing
from Conventional UK Lenders. Pursuant to the J&J Acquisition, the Company
acquired assets with a fair value of $73.8 million consisting primarily of
mortgage loans of $73.0 million (inclusive of $21.8 million of value assigned to
the acquired mortgage servicing rights), and assumed liabilities with a fair
value of $45.1 million. The J&J Acquisition resulted in the recognition of $5.2
million of goodwill, which is being amortized using the straight-line method
over a life of ten years.
In June 1996, CSC-UK acquired all of the outstanding capital stock of
Greyfriars Group Limited, a mortgage lender based in Reading, England (formerly
known as Heritable Group Limited and referred to herein as "Greyfriars"), in
exchange for (pounds)41.8 million ($64.1 million based on the Noon Buying Rate
on the date of such acquisition) in cash and 99,362 shares of the Common Stock
valued at $2.5 million based upon the closing price of the Common Stock on the
date of such acquisition and incurred closing costs of $2.3 million (the
"Greyfriars Acquisition"). Greyfriars provides mortgage loans to borrowers that
generally have higher quality credit profiles than the Company's typical UK
borrowers. Pursuant to the Greyfriars Acquisition, the Company acquired assets
with a fair value of $225.4 million, consisting primarily of mortgage loans of
$221.2 million (inclusive of $29.2 million of value assigned to the acquired
mortgage servicing rights), and assumed liabilities with a fair value of $181.9
million. The Greyfriars Acquisition resulted in the recognition of $25.4 million
of goodwill, which is being amortized using the straight-line method over a life
of ten years.
In May 1997, CSC-UK acquired the assets of Midland & General PLC, a
London-based mortgage broker ("M&G"), in exchange for (pounds)6.5 million ($10.6
million based on the Noon Buying Rate on the date of such acquisition) (the "M&G
Acquisition"). Pursuant to the M&G Acquisition, the Company acquired assets with
a fair value of approximately $764,000, consisting primarily of property, plant
and equipment. The M&G Acquisition resulted in the recognition of $10.2 million
of goodwill, which is being amortized using the straight-line method over a life
of ten years. In connection with the M&G Acquisition, the
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Company entered into a five-year non-compete agreement with the former
principals of M&G for (pounds)3.0 million ($4.9 million), which is being
amortized using the straight-line method over a life of five years.
4. New Accounting Pronouncements
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities." SFAS No. 125 addresses the
accounting for all types of securitization transactions, securities lending and
repurchase agreements, collateralized borrowing arrangements and other
transactions involving the transfer of financial assets. SFAS No. 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 is generally effective for transactions
that occur after December 31, 1996, and it is to be applied prospectively. SFAS
No. 125 requires the Company to allocate the total cost of mortgage loans sold
to the mortgage loans sold (servicing released), retained certificates and
servicing rights based on their relative values. The pronouncement also requires
the Company to provide additional disclosure about the retained certificates.
The adoption of SFAS No. 125 has not had a material impact on the Company's gain
on sale from securitizations as they are currently structured.
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 128, "Earnings per Share" which simplifies the standards for
computing earnings per share previously found in Accounting Principles Board
Opinion No. 15, "Earnings per Share" and makes them comparable to international
earnings per share standards. SFAS No. 128 is effective for historical
statements issued for periods ending after December 15, 1997. The Company has
not completed its analysis of this statement.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 establishes disclosure
requirements regarding pertinent rights and privileges of outstanding
securities. Examples of disclosure items regarding securities include, though
are not limited to, items such as dividend and liquidation preferences,
participation rights, call prices and dates, conversion or exercise prices or
rates. The number of shares issued upon conversion, exercise or satisfaction of
required conditions during at least the most recent annual fiscal period and any
subsequent interim period must also be disclosed. Disclosure of liquidation
preferences of preferred stock in the equity section of the statement of
financial condition is also required. SFAS No. 129 is effective for financial
periods beginning after December 15, 1997. The Company has not completed its
analysis of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting on Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
historical statements issued for periods beginning after December 15, 1997.
The Company has not completed its analysis of this statement.
Additionally, in September 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement requires that a
public business enterprise report a measure of segment profit or loss, certain
specific revenue and expense items and segment assets. SFAS No. 131 is effective
for historical statements issued for periods beginning after December 15, 1997.
The Company has not completed its analysis of this statement.
5. Earnings Per Share
For the three months and nine months ended September 30, 1996, primary
earnings per share are based on the net earnings applicable to the Common Stock
divided by the weighted average number of Common Stock and Common Stock
equivalents outstanding during the period, after giving effect to a 100% stock
dividend effected in July 1996. For the three months and nine months ended
September 30, 1996, fully diluted earnings per share are based on the net
earnings applicable to the Common Stock adjusted for the after-tax interest
expense on the Convertible Debentures (as defined below), divided by the
weighted
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average number of Common Stock and Common Stock equivalents outstanding during
the period increased by the assumed conversion of the Convertible Debentures
into shares of the Common Stock (all figures give effect to a 100% stock
dividend in July 1996).
For the three months and nine months ended September 30, 1997, net loss
per share is computed by dividing the net loss applicable to the Common Stock by
the weighted average number of shares of the Common Stock outstanding during the
respective period. Common Stock equivalents are excluded from this computation
because their effect would be anti-dilutive since an increase in the number of
shares outstanding would reduce the amount of the loss per share.
6. 6% Convertible Preferred Stock, Series A
In April 1997, the Company completed the private placement of 5,000
shares of its 6% Convertible Preferred Stock, Series A (the "Series A Preferred
Stock"), with a liquidation preference (the "Liquidation Preference") of $10,000
per share, and related five-year warrants to purchase 500,000 shares of Common
Stock (the "Series A Warrants"). The Series A Preferred Stock is redeemable at
the option of the Company at a redemption price equal to 120% of the Liquidation
Preference under certain circumstances. The Series A Preferred Stock is
convertible into shares of Common Stock, subject to redemption rights, at a
conversion price equal to the lowest daily sales price of the Common Stock
during the four consecutive trading days immediately preceding such conversion,
discounted by up to 4% and subject to certain adjustments. As of November 7,
1997, an aggregate of 4,251 shares (2,425 shares as of September 30, 1997) of
the Series A Preferred Stock had been converted into an aggregate of 10,234,926
shares (2,161,198 shares as of September 30, 1997) of Common Stock. In June and
September 1997, preferred stock dividends of $509,698 and $394,833,
respectively, were paid to the holders of the Series A Preferred Stock in the
form of 26,307 shares and 41,556 shares of Common Stock. Additionally in June
and September 1997, there was recognition of the effect of a beneficial
conversion feature related to the Series A Preferred Stock of $557,176 and
$409,657, respectively. As of November 7, 1997, all Series A Warrants were
outstanding.
7. Conversion Transactions
In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its 6% Convertible Subordinated Debentures due
2006 (the "Convertible Debentures") resulting in the issuance upon conversion of
533,332 shares of the Common Stock (at a conversion price of $26.25 per share)
pursuant to the terms of the Convertible Debentures. To induce conversion, the
Company issued an additional 342,708 shares of Common Stock and paid the holders
of the induced Convertible Debentures $420,000 in cash. In the second quarter of
1997, these transactions resulted in the reduction of Convertible Debentures by
$14.0 million, a charge to interest expense of $4.7 million related to the fair
market value of the 342,708 inducement shares ($4.3 million) and the cash
payment and an increase in stockholders' equity of $18.3 million due to the
issuance of the conversion shares and the inducement shares. The net effect of
these transactions was an increase of $13.6 million to stockholders' equity in
the second quarter of 1997. As of November 7, 1997, an aggregate of $14.1
million of Convertible Debentures had been converted into Common Stock,
including the induced conversion described above.
8. Senior Notes
In May 1997, the Company issued $300.0 million aggregate principal
amount of 12 3/4% Senior Notes due September 1, 2004 (the "Notes") in a private
placement. The Notes are not redeemable prior to maturity except in limited
circumstances. In September 1997, the Company completed the exchange of all
outstanding Notes for a like principal amount of 12 3/4% Series A Senior Notes
due 2004 (the "New Notes"). The New Notes have the same terms as the Notes in
all material respects, except for certain transfer restrictions and registration
rights relating to the Notes.
9. 6% Convertible Preferred Stock, Series B
In September 1997, the Company completed the private placement of 5,000
shares of 6% Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), with a Liquidation Preference of $10,000 per share, and related
five-year warrants to purchase 500,000 shares of Common Stock (the "Series B
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Warrants"). The Series B Preferred Stock is convertible into shares of Common
Stock, subject to certain redemption rights and restrictions, at a conversion
price equal to the lowest daily sales price of the Common Stock during the four
consecutive trading days immediately preceding such conversion, discounted up to
4% and subject to certain adjustments. As of November 7, 1997, an aggregate of
151 shares of Series B Preferred Stock had been converted into an aggregate of
1,047,557 shares of Common Stock (no shares had been converted as of September
30, 1997). In September 1997, the Company accrued preferred stock dividends
payable in the amount of $125,000 and recognized the effect of a beneficial
conversion feature related to the Series B Preferred Stock of $105,825. As of
November 7, 1997, all Series B Warrants were outstanding.
10. Bear Stearns Warehouse Facility
In September 1997, the Company entered into a $300.0 million warehouse
facility with Bear Stearns Mortgage Capital Corporation under which the Company
borrows funds on a short-term basis to support the accumulation of loans prior
to sale. The Bear Stearns facility bears interest at LIBOR plus 125 basis points
(7.1% at September 30, 1997) and is for a term of one year, subject to certain
provisions. Each borrowing under the facility is subject to the lender's
approval, and the facility may be terminated by the lender upon 30 days prior
notice.
11. Legal Proceedings
On or about March 13,1997, the Company received a letter from the
Office of Fair Trading (the "OFT") which has responsibility for the granting
of consumer credit licenses in the UK to mortgage lenders and for the subsequent
monitoring of their activities to ensure continued fitness to hold such
licenses. The Company believes the letter was also sent to other lenders, as
well as intermediaries and other entities involved directly or indirectly in
the non-status lending market. The letter states that, when determining the
fitness of licensees, the OFT will consider whether the licensee or its
associates have engaged in business practices which appear to be inappropriate,
regardless of their legality. The letter specifically sets forth certain
practices deemed by the OFT to fall within such categories, including the
appropriateness of standard/concessionary rate structures, as well as the
calculation of prepayments using the Rule of 78s method. Following the receipt
of the letter, the Company commenced a review and evaluation of its practices
with respect to each issue raised in the letter and entered into discussions
with the OFT regarding its concerns raised in the letter.
On or about July 18,1997, the Director General of the OFT issued "Non-
Status Lending Guidelines for Lenders and Brokers" (the "Non-Status
Guidelines") that are applicable to mortgage lenders like CSC-UK that focus on
lending to individuals who are unable or unwilling to obtain mortgage financing
from conventional mortgage sources.
The Non-Status Guidelines highlight some of the main practices that the
OFT considers to be inappropriate, whether or not lawful. The OFT has stated
that if lenders and/or brokers continue these practices, the OFT will take
regulatory action against them. The majority of these practices are either (i)
not applicable to the Company's UK operations or (ii) practices in which the
Company believes itself to be in compliance with the Non-Status Guidelines. In
the Non-Status Guidelines, however, the OFT has announced that (i) dual interest
rate structures involving a large differential between the two interest rates
are inappropriate and should be discontinued and (ii) the Rule of 78s method of
calculating prepayments is inappropriate in the non-status lending market,
should be discontinued at the earliest opportunity and should not be applied to
existing loan agreements without some form of cap to ensure payments are not
excessive. Furthermore, the Non-Status Guidelines stress that lenders who wish
to recoup administrative costs associated with defaults should do so in
accordance with a published scale of charges and with respect to prepayments,
charges for early redemption should do no more than cover the lender's
unrecovered administrative and other costs incurred to the date of prepayment.
The Company has eliminated the concessionary/standard rate in its new
loan programs and replaced it with a single rate. The average single rate that
the Company charges is higher than the average concessionary rate and lower than
the average standard rate that the Company had charged previously. Since August
1997, the Company has discontinued originating loans that calculate prepayments
using the Rule of 78s method. The Company is calculating prepayments using
alternative methods in accordance with the Non-
9
<PAGE> 11
Status Guidelines. The Company believes its operations are substantially in
compliance with Non-Status Guidelines and is continuing its discussions with the
OFT regarding the effect of the Non-Status Guidelines on the Company's existing
loan agreements. No assurance can be given as to the outcome of such discussion
or that as a result of such discussions the Company's results of operations and
financial condition will not be materially and adversely affected.
During the first half of 1997, the Company commenced broadening its UK
product offerings with products that calculate prepayments without using the
Rule of 78s. The elimination of the concessionary/standard rate structure and
Rule of 78s method has had a negative impact on profit margins for the
Company's UK loans which could have a material adverse effect in future periods
on the Company's results of operations and financial condition, especially if
the Company is unsuccessful in its product-broadening efforts. In addition,
there can be no assurance as to the outcome of discussions with the OFT
regarding the Non-Status Guidelines relating to Rule of 78s calculations under
the Company's existing loan agreements or that the Company will not be required
to revise the terms of such loan agreements. Such revisions, if they occur,
will likely have a material adverse effect on the Company's results of
operations and financial condition.
On or about October 1, 1997, a putative class action lawsuit was filed
against the Company and two of its officers and directors in the United States
District Court for the Eastern District of New York (the "Ceasar Action") on
behalf of all purchasers of the Company's Common Stock during the period from
April 1, 1997 through August 15, 1997. On or about October 14, 1997, October 22,
1997, November 3, 1997 and November 12, 1997, four additional class action
complaints were filed against the same defendants, three in the same court and
one in the United States District Court for the Southern District of New York.
On or about October 28, 1997, the plaintiff in the Ceasar Action filed an
amended complaint naming three additional directors and officers as defendants.
The amended complaint in the Ceasar Action also extended the proposed class
period from November 4, 1996 through October 22, 1997.
In these actions, plaintiffs allege that Cityscape and its senior
officers engaged in securities fraud by affirmatively misrepresenting and
failing to disclose material information regarding the lending practices of
CSC-UK, and the impact that these lending practices would have on Cityscape's
financial results. Plaintiffs allege that a number of public filings and press
releases issued by the Company were false or misleading. In each of the
complaints, plaintiffs have asserted violations of Section 10(b) and Section
20(a) of the Securities Exchange Act of 1934. Plaintiffs seek unspecified
damages, including pre-judgment interest, attorneys' and accountants' fees and
court costs.
Although no assurance can be given as to the outcome of these lawsuits,
the Company believes that the allegations in each of these actions are without
merit and that its disclosures were proper, complete and accurate. Cityscape
intends to vigorously defend against these actions and seek their early
dismissal. These lawsuits, however, if decided in favor of all of the
plaintiffs, could have a material adverse effect on Cityscape.
In August 1997, the Company commenced an action in the Queen's Bench
Division of the English High Court against the proprietor and publisher of The
Times newspaper, an English national daily, Peter Stothard, the Editor of The
Times, and Gavin Lumsden, a journalist employed by The Times. This action is a
libel claim and arises from the publication of what the Company believes to be
untrue defamatory allegations in an article written by Gavin Lumsden and
published in The Times in August 1997. The Company claims damages and requests
an injunction against repetition of the defamatory allegations. The Times has
stated it will defend the proceedings and that its defense is due to be served
on November 17, 1997.
In October 1996, the Company received a request from the staff of the
Securities and Exchange Commission (the "Commission") for additional information
concerning the Company's voluntary restatement of its financial statements for
the quarter ended June 30, 1996. The request concerned the accounting related
to the J&J Acquisition and the Greyfriars Acquisition. The Company previously
disclosed that it was voluntarily supplying the requested information. In
mid-October 1997, the Commission authorized its staff to conduct a formal
investigation which, to date, has continued to focus on the issues surrounding
the restatementof the financial statements for the quarter ended June 30, 1996.
The Company is continuing to cooperate fully in this matter.
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<PAGE> 12
On October 27, 1997, the Company received requests from The Nasdaq
Stock Market for information regarding the Company's compliance with Nasdaq's
listing requirements and corporate governance rules. The Company is cooperating
fully in providing the requested information and believes it has
been and is in compliance with such requirements and rules. No assurance can be
given, however, as to the outcome of these inquiries.
12. Subsequent Events
In October 1997, the Company announced that it has retained Bear,
Stearns & Co. Inc. to explore strategic alternatives for the Company. The
Company anticipates having sufficient liquidity to fund its operations and meet
all of its obligations into the latter portion of the first quarter of 1998. The
Company's belief is based upon the successful implementation of a number of
initiatives to generate cash (such as the use of whole loan sales) and otherwise
operating in the ordinary course. Whole loan sales, unlike loan sales through
securtizations, are immediately cash flow positive, but will produce lower
margins and, therefore, will negatively impact the Company's earnings. When the
Company sells loans through whole loan sales it receives a cash premium at the
time of sale. Other potential initiatives include the sale for cash of the
Company's US home equity residual interests. The implementation of any of these
or other liquidity initiatives is likely to have a negative impact on the
Company's profitability. The Company's liquidity is dependent upon its
continued access to funding sources and can be negatively affected by a number
of factors including conditions in the whole loan sale market and the Company's
ability to sell certain assets. No assurances can be given as to such continued
access or the occurrence of such factors.
In October 1997, Moody's Investors Service Inc. ("Moody's") lowered its
rating of the Company's New Notes to Caa1 and of the Company's Convertible
Debentures to Caa3. Also in October 1997, Standard and Poor's Ratings Services
("S&P") lowered its ratings of the Company's New Notes and long-term
counterparty credit to CCC. S&P's ratings remain on "CreditWatch" with
developing implications.
In November 1997, Cityscape retained Ocwen Federal Bank FSB as special
loan servicer to sub-service approximately $75 million of the Company's
90-day-plus delinquent domestic loans. This agreement is subject to the
approval of certain of the Company's bond insurers and rating agencies. The
Company will remain as master servicer.
11
<PAGE> 13
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report on Form 10-Q, including the following Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors including, but
not limited to, risks related to operations in the UK, liquidity and negative
cash flows, uncertainty as to availability of funding sources, dependence on
securitizations, potential changes in valuations of interest-only and residual
certificates and mortgage servicing receivables, risks of adverse economic
conditions, risks related to recent expansion and product extension,
competition and other risks detailed from time to time in the Company's SEC
reports. The Company undertakes no obligation to release publicly any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of anticipated or unanticipated
events.
General
Overview
The Company is a consumer finance company engaged in the business of
originating, purchasing, selling and servicing mortgage loans secured primarily
by one- to four-family residences. The Company primarily generates income from
gain on sale of loans sold through securitizations, gains recognized from
premiums on loans sold through whole loan sales to institutional purchasers,
interest earned on loans held for sale, excess mortgage servicing receivables,
origination fees received as part of the loan application process and fees
earned on loans serviced. Gain on sale of loans includes gain on securitization
representing the fair value of the interest-only and residual certificates that
the Company receives upon the sale of loans through securitizations in the US,
which are reflected as trading securities, and the value of mortgage servicing
receivables that it recognizes through UK securitizations. Included in gain on
sale of loans is the present value of the differential between the interest rate
payable by an obligor on a loan over the interest rate passed through to the
purchaser acquiring an interest in such loan, less applicable recurring fees,
including the costs of credit enhancements and trustee fees. Gain on sale of
loans constituted approximately 67.0% (excluding a net unrealized loss of
$110.1 million) and 78.6% of total revenues for the nine months ended September
30, 1997 and 1996, respectively. The Company completed its first US
securitization in the first quarter of 1995 and its first UK securitization in
the first quarter of 1996. Although the Company anticipates that it will
continue to sell a portion of its loans through securitizations and into loan
purchase facilities, the Company intends to sell an increasing portion of its
loans in whole loan sales to institutional purchasers in order to improve
liquidity.
In October 1997, the Company announced that it has retained Bear,
Stearns & Co. Inc. to explore strategic alternatives for the Company. The
Company anticipates having sufficient liquidity to fund its operations and meet
all of its obligations into the latter portion of the first quarter of 1998. The
Company's belief is based upon the successful implementation of a number of
initiatives to generate cash (such as the use of whole loan sales) and otherwise
operating in the ordinary course. Whole loan sales, unlike loan sales through
securtizations, are immediately cash flow positive, but will produce lower
margins and, therefore, will negatively impact the Company's earnings. When the
Company sells loans through whole loan sales it receives a cash premium at the
time of sale. Other potential initiatives include the sale for cash of the
Company's US home equity residual interests. The implementation of any of these
or other liquidity initiatives is likely to have a negative impact on the
Company's profitability. The Company's liquidity is dependent upon its
continued access to funding sources and can be negatively affected by a number
of factors including conditions in the whole loan sale market and the Company's
ability to sell certain assets. No assurances can be given as to such continued
access or the occurence of such factors.
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<PAGE> 14
Results of Operations
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Total revenues decreased $84.8 million or 145.5% to ($26.5) million for
the three months ended September 30, 1997 from $58.3 million for the comparable
period in 1996. This decrease was due primarily to the recognition of a $95.1
million unrealized loss on the valuation of the Company's trading securities
which consist of the interest-only and residual class securities retained in the
Company's domestic securitizations (see below)and mortgage servicing
receivables. This decrease was partially offset by increased interest income
recognized as a result of higher averagen balances of mortgage servicing
receivables and higher average balances of loans held for sale. Excluding such
unrealized loss, total revenues increased $10.3 million or 17.7% to $68.6
million.
Gain on sale of loans decreased $8.6 million or 19.0% to $36.7 million for
the three months ended September 30, 1997 from $45.3 million for the comparable
period in 1996. This decrease was due primarily to lower average gains recorded
on US loan sales ($445.7 million of loan sales at a weighted average gain of
4.2% ($18.6 million) in the three months ended September 30, 1997 as compared to
$441.7 million of loan sales at a weighted average gain of 5.4% ($24.0 million)
in the comparable period in 1996). Additionally, the decrease was due to
CSC-UK's lower average gain on sale of loans of $18.1 million representing a
16.0% gain on the $112.9 million of loan sales in the three months ended
September 30, 1997 compared to gain on sale of loans of $21.3 million
representing a 31.6% gain on the $67.5 million of loan sales in the comparable
period in 1996. The decrease in the UK gain on sale margin was a result of the
Company's introduction of new loan products that target higher credit quality
borrowers and new loan products that provide for lower prepayment fees. The
decrease in the US gain on sale margin was primarily a result of lower average
gains recognized on the Company's core home equity product offset by increased
gains recognized on the Company's sale of its Sav*-A-Loan(R) product (loans to
homeowners with little or no equity in their property but who possess a
favorable credit profile and debt-to-income ratio) of $187.9 million at an
average net gain of 7.8%. The Sav*-A-Loan(R) product represented 42.2% of the
Company's US loan sales and 78.5% of the Company's US gain on sale of loans
during the third quarter of 1997. The increase was offset by higher premiums
paid on the Company's core home equity product correspondent originations,
increasing from an average of 5.24% for the third quarter of 1996 to 6.25% for
the third quarter of 1997.
The Company anticipates that the UK gain on sale margin may continue to
decrease in the future as a result of the introduction of new loan products. In
March 1997, the Company received a letter from the OFT which has responsibility
for the granting of consumer credit licenses to mortgage lenders and for the
subsequent monitoring of their activities to ensure continued fitness to hold
such licenses. The Company believes the letter was also sent to other lenders,
as well as intermediaries and other entities involved directly or indirectly in
the non-status lending market. The letter states that, when determining the
fitness of licensees, the OFT will consider whether the licensee or its
associates have engaged in business practices which appear to be inappropriate,
regardless of their legality. The letter specifically sets forth certain
practices deemed by the OFT to fall within such categories, including the
appropriateness of standard/concessionary rate structures, as well as the
calculation of prepayments using the Rule of 78s method. Following the receipt
of the letter, the Company commenced a review and evaluation of its practices
with respect to each issue raised in the letter and entered into discussions
with the OFT regarding its concerns raised in the letter.
14
<PAGE> 15
In July 1997, the Director General of the OFT issued the Non-Status
Guidelines that are applicable to mortgage lenders like CSC-UK that focus on
lending to individuals who are unable or unwilling to obtain mortgage financing
from conventional mortgage sources.
The Non-Status Guidelines highlight some of the main practices that the
OFT considers to be inappropriate, whether or not lawful. The OFT has stated
that if lenders and/or brokers continue these practices, the OFT will take
regulatory action against them. The majority of these practices are either (i)
not applicable to the Company's UK operations or (ii) practices in which the
Company believes itself to be in compliance with the Non-Status Guidelines. In
the Non-Status Guidelines, however, the OFT has announced that (i) dual interest
rate structures involving a large differential between the two interest rates
are inappropriate and should be discontinued and (ii) the Rule of 78s method of
calculating prepayments is inappropriate in the non-status lending market,
should be discontinued at the earliest opportunity and should not be applied to
existing loan agreements without some form of cap to ensure payments are not
excessive. Furthermore, the Non-Status Guidelines stress that lenders who wish
to recoup administrative costs associated with defaults should do so in
accordance with a published scale of charges and with respect to prepayments,
charges for early redemption should do no more than cover the lender's
unrecovered administrative and other costs incurred to the date of prepayment.
The Company has eliminated the concessionary/standard rate in its new loan
programs and replaced it with a single rate. The average single rate that the
Company charges is higher than the average concessionary rate and lower than the
average standard rate that the Company had charged previously. Since August
1997, the Company has discontinued originating loans that calculate prepayments
using the Rule of 78s method. The Company is calculating prepayments using
alternative methods in accordance with the Non-Status Guidelines. The Company
believes its operations are substantially in compliance with the Non-Status
Guidelines and is continuing its discussions with the OFT regarding the effect
of the Non-Status Guidelines on the Company's existing loan agreements. No
assurance can be given as to the outcome of such discussions or that as a result
of such discussions the Company's results of operations and financial condition
will not be materially and adversely affected.
During the first half of 1997, the Company commenced broadening its UK
product offerings with products that calculate prepayments without using the
Rule of 78s. The elimination of the concessionary/standard rate structure and
Rule of 78s method has had a negative impact on profit margins for the
Company's UK loans which could have a material adverse effect in future periods
on the Company's results of operations and financial condition, especially if
the Company is unsuccessful in its product-broadening efforts. In addition,
there can be no assurance as to the outcome of discussions with the OFT
regarding the Non-Status Guidelines relating to Rule of 78s calculations under
the Company's existing loan agreements or that the Company will not be required
to revise the terms of such loan agreements. Such revisions, if they occur,
will likely have a material adverse effect on the Company's results of
operations and financial condition.
As a result of the Company's initiatives to enhance liquidity, the Company
anticipates selling its interest-only and residual certificates on its US home
equity securitizations. In anticipation of such sale, the Company has valued
such residuals at the expected net realizable value based on a liquidation sale
and has recorded a $95.1 million loss adjustment. Previously, the Company
determined the fair value of these assets based on a discounted cash flow
analysis. Cash flows were estimated as the excess of the weighted average coupon
on each pool of mortgage loans sold over the sum of the pass-through interest
rate plus a normal servicing fee, a trustee fee and an insurance fee, over the
life of the mortgage loans. These cash flows are projected over the life of the
mortgage loans using prepayment, default and interest rate assumptions that
market participants would use for similar financial instruments subject to
prepayment, credit and interest rate risk and are discounted using an interest
rate that a purchaser unrelated to the seller of such a financial instrument
would demand. Additionally, in its review of the fair value of the
Sav*-A-Loan(R) residuals, management revised its assumptions used to calculate
the gain based upon the experience of its securitized Save-A-Loan pools as well
as information available in the marketplace for similar pools and accordingly
has increased the loss expectations and discount rate resulting in a $13.0
million writedown in value. During the quarter, the Company recorded a $22.0
million writedown of the UK mortgage servicing receivables primarily consisting
of a $12.9 million writedown due to greater than expected losses on its
January 1997 UK securitization than expected and an $8.0 million writedown due
to lower average blended interest rates on its dual rate loans. The lower
average blended interest rate
15
<PAGE> 16
results in part from the Company voluntarily extending the grace period in which
borrowers may be late prior to the Company enforcing the higher standard
interest rate provided for under the terms of such mortgages.
Interest income increased $14.4 million or 192.0% to $21.9 million for the
three months ended September 30, 1997 from $7.5 million for the comparable
period in 1996. This increase was due primarily to the increased balance of
loans held for sale during the three months ended September 30, 1997 resulting
from the increased loan origination and purchase volume during the period, as
well as the accretion of the discount recorded on higher average balances of
mortgage servicing receivables.
Mortgage origination income increased $923,150 or 197.5% to $1.4 million
for the three months ended September 30, 1997 from $467,357 for the comparable
period in 1996. This increase was due primarily to an increase in brokered
Sav*-A-Loan(R) production which generates higher average fees than the brokered
core home equity product.
Other income increased $3.6 million or 72.0% to $8.6 million for the three
months ended September 30, 1997 from $5.0 million in the comparable period in
1996 primarily as a result of increased UK commission income from the M&G
Acquisition in May 1997 as well as $2.6 million recognized on the
sale of 155,500 shares of common stock of IMC (as defined below) during the
third quarter of 1997.
Total expenses increased $55.2 million or 165.3% to $88.6 million for the
three months ended September 30, 1997 from $33.4 million for the comparable
period in 1996. This increase was due primarily to increased salaries of $9.1
million, increased interest expense of $13.1 million, increased selling expenses
of $4.7 million and increased operating expenses of $12.2 million related to
increased loan origination and purchase volume during the three months ended
September 30, 1997, as well as $16.0 million for loan loss provisions. Total
expenses as a percentage of total revenues (excluding the net unrealized loss of
$95.1 million) increased to 129.2% for the three months ended September 30,
1997 from 57.3% for the comparable period in 1996. During the third quarter of
1997, amortization of goodwill related to the UK Acquisition, the J&J
Acquisition, the Greyfriars Acquisition and the M&G Acquisition totaled $1.6
million.
Salaries and employee benefits increased $9.1 million or 85.0% to $19.8
million for the three months ended September 30, 1997 from $10.7 million for the
comparable period in 1996. This increase was due primarily to increased US
staffing levels to 916 employees at September 30, 1997 compared to 526 US
employees at September 30, 1996 and the increased UK staffing levels to 585 UK
employees at September 30, 1997 compared to 278 UK employees at September 30,
1996, resulting from the growth in loan origination and purchase volume,
geographic expansion and increased loans serviced, as well as the J&J
Acquisition, the Greyfriars Acquisition and the M&G Acquisition.
Interest expense increased $13.1 million or 238.2% to $18.6 million for
the three months ended September 30, 1997 from $5.5 million for the comparable
period in 1996. This increase was due primarily to the interest costs associated
with the higher average balance of long-term debt outstanding as well as
increased warehouse interest expense resulting from higher average warehouse
loans outstanding.
Selling expenses increased $4.7 million or 50.5% to $14.0 million for the
three months ended September 30, 1997 from $9.3 million for the comparable
period in 1996. This increase was due primarily to increased selling and
commission costs for UK loan originations (primarily as a result of higher
commissions paid to brokers who have entered into right of first refusal
agreements with the Company), as well as increased US selling costs to support
increased loan origination and purchase volume during the three months ended
September 30, 1997. The Company expects that the UK selling expenses will
decrease in the future as a result of lower commissions paid to brokers in
connection with the introduction of new lower margin loan products.
Other operating expenses increased $12.2 million or 187.7% to $18.7
million for the three months ended September 30, 1997 from $6.5 million for the
comparable period in 1996. This increase was due primarily to increased rents,
travel and entertainment which reflect costs associated with increased
staffing levels as well as increased professional fees resulting from the new
Non-Status Guidelines and other legal matters, as well as $1.6
million of restructuring and severance charges in the UK during the third
quarter.
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<PAGE> 17
Provision for loan losses of $16.0 million were recorded in the third
quarter of 1997 primarily consisting of a $10.8 million provision recorded in
connection with the expected liquidation sale of approximately $27.3 million of
non-performing US loans and $5.2 million provision recorded primarily in
connection with reserves taken against loans repurchased from UK
securitizations as a result of first payment defaults.
Net earnings (loss) applicable to common stock decreased $85.1 million or
591.0% to ($70.7) million for the three months ended September 30, 1997 from
$14.4 million for the comparable period in 1996. This decrease in net earnings
was due primarily to the $95.1 million unrealized loss on the valuation of the
Company's trading securities, as well as a provision for loan losses of $16.0
million. This was partially offset by increased revenues resulting from an
increase in US and UK loan origination and purchase volume and volume of loans
sold during the three months ended September 30, 1997.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Total revenues increased $7.7 million or 6.1% to $133.2 million for the
nine months ended September 30, 1997 from $125.5 million for the comparable
period in 1996. This increase was due primarily to higher gains on sale of loans
resulting from increased combined US and UK loan origination and purchase volume
and volume of loans sold compared to the prior period and increased interest
income resulting from higher average balances of loans held for sale, as well as
increased discount accretion recognized on higher average balances of mortgage
servicing receivables partially offset by the recognition of a $110.1 million
unrealized loss on the valuation of the Company's trading securities. Excluding
such unrealized loss, total revenues increased $117.8 million or 93.9% to $243.3
million.
Gain on sale of loans increased $64.4 million or 65.3% to $163.0 million
for the nine months ended September 30, 1997 from $98.6 million for the
comparable period in 1996. This increase was due primarily to increased volume
of US loan sales at higher average gains ($1.3 billion of loan sales at a
weighted average gain of 6.4% ($81.8 million) in the nine months ended September
30, 1997 as compared to $898.4 million of loan sales at a weighted average gain
of 5.5% ($49.8 million) in the comparable period in 1996). Additionally, the
increase was due to CSC-UK's gain on sale of loans of $81.2 million,
representing a 23.3% gain on the $348.0 million of loan sales in the nine months
ended September 30, 1997 compared to gain on sale of loans of $48.8 million,
representing a 36.0% gain on the $135.4 million of loan sales (excluding $201.1
million of loan sales for loans acquired as a result of the J&J Acquisition and
the Greyfriars Acquisition) in the comparable period in 1996. The decrease in
the UK gain on sale margin was a result of the Company's introduction of new
loan products that target higher credit quality borrowers and new loan products
that provide for lower prepayment fees. The increase in the US gain on sale
margin was primarily a result of higher average gains recognized on the
Company's sale of its Sav*-A-Loan(R) product of $509.1 million at an average net
gain of 9.3%. The Sav*-A-Loan(R) product represented 39.9% of the Company's US
loan sales and 57.9% of the Company's US gain on sale of loans during the first
nine months of 1997. The increase was partially offset by higher premiums paid
on the Company's core home equity product correspondent originations,
increasing from an average of 5.27% for the first nine months of 1996 to 6.12%
for the first nine months of 1997. The Company anticipates that the UK gain on
sale margin will continue to decrease in the future as a result of the
introduction of new loan products and as a result of the Company's
discontinuance of loans that utilize the Rule of 78s method commencing in
August 1997.
As a result of the Company's initiatives to enhance liquidity, the Company
anticipates selling its interest-only and residual certificates on its US home
equity securitizations. In anticipation of such sale, the Company has valued
such residuals at the expected net realizable value based on a liquidation sale
and has recorded a $110.1 million loss adjustment. Previously, the Company
determined the fair value of these assets based on a discounted cash flow
analysis. Cash flows were estimated as the excess of the weighted average coupon
on each pool of mortgage loans sold over the sum of the pass-through interest
rate plus a normal servicing fee, a trustee fee and an insurance fee, over the
life of the mortgage loans. These cash flows are projected over the life of the
mortgage loans using prepayment, default and interest rate assumptions that
market participants would use for similar financial instruments subject to
prepayment, credit and interest rate risk and are discounted using an interest
rate that a purchaser unrelated to the seller of such a financial instrument
would demand. Additionally, in its review of the fair value of the
Sav*-A-Loan(R) residuals, management revised its assumptions used to calculate
the gain based upon the experience of its securitized Sav*-A-Loan(R) pools as
well as information available in the marketplace for similar pools and
accordingly has increased the loss expectations and discount rate resulting in a
$13.0 million writedown
17
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in value. During the first nine months of 1997, the Company recorded a $22.0
million writedown of the UK mortgage servicing receivables primarily consisting
of a $12.9 million writedown due to greater than expected losses on its January
1997 UK securitization, and an $8.0 million writedown due to
lower than expected average blended interest rates on its dual rate loans. The
lower average blended interest rate results in part from the Company
voluntarily extending the grace period in which borrowers may be late prior to
the Company enforcing the higher standard interest rate provided for under the
terms of such mortgages. Also, a $15.0 million valuation allowance was taken to
increase reserves related to recorded mortgage servicing receivables due to the
new Non-Status Guidelines in the UK in the second quarter of 1997.
Interest income increased $40.6 million or 238.8% to $57.6 million for the
nine months ended September 30, 1997 from $17.0 million for the comparable
period in 1996. This increase was due primarily to the increased balance of
loans held for sale during the nine months ended September 30, 1997 resulting
from the increased loan origination and purchase volume during the period, as
well as the accretion of the discount recorded on higher average balances of
mortgage servicing receivables.
Mortgage origination income increased $0.9 million or 33.3% to $3.6
million for the nine months ended September 30, 1997 from $2.7 million for the
comparable period in 1996. This increase was due primarily to an increase in
brokered Sav*-A-Loan(R) production which generates higher average fees than the
brokered core home equity product.
Other income increased $11.9 million or 165.3% to $19.1 million for the
nine months ended September 30, 1997 from $7.2 million in the comparable period
in 1996 primarily as a result of increased insurance commission income realized
in the UK due to increased originations, commission income from the M&G
Acquisition in the UK, as well as $3.5 million recognized on the sale of
227,562 shares of common stock of IMC sold during the nine months ended
September 30, 1997.
Total expenses increased $145.4 million or 220.6% to $211.3 million for
the nine months ended September 30, 1997 from $65.9 million for the comparable
period in 1996. This increase was due primarily to increased salaries of $26.5
million, increased interest expense of $43.4 million, increased selling expenses
of $25.7 million and increased operating expenses of $31.1 million related to
increased loan origination and purchase volume during the nine months ended
September 30, 1997, as well as a provision for loan losses of $17.2 million.
Total expenses as a percentage of total revenues (excluding the net unrealized
loss of $110.1 million) increased to 86.8% for the nine months ended September
30, 1997 from 52.5% for the comparable period in 1996. During the first nine
months of 1997, amortization of goodwill related to the UK Acquisition, the J&J
Acquisition, the Greyfriars Acquisition and the M&G Acquisition totaled $4.1
million.
Salaries and employee benefits increased $26.5 million or 104.7% to $51.8
million for the nine months ended September 30, 1997 from $25.3 million for the
comparable period in 1996. This increase was due primarily to increased US
staffing levels to 916 employees at September 30, 1997 compared to 526 employees
at September 30, 1996 and increased UK staffing levels to 585 employees at
September 30, 1997 compared to 278 employees at September 30, 1996 resulting
from the growth in loan origination and purchase volume, geographic expansion
and increased loans serviced, as well as the J&J Acquisition, the Greyfriars
Acquisition and the M&G Acquisition.
Interest expense increased $43.4 million or 364.7% to $55.3 million for
the nine months ended September 30, 1997 from $11.9 million for the comparable
period in 1996. This increase was due primarily to the interest costs associated
with the higher average balance of long-term debt outstanding as well as
increased warehouse interest expense resulting from the higher average warehouse
loans outstanding.
Selling expenses increased $25.7 million or 187.6% to $39.4 million for
the nine months ended September 30, 1997 from $13.7 million for the comparable
period in 1996. This increase was due primarily to increased selling and
commission costs for UK loan originations (primarily as a result of the higher
commissions paid to brokers who have entered into right of first refusal
agreements with the Company) as well as increased US selling costs to
support increased loan origination and purchase volume during the nine months
ended September 30, 1997.
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Other operating expenses increased $31.1 million or 248.8% to $43.6
million for the nine months ended September 30, 1997 from $12.5 million for the
comparable period in 1996. This increase was due primarily to increased rents,
travel and entertainment which reflect costs associated with increased
staffing levels, as well as increased professional fees resulting from the new
Non-Status Guidelines and other legal matters, as well as $1.6 million of
restructuring and severance charges in the UK during 1997.
Provision for loan losses of $17.2 million were recorded primarily
consisting of a $10.8 million provision recorded in connection with the
expected liquidation sale of approximately $27.3 million of non-performing US
loans and $5.2 million in connection with reserves taken against loans
repurchased from UK securitizations as a result of first payment defaults.
Net earnings (loss) applicable to common stock decreased $85.7 million or
246.3% to ($50.9) million for the nine months ended September 30, 1997 from
$34.8 million for the comparable period in 1996. This decrease in net earnings
was due primarily to the $110.1 million unrealized loss on the valuation of the
Company's trading securities, as well as a provision for loan losses of $17.2
million. This was partially offset by increased revenues resulting from an
increase in US and UK loan origination and purchase volume and volume of loans
sold during the nine months ended September 30, 1997.
Financial Condition
September 30, 1997 Compared to December 31, 1996
Cash and cash equivalents increased $48.8 million to $50.9 million at
September 30, 1997 from $2.1 million at December 31, 1996. This increase was due
primarily to the issuance of the Series A Preferred Stock in April 1997 with net
proceeds of $49.3 million, the issuance of the $300.0 million of Notes in May
1997 and the issuance of the Series B Preferred Stock in September 1997 with net
proceeds of approximately $49.0 million. This increase in cash was partially
offset by the repayment of $150.0 million outstanding under a senior secured
credit facility, a $25.0 million note related to the UK Greenwich Facility, $6.4
million of premium advances under the US Greenwich Facility (as defined below),
$16.0 million outstanding under the working capital portion of the UK Greenwich
Facility (as defined below) and $5.0 million under the Bank of Boston Facility
(as defined below).
Securities purchased under agreements to resell decreased $102.4 million
or 66.4% to $51.8 million at September 30, 1997 as compared to $154.2 million at
December 31, 1996. Securities purchased under agreements to resell represent US
Treasury securities borrowed to facilitate the delivery of US Treasury
securities sold short as part of the Company's strategy to manage interest rate
risk on loan originations. This decrease was due to the closing of several of
the Company's open positions prior to September 30, 1997.
Available-for-sale securities represents the fair value of the 863,348
shares of common stock of IMC Mortgage Company ("IMC") owned by the Company at
September 30, 1997. Available-for-sale securities decreased $1.3 million or 8.9%
to $13.3 million at September 30, 1997 from $14.6 million at December 31, 1996
primarily due to the Company selling 155,500 shares of common stock of IMC. In
October 1997, the Company sold its remaining shares of IMC common stock for net
proceeds of $14.6 million.
Mortgage servicing receivables increased $16.4 million or 6.8% to $259.3
million at September 30, 1997 from $242.9 million at December 31, 1996. The
increase primarily represents $92.9 million of mortgage servicing receivables
recognized as a result of loans sold in the UK and the US with servicing rights
retained, partially offset by a $45.4 million valuation allowance and
amortization of $26.8 million.
Trading securities, which consist of interest-only and residual
certificates, increased $70.1 million or 67.9% to $173.3 million at September
30, 1997 from $103.2 million at December 31, 1996. This increase was primarily
due to the recognition of $140.4 million of trading securities as a result of
$1.1 billion of US securitizations completed during the nine months ended
September 30, 1997, offset by the recording of $110.1 million loss adjustment
related to such securities.
Prepaid commitment fees, which represent a fee paid to Greenwich (as
defined below) as a result of the UK Greenwich Facility entered into by CSC-UK
and Greenwich in March 1996, decreased $3.5
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million or 9.8% to $32.4 million at September 30, 1997 from $35.9 million at
December 31, 1996 as a result of the amortization of such fee over the 20-year
life of the UK Greenwich Facility.
Mortgage loans held for sale, net increased $1.9 million or 1.9% to $104.1
million at September 30, 1997 from $102.2 million at December 31, 1996. This
increase was due primarily to the volume of US loans originated exceeding loan
sale volume in the US during the nine months ended September 30, 1997. Included
in mortgage loans held for sale are $38.5 million and $12.8 million of
self-funded loans as of September 30, 1997 and December 31, 1996, respectively.
Mortgage loans held for investment, net increased $12.5 million or 150.6%
to $20.8 million at September 30, 1997 from $8.3 million at December 31, 1996.
This increase was due primarily to US loan repurchases totalling $25.8 million
of reserves and UK loan repurchases of $7.0 million primarily as a result of
first payment defaults offset by $17.2 million of valuation allowances taken
during 1997.
Credit enhancement deposits, which represent initial reserve funds
established on UK securitizations and sales into purchase facilities, increased
$9.9 million or 28.2% to $45.0 million at September 30, 1997 from $35.1 million
at December 31, 1996. This increase represents credit enhancements related to
$264.4 million of UK securitizations completed during the first nine months of
1997.
Goodwill, net of amortization, increased $5.2 million or 10.9% to $52.7
million at September 30, 1997 from $47.5 million at December 31, 1996. This
increase was due primarily to the recording of $10.2 million of goodwill as a
result of the M&G Acquisition partially offset by the amortization of the
goodwill recorded in connection with the UK Acquisition, the J&J Acquisition,
the Greyfriars Acquisition and the M&G Acquisition.
Other assets increased $3.5 million or 9.9% to $38.8 million at September
30, 1997 from $35.3 million at December 31, 1996. This increase was due
primarily to deferred issuance costs of $9.6 million relating to the issuance of
the Notes, an increase in other assets in the UK to $10.9 million at
September 30, 1997 from $6.5 million at December 31, 1996 and an increase in
accounts receivable to $6.4 million at September 30, 1997 from $4.4 million at
December 31, 1996. This increase was partially offset by a decrease in
subwarehouse loans receivable from $14.9 million at December 31, 1996 to
$597,142 at September 30, 1997.
Warehouse financing facilities outstanding decreased $16.1 million or
18.0% to $73.3 million at September 30, 1997 from $89.4 million at December 31,
1996. This decrease was due primarily to the decrease of $14.9 million in
subwarehouse loans receivable from December 31, 1996 to September 30, 1997 and
the repayment of $16.0 million outstanding under the UK Greenwich Facility with
the proceeds of the Notes.
Securities sold but not yet purchased decreased $101.1 million or 66.1% to
$51.8 million at September 30, 1997 from $152.9 million at December 31, 1996.
Securities sold but not yet purchased represent US Treasury securities sold
short as part of the Company's strategy to manage interest rate risk on loan
originations.
Accounts payable and other liabilities increased $27.7 million or 55.2% to
$77.9 million at September 30, 1997 from $50.2 million at December 31, 1996.
This increase was due primarily to increased accrued interest expense related to
the $300.0 million of Notes issued in May 1997, increased accrued salaries and
professional fees, reserves for losses and escrow payable.
Allowance for losses decreased $1.7 million or 5.0% to $32.0 million at
September 30, 1997 from $33.7 million at December 31, 1996. This decrease was
due primarily to the transfer of US mortgage servicing receivables with $5.6
million of allowance for losses to trading securities as a result of US
securitization transactions, for which loss estimates are embedded in the
determination of the value of such assets. Excluding the impact of these
transfers, the Company's allowance for losses increased $3.9 million during the
first nine months of 1997.
Notes and loans payable increased $163.5 million or 119.8% to $300.0
million at September 30, 1997 from $136.5 million at December 31, 1996. This
increase was due to the issuance of the $300.0 million of Notes, partially
offset by the repayment of $150.0 million outstanding under a credit facility, a
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$25.0 million note related to the UK Greenwich Facility, $6.4 million of premium
advances under the US Greenwich Facility and $5.0 million under the Bank of
Boston Facility.
Stockholders' equity increased $60.0 million or 43.2% to $198.8 million at
September 30, 1997 from $138.8 million at December 31, 1996 due primarily to an
increase in paid-in-capital of $119.9 million relating to the issuance of the
Series A Preferred Stock and the Series B Preferred Stock and the induced
conversion of $14.0 million of the Convertible Debentures, partially offset by a
net loss of $48.8 million and preferred stock dividends of $2.1 million and a
foreign currency translation adjustment net of taxes of $8.3 million.
Liquidity and Capital Resources
The Company's business requires substantial cash to support its operating
activities. The Company's principal cash requirements include the funding of
loan originations and purchases, payment of interest expenses, funding the
overcollateralization requirements for securitizations, operating expenses,
income taxes and capital expenditures. The Company uses its cash flow from whole
loan sales, loans sold through securitizations, capital markets offerings,
pre-funding mechanisms through securitizations, loan origination fees,
processing fees, net interest income and borrowings under its warehouse
facilities and UK purchase facility to meet its working capital needs and to
fund acquisitions.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans, are essential to the continuation of the
Company's ability to originate and purchase loans. As a result of increased loan
originations and purchases and its growing securitization program, the Company
has operated, and expects to continue to operate, on a negative cash flow basis.
During the nine months ended September 30, 1997 and 1996, the Company used
operating cash of $161.2 million and $112.2 million, respectively. Additionally,
during the nine months ended September 30, 1997 and 1996, the Company used cash
of $18.4 million and $97.8 million, respectively, in investing activities. The
Company's sale of loans through securitizations has resulted in a gain on sale
of loans through securitizations recognized by the Company. The recognition of
this gain on sale has a negative impact on the cash flow of the Company because
significant costs are incurred upon closing of the transactions giving rise to
such gain and the Company is required to pay income taxes on the gain on sale on
the UK securitizations in the period recognized, although the Company does not
receive the cash representing the gain until later periods as the related loans
are repaid or otherwise collected. During the same periods, the Company received
cash from financing activities of $228.5 million and $211.1 million,
respectively.
The Company is required to comply with various operating and financial
covenants as defined in the agreements described above, including maintaining an
adjusted leverage ratio of senior debt to adjusted tangible net worth of less
than 10:1 and an adjusted tangible net worth greater than $113.6 million
(subject to adjustment). The covenants in certain of the Company's sources of
funding also restrict actions by the Company and its subsidiaries, including,
among other things, (i) the incurrence and existence of indebtedness, (ii) the
incurrence and existence of liens or other encumbrances, (iii) the payment of
dividends and repurchases of capital stock, (iv) investments, loans and
advances, (v) the incurrence and existence of contingent obligations, (vi)
consolidations, mergers and sales of assets, (vii) the incurrence and existence
of payment restrictions affecting subsidiaries, (viii) certain transactions with
affiliates, (ix) changes in lines of businesses, (x) transfers of assets to
subsidiaries and (xi) the incurrence and existence of negative pledges. The
descriptions above of the covenants contained in the Company's credit facilities
and other sources of funding do not purport to be complete and are qualified in
their entirety by reference to the exhibits filed with or incorporated by
reference in the Company's Annual Report on Form 10-K or the Company's Quarterly
Reports on Form 10-Q. The continued availability of funds provided to the
Company under these agreements is subject to the Company's continued compliance
with these covenants. In addition, the Notes, the Convertible Debentures, the
Series A Preferred Stock and the Series B Preferred Stock permit the holders of
such securities to require the Company to purchase such securities upon a change
of control (as defined in the respective Indenture or Certificate of
Designations, as the case may be).
The Company's business requires continual access to short- and long-term
sources of debt and equity capital. There can be no assurance that existing
lines of credit can be extended or refinanced or that funds generated from
operations will be sufficient to satisfy such obligations.
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In October 1997, the Company announced that it has retained Bear, Stearns & Co.
Inc. to explore strategic alternatives for the Company. The Company anticipates
having sufficient liquidity to fund its operations and meet all of its
obligations into the latter portion of the first quarter of 1998. The Company's
belief is based upon the successful implementation of a number of initiatives
to generate cash (such as the use of whole loan sales) and otherwise operating
in the ordinary course. Whole loan sales, unlike loan sales through
securitizations, are immediately cash flow positive, but will produce lower
margins and, therefore, will negatively impact the Company's earnings. When the
Company sells loans through whole loan sales it receives a cash premium at the
time of sale. Other potential initiatives include the sale for cash of the
Company's US home equity residual interests. The implementation of any of these
or other liquidity initiatives is likely to have a negative impact on the
Company's profitability. The Company's liquidity is dependent upon its
continued access to funding sources and can be negatively affected by a number
of factors including conditions in the whole loan sale market and the Company's
ability to sell certain assets. No assurances can be given as to such continued
access or the occurrence of such factors.
In October 1997, Moody's lowered its rating of the Company's New Notes to
Caa1 and of the Company's Convertible Debentures to Caa3. Also in October 1997,
S&P lowered its ratings of the Company's New Notes and long-term counterparty
credit to CCC. S&P's ratings remain on "CreditWatch" with developing
implications. These reductions in the ratings of the Company's debt will likely
increase the Company's future borrowing costs.
Credit Facilities
Bear Stearns Facility. In September 1997, the Company entered into a
$300.0 million warehouse facility with Bear Stearns Mortgage Capital Corporation
(the "Bear Stearns Facility") under which the Company borrows funds on a
short-term basis to support the accumulation of loans prior to sale. The Bear
Stearns Facility bears interest at LIBOR plus 125 basis points (7.1% at
September 30, 1997) and is for a term of one year, subject to certain
provisions. Each borrowing under the facility is subject to the lender's
approval, and the facility may be terminated by the lender upon 30 days prior
notice. At September 30, 1997, $19.2 million was outstanding under the Bear
Stearns Facility.
CoreStates Warehouse Facility. The Company also borrows funds on a
short-term basis to support the accumulation of loans prior to sale under a
warehouse line of credit with a group of banks for which CoreStates Bank N.A.
("CoreStates") serves as agent (the "Warehouse Facility"). Pursuant to the
Warehouse Facility, the Company has available a secured revolving credit line of
$72.0 million as of September 30, 1997 to finance the Company's origination or
purchase of loans, pending sale to investors or for holding certain loans in its
own portfolio (the "Revolving Credit Line"). The amount available under such
line reduces to $27.5 million by November 28, 1997. The Revolving Credit Line is
settled on a revolving basis in conjunction with ongoing loan sales and bears
interest at a variable rate based on 25 basis points over the higher of either
the prime rate or the federal funds rate plus 50 basis points (8.75% at
September 30, 1997). The outstanding balance of this portion of the Warehouse
Facility was $53.9 million at September 30, 1997. The Revolving Credit Line
extends through November 30, 1997.
The Warehouse Facility also permits the Company to use up to 20.0% of the
Revolving Credit Line to provide subwarehouse lines of credit to certain loan
correspondents from whom the Company purchases loans. In July 1995, the Company
began lending funds on a short-term basis to assist in the funding of loans
originated by certain of the Company's loan correspondents. Each borrowing under
these subwarehouse credit lines has a term of not more than 30 days. The Company
requires personal guarantees of the credit line from the principals of the
related loan correspondents. At September 30, 1997, there was no aggregate
balance of loans outstanding under this program, with applications pending for
$20.0 million of loans.
Greenwich Warehouse Facility. The Company has a commitment from Greenwich
Capital Financial Products, Inc., an affiliate of Greenwich Capital Markets,
Inc. (referred to herein, including any affiliates as "Greenwich") to provide a
$400.0 million warehouse facility under which the Company borrows funds on a
short-term basis to support the accumulation of loans prior to sale. The
commitment provides that the Greenwich facility will bear interest at a rate of
LIBOR plus 150 basis points (7.34% at September 30, 1997) and will be for a term
of one year from the date of completion of a definitive agreement. Pending such
completion, the Company and Greenwich are operating under the terms of such
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commitment. No definitive agreement exists with respect to the new arrangement
nor can any assurance be given that a definitive agreement will be reached. As
of September 30, 1997, $93,711 was outstanding under this arrangement.
UK Purchase Facility. In March 1996, CSC-UK entered into a mortgage loan
purchase agreement with Greenwich effective as of January 1, 1996 (the "UK
Greenwich Facility"), that includes a working capital facility with respect to
the funding of variable rate, residential mortgage loans originated or purchased
by CSC-UK in the UK and terminated a previous facility with Greenwich. Pursuant
to the UK Greenwich Facility and with certain exceptions, CSC-UK sells all of
the loans it originates to Greenwich which must buy such loans. CSC-UK and/or
Greenwich subsequently resells these loans through whole loan sales or
securitizations. The UK Greenwich Facility includes a working capital facility
pursuant to which CSC-UK is advanced amounts based on a percentage of the
principal balance of loans originated or purchased by CSC-UK and sold to
Greenwich, which advance may not exceed (pounds)10.0 million in the aggregate
outstanding at any time. Outstanding amounts under this working capital facility
bear interest at a rate of LIBOR plus 255 basis points (8.39% at September 30,
1997). This agreement expires as to the working capital facility on December 31,
2000 and as to the purchase facility on December 31, 2015. Both CSC-UK and
Greenwich are prohibited from entering into substantially similar transactions
with other parties. CSC-UK agreed to pay a fee to Greenwich in connection with
the UK Greenwich Facility in the aggregate amount of $38.0 million evidenced by
two notes bearing interest at a rate of 6.2%, $13.0 million of which was paid in
December 1996 and $25.0 million of which was due in December 1997, but was paid
in May 1997. Due to the early extinguishment of debt, an extraordinary gain of
$425,000, net of taxes, was recognized in the second quarter of 1997. Such fee
is amortized over the life of the UK Greenwich Facility. There was no
outstanding balance under the working capital facility portion of the UK
Greenwich Facility at September 30, 1997.
Convertible Debentures
In May 1996, the Company issued $143.8 million of 6% Convertible
Subordinated Debentures due 2006 convertible at any time into shares of Common
Stock, currently at a conversion price of $26.25 per share, subject to
adjustment. The terms of the indenture governing the Convertible Debentures do
not limit the incurrence of additional indebtedness by the Company, nor do they
limit the Company's ability to make payments such as dividends. As of November
7, 1997, an aggregate of $14.1 million principal amount of Convertible
Debentures had been converted into Common Stock.
In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of Convertible Debentures resulting in the issuance
upon conversion of 533,332 shares of Common Stock (at a conversion price of
$26.25 per share) pursuant to the terms of the Convertible Debentures. To induce
conversion, the Company issued an additional 342,708 shares of Common Stock and
paid the holders of the induced Convertible Debentures $420,000 in cash. In the
second quarter of 1997, these transactions resulted in the reduction of
Convertible Debentures by $14.0 million, a charge to earnings of $4.7 million
related to the fair market value of such 342,708 inducement shares ($4.3
million) and such cash payment and an increase in stockholders' equity of $18.3
million due to the issuance of the conversion shares and the inducement shares.
The net effect of these transactions was an increase of $13.6 million to
stockholders' equity in the second quarter of 1997.
6% Convertible Preferred Stock, Series A
In April 1997, the Company completed the private placement of 5,000
shares of its Series A Preferred Stock, with a Liquidation Preference of
$10,000 per share, and related five-year warrants to purchase 500,000 shares of
Common Stock. The Series A Preferred Stock is redeemable at the option of the
Company at a redemption price equal to 120% of the Liquidation Preference under
certain circumstances. The Series A Preferred Stock is convertible into shares
of Common Stock, subject to redemption rights, at a conversion price equal to
the lowest daily sales price of the Common Stock during the four consecutive
trading days immediately preceding such conversion, discounted by up to 4% and
subject to certain adjustments. As of November 7, 1997, an aggregate of 4,251
shares (2,425 shares as of September 30, 1997) of Series A Preferred Stock had
been converted into an aggregate of 10,234,926 shares (2,161,198 shares as of
September 30, 1997) of Common Stock. In June and September 1997, preferred
stock dividends of $509,698 and $394,833, respectively, were paid to the
holders of the Series A
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Preferred Stock in the form of 26,307 shares and 41,556 shares of Common Stock.
Additionally in June and September 1997, there was recognition of the effect of
a beneficial conversion feature related to the Series A Preferred Stock of
$557,176 and $409,657, respectively. As of November 7, 1997, all Series A
Warrants were outstanding.
Senior Notes
In May 1997, the Company issued $300.0 million aggregate principal amount
of 12 3/4% Senior Notes due 2004 in a private placement. The Notes are not
redeemable prior to maturity except in limited circumstances. In September 1997,
the Company completed its offering to exchange all outstanding Notes for a like
principal amount of 12 3/4% Series A Senior Notes due 2004. The New Notes have
the same terms as the Notes in all material respects, except for certain
transfer restrictions and registration rights relating to the Notes.
6% Convertible Preferred Stock, Series B
In September 1997, the Company completed the private placement of 5,000
shares of its Series B Preferred Stock, with a Liquidation Preference of
$10,000 per share, and related five-year warrants to purchase 500,000 shares of
Common Stock. The Series B Preferred Stock is convertible into shares of
Common Stock, subject to certain redemption rights and restrictions, at a
conversion price equal to the lowest daily sales price of the Common Stock
during the four consecutive trading days immediately preceding such conversion,
discounted up to 4% and subject to certain adjustments. As of November 7, 1997,
an aggregate of 151 shares of the Series B Preferred Stock had been converted
into an aggregate of 1,047,557 shares of the Common Stock (no shares had been
converted as of September 30, 1997). In September 1997,
the Company accrued preferred stock dividends payable in the amount of
$125,000. and recognized the effect of a beneficial conversion feature related
to the Series B Preferred Stock of $105,825. As of November 7, 1997, all Series
B Warrants were outstanding.
All references herein to "$" are to United States dollars; all references
to "(pounds)" are to British Pounds Sterling. Unless otherwise specified,
translation of amounts from British Pounds Sterling to United States dollars has
been made herein using exchange rates at the end of the period for which the
relevant statements are prepared for balance sheet items and the weighted
average exchange rates for the relevant period for statement of operations
items, each based on the noon buying rate in New York City for cable transfers
in foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about March 13, 1997, the Company received a letter from the Office
of Fair Trading (the "OFT") which has responsibility for the granting of
consumer credit licenses to mortgage lenders and for the subsequent monitoring
of their activities to ensure continued fitness to hold such licenses. The
Company believes the letter was also sent to other lenders, as well as
intermediaries and other entities involved directly or indirectly in the
non-status lending market. The letter states that, when determining the fitness
of licensees, the OFT will consider whether the licensee or its associates have
engaged in business practices which appear to be inappropriate, regardless of
their legality. The letter specifically sets forth certain practices deemed by
the OFT to fall within such categories, including the appropriateness of
standard/concessionary rate structures, as well as the calculation of
prepayments using the Rule of 78s method. Following the receipt of the letter,
the Company commenced a review and evaluation of its practices with respect to
each issue raised in the letter and entered into discussions with the OFT
regarding its concerns raised in the letter.
On or about July 18, 1997, the Director General of the OFT issued
"Non-Status Lending Guidelines for Lenders and Brokers" (the "Non-Status
Guidelines") that are applicable to mortgage lenders like CSC-UK that focus on
lending to individuals who are unable or unwilling to obtain mortgage financing
from conventional mortgage sources.
The Non-Status Guidelines highlight some of the main practices that the
OFT considers to be inappropriate, whether or not lawful. The OFT has stated
that if lenders and/or brokers continue these practices, the OFT will take
regulatory action against them. The majority of these practices are either (i)
not applicable to the Company's UK operations or (ii) practices in which the
Company believes itself to be in compliance with the Non-Status Guidelines. In
the Non-Status Guidelines, however, the OFT has announced that (i) dual interest
rate structures involving a large differential between the two interest rates
are inappropriate and should be discontinued and (ii) the Rule of 78s method of
calculating prepayments is inappropriate in the non-status lending market,
should be discontinued at the earliest opportunity and should not be applied to
existing loan agreements without some form of cap to ensure payments are not
excessive. Furthermore, the Non-Status Guidelines stress that lenders who wish
to recoup administrative costs associated with defaults should do so in
accordance with a published scale of charges and with respect to prepayments,
charges for early redemption should do no more than cover the lender's
unrecovered administrative and other costs incurred to the date of prepayment.
The Company has eliminated the concessionary/standard rate in its new loan
programs and replaced it with a single rate. The average single rate that the
Company charges is higher than the average concessionary rate and lower than the
average standard rate that the Company had charged previously. Since August
1997, the Company has discontinued originating loans that calculate prepayments
using the Rule of 78s method. The Company is calculating prepayments using
alternative methods in accordance with the Non-Status Guidelines. The Company
believes its operations are substantially in compliance with Non-Status
Guidelines and is continuing its discussions with the OFT regarding the effect
of the Non-Status Guidelines on the Company's existing loan agreements. No
assurance can be given as to the outcome of such discussion or that as a result
of such discussions the Company's results of operations and financial condition
will not be materially and adversely affected.
During the first half of 1997, the Company commenced broadening its UK
product offerings with products that calculate prepayments without using the
Rule of 78s.The elimination of the concessionary/standard rate structure and
Rule of 78s method has had a negative impact on profit margins for the
Company's UK loans which could have a material adverse effect in future periods
on the Company's results of operations and financial condition, especially if
the Company is unsuccessful in its product-broadening efforts. In addition,
there can be no assurance as to the outcome of discussions with the OFT
regarding the Non-Status Guidelines relating to Rule of 78s calculations under
the Company's existing loan agreements or that the Company will not be required
to revise the terms of such loan agreements. Such revisions, if they occur,
will likely have a material adverse effect on the Company's results of
operations and financial condition.
25
<PAGE> 26
On or about October 1, 1997, a putative class action lawsuit was filed
against the Company and two of its officers and directors in the United States
District Court for the Eastern District of New York (the "Ceasar Action") on
behalf of all purchasers of the Company's Common Stock during the period from
April 1, 1997 through August 15, 1997. On or about October 14, 1997, October 22,
1997, November 3, 1997 and November 12, 1997, four additional class action
complaints were filed against the same defendants, three in the same court and
one in the United States District Court for the Southern District of New York.
On or about October 28, 1997, the plaintiff in the Ceasar Action filed an
amended complaint naming three additional directors and officers as defendants.
The amended complaint in the Ceasar Action also extended the proposed class
period from November 4, 1996 through October 22, 1997.
In these actions, plaintiffs allege that Cityscape and its senior officers
engaged in securities fraud by affirmatively misrepresenting and failing to
disclose material information regarding the lending practices of CSC-UK, and the
impact that these lending practices would have on Cityscape's financial results.
Plaintiffs allege that a number of public filings and press releases issued by
the Company were false or misleading. In each of the complaints, plaintiffs have
asserted violations of Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934. Plaintiffs seek unspecified damages, including
pre-judgment interest, attorneys' and accountants' fees and court costs.
Although no assurance can be given as to the outcome of these lawsuits,
the Company believes that the allegations in each of these actions are without
merit and that its disclosures were proper, complete and accurate. Cityscape
intends to vigorously defend against these actions and seek their early
dismissal. These lawsuits, however, if decided in favor of all of the
plaintiffs, could have a material adverse effect on Cityscape.
In August 1997, the Company commenced an action in the Queen's Bench
Division of the English High Court against the proprietor and publisher of The
Times newspaper, an English national daily, Peter Stothard, the Editor of The
Times, and Gavin Lumsden, a journalist employed by The Times. This action is a
libel claim, and arises from the publication of what the Company believes to be
untrue defamatory allegations in an article written by Gavin Lumsden and
published in The Times in August 1997. The Company claims damages and requests
an injunction against repetition of the defamatory allegations. The Times has
stated it will defend the proceedings and that its defense is due to be served
on November 17, 1997.
In October 1996, the Company received a request from the staff of the
Securities and Exchange Commission (the "Commission") for additional information
concerning the Company's voluntary restatement of its financial statements for
the quarter ended June 30, 1996. The request concerned the accounting related
to the J&J Acquisition and the Greyfriars Acquisition. The Company previously
disclosed that it was voluntarily supplying the requested information. In
mid-October 1997, the Commission authorized its staff to conduct a formal
investigation which, to date, has continued to focus on the issues surrounding
the restatement of the financial statements for the quarter ended June 30,
1996. The Company is continuing to cooperate fully in this matter.
On October 27, 1997, the Company received requests from The Nasdaq Stock
Market for information regarding the Company's compliance with Nasdaq's listing
requirements and corporate governance rules. The Company is cooperating fully
in providing the requested information and believes it has been and
is in compliance with such requirements and rules. No assurance can be given,
however, as to the outcome of these inquiries.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
26
<PAGE> 27
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.1 1997 Stock Option Plan, as amended, incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-8 as
filed with the Commission on September 19, 1997.
10.2* Amendment No. 6 to the Revolving Credit Agreement, dated as of
October 31, 1997 among CSC, the Company, CoreStates Bank, N.A. and
Harris Trust and Savings Bank.
10.3* Amendment No. 7 to the Revolving Credit Agreement, dated as of
October 31, 1997 among CSC, the Company, CoreStates Bank, N.A. and
Harris Trust and Savings Bank.
10.4* Master Financing Agreement, dated as September 4, 1997, among CSC
and Bear Stearns Mortgage Capital Corporation.
10.5* Custody Agreement, dated as of September 4, 1997, among CSC as the
Borrower, Bear Stearns Mortgage Capital Corporation as the Lender
and CoreStates Bank, N.A. as the Custodian.
10.6* Custody Agreement, dated as of September 4, 1997, among CSC as the
Borrower, Bear Stearns Mortgage Capital Corporation as the Lender
and First Trust National Association as the Custodian.
11.1* Computation of Earnings Per Share
27.1* Financial Data Schedule
- --------------------------
* Filed herewith
(b) Reports on Form 8-K
1) Form 8-K dated July 18, 1997 reporting that the OFT issued
"Non-Status Lending Guidelines for Lenders and Brokers" that are
applicable to mortgage bankers like CSC-UK.
2) Form 8-K dated August 4, 1997 reporting the Company's results for
the quarter ending June 30, 1997.
3) Form 8-K dated September 17, 1997 reporting the Company's private
placement of 5,000 shares of 6% Convertible Preferred Stock, Series
B.
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cityscape Financial Corp.
Date: November 14, 1997 By: /s/ Tim S. Ledwick
----------------- ----------------------------
Tim S. Ledwick
Title: Chief Financial Officer
(as chief accounting officer and
on behalf of the registrant)
28
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 6 TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT ("Amendment"), dated as of September 30, 1997, is by and
among CITYSCAPE CORP. (The "Borrower"), CITYSCAPE FINANCIAL CORP. (the
"Guarantor"), CORESTATES BANK, N.A. ("CoreStates") and HARRIS TRUST AND SAVINGS
BANK ("Harris"), (CoreStates and Harris are referred to individually as a "Bank"
and collectively as the "Banks"), and CORESTATES BANK, N.A. as Agent for the
Banks (the "Agent").
BACKGROUND
A. The Borrower, the Guarantor, the Banks and certain other lenders (as
discussed below) are parties to that certain Revolving Credit, Security and Term
Loan Agreement dated June 30, 1995, as amended by Amendments Nos. 1,2,3,4 and 5
to Revolving Credit Agreement dated August 31, 1995, September 27, 1996, April
25, 1997, April 30, 1997 and June 30, 1997 respectively (as the same has been,
is hereby and may hereafter be amended from time to time, the "Agreement").
B. NBD BANK ("NBD") and Fleet Bank, N.A. ("Fleet") are currently
parties to the Agreement. The Agreement and the Commitments of the Banks, NBD
and Fleet expire on September 30, 1997. The Loan Parties have requested that the
Banks agree to continue the Agreement and extend their respective Commitments
until October 31, 1997.
C. All capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them in the Agreement.
NOW, THEREFORE, the foregoing Background Section being incorporated by
reference, the parties hereto agree as follows:
Section 1. Amendments to the Agreement. The Agreement is hereby amended
as follows:
(a) Amendment to Section 1.01 (Definitions).
(1) The definition of Expiration Date contained in section 1.01 of
the Agreement is amended by deleting the reference to September 30, 1997
therein and replacing it with "October 31, 1997".
<PAGE> 2
Exhibit 10.2
(2) The Definition of "Revolving Credit Commitment" contained in
Section 1.01 of the Agreement is amended by deleting the reference to
"Seventy-Two Million Dollars" and replacing it with "Fifty-Five Million
Dollars".
(3) The definition of Majority Banks is amended by deleting the
reference to 66 2/3% contained therein and replacing it with "100%".
(b) Amendment to Section 2.01(A). Section 2.01(A) shall be amended by
deleting the reference to Seventy-Five Million Dollars ($75,000,000) contained
therein and replacing it with "Fifty-Five Million Dollars ($55,000,000)" and by
deleting the table contained in such Section and replacing it with the
following:
<TABLE>
<CAPTION>
Revolving Percentage
Total Credit of Total
Commitment Commitment Commitment
---------- ---------- ----------
<S> <C> <C> <C>
CoreStates $40,000,000 $40,000,000 73.00%
Harris $15,000,000 $15,000,000 27.00%
----------- ----------- -------
TOTAL $55,000,000 $55,000,000 100.00
</TABLE>
Section 2. Amended and Restated Notes. As evidence of the change in the
Commitments, the Borrower shall execute and deliver to the Banks, the Amended
and Restated Notes in the forms attached hereto as exhibits "A and B".
Section 3. Representations of the Loan Parties. The Loan Parties
represent and warrant that no default or Event of Default exists under the
Agreement and that all other terms, conditions and/or covenants contained in
the Agreement are ratified and confirmed. Except as amended hereby, the
Agreement continues in full force and effect in accordance with its terms.
Section 4. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be identical and all of which, when taken
together, shall constitute one and the same instrument, and any of the parties
hereto may execute this Amendment by signing any such counterpart.
Section 5. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
<PAGE> 3
Section 6. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Exhibit 10.2
Section 7. Corporate Action, etc. The Borrower and the Guarantor have
each taken all corporate action necessary to authorize the execution, delivery
and performance of this Amendment. This Amendment is a valid and legally
binding obligation of the Borrower and of Guarantor enforceable in accordance
with its terms. The Borrower hereby ratifies and reaffirms the representations
and warranties contained in the Agreement as being true and correct as of the
date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date set forth above.
CORESTATES BANK, N.A. CITYSCAPE CORP.
By: /s/ Andrew Tauber By: /s/ Robert C. Patent
- --------------------------------- -------------------------------
Its: Vice President Its: Executive Vice President
HARRIS TRUST AND SAVINGS BANK CORESTATES BANK, N.A., as Agent
By: /s/ Michael A. Houlihan By: /s/ Andrew Tauber
- --------------------------------- -------------------------------
Its: Vice President Its: Vice President
CONSENT OF GUARANTOR
Cityscape Financial Corp., Guarantor, hereby consents to the foregoing
Amendment and acknowledges and reaffirms its obligations as set forth in the
Guarantee.
CITYSCAPE FINANCIAL CORP.
By: /s/ Robert C. Patent
------------------------------
Its: Executive Vice President
<PAGE> 1
Exhibit 10.3
AMENDMENT NO.7 TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT ("Amendment"), dated as of October 31, 1997, is by and
among CITYSCAPE CORP. (the "Borrower"), CITYSCAPE FINANCIAL CORP. (the
"Guarantor") and CORESTATES BANK, N.A. ("CoreStates"), and HARRIS TRUST AND
SAVINGS BANK ("Harris") (CoreStates and Harris are referred to herein as a
"Bank" or the "Banks"), and CORESTATES BANK, N.A. as Agent for the Banks (the
"Agent").
BACKGROUND
A. The Borrower, the Guarantor, the Banks and certain other lenders were
parties to that certain Revolving Credit, Security and Term Loan Agreement dated
June 30, 1995, as amended by Amendments Nos. 1, 2, 3, 4, 5 and 6 to Revolving
Credit Agreement dated August 31, 1995, September 27, 1996, April 25, 1997,
April 30, 1997, June 30, 1997, and September 30, 1997 respectively (as the same
has been, is hereby and may hereafter be amended from time to time, the
"Agreement").
B. The Agreement and the Commitments of CoreStates and Harris expire on
October 31, 1997. The Loan Parties have requested that the Banks agree to
continue the Agreement and extend their respective Commitments until November
30, 1997.
C. All capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them in the Agreement.
NOW, THEREFORE, the foregoing Background Section being incorporated by
reference, the parties hereto agree as follows:
Section 1. Amendments to the Agreement. The Agreement is hereby amended as
follows:
(a) Amendment to Section 1.01 (Definitions).
(1) The definition of Collateral Value of Eligible Mortgages is
hereby amended by deleting the reference to 98% contained therein and
replacing it with "95%".
(2) The definition of Expiration Date contained in Section 1.01 of
the Agreement is amended by deleting the reference to October 31, 1997
therein and replacing it with "November 30, 1997".
<PAGE> 2
(3) The definition of "Revolving Credit Commitment" contained in
Section 1.01 of the Agreement is amended by adding the following to the
end of such definition: "In addition to any other reductions to the
Revolving Credit Commitment set forth herein, the Revolving Credit
Commitment shall reduce by the sum of Six Million Eight Hundred
Seventy-Five Thousand Dollars ($6,875,000) on each of November 7, 1997,
November 14, 1997, November 21, 1997 and November 28, 1997. Each reduction
shall reduce the Banks' Commitments pro rata.
(4) The definition of "Majority Banks" is hereby amended by deleting
the period at the end of such definition and adding the following: ";
provided that, following the sale of Harris's Note, Majority Banks shall
mean those Banks which are then in compliance with their obligations
hereunder holding not less than 66_% of the outstanding Loans."
(b) Amendment to Section 6.08. Section 6.08 of the Agreement is
hereby amended by adding a new subsection 18 to the end of such Section as
follows:
(18) Weekly Reporting. Weekly, no later than Tuesday of each week, a
production report for the preceding week and a report of the daily amounts
outstanding under the Borrower's credit facility with Bear Stearns for the
preceding week.
(c) Amendment to Section 9.01. Section 9.01 is hereby amended by
adding a two new subsections to the end of such Section as follows:
"(10) Termination of Existing Facilities. Either the Borrower's
repurchase facility with Greenwich Capital or the Borrower's credit
facility with Bear Stearns are terminated whether following a default
thereunder or otherwise.
(11) Subordination Agreement. The Guarantor shall have executed a
subordination agreement providing for the full subordination of all Debt
of the Borrower to the Guarantor to the Loans on terms and conditions
satisfactory to the Banks on or before November 7, 1997."
Section 2. Termination of LIBO Loan Option. As of the expiration of any
existing LIBO Loans, the Borrower's ability to borrow at the Adjusted LIBO Rate
shall terminate and all future Loans shall be made at the Base Rate.
Section 3. Reduction in Maximum Warehouse Period. From and after the date
hereof, the maximum warehouse period for all Mortgage Loans pledged to the Agent
under the Agreement shall be sixty (60) days.
-2-
<PAGE> 3
Section 4. Extension Fee. As a condition to the effectiveness of this
Amendment and in consideration of extension of the Commitments, the Borrower
shall pay to CoreStates an extension fee of $10,000 and to Harris an extension
fee of $5,000.
Section 5. Sale of Note Following Default. The provisions of Section 11.06
of the Agreement notwithstanding, from and after the occurrence of an Event of
Default, a Bank may, without the consent of the Loan Parties, the Agent or any
Bank, sell all or any portion of its Loans under the Agreement and its Note upon
payment to the Agent, for the Agent's account, of a fee of Three Thousand
Dollars ($3,000).
Section 6. Representations of the Loan Parties. The Loan Parties represent
and warrant that no default or Event of Default exists under the Agreement and
that all other terms, conditions and/or covenants contained in the Agreement are
ratified and confirmed. Except as amended hereby, the Agreement continue in full
force and effect in accordance with its terms.
Section 7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be identical and all of which, when taken
together, shall constitute one and the same instrument, and any of the parties
hereto may execute this Amendment by signing any such counterpart.
Section 8. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
Section 9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Section 10. Corporate Action, etc. The Borrower and the Guarantor have
each taken all corporate action necessary to authorize the execution, delivery
and performance of this Amendment. This Amendment is a valid and legally binding
obligation of the Borrower and of Guarantor enforceable in accordance with its
terms. The Borrower hereby ratifies and reaffirms the representations and
warranties contained in the Agreement as being true and correct as of the date
hereof.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date set forth above.
CORESTATES BANK, N.A., as a CITYSCAPE CORP.
Bank and as Agent
By: /s/ Andrew Tauber By: /s/ Robert Grosser
------------------------------ ------------------------------
Its: Vice President Its: President
------------------------------ ------------------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ Michael A. Houlihan
------------------------------
Its: Vice President
------------------------------
CONSENT OF GUARANTOR
Cityscape Financial Corp., Guarantor, hereby consents to the foregoing
Amendment and acknowledges and reaffirms its obligations as set forth in the
Guarantee.
CITYSCAPE FINANCIAL CORP.
By: /s/ Robert Grosser
-------------------------------
Its: Chairman
-------------------------------
-4-
<PAGE> 1
[EXECUTION COPY]
EXHIBIT 10.4
MASTER FINANCING AGREEMENT
Dated as of September 4, 1997
Between:
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
and
CITYSCAPE CORP.
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in
which Cityscape Corp. ("Borrower") agrees to pledge to Bear Stearns Mortgage
Capital Corporation ("Lender") Mortgage Loans (as defined herein) against the
transfer of funds by Lender, with a simultaneous agreement by Lender to release
to Borrower such Mortgage Loans at a date certain or on demand, against the
transfer of funds by Borrower. Each such transaction shall be referred to herein
as a "Transaction" and shall be governed by this Agreement, as the same shall be
amended from time to time.
2. DEFINITIONS
(a) "A Quality Mortgage Loan", a Mortgage Loan that in Lender's
reasonable business judgment would be considered to be of "A quality" as
contemplated by the Borrower's Underwriting Guidelines;
(b) "Act of Insolvency", with respect to either Lender or Borrower, (i)
the commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law,
or such party seeking the appointment of a receiver, trustee, custodian or
similar official for such party or any substantial part of its property, or (ii)
the commencement of any such case or proceeding against such party, or another
seeking such an appointment, or the filing against a party of an application for
a protective
<PAGE> 2
decree under the provisions of the Securities Investor Protection Act of 1970,
which (A) is consented to or not timely contested by such party, (B) results in
the entry of an order for relief, such an appointment, the issuance of such a
protective decree or the entry of an order having a similar effect, or (C) is
not dismissed within 15 days, (iii) the making by a party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by a
party of such party's inability to pay such party's debts as they become due;
(c) "Additional Financed Mortgage Loans", Mortgage Loans pledged by
Borrower to Lender pursuant to Paragraph 4(a) hereof;
(d) "Advance Amount", (i) on any Advance Date, the amount advanced by
Lender to Borrower with respect to Financed Mortgage Loans that are pledged by
Borrower to Lender hereunder on such Advance Date (which in no event shall be
greater than par), and (ii) thereafter, such amount decreased by the amount of
any cash transferred by Borrower to Lender pursuant to Paragraph 4(a) hereof;
(e) "Advance Date", the date with respect to each Transaction on which
Financed Mortgage Loans are pledged by Borrower to Lender hereunder;
(f) "B Quality Mortgage Loan", a Mortgage Loan that in Lender's
reasonable business judgment would be considered to be of "B quality" as
contemplated by the Borrower's Underwriting Guidelines;
(g) "Borrower's Underwriting Guidelines", the underwriting guidelines
of Borrower for Mortgage Loans in the form most recently approved in writing by
Lender.
(h) "Business Day", any day other than a Saturday, Sunday and any day
on which banks located in the State of New York are authorized or required to
close for business;
(i) "C Quality Mortgage Loan", a Mortgage Loan that in Lender's
reasonable business judgment would be considered to be of "C quality" as
contemplated by the Borrower's Underwriting Guidelines;
(j) "Conventional Mortgage Loan", a Mortgage Loan which is not a Title
I Mortgage Loan;
(k) "Custodian", the custodian named in the Custody Agreement and any
permitted successor thereto;
(l) "Custody Agreement", the Custody Agreement among
2
<PAGE> 3
Lender, Borrower and the Custodian providing for the custody of records relating
to the Financed Mortgage Loans;
(m) "FHA", The Federal Housing Administration of HUD and any successor
thereto;
(n) "FHA Insurance", with respect to the Title I Mortgage Loans, the
mortgage insurance provided by the FHA pursuant to Title I of the National
Housing Act of 1934, as amended;
(o) "FHA Regulations", the rules, regulations and procedures
promulgated by HUD under the National Housing Act of 1934, as amended, relating
to Title I property improvement loans and loans pertaining to manufactured homes
and related real property, currently found at 24 C.F.R. Parts 201 and 202,
together with the "TI Letters" and HUD Handbook 4700.2, as the same may be
amended or supplemented from time to time; provided that with respect to the
origination or servicing of a Title I Mortgage Loan, such rules and regulations
that were in effect at the time the relevant origination or servicing actions
occurred;
(p) "Financed Mortgage Loans", the Mortgage Loans pledged by Borrower
to Lender in a Transaction hereunder, and any Mortgage Loans substituted
therefor in accordance with Paragraph 9 hereof, which, in each case, have not
been redeemed by Borrower. The term "Financed Mortgage Loans" with respect to
any Transaction at any time also shall include Additional Financed Mortgage
Loans delivered pursuant to Paragraph 4(a);
(q) "Financing Rate", the per annum percentage rate for determination
of the Interest, which rate shall be 125 basis points in excess of the overnight
LIBOR as posted on page 4833 of Telerate as of 9:00 am New York City time (or
such other source as is mutually agreeable to the parties), adjusted on each
date such rate is published;
(r) "FNMA", the Federal National Mortgage Association;
(s) "Greenwich Facility", a loan agreement (whether oral or written)
between Greenwich Capital Markets, Inc., or any affiliate thereof, and Borrower
providing for the extension of credit by Greenwich Capital Markets, Inc., or any
such affiliate, to Borrower in such form as may be agreed upon by such parties
from time to time;
(t) "HEL", a home equity loan consisting of a Mortgage Note secured by
a Mortgage;
(u) "HIL", a home improvement loan consisting of a Mortgage Note
secured by a Mortgage;
3
<PAGE> 4
(v) "HUD", the Department of Housing and Urban Development;
(w) "Income", with respect to any Mortgage Loan at any time, any
principal thereof then due and payable and all payments of interest and other
distributions thereon or proceeds thereof then due and payable;
(x) "Interest", with respect to any Transaction hereunder as of any
date, the aggregate amount obtained by daily application of the Financing Rate
for such Transaction to the Advance Amount for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Advance Date for such Transaction and ending on (but excluding)
the date of determination (reduced by any amount of such Interest previously
paid by Borrower to Lender with respect to such Transaction);
(y) "Lender's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage, agreed to by Lender
and Borrower prior to entering into the Transaction and specified in the related
Request/Confirmation as the "Minimum Required Margin Percentage", to the Payoff
Amount for such Transaction as of such date;
(z) "LIBOR", the London Interbank Offered Rate quotation for Eurodollar
deposits;
(aa) "Loan Schedule", a schedule of Mortgage Loans identifying each
Mortgage Loan by Borrower's loan number, Mortgagor's name and address (including
the state and zip code) of the mortgaged property, whether such Mortgage Loan is
secured by a first or junior lien (specifying the priority of such junior lien)
on the related Mortgaged Property, the loan-to-value ratio if such Mortgage Loan
is a HEL, the outstanding principal amount as of a specified date, the initial
interest rate borne by such Mortgage Loan, the original principal balance
thereof, the current scheduled monthly payment of principal and interest, the
maturity of the related Mortgage Note, the property type, the occupancy status,
the appraised value if such Mortgage Loan is a HEL having an original principal
balance in excess of $10,000, the original term to maturity, whether the
Mortgage Loan is a HEL or a HIL, whether the Mortgage Loan is an A Quality
Mortgage Loan, a B Quality Mortgage Loan or a C Quality Mortgage Loan, whether
the Mortgage Loan is a Title I Mortgage Loan or a Conventional Mortgage Loan and
whether or not the Mortgage Loan (including the related Mortgage Note) has been
modified; provided, however, that the items of information set forth on the Loan
Schedule may be expanded or contracted by mutual agreement of Lender and
Borrower; and provided further, however, that the
4
<PAGE> 5
appraised value for any HEL may be determined from a real estate broker's price
opinion or a drive-by appraisal;
(bb) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;
(cc) "Market Value", with respect to any Mortgage Loans as of any date,
the fair market value of such Mortgage Loans on such date as reasonably
determined in good faith by Lender in accordance with its current practices for
determining the fair market value of similar residential loans from time to time
and at such times as it may elect in its sole discretion; provided, however,
that a Market Value of zero shall be assigned to (i) any Mortgage Loan that has
been delinquent for at least eighty-nine (89) days, (ii) any Mortgage Loan that
has been subject to this Agreement for more than one hundred and eighty (180)
days in aggregate or (iii) any Mortgage Loan with respect to which there is an
uncured breach of a representation or warranty made by Borrower in this
Agreement or the Custody Agreement that materially adversely affects Lender's
interests hereunder;
(dd) "Maturity Date", with respect to all amounts advanced by Lender
hereunder, the earlier of (i) any date on which such amounts become due pursuant
to the terms hereof, (ii) the termination of the Greenwich Facility, (iii) one
year from the date hereof and (iv) a date specified by Lender, in its sole
discretion and without cause, occurring not earlier than thirty (30) days after
notice of such discretionary termination is provided by Lender to Borrower;
provided, however, that this Agreement and any Transaction outstanding hereunder
may be extended by mutual agreement of Lender and Borrower; and provided
further, however, that no such party shall be obligated to agree to such an
extension;
(ee) "Maximum Advance Amount", the maximum aggregate Advance Amounts
permitted to be outstanding hereunder at any time, which amount shall be
$300,000,000;
(ff) "Mortgage", the mortgage, deed of trust or other instrument
creating a first or junior lien on an estate in fee simple interest in real
property securing a Mortgage Note;
(gg) "Mortgage File", the meaning specified in the Custody Agreement;
(hh) "Mortgage Loan", a HEL or a HIL, as applicable;
(ii) "Mortgage Note", the Mortgage Note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan;
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(jj) "Mortgaged Property", the property (real, personal or mixed)
encumbered by the Mortgage which secures the Mortgage Note evidencing a secured
Mortgage Loan;
(kk) "Mortgagor", the obligor on a Mortgage Note;
(ll) "Note", the notes of the Borrower, substantially in the form of
Exhibit D hereto, evidencing its obligations to pay amounts due hereunder;
(mm) "Payoff Amount", the redemption amount at which Financed Mortgage
Loans are to be released by Lender to Borrower upon termination of a
Transaction, which will be determined in each case (including Transactions
terminable upon demand) as the sum of the Advance Amount and the Interest as of
the date of such determination, increased by any amount determined by the
application of the provisions of Paragraph 11 hereof;
(nn) "Payoff Date", with respect to any Transaction the date on which
Borrower is to redeem the Financed Mortgage Loans from Lender, including any
date determined by application of the provisions of Paragraphs 3(e) or 11
hereof;
(oo) "Prime Rate", the prime rate of U.S. money center commercial banks
as published in The Wall Street Journal;
(pp) "Replacement Mortgage Loans", the meaning specified in Paragraph
11(e)(ii) hereof;
(qq) "Request/Confirmation", the request and confirmation substantially
in the form of Exhibit A hereto delivered pursuant to Paragraph 3 hereof;
(rr) "Title I Mortgage Loan", a Mortgage Loan that has been or will be
registered by FHA for FHA Insurance under the Title I Program;
(ss) "Title I Program", the mortgage insurance program authorized
pursuant to the National Housing Act of 1934, as amended; and
(tt) "Trust Receipt", as defined in the Custody Agreement.
3. INITIATION; REQUEST/CONFIRMATION; TERMINATION; TRANSACTIONS OPTIONAL
(a) Any agreement to enter into a Transaction shall be made in writing
at the initiation of Borrower. In the event that Borrower desires to enter into
a Transaction hereunder, Borrower
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shall deliver to Lender prior to 5:00 p.m., New York City time, on the Business
Day prior to the proposed Advance Date, a Request/Confirmation complete in every
respect except for any terms to be completed by Lender and the signature of an
authorized representative of Lender. Lender shall, upon its receipt and approval
thereof, promptly execute and return the signed Request/Confirmation to
Borrower.
(b) The Request/Confirmation shall describe the Financed Mortgage Loans
in a manner reasonably satisfactory to Lender (which may be by attaching a Loan
Schedule thereto), identify Lender and Borrower and set forth (i) the Advance
Date, (ii) the Advance Amount, (iii) the Payoff Date, unless the Transaction is
to be terminable on demand, (iv) the Financing Rate or Payoff Amount applicable
to the Transaction, and (v) any additional terms or conditions of the
Transaction mutually agreeable to Lender and Borrower.
(c) Each Request/Confirmation shall be binding upon the parties hereto
unless written notice of objection is given by the objecting party to the other
party within one (1) Business Day after Lender has delivered the completed
Request/Confirmation to Borrower.
(d) In the event of any conflict between the terms of a
Request/Confirmation and this Agreement, such Request/Confirmation shall
prevail.
(e) In the case of Transactions terminable upon demand, such demand
shall be made by Lender or Borrower, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to the
Business Day immediately preceding the day on which such termination will be
effective. On the date specified in such demand, or on the date fixed for
termination in the case of Transactions having a fixed term, termination of the
Transaction will be effected by redemption by Borrower or its agent from Lender
of the Financed Mortgage Loans and any Income in respect thereof received by
Lender (and not previously credited or transferred to, or applied to the
obligations of, Borrower hereunder) against the transfer of the Payoff Amount to
an account of Lender.
(f) Notwithstanding any provision of this Agreement or the Custody
Agreement to the contrary, the initiation of each Transaction is subject to the
approval of Lender in its sole discretion. Lender may, in its sole discretion,
reject any Mortgage Loan from inclusion in a Transaction hereunder for any
reason.
4. MARGIN MAINTENANCE
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(a) If at any time the aggregate Market Value of all Financed Mortgage
Loans subject to all Transactions hereunder is less than the aggregate Lender's
Margin Amount for all such Transactions (a "Margin Deficit"), then Lender may by
notice to Borrower require Borrower in such Transactions, at Borrower's option,
to transfer to Lender cash or pledge additional Mortgage Loans reasonably
acceptable to Lender ("Additional Financed Mortgage Loans"), so that the cash
and aggregate Market Value of the Financed Mortgage Loans, including any such
Additional Financed Mortgage Loans, will thereupon equal or exceed such
aggregate Lender's Margin Amount. After the date of any transfer or pledge
pursuant to the first sentence of this Paragraph 4(a), Borrower may from time to
time by notice require the Lender to return any such transferred cash or release
Additional Financed Mortgage Loans to Borrower; provided that Lender shall have
no obligation to return any such transferred cash or release Additional Financed
Mortgage Loans to the extent that a Margin Deficit would result therefrom.
(b) If the notice to be given by Lender to Borrower under subparagraph
(a) above is given at or prior to 10:00 a.m. New York city time on a Business
Day, Borrower shall transfer cash or pledge Additional Financed Mortgage Loans
to Lender prior to the close of business in New York City on the date of such
notice, and if such notice is given after 10:00 a.m. New York City time,
Borrower shall transfer cash or pledge Additional Financed Mortgage Loans prior
to the close of business in New York City on the Business Day following the date
of such notice.
(c) Any cash transferred pursuant to this Paragraph shall reduce the
Advance Amount of the related Transaction in accordance with the definition of
Advance Amount.
5. INCOME PAYMENTS
Where a particular Transaction's term extends over an Income payment
date on the Mortgage Loans subject to that Transaction, all Income, whether in
cash or in kind, made on or with respect to the Financed Mortgage Loans shall,
unless otherwise mutually agreed by Lender and Borrower and so long as an Event
of Default on the part of Borrower shall not have occurred and be continuing, be
paid directly to Borrower by the related Mortgagor. Lender shall not be
obligated to take any action pursuant to the preceding sentence to the extent
that such action would result in the creation of a Margin Deficit, unless prior
thereto or simultaneously therewith Borrower transfers to Lender, at Lender's
option, cash or pledges Additional Financed Mortgage Loans sufficient to
eliminate such Margin Deficit. All Income received by Borrower will be held in
trust for the benefit of
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Lender and upon the request of Lender, after the occurrence and during the
continuation of an Event of Default, will be paid to Lender in order to retire a
portion of the outstanding indebtedness of Borrower to Lender hereunder.
6. SECURITY INTEREST
The parties intend that all Transactions hereunder be financings and
not purchases and sales. Accordingly Borrower pledges to Lender as security for
the performance by Borrower of its obligations under each such Transaction, and
grants to Lender a security interest in, all of the Financed Mortgage Loans with
respect to all Transactions hereunder and all proceeds thereof. Borrower shall
pay all reasonable fees and expenses associated with perfecting such security
interest including, without limitation, the cost of filing financing statements
under the Uniform Commercial Code and recording assignments of mortgage as and
when required by Lender in its sole discretion.
7. PAYMENT; PLEDGE AND RELEASE
Unless otherwise mutually agreed, all transfers of funds hereunder
shall be in immediately available funds. All Mortgage Loans pledged or released
by one party hereto to the other party shall be pledged or released by notice to
the Custodian to the effect that the Custodian is now holding for the benefit of
the other party the related documents and assignment forms delivered to it under
the Custody Agreement.
8. SEGREGATION OF DOCUMENTS RELATING TO FINANCED MORTGAGE LOANS
All documents relating to Financed Mortgage Loans in the possession of
Borrower shall be segregated on its books and records from other documents and
securities in its possession and shall be identified as being subject to this
Agreement. Nothing in this Agreement shall preclude Lender from engaging in
repurchase transactions with the Financed Mortgage Loans or otherwise pledging
or hypothecating the Financed Mortgage Loans, but no such transaction shall
relieve Lender of its obligations to release Financed Mortgage Loans to Borrower
pursuant to the terms hereof and no such transaction shall have a maturity date
later than the Payoff Date unless such transaction permits the substitution of
collateral.
Lender hereby grants to Borrower the right to perform in Lender's stead
under any repurchase, reverse repurchase, loan or similar transaction in which
Lender has pledged the Mortgage Loans, in the event that Lender has defaulted on
its obligations to repurchase, redeem or accept redelivery of such Mortgage
Loans in conformity with the terms of any such transaction and so long
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as an Event of Default under this Agreement by Borrower shall not have occurred
and be continuing. Lender further acknowledges that each Mortgage Loan
identified on a Loan Schedule and included in a Transaction hereunder is unique
and identifiable on the date of the related Transaction and that an award of
money damages would be insufficient to compensate Borrower for the losses and
damages incurred by Borrower in the event of Lender's failure to pledge and
deliver the Mortgage Loans as provided in Paragraphs 3(e) or 11 hereof, and
that, in addition to all legal and equitable relief hereunder, Borrower may seek
injunctive relief relating to its rights hereunder.
9. SUBSTITUTION
Borrower may, subject to agreement with and acceptance by Lender,
substitute other Mortgage Loans for any Financed Mortgage Loans. Such
substitution shall be made by the pledge to Lender of such other Mortgage Loans
and the pledge to Borrower of such Financed Mortgage Loans. After substitution,
the substituted Mortgage Loans shall be deemed to be Financed Mortgage Loans and
the Mortgage Loans for which such Financed Mortgage Loans were substituted shall
be released by Lender to Borrower.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Lender and Borrower each represents and warrants, and shall on and
as of the Advance Date of any Transaction be deemed to represent and warrant, to
the other that:
(i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder and to
perform its obligations hereunder and has taken all necessary action to
authorize such execution, delivery and performance;
(ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party
hereto, as agent for a disclosed principal);
(iii) the person signing this Agreement on its behalf is duly
authorized to do so on its behalf (or on behalf of any such disclosed
principal);
(iv) no authorization of any governmental body is required in
connection with the execution and delivery of this Agreement by it and
the performance by it of its obligations hereunder and with respect to
such Transaction, other than any such authorization (a) that has been
obtained and remains in full force and effect or (b) the failure of
which to obtain (I) would not, singly or in the aggregate,
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have a material adverse effect on its ability to perform its
obligations hereunder and with respect to each Transaction and (II)
would not give rise to liability on the part of the other party hereto;
(v) the execution, delivery and performance of this Agreement
and the Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by which it
is bound or by which any of its assets are affected other than any
ordinance, law or rule, the violation of which would not have a
material adverse effect on its ability to perform its obligations
hereunder and with respect to each Transaction and would not give rise
to liability on the part of the other party hereto.
(b) Borrower represents and warrants to Lender, and shall on and as of
the Advance Date of any Transaction be deemed to represent and warrant, as
follows:
(i) The documents disclosed by Borrower to Lender pursuant to
this Agreement are either original documents or genuine and true copies
thereof;
(ii) Borrower is a separate and independent corporate entity from
the Custodian, Borrower does not own a controlling interest in the
Custodian either directly or through affiliates and no director or
officer of Borrower is also a director or officer of the Custodian;
(iii) None of the Advance Amount for any Mortgage Loan will be used
either directly or indirectly to acquire any security, as that term is
defined in Regulation T of the Regulations of the Board of Governors of
the Federal Reserve System, and Borrower has not taken any action that
might cause any Transaction to violate any regulation of the Federal
Reserve Board;
(iv) Each Mortgage Loan was underwritten in accordance with the
written underwriting standards of Borrower most recently furnished by
Borrower to Lender, and no material change to such underwriting
standards has occurred since the date of the last written revision to
such standards was furnished to Lender by Borrower;
(v) Borrower shall be at the time it pledges to Lender any
Mortgage Loans for any Transaction the legal and beneficial owner of
such Mortgage Loans, free of any lien, security interest, option or
encumbrance;
(vi) Borrower used no selection procedures that
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identified the Mortgage Loans relating to a Transaction as being less
desirable or valuable than other comparable assets in Borrower's
portfolio on the related Advance Date;
(vii) Each Mortgage Loan is a B Quality Mortgage Loan or a C
Quality Mortgage Loan; and
(viii) No Mortgage Loan had a loan-to-value ratio, determined
as of the date of origination, in excess of 95%.
(c) Borrower makes the representations and warranties set forth at
Exhibit B with respect to the Mortgage Loans as of the related Advance Date.
(d) Borrower covenants with Lender, from and after the date hereof, as
follows:
(i) Borrower shall immediately notify Lender if an Event of
Default with respect to Borrower shall have occurred;
(ii) Borrower shall deliver to Lender a current Loan Schedule
with respect to all Mortgage Loans subject to this Agreement with such
frequency as Lender may reasonably require;
(iii) No Mortgage Loan shall be subject to this Agreement for
more than one hundred and eighty (180) days in aggregate;
(iv) No more than an aggregate amount equal to $75,000,000 of
the amounts ever advanced by Lender to Borrower hereunder shall be
secured by Mortgage Loans that were (1) previously subject to the
Greenwich Facility or (2) originated prior to July 31, 1997;
(v) All Mortgage Loans pledged to Lender hereunder that were
originated prior to the date of this Agreement shall either be (1)
included in the first securitization of assets sponsored by Borrower or
any of its affiliates occurring after the date of this Agreement or (2)
assigned a Market Value of zero by Lender for purposes of this
Agreement;
(vi) Except with respect to the Mortgage Loans referred to in
clause (v) above, any Mortgage Loan pledged by Borrower to Lender
hereunder shall have been originated after the date of this Agreement;
(vii) Borrower will pay and discharge or cause to be paid
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and discharged all taxes, levies, liens and other charges on its assets
and on the collateral pledged hereunder which, in each case, in any
manner would create any lien or charge upon such collateral;
(viii) Borrower will provide to Lender a true and correct copy
of the written Greenwich Facility (and each amendment and supplement
thereto from time to time during the effectiveness of this Agreement)
promptly upon the execution thereof by the parties thereto; and
(ix) All financial covenants made by Borrower under the
Greenwich Facility (as the same shall be amended or modified from time
to time) are true and correct and are made to Lender as through fully
set forth herein.
(e) Lender covenants with Borrower, from and after the date hereof, to
notify Borrower if an Event of Default with respect to Lender shall have
occurred.
11. EVENTS OF DEFAULT; EVENT OF TERMINATION
(a) The following events shall constitute events of default (each an
"Event of Default") hereunder with respect to Lender or Borrower, as applicable:
(i) Borrower fails to redeem or Lender fails to release
Financed Mortgage Loans upon the applicable Payoff Date pursuant to the
terms hereof;
(ii) Borrower or Lender fails, after one (1) Business Day's
notice, to comply with Paragraph 4 hereof;
(iii) An Act of Insolvency occurs with respect to Borrower or
Lender or any controlling entity thereof;
(iv) Any representation or warranty made by Borrower or Lender
shall have been incorrect or untrue in any material respect when made
or repeated or deemed to have been made or repeated; provided, however,
that in the case of representations and warranties made with respect to
the Financed Mortgage Loans, such circumstance shall not constitute an
Event of Default if, after determining the Market Value of the Financed
Mortgage Loans without taking into account the Financed Mortgage Loans
with respect to which such circumstance has occurred, no other Event of
Default shall have occurred and be continuing;
(v) Any covenant shall have been breached in any material
respect; provided, however, that in the case of
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covenants made with respect to the Financed Mortgage Loans, such
circumstance shall not constitute an Event of Default if, after
determining the Market Value of the Financed Mortgage Loans without
taking into account the Financed Mortgage Loans with respect to which
such circumstance has occurred, no other Event of Default shall have
occurred and be continuing;
(vi) Lender shall have reasonably determined that Borrower is
or will be unable to meet its material commitments under this
Agreement, shall have notified Borrower of such determination and
Borrower shall not have responded with appropriate information to the
contrary to the satisfaction of Lender within twenty-four (24) hours;
(vii) This Agreement shall for any reason cease to create a
valid, first priority security interest in any of the Financed Mortgage
Loans purported to be covered hereby;
(viii) A final judgment by any competent court in the United
States of America for the payment of money in an amount of at least
$1,000,000 is rendered against Borrower, and the same remains
undischarged for a period of sixty (60) days during which execution of
such judgment is not effectively stayed;
(ix) Any event of default or any event which with notice, the
passage of time or both shall constitute an event of default shall
occur and be continuing under any repurchase or other financing
agreement for borrowed funds or indenture for borrowed funds by which
Borrower is bound or affected;
(x) In the reasonable judgment of Lender a material adverse
change shall have occurred in the business, operations, properties,
prospects or condition (financial or otherwise) of Borrower;
(xi) Borrower shall be in default with respect to any normal
and customary covenants under any debt contract or agreement, any
servicing agreement or any lease to which it is a party, which default
could materially adversely affect the financial condition of Borrower
(which covenants include, but are not limited to, an Act of Insolvency
of Borrower or the failure of Borrower to make required payments under
such contract or agreement as they become due);
(xii) Borrower shall fail to promptly notify Lender of (i) the
acceleration of any debt obligation or the
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termination of any credit facility with respect to which Borrower is
the debtor and involving an amount in excess of $1,000,000 (each a
"Debt Obligation"); (ii) the amount and maturity of any such Debt
Obligation assumed after the date hereof; (iii) the filing of any class
action law suit naming Borrower as a defendant or respondent; (iv) the
filing of any law suit with an amount in controversy in excess of
$1,000,000 naming Borrower as a defendant or respondent; (v) the
occurrence adverse developments with respect to existing litigation
involving Borrower; and (vi) any other developments which might
materially and adversely affect the financial condition of Borrower; or
(xiii) Borrower shall have failed to comply in any material respect
with its obligations under the Custody Agreement.
(b) If an Event of Default shall have occurred and be continuing, then,
at the option of the nondefaulting party, exercised by written notice to the
defaulting party (which option shall be deemed to have been exercised, even if
no notice is given, immediately upon the occurrence of an Act of Insolvency),
the Payoff Date for each Transaction hereunder shall be deemed immediately to
occur.
(c) In all Transactions in which the defaulting party is Borrower, if
Lender is deemed to have exercised the option referred to in subparagraph (b) of
this Paragraph, (i) Borrower's obligations hereunder to redeem all Financed
Mortgage Loans in such Transactions shall thereupon become immediately due and
payable, (ii) to the extent permitted by applicable law, the Payoff Amount with
respect to each such Transaction shall be increased by the aggregate amount
obtained by daily application of (x) the greater of the Financing Rate for such
Transaction and the Prime Rate to (y) the Payoff Amount for such Transaction as
of the Payoff Date as determined pursuant to subparagraph (b) of this Paragraph
(decreased as of any day by (A) any amounts retained by Lender with respect to
such Payoff Amount pursuant to clause (iii) of this subparagraph, (B) any
proceeds from the sale of Financed Mortgage Loans pursuant to subparagraph
(e)(i) of this Paragraph, and (C) any amounts credited to the account of
Borrower pursuant to subparagraph (f) of this Paragraph) on a 360 day per year
basis for the actual number of days during the period from and including the
date of the Event of Default giving rise to such option to but excluding the
date of payment of the Payoff Amount as so increased, (iii) all Income paid
after such exercise or deemed exercise shall be payable to and retained by
Lender applied to the aggregate unpaid Payoff Amounts owed by Borrower, and (iv)
Borrower shall immediately deliver or cause the Custodian to deliver to Lender
any documents relating to
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Financed Mortgage Loans subject to such Transactions then in Borrower's
possession.
(d) In all Transactions in which the defaulting party is Lender, upon
tender by Borrower of payment of the aggregate Payoff Amounts for all such
Transactions, Lender's right, title and interest in all Financed Mortgage Loans
subject to such Transactions shall be released to Borrower, and Lender shall
deliver or cause the Custodian to deliver all documents relating to such
Financed Mortgage Loans to Borrower.
(e) After one (1) Business Day's notice to the defaulting party (which
notice need not be given if an Act of Insolvency shall have occurred, and which
may be the notice given under subparagraph (b) of this Paragraph or the notice
referred to in clause (ii) of the first sentence of subparagraph (a) of this
Paragraph), the nondefaulting party may:
(i) as to Transactions in which the defaulting party is
Borrower, (A) immediately sell on a servicing released or servicing
retained basis as Lender deems desirable, in a recognized market at
such price or prices as Lender may in its sole discretion deem
satisfactory, any or all Financed Mortgage Loans subject to such
Transactions and apply the proceeds thereof to the aggregate unpaid
Payoff Amounts and any other amounts owing by Borrower hereunder or (B)
in its sole discretion elect, in lieu of selling all or a portion of
such Financed Mortgage Loans, to give Borrower credit for such Financed
Mortgage Loans in an amount equal to the Market Value therefor
(determined without giving effect to the proviso in the definition
thereof) on such date against the aggregate unpaid Payoff Amounts and
any other amounts owing by Borrower hereunder; and
(ii) as to Transactions in which the defaulting party is
Lender, (A) purchase mortgage loans of substantially the same type
("Replacement Mortgage Loans") having substantially the same
outstanding principal amount, maturity and interest rate as any
Financed Mortgage Loans that are not released by Lender to Borrower as
required hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Mortgage Loans, to be deemed to have purchased
Replacement Mortgage Loans at the price therefor on such date,
calculated as the average of the prices obtained from three (3)
nationally recognized registered broker/dealers that buy and sell
mortgage loans of substantially the same type in the secondary market.
(f) As to Transactions in which the defaulting party is Lender, Lender
shall be liable to Borrower (i) with respect to
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Financed Mortgage Loans (other than Additional Financed Mortgage Loans), for any
excess of the price paid (or deemed paid) by Borrower for Replacement Mortgage
Loans therefor over the Payoff Amount for such Financed Mortgage Loans and (ii)
with respect to Additional Financed Mortgage Loans, for the price paid (or
deemed paid) by Borrower for the Replacement Mortgage Loans therefor. In
addition, Lender shall be liable to Borrower for interest on such remaining
liability with respect to each such purchase (or deemed purchase) of Replacement
Mortgage Loans from the date of such purchase (or deemed purchase) until paid in
full by Lender. Such interest shall be at a rate equal to the greater of the
Financing Rate for such Transaction or the Prime Rate.
(g) For purposes of this Paragraph 11, the Payoff Amount for each
Transaction hereunder in respect of which the defaulting party is Lender shall
not increase above the amount of such Payoff Amount for such Transaction
determined as of the date of the exercise or deemed exercise by Borrower of its
option under subparagraph (b) of this Paragraph.
(h) The defaulting party shall be liable to the nondefaulting party for
the amount of all reasonable legal or other expenses incurred by the
nondefaulting party in connection with or as a consequence of an Event of
Default, together with interest thereon at a rate equal to the greater of the
Financing Rate for the relevant Transaction or the Prime Rate. Expenses incurred
in connection with an Event of Default shall include without limitation those
costs and expenses incurred by the nondefaulting party as a result of the early
termination of any repurchase agreement, reverse repurchase agreement or other
financing agreement entered into by the nondefaulting party in connection with
the Transaction then in default.
(i) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
(j) At the option of Lender, exercised by thirty (30) Business Days'
prior written notice to Borrower, the Payoff Date for any or all Transactions
shall be deemed to immediately occur in the event that the senior debt
obligations or short-term debt obligations of Bear Stearns & Co. Inc. shall be
rated below the four highest generic grades (without regard to any pluses or
minuses reflecting gradations within such generic grades) by any nationally
recognized statistical rating organization.
(k) The exercise by any party of remedies after the occurrence of an
Event of Default shall be conducted in a commercially reasonable manner.
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12. SERVICING OF THE FINANCED MORTGAGE LOANS
(a) The parties hereto agree and acknowledge that Borrower shall
continue to service the Financed Mortgage Loans for the benefit of Lender and,
if Lender shall exercise its rights to pledge the Financed Mortgage Loans
pursuant to this Agreement prior to the related Payoff Date, Lender's assigns;
provided, however, that the obligation of Borrower to service Financed Mortgage
Loans for the benefit of Lender as aforesaid shall cease upon the payment by or
on behalf of Borrower to Lender of the Payoff Amount therefor.
(b) Borrower shall service and administer the Financed Mortgage Loans
and shall have full power and authority, acting alone, to do any and all things
in connection with such servicing which Borrower may deem necessary or desirable
and consistent with the terms of this Agreement, and shall retain all principal
prepayments and Income received by Borrower with respect to such Financed
Mortgage Loans pursuant to the terms hereof. Borrower shall act as the
administrator of the FHA Insurance relating to the Title I Mortgage Loans and
any insurance claims made under the Title I Program. Borrower, in administering
and servicing the Financed Mortgage Loans, shall employ procedures (including
collection procedures) and exercise the same care it customarily employs and
exercises in servicing and administering the same type of mortgage loans for its
own account, in accordance with accepted residential mortgage loan servicing
practices of prudent lending institutions and giving due consideration to
Lender's reliance on Borrower. Borrower will provide Lender with monthly
reports, in a form substantially similar to FNMA's standard form of remittance
report and reasonably acceptable to Lender, with respect to all Financed
Mortgage Loans then involved in any Transaction hereunder.
(c) Lender may, in its sole discretion if an Event of Default shall
have occurred and be continuing, without payment of any termination fee or any
other amount to Borrower, (i) sell the Mortgage Loans on a servicing released
basis or (ii) terminate Borrower as the servicer of the Financed Mortgage Loans
with or without cause.
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13. DELIVERY OF NOTES AND SCHEDULES
(a) Advances by Lender hereunder shall be evidenced by up to but not
exceeding twelve (12) Notes of Borrower, each in the form attached hereto as
Exhibit D and each representing the amounts borrowed thereunder (which amounts
shall not in the aggregate exceed $25,000,000) as noted on the schedule attached
thereto. The original of each Note shall be delivered to Lender or its designee
prior to Lender's disbursement of any Advance Amount relating thereto.
(b) Each Note shall relate to one or more Trust Receipts, each of which
Trust Receipts shall have appended thereto the related Loan Schedule, which
schedule shall be modified or replaced to reflect prepayments, substitutions and
releases of collateral.
14. MAXIMUM ADVANCE AMOUNT; DISBURSEMENT OF FUNDS; REPAYMENT
OF ADVANCES AND INTEREST
(a) The aggregate Advance Amount outstanding hereunder at any time
shall not exceed $300,000,000.
(b) The Advance Amount with respect to any Mortgage Loan shall not
exceed the par amount of such Mortgage Loan.
(c) Not more than an aggregate amount equal to $75,000,000 of the
amounts ever advanced by Lender to Borrower hereunder shall be secured by
Mortgage Loans that were (1) previously subject to the Greenwich Facility or (2)
originated prior to July 31, 1997.
(d) The maximum amount to be advanced hereunder with respect to any
Mortgage Loan shall not exceed the par amount of such Mortgage Loan.
(e) Borrower may request disbursement of amounts borrowed hereunder
upon not less than one (1) Business Days' written notice to Lender.
(f) A completed Trust Receipt with Loan Schedule attached must be
delivered by the Custodian to the Lender (by facsimile transmission with the
original to follow by overnight courier for next day delivery) prior to the
disbursement by Lender to Borrower of any amounts hereunder. Lender will
disburse amounts to Borrower in accordance with this Agreement (i) on the date
of such facsimile transmission if such facsimile transmission is received by
Lender prior to 1:00 p.m. New York City time and (ii) otherwise on the following
Business Day.
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(g) Advance Amounts hereunder shall be in minimum amounts of
$1,000,000.
(h) Interest on each Advance Amount shall be payable on the date
described in the related Request/Confirmation.
(i) The principal portion of each Advance Amount shall be due and
payable not later than the Maturity Date.
15. NOTICES AND OTHER COMMUNICATIONS
Except as otherwise expressly provided herein, all such notices or
communications shall be in writing (including, without limitation, telegraphic,
facsimile or telex communication) or confirmed in writing and such notices and
other communications shall, when mailed, telegraphed, communicated by facsimile
transmission or telexed, be effective when received at the address for notices
for the party to whom such notice or communications is to be given as follows:
if to Borrower:
Cityscape Corp.
565 Taxter Road
Elmsford, New York 10523
Attention: Chief Financial Officer
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
with a copy at the same address to:
Attention: General Counsel
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
if to Lender:
Bear Stearns Mortgage Capital Corporation
245 Park Avenue
New York, New York 10167
Attention: John Garzone
Telephone: (212) 272-3853
Telecopy: (212) 272-7803
Notwithstanding the foregoing, however, any notice sent by facsimile
transmission shall be deemed to be received when transmitted so long as the
transmitting machine has provided an electronic confirmation of such
transmission, and provided further, however, that all financial statements
delivered shall be hand-delivered or sent by first-class mail. Either party may
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<PAGE> 21
revise any information relating to it by notice in writing to the other party,
which notice shall be effective on the fifth business day following receipt
thereof.
16. SINGLE AGREEMENT
Lender and Borrower acknowledge that, and have entered hereinto and
will enter into each Transaction hereunder in consideration of and in reliance
upon the fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Lender and Borrower agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder and
(iii) that payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.
17. PAYMENT OF EXPENSES
Borrower shall pay on demand all reasonable fees and expenses
(including, without limitation, the reasonable fees and expenses for legal
services) incurred by Lender or the Custodian in connection with this Agreement
and the Custody Agreement and the transactions contemplated hereby and thereby,
whether or not any Transactions are entered into hereunder, including, by way of
illustration and not by way of limitation, the fees and expenses incurred in
connection with (i) the preparation, reproduction and distribution of this
Agreement and the Custody Agreement and any opinions of counsel, certificates of
officers or other documents contemplated by the aforementioned agreements and
(ii) any Transaction under this Agreement; provided, however, that Borrower
shall not be required to pay the fees and expenses of Lender incurred as a
result of Lender's default under this Agreement. The obligation of Borrower to
pay such fees and expenses incurred prior to or in connection with the
termination of this Agreement shall survive the termination of this Agreement.
18. OPINIONS OF COUNSEL
Borrower shall, on the Advance Date of the first Transaction
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hereunder and, upon the request of Lender, on the Advance Date of any subsequent
Transaction, cause to be delivered to Lender a favorable opinion of counsel with
respect to the matters set forth in Exhibit C hereto (which opinion may be
subject to customary assumptions and exclusions), in form and substance
acceptable to Lender and its counsel.
19. FURTHER ASSURANCES; ADDITIONAL INFORMATION
(a) Borrower shall promptly provide such further assurances or
agreements as Lender may reasonably request in order to effect the purposes of
this Agreement.
(b) At any reasonable time, Borrower shall permit Lender, its agents or
attorneys, to inspect and copy any and all documents and data in its possession
pertaining to each Financed Mortgage Loan that is the subject of such
Transaction. Such inspection shall occur upon the request of Lender at a
mutually agreeable location during regular business hours and on a date not more
than two (2) Business Days after the date of such request.
(c) Borrower agrees to provide Lender or its agents, from time to time,
with such information concerning Borrower of a financial or operational nature
as Lender may reasonably request.
(d) Borrower shall provide Lender or its agents, with copies of all
filings made by or on behalf of Borrower or any entity that controls Borrower,
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended, promptly upon making such filings.
20. LENDER AS ATTORNEY-IN-FACT
Lender is hereby appointed the attorney-in-fact of Borrower for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instruments that Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, Lender shall have the right and power during the occurrence and
continuation of any Event of Default to receive, endorse and collect all checks
made payable to the order of Borrower representing any payment on account of the
principal of or interest on any of the Financed Mortgage Loans and to give full
discharge for the same.
21. WIRE INSTRUCTIONS
(a) Any amounts to be transferred by Lender to Borrower
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<PAGE> 23
hereunder shall be sent by wire transfer in immediately available funds to the
account of Borrower identified in the Request/Confirmation for the related
Transaction.
(b) Any amounts to be transferred by Borrower to Lender hereunder shall
be sent by wire transfer in immediately available funds to the account of Lender
at:
FNB Chicago/Bear Stearns MBS
ABA #: 071-000-013
Attn.: John Garzone
Acct.: 5801230
(c) Amounts received after 3:00 p.m., New York City time, on any
Business Day shall be deemed to have been paid and received on the next
succeeding Business Day.
22. ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the
parties containing general terms and conditions for loan transactions. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
23. NON-ASSIGNABILITY; TERMINATION
(a) The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by either party without the prior
written consent of the other party. Subject to the foregoing, this Agreement and
any Transactions shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns.
(b) This Agreement and all Transactions outstanding hereunder shall
terminate automatically without any requirement for notice on the Maturity Date.
24. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which counterparts shall be deemed to be an original, and such counterparts
shall constitute but one and the same instrument.
25. GOVERNING LAW
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
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<PAGE> 24
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS.
(c) THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER AT ITS ADDRESS PROVIDED PURSUANT TO SECTION 15 HEREOF.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
(e) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (B) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
26. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to exercise
any other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Without limitation on any of the foregoing, the failure to give
a notice pursuant to subparagraph 4(a) hereof will not constitute a waiver of
any right to do so at a later date.
27. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision of
the Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify
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<PAGE> 25
the other party prior to the Transaction. The Plan Party shall represent in
writing to the other party that the Transaction does not constitute a prohibited
transaction under ERISA or is otherwise exempt therefrom, and the other party
may proceed in reliance thereon but shall not be required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph,
any such Transaction shall proceed only if Borrower furnishes or has furnished
to Lender its most recent available audited statement of its financial condition
and its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Borrower
shall be deemed (i) to represent to Lender that since the date of Borrower's
latest such financial statements, there has been no material adverse change in
Borrower's financial condition which Borrower has not disclosed to Lender, and
(ii) to agree to provide Lender with future audited and unaudited statements of
its financial condition as they are issued, so long as it is a Borrower in any
outstanding Transaction involving a Plan Party.
28. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is
a broker or dealer registered with the Securities and Exchange
Commission ("SEC") under Section 15 of the Securities Exchange Act of
1934 ("1934 Act"), the Securities Investor Protection Corporation has
taken the position that the provisions of the Securities Investor
Protection Act of 1970 ("SAPPY") do not protect the other party with
respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the parties is
a government securities broker or a government securities dealer
registered with the SEC under Section 15C of the 1934 Act, SAPPY will
not provide protection to the other party with respect to any
Transaction hereunder; and
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<PAGE> 26
(c) in the case of Transactions in which one of the parties is
a financial institution, funds held by the financial institution
pursuant to a Transaction hereunder are not a deposit and therefore are
not insured by the Federal Deposit Insurance Corporation, the Federal
Savings and Loan Insurance Corporation or the National Credit Union
Share Insurance Fund, as applicable.
BEAR STEARNS MORTGAGE CAPITAL CITYSCAPE CORP.
CORPORATION
By /s/Paul Friedman By /s/Cheryl P. Carl
Title Vice President Title Senior Vice President
Date 9/5/97 Date 9/5/97
<PAGE> 27
EXHIBIT A
REQUEST/CONFIRMATION
TO: Cityscape Corp.
565 Taxter Road
Elmsford, New York 10523
Attention: Chief Financial Officer
FROM: Bear Stearns Mortgage Capital Corporation
RE: Request/Confirmation under Master Financing Agreement, dated as of
September 4, 1997, between Bear Stearns Mortgage Capital Corporation
and Cityscape Corp.
Bear Stearns Mortgage Capital Corporation ("Lender") is pleased to confirm your
pledge of the Mortgage Loans described below and listed on the attached Loan
Schedule pursuant to the above-referenced Master Financing Agreement under the
following terms and conditions:
Additional
ORIG. PRINCIPAL AMOUNT OF MORTGAGE LOANS: ________
CURRENT PRINCIPAL AMOUNT OF MORTGAGE LOANS: ________
ADVANCE DATE: ________
PAYOFF DATE: ________
ADVANCE AMOUNT: ________
FINANCING RATE: ________
MINIMUM REQUIRED MARGIN PERCENTAGE: ________
INTEREST DUE DATE: ________
Wire transfer instructions of Borrower:
Bank Name: __________
ABA No.: ____________
Account No.: ________
Attention: __________
Reference: __________
A-1
<PAGE> 28
The Master Financing Agreement is incorporated by reference into this
Request/Confirmation and made a part hereof as if it were fully set forth
herein. All capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Master Financing Agreement.
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
BY: _______________________________
NAME: _____________________________
TITLE: ____________________________
A-2
<PAGE> 29
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
RELATING TO THE FINANCED MORTGAGE LOANS
(a) Mortgage Loan Information. The information with respect to each
Mortgage Loan set forth in the Loan Schedule is true and correct in all
material respects as of the date specified on such Loan Schedule.
(b) Delivery of Mortgage Loan Documents. All of the original or
certified documentation required to be delivered to the Custodian on or
prior to the related Advance Date or as otherwise provided in this
Agreement has or will be so delivered.
(c) Payments Current. No scheduled payments on the Mortgage Loans are
delinquent eighty-nine (89) days or more based on the terms under which
the related Mortgage Loans have been made. Borrower has not advanced
funds, or induced, solicited or knowingly received any advance of funds
from a party other than Lender, directly or indirectly, for the payment
of any amount required by any Mortgage Loan.
(d) No Waiver or Modification. The terms of each Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any
respect, except by written instruments reflected in the Custodian's
Mortgage Loan File and no provision of any Mortgage or Mortgage Note
has been "whited out" or erased unless such modification has been
initialed by each of the parties to the related Mortgage Loan. No
instrument of waiver, alteration, modification or assumption has been
executed except for the instruments that are part of the Mortgage File
and the terms of which are reflected in the Mortgage File.
(e) No Defenses. No Mortgage Note or Mortgage is subject to any
set-off, counterclaim or defense, including the defense of usury, nor
will the operation of any of the terms of any Mortgage Note or
Mortgage, or the exercise of any right thereunder, render such Mortgage
Note or Mortgage unenforceable, in whole or in part, or subject to any
right of rescission, set-off, counterclaim or defense, including the
defense of usury, and to the best of Borrower's knowledge, no such
right of rescission, set-off, counterclaim or defense with respect to
such Mortgage Note or Mortgage has been asserted in any proceeding or
was
B-1
<PAGE> 30
asserted in any state or federal bankruptcy or insolvency proceeding at
the time the related Mortgage Loan was originated.
(f) Compliance with Laws. Any and all requirements of any material
federal, state or local law applicable to each Mortgage Loan have been
complied with including, without limitation, all material consumer,
usury, truth-in-lending, consumer credit protection, equal credit
opportunity or disclosure laws applicable to each Mortgage Loan, and
with respect to the Title I Mortgage Loans, the FHA Regulations; each
Mortgage Loan was originated in material compliance with all applicable
laws and no fraud or misrepresentation was committed by any Person in
connection therewith; any Mortgage Loan originated in the State of
Texas, was originated pursuant to Chapter 6 of the Texas Consumer
Credit Code.
(g) No Satisfaction or Release of Lien. No Mortgage has been satisfied,
canceled, subordinated or rescinded, in whole or in part. No Mortgaged
Property has been released from the lien of the related Mortgage, in
whole or in part, nor has any instrument been executed that would
effect any such release, cancellation, subordination or rescission,
other than the subordination of the lien of a Mortgage securing a
Mortgage Loan (in the case of a Title I Mortgage Loan, as permitted by
FHA Regulations), with respect to which a related superior lien was
released in connection with the refinancing of the mortgage loan
relating to such superior lien.
(h) Valid Lien. Each Mortgage Note is secured by a Mortgage and each
Mortgage is or creates a valid, subsisting and enforceable lien on the
related Mortgaged Property, including, in the case of a Mortgage
securing a property improvement loan, the land and all buildings on the
Mortgaged Property.
(i) Validity of Mortgage Loan Documents. Each Mortgage Note and each
Mortgage is genuine and each is the legal, valid and binding obligation
of the related Mortgagor, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights in
general and by general principles of equity. All parties to each
Mortgage Note and each Mortgage had legal capacity at the time to enter
into the related Mortgage Loan and to execute and deliver such Mortgage
Note and Mortgage, and such Mortgage Note and Mortgage have been duly
and properly executed by such parties.
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<PAGE> 31
(j) Full Disbursement of Proceeds. The proceeds of each Mortgage Loan
have been fully disbursed and there is no requirement for future
advances thereunder, all costs, fees and expenses incurred in making or
closing each Mortgage Loan and the recording of the Mortgage were
disbursed, the Mortgagor is not entitled to any refund of any amounts
paid or due under the Mortgage Note or any related Mortgage and any and
all requirements set forth in the related Mortgage Loan documents have
been complied with.
(k) Ownership. Immediately prior to the pledge thereof to Lender,
Borrower had good and marketable title to each Mortgage Loan, Mortgage
Note and Mortgage, was the sole owner thereof and had full right to
pledge each Mortgage Loan, Mortgage Note and Mortgage to Lender and
upon the pledge thereof by Borrower to Lender, Lender became the sole
owner of each Mortgage Loan, Mortgage Note and Mortgage free and clear
of any encumbrance, equity, lien, pledge, charge, claim or security
interest.
(l) Ownership of Mortgaged Property. The related servicer has in its
possession a title document with respect to each Mortgage Loan
reflecting that title to the related Mortgaged Property is held at
least 50% by the Mortgagor under such Mortgage Loan.
(m) No Defaults. Except with respect to any delinquent scheduled
payment which is not more than eighty-nine (89) days delinquent as of
the applicable Advance Date, there is no material default, breach,
violation or event of acceleration existing under any Mortgage or any
Mortgage Note and, to the best of Borrower's knowledge, there is no
event which, with the passage of time or with notice and/or the
expiration of any grace or cure period, would constitute such a
default, breach, violation or event of acceleration and neither
Borrower nor its predecessors have waived any such default, breach,
violation or event of acceleration, except as set forth in an
instrument of waiver, alteration, modification or assumption that is
included in the Mortgage File.
(n) No Condemnation or Damage. To the best of Borrower's knowledge, the
physical condition of each Mortgaged Property has not deteriorated
since the date of origination of the related Mortgage Loan (normal wear
and tear excepted) and there is no proceeding pending for the total or
partial condemnation of any Mortgaged Property.
(o) Mortgage Remedies Adequate. Each Mortgage contains
B-3
<PAGE> 32
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
related Mortgaged Property of the benefits of the security provided
thereby, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise, by judicial
foreclosure.
(p) FHA Insurance Coverage. Each Title I Mortgage Loan is an "FHA Title
I property improvement loan" (as such term is defined in 24 C.F.R. Part
201.2) underwritten by the originator thereof in accordance with such
originator's then current underwriting guidelines and all FHA
requirements for the Title I Program as set forth in the FHA
Regulations, and has been or will be reported to and acknowledged by
the FHA for FHA Insurance under Borrower's Title I contract of
insurance. Borrower has no knowledge of any event which would
invalidate or cancel the FHA Insurance for such Title I Mortgage Loan.
(q) Underwriting of Conventional Mortgage Loans. Each Conventional
Mortgage Loan has been underwritten by the originator thereof in
accordance with such originator's then current underwriting guidelines.
(r) Terms of Mortgage Loans. Each Mortgage Loan is a fixed rate or
adjustable rate loan; each Mortgage Note has an original term to
maturity of not less than 12 months nor more than 30 years from the
date of origination; each Mortgage Note is payable in monthly
installments of principal and interest, with interest payable in
arrears, and requires a monthly payment (which need not be constant
over its term) which is sufficient to amortize the original principal
balance over the original term and to pay interest at the related
interest rate borne by the Mortgage Note; and no Mortgage Note provides
for any extension of the original term.
(s) Security. No Mortgage Note is, or has been, secured by any
collateral except the lien of the related Mortgage and certain
personalty relating thereto.
(t) Deed of Trust. If a Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves as such and is named in the
Mortgage, or a valid substitution of trustee has been recorded or may
be recorded and no extraordinary fees or expenses are, or will become,
payable by Borrower to the trustee under the deed of trust, except in
connection with default proceedings and a trustee's sale after default
by the related Mortgagor.
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<PAGE> 33
(u) Value and Title I Insurability. Except with respect to conditions
and circumstances expressly permitted pursuant to the applicable
underwriting guidelines, Borrower has no knowledge of any conditions or
circumstances (that are not reflected in the Mortgage File or in the
files of the related servicer) that could reasonably be expected to
materially and adversely affect the value of the related Mortgaged
Property with respect to any Conventional Mortgage Loan. Further,
Borrower has no knowledge of any conditions or circumstances that could
reasonably be expected to affect the FHA insurability with respect to
any Title I Mortgage Loan under the Title I Program.
(v) Origination Practices. The origination practices used by each
originator of the Mortgage Loans and the servicing and collection
practices used by Borrower with respect to each Mortgage Loan, and with
respect to each Title I Mortgage Loan the refinancing practices, if
applicable, have been in all material respects legal, proper, prudent
and customary with respect to the loan origination and servicing
business as applicable to the respective loan type, including property
improvement, home equity and/or debt consolidation loans and, in the
case of Title I Mortgage Loans, in compliance with all FHA Regulations.
(w) Servicing Practices. Each Mortgage Loan has been serviced in
accordance with all applicable laws and, to the best of Borrower's
knowledge, no fraud or misrepresentation was committed by any Person in
connection therewith.
(x) No Bulk Transfer. The assignment, pledge and grant of the Mortgage
Notes and the Mortgages by Borrower to Lender were not subject to the
bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.
(aa) Relief Act Matters. No Mortgagor has notified Borrower, and
Borrower has no knowledge of any relief requested or allowed to an
Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(bb) Selection Criteria. The Mortgage Loans were not selected by
Borrower for pledge to Lender on any basis intended to adversely affect
Lender.
(cc) Appraised Mortgage Loan-to-Value. At origination, each Title I
Mortgage Loan in excess of $15,000 secured by a Mortgaged Property that
was not owner-occupied, had an appraised loan-to-value ratio not in
excess of 100%;
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<PAGE> 34
provided that the FHA Regulations in effect at the time of such
origination required an appraisal of the Mortgaged Property.
(dd) Type of Mortgaged Properties. At the time of origination, each
Title I Mortgage Loan with a principal balance of $7,500 or greater was
secured by a lien on an owner-occupied one- to-four family dwelling.
(ee) Senior Lien Delinquencies. No lien senior to the lien created by a
Mortgage immediately after the time of origination of the related
Mortgage Loan was more than 30 days past due.
B-6
<PAGE> 35
EXHIBIT C
OPINION OF COUNSEL TO BORROWER
1. Borrower is duly organized and validly existing as a corporation in
good standing under the laws of the State of __________ and has power and
authority to enter into and perform its obligations under this Agreement and the
Custody Agreement. Borrower is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the business transacted
by it requires such qualification and in which the failure so to qualify would
have a material adverse effect on the business, properties, assets or condition
(financial or other) of Borrower and its subsidiaries, considered as a whole.
2. This Agreement, the Custody Agreement and each Note have each been
duly authorized, executed and delivered by Borrower, and each constitutes a
valid and legally binding obligation of Borrower enforceable against Borrower in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights generally and to general equity principles.
3. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Borrower for
the consummation of the transactions contemplated by this Agreement, the Custody
Agreement or any Note, other than (i) such consents, approvals, authorizations
and orders that have been obtained on or prior to the date hereof and remain in
full force and effect, and (ii) such consents, approvals, authorizations and
orders, the failure to obtain which would not adversely affect the validity or
enforceability of any of the Agreement or the Custody Agreement or the rights or
remedies of the Lender thereunder, or the ability of any of the Borrower to
perform its obligations thereunder.
4. The consummation of any of the transactions contemplated by this
Agreement, the Custody Agreement and each Note will not materially conflict
with, result in a material breach of, or constitute a material default under the
articles of incorporation or bylaws of Borrower or the terms of the instrument
under which $300,000,000 of Borrower's 12 3/4% Senior Mortgage Notes due 2004
were issued or any indenture or other agreement or instrument known to us to
which Borrower is party or bound, or any order known to such counsel to be
applicable to Borrower or any regulations applicable to Borrower, of any state
or federal court, regulatory body, administrative agency,
C-1
<PAGE> 36
governmental body or arbitrator having jurisdiction over Borrower.
5. There is no pending or, to the knowledge of such counsel, threatened
action, suit or proceeding before any court or governmental agency, authority or
body or any arbitrator involving Borrower or relating to the transaction
contemplated by this Agreement, the Custody Agreement or any Note which, if
adversely determined, would have a material adverse effect on Lender.
6. Borrower is duly registered as a finance company in each state in
which Mortgage Loans were originated, to the extent such registration is
required by applicable law.
7. Each Mortgage Loan will have been endorsed in a manner which
satisfies any requirement of endorsement in order to transfer all right, title
and interest in and to that Mortgage Loan from Borrower to Lender. Each
assignment of Mortgage related to each such Mortgage Loan is in recordable form
and is sufficient under applicable law to validly and effectively transfer all
right, title and interest of Borrower to Lender. This Agreement together with
(a) the delivery of such related Mortgage Loans to Custodian, (b) the
endorsement of such Mortgage Loans to Lender and (c) the delivery of the
assignments of Mortgages related to the Mortgage Loans to the Custodian in
recordable form assigning such Mortgages to Lender, creates a valid, perfected
security interest in such Mortgage Loans in favor of Lender. Such security
interest will have the same priority and will be subject to the same security
interests and liens as apply to such Mortgage Loans in the hands of Borrower.
C-2
<PAGE> 37
EXHIBIT D
THIS NOTE IS
NOT A NEGOTIABLE INSTRUMENT.
NO TRANSFER OR SALE OF THIS NOTE SHALL BE MADE UNLESS SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND ANY APPLICABLE STATE SECURITIES LAWS OR IS MADE IN ACCORDANCE WITH SAID ACT
AND LAWS.
NOTE
Note No. _____________
$25,000,000 New York, New York, _____ __, 199_
FOR VALUE RECEIVED, CITYSCAPE CORP. (the "Borrower") promises to pay to
BEAR STEARNS MORTGAGE CAPITAL CORPORATION, and its successors and assigns (the
"Payee"), the principal sum of Twenty-Five Million Dollars ($25,000,000) (or so
much thereof as shall have been advanced here against and shall be outstanding),
in lawful money of the United States of America, in immediately available funds,
with interest on each principal sum advanced here against or the unpaid balance
thereof with such frequency and to such location as is specified in the related
Request/Confirmation (or on such other day and with such other frequency and to
such other location as may be mutually agreed upon by the Borrower and the
Payee) at said office and in said money and funds from the date of the related
advance until the repayment thereof at the rate per annum (based on a year of
360 days and actual days elapsed) set forth in such Request/Confirmation, but in
no event higher than the maximum rate permitted by law. Capitalized terms used
and not otherwise defined herein shall have the meanings assigned in the Master
Financing Agreement, dated as of September 4, 1997 (the "Master Financing
Agreement"), between Cityscape Corp. and Bear Stearns Mortgage Capital
Corporation except where the context clearly indicates otherwise.
The Payee is hereby authorized by the Borrower to endorse on the
schedule attached hereto amounts advanced here against and any principal
prepayments hereunder (as permitted by the Master
D-1
<PAGE> 38
Financing Agreement), it being understood, however, that failure to make any
such endorsement shall not affect the obligations of the Borrower hereunder in
respect of the amounts advanced hereagainst.
This Note is the Note referred to in the Master Financing Agreement
granting to the Payee a first priority perfected security interest in the
Mortgage Loans listed on the Mortgage Loan Schedule attached hereto. The holder
is entitled to the benefits of the Master Financing Agreement and may enforce
the agreements of the Borrower contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof.
This Note shall, unless the holder shall otherwise elect, be forthwith
be due and payable without notice or demand of any kind (except as expressly
provided in the Master Financing Agreement), all of which are expressly waived,
upon the occurrence of an Event of Default.
The Borrower waives diligence, presentment of any instrument, protest
and notice of non-payment or protest and any and all other notices and demands
whatsoever in connection with the delivery, acceptance, performance, default or
enforcement of this Note. This Note is not negotiable and may not be assigned or
transferred by the Payee. The Borrower will pay on demand all costs of
collection (including reasonable attorneys' fees) paid or incurred by the holder
in enforcing this Note on default.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS NOTE,
THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
AT ITS ADDRESS PROVIDED PURSUANT TO SECTION 15 OF THE MASTER FINANCING
AGREEMENT.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
D-2
<PAGE> 39
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION
THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS NOTE BROUGHT IN THE COURTS
REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
CITYSCAPE CORP.
By: ___________________________________
Name: _____________________________
Title: ____________________________
D-3
<PAGE> 40
SCHEDULE
This Note evidences advances made by the Payee to the Borrower and
the repayment of principal by the Borrower to the Payee, in the principal
amounts and on the dates set forth below as well as the total amount advanced
here against as of each such date:
<TABLE>
<CAPTION>
DATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT TOTAL RELATING TO
ADVANCED REPAID OUTSTANDING TRUST RECEIPTS NO.
<S> <C> <C> <C> <C>
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
- ----------- -------------------------- -------------------------- ------------------- ------------------------
</TABLE>
D-4
<PAGE> 1
[EXECUTION COPY]
EXHIBIT 10.5
CUSTODY AGREEMENT
among
CITYSCAPE CORP.
Borrower
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
Lender
and
CORESTATES BANK, N.A.,
as Custodian
Dated as of September 4, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
RECITALS................................................................. 1
SECTION 1. Definitions.................................................. 1
SECTION 2. Delivery of Mortgage Files to Custodian...................... 3
SECTION 3. The Custodian's Receipt, Examination and
Certification of Mortgage Files
and Issuance of Trust Receipt.................... 5
SECTION 4. Possession of Mortgage Files................................. 7
SECTION 5. Release of Custodian's Mortgage Files for
Servicing........................................ 9
SECTION 6. Review and Deposit of Additional Mortgage Loans.............. 10
SECTION 7. Waiver by the Custodian...................................... 10
SECTION 8. Right of Inspection by Lender and Third Persons.............. 10
SECTION 9. Custodian's Fees and Expenses................................ 11
SECTION 10. Termination of Agreement.................................... 11
SECTION 11. Resignation and Removal of Custodian........................ 12
SECTION 12. Limitation on Obligations of the Custodian.................. 13
SECTION 13. Notices..................................................... 14
SECTION 14. No Assignment or Delegation by the Custodian................ 15
SECTION 15. Controlling Law............................................. 15
SECTION 16. Agreement for the Exclusive Benefit of Parties.............. 15
SECTION 17. Entire Agreement............................................ 15
SECTION 18. Exhibits.................................................... 15
SECTION 19. Indulgences, Not Waivers.................................... 15
SECTION 20. Titles Not to Affect Interpretation......................... 16
SECTION 21. Provisions Separable........................................ 16
1
<PAGE> 3
SECTION 22. Representations and Warranties of the
Custodian........................................ 16
SECTION 23. Successor Custodian by Consolidation, Merger,
Etc.............................................. 17
SECTION 24. Counterparts................................................ 17
EXHIBITS
EXHIBIT A - LETTER OF TRANSMITTAL.............................A-1
EXHIBIT B - NOTICE TO THE CUSTODIAN...........................B-1
EXHIBIT C - TRUST RECEIPT.....................................C-1
EXHIBIT D - NOTICE OF TERMINATION.............................D-1
EXHIBIT E - NOTICE OF DEFAULT CERTIFICATE.....................E-1
EXHIBIT F - LETTER TO CUSTODIAN RE: Lender'S TRUST
RECEIPT.........................................F-1
EXHIBIT G - LETTER TO CUSTODIAN RE: ENDORSEE'S TRUST RECEIPT.G-1
EXHIBIT H - REQUEST FOR RELEASE OF DOCUMENTS..................H-1
EXHIBIT I - CONFIRMATION OF REDEMPTION AND RECEIPT............I-1
2
<PAGE> 4
THIS CUSTODY AGREEMENT entered into as of September 4, 1997, by and
among CITYSCAPE CORP. ("Borrower"), BEAR STEARNS MORTGAGE CAPITAL CORPORATION
("Lender"), and CORESTATES BANK, N.A., as custodian (the "Custodian"), recites
and provides:
RECITALS
Borrower and Lender have entered into a Master Financing Agreement
dated as of September 4, 1997 and a Request/Confirmation between Borrower and
Lender with respect to each transaction thereunder. The Master Financing
Agreement and the Request/Confirmations are hereinafter referred to collectively
as the "Financing Agreement."
Borrower is obligated to service the Mortgage Loans pursuant to the
terms and conditions of the Financing Agreement.
Borrower desires to deposit with the Custodian all Mortgage Notes and
Mortgages evidencing the Mortgage Loans, together with the other documents
included in the Mortgage Files related to the Mortgage Loans, to be held by the
Custodian as custodian for Lender and its assigns until otherwise instructed by
Lender, all in connection with transactions under the Financing Agreement (each
a "Transaction").
Lender may transfer its interest in the Mortgage Loans to one or more
Third Persons and the Custodian shall act as custodian for such Third Persons.
Custodian desires and is able to perform the duties and obligations as
custodian for Lender as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Definitions. For the purposes of this Agreement, the
following terms shall have the indicated meanings unless the context or use
indicates another or different meaning and intent, the definitions of such terms
are equally applicable to the singular and the plural forms of such terms, the
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular section or other
subdivision, and section references refer to sections of this Agreement. All
terms used herein and not defined shall have the respective meanings set forth
in the Financing Agreement.
"Agreement" shall mean this Custody Agreement, as supplemented or
amended from time to time.
<PAGE> 5
"Borrower" shall have the meaning set forth in the first paragraph of
this Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the States of New York or
Minnesota or any day on which a bank located in the States of New York or
Minnesota or the New York Stock Exchange is authorized or required to close for
business.
"Custodial Register" shall mean the register maintained by Custodian
pursuant to Section 4(f), which reflects as to each Mortgage Loan the Person to
whom the related Trust Receipt has been issued.
"Custodian" shall mean CoreStates Bank, N.A., or its successor
custodian.
"Loan Number" shall have the meaning set forth in Section 2(a) of this
Agreement.
"Mortgage Assignment" shall mean an assignment of the Mortgage in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the transfer of the Mortgage.
"Mortgage File" shall have the meaning set forth in Section 2(b)
hereof.
"Notice Loan Schedule" shall have the meaning set forth in Section 4(b)
of this Agreement.
"Notice of Termination" shall mean the notice substantially in the form
of Exhibit D hereto.
"Officer's Certificate" shall mean a certificate signed by (i) an
officer or an employee, authorized to sign an officer's certificate, of Borrower
or other Person having officers, submitting a Mortgage File to the Custodian or
(ii) the closing attorney for a Mortgage Loan. (The text of any particular
Officer's Certificate may be stamped upon a document constituting a portion of a
Mortgage File so long as such stamped text is signed by manual or facsimile
signature by an officer or an employee authorized to sign an Officer's
Certificate.)
"Original Lender" shall mean the original lender as set forth in the
Mortgage Note, or any successor or assignee under such Mortgage Note.
"Person" shall mean any individual, corporation,
2
<PAGE> 6
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"Servicer" shall mean Cityscape Corp. in its capacity as servicer of
the Mortgage Loans.
"Third Person" shall mean a Person other than Borrower, Lender or the
Custodian which Person has acquired an interest in any Mortgage Loans from
Lender and continues to have an interest in such Mortgage Loans.
"Trust Receipt" shall mean an instrument substantially in the form of
Exhibit C hereto.
SECTION 2. Delivery of Mortgage Files to Custodian.
(a) Representations of Borrower. With respect to each Transaction,
Borrower represents that it has, prior to the pledge of any Mortgage Loans to
Lender pursuant to the Financing Agreement, delivered to the Custodian those
documents designated in items 1 -- 7 below (to the extent applicable to such
Mortgage Loans). All documents delivered to the Custodian shall have been placed
by Borrower or its representative in an appropriate file folder, properly
secured, and clearly marked with the name of the Mortgaged Property and the loan
number (the "Loan Number").
(b) By delivery of a Letter of Transmittal, substantially in the form
of Exhibit A hereto, Borrower will from time to time certify that it has
delivered and released to the Custodian the related Mortgage Files for the
Mortgage Loans referred to in such Letter of Transmittal and has in its
possession the other documents with respect to the Mortgage Loans identified in
the mortgage loan schedule attached to the Letter of Transmittal as Schedule 1
(the "Loan Schedule"). The Loan Schedule is the Loan Schedule referred to in the
Financing Agreement.
"Mortgage File" means the following documents (all of which together
constitute an original mortgage file):
(1) the original Mortgage Note, endorsed, "Pay to the order of
__________, without recourse" and signed, by facsimile or manual
signature, in the name of Borrower by an authorized officer. If the
Mortgage Note has been signed by a Person on behalf of the Mortgagor,
the original power of attorney or other instrument that authorized and
empowered such Person to sign or a copy of such power of attorney
together with an Officer's Certificate certifying that such copy
represents a true and correct copy and that such
3
<PAGE> 7
original has been duly recorded in the appropriate records depository
for the jurisdiction in which the Mortgaged Property is located. To the
extent that there is no room on the face of the Mortgage Note for
endorsements, the endorsement may be contained on an allonge, if the
law by which such Mortgage Note is governed so permits. Such allonge
shall be firmly affixed to the Mortgage Note so as to become a part
thereof;
(2) the original of any loan agreement and guarantee(s)
executed in connection with the Mortgage Note;
(3) the original Mortgage, with evidence of recording thereon,
or, if the original Mortgage has not yet been returned from the
recording office, a copy of the original Mortgage together with an
Officer's Certificate (which may be a blanket Officer's Certificate of
Borrower covering all such Mortgage Loans) certifying that the copy is
a true copy of the original of the Mortgage which has been delivered
for recording in the appropriate recording office of the jurisdiction
in which the Mortgaged Property is located, or a copy of the Mortgage
certified by the public recording office in those instances where the
original Mortgage has been lost, destroyed or retained by the public
recording office; and if the Mortgage Note has been signed by a Person
on behalf of the Mortgagor, the original power of attorney or other
instrument that authorized and empowered such Person to sign or a copy
of such power of attorney together with an Officer's Certificate
certifying that such copy represents a true and correct copy and that
such original has been duly recorded in the appropriate records
depository for the jurisdiction in which the Mortgaged Property is
located;
(4) the original Mortgage Assignment assigned in blank for
each Mortgage Loan, in form and substance acceptable for recording
(except for the name of the assignee) and signed in the name of the
last endorsee by an authorized officer;
(5) the originals of all intervening assignments of mortgage,
if any, with evidence of recording thereon or copies thereof certified
by the related recording office or, if the original of any such
assignment has not yet been returned from the recording office, a copy
of the original of any such assignment without evidence of recording
thereon together with an Officer's Certificate (which may be a blanket
Officer's Certificate of Borrower covering all such Mortgage Loans)
certifying that the copy is a true copy of the original of any such
assignment which has been delivered by such attorney or officer for
recording in the appropriate
4
<PAGE> 8
recording office of the jurisdiction in which the Mortgaged Property is
located, or a copy of the intervening assignment certified by the
public recording office in those instances where the original recorded
intervening assignment has been lost, destroyed or retained by the
public recording office;
(6) the originals of all assumption, modification,
consolidation or extension agreements, if any, with evidence of
recording thereon or, if the original of any such agreement has not yet
been returned from the recording office, a copy of the original of any
such agreement without evidence of recording thereon together with an
Officer's Certificate (which may be a blanket Officer's Certificate of
Borrower covering all such Mortgage Loans) certifying that the copy is
a true copy of the original of any such agreement which has been
delivered by such attorney or officer for recording in the appropriate
recording office of the jurisdiction in which the Mortgaged Property is
located, or a copy of such agreement certified by the public recording
office in those instances where the original recorded agreement has
been lost, destroyed or retained by the public recording office.
SECTION 3. The Custodian's Receipt, Examination and Certification of
Mortgage Files and Issuance of Trust Receipt.
(a) The Custodian shall examine the documents received by it and
confirm, as of the date of the Trust Receipt, that on their faces:
(1) the Mortgage Note and Mortgage each bears an original
signature or signatures purporting to be the signature or signatures of
the Person or Persons named as the maker and mortgagor or grantor or,
in the case of copies of the Mortgage permitted under Section 2, that
such copies bear a reproduction of such signature or signatures;
(2) (a) the principal amount of the indebtedness secured by
the Mortgage is identical to the original principal amount of the
Mortgage Note and the original principal amount on the Loan Schedule;
(b) the Mortgage Note term is the same as set forth on the Loan
Schedule; and (c) the Mortgage Note coupon is the same as set forth on
the Loan Schedule;
(3) the Mortgage Note bears original endorsements, by either
manual or facsimile signature, which complete the chain of ownership
from the original holder or payee to the owner of the related Trust
Receipt;
5
<PAGE> 9
(4) the original of the Mortgage Assignment and any
intervening mortgage assignment bears the original signature purporting
to be the signature of the named mortgagee or beneficiary (and any
other necessary party, including subsequent assignors) or in the case
of copies permitted under Section 2, that such copies bear a
reproduction of such signature or signatures and that the Mortgage
Assignment and any intervening mortgage assignment complete the chain
of title from the originator to Borrower and from Borrower in blank;
(5) the power of attorney (if any), as specified in Sections
2(b)(1) and 2(b)(3), (A) bears an original signature purporting to be
the signature of the maker of the Mortgage Note and the mortgagor or
grantor of the Mortgage and (B) bears evidence that such power of
attorney was recorded in the appropriate records depository for the
jurisdiction where the Mortgaged Property is located or, in case of
copies permitted under Sections 2(b)(1) and (2)(b)(3), that such copies
bear a reproduction of such signatures and such evidence of
recordation; and
(6) if a Mortgage Note or a Mortgage was executed by an
attorney-in-fact, the power of attorney specified in Sections 2(b)(1)
and 2(b)(3) is included and conforms to the requirements of such
section.
(b) If the Custodian has determined that all the required documents are
included in the Mortgage Files delivered to it and that such related documents
on their faces satisfy the requirements enumerated in Sections 3(a)(1) through
3(a)(6) hereof, the Custodian shall (i) sign a copy of the related Letter of
Transmittal and return the Letter of Transmittal to Borrower via facsimile
transmission with the original Letter of Transmittal to be sent via overnight
courier for next day delivery, and (ii) remit to Lender or its designee a Trust
Receipt with respect to such Mortgage Files signed by the Custodian. If upon
examination of the documents included in any Mortgage File, the Custodian
determines that such documents do not satisfy the above requirements, or is
unable to confirm that such documents satisfy such requirements, the Custodian
shall mark such Mortgage Loan as an exception on its Trust Receipt. Except as
set forth in the preceding sentence, the Trust Receipt of the Custodian with
respect to each Mortgage File shall be deemed to include a certification that
the documents reviewed by the Custodian appear regular on their face and relate
to the Mortgage Loan described in the Mortgage File and are in the possession
and control of the Custodian.
(c) The Custodian shall provide a Trust Receipt in
6
<PAGE> 10
accordance with subsection (b) above with respect to up to 100 Mortgage Files by
1:00 p.m. New York City time on the date of delivery of such Mortgage Files to
the Custodian so long as such Mortgage Files are delivered to the Custodian
prior to 11:00 a.m. New York City time. In all other cases, the Custodian will
deliver a Trust Receipt by 1:00 p.m. New York City time on the Business Day
following the date of delivery of such Mortgage Files to the Custodian. Each
Trust Receipt shall be delivered by facsimile transmission with the original to
follow by overnight courier for next day delivery.
(d) Under no circumstances shall the Custodian be obligated to verify
the authenticity of any signature on any of the documents received or examined
by it in connection with this Agreement or the authority or capacity of any
person to execute or issue any such document, nor shall the Custodian be
responsible for the value, form, substance, validity, perfection, priority,
effectiveness or enforceability of any of such documents.
(e) Any provision of this Agreement to the contrary notwithstanding,
Borrower shall notify the Custodian of the need to examine a Mortgage File and
deliver a related Trust Receipt not less than forty-eight (48) hours prior to
the date on which such Trust Receipt is required to be delivered.
(f) With respect to any Trust Receipt delivered to Lender hereunder,
the Custodian shall revise its own internal books and records from time to time
to reflect its receipt or release of Mortgage Loans under the terms of this
Agreement so that the applicable Loan Schedule for any such Trust Receipt shall
always accurately reflect the Mortgage Loans held by the Custodian under this
Agreement.
(g) The Custodian and the Borrower shall cooperate with the Lender in
order to provide the Lender with discrete Loan Schedules for each Trust Receipt
issued by the Borrower under the Financing Agreement accurately reflecting the
Mortgage Loans relating to such Trust Receipt that are held by the Custodian
under this Agreement. Each Note shall relate to one or more discrete Trust
Receipts.
SECTION 4. Possession of Mortgage Files.
(a) Possession of Mortgage Files on Behalf of Lender. The Custodian
shall segregate and retain possession and custody of the Mortgage Files for the
exclusive use and benefit of Lender and as agent and bailee of and custodian for
Lender for all purposes until otherwise notified by Lender pursuant to
subsection (b) hereof. The Custodian shall also make appropriate
7
<PAGE> 11
notations in the Custodian's books and records reflecting that the Mortgage
Files are owned by Lender unless otherwise notified by Lender pursuant to
subsection (b) hereof. The Custodian shall not release any portion of the
Mortgage Files to Borrower or to any other party without the prior written
authorization of the owner of the Trust Receipt.
(b) Possession of Mortgage Files on Behalf of Third Persons. The
Custodian acknowledges that Lender may transfer its interest in the Mortgage
Loans to one or more Third Persons. Upon receipt of written notice from Lender,
substantially in the form of Exhibit B hereto, that Lender has transferred its
interest in the Mortgage Loans identified on a schedule to such notice (the
"Notice Loan Schedule") to a Third Person together with the Trust Receipt for
amendment of the Schedule attached thereto, the Custodian will promptly issue a
Trust Receipt to such Third Person and shall issue an amended Trust Receipt to
Lender, each of which will reflect the transfer of Lender's interest in certain
Mortgage Loans to such Third Person. The notice sent by Lender to the Custodian
shall be in substantially the form of Exhibit B hereto and shall (i) specify the
name of the Third Person, (ii) specify the address of the Third Person, which
may be an address in care of Lender and (iii) have attached the Notice Loan
Schedule. Upon receipt of any such notice from Lender, the Custodian shall (a)
segregate and retain possession and custody of the Mortgage Files with respect
to the Mortgage Loans in the Notice Loan Schedule as agent and bailee of and
custodian for such Third Person, and (b) make appropriate notations in the
Custodian's books and records reflecting that the Mortgage Files identified in
the Notice Loan Schedule are owned by such Third Person. The Custodian shall
segregate and maintain continuous custody of all Mortgage Files for the benefit
of the Person to whom it has issued a Trust Receipt. Lender's agreements with
each holder of a Trust Receipt other than an affiliate of Lender (each such
holder, a "Transferee") will specify that the Transferee cannot issue
instructions regarding the Mortgage Loans or Mortgage Files unless Lender has
defaulted on Lender's obligations to such Transferee. Accordingly, the Custodian
may not act on requests from a Transferee to withdraw or otherwise dispose of
Mortgage Loans unless the Transferee delivers to the Custodian an executed
Notice of Default Certificate in the form of Exhibit E hereto. The Custodian
shall be entitled to presume conclusively that the Notice of Default Certificate
is properly executed and that when delivered to the Custodian an Event of
Default exists under Lender's agreement with its Transferee.
(c) Upon surrender of the Trust Receipt by Lender to the Custodian,
Lender may issue instructions regarding the Mortgage Loans designated in the
applicable Trust Receipt, including
8
<PAGE> 12
instructions to withdraw Mortgage Loans.
(d) In the event a Trust Receipt is lost, destroyed or otherwise
unavailable for surrender to the Custodian, Lender will present to the Custodian
documentation in the form attached as Exhibit F or Exhibit G hereto. Upon
receipt by the Custodian of such documentation, Lender will have the right to
issue instructions regarding the Mortgage Loans covered by a Trust Receipt
without surrender of the related Trust Receipt.
(e) The Custodian understands that Lender may need to examine Mortgage
Loans subject to a Trust Receipt on a periodic basis. Such examination shall
take place on the premises of the Custodian. Lender will give the Custodian two
(2) Business Days' notice before Lender makes an examination. Lender's
agreements with each Transferee will grant Lender the right to make such
examinations.
(f) The Custodian shall cause to be kept at its corporate trust office
records in the form, scope and substance of a register (the "Custodial
Register") in which, subject to such reasonable regulations as it may prescribe,
the Custodian shall reflect the Person to whom the Mortgage Loans have been
pledged as confirmed by Trust Receipts as herein provided. The Custodial
Register shall be deemed to contain proprietary information and only Custodian
and Lender shall have access to such information.
(g) With respect to the redemption of any Mortgage Loan by Borrower
from Lender under the Financing Agreement, the interest of any Third Person in
any such Mortgage Loan shall automatically terminate simultaneously with the
payment to Lender of the Payoff Amount for such Mortgage Loan under the
Financing Agreement and any such interest shall be deemed to have been
transferred to Lender as of such time, except with respect to any Mortgage Loans
delivered to a Third Person pursuant to the Notice of Default Certificate
attached hereto as Exhibit E. Pursuant to the preceding sentence, the interest
of any Third Person shall automatically terminate irrespective of whether such
Third Person receives the appropriate payment for such Mortgage Loan.
SECTION 5. Release of Custodian's Mortgage Files for Servicing. From
time to time and as appropriate for the servicing of any of the Mortgage Loans
by Borrower, the Custodian is hereby authorized, upon written request and
receipt of Borrower and consent and acknowledgement of Lender (to the extent
required by Exhibit H) in the form of Exhibit H, to release to Borrower or its
designee the related Mortgage File, or any documents contained therein, set
forth in such receipt to Borrower. All documents so released to Borrower or its
designee shall be held by it in trust for the benefit of Lender and Third
9
<PAGE> 13
Persons from time to time. Except in the case of a Mortgage Loan in foreclosure,
Borrower or its designee shall return to the Custodian the Mortgage File or such
documents when Borrower's need therefor in connection with servicing no longer
exists but in no event later than ten (10) Business Days after their release by
the Custodian as provided herein.
Upon the payment in full of any Mortgage Loan by the mortgagor, and
upon receipt by the Custodian of Borrower's request for release and
acknowledgement by Lender in the form of Exhibit H, the Custodian shall promptly
release the related Mortgage File to Borrower.
Borrower agrees that, at the time any request for release of Mortgage
Files is made to the Custodian under this Agreement, Lender shall be so notified
and a copy of any written request for release shall be furnished to Lender. Upon
its receipt of any released Mortgage Files, Borrower shall so notify Lender.
SECTION 6. Review and Deposit of Additional Mortgage Loans.
(a) If, pursuant to the Financing Agreement, Borrower is required to
deliver additional Mortgage Loans to the Custodian to cure a Margin Deficit or
if Borrower and Lender agree to cause additional Mortgage Loans to become
subject to the Financing Agreement ("Additional Mortgage Loans"), the Custodian
shall retain possession and custody of the Mortgage Files relating thereto
pursuant to Section 4 hereof and, upon receipt and review thereof, shall
transmit to Lender a Trust Receipt relating to such Additional Mortgage Loans
with a Loan Schedule for such Additional Mortgage Loans attached thereto. The
delivery of any Trust Receipt issued under this Section 6(a) shall be made in
the manner as provided in Section 3(c).
(b) Two (2) days prior to the delivery of any Additional Mortgage
Loans, Borrower will advise the Custodian whether the Custodian will be required
to review any Additional Mortgage Loans. Borrower undertakes to use its best
efforts to make available for review any such Additional Mortgage Loans as soon
as is reasonably possible. Upon receipt thereof, the Custodian shall perform its
review of the Mortgage Files relating to any Additional Mortgage Loans in the
manner contemplated by Section 3 hereof.
(c) Borrower covenants and agrees to provide to the Custodian at the
time Borrower delivers any Additional Mortgage Loans under this Agreement, and
at the time any Mortgage Loans are transferred to Borrower pursuant to Section
4(c) hereof, a revised Loan Schedule reflecting current information with respect
to those Mortgage Loans subject to the applicable Trust Receipt.
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<PAGE> 14
SECTION 7. Waiver by the Custodian. Notwithstanding any other
provisions of this Agreement, the Custodian shall not at any time exercise or
seek to enforce any claim, right or remedy, including any statutory or common
law rights of set-off, if any, that the Custodian might otherwise have against
all or any part of a Mortgage File or the proceeds thereof. The Custodian
warrants that it currently holds, and during the existence of this Agreement
shall hold, no adverse interest, by way of a security interest or otherwise, in
any Mortgage Loan.
SECTION 8. Right of Inspection by Lender and Third Persons. Upon
reasonable notice to the Custodian (which in no event shall be less than two (2)
Business Days notice), the Person or Persons for whom the Custodian is acting as
custodian, or their duly authorized representatives, may at any time, during
ordinary business hours, inspect and examine the Mortgage Files in the
possession and custody of the Custodian at such place or places where such
Mortgage Files are deposited.
SECTION 9. Custodian's Fees and Expenses. The Custodian hereby
acknowledges that Borrower has agreed to pay all reasonable fees due and owing
to, and except as otherwise provided herein, any reasonable expenses incurred by
the Custodian under this Agreement. The fees due to the Custodian for its
services hereunder shall be as set forth in a separate letter agreement between
the Custodian and Borrower. In addition to the fees referred to in the two
foregoing sentences, Borrower has agreed to pay all reasonable out-of-pocket
expenses incurred by the Custodian in connection with the review of each
Mortgage File by it or its agent and its issuance of a Trust Receipt relating
thereto. Neither Lender nor any Third Person shall have any liability or
obligation to pay any such fees or expenses, and the duties of the Custodian
hereunder shall be independent of Borrower's performance of its obligations to
the Custodian in respect of such fees and expenses.
SECTION 10. Termination of Agreement. This Agreement shall become
effective on and as of the date hereof and shall terminate upon the earlier of
(i) the Custodian's receipt of written Notice of Termination signed by the
Person or all of the Persons to whom the Custodian has issued Trust Receipts and
on whose behalf the Custodian is acting as agent, bailee and custodian, (ii) the
removal of all Mortgage Files from the possession of the Custodian pursuant to
the instructions of the Person or Persons entitled to request such removal
pursuant to this Agreement and (iii) if such Mortgage Loan is redeemed by
Borrower from Lender, the receipt by Lender of the Payoff Amount for such
Mortgage Loan under the Financing Agreement. The Custodian shall be entitled
11
<PAGE> 15
to rely, and shall be protected in relying, on any such Notice of Termination
delivered to it by such Person or Persons. If this Agreement terminates with
respect to any Mortgage Loan by operation of clause (i) above, the Custodian
shall deliver the related Mortgage File then subject to this Agreement to the
Person indicated in the Notice of Termination. If any Mortgage Loan is redeemed
by Borrower from Lender pursuant to clause (iii) above, then Lender shall
execute and deliver to the Custodian a document in substantially the form of
Exhibit I which confirms the receipt of the Payoff Amount for such Mortgage Loan
and the termination and release of all of Lender's right, title and interest in
such Mortgage Loan, and the Custodian upon receipt of such document shall
deliver the related Mortgage File for such Mortgage Loan to Borrower or such
other Person as Borrower so directs. Upon such termination the Custodian shall
deliver all Mortgage Files then subject to this Agreement to the Person
indicated in such Notice of Termination or if no such Person is indicated, then
to the Person or Persons to whom the Custodian has issued Trust Receipts and for
whom the Custodian is acting on such date and the Custodian shall endorse the
Mortgage Notes without recourse, representation and warranties and execute
mortgage assignments pursuant to any instruction by the Person on whose behalf
the Custodian is acting as agent and bailee pursuant to this Agreement.
SECTION 11. Resignation and Removal of Custodian.
(a) Resignation. The Custodian shall have the right, with or without
cause, to resign as the Custodian under this Agreement upon sixty (60) days'
prior written notice to Borrower, Lender and, to the extent of its interest, any
Third Person. Following any such resignation, the Custodian shall continue to
act as the "Custodian" under this Agreement until it delivers the Mortgage Files
to a duly appointed successor Custodian as provided in (c) below, if any, or to
any designee specified by Lender or any Third Person, as applicable.
(b) Removal. Lender and, to the extent of its interest, any Third
Persons may remove and discharge the Custodian from the performance of its
duties under this Agreement, by providing five (5) days' written notice to the
Custodian, signed jointly by Lender and a majority in interest of (calculated
with reference to the face value of the Mortgage Loans) any Third Person or
Persons with any interest in the Mortgage Loans, as evidenced by the holding of
a Trust Receipt, with a copy to Borrower. Following any such removal, the
Custodian shall continue to act as the "Custodian" under this Agreement until it
delivers the Mortgage Files to a duly appointed successor Custodian as provided
in (c) below, if any, or to any designee specified by Lender or any Third
Person, as applicable.
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<PAGE> 16
(c) Appointment of Successor Custodian; Transfer of Mortgage Loans.
Upon resignation or removal of the Custodian, Lender, Borrower and, to the
extent of its interest and if permitted by Section 4 hereof, any Third Person
shall have 60 days in which to appoint and designate a successor to take
possession of the Mortgage Files or select one or more designees to take
possession thereof. Upon receipt of written direction regarding the foregoing
from Lender, Borrower and any such Third Person, the Custodian shall deliver all
Mortgage Files to the person so designated within 10 days following delivery to
the Custodian of such written notice. If a successor Custodian is appointed, the
Custodian shall deliver the Mortgage Files in accordance with the written
instructions of Lender, Borrower and a majority in interest of (calculated with
reference to the face value of the Mortgage Loans) Third Persons having
interests in the Mortgage Loans to the extent such Third Persons are permitted
to take action with respect thereto under Section 4 hereof setting forth the
name and address of the successor Custodian. If Lender, Borrower and, to the
extent of its interest, any such Third Person, fail to jointly designate a
successor Custodian or specify one or more designees within such 60-day period,
then the Custodian shall deliver possession and custody to Lender and, if
otherwise permitted under Section 4 hereof, any Third Person, of their
respective Mortgage Files, as applicable, at the address specified in the
Custodian's records. The Custodian shall, as part of the transfer of the
Mortgage Files, deliver the Mortgage Assignment for each Mortgage Loan in
recordable form and shall endorse the Mortgage Note without recourse,
representation and warranties in accordance with Lender's or the applicable
Third Person's instructions. Any successor Custodian hereunder shall be a
financial institution whose deposits are insured by FDIC, have a net worth of
not less than $10,000,000 and shall have secure vault storage facilities located
in the State of New York or such other State as Lender and Borrower may agree,
in which the Mortgage Files are to be retained.
SECTION 12. Limitation on Obligations of the Custodian. The Custodian
shall have no duties or obligations other than those specifically set forth
herein, and no further duties or obligations shall arise by implication or
otherwise. The Custodian agrees to use its best judgment and good faith in the
performance of such obligations and duties and shall incur no liability to
Borrower for its acts or omissions hereunder, except as may result from its
gross negligence or willful misconduct. The Custodian shall also be entitled to
rely (and shall be protected in relying) upon written advice of its legal
counsel and to rely upon any written notice, document, correspondence, request
or directive received by it from Lender, any Third Person (if applicable), or
Borrower, as the case may be, that the
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<PAGE> 17
Custodian believes to be genuine and to have been signed or presented by the
proper and duly authorized officer or representative thereof, and shall not be
obligated to inquire as to the authority or power of any Person so executing or
presenting such documents or as to the truthfulness of any statements set forth
therein. No provision of this Agreement shall require the Custodian to expend or
risk its own funds or otherwise incur financial liability in the performance of
its duties hereunder if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity is not reasonably assured to it.
Borrower agrees to indemnify, defend and hold the Custodian harmless from and
against any claim, legal action, liability or loss that is initiated against or
incurred by the Custodian, including court costs and reasonable attorney's fees
and disbursements, and all of the Custodian's other cost, damage or expense
incurred in connection with the Custodian's performance of its duties under this
Agreement, but excluding any such claim, legal action, liability, loss, cost,
damage or expense caused by Custodian's gross negligence or willful misconduct.
The Custodian shall at its own expense maintain at all times during the
existence of this Agreement and keep in full force and effect (a) fidelity
insurance, (b) theft and loss of documents insurance, (c) forgery insurance, and
(d) errors and omissions insurance. All such insurance shall be in amounts, with
standard coverage and subject to deductibles, as are customary for insurance
typically maintained by banks which act as the Custodian in similar
transactions. The Custodian shall, upon written request, provide to Borrower, or
to any other Person as Borrower shall direct, a certificate signed by an
authorized officer of the Custodian certifying that the foregoing insurance
policies are in full force and effect. The Custodian shall use its best efforts
to ensure that such insurance shall not terminate prior to receipt by Lender by
registered mail of 30 days' prior written notice thereof.
SECTION 13. Notices. Any notice, demand or consent required or
permitted by this Agreement shall be in writing and shall be effective and
deemed delivered only when received by the party to which it is sent. Any such
notice, demand or consent shall be delivered in person or transmitted by a
recognized private courier service or deposited with the United States Postal
Service, certified mail, postage prepaid, return receipt requested, addressed as
follows, unless such address is changed by written notice hereunder:
14
<PAGE> 18
If to Borrower:
Cityscape Corp.
565 Taxter Road
Elmsford, New York 10523
Attention: Chief Financial Officer
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
with a copy at the same address to:
Attention: General Counsel
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
If to Lender:
Bear Stearns Mortgage Capital Corporation
245 Park Avenue
New York, New York 10167
Attn: John Garzone
Telephone: (212) 272-3853
Telecopy: (212) 272-7803
If to the Custodian:
CoreStates Bank, N.A.
1500 Market Street P-1 Level
Philadelphia, Pennsylvania 19101
Attn: Heather L. Buckman
Telephone: (215) 973-2009
Telecopy: (215) 973-6387
SECTION 14. No Assignment or Delegation by the Custodian. The Custodian
shall not assign, transfer, pledge or grant a security interest in any of its
rights, benefits or privileges hereunder nor delegate or appoint any other
person to perform or carry out any of its duties, responsibilities or
obligations under this Agreement; any act or instrument purporting to effect any
such assignment, transfer, pledge, grant, delegation or appointment shall be
void.
SECTION 15. Controlling Law. This Agreement and all questions relating
to validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of New York, without regard to any New York or other conflict-of-law provisions.
SECTION 16. Agreement for the Exclusive Benefit of Parties. This
Agreement is for the exclusive benefit of the parties
15
<PAGE> 19
hereto, and their respective successors and permitted assigns, and shall not be
deemed to create or confer any legal or equitable right, remedy or claim upon
any other person whatsoever except a Third Person to the extent rights are
explicitly conferred on any one or more Third Persons pursuant to this
Agreement.
SECTION 17. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof, including any prior
custody agreements. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing signed by Lender, Borrower and the Custodian.
SECTION 18. Exhibits. All Exhibits referred to herein or attached
hereto are hereby incorporated by reference into, and made a part of, this
Agreement.
SECTION 19. Indulgences, Not Waivers. Neither the failure nor any delay
on the part of a party hereto to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the parties asserted to have granted
such waiver.
SECTION 20. Titles Not to Affect Interpretation. The titles of sections
and subsections contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
SECTION 21. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other provision or provisions may be invalid or unenforceable in whole or in
part.
SECTION 22. Representations and Warranties of the
16
<PAGE> 20
Custodian. The Custodian represents, warrants to, and covenants with Lender that
on the date hereof, and on the date of the issuance of any Trust Receipt by the
Custodian:
(1) The Custodian is (i) a national banking association duly
organized, validly existing and in good standing under the laws of the
United States of America and (ii) duly qualified and in good standing
and in possession of all requisite authority, power, licenses, permits
and franchises in order to execute, deliver and comply with its
obligations under the terms of this Agreement;
(2) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action and the
execution and delivery of this Agreement by the Custodian in the manner
contemplated herein and the performance of and compliance with the
terms hereof by it will not (i) violate, contravene or create a default
under any applicable laws, licenses or permits to the best of its
knowledge, or (ii) violate, contravene or create a default under any
charter document or bylaw of the Custodian or to the best of the
Custodian's knowledge any contract, agreement, or instrument to which
the Custodian or by which any of its property may be bound and will not
result in the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its property;
(3) The execution and delivery of this Agreement by the
Custodian and the performance of and compliance with its obligations
and covenants hereunder do not require the consent or approval of any
governmental authority or, if such consent or approval is required, it
has been obtained;
(4) This Agreement, and the original Trust Receipt issued
hereunder, when executed and delivered by the Custodian will constitute
valid, legal and binding obligations of the Custodian, enforceable
against the Custodian in accordance with their respective terms, except
as the enforcement thereof may be limited by applicable debtor relief
laws and that certain equitable remedies may not be available
regardless of whether enforcement is sought in equity or at law;
(5) Custodian does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant
contained in this Agreement;
(6) To Custodian's knowledge after due inquiry, there is no
litigation pending or threatened which, if determined adversely to
Custodian, would adversely affect the
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<PAGE> 21
execution, delivery or enforceability of this Agreement, or any of the
duties or obligations of Custodian thereunder, or which would have a
material adverse effect on the financial condition of Custodian; and
(7) Upon written request of a Lender or any Third Person, and
assurance reasonably satisfactory to Custodian that its costs of doing
so will be timely reimbursed and that Custodian will receive reasonable
compensation (in addition to the compensation provided for elsewhere in
this Agreement) for doing so, Custodian shall take such steps as may be
reasonably requested by Lender or any Third Person (consistent with
Custodian's undertakings hereunder) to protect or maintain any interest
in any real property securing the Mortgage Loan owned by such owner and
any insurance applicable thereto.
SECTION 23. Successor Custodian by Consolidation, Merger, Etc. If the
Custodian consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust assets to, another corporation, the
successor corporation without any further act shall be the successor custodian,
provided that (i) the successor corporation does not directly or indirectly
control and is not under the direct or indirect control of the Lender or the
Borrower, or (ii) any officer or director of the successor does not act as an
officer or director of the Lender or the Borrower.
SECTION 24. Counterparts. For the purpose of facilitating the execution
of this Agreement as herein provided and for other purposes, this Agreement may
be executed simultaneously in any number of counterparts, each of which
counterpart shall be deemed to be an original, and such counterparts shall
constitute and be one and the same instrument.
18
<PAGE> 22
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth above.
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
Name: Cheryl P. Carl
Title: Senior Vice President
CORESTATES BANK, N.A.,
as Custodian
By: /s/ Heather L. Buckman
Name: Heather L. Buckman
Title: Tust Officer
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: /s/ Paul Friedman
Name: Paul Friedman
Title: Vice President
19
<PAGE> 23
EXHIBIT A
LETTER OF TRANSMITTAL
To: CoreStates Bank, N.A., From: Cityscape Corp.
as Custodian 565 Taxter Road
______________________________ Elmsford, New York 10523
Attention: __________________
__________________
Pursuant to the Custody Agreement dated as of September 4, 1997 (the
"Custody Agreement") among CoreStates Bank, N.A., as custodian (the
"Custodian"), Cityscape Corp. ("Borrower"), and Bear Stearns Mortgage Capital
Corporation, Borrower hereby delivers to you (i) the documents described below
in connection with the Mortgage Loans identified on the attached schedule and
(ii) an updated Loan Schedule identifying each Mortgage Loan in your custody
(including the Mortgage Loans referred to in clause (i) above).
We understand that the list set forth below indicates in summary
fashion the materials for transmittal; it is not intended to describe fully all
the required characteristics of each item. We further understand that each item
sent to the Custodian must comply with the applicable requirements of the
Custody Agreement, and that all required documents must be delivered together
before the Custodian will accept the Mortgage Loans.
With respect to each of the Mortgage Loans referred to in clause (i)
above, Borrower has delivered, to the extent required by the Custody Agreement,
the following documents:
(1) Letter of Transmittal (original and one copy)
(2) Original Mortgage Note (endorsed in blank), including all intervening
endorsements Power of Attorney (if applicable)
(3) Original of any loan agreement and guarantee executed in connection
with the Mortgage Notes, if applicable
(4) Mortgage original, or Conformed Copy, together with the appropriate
certificate
(5) Assignment of Mortgage in blank original, or Conformed Copy, together
with the appropriate certificate
(6) Intervening Mortgage Assignment, if any original, or Conformed Copy,
together with the appropriate certificate
(7) originals of all assumption, modification, consolidation or extension
agreements, if any
(8) Original Lender's Title Insurance Policy original, or Written
commitment issued by the title insurance company, together with the
appropriate certificate, or Preliminary Title Report
(9) other.
A-1
<PAGE> 24
Submitted The Custodian acknowledges receipt of the documents
By: referred to and agrees to hold and retain possession
thereof pursuant to the terms of the Custody
Date: Agreement.
Telephone Number: CORESTATES BANK, N.A.,
as Custodian
By:
Name:
Title:
A-2
<PAGE> 25
EXHIBIT B
NOTICE TO THE CUSTODIAN
TO: CoreStates Bank, N.A., as Custodian
FROM: Bear Stearns Mortgage Capital Corporation
DATE: ____________________
Pursuant to the Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and CoreStates Bank,
N.A., as Custodian ("Custody Agreement"), the undersigned hereby notifies you
that it has transferred its interest in the Mortgage Files with respect to the
Mortgage Loans identified in the mortgage loan schedule attached hereto (the
"Notice Loan Schedule") to [TRANSFEREE NAME AND ADDRESS].
Included with this notice is the original Trust Receipt for amendment
of the Loan Schedule attached thereto. Capitalized terms used herein without
definition are as defined in the Custody Agreement.
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: _____________________________
Name:
Title:
[Name of transferee] hereby acknowledges that (i) the Mortgage Loans listed on
the Notice Loan Schedule are being held for it by the Custodian pursuant to the
terms of the Custody Agreement, (ii) it agrees to be bound by the Custody
Agreement, (iii) the Custodian shall not comply with the request of a Third
Person to deliver Mortgage Files unless such Third Person has delivered to the
Custodian an executed Notice of Default Certificate and (iv) it is responsible
for payment of any fees and expenses of the Custodian incurred in connection
with the issuance of periodic reports to it or in complying with its requests.
[NAME OF TRANSFEREE]
By: ______________________________
Name: ____________________________
Title: ___________________________
cc: Cityscape Corp.
<PAGE> 26
EXHIBIT C
TRUST RECEIPT
[Date]
Bear Stearns Mortgage Capital Corporation
Prin. Amt. of Number of
Trust Receipt #___ Mortgage Loans ___ Mortgage Loans ___
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
CoreStates Bank, N.A., as Custodian
Gentlemen:
In accordance with the provisions of Paragraph 3 of the
above-referenced Custody Agreement (the "Custody Agreement"), the undersigned,
as Custodian, hereby certifies that as to each Mortgage Loan described in the
Loan Schedule, a copy of which is attached hereto, it has reviewed the Mortgage
File and has determined that, except as set forth on the Exception Report
attached hereto, (i) all documents required to be delivered to it pursuant to
the Custody Agreement are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage
Loan, and (iii) based on its examination of the foregoing documents, such
documents on their face satisfy the requirements set forth in Sections 3(a)(1)
through 3(a)(6) of the Custody Agreement.
The Custodian hereby confirms that it is holding each such Mortgage
File as agent and bailee of and custodian for and for the exclusive use and
benefit of Bear Stearns Mortgage Capital Corporation ("BSMCC"), as pledgee, or
its transferee pursuant to the terms of the Custody Agreement.
This Trust Receipt is not a negotiable instrument. BSMCC may, however,
transfer this receipt by a special endorsement to one other party. The party
that takes this receipt from BSMCC or its affiliate by special endorsement may
only transfer this receipt by a second endorsement in BSMCC's or its affiliate's
favor.
The Custodian will accept and act on instructions with respect to the
Mortgage Loans only upon surrender of this receipt at its Corporate Trust
Office, 1500 Market Street P-1 Level,
C-1
<PAGE> 27
Philadelphia, Pennsylvania 19101, Attention: Heather L. Buckman. If the receipt
has been endorsed and is held by a Person other than BSMCC or one of its
affiliates, we will accept and act on instructions from the endorsee only if the
attached Notice of Default Certificate is executed and delivered to us stating
that an Event of Default has occurred under a financing agreement relating to
this Trust Receipt between BSMCC and the endorsee.
All initially capitalized terms used herein shall have the meanings
ascribed to them in the above-referenced Custody Agreement.
CORESTATES BANK, N.A.,
as Custodian
By: ____________________________
Name:
Title:
C-2
<PAGE> 28
EXHIBIT D
NOTICE OF TERMINATION
[date]
TO: CoreStates Bank, N.A., as Custodian
FROM: Bear Stearns Mortgage Capital Corporation [and, one or more Third
Persons, if applicable]
DATE: ____________________
You are hereby notified that the Custody Agreement, dated as of
September 4, 1997, among Cityscape Corp., Bear Stearns Mortgage Capital
Corporation and CoreStates Bank, N.A., as Custodian, is terminated pursuant to
Section 10 of such Agreement and you are instructed to deliver all property in
your possession with respect to such Agreement to [the undersigned Person or
Persons as their interests in the Mortgage Loans appear on your records].
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: ______________________________
Name:
Title:
[__________________________________]
By: ______________________________
Name:
Title:
cc: Cityscape Corp.
D-1
<PAGE> 29
EXHIBIT E
NOTICE OF DEFAULT CERTIFICATE
_____________, 199_
CoreStates Bank, N.A.,
as Custodian
1500 Market Street P-1 Level
Philadelphia, Pennsylvania 19101
Gentlemen:
As the transferee of a Trust Receipt for certain Mortgage Loans, which
Trust Receipt is attached hereto, we hereby notify you that an event of default
has occurred under our agreement with ________________________ and we are
entitled to receive the Mortgage Loans subject to the aforementioned Trust
Receipt.
[_________________________________]
By: ______________________________
Name:
Title:
Notice Received by Custodian
on [Date]:
CORESTATES BANK, N.A.,
as Custodian
By: ____________________________
Title:
Date:
E-1
<PAGE> 30
EXHIBIT F
CoreStates Bank, N.A.,
as Custodian
1500 Market Street P-1 Level
Philadelphia, Pennsylvania 19101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
CoreStates Bank, N.A., as Custodian
Gentlemen:
On [date] you issued a trust receipt in the name of BSMCC evidencing
entitlement to the Mortgage Loans described on Schedule A hereto and held by you
as Custodian. You issued that receipt pursuant to our agreement with Cityscape
Corp. dated as of September 4, 1997. The trust receipt has been [lost,
destroyed, etc.]. Every effort was made to recover the receipt; those efforts
were unsuccessful. It is, therefore, now unavailable for surrender to you.
At the time of its [loss, destruction, etc.], the receipt was held by
us under [the terms of original issue, special endorsement]. Since its
[issuance, endorsement] to us, we have not sold, assigned, transferred, pledged
or otherwise granted an interest in the trust receipt that has not been released
prior to the date hereof. Accordingly, this letter authorizes you to act on our
instructions regarding such Mortgage Loans without surrender of the receipt to
you.
We hereby agree to indemnify and hold you harmless against any loss,
liability or expense that you may incur as a result of acting on our
instructions regarding such Mortgage Loans without our surrender of the receipt
to you, excluding, however, any such loss, liability or expense caused by your
gross negligence or willful misconduct.
F-1
<PAGE> 31
If the trust receipt is ever recovered by us, we will immediately
notify you, cancel the receipt and surrender the receipt to you.
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: ______________________________
Name:
Title:
F-2
<PAGE> 32
EXHIBIT G
CoreStates Bank, N.A.,
as Custodian
1500 Market Street P-1 Level
Philadelphia, Pennsylvania 19101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
CoreStates Bank, N.A., as Custodian
Gentlemen:
On [date] you issued a trust receipt in the name of Bear Stearns
Mortgage Capital Corporation ("BSMCC") evidencing entitlement to the Mortgage
Loans described on Schedule __ hereto and held by you in the name of CoreStates
Bank, N.A., as Custodian. You issued that receipt pursuant to our agreement with
Cityscape Corp. dated as of September 4, 1997. The trust receipt has been [lost,
destroyed, etc.]. Every effort was made to recover the receipt; those efforts
were unsuccessful. It is, therefore, now unavailable for surrender to you.
At the time of its [loss, destruction, etc.], the receipt was held by
[name of transferee] under a special endorsement by us. We have attached to this
letter a special endorsement, from [name of transferee] conveying to us its
interest in the trust receipt and authorizing us to issue instructions regarding
the Mortgage Loans subject thereto without surrender of the receipt. [name of
transferee] has represented to us that it has not sold, assigned, transferred,
pledged or otherwise granted an interest in the trust receipt to any party other
than BSMCC. Accordingly, this letter authorizes you to act on our instructions
regarding such Mortgage Loans without surrender of the receipt to you.
We hereby agree to indemnify and hold you harmless against any loss,
liability or expense that you may incur as a result of acting on our
instructions regarding such Mortgage Loans without our surrender of the receipt
to you, excluding, however, any such loss, liability or expense caused by your
gross negligence or willful misconduct.
G-1
<PAGE> 33
If the trust receipt is ever recovered by us, we will immediately
notify you, cancel the receipt and surrender the receipt to you.
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: ______________________________
Name:
Title:
G-2
<PAGE> 34
EXHIBIT H
REQUEST FOR RELEASE OF DOCUMENTS
To: CoreStates Bank, N.A.,
as Custodian
1500 Market Street P-1 Level
Philadelphia, Pennsylvania 19101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
CoreStates Bank, N.A., as Custodian
In connection with the administration of Mortgage Loans held
by you as Custodian for Lender and Third Persons from time to time pursuant to
the above-referenced Custodial Agreement, we hereby request the release, and
acknowledge receipt, of the [specify documents] [related Mortgage Files] for the
Mortgage Loans described in the attached Loan Schedule, for the reason
indicated.
Mortgagor's Name Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one):
1. Mortgage Loan paid in full.
2. Redemption of Mortgage Loan pursuant to the Financing Agreement.
3. Delivery of substituted Mortgage Loan.
4. Mortgage Loan liquidated by .
5. Mortgage Loan in foreclosure or otherwise released for servicing.
If box 1, 2, 3 or 4 above is checked, and if all or part of the
Mortgage Files were previously released to Cityscape Corp. please release to
Cityscape Corp. its previous request and receipt on file with you, as well as
any additional documents in your possession relating to the specified Mortgage
Loan.
If box 5 above is checked, upon the return of all of the above
documents to you as the Custodian, please acknowledge your receipt by signing in
the space indicated below, and returning
H-1
<PAGE> 35
this form.
Cityscape Corp. understands and agrees that all documents delivered to
Cityscape Corp. or its subservicer pursuant to this request for release (other
than with respect to Items 1-4) shall be returned to the Custodian no later than
twenty-one (21) days from the date hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Custody
Agreement.
CITYSCAPE CORP.
By: __________________________
Name: __________________________
Title: __________________________
Date: __________________________
Acknowledged and Agreed:
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
(Required for release of any Mortgage Files.)
By: __________________________
Name: __________________________
Title: __________________________
Date: __________________________
H-2
<PAGE> 36
Acknowledgement of documents returned to the Custodian, for the reasons listed
in item 5:
CORESTATES BANK, N.A.,
as Custodian
By: __________________________
Name: __________________________
Title: __________________________
Date: __________________________
H-3
<PAGE> 37
EXHIBIT I
CONFIRMATION OF REDEMPTION AND RECEIPT
To: CoreStates Bank, N.A., as Custodian
Cityscape Corp.
Date: ___ _, 199_
Re: Custody Agreement, dated as of September 4, 1997, among Bear Stearns
Mortgage Capital Corporation (the "Lender"), Cityscape Corp. (the
"Borrower") and CoreStates Bank, N.A., as Custodian thereunder
Lender hereby:
1. Acknowledges receipt of $______________ in immediately available
funds on behalf of Borrower;
(b) Acknowledges that the funds referred to in clause (a) above
constitute sufficient consideration under the terms of the Master Financing
Agreement, dated as of September 4, 1997 among Lender and Borrower, for the
release by Lender of its interest in the Mortgage Loans listed on Schedule A
hereto;
(c) Confirms that it has released to Borrower all of its right, title
and interest in and to the Mortgage Loans listed on Schedule A hereto; and
(d) Confirms that it has not granted or created any interest in the
Mortgage Loans listed on Schedule A hereto other than interests that have been
fully discharged or satisfied on or prior to the date hereof.
Dated: ___ _, 199_ BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
I-1
<PAGE> 1
Exhibit 10.6
[EXECUTION COPY]
CUSTODY AGREEMENT
among
CITYSCAPE CORP.
Borrower
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
Lender
and
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
Dated as of September 4, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
RECITALS..................................................................... 1
SECTION 1. Definitions...................................................... 1
SECTION 2. Delivery of Mortgage Files to Custodian.......................... 3
---------------------------------------
SECTION 3. The Custodian's Receipt, Examination and
Certification of Mortgage Files
and Issuance of Trust Receipt........................ 5
-----------------------------
SECTION 4. Possession of Mortgage Files..................................... 7
----------------------------
SECTION 5. Release of Custodian's Mortgage Files for
Servicing............................................ 9
SECTION 6. Review and Deposit of Additional Mortgage Loans.................. 10
-----------------------------------------------
SECTION 7. Waiver by the Custodian.......................................... 10
-----------------------
SECTION 8. Right of Inspection by Lender and Third Persons.................. 10
-----------------------------------------------
SECTION 9. Custodian's Fees and Expenses.................................... 11
-----------------------------
SECTION 10. Termination of Agreement........................................ 11
------------------------
SECTION 11. Resignation and Removal of Custodian............................ 12
------------------------------------
SECTION 12. Limitation on Obligations of the Custodian...................... 13
------------------------------------------
SECTION 13. Notices......................................................... 14
SECTION 14. No Assignment or Delegation by the Custodian.................... 15
--------------------------------------------
SECTION 15. Controlling Law................................................. 15
SECTION 16. Agreement for the Exclusive Benefit of Parties.................. 15
----------------------------------------------
SECTION 17. Entire Agreement................................................ 15
SECTION 18. Exhibits........................................................ 15
SECTION 19. Indulgences, Not Waivers........................................ 15
------------------------
SECTION 20. Titles Not to Affect Interpretation............................. 16
-----------------------------------
SECTION 21. Provisions Separable............................................ 16
SECTION 22. Representations and Warranties of the
i
<PAGE> 3
Custodian............................................. 16
SECTION 23. Successor Custodian by Consolidation, Merger,
Etc.................................................. 17
SECTION 24. Counterparts.................................................... 17
EXHIBITS
EXHIBIT A - LETTER OF TRANSMITTAL.................................A-1
EXHIBIT B - NOTICE TO THE CUSTODIAN...............................B-1
EXHIBIT C - TRUST RECEIPT.........................................C-1
EXHIBIT D - NOTICE OF TERMINATION.................................D-1
EXHIBIT E - NOTICE OF DEFAULT CERTIFICATE.........................E-1
EXHIBIT F - LETTER TO CUSTODIAN RE: Lender'S TRUST
RECEIPT.............................................F-1
EXHIBIT G - LETTER TO CUSTODIAN RE: ENDORSEE'S TRUST RECEIPT.....G-1
EXHIBIT H - REQUEST FOR RELEASE OF DOCUMENTS......................H-1
EXHIBIT I - CONFIRMATION OF REDEMPTION AND RECEIPT................I-1
ii
<PAGE> 4
THIS CUSTODY AGREEMENT entered into as of September 4, 1997, by and
among CITYSCAPE CORP. ("Borrower"), BEAR STEARNS MORTGAGE CAPITAL CORPORATION
("Lender"), and FIRST TRUST NATIONAL ASSOCIATION, as custodian (the
"Custodian"), recites and provides:
RECITALS
Borrower and Lender have entered into a Master Financing Agreement
dated as of September 4, 1997 and a Request/Confirmation between Borrower and
Lender with respect to each transaction thereunder. The Master Financing
Agreement and the Request/Confirmations are hereinafter referred to collectively
as the "Financing Agreement."
Borrower is obligated to service the Mortgage Loans pursuant to the
terms and conditions of the Financing Agreement.
Borrower desires to deposit with the Custodian all Mortgage Notes and
Mortgages evidencing the Mortgage Loans, together with the other documents
included in the Mortgage Files related to the Mortgage Loans, to be held by the
Custodian as custodian for Lender and its assigns until otherwise instructed by
Lender, all in connection with transactions under the Financing Agreement (each
a "Transaction").
Lender may transfer its interest in the Mortgage Loans to one or more
Third Persons and the Custodian shall act as custodian for such Third Persons.
Custodian desires and is able to perform the duties and obligations as
custodian for Lender as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Definitions. For the purposes of this Agreement, the
following terms shall have the indicated meanings unless the context or use
indicates another or different meaning and intent, the definitions of such terms
are equally applicable to the singular and the plural forms of such terms, the
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular section or other
subdivision, and section references refer to sections of this Agreement. All
terms used herein and not defined shall have the respective meanings set forth
in the Financing Agreement.
"Agreement" shall mean this Custody Agreement, as supplemented or
amended from time to time.
<PAGE> 5
"Borrower" shall have the meaning set forth in the first paragraph of
this Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the States of New York or
Minnesota or any day on which a bank located in the States of New York or
Minnesota or the New York Stock Exchange is authorized or required to close for
business.
"Custodial Register" shall mean the register maintained by Custodian
pursuant to Section 4(f), which reflects as to each Mortgage Loan the Person to
whom the related Trust Receipt has been issued.
"Custodian" shall mean First Trust National Association, or its
successor custodian.
"Loan Number" shall have the meaning set forth in Section 2(a) of this
Agreement.
"Mortgage Assignment" shall mean an assignment of the Mortgage in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the transfer of the Mortgage.
"Mortgage File" shall have the meaning set forth in Section 2(b)
hereof.
"Notice Loan Schedule" shall have the meaning set forth in Section 4(b)
of this Agreement.
"Notice of Termination" shall mean the notice substantially in the form
of Exhibit D hereto.
"Officer's Certificate" shall mean a certificate signed by (i) an
officer or an employee, authorized to sign an officer's certificate, of Borrower
or other Person having officers, submitting a Mortgage File to the Custodian or
(ii) the closing attorney for a Mortgage Loan. (The text of any particular
Officer's Certificate may be stamped upon a document constituting a portion of a
Mortgage File so long as such stamped text is signed by manual or facsimile
signature by an officer or an employee authorized to sign an Officer's
Certificate.)
"Original Lender" shall mean the original lender as set forth in the
Mortgage Note, or any successor or assignee under such Mortgage Note.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company,
2
<PAGE> 6
trust (including any beneficiary thereof), unincorporated organization or
government or any agency or political subdivision thereof.
"Servicer" shall mean Cityscape Corp. in its capacity as servicer of
the Mortgage Loans.
"Third Person" shall mean a Person other than Borrower, Lender or the
Custodian which Person has acquired an interest in any Mortgage Loans from
Lender and continues to have an interest in such Mortgage Loans.
"Trust Receipt" shall mean an instrument substantially in the form of
Exhibit C hereto.
SECTION 2. Delivery of Mortgage Files to Custodian.
(a) Representations of Borrower. With respect to each Transaction,
Borrower represents that it has, prior to the pledge of any Mortgage Loans to
Lender pursuant to the Financing Agreement, delivered to the Custodian those
documents designated in items 1 - 7 below (to the extent applicable to such
Mortgage Loans). All documents delivered to the Custodian shall have been placed
by Borrower or its representative in an appropriate file folder, properly
secured, and clearly marked with the name of the Mortgaged Property and the loan
number (the "Loan Number").
(b) By delivery of a Letter of Transmittal, substantially in the form
of Exhibit A hereto, Borrower will from time to time certify that it has
delivered and released to the Custodian the related Mortgage Files for the
Mortgage Loans referred to in such Letter of Transmittal and has in its
possession the other documents with respect to the Mortgage Loans identified in
the mortgage loan schedule attached to the Letter of Transmittal as Schedule 1
(the "Loan Schedule"). The Loan Schedule is the Loan Schedule referred to in the
Financing Agreement.
"Mortgage File" means the following documents (all of which together
constitute an original mortgage file):
(1) the original Mortgage Note, endorsed, "Pay to the order of
__________, without recourse" and signed, by facsimile or manual
signature, in the name of Borrower by an authorized officer. If the
Mortgage Note has been signed by a Person on behalf of the Mortgagor,
the original power of attorney or other instrument that authorized and
empowered such Person to sign or a copy of such power of attorney
together with an Officer's Certificate certifying that such copy
represents a true and correct copy and that such original has been duly
recorded in the appropriate records depository for the jurisdiction in
which the Mortgaged
3
<PAGE> 7
Property is located. To the extent that there is no room on the face of
the Mortgage Note for endorsements, the endorsement may be contained on
an allonge, if the law by which such Mortgage Note is governed so
permits. Such allonge shall be firmly affixed to the Mortgage Note so
as to become a part thereof;
(2) the original of any loan agreement and guarantee(s)
executed in connection with the Mortgage Note;
(3) the original Mortgage, with evidence of recording thereon,
or, if the original Mortgage has not yet been returned from the
recording office, a copy of the original Mortgage together with an
Officer's Certificate (which may be a blanket Officer's Certificate of
Borrower covering all such Mortgage Loans) certifying that the copy is
a true copy of the original of the Mortgage which has been delivered
for recording in the appropriate recording office of the jurisdiction
in which the Mortgaged Property is located, or a copy of the Mortgage
certified by the public recording office in those instances where the
original Mortgage has been lost, destroyed or retained by the public
recording office; and if the Mortgage Note has been signed by a Person
on behalf of the Mortgagor, the original power of attorney or other
instrument that authorized and empowered such Person to sign or a copy
of such power of attorney together with an Officer's Certificate
certifying that such copy represents a true and correct copy and that
such original has been duly recorded in the appropriate records
depository for the jurisdiction in which the Mortgaged Property is
located;
(4) the original Mortgage Assignment assigned in blank for
each Mortgage Loan, in form and substance acceptable for recording
(except for the name of the assignee) and signed in the name of the
last endorsee by an authorized officer;
(5) the originals of all intervening assignments of mortgage,
if any, with evidence of recording thereon or copies thereof certified
by the related recording office or, if the original of any such
assignment has not yet been returned from the recording office, a copy
of the original of any such assignment without evidence of recording
thereon together with an Officer's Certificate (which may be a blanket
Officer's Certificate of Borrower covering all such Mortgage Loans)
certifying that the copy is a true copy of the original of any such
assignment which has been delivered by such attorney or officer for
recording in the appropriate recording office of the jurisdiction in
which the Mortgaged Property is located, or a copy of the intervening
assignment certified by the public recording office in those instances
4
<PAGE> 8
where the original recorded intervening assignment has been lost,
destroyed or retained by the public recording office;
(6) the originals of all assumption, modification,
consolidation or extension agreements, if any, with evidence of
recording thereon or, if the original of any such agreement has not yet
been returned from the recording office, a copy of the original of any
such agreement without evidence of recording thereon together with an
Officer's Certificate (which may be a blanket Officer's Certificate of
Borrower covering all such Mortgage Loans) certifying that the copy is
a true copy of the original of any such agreement which has been
delivered by such attorney or officer for recording in the appropriate
recording office of the jurisdiction in which the Mortgaged Property is
located, or a copy of such agreement certified by the public recording
office in those instances where the original recorded agreement has
been lost, destroyed or retained by the public recording office.
SECTION 3. The Custodian's Receipt, Examination and Certification of
Mortgage Files and Issuance of Trust Receipt.
(a) The Custodian shall examine the documents received by it and
confirm, as of the date of the Trust Receipt, that on their faces:
(1) the Mortgage Note and Mortgage each bears an original
signature or signatures purporting to be the signature or signatures of
the Person or Persons named as the maker and mortgagor or grantor or,
in the case of copies of the Mortgage permitted under Section 2, that
such copies bear a reproduction of such signature or signatures;
(2) (a) the principal amount of the indebtedness secured by
the Mortgage is identical to the original principal amount of the
Mortgage Note and the original principal amount on the Loan Schedule;
(b) the Mortgage Note term is the same as set forth on the Loan
Schedule; and (c) the Mortgage Note coupon is the same as set forth on
the Loan Schedule;
(3) the Mortgage Note bears original endorsements, by either
manual or facsimile signature, which complete the chain of ownership
from the original holder or payee to the owner of the related Trust
Receipt;
(4) the original of the Mortgage Assignment and any
intervening mortgage assignment bears the original signature purporting
to be the signature of the named mortgagee or beneficiary (and any
other necessary party, including
5
<PAGE> 9
subsequent assignors) or in the case of copies permitted under Section
2, that such copies bear a reproduction of such signature or signatures
and that the Mortgage Assignment and any intervening mortgage
assignment complete the chain of title from the originator to Borrower
and from Borrower in blank;
(5) the power of attorney (if any), as specified in Sections
2(b)(1) and 2(b)(3), (A) bears an original signature purporting to be
the signature of the maker of the Mortgage Note and the mortgagor or
grantor of the Mortgage and (B) bears evidence that such power of
attorney was recorded in the appropriate records depository for the
jurisdiction where the Mortgaged Property is located or, in case of
copies permitted under Sections 2(b)(1) and (2)(b)(3), that such copies
bear a reproduction of such signatures and such evidence of
recordation; and
(6) if a Mortgage Note or a Mortgage was executed by an
attorney-in-fact, the power of attorney specified in Sections 2(b)(1)
and 2(b)(3) is included and conforms to the requirements of such
section.
(b) If the Custodian has determined that all the required documents are
included in the Mortgage Files delivered to it and that such related documents
on their faces satisfy the requirements enumerated in Sections 3(a)(1) through
3(a)(6) hereof, the Custodian shall (i) sign a copy of the related Letter of
Transmittal and return the Letter of Transmittal to Borrower via facsimile
transmission with the original Letter of Transmittal to be sent via overnight
courier for next day delivery, and (ii) remit to Lender or its designee a Trust
Receipt with respect to such Mortgage Files signed by the Custodian. If upon
examination of the documents included in any Mortgage File, the Custodian
determines that such documents do not satisfy the above requirements, or is
unable to confirm that such documents satisfy such requirements, the Custodian
shall mark such Mortgage Loan as an exception on its Trust Receipt. Except as
set forth in the preceding sentence, the Trust Receipt of the Custodian with
respect to each Mortgage File shall be deemed to include a certification that
the documents reviewed by the Custodian appear regular on their face and relate
to the Mortgage Loan described in the Mortgage File and are in the possession
and control of the Custodian.
(c) The Custodian shall provide a Trust Receipt in accordance with
subsection (b) above with respect to up to 100 Mortgage Files by 1:00 p.m. New
York City time on the date of delivery of such Mortgage Files to the Custodian
so long as such Mortgage Files are delivered to the Custodian prior to 11:00
a.m. New York City time. In all other cases, the Custodian will
6
<PAGE> 10
deliver a Trust Receipt by 1:00 p.m. New York City time on the Business Day
following the date of delivery of such Mortgage Files to the Custodian. Each
Trust Receipt shall be delivered by facsimile transmission with the original to
follow by overnight courier for next day delivery.
(d) Under no circumstances shall the Custodian be obligated to verify
the authenticity of any signature on any of the documents received or examined
by it in connection with this Agreement or the authority or capacity of any
person to execute or issue any such document, nor shall the Custodian be
responsible for the value, form, substance, validity, perfection, priority,
effectiveness or enforceability of any of such documents.
(e) Any provision of this Agreement to the contrary notwithstanding,
Borrower shall notify the Custodian of the need to examine a Mortgage File and
deliver a related Trust Receipt not less than forty-eight (48) hours prior to
the date on which such Trust Receipt is required to be delivered.
(f) With respect to any Trust Receipt delivered to Lender hereunder,
the Custodian shall revise its own internal books and records from time to time
to reflect its receipt or release of Mortgage Loans under the terms of this
Agreement so that the applicable Loan Schedule for any such Trust Receipt shall
always accurately reflect the Mortgage Loans held by the Custodian under this
Agreement.
(g) The Custodian and the Borrower shall cooperate with the Lender in
order to provide the Lender with discrete Loan Schedules for each Trust Receipt
issued by the Borrower under the Financing Agreement accurately reflecting the
Mortgage Loans relating to such Trust Receipt that are held by the Custodian
under this Agreement. Each Note shall relate to one or more discrete Trust
Receipts.
SECTION 4. Possession of Mortgage Files.
(a) Possession of Mortgage Files on Behalf of Lender. The Custodian
shall segregate and retain possession and custody of the Mortgage Files for the
exclusive use and benefit of Lender and as agent and bailee of and custodian for
Lender for all purposes until otherwise notified by Lender pursuant to
subsection (b) hereof. The Custodian shall also make appropriate notations in
the Custodian's books and records reflecting that the Mortgage Files are owned
by Lender unless otherwise notified by Lender pursuant to subsection (b) hereof.
The Custodian shall not release any portion of the Mortgage Files to Borrower or
to any other party without the prior written authorization of the owner of the
Trust Receipt.
7
<PAGE> 11
(b) Possession of Mortgage Files on Behalf of Third Persons. The
Custodian acknowledges that Lender may transfer its interest in the Mortgage
Loans to one or more Third Persons. Upon receipt of written notice from Lender,
substantially in the form of Exhibit B hereto, that Lender has transferred its
interest in the Mortgage Loans identified on a schedule to such notice (the
"Notice Loan Schedule") to a Third Person together with the Trust Receipt for
amendment of the Schedule attached thereto, the Custodian will promptly issue a
Trust Receipt to such Third Person and shall issue an amended Trust Receipt to
Lender, each of which will reflect the transfer of Lender's interest in certain
Mortgage Loans to such Third Person. The notice sent by Lender to the Custodian
shall be in substantially the form of Exhibit B hereto and shall (i) specify the
name of the Third Person, (ii) specify the address of the Third Person, which
may be an address in care of Lender and (iii) have attached the Notice Loan
Schedule. Upon receipt of any such notice from Lender, the Custodian shall (a)
segregate and retain possession and custody of the Mortgage Files with respect
to the Mortgage Loans in the Notice Loan Schedule as agent and bailee of and
custodian for such Third Person, and (b) make appropriate notations in the
Custodian's books and records reflecting that the Mortgage Files identified in
the Notice Loan Schedule are owned by such Third Person. The Custodian shall
segregate and maintain continuous custody of all Mortgage Files for the benefit
of the Person to whom it has issued a Trust Receipt. Lender's agreements with
each holder of a Trust Receipt other than an affiliate of Lender (each such
holder, a "Transferee") will specify that the Transferee cannot issue
instructions regarding the Mortgage Loans or Mortgage Files unless Lender has
defaulted on Lender's obligations to such Transferee. Accordingly, the Custodian
may not act on requests from a Transferee to withdraw or otherwise dispose of
Mortgage Loans unless the Transferee delivers to the Custodian an executed
Notice of Default Certificate in the form of Exhibit E hereto. The Custodian
shall be entitled to presume conclusively that the Notice of Default Certificate
is properly executed and that when delivered to the Custodian an Event of
Default exists under Lender's agreement with its Transferee.
(c) Upon surrender of the Trust Receipt by Lender to the Custodian,
Lender may issue instructions regarding the Mortgage Loans designated in the
applicable Trust Receipt, including instructions to withdraw Mortgage Loans.
(d) In the event a Trust Receipt is lost, destroyed or otherwise
unavailable for surrender to the Custodian, Lender will present to the Custodian
documentation in the form attached as Exhibit F or Exhibit G hereto. Upon
receipt by the Custodian of such documentation, Lender will have the right to
issue
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<PAGE> 12
instructions regarding the Mortgage Loans covered by a Trust Receipt without
surrender of the related Trust Receipt.
(e) The Custodian understands that Lender may need to examine Mortgage
Loans subject to a Trust Receipt on a periodic basis. Such examination shall
take place on the premises of the Custodian. Lender will give the Custodian two
(2) Business Days' notice before Lender makes an examination. Lender's
agreements with each Transferee will grant Lender the right to make such
examinations.
(f) The Custodian shall cause to be kept at its corporate trust office
records in the form, scope and substance of a register (the "Custodial
Register") in which, subject to such reasonable regulations as it may prescribe,
the Custodian shall reflect the Person to whom the Mortgage Loans have been
pledged as confirmed by Trust Receipts as herein provided. The Custodial
Register shall be deemed to contain proprietary information and only Custodian
and Lender shall have access to such information.
(g) With respect to the redemption of any Mortgage Loan by Borrower
from Lender under the Financing Agreement, the interest of any Third Person in
any such Mortgage Loan shall automatically terminate simultaneously with the
payment to Lender of the Payoff Amount for such Mortgage Loan under the
Financing Agreement and any such interest shall be deemed to have been
transferred to Lender as of such time, except with respect to any Mortgage Loans
delivered to a Third Person pursuant to the Notice of Default Certificate
attached hereto as Exhibit E. Pursuant to the preceding sentence, the interest
of any Third Person shall automatically terminate irrespective of whether such
Third Person receives the appropriate payment for such Mortgage Loan.
SECTION 5. Release of Custodian's Mortgage Files for Servicing. From
time to time and as appropriate for the servicing of any of the Mortgage Loans
by Borrower, the Custodian is hereby authorized, upon written request and
receipt of Borrower and consent and acknowledgement of Lender (to the extent
required by Exhibit H) in the form of Exhibit H, to release to Borrower or its
designee the related Mortgage File, or any documents contained therein, set
forth in such receipt to Borrower. All documents so released to Borrower or its
designee shall be held by it in trust for the benefit of Lender and Third
Persons from time to time. Except in the case of a Mortgage Loan in foreclosure,
Borrower or its designee shall return to the Custodian the Mortgage File or such
documents when Borrower's need therefor in connection with servicing no longer
exists but in no event later than ten (10) Business Days after their release by
the Custodian as provided herein.
Upon the payment in full of any Mortgage Loan by the
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<PAGE> 13
mortgagor, and upon receipt by the Custodian of Borrower's request for release
and acknowledgement by Lender in the form of Exhibit H, the Custodian shall
promptly release the related Mortgage File to Borrower.
Borrower agrees that, at the time any request for release of Mortgage
Files is made to the Custodian under this Agreement, Lender shall be so notified
and a copy of any written request for release shall be furnished to Lender. Upon
its receipt of any released Mortgage Files, Borrower shall so notify Lender.
SECTION 6. Review and Deposit of Additional Mortgage Loans.
(a) If, pursuant to the Financing Agreement, Borrower is required to
deliver additional Mortgage Loans to the Custodian to cure a Margin Deficit or
if Borrower and Lender agree to cause additional Mortgage Loans to become
subject to the Financing Agreement ("Additional Mortgage Loans"), the Custodian
shall retain possession and custody of the Mortgage Files relating thereto
pursuant to Section 4 hereof and, upon receipt and review thereof, shall
transmit to Lender a Trust Receipt relating to such Additional Mortgage Loans
with a Loan Schedule for such Additional Mortgage Loans attached thereto. The
delivery of any Trust Receipt issued under this Section 6(a) shall be made in
the manner as provided in Section 3(c).
(b) Two (2) days prior to the delivery of any Additional Mortgage
Loans, Borrower will advise the Custodian whether the Custodian will be required
to review any Additional Mortgage Loans. Borrower undertakes to use its best
efforts to make available for review any such Additional Mortgage Loans as soon
as is reasonably possible. Upon receipt thereof, the Custodian shall perform its
review of the Mortgage Files relating to any Additional Mortgage Loans in the
manner contemplated by Section 3 hereof.
(c) Borrower covenants and agrees to provide to the Custodian at the
time Borrower delivers any Additional Mortgage Loans under this Agreement, and
at the time any Mortgage Loans are transferred to Borrower pursuant to Section
4(c) hereof, a revised Loan Schedule reflecting current information with respect
to those Mortgage Loans subject to the applicable Trust Receipt.
SECTION 7. Waiver by the Custodian. Notwithstanding any other
provisions of this Agreement, the Custodian shall not at any time exercise or
seek to enforce any claim, right or remedy, including any statutory or common
law rights of set-off, if any, that the Custodian might otherwise have against
all or any part of a Mortgage File or the proceeds thereof. The Custodian
warrants that it currently holds, and during the existence of
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<PAGE> 14
this Agreement shall hold, no adverse interest, by way of a security interest or
otherwise, in any Mortgage Loan.
SECTION 8. Right of Inspection by Lender and Third Persons. Upon
reasonable notice to the Custodian (which in no event shall be less than two (2)
Business Days notice), the Person or Persons for whom the Custodian is acting as
custodian, or their duly authorized representatives, may at any time, during
ordinary business hours, inspect and examine the Mortgage Files in the
possession and custody of the Custodian at such place or places where such
Mortgage Files are deposited.
SECTION 9. Custodian's Fees and Expenses. The Custodian hereby
acknowledges that Borrower has agreed to pay all reasonable fees due and owing
to, and except as otherwise provided herein, any reasonable expenses incurred by
the Custodian under this Agreement. The fees due to the Custodian for its
services hereunder shall be as set forth in a separate letter agreement between
the Custodian and Borrower. In addition to the fees referred to in the two
foregoing sentences, Borrower has agreed to pay all reasonable out-of-pocket
expenses incurred by the Custodian in connection with the review of each
Mortgage File by it or its agent and its issuance of a Trust Receipt relating
thereto. Neither Lender nor any Third Person shall have any liability or
obligation to pay any such fees or expenses, and the duties of the Custodian
hereunder shall be independent of Borrower's performance of its obligations to
the Custodian in respect of such fees and expenses.
SECTION 10. Termination of Agreement. This Agreement shall become
effective on and as of the date hereof and shall terminate upon the earlier of
(i) the Custodian's receipt of written Notice of Termination signed by the
Person or all of the Persons to whom the Custodian has issued Trust Receipts and
on whose behalf the Custodian is acting as agent, bailee and custodian, (ii) the
removal of all Mortgage Files from the possession of the Custodian pursuant to
the instructions of the Person or Persons entitled to request such removal
pursuant to this Agreement and (iii) if such Mortgage Loan is redeemed by
Borrower from Lender, the receipt by Lender of the Payoff Amount for such
Mortgage Loan under the Financing Agreement. The Custodian shall be entitled to
rely, and shall be protected in relying, on any such Notice of Termination
delivered to it by such Person or Persons. If this Agreement terminates with
respect to any Mortgage Loan by operation of clause (i) above, the Custodian
shall deliver the related Mortgage File then subject to this Agreement to the
Person indicated in the Notice of Termination. If any Mortgage Loan is redeemed
by Borrower from Lender pursuant to clause (iii) above, then Lender shall
execute and deliver to the Custodian a document in substantially the form of
Exhibit I which confirms the receipt of the Payoff Amount for such Mortgage Loan
and the
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<PAGE> 15
termination and release of all of Lender's right, title and interest in such
Mortgage Loan, and the Custodian upon receipt of such document shall deliver the
related Mortgage File for such Mortgage Loan to Borrower or such other Person as
Borrower so directs. Upon such termination the Custodian shall deliver all
Mortgage Files then subject to this Agreement to the Person indicated in such
Notice of Termination or if no such Person is indicated, then to the Person or
Persons to whom the Custodian has issued Trust Receipts and for whom the
Custodian is acting on such date and the Custodian shall endorse the Mortgage
Notes without recourse, representation and warranties and execute mortgage
assignments pursuant to any instruction by the Person on whose behalf the
Custodian is acting as agent and bailee pursuant to this Agreement.
SECTION 11. Resignation and Removal of Custodian.
(a) Resignation. The Custodian shall have the right, with or without
cause, to resign as the Custodian under this Agreement upon sixty (60) days'
prior written notice to Borrower, Lender and, to the extent of its interest, any
Third Person. Following any such resignation, the Custodian shall continue to
act as the "Custodian" under this Agreement until it delivers the Mortgage Files
to a duly appointed successor Custodian as provided in (c) below, if any, or to
any designee specified by Lender or any Third Person, as applicable.
(b) Removal. Lender and, to the extent of its interest, any Third
Persons may remove and discharge the Custodian from the performance of its
duties under this Agreement, by providing five (5) days' written notice to the
Custodian, signed jointly by Lender and a majority in interest of (calculated
with reference to the face value of the Mortgage Loans) any Third Person or
Persons with any interest in the Mortgage Loans, as evidenced by the holding of
a Trust Receipt, with a copy to Borrower. Following any such removal, the
Custodian shall continue to act as the "Custodian" under this Agreement until it
delivers the Mortgage Files to a duly appointed successor Custodian as provided
in (c) below, if any, or to any designee specified by Lender or any Third
Person, as applicable.
(c) Appointment of Successor Custodian; Transfer of Mortgage Loans.
Upon resignation or removal of the Custodian, Lender, Borrower and, to the
extent of its interest and if permitted by Section 4 hereof, any Third Person
shall have 60 days in which to appoint and designate a successor to take
possession of the Mortgage Files or select one or more designees to take
possession thereof. Upon receipt of written direction regarding the foregoing
from Lender, Borrower and any such Third Person, the Custodian shall deliver all
Mortgage Files to the person so designated within 10 days following delivery to
the
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<PAGE> 16
Custodian of such written notice. If a successor Custodian is appointed, the
Custodian shall deliver the Mortgage Files in accordance with the written
instructions of Lender, Borrower and a majority in interest of (calculated with
reference to the face value of the Mortgage Loans) Third Persons having
interests in the Mortgage Loans to the extent such Third Persons are permitted
to take action with respect thereto under Section 4 hereof setting forth the
name and address of the successor Custodian. If Lender, Borrower and, to the
extent of its interest, any such Third Person, fail to jointly designate a
successor Custodian or specify one or more designees within such 60-day period,
then the Custodian shall deliver possession and custody to Lender and, if
otherwise permitted under Section 4 hereof, any Third Person, of their
respective Mortgage Files, as applicable, at the address specified in the
Custodian's records. The Custodian shall, as part of the transfer of the
Mortgage Files, deliver the Mortgage Assignment for each Mortgage Loan in
recordable form and shall endorse the Mortgage Note without recourse,
representation and warranties in accordance with Lender's or the applicable
Third Person's instructions. Any successor Custodian hereunder shall be a
financial institution whose deposits are insured by FDIC, have a net worth of
not less than $10,000,000 and shall have secure vault storage facilities located
in the State of New York or such other State as Lender and Borrower may agree,
in which the Mortgage Files are to be retained.
SECTION 12. Limitation on Obligations of the Custodian. The Custodian
shall have no duties or obligations other than those specifically set forth
herein, and no further duties or obligations shall arise by implication or
otherwise. The Custodian agrees to use its best judgment and good faith in the
performance of such obligations and duties and shall incur no liability to
Borrower for its acts or omissions hereunder, except as may result from its
gross negligence or willful misconduct. The Custodian shall also be entitled to
rely (and shall be protected in relying) upon written advice of its legal
counsel and to rely upon any written notice, document, correspondence, request
or directive received by it from Lender, any Third Person (if applicable), or
Borrower, as the case may be, that the Custodian believes to be genuine and to
have been signed or presented by the proper and duly authorized officer or
representative thereof, and shall not be obligated to inquire as to the
authority or power of any Person so executing or presenting such documents or as
to the truthfulness of any statements set forth therein. No provision of this
Agreement shall require the Custodian to expend or risk its own funds or
otherwise incur financial liability in the performance of its duties hereunder
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity is not reasonably assured to it. Borrower agrees to
indemnify, defend and hold the Custodian harmless from and against any
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<PAGE> 17
claim, legal action, liability or loss that is initiated against or incurred by
the Custodian, including court costs and reasonable attorney's fees and
disbursements, and all of the Custodian's other cost, damage or expense incurred
in connection with the Custodian's performance of its duties under this
Agreement, but excluding any such claim, legal action, liability, loss, cost,
damage or expense caused by Custodian's gross negligence or willful misconduct.
The Custodian shall at its own expense maintain at all times during the
existence of this Agreement and keep in full force and effect (a) fidelity
insurance, (b) theft and loss of documents insurance, (c) forgery insurance, and
(d) errors and omissions insurance. All such insurance shall be in amounts, with
standard coverage and subject to deductibles, as are customary for insurance
typically maintained by banks which act as the Custodian in similar
transactions. The Custodian shall, upon written request, provide to Borrower, or
to any other Person as Borrower shall direct, a certificate signed by an
authorized officer of the Custodian certifying that the foregoing insurance
policies are in full force and effect. The Custodian shall use its best efforts
to ensure that such insurance shall not terminate prior to receipt by Lender by
registered mail of 30 days' prior written notice thereof.
SECTION 13. Notices. Any notice, demand or consent required or
permitted by this Agreement shall be in writing and shall be effective and
deemed delivered only when received by the party to which it is sent. Any such
notice, demand or consent shall be delivered in person or transmitted by a
recognized private courier service or deposited with the United States Postal
Service, certified mail, postage prepaid, return receipt requested, addressed as
follows, unless such address is changed by written notice hereunder:
If to Borrower:
Cityscape Corp.
565 Taxter Road
Elmsford, New York 10523
Attention: Chief Financial Officer
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
with a copy at the same address to:
Attention: General Counsel
Telephone: (914) 592-6677
Telecopy: (914) 592-7101
If to Lender:
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<PAGE> 18
Bear Stearns Mortgage Capital Corporation
245 Park Avenue
New York, New York 10167
Attn: John Garzone
Telephone: (212) 272-3853
Telecopy: (212) 272-7803
If to the Custodian:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: Judy Spahn
Telephone: (612) 244-0416
Telecopy: (612) 244-0010
SECTION 14. No Assignment or Delegation by the Custodian. The Custodian
shall not assign, transfer, pledge or grant a security interest in any of its
rights, benefits or privileges hereunder nor delegate or appoint any other
person to perform or carry out any of its duties, responsibilities or
obligations under this Agreement; any act or instrument purporting to effect any
such assignment, transfer, pledge, grant, delegation or appointment shall be
void.
SECTION 15. Controlling Law. This Agreement and all questions relating
to validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of New York, without regard to any New York or other conflict-of-law provisions.
SECTION 16. Agreement for the Exclusive Benefit of Parties. This
Agreement is for the exclusive benefit of the parties hereto, and their
respective successors and permitted assigns, and shall not be deemed to create
or confer any legal or equitable right, remedy or claim upon any other person
whatsoever except a Third Person to the extent rights are explicitly conferred
on any one or more Third Persons pursuant to this Agreement.
SECTION 17. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof, including any prior
custody agreements. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing
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<PAGE> 19
signed by Lender, Borrower and the Custodian.
SECTION 18. Exhibits. All Exhibits referred to herein or attached
hereto are hereby incorporated by reference into, and made a part of, this
Agreement.
SECTION 19. Indulgences, Not Waivers. Neither the failure nor any delay
on the part of a party hereto to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the parties asserted to have granted
such waiver.
SECTION 20. Titles Not to Affect Interpretation. The titles of sections
and subsections contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
SECTION 21. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other provision or provisions may be invalid or unenforceable in whole or in
part.
SECTION 22. Representations and Warranties of the Custodian. The
Custodian represents, warrants to, and covenants with Lender that on the date
hereof, and on the date of the issuance of any Trust Receipt by the Custodian:
(1) The Custodian is (i) a national banking association duly
organized, validly existing and in good standing under the laws of the
United States of America and (ii) duly qualified and in good standing
and in possession of all requisite authority, power, licenses, permits
and franchises in order to execute, deliver and comply with its
obligations under the terms of this Agreement;
(2) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action and the
execution and delivery of this Agreement by the Custodian in the manner
contemplated herein and the performance of and compliance with the
terms hereof by it will not (i) violate, contravene or create a default
16
<PAGE> 20
under any applicable laws, licenses or permits to the best of its
knowledge, or (ii) violate, contravene or create a default
under any charter document or bylaw of the Custodian or to the best of
the Custodian's knowledge any contract, agreement, or instrument to
which the Custodian or by which any of its property may be bound and
will not result in the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of its property;
(3) The execution and delivery of this Agreement by the
Custodian and the performance of and compliance with its obligations
and covenants hereunder do not require the consent or approval of any
governmental authority or, if such consent or approval is required, it
has been obtained;
(4) This Agreement, and the original Trust Receipt issued
hereunder, when executed and delivered by the Custodian will constitute
valid, legal and binding obligations of the Custodian, enforceable
against the Custodian in accordance with their respective terms, except
as the enforcement thereof may be limited by applicable debtor relief
laws and that certain equitable remedies may not be available
regardless of whether enforcement is sought in equity or at law;
(5) Custodian does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant
contained in this Agreement;
(6) To Custodian's knowledge after due inquiry, there is no
litigation pending or threatened which, if determined adversely to
Custodian, would adversely affect the execution, delivery or
enforceability of this Agreement, or any of the duties or obligations
of Custodian thereunder, or which would have a material adverse effect
on the financial condition of Custodian; and
(7) Upon written request of a Lender or any Third Person, and
assurance reasonably satisfactory to Custodian that its costs of doing
so will be timely reimbursed and that Custodian will receive reasonable
compensation (in addition to the compensation provided for elsewhere in
this Agreement) for doing so, Custodian shall take such steps as may be
reasonably requested by Lender or any Third Person (consistent with
Custodian's undertakings hereunder) to protect or maintain any interest
in any real property securing the Mortgage Loan owned by such owner and
any insurance applicable thereto.
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<PAGE> 21
SECTION 23. Successor Custodian by Consolidation, Merger, Etc. If the
Custodian consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust assets to, another corporation, the
successor corporation without any further act shall be the successor custodian,
provided that (i) the successor corporation does not directly or indirectly
control and is not under the direct or indirect control of the Lender or the
Borrower, or (ii) any officer or director of the successor does not act as an
officer or director of the Lender or the Borrower.
SECTION 24. Counterparts. For the purpose of facilitating the execution
of this Agreement as herein provided and for other purposes, this Agreement may
be executed simultaneously in any number of counterparts, each of which
counterpart shall be deemed to be an original, and such counterparts shall
constitute and be one and the same instrument.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth above.
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
Name: Cheryl P. Carl
Title: Senior Vice President
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By: /s/ Eve D. Kaplan
Name: Eve D. Kaplan
Title: Vice President
BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: /s/ Paul Friedman
Name: Paul Friedman
Title: Vice President
19
<PAGE> 23
EXHIBIT A
LETTER OF TRANSMITTAL
To: First Trust National Association, From: Cityscape Corp.
as Custodian 565 Taxter Road
______________________________ Elmsford, New York 10523
Attention: __________________
__________________
Pursuant to the Custody Agreement dated as of September 4, 1997 (the
"Custody Agreement") among First Trust National Association, as custodian (the
"Custodian"), Cityscape Corp. ("Borrower"), and Bear Stearns Mortgage Capital
Corporation, Borrower hereby delivers to you (i) the documents described below
in connection with the Mortgage Loans identified on the attached schedule and
(ii) an updated Loan Schedule identifying each Mortgage Loan in your custody
(including the Mortgage Loans referred to in clause (i) above).
We understand that the list set forth below indicates in summary
fashion the materials for transmittal; it is not intended to describe fully all
the required characteristics of each item. We further understand that each item
sent to the Custodian must comply with the applicable requirements of the
Custody Agreement, and that all required documents must be delivered together
before the Custodian will accept the Mortgage Loans.
With respect to each of the Mortgage Loans referred to in clause (i)
above, Borrower has delivered, to the extent required by the Custody Agreement,
the following documents:
(1) Letter of Transmittal (original and one copy)
(2) Original Mortgage Note (endorsed in blank), including all intervening
endorsements Power of Attorney (if applicable)
(3) Original of any loan agreement and guarantee executed in connection with the
Mortgage Notes, if applicable
(4) Mortgage original, or Conformed Copy, together with the appropriate
certificate
(5) Assignment of Mortgage in blank original, or Conformed Copy, together with
the appropriate certificate
(6) Intervening Mortgage Assignment, if any original, or Conformed Copy,
together with the appropriate certificate
(7) originals of all assumption, modification, consolidation or extension
agreements, if any
(8) Original Lender's Title Insurance Policy original, or Written commitment
issued by the title insurance company, together with the appropriate
certificate, or Preliminary Title Report
(9) other.
Submitted The Custodian acknowledges receipt of the
A-1
<PAGE> 24
By: documents referred to and agrees to hold
and retain possession thereof pursuant to
the terms of the Custody
Date: Agreement.
Telephone Number: FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By:
Name:
Title:
A-2
<PAGE> 25
EXHIBIT B
NOTICE TO THE CUSTODIAN
TO: First Trust National Association, as Custodian
FROM: Bear Stearns Mortgage Capital Corporation
DATE: ____________________
Pursuant to the Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and First Trust
National Association, as Custodian ("Custody Agreement"), the undersigned hereby
notifies you that it has transferred its interest in the Mortgage Files with
respect to the Mortgage Loans identified in the mortgage loan schedule attached
hereto (the "Notice Loan Schedule") to [TRANSFEREE NAME AND ADDRESS].
Included with this notice is the original Trust Receipt for amendment
of the Loan Schedule attached thereto. Capitalized terms used herein without
definition are as defined in the Custody Agreement.
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
By: _____________________________
Name:
Title:
[Name of transferee] hereby acknowledges that (i) the Mortgage Loans listed on
the Notice Loan Schedule are being held for it by the Custodian pursuant to the
terms of the Custody Agreement, (ii) it agrees to be bound by the Custody
Agreement, (iii) the Custodian shall not comply with the request of a Third
Person to deliver Mortgage Files unless such Third Person has delivered to the
Custodian an executed Notice of Default Certificate and (iv) it is responsible
for payment of any fees and expenses of the Custodian incurred in connection
with the issuance of periodic reports to it
<PAGE> 26
or in complying with its requests. [NAME OF TRANSFEREE]
By: ______________________________
Name: ____________________________
Title: ___________________________
cc: Cityscape Corp.
B-2
<PAGE> 27
EXHIBIT C
TRUST RECEIPT
[Date]
Bear Stearns Mortgage Capital Corporation
Prin. Amt. of Number of
Trust Receipt #___ Mortgage Loans ___ Mortgage Loans ___
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
First Trust National Association, as Custodian
Gentlemen:
In accordance with the provisions of Paragraph 3 of the
above-referenced Custody Agreement (the "Custody Agreement"), the undersigned,
as Custodian, hereby certifies that as to each Mortgage Loan described in the
Loan Schedule, a copy of which is attached hereto, it has reviewed the Mortgage
File and has determined that, except as set forth on the Exception Report
attached hereto, (i) all documents required to be delivered to it pursuant to
the Custody Agreement are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage
Loan, and (iii) based on its examination of the foregoing documents, such
documents on their face satisfy the requirements set forth in Sections 3(a)(1)
through 3(a)(6) of the Custody Agreement.
The Custodian hereby confirms that it is holding each such Mortgage
File as agent and bailee of and custodian for and for the exclusive use and
benefit of Bear Stearns Mortgage Capital Corporation ("BSMCC"), as pledgee, or
its transferee pursuant to the terms of the Custody Agreement.
This Trust Receipt is not a negotiable instrument. BSMCC may, however,
transfer this receipt by a special endorsement to one other party. The party
that takes this receipt from BSMCC or its affiliate by special endorsement may
only transfer this receipt by a second endorsement in BSMCC's or its affiliate's
favor.
The Custodian will accept and act on instructions with respect to the
Mortgage Loans only upon surrender of this receipt at its Corporate Trust
Office, 180 East Fifth Street, St. Paul, Minnesota 55101, Attention: Judy Spahn.
If the receipt has been
C-1
<PAGE> 28
endorsed and is held by a Person other than BSMCC or one of its affiliates, we
will accept and act on instructions from the endorsee only if the attached
Notice of Default Certificate is executed and delivered to us stating that an
Event of Default has occurred under a financing agreement relating to this Trust
Receipt between BSMCC and the endorsee.
All initially capitalized terms used herein shall have the meanings
ascribed to them in the above-referenced Custody Agreement.
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By: ____________________________
Name:
Title:
C-2
<PAGE> 29
EXHIBIT D
NOTICE OF TERMINATION
[date]
TO: First Trust National Association, as Custodian
FROM: Bear Stearns Mortgage Capital Corporation
[and, one or more Third Persons, if applicable]
DATE: ____________________
You are hereby notified that the Custody Agreement, dated as of
September 4, 1997, among Cityscape Corp., Bear Stearns Mortgage Capital
Corporation and First Trust National Association, as Custodian, is terminated
pursuant to Section 10 of such Agreement and you are instructed to deliver all
property in your possession with respect to such Agreement to [the undersigned
Person or Persons as their interests in the Mortgage Loans appear on your
records].
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
By: ______________________________
Name:
Title:
[_________________________________]
By: ______________________________
Name:
Title:
cc: Cityscape Corp.
D-1
<PAGE> 30
EXHIBIT E
NOTICE OF DEFAULT CERTIFICATE
_____________, 199_
First Trust National Association,
as Custodian
180 East Fifth Street
St. Paul, Minnesota 55101
Gentlemen:
As the transferee of a Trust Receipt for certain Mortgage Loans, which
Trust Receipt is attached hereto, we hereby notify you that an event of default
has occurred under our agreement with ________________________ and we are
entitled to receive the Mortgage Loans subject to the aforementioned Trust
Receipt.
[_________________________________]
By: ______________________________
Name:
Title:
Notice Received by Custodian
on [Date]:
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By: ____________________________
Title:
Date:
E-1
<PAGE> 31
EXHIBIT F
First Trust National Association,
as Custodian
180 East Fifth Street
St. Paul, Minnesota 55101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
First Trust National Association, as Custodian
Gentlemen:
On [date] you issued a trust receipt in the name of BSMCC evidencing
entitlement to the Mortgage Loans described on Schedule A hereto and held by you
as Custodian. You issued that receipt pursuant to our agreement with Cityscape
Corp. dated as of September 4, 1997. The trust receipt has been [lost,
destroyed, etc.]. Every effort was made to recover the receipt; those efforts
were unsuccessful. It is, therefore, now unavailable for surrender to you.
At the time of its [loss, destruction, etc.], the receipt was held by
us under [the terms of original issue, special endorsement]. Since its
[issuance, endorsement] to us, we have not sold, assigned, transferred, pledged
or otherwise granted an interest in the trust receipt that has not been released
prior to the date hereof. Accordingly, this letter authorizes you to act on our
instructions regarding such Mortgage Loans without surrender of the receipt to
you.
We hereby agree to indemnify and hold you harmless against any loss,
liability or expense that you may incur as a result of acting on our
instructions regarding such Mortgage Loans without our surrender of the receipt
to you, excluding, however, any such loss, liability or expense caused by your
gross negligence or willful misconduct.
F-1
<PAGE> 32
If the trust receipt is ever recovered by us, we will immediately
notify you, cancel the receipt and surrender the receipt to you.
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
By: ______________________________
Name:
Title:
F-2
<PAGE> 33
EXHIBIT G
First Trust National Association,
as Custodian
180 East Fifth Street
St. Paul, Minnesota 55101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
First Trust National Association, as Custodian
Gentlemen:
On [date] you issued a trust receipt in the name of Bear Stearns
Mortgage Capital Corporation ("BSMCC") evidencing entitlement to the Mortgage
Loans described on Schedule __ hereto and held by you in the name of First Trust
National Association, as Custodian. You issued that receipt pursuant to our
agreement with Cityscape Corp. dated as of September 4, 1997. The trust receipt
has been [lost, destroyed, etc.]. Every effort was made to recover the receipt;
those efforts were unsuccessful. It is, therefore, now unavailable for surrender
to you.
At the time of its [loss, destruction, etc.], the receipt was held by
[name of transferee] under a special endorsement by us. We have attached to this
letter a special endorsement, from [name of transferee] conveying to us its
interest in the trust receipt and authorizing us to issue instructions regarding
the Mortgage Loans subject thereto without surrender of the receipt. [name of
transferee] has represented to us that it has not sold, assigned, transferred,
pledged or otherwise granted an interest in the trust receipt to any party other
than BSMCC. Accordingly, this letter authorizes you to act on our instructions
regarding such Mortgage Loans without surrender of the receipt to you.
We hereby agree to indemnify and hold you harmless against any loss,
liability or expense that you may incur as a result of acting on our
instructions regarding such Mortgage Loans without our surrender of the receipt
to you, excluding, however, any such loss, liability or expense caused by your
gross negligence or willful misconduct.
G-1
<PAGE> 34
If the trust receipt is ever recovered by us, we will immediately
notify you, cancel the receipt and surrender the receipt to you.
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
By: ______________________________
Name:
Title:
G-2
<PAGE> 35
EXHIBIT H
REQUEST FOR RELEASE OF DOCUMENTS
To: First Trust National Association,
as Custodian
180 East Fifth Street
St. Paul, Minnesota 55101
Re: Custody Agreement dated as of September 4, 1997, among
Cityscape Corp., Bear Stearns Mortgage Capital Corporation and
First Trust National Association, as Custodian
In connection with the administration of Mortgage Loans held
by you as Custodian for Lender and Third Persons from time to time pursuant to
the above-referenced Custodial Agreement, we hereby request the release, and
acknowledge receipt, of the [specify documents] [related Mortgage Files] for the
Mortgage Loans described in the attached Loan Schedule, for the reason
indicated.
Mortgagor's Name Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one):
1. Mortgage Loan paid in full.
2. Redemption of Mortgage Loan pursuant to the Financing Agreement.
3. Delivery of substituted Mortgage Loan.
4. Mortgage Loan liquidated by .
5. Mortgage Loan in foreclosure or otherwise released for servicing.
If box 1, 2, 3 or 4 above is checked, and if all or part of the
Mortgage Files were previously released to Cityscape Corp. please release to
Cityscape Corp. its previous request and receipt on file with you, as well as
any additional documents in your possession relating to the specified Mortgage
Loan.
If box 5 above is checked, upon the return of all of the above
documents to you as the Custodian, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
H-1
<PAGE> 36
Cityscape Corp. understands and agrees that all documents delivered to
Cityscape Corp. or its subservicer pursuant to this request for release (other
than with respect to Items 1-4) shall be returned to the Custodian no later than
twenty-one (21) days from the date hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Custody
Agreement.
CITYSCAPE CORP.
By:
Name:
Title:
Date:
Acknowledged and Agreed:
BEAR STEARNS MORTGAGE CAPITAL CORPORATION
(Required for release of any Mortgage Files.)
By:
Name:
Title:
Date:
H-2
<PAGE> 37
Acknowledgement of documents returned to the Custodian, for the reasons listed
in item 5:
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By:
Name:
Title:
Date:
H-3
<PAGE> 38
EXHIBIT I
CONFIRMATION OF REDEMPTION AND RECEIPT
To: First Trust National Association, as Custodian
Cityscape Corp.
Date: ___ _, 199_
Re: Custody Agreement, dated as of September 4, 1997,
among Bear Stearns Mortgage Capital Corporation
(the "Lender"), Cityscape Corp. (the "Borrower")
and First Trust National Association, as Custodian
thereunder
Lender hereby:
1. Acknowledges receipt of $______________ in immediately available
funds on behalf of Borrower;
(b) Acknowledges that the funds referred to in clause (a) above
constitute sufficient consideration under the terms of the Master Financing
Agreement, dated as of September 4, 1997 among Lender and Borrower, for the
release by Lender of its interest in the Mortgage Loans listed on Schedule A
hereto;
(c) Confirms that it has released to Borrower all of its right, title
and interest in and to the Mortgage Loans listed on Schedule A hereto; and
(d) Confirms that it has not granted or created any interest in the
Mortgage Loans listed on Schedule A hereto other than interests that have been
fully discharged or satisfied on or prior to the date hereof.
Dated: ___ _, 199_ BEAR STEARNS MORTGAGE CAPITAL
CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
I-1
<PAGE> 1
Exhibit 11.1
CITYSCAPE FINANCIAL CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1997(1) 1996 1997(1) 1996
------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Net (loss) earnings applicable to common $(70,678,017) $14,414,837 $(50,938,623) $34,813,977
stock
============ =========== ============ ===========
Weighted average common shares 32,347,137 29,632,093 31,006,202 29,325,440
Adjustment to common shares:
Assume exercise of stock options N/A 1,281,976 N/A 1,105,159
------------ ----------- ------------ -----------
WEIGHTED AVERAGE PRIMARY SHARES 32,347,137 30,914,069 31,006,202 30,430,599
============ =========== ============ ===========
(LOSS) EARNINGS PER COMMON SHARE $(2.18) $0.47 $(1.64) $1.14
============ =========== ============ ===========
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1997(1) 1996 1997(1) 1996
------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
FULLY DILUTED
Net (loss) earnings applicable to common $(70,678,017) $14,414,837 $(50,938,623) $34,813,977
stock
Adjustment to net (loss)earnings:
Add: After-tax interest expense from
Convertible Debentures N/A 1,333,408 N/A 2,137,965
Preferred Stock dividends N/A -- N/A --
------------ ----------- ------------ -----------
Adjusted net (loss) earnings applicable
to common stock $(70,678,017) $15,748,245 $(50,938,623) $36,951,942
============ =========== ============ ===========
Weighted average common shares 32,347,137 29,632,093 31,006,202 29,325,440
Adjustment to common shares:
Assume conversion of Convertible
Debentures N/A 5,476,190 N/A 2,937,956
Assume conversion of Convertible
Preferred Stock N/A -- N/A --
Assume exercise of stock options N/A 1,281,976 N/A 1,160,502
------------ ----------- ------------ -----------
WEIGHTED AVERAGE FULLY DILUTED SHARES 32,347,137 36,390,259 31,006,202 33,423,898
============ =========== ============ ===========
EARNINGS PER COMMON SHARE $(2.18) $0.43 $(1.64) $1.11
============ =========== ============ ===========
</TABLE>
(1) Common stock equivalents are excluded from these computations because their
effect would be anti-dilutive since an increase in the number of shares
outstanding would reduce the amount of loss per share. Thus, only the
weighted average number of shares outstanding for the respective period
are used in the calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,930,032
<SECURITIES> 186,615,389
<RECEIVABLES> 259,257,790
<ALLOWANCES> 0
<INVENTORY> 124,911,453
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,200,495
<DEPRECIATION> 6,683,626
<TOTAL-ASSETS> 878,282,349
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 429,620,000
0
76
<COMMON> 329,412
<OTHER-SE> 198,458,920
<TOTAL-LIABILITY-AND-EQUITY> 878,282,349
<SALES> 0
<TOTAL-REVENUES> 133,207,413
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 156,022,430
<LOSS-PROVISION> 17,178,919
<INTEREST-EXPENSE> 55,278,160
<INCOME-PRETAX> (78,093,177)
<INCOME-TAX> (28,831,743)
<INCOME-CONTINUING> (49,261,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 425,000
<CHANGES> 0
<NET-INCOME> (50,938,623)<F2>
<EPS-PRIMARY> (1.64)
<EPS-DILUTED> (1.64)
<FN>
<F1>The Company makes use of an unclassified balance sheet style due to the nature
of its business. Current Assets and Current Liabilities are therefore reflected
as zero in accordance with the instructions of Appendix E to the EDGAR Filer
Manual.
<F2>Net income represents net earnings applicable to common stock.
</FN>
</TABLE>
